Exhibit 10.40f
EXHIBIT F
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FORM OF INVESTOR RIGHTS AGREEMENT
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT ("Agreement") is entered into as of March
10, 2000, by and among Anchor Pacific Underwriters, Inc., a Delaware corporation
(the "Company") and Xxxx North America Holding, Inc. ("Holder").
WHEREAS, the Company and Holder are parties to that certain Securities
Purchase Agreement dated as of March 9, 2000 (the "Purchase Agreement"),
pursuant to which Holder purchased from the Company convertible debentures (the
"Debentures") and Series A Convertible Preferred Stock (the "Series A Preferred
Stock") and entered into a Convertible Facility Loan (the "Facility Loan").
WHEREAS, in connection with the Company's issuance of the Series A
Preferred Stock and entering into the Facility Loan with Holder pursuant to the
Purchase Agreement, the Company has agreed to enter into this Investor Rights
Agreement as a condition to the Closing thereunder.
NOW THEREFORE, in consideration of the mutual agreements, covenants and
conditions and releases contained herein, the Company and Holder hereby agree as
follows:
1. REGISTRATION RIGHTS
Holder shall have the right to cause the Company to register its
Registrable Securities in accordance with the following provisions:
1.1 Demand Registration.
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(a) Upon the written request of Holder, the Company will use its best
efforts to cause the prompt Registration under the Securities Act, subject to
the provisions of this Section 1, of all Registrable Securities Holder has
requested the Company to register, and in connection therewith, prepare and file
on such appropriate form as the Company, in its reasonable discretion, shall
determine, a Registration Statement under the Securities Act to effect such
Registration; provided, however, that the Company shall not be required to
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effect such Registration unless the market value of the Registrable Securities
to be sold in such Registration shall be estimated to be at least $1,000,000 at
the time of filing such Registration Statement.
With respect to any Registration Statement filed, or to be filed,
pursuant to this Section 1.1(a), if the Company shall furnish to Holder a
certified resolution of its Board of Directors stating that in the Board of
Directors' good faith judgment it would (because of the existence of, or in
anticipation of, any acquisition or financing, merger, sale or assets,
recapitalization or other similar corporate activity, or the unavailability for
reasons beyond the Company's control of any required audited financial
statements, or any other event or condition of similar significance to the
Company) be materially disadvantageous (a "Disadvantageous Condition") to the
Company or its stockholders for such a Registration Statement to be declared
Effective, or to be filed and become Effective, and setting forth the general
reasons for such judgment, the Company shall be entitled to cause such
Registration Statement to be withdrawn and the effectiveness of such
Registration Statement terminated, or, in the event no Registration Statement
has yet been filed, shall be entitled not to file any such Registration
Statement, until such Disadvantageous Condition no longer exists (notice of
which the Company shall promptly deliver to Holder); provided, however, that the
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Company may not exercise such right more than one (1) time in any twelve (12)
month period. Upon
receipt of any such notice of a Disadvantageous Condition, Holder will forthwith
discontinue use of the disclosure document contained in such Registration
Statement and, if so directed by the Company, Holder shall deliver to the
Company all copies, other than permanent file copies then in Holder's
possession, of the disclosure document then covering such Registrable Securities
current at the time of receipt of such notice, and, in the event no Registration
Statement has yet been filed, all drafts of the disclosure document covering
such Registrable Securities. In the event that the Company shall give any notice
of a Disadvantageous Condition, the Company shall at such time as it in good
xxxxx xxxxx appropriate and in any event within 180 days of such notice file a
new Registration Statement covering the Registrable Securities that were covered
by such withdrawn Registration Statement, and such Registration Statement shall
be maintained Effective for such time as may be necessary so that the period of
effectiveness of such new Registration Statement, when aggregated with the
period during which such initial Registration Statement was Effective, shall be
such time as may be otherwise required by Section 1.1(c).
Holder may, at any time prior to the Effective Date of the
Registration Statement relating to such Registration, revoke such request by
providing a written notice to the Company revoking such request; provided,
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however, that the Company shall not be obligated to pay the Registration
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Expenses relating to such withdrawn Registration unless Holder agrees to have
such withdrawn Registration deemed to be one of the Registrations with respect
to which the Company bears Registration Expenses.
(b) Number of Registrations; Expenses. The Company shall not be
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obligated to effect more than one (1) Effective Registration of Registrable
Securities pursuant to a request from Holder under this Section 1.1 during the
term of this Agreement. The Company shall pay all Registration Expenses in
connection with such Registration which Holder is entitled to request pursuant
to this Section 1.1. However, Holder shall pay all underwriting discounts and
commissions and transfer taxes, if any, relating to the sale or disposition of
Holder's Registrable Securities pursuant to this Section 1.1. Notwithstanding
any other provisions contained in this Section 1.1, the Company shall not be
required to register any Registrable Securities in connection with a request for
such Registration made in accordance with this Section 1.1 within 180 days
following the effective date of any registration statement (other than a
registration statement on Form S-8) filed by the Company.
(c) Effective Registration Statement. A Registration required
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pursuant to this Section 1.1 shall not be deemed to have been effected unless
the Registration Statement relating thereto (i) has become Effective under the
Securities Act, and (ii) has remained Effective for a period of at least 90 days
(or such shorter period in which all Registrable Securities included in such
Registration have actually been sold thereunder); provided, however, that if an
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Effective Registration Statement requested pursuant to this Section 1.1 is
discontinued in connection with a Disadvantageous Condition, such Registration
Statement shall not be included as the Registration which may be requested
pursuant to Section 1.1(b); provided further, that if after a Registration
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Statement requested pursuant to this Section 1.1 becomes Effective such
Registration Statement is subject to any stop order, injunction or other order
or requirement of the Commission or other governmental agency or court solely
due to the actions or omissions to act of the Company, such Registration shall
not be the Registration which Holder is entitled to request pursuant to Section
1.1(b).
(d) Selection of Underwriters. If the requested Registration pursuant
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to this Section 1.1 is in the form of an underwritten offering, the Company
shall have the right to select the
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investment banker and manager or co-managers that will administer the offering,
subject to the reasonable approval of Holder.
(e) Priority in Requested Registrations. If the requested
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Registration pursuant to this Section 1.1 involves an underwritten offering and
the managing underwriter shall advise the Company that, in its view, the number
of equity securities requested to be included in such Registration exceeds the
largest number of securities which can be sold without having an adverse effect
on such offering, including the price at which such securities can be sold, the
Company will include in such Registration (i) first, Registrable Securities
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proposed to be registered by Holder and (ii) second, securities that the Company
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proposes to issue and sell for its own account and all other securities proposed
to be registered by the holders thereof, pro rata based on the number of
securities proposed to be registered by each such Person; provided, however,
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that if in any such underwritten offering the Company includes in such
Registration Statement less than 80% of the Registrable Securities requested to
be included therein by Holder, then such Registration Statement shall not be
treated as the Registration which Holder is entitled to request pursuant to
Section 1.1(b).
1.2 Incidental Registration.
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(a) If the Company at any time proposes to register any of its equity
securities under the Securities Act (other than a registration (i) relating to
shares of Common Stock issuable upon exercise of employee stock options or in
connection with any employee benefit or similar plan of the Company, (ii) in
connection with an acquisition by the Company of another company, or (iii)
pursuant to Section 1.1), it shall each such time, subject to the provisions of
Section 1.2(b), give prompt written notice to Holder of its intention to do so
and of Holder's rights under this Section 1.2, at least 30 days prior to the
anticipated filing date of the Registration Statement relating to such
Registration. Such notice shall offer Holder the opportunity to include in such
Registration Statement such number of Registrable Securities as Holder may
request, subject to the provisions of this Section 1.2. Upon the written
request of Holder made within 20 days after the receipt of the Company's notice
(which request shall specify the number of Registrable Securities intended to be
disposed of by Holder and the intended method of disposition thereof), the
Company will use its reasonable efforts to effect the Registration under the
Securities Act of all Registrable Securities which the Company has been so
requested to register by Holder; provided, that (x) if such Registration
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involves an underwritten offering, Holder must sell its Registrable Securities
to the underwriter(s) selected by the Company on the same terms and conditions
as apply to the Company; and (y) if, at any time after giving written notice of
its intention to register any securities pursuant to this Section 1.2(a) and
prior to the Effective Date of the Registration Statement filed in connection
with such Registration, the Company shall determine for any reason not to
register such securities for its own account or the account of others, the
Company shall give written notice to Holder and shall thereupon be relieved of
its obligation to register any Registrable Securities in connection with such
Registration without prejudice, however, to rights of Holder under Section 1.1.
If a Registration pursuant to this Section 1.2(a) involves an underwritten
public offering, Holder may elect, in writing prior to the Effective Date of the
Registration Statement filed in connection with such Registration, not to
register such Registrable Securities in connection with such Registration. No
Registration effected under this Section 1.2 shall relieve the Company of its
obligations to effect Registrations upon request under Section 1.3. The Company
shall pay all Registration Expenses in connection with each Registration of
Registrable Securities requested pursuant to this Section 1.2. However, Holder
shall pay all underwriting discounts and commissions and transfer taxes, if any,
relating to the sale or disposition of Holder's Registrable Securities pursuant
to a Registration Statement effected pursuant to this Section 1.2.
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(b) Priority in Incidental Registrations. If a Registration pursuant
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to this Section 1.2 involves an underwritten offering and the managing
underwriter advises the Company that, in its good faith view, the number of
equity securities (including all Registrable Securities) which the Company,
Holder and any other persons intend to include in such Registration exceeds the
largest number of securities which can be sold without having an adverse effect
on such offering, including the price at which such Registrable Securities can
be sold, the Company will include in such Registration (i) first, securities
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that the Company proposes to issue and sell for its own account, (ii) second,
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Registrable Securities proposed to be registered by Holder, and (iii) third, any
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other securities proposed to be registered by other stockholders of the Company.
1.3 Registrations on Form S-3. In addition to the rights provided Holder
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in Sections 1.1 and 1.2, if the Registration of Registrable Securities under the
Securities Act can be effected on Form S-3 (or any similar form promulgated by
the Commission), then upon the written request of Holder, the Company will as
expeditiously as possible, use its best efforts to effect qualification and
registration under the Securities Act on Form S-3 of all or such portion of the
Registrable Securities as Holder shall specify; provided, however, the Company
shall not be required to effect a registration pursuant to this Section 1.3
unless the market value of the Registrable Securities to be sold in any such
Registration shall be estimated to be at least $1,000,000 at the time of filing
such Registration Statement; and provided further that the Company shall not be
required to effect more than one Registration during any twelve (12) month
period. The Company shall pay all Registration Expenses in connection with each
Registration of Registrable Securities requested pursuant to this Section 1.3.
However, Holder shall pay all underwriting discounts and commissions and
transfer taxes, if any, relating to the sale or disposition of Holder's
Registrable Securities pursuant to a Registration Statement effected pursuant to
this Section 1.3.
1.4 Transfer of Registration Rights. The rights of Holder contained in
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Section 1 may be transferred to a transferee (other than a competitor of the
Company); provided that (a) such transferee acquires at least fifty percent
(50%) of Holder's Securities; provided, however, if Holder intends to transfer
such rights to a partner or Affiliate, the restrictions regarding the amount of
shares necessary to effectively transfer such rights will not apply; and (b) the
Company is given written notice by such Holder at the time of or within a
reasonable time after said transfer stating the name and address of said
transferee or assignee and identifying the securities with respect to which such
registration rights are being assigned.
1.5 Holdback Agreements.
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(a) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, Holder agrees not to effect any
sale or distribution, including any private placement or any sale pursuant to
Rule 144 or any successor provision, under the Securities Act, of any
Registrable Securities, and not to effect any such sale or distribution of any
other equity security of the Company or of any security convertible into or
exchangeable or exercisable for any equity security of the Company (in each
case, other than as part of such underwritten public offering) during the seven
days prior to, and during the 180 day period which begins on the Effective Date
of such Registration Statement (except as part of such Registration) provided
that Holder has received written notice of such Registration at least two
Business Days prior to the anticipated beginning of the seven day period
referred to above. Notwithstanding the foregoing, the holdback period provided
for by this Section 1.5 shall be applicable for no more than 180 days out of any
365 day period.
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(b) If any Registration of Registrable Securities shall be in
connection with an underwritten public offering, (i) the Company and Holder
agree not to effect any sale or distribution of any equity securities of the
Company or of any security convertible into or exchangeable or exercisable for
any equity security of the Company (other than any such sale or distribution of
such securities by the Company in connection with any merger or consolidation by
the Company or any Affiliate or the acquisition by the Company or an Affiliate
of the Company of the capital stock or substantially all the assets of any other
Person or in connection with an employee stock ownership or other benefit plan)
during the seven days prior to, and during the 180 day period which begins on,
the Effective Date of such Registration Statement (except as part of such
Registration) and (ii) the Company agrees that any agreement entered into after
the date hereof pursuant to which the Company issues or agrees to issue any
privately placed equity securities shall contain a provision under which the
holders of such securities agree not to effect any sale or distribution of any
such securities during the period referred to in the foregoing clause (i),
including any sale pursuant to Rule 144 under the Securities Act (except as part
of such Registration, if permitted).
1.6 Registration Procedures. In connection with any offering of
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Registrable Securities registered pursuant to this Section 1, the Company shall:
(a) Prepare and file with the Commission as soon as reasonably
practicable following receipt of a request for Registration, a Registration
Statement on any form for which the Company then qualifies or which counsel for
the Company shall deem appropriate, and which form shall be available for the
sale of the Registrable Securities in accordance with the intended methods of
distribution thereof, and use its best efforts to cause such Registration
Statement to become and remain Effective as provided herein, provided that
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before filing with the Commission a Registration Statement or disclosure
document constituting part of a Registration Statement or any amendments or
supplements thereto, the Company will (x) furnish to counsel selected by Holder
copies of all such documents proposed to be filed for said counsel's review and
comment and (y) notify Holder of any stop order issued or threatened by the
Commission and take all reasonable actions required to prevent the entry of such
stop order or to remove it if entered.
(b) Prepare and file with the Commission such amendments and
supplements to such Registration Statement and any disclosure document
constituting part of such Registration Statement used in connection therewith as
may be necessary to keep Effective such Registration Statement for a period of
not less than 180 days or such shorter period which will terminate when all
Registrable Securities covered by such Registration Statement have been sold
(but not before the expiration of the 90 day period, if applicable, referred to
in Section 4(3) of the Securities Act and Rule 174, or any successor thereto, if
applicable), and comply with the provisions of the Securities Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such Registration Statement.
(c) Furnish to Holder and each underwriter, if any, of Registrable
Securities covered by such Registration Statement such number of copies of such
Registration Statement, each amendment and supplement thereto (in each case
including all exhibits thereto), and the disclosure document included in such
Registration Statement (including each preliminary disclosure document), in
conformity with the requirements of the Securities Act, and such other documents
as Holder may reasonably request in order to facilitate the disposition of the
Registrable Securities owned by Holder.
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(d) Use its best efforts to register or qualify such Registrable
Securities under such other state securities or "blue sky" laws of such
jurisdictions as Holder, and each underwriter, if any, of Registrable Securities
covered by such Registration Statement reasonably requests and do any and all
other acts and things which may be reasonably necessary or advisable to enable
Holder and each underwriter, if any, to consummate the disposition in such
jurisdictions of the Registrable Securities owned by Holder; provided that the
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Company will not be required to (x) qualify generally to do business in any
jurisdiction where it would not otherwise be required to qualify but for this
Section 1.6(d), (y) subject itself to taxation in any such jurisdiction where it
would not otherwise be subject to but for this Section 1.6(d) or (z) consent to
general service of process in any such jurisdiction.
(e) Use its best efforts to cause the Registrable Securities covered
by such Registration Statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to enable Holder to consummate the
disposition of such Registrable Securities.
(f) Immediately notify Holder, at any time when a disclosure document
relating thereto is required to be delivered under the Securities Act, of the
happening of any event which comes to the Company's attention if as a result of
such event the disclosure document included in such Registration Statement
contains any untrue statement of a material fact or omits to state any material
fact required to be stated therein or necessary to make the statements therein
not misleading, and promptly prepare and furnish to Holder a supplement or
amendment to such disclosure document so that, as thereafter delivered to
Holder, such disclosure document will not contain any untrue statement of a
material fact or omit to state any material fact required to be stated therein
or necessary to make the statements therein not misleading.
(g) Use its best efforts to cause all such Registrable Securities to
be listed on a national securities exchange (including Nasdaq National Market)
or, if not available, or such other securities exchange on which similar
securities issued by the Company may then be listed, and enter into such
customary agreements including a listing application and indemnification
agreement in customary form, and to provide a transfer agent and registrar for
such Registrable Securities covered by such Registration Statement no later than
the Effective Date of such Registration Statement.
(h) Enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as Holder or the
underwriters retained by Holder, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities, including
customary representations, warranties, indemnities and agreements.
(i) Make available for inspection by Holder, any underwriter
participating in any disposition pursuant to such Registration Statement, and
any attorney, accountant or other agent retained by Holder or underwriter
(collectively, the "Inspectors"), all financial and other records, pertinent
corporate documents and properties of the Company (collectively, "Records"), if
any, as shall be reasonably necessary to enable them to exercise their due
diligence responsibility, and cause the Company's and its Affiliates' officers,
directors and employees to supply all information and respond to all inquiries
reasonably requested by any such Inspector in connection with such Registration
Statement.
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(j) Use its best efforts to obtain a "cold comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by such "cold comfort" letters as Holder
reasonably requests.
(k) Furnish, at the request of Holder, on the date that Registrable
Securities are delivered to the underwriters for sale in connection with a
Registration, if such securities are being sold through underwriters, or on the
Effective Date of the Registration Statement, (i) an opinion, dated such date,
of the counsel representing the Company, in form and substance as is customarily
given to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to Holder, and (ii) to the extent permitted under the
rules of the AICPA, a letter, dated such date, from the independent accountants
of the Company, in form and substance as is customarily given by independent
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to Holder.
(l) Otherwise use its best efforts to comply with all applicable
rules and regulations of the Commission, and make available to Holder, as soon
as reasonably practicable, an earnings statement covering a period of at least
twelve months, beginning with the first month after the Effective Date of the
Registration Statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act and Rule 158 thereunder.
It shall be a condition precedent to the obligation of the Company to
take any action with respect to Securities of Holder that Holder shall furnish
to the Company such information regarding the Securities held by Holder and the
intended method of disposition thereof as the Company shall reasonably request
and as shall be required in connection with the action taken by the Company.
Holder agrees that, upon receipt of any notice from the Company of the
happening of any event of the kind described in Section 1.6(f), Holder will
forthwith discontinue disposition of Registrable Securities until Holder's
receipt of the copies of the supplemented or amended disclosure document
contemplated by Section 1.6(f), and, if so directed by the Company, Holder will
deliver to the Company (at the Company's expense) all copies (including, without
limitation, any and all drafts), other than permanent file copies, then in
Holder's possession, of the disclosure document covering such Registrable
Securities. In the event the Company shall give any such notice, the period
mentioned in Section 1.6(b) shall be extended by the number of days during the
period from and including the date of the giving of such notice pursuant to
Section 1.6(f) to and including the date when Holder shall have received the
copies of the supplemented or amended disclosure document contemplated by
Section 1.6(f).
1.7 Indemnification.
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(a) Indemnification by the Company. In the event of any Registration
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of any Securities of the Company under the Securities Act pursuant to this
Agreement, the Company will indemnify and hold harmless, to the full extent
permitted by law, Holder, its respective directors and officers, general
partners, limited partners and managing directors, each other person who
participates as an underwriter in the offering or sale of such Securities and
each other person, if any, who controls, is controlled by or is under common
control with Holder or any such underwriter within the meaning of the Securities
Act (and directors, officers, controlling persons, partners and managing
directors of any of the foregoing), against any and all losses, claims, damages
or liabilities, joint or several, and expenses (including any amounts paid in
any settlement effected with the
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Company's consent, which consent will not be unreasonably withheld) to which
Holder, any such director or officer or general or limited partner or managing
director or any such underwriter or controlling person may become subject under
the Securities Act, state securities or "blue sky" laws, common law or
otherwise, insofar as such losses, claims, damages or liabilities (or actions or
proceedings in respect thereof) or expenses arise out of or are based upon (i)
any untrue statement or alleged untrue statement of any material fact contained,
on the Effective Date thereof, in any Registration Statement under which such
Securities were registered under the Securities Act, any preliminary, final or
summary disclosure document contained therein, or any amendment or supplement
thereto, (ii) any omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, or (iii) any violation or alleged violation by the Company of any
federal, state or common law rule or regulation applicable to the Company and
relating to any action or inaction by the Company in connection with any such
Registration. The Company shall reimburse Holder and each such director,
officer, general partner, limited partner, managing director or underwriter and
controlling person for any legal or any other expenses reasonably incurred by
them in connection with investigating or defending such loss, claim, liability,
action or proceeding. The Company shall not be liable under this Section 1.7 in
any case to the extent that any loss, claim, damage, liability (or action or
proceeding in respect thereof) or expense arises out of or is based upon any
untrue statement or alleged untrue statement or omission or alleged omission
made in such Registration Statement or amendment or supplement thereto or in any
such preliminary, final or summary disclosure document in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by Holder in its capacity as a holder of Registrable
Securities in the Company or any such director, officer, general or limited
partner, managing director or underwriter specifically stating that it is for
use in the preparation thereof; and that the Company shall not be liable to any
person who participates as an underwriter in the offering or sale of Registrable
Securities, if any, or any other person, if any, who controls such underwriter
within the meaning of the Securities Act, pursuant to this Section with respect
to any preliminary disclosure document or the final disclosure document or the
final disclosure document as amended or supplemented as the case may be, to the
extent that any such loss, claim, damage or liability of such underwriter or
controlling person results from the fact that such underwriter sold Registrable
Securities to a person to whom there was not sent or given, at or prior to the
written confirmation of such sale, a copy of the final disclosure document or of
the final disclosure document as then amended or supplemented, whichever is most
recent, if the Company has previously furnished copies thereof to such
underwriter and such final disclosure document, as then amended or supplemented,
had corrected any such misstatement or omission. The indemnity provided for
herein shall remain in full force and effect regardless of any investigation
made by or on behalf of Holder or any such director, officer, general partner,
limited partner, managing director, underwriter or controlling person and shall
survive the transfer of such securities by such holder.
(b) Indemnification by Holder. The Company may require, as a
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condition to including any Registrable Securities in any Registration Statement
filed in accordance with the provisions hereof, that the Company shall have
received an undertaking reasonably satisfactory to it from Holder, to indemnify
and hold harmless (in the same manner and to the same extent as set forth in
paragraph (a) above) the Company and its directors, officers, controlling
persons and all other prospective sellers and their respective directors,
officers, general and limited partners, managing directors, and their respective
controlling persons with respect to any untrue statement or alleged untrue
statement in or omission or alleged omission from such Registration Statement,
any preliminary, final or summary disclosure document contained therein, or any
amendment or supplement, if such untrue statement or alleged untrue statement or
omission or alleged omission was made in reliance upon and in conformity with
written information furnished to the Company or its
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representatives through an instrument duly executed by or on behalf of Holder
specifically stating that it is for use in the preparation of such Registration
Statement, preliminary, final or summary disclosure document or amendment or
supplement, or a document incorporated by reference into any of the foregoing.
Such indemnity shall remain in full force and effect regardless of any
investigation made by or on behalf of the Company or Holder, underwriters or any
of their respective directors, officers, general or limited partners, managing
directors or controlling persons and shall survive the transfer of such
Securities by Holder, provided, however, that Holder shall not be liable in the
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aggregate for any amounts exceeding the product derived from multiplying the
sale price per Registrable Security times the number of Registrable Securities
sold pursuant to such Registration Statement or disclosure document by such
holder.
(c) Notices of Claims, etc. Promptly after receipt by an indemnified
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party hereunder of written notice of the commencement of any action or
proceeding with respect to which a claim for indemnification may be made
pursuant to this Section 1.7, such indemnified party will, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the indemnifying party of the commencement of such action, provided
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that the failure of any indemnified party to give notice as provided herein
shall not relieve the indemnifying party of its obligations under the preceding
subsections of this Section, except to the extent that the indemnifying party is
actually materially prejudiced by such failure to give notice. In case any such
action is brought against an indemnified party, unless in such indemnified
party's reasonable judgment a conflict of interest between such indemnified and
indemnifying parties may exist in respect of such claim, the indemnifying party
will be entitled to participate in and, jointly with any other indemnifying
party similarly notified, to assume the defense thereof, to the extent that it
may wish, with counsel reasonably satisfactory to such indemnified party, and
after notice from the indemnifying party to such indemnified party of its
election so to assume the defense thereof, the indemnifying party will not be
liable to such indemnified party for any legal or other expenses subsequently
incurred by the latter in connection with the defense thereof, unless in such
indemnified party's reasonable judgment a conflict of interest between such
indemnified and indemnifying parties arises in respect of such claim after the
assumption of the defense thereof, and the indemnifying party will not be
subject to any liability for any settlement made without its consent (which
consent shall not be unreasonably withheld). No indemnifying party will consent
to entry of any judgment or enter into any settlement which does not include as
an unconditional term thereof the giving by the claimant or plaintiff to such
indemnified party of a release from all liability in respect to such claim or
litigation. An indemnifying party who is not entitled to, or elects not to,
assume the defense of a claim will not be obligated to pay the fees and expenses
of more than one counsel in any single jurisdiction for all parties indemnified
by such indemnifying party with respect to such claim, unless in the reasonable
judgment of any indemnified party a conflict of interest may exist between such
indemnified party and any other of such indemnified parties with respect to such
claim, in which event the indemnifying party shall be obligated to pay the fees
and expenses of such additional counsel or counsels as may be reasonably
necessary. Notwithstanding anything to the contrary set forth herein, and
without limiting any of the rights set forth above, in any event each party will
have the right to retain, at its own expense, counsel with respect to the
defense of a claim.
(d) Other Indemnification. Indemnification similar to that specified
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in the preceding subsections of this Section 1.7 (with appropriate
modifications) shall be given by the Company and Holder with respect to any
required Registration or other qualification of securities under any federal or
state law or regulation or governmental authority other than the Securities Act.
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(e) Contribution. In order to provide for just and equitable
------------
contribution in circumstances in which the indemnity agreement provided for in
this Section is for any reason held to be unenforceable although applicable in
accordance with its terms, the Company, Holder and the underwriters shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement incurred by the Company,
Holder and the underwriters, in such proportions that the underwriters are
responsible for that portion represented by the percentage that the underwriting
discount appearing in the disclosure document bears to the offering price
appearing therein and the Company and Holder are responsible for the balance;
provided, however, that no person guilty of fraudulent misrepresentation (within
-------- -------
the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any person who was not guilty of such fraudulent
misrepresentation. As between the Company and Holder, such parties shall
contribute to the aggregate losses, liabilities, claims, damages and expenses of
the nature contemplated by such indemnity agreement in such proportion as shall
be appropriate to reflect (x) the relative benefits received by the Company, on
the one hand, and Holder, on the other hand, from the offering of the
Registrable Securities and any other securities included in such offering, and
(y) the relative fault of the Company, on the one hand, and Holder, on the other
hand, with respect to the statements or omissions which resulted in such loss,
liability, claim, damage or expense, or action in respect thereof, as well as
any other relevant equitable considerations. The relative benefits received by
the Company, on the one hand, and Holder, on the other hand, with respect to
such offering shall be deemed to be in the same proportion as the sum of the
total purchase price paid to the Company in respect of the Registrable
Securities plus the total net proceeds received by the Company from the offering
of any securities included in such offering (before deducting expenses) bears to
the amount by which the total net proceeds from the offering of Registrable
Securities (before deducting expenses) received by Holder with respect to such
offering exceeds the purchase price paid by Holder to the Company in respect of
the Registrable Securities, and in each case the net proceeds received from such
offering shall be determined as set forth in the disclosure document. The
relative fault shall be determined by reference to, among other things, whether
the untrue or alleged untrue statement of a material fact or omission or alleged
omission to state a material fact relates to information supplied by the Company
or Holder, the intent of the parties and their relative knowledge, access to
information and opportunity to correct or prevent such untrue statement or
omission. The Company and Holder agree that it would not be just and equitable
if contribution pursuant to this Section were to be determined by pro rata
allocation or by any other method of allocation which does not take into account
the equitable considerations referred to herein. Notwithstanding anything to
the contrary contained herein, the Company and Holder agree that any
contribution required to be made by Holder pursuant to this Section 1.7(e) shall
not exceed the net proceeds from the offering of Registrable Securities (before
deducting expenses) received by Holder with respect to such offering. For
purposes of this Section, each Person, if any, who controls a holder of
Registrable Securities or an underwriter within the meaning of Section 15 of the
Securities Act shall have the same rights to contribution as Holder or
underwriter, and each director of the Company, each officer of the Company who
signed the Registration Statement, and each person, if any, who controls the
Company within the meaning of Section 15 of the Securities Act shall have the
same rights to contribution as the Company.
1.8 Rule 144. At all times hereafter, the Company agrees that it will
--------
file in a timely manner all reports required to be filed by it pursuant to the
Exchange Act, and, if at any time the Company is not required to file such
reports, it will make available to the public, to the extent required to permit
the sale of shares by any holder of Registrable Securities pursuant to Rule 144
under the Securities Act, as such Rule may be amended from time to time, current
information about itself and its activities as contemplated by Rule 144.
Notwithstanding the foregoing, the Company
10
may deregister any class of its equity securities under Section 12 of the
Exchange Act or suspend its duty to file reports with respect to any class of
its securities pursuant to Section 15(d) of the Exchange Act if it is then
permitted to do so pursuant to the Exchange Act and the rules and regulations
thereunder.
2. RIGHT OF FIRST REFUSAL
2.1 Right of First Refusal. If at any time the Company or any Subsidiary
----------------------
desires to issue, sell or exchange, agree or obligate itself to issue, sell or
exchange, or reserve or set aside for issuance, sale or exchange, any debt
securities, shares of preferred stock or shares of Common Stock or any Common
Stock Equivalents or capital stock of any Subsidiary in a privately-negotiated
transaction pursuant to a bona fide offer from a third party or through its
agent (the "Proposed Buyer"), the Company shall first submit a written offer
(the "Offer") to sell such securities (the "Offered Securities") to Holder on
terms and conditions, including price, not less favorable to Holder than those
on which the Company proposes to sell such Offered Securities to the Proposed
Buyer. Holder shall have the absolute right to purchase that number of the
Offered Securities (its "Pro Rata Fraction") as shall be equal to the number of
Offered Securities multiplied by a fraction, the numerator of which shall be the
number of shares of Fully Diluted Outstanding Common Stock then owned by Holder
and the denominator of which shall be the aggregate number of shares of Fully
Diluted Outstanding Common Stock.
2.2 The Offer. The Offer shall disclose the identity of the Proposed
---------
Buyer, the number and class of Offered Securities proposed to be sold, the terms
and conditions, including price, of the proposed sale, and any other material
facts relating to the proposed sale. The Offer shall further state that Holder
may acquire, in accordance with the provisions of this Section 2, its Pro Rata
Fraction of the Offered Securities for the price indicated in the Offer and upon
the other terms and conditions, including deferred or installment payment (if
applicable), set forth therein.
2.3 Notice of Acceptance. If Holder desires to purchase its Pro Rata
--------------------
Fraction of the Offered Securities, Holder shall deliver a written notice of its
election to purchase such shares to the Company, which notice shall state the
number of Offered Securities Holder desires to purchase and shall be delivered
in person or mailed to the Company within 30 days of the date of receipt by
Holder of the Offer. Such notice shall, when taken in conjunction with the
Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale to and purchase by Holder of that number of Offered
Securities as determined by its Pro Rata Fraction, on the terms of the Offer.
2.4 Closing. The closing of the sale of Offered Securities to Holder
-------
pursuant to this Section 2 shall be made at the offices of the Company on such
date as may be agreed by Holder and the Company, but no later than the 60th day
following the date the Offer is received by Holder. Such sale shall be effected
by the Company's delivery to Holder of a certificate(s) issued in the name of
Holder evidencing the Offered Securities to be purchased by Holder, duly
endorsed for transfer, against payment to the Company of the purchase price by
Holder. The exercise or nonexercise by Holder of its first refusal rights
pursuant to this Section 2 shall be without prejudice to its first refusal
rights under this Section 2 with respect to any future sale of securities.
2.5 Sales to Proposed Transferee. The Offered Securities not so purchased
----------------------------
may be sold at any time within 120 days after the date the Offer was made. Any
such sale shall be to the Proposed Buyer, at not less than the price and upon
other terms and conditions, if any, not more favorable to the transferee than
those specified in the Offer. Any Offered Securities not sold within
11
the permitted time period shall continue to be subject to the requirements of a
prior Offer pursuant to this Section 2.
2.6 Exception. The first refusal rights of Holder under this Section 2
---------
shall not apply to the issuance of the following securities ("Excluded
Securities"): (a) shares of Common Stock, or options exercisable therefor,
granted to directors, officers or employees of or consultants to the Company or
any Subsidiary pursuant to any qualified or non-qualified stock option plan or
agreement, employee stock ownership plan, stock purchase agreement, stock plan,
stock restriction agreement, or consulting agreement or such other options,
arrangements, agreements or plans approved by the compensation committee of the
Board of Directors of the Company; (b) securities issued solely in consideration
for the acquisition (whether by merger or otherwise) by the Company of all or
substantially all of the capital stock or assets of any other entity; (c) shares
of Common Stock issuable upon the exercise of the warrants or options
outstanding as of the date hereof; (d) shares of Common Stock issuable upon
conversion of shares of preferred stock, convertible debentures, convertible
notes or any other convertible securities issued by the Company ("Convertible
Securities") provided that such Convertible Securities were outstanding as of
the date hereof, or were issued in compliance with the provision of this Section
2; and (e) securities issued in connection with the provision of senior debt or
lease financing to the Company by any bank or other financial institution.
3. AFFIRMATIVE COVENANTS OF THE COMPANY
3.1 Inspection Rights. The Company shall permit during normal business
-----------------
hours, upon reasonable request and reasonable notice, Holder or any employees,
agents or representatives thereof, to examine and make copies of and extracts
from the records and books of account of, and visit and inspect the properties,
assets, operations and business of the Company and any Subsidiary, and to
discuss the affairs, finances and accounts of the Company and any Subsidiary
with any of its officers, consultants, directors, attorneys or independent
accountants.
3.2 Budget Approval. At least 30 days prior to the commencement of each
---------------
fiscal year, the Company shall prepare and submit to, and obtain in respect
thereof the approval of the majority of the members of, the Board of Directors
of the Company (the "Board"), a business plan and monthly operating budget in
detail for each fiscal year, monthly operating expenses and profit and loss
projections and cash flow projections and a capital expenditure budget for the
fiscal year for the Company and its Subsidiaries.
3.3 Financings. The Company shall promptly, fully and in detail, inform
----------
all of the members of the Board of any discussions, offers or contracts relating
to possible financings of any material nature for the Company or any Subsidiary,
whether initiated by the Company, any Subsidiary or any other Person.
3.4 Meetings of Directors. The Company shall hold meetings of the Board
---------------------
on not less than a quarterly basis.
3.5 Bylaws; Meetings; Insurance and Indemnification.
-----------------------------------------------
(a) The Company shall use its best efforts to at all times cause its
Bylaws to provide that (i) any two directors shall have the right to call a
meeting of the Board and, (ii) any
12
holder or holders of at least 50% of the outstanding shares of Series A
Preferred Stock shall have the right to call a meeting of stockholders.
(b) The Company shall obtain and cause to be maintained in effect,
with financially sound insurers, a policy of directors' and officers' liability
insurance covering all Directors whom are members of the Board (and their
respective successors) in an amount of at least $5,000,000 or such other amount
the Board of Directors shall specify, unless the Board determines that such
coverage is not warranted or is not obtainable at a reasonable cost.
(c) The Company shall cause the Certificate of Incorporation, By-laws
and other organizational documents of the Company and each of its Subsidiaries
at all times, to the fullest extent permitted by law, to provide for
indemnification of, advancement of expenses to, and limitation of the personal
liability of its Board against all losses and damages other than such losses and
damages which arise directly or indirectly out of gross negligence or willful
misconduct, to the fullest extent permitted by law.
(d) Each of the directors of the Company is an intended third party
beneficiary of the obligations of the Company pursuant to this Section 3.5, and
the obligations of the Company pursuant to this Section 3.5 shall be enforceable
by the directors.
3.6 Corporate Existence. The Company shall maintain, and cause each of
-------------------
the Subsidiaries to maintain, their respective corporate existence, intellectual
property rights, other rights, licenses, permits, and franchises in full force
and effect to the extent appropriate in accordance with good business practice.
3.7 Properties; Business; Insurance. The Company shall maintain, and
-------------------------------
cause each of the Subsidiaries, to maintain as to their respective properties
and business, with financially sound and reputable insurers, insurance against
such casualties and contingencies and of such types and in such amounts as is
customary for companies of a similar size and financial condition similarly
situated within the same industry.
3.8 Expenses of Directors. The Company shall promptly reimburse in full
---------------------
each director or Representative of the Company (as defined below) who is not an
officer or employee of the Company for all of his or her reasonable out-of-
pocket expenses incurred in attending each meeting of the Board or any committee
thereof.
3.9 Compliance with Laws. The Company shall comply, and cause each
--------------------
Subsidiary to comply, with all applicable laws, rules, regulations and orders,
noncompliance with which could have a material adverse effect on its business,
assets, operations, prospects or condition, financial or otherwise.
3.10 Keeping of Records and Books of Account. The Company shall keep, and
---------------------------------------
cause each Subsidiary to keep, adequate records and books of account, in which
complete entries will be made in accordance with GAAP consistently applied,
reflecting all financial transactions of the Company and each Subsidiary, and in
which, for each fiscal year, all proper reserves for depreciation, depletion,
obsolescence, amortization taxes, bad debts and other purposes in connection
with its business shall be made.
13
3.11 Size of Board; Holders of Series A Preferred Stock Right to Elect
-----------------------------------------------------------------
Directors. The Company shall take all appropriate actions to (i) fix and
---------
maintain the Board at seven (7) persons within its existing range of seven (7)
and thirteen (13) persons; (ii) adopt and approve a Certificate of Designations
of the Series A Convertible Preferred Stock which shall provide that the Series
A Preferred Stock shall be entitled to elect five (5) directors to the Board of
Directors and, so long as shares of Series A Preferred Stock remain outstanding
the holders of the Series A Preferred shall elect a majority of the Company's
Board of Directors voting separately as a single class.
In lieu of selecting any one, or all, of the members of the Board to which
Holder is entitled pursuant to this Section, Holder may appoint a representative
(a "Representative") to attend all meetings of the Board. Holder acknowledges
and agrees that the Company's management will have the right to exclude any such
Representative from all or portions of meetings of the Board, or omit to provide
such Representative with certain information, if the Company's management
believes it is necessary in order to preserve the attorney-client privilege, or
fulfill the Company's obligations with respect to confidential or proprietary
information of third parties, or if such meeting or information involves matters
where a director would customarily not participate in a meeting or be provided
such information. In addition, Holder acknowledges and agrees that any such
Representative will maintain the confidentiality of all information obtained
through such Representative's position, except to the extent that (i) such
information is already in such Representative's possession, (ii) such
information becomes public knowledge other than as a result of such
Representative's actions or inactions, (iii) such Representative rightfully
obtains such information subsequently from a third party, (iv) such
Representative develops such information independently and without use of the
information provided by the Company or (v) such information is approved in
writing for release by the Company.
3.12 Reporting Requirements. The Company shall furnish the following to
----------------------
Holder:
(a) SEC Reports. So long as the Company is subject to the reporting
------------
requirements of the Securities Exchange Act of 1934, as amended (the "Exchange
Act"), it will furnish to Holder, at the same time the Company files any
document with the Commission, copies of all such documents, including, but not
limited to, its reports on Form 10-K, Form 10-Q, Form 8-K or any successor form
or forms;
(b) Monthly Reports. As soon as available and in any event within 20
---------------
days after the end of each month, consolidated balance sheets of the Company and
the Subsidiaries as of the end of such month and consolidated statements of
income and statements of cash flows and changes in stockholders' equity of the
Company and the Subsidiaries for such month and for the period commencing at the
end of the previous fiscal year and ending with the end of such month, setting
forth in each case in comparative form the corresponding figures for the
corresponding period of the preceding fiscal year, and including comparisons to
the budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with GAAP consistently applied (other than notes
and year end adjustments);
(c) Quarterly Reports: As soon as available and in any event within
-----------------
45 days after the end of each calendar quarter, consolidated balance sheets of
the Company and the Subsidiaries as of the end of the period and consolidated
statements of income and statements of cash flows and changes in stockholders'
equity of the Company and the Subsidiaries for such quarterly period and for the
period commencing at the end of the previous fiscal year and ending with the end
of such quarterly period, setting forth in each case in comparative form the
corresponding figures for the
14
corresponding period of the preceding fiscal year, and including comparisons to
the budget or business plan and an analysis of the variances from the budget or
plan, prepared in accordance with GAAP consistently applied;
(d) Annual Reports: As soon as available and in any event within 90
--------------
days after the end of each fiscal year of the Company, a copy of the annual
audit report for such year for the Company and the Subsidiaries, including
therein consolidated balance sheets of the Company and the Subsidiaries as of
the end of such fiscal year and consolidated statements of income and statements
of cash flows and changes in stockholders' equity of the Company and the
Subsidiaries for such fiscal year, setting forth in each case in comparative
form the corresponding figures for the preceding fiscal year, all such
consolidated statements to be duly certified by an officer of the Company and an
independent public accountant of recognized national standing approved by the
Board or a committee of the Board;
(e) Accountant's Letters: Within 10 days after receipt, copies of
--------------------
all accountant's letters, reviews and reports to management; and
(f) Budgets and Operating Plan: As soon as available and in any
--------------------------
event at least 30 days before the beginning of each fiscal year of the Company,
a business plan and monthly operating budgets for the forthcoming fiscal year.
3.13 Termination of Obligations. The Company's obligations under Article
--------------------------
3 shall terminate at such time as the Holder holds less than 50% of the Fully
Diluted Outstanding Common Stock.
4. DEFINITIONS AND ACCOUNTING TERMS
4.1 Certain Defined Terms. As used in this Agreement, the following terms
---------------------
shall have the following meanings:
"Affiliate" shall mean, with respect to any Person, any other Person that
directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with such Person. For the purposes of
this definition, "control," when used with respect to any particular Person,
means the power to direct the management and policies of such Person, directly
or indirectly, whether through the ownership of voting securities, by contract
or otherwise; and the terms "controlling" and "controlled" have meanings
correlative to the foregoing. For purposes of this Agreement, Holder shall not
be deemed an Affiliate of the Company or any Subsidiary.
"Agreement" shall mean this Investor Rights Agreement, including all
amendments, modifications or supplements hereto.
"Business Day" shall mean any day except a Saturday, Sunday or other day on
which commercial banks in the State of California are authorized by law or
executive order to close
"Commission" shall mean the Securities and Exchange Commission or any other
federal agency then administering the Securities Act or Exchange Act.
"Common Stock" shall mean (a) the Company's Common Stock, $.02 par value,
as authorized on the date of this Agreement, (b) any other capital stock of any
class or classes (however designated) of the Company, authorized on or after the
date hereof, the holders of which shall have
15
the right, without limitation as to amount, either to all or to a share of the
balance of current dividends and liquidating dividends after the payment of
dividends and distributions on any shares entitled to preference, and the
holders of which shall ordinarily, in the absence of contingencies or in the
absence of any provision to the contrary in the Articles of Incorporation of the
Company (or amendment thereto), be entitled to vote for the election of a
majority of directors of the Company (even though the right so to vote has been
suspended by the happening of such a contingency or provision), and (c) any
other securities into which or for which any of the securities described in (a)
or (b) may be converted or exchanged pursuant to a plan of recapitalization,
reorganization, merger, sale of assets or otherwise.
"Common Stock Equivalents" shall mean all rights, options, warrants or
convertible or exchangeable securities entitling the holders thereof to
subscribe for or purchase or otherwise acquire shares of Common Stock,
including, but not limited to, shares of the Series A Preferred Stock.
"Effective" shall mean that all Registration requirements under the
Securities Act with respect to a Registration Statement have been satisfied and
that the Commission has officially approved the public distribution or
circulation of the Registration Statement in connection with a public offering
of Registrable Securities.
"Effective Date" shall mean the date on which a Registration Statement is
declared to be Effective by the Commission.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated pursuant thereto.
"Fully Diluted Outstanding Common Stock" shall mean, at the time of the
determination, the number of issued shares of Common Stock actually outstanding
(excluding any shares of the Company held by the Company as "treasury stock") at
such time together with the number of shares of Common Stock which could be
acquired at such time pursuant to all Common Stock Equivalents as if such Common
Stock Equivalents have been fully exercised or converted and the full amount of
all Common Stock obtained in connection therewith has been obtained.
"Inspectors" shall have the meaning given such term in Section 1.6(i).
"NASD" shall mean the National Association of Securities Dealers, Inc.
"Nasdaq" shall mean the National Association of Securities Dealers
Automated Quotations System.
"Offer" shall have the meaning assigned to such term in Section 2.1.
"Offered Securities" shall have the meaning assigned to that term in
Section 2.1.
"Person" shall mean an individual, corporation, partnership, joint venture,
trust, university, or unincorporated organization, or a government or any agency
or political subdivision thereof.
"Pro Rata Fraction" shall have the meaning assigned to that term in Section
2.1.
"Proposed Buyer" shall have the meaning assigned to that term in Section
2.1.
16
"Records" shall have the meaning assigned to that term in Section 1.6(i).
"Registrable Securities" shall mean (a) shares of Common Stock of the
Company issued or issuable upon conversion of the shares of Series A Preferred
Stock held by Holder as of the date hereof; (b) shares of Common Stock of the
Company issued or issuable upon conversion of the Debentures held by Holder as
of the date hereof; (c) shares of Common Stock of the Company issued or issuable
upon conversion of the Facility Loan held by Holder as of the date hereof; (d)
shares of Common Stock of the Company issued or issuable upon exercise of the
Debenture Warrant held by Holder as of the date hereof; and (e) any other shares
of Common Stock of the Company issued or issuable as (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, such Registrable Securities; provided, however, that such
-------- -------
securities shall cease to be Registrable Securities if and when (x) a
Registration Statement with respect to the disposition of such securities shall
have become Effective under the Securities Act and such securities shall have
been disposed of pursuant to such Effective Registration Statement, (y) such
securities shall have been otherwise transferred, if new certificates or other
evidences of ownership for such securities not bearing a legend restricting
further transfer and not subject to any stop transfer order or other
restrictions on transfer shall have been delivered by the Company, and
subsequent disposition of such securities shall not require Registration or
qualification of such securities under the Securities Act, or (z) such
securities may be resold by Holder in any three-month period pursuant to Rule
144 under the Securities Act.
"Registration" shall mean the satisfaction by the Company of all applicable
requirements under the Securities Act as evidenced by the official approval of
the Commission in connection with a public offering by the Company of
Registrable Securities.
"Registration Expenses" shall mean all expenses incident to the Company's
performance of or compliance with its obligations under Section 1 of this
Agreement, including, without limitation, all Commission and stock exchange or
NASD registration and filing fees and expenses, fees and expenses of compliance
with applicable state securities or "blue sky" laws (including, without
limitation, reasonable fees and disbursements of counsel for the underwriters in
connection with "blue sky" qualifications of the Registrable Securities),
printing expenses, messenger and delivery expenses, the fees and expenses
incurred in connection with the listing of the securities to be registered in a
public offering on each securities exchange or national market system on which
such securities are to be so listed and, following any such registered offering,
the fees and expenses incurred in connection with the listing of such securities
to be registered on each securities exchange or national market system on which
such securities are listed, fees and disbursements of counsel for the Company
and all independent certified public accountants (including the expenses of any
annual audit and "cold comfort" letters required by or incident to such
performance and compliance), the fees and disbursements of underwriters
customarily paid by issuers or sellers of securities (including the fees and
expenses of any "qualified independent underwriter" required by the NASD), the
reasonable fees of one counsel retained in connection with each such
registration under Section 1 by the holders of a majority of the securities
being registered, the reasonable fees and expenses of any special experts
retained by the Company in connection with such registration, and fees and
expenses of other persons retained by the Company (but not including any
underwriting discounts or commissions or transfer taxes, if any, attributable to
the sale of Registrable Securities by holders of such Registrable Securities).
"Registration Statement" shall mean any disclosure document that the
Company is required to file under the Securities Act in connection with a public
offering of Registrable Securities.
17
"Related Party" shall mean, other than Holder or any of its Affiliates, any
officer, director or beneficial holder of shares of capital stock of the
Company, the Company or any Subsidiary, any spouse, former spouse, child,
Company, Company of a spouse, sibling or grandchild of any such officer,
director or beneficial holder of the Company, the Company or any Subsidiary, and
any Affiliate or Associate of any of the foregoing persons.
"Securities" shall mean collectively the shares of Series A Preferred
Stock, the Debentures, the Facility Loan and the Warrant held by Holder and the
shares of Series A Preferred Stock and Common Stock issuable in respect thereof.
"Securities Act" shall mean the Securities Act of 1933, as amended from
time to time or any other federal act, rule or regulation requiring Registration
with any federal agency in connection with a public offering of Registrable
Securities.
"Sell" as to any Stock, shall mean to sell, or in any other way directly or
indirectly transfer (including by operation of law, by merger or consolidation,
or sale of securities of a holding company), assign, distribute or otherwise
dispose of, such Stock in a bona fide transaction for value; and the terms
"Sale" and "Sold" shall have meanings correlative to the foregoing.
"Stock" means (i) any shares of Common Stock and (ii) any Common Stock
Equivalents (including, without limitation, the Common Stock issuable upon
conversion, exercise or exchange thereof), in each case, whether owned on the
date hereof or acquired hereafter.
"Stockholder" means Holder.
"Subsidiary" shall mean any corporation or other entity of which at least a
majority of the securities or other ownership interest having ordinary voting
power (absolutely or contingently) for the election of directors or other
persons performing similar functions are at the time owned directly or
indirectly by the Company and/or any of its other Subsidiaries.
5. MISCELLANEOUS
5.1 No Waiver; Cumulative Remedies. No failure or delay on the part of
------------------------------
any party to this Agreement in exercising any right, power or remedy hereunder
shall operate as a waiver thereof; nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy hereunder. The remedies
herein provided are cumulative and not exclusive of any remedies provided by
law.
5.2 Amendments, Waivers and Consents. Any provision in this Agreement to
--------------------------------
the contrary notwithstanding, and except as hereinafter provided, changes in,
termination or amendments of or additions to this Agreement may be made, and
compliance with any covenant or provision set forth herein may be omitted or
waived, only with the written consent of the Company and Holder. Any waiver or
consent may be given subject to satisfaction of conditions stated therein and
any waiver or consent shall be effective only in the specific instance and for
the specific purpose for which given.
5.3 Addresses for Notices. Any notice, demand, request, waiver or other
---------------------
communication under this Agreement shall be in writing and shall be deemed to
have been duly given on the date of service if personally served or on the third
day after mailing if mailed to the party to whom notice is
18
to be given, by first class mail, registered, return receipt requested, postage
prepaid and addressed as follows:
To Holder: Xxxx North America Holding, Inc.
000 Xxxx Xxx Xxxxxx, Xxxxx 0000
Xxx Xxxxx, Xxxxxxxxxx 00000
Attention: Xxxxxxx X. Xxxx, President
With a copy to: Xxxxxxxxx Xxxxx Xxxxxxx & Xxxxx
000 Xxxxxxx Xxxxxx Xxxxx, Xxxxx 0000
Xxxxxxx Xxxxx, Xxxxxxxxxx 00000-0000
Attention: Xxxxx Xxxxxxxx, Esq.
To the Company: Anchor Pacific Underwriters, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 000
Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxxx X. Xxxxxxxx, President and Chief Executive
Officer
With a copy to: Sheppard, Mullin, Xxxxxxx & Xxxxxxx
Four Xxxxxxxxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxxxx, Xxxxxxxxxx 00000
Attention: A. Xxxx Xxxxxx, Esq.
5.4 Binding Effect; Assignment. This Agreement shall be binding upon and
--------------------------
inure to the benefit of each of the Company and Holder and their respective
successors and assigns, except that the Company shall not have the right to
delegate its obligations hereunder or to assign its rights hereunder or any
interest herein.
5.5 Severability. The provisions of this Agreement are severable and, in
------------
the event that any court of competent jurisdiction shall determine that any one
or more of the provisions or part of a provision contained in this Agreement,
shall, for any reason, be held to be invalid, illegal or unenforceable in any
respect, such invalidity, illegality or unenforceability shall not affect any
other provision or part of a provision of this Agreement; but this Agreement
shall be reformed and construed as if such invalid or illegal or unenforceable
provision, or part of a provision, had never been contained herein, and such
provisions or part reformed so that it would be valid, legal and enforceable to
the maximum extent possible.
5.6 Confidentiality. Holder agrees that it will keep confidential and
---------------
will not disclose or divulge any confidential, proprietary or secret information
which Holder may obtain from the Company ("Confidential Information"); provided,
however, that Holder may disclose such Confidential Information (a) on a
confidential basis to its attorneys, accountants, consultants and other
professionals to the extent necessary to obtain their services in connection
with its investment in the Company, (b) to any prospective holder of any
Securities from Holder as long as such prospective holder agrees in writing to
be bound by the provisions of this Section, (c) to any entity controlling,
controlled by or under common control with such Holder so long as such person
agrees in writing to be bound by the provisions of this Section, or (d) as
required by applicable law.
For purposes of this Section, Confidential Information shall not include
(i) information already in Holder's possession, (ii) information which becomes
public knowledge other than as a
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result of Holder's actions or inactions, (iii) information which is subsequently
rightfully obtained by Holder from a third party, (iv) information Holder
develops independently and without use of the information provided by the
Company or (v) information which is approved in writing for release by the
Company.
5.7 Governing Law. This Agreement shall be governed by and construed
-------------
under the laws of the State of California as applied to agreements among
California residents, made and to be performed entirely within the State of
California.
5.8 Attorneys' Fees. In the event that any party to this Agreement
---------------
institutes any legal proceeding to enforce any of the provisions of this
Agreement, then the prevailing party in such proceeding shall be entitled to
collect and receive its reasonable attorneys' fees and costs, through and
including all appeals, and the other party shall pay for same.
5.9 Arbitration; Venue and Jurisdiction. The parties hereto agree that
-----------------------------------
any dispute arising out of or relating to this Agreement or the breach,
termination or the validity hereof, shall be settled by binding arbitration in
accordance with the rules of the American Arbitration Association ("AAA") by a
neutral arbitrator who shall be a former superior court or appellate court judge
or justice with experience in resolving business disputes. The arbitration
shall be governed by the California Code of Civil Procedure Section 1280 et seq.
and the parties intend this procedure to be specifically enforceable in
accordance with such provisions. Judgment upon the award rendered by the
arbitrator may be entered by any court having jurisdiction thereof. The parties
agree that the judgment or decision of the arbitrator shall be final and
binding. The parties agree that the venue for the arbitration shall be in the
County of San Diego, California. The arbitrator shall be required to follow the
applicable law as set forth in the governing law section of this Agreement. The
arbitrator shall award reasonable attorneys' fees and costs of arbitration to
the prevailing party in such arbitration. The parties hereto consent to the
personal jurisdiction of any court in the County of San Diego, California for
the enforcement of this agreement to arbitrate and any award granted pursuant to
said arbitration or settlement of any dispute related hereto.
5.10 Headings. Section and subsection headings in this Agreement are
--------
included herein for convenience of reference only and shall not constitute a
part of this Agreement for any other purpose.
5.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, all of which taken together shall constitute one and the same
instrument, and any of the parties hereto may execute this Agreement by signing
any such counterpart.
5.12 Further Assurances. From and after the date of this Agreement, upon
------------------
the request of Holder or the Company, each of the Company and Holder shall
execute and deliver such instruments, documents and other writings as may be
reasonably necessary or desirable to confirm and carry out and to effectuate
fully the intent and purposes of this Agreement.
5.13 Specific Enforcement. The parties hereto acknowledge and agree that
--------------------
irreparable damage would occur in the event that any of the provisions of this
Agreement were not performed in accordance with their specific terms or were
otherwise breached. It is accordingly agreed that the parties shall be entitled
to an injunction or injunctions to prevent breaches of the provisions of this
Agreement and to enforce specifically the terms and provisions hereof in any
court of the United States or any state thereof having jurisdiction, this being
in addition to any other remedy to which they may be entitled at law or equity.
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5.14 Entire Agreement. This Agreement constitutes the full and complete
----------------
agreement and understanding among the parties hereto regarding the subject
matter hereof, and shall supersede all prior communications, representations,
understandings or agreements, if any, whether oral or written, concerning the
subject matter hereof.
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date first set forth above.
XXXX NORTH AMERICA HOLDING, INC.
By: /s/ Xxxxxxx X. Xxxx
----------------------------------------
Xxxxxxx X. Xxxx, President and Chief
Executive Officer
ANCHOR PACIFIC UNDERWRITERS, INC.
By: /s/ Xxxxx X. Xxxxxxxx
----------------------------------------
Xxxxx X. Xxxxxxxx, President and Chief
Executive Officer
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