Exhibit 99(e)
SHAREHOLDERS RIGHTS AGREEMENT
BETWEEN
GULFWEST ENERGY INC.
AND
OCM GW HOLDINGS, LLC
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Exhibit 99(e)
TABLE OF CONTENTS
Page
ARTICLE I DEFINITIONS.............................................................................................1
ARTICLE II REGISTRATION RIGHTS....................................................................................6
Section 2.01 Demand Registration.......................................................................6
Section 2.02 Piggyback Registrations...................................................................9
Section 2.03 Registration Procedures..................................................................11
Section 2.04 Registration Expenses....................................................................15
Section 2.05 Indemnification..........................................................................15
Section 2.06 Rule 144 and Rule 144A; Other Exemptions.................................................18
Section 2.07 Certain Limitations On Registration Rights...............................................18
Section 2.08 Limitations on Subsequent Registration Rights............................................18
Section 2.09 Restrictions on Public Sale by Holders...................................................19
Section 2.10 Transfer of Registration Rights..........................................................19
Section 2.11 Amendment................................................................................19
ARTICLE III INFORMATION RIGHTS...................................................................................19
Section 3.01 Financial Information to Holders.........................................................20
Section 3.02 Board Observation Rights.................................................................20
Section 3.03 Confidentiality..........................................................................21
Section 3.04 Acknowledgement Regarding Confidential Information.......................................21
Section 3.05 Transfer of Information Rights...........................................................21
ARTICLE IV Covenants of the Company..............................................................................21
Section 4.01 Corporate Existence......................................................................22
Section 4.02 Preservation of Property and Assets......................................................22
Section 4.03 Properties, Business, Insurance..........................................................22
Section 4.04 Directors and Officers Insurance.........................................................22
Section 4.05 Inspection, Consultation and Advice......................................................23
Section 4.06 Restrictive Agreements Prohibited........................................................23
Section 4.07 Expenses of Directors....................................................................23
Section 4.08 Compensation.............................................................................23
Section 4.09 Payment of Taxes; Trade Debt.............................................................23
Section 4.10 Internal Accounting Controls.............................................................24
Section 4.11 Activities of the Company and its Subsidiaries...........................................24
Section 4.12 Compliance with Laws.....................................................................24
Section 4.13 Keeping of Records and Books of Account..................................................24
Section 4.14 Change in Nature of Business.............................................................24
Section 4.15 Indemnity for Officers and Directors.....................................................24
Section 4.16 Publicity................................................................................24
Section 4.17 Employee and Other Stock Arrangements....................................................25
Section 4.18 Extension of Credit......................................................................25
Section 4.19 Limitations on Liens.....................................................................25
Section 4.20 Loans, Advances, etc.....................................................................25
Section 4.21 No Indebtedness; Limits on Certain Securities............................................25
Section 4.22 Discharge of Obligations.................................................................25
Section 4.23 Affiliate Transactions...................................................................25
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Section 4.24 Disclosure Controls and Procedures; Internal Controls....................................26
Section 4.25 Pre-emptive Rights (Right of First Refusal)..............................................26
Section 4.26 Merger...................................................................................28
Section 4.27 Transfer of Covenants....................................................................29
ARTICLE V GENERAL PROVISIONS.....................................................................................30
Section 5.01 Accounting...............................................................................30
Section 5.02 Further Assurances.......................................................................30
Section 5.03 Notices..................................................................................30
Section 5.04 Governing Law............................................................................31
Section 5.05 Entire Agreement.........................................................................31
Section 5.06 Counterparts.............................................................................31
Section 5.07 Parties in Interest......................................................................31
Section 5.08 Waiver, Amendment and Termination........................................................31
Section 5.09 Severability.............................................................................32
Section 5.10 Titles and Subtitles.....................................................................32
Section 5.11 Third Parties............................................................................32
Section 5.12 Construction.............................................................................32
Section 5.13 Remedies.................................................................................33
Section 5.14 Arbitration..............................................................................33
Section 5.15 Attorneys' Fees..........................................................................34
Section 5.16 Adjustments for Stock Splits, Etc........................................................34
Section 5.17 Aggregation of Stock.....................................................................34
Section 5.18 Series G Preferred Stock Purchasers......................................................34
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Exhibit 99(e)
SHAREHOLDER RIGHTS AGREEMENT
This SHAREHOLDER RIGHTS AGREEMENT (this "Agreement") dated as of February
28, 2005, is entered into between GulfWest Energy, Inc., a Texas corporation
(the "Company"), and OCM GW Holdings, LLC, a Delaware limited liability company
("Purchaser").
RECITALS
WHEREAS, the Company and the Purchaser are parties to the Subscription
Agreement dated as of the date hereof (the "Subscription Agreement") pursuant to
which the Company has agreed to sell, and Purchaser has agreed to purchase,
shares of Series G Convertible Preferred Stock of the Company (the "Preferred
Stock");
WHEREAS, Purchaser and Gulfwest Oil and Gas Company, a Texas corporation
and a subsidiary of the Company ("GOGC"), are subject to a subscription
agreement with respect to the Series A Preferred Stock of GOGC.
WHEREAS, the Company's and the Purchaser's respective obligations under the
Subscription Agreement are conditioned upon the execution and delivery of this
Agreement; and
WHEREAS, in connection with the purchase by the Purchaser of the Preferred
Stock pursuant to the Subscription Agreement, the Company desires to grant to
certain or all of the Holders (as defined), as the case may be, certain
information rights, registration rights and first refusal rights with respect to
the stock of the Company held by them.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows.
ARTICLE I.
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DEFINITIONS
For purposes of this Agreement:
"Affiliate" of a Person means any Person that directly or indirectly
through one or more intermediaries controls or is controlled by, or is under
common control with, such other Person. For purposes of this definition, the
term "control" (including the terms "controlling," "controlled by" and "under
common control with") means the possession, direct or indirect, of the power to
cause the direction of the management and policies of a Person, whether through
the ownership of voting securities, by contract or otherwise. With respect to
Purchaser, an "Affiliate" of Purchaser includes an Oaktree Party
"Agreement" is defined in the preamble.
"Asset Sale" means any direct or indirect sale, issuance, conveyance,
transfer, lease, assignment, or other transfer for value, whether in a single
transaction or in a series of related transactions, by the Company or any of its
subsidiaries to any Person other than the Company or a wholly-owned subsidiary
of the Company of (i) any capital stock of any subsidiary of the Company or (ii)
any other property or assets of the Company or any subsidiary of the Company;
provided, however, that an Asset Sale shall not include a transaction or series
of related transactions wherein the Company or its subsidiaries transfers less
than 15% of the Company's and its subsidiaries' assets.
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"Board" means the board of directors of the Company.
"Certificate of Incorporation" is defined in Section 4.26(a).
"Claim" is defined in Section 2.05(a).
"Common Stock" means the Company's Class A Common Stock, par value $.001
per share.
"Company" is defined in the preamble.
"Confidential Information" is defined in Section 3.03.
"Demand Request" is defined in Section 3.01(a).
"Exchange Act" means the Securities Exchange Act of 1934, as amended from
time to time.
"GOGC" is defined in the recitals.
"Holder" means a Person that (i) is a party to this Agreement (or a
permitted transferee hereunder) and (ii) owns Registrable Securities; provided,
however, that to the extent a Person that would otherwise be a permitted
transferee hereunder does not succeed to the rights and benefits of particular
provisions hereof in accordance with the terms and conditions of this Agreement,
such Person shall not be considered a Holder for the purposes of such
provisions, or with respect to the amendment or waiver of such provisions.
"Holder Indemnified Parties" is defined in Section 2.05(a).
"Holder Preferred Majority" means Holders holding at least 50% of the
Preferred Stock held by all Holders.
"Holder Majority" means Holders holding 50% of the Registrable Securities
held by all Holders.
"Indebtedness" means, with respect to any Person, any indebtedness at any
time outstanding, secured or unsecured, contingent or otherwise, that is for
borrowed money or evidenced by notes, debentures or similar instruments,
including any indebtedness that would appear as a liability on the Company's
balance sheet in accordance with generally accepted accounting principals and
any capital leases.
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"Indemnified Party" is defined in Section 2.05(c).
"Indemnifying Party" is defined in Section 2.05(c).
"Inspector(s)" is defined in Section 2.03(a)(ii).
"Investment" means (i) any transfer or delivery of cash, stock, or other
property of value in exchange for Indebtedness, stock, or other security or
ownership interest in any Person by way of loan, advance, capital contribution,
guarantee, or otherwise and (ii) an investment deemed to have been made by the
Company at the time any entity which was a wholly owned subsidiary of the
Company ceases to be such a wholly owned subsidiary in an amount equal to the
value of the loans and advances made, and any remaining ownership interest in,
such entity immediately following such entity ceasing to be a wholly owned
subsidiary of the Company.
"Lien" means a mortgage, deed of trust, pledge, hypothecation, assignment,
encumbrance, lien (statutory or otherwise, including any lien for taxes),
security interest, preference, participation interest, priority or security
agreement, claim, charge, restriction, easement, license or preferential
arrangement of any kind or nature whatsoever, including any conditional sale or
other title retention agreement, any financing lease having substantially the
same economic effect as any of the foregoing and the filing of any document
under the law of any applicable jurisdiction to evidence any of the foregoing.
"Losses" is defined in Section 2.05(a).
"NASD" means the National Association of Securities Dealers, Inc.
"Participating Holders" means Holders participating, or electing to
participate, in an offering of Registrable Securities.
"Oaktree Party" means each of Oaktree Capital Management, LLC, OCM
Principal Opportunities Fund III, L.P., OCM Principal Opportunities Fund IIIA,
L.P., Purchaser and any of the respective Permitted Transferees.
"Oil and Gas Properties" all of the oil, gas and other mineral properties
owned, or otherwise held in the name of, the Company or its Affiliates.
"Permitted Encumbrances" means:
(i) Third-party consents to assignment of leases and contracts and
preferential purchase rights which are customary in the oil and gas business;
(ii) Liens for taxes or assessments not yet due or not yet delinquent or,
if delinquent, that are being contested in good faith in the normal course of
business (which are not applicable to the transactions contemplated in this
Agreement, the Subscription Agreement, the Certificate of Incorporation or the
Statement of Resolution Establishing the Preferred Stock);
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(iii) All rights to consent by, required notices to, filings with, or other
actions by federal, state, local governmental entities or tribal entities in
connection with the sale or conveyance of the Oil and Gas Properties if the same
are customarily required in the oil and gas business;
(iv) Rights of reassignment upon the surrender or expiration of any lease;
(v) Easements, rights-of-way, servitudes, permits, surface leases and other
rights with respect to surface operations, pipelines, grazing, logging, canals,
ditches, reservoirs or the like, and easements for streets, alleys, highways,
pipelines, telephone lines, power lines, railway and other easements and rights
of way, on, over or in respect of any of the properties or any restriction on
access thereto and that do not materially interfere with the ownership,
operation or value of the affected property for the purposes of exploration and
production of oil and gas;
(vi) Materialmen's, mechanics', repairmen's, employees', contractors',
operators' or other similar liens or charges arising in the ordinary course of
business incidental to construction, maintenance or operation of the Oil and Gas
Properties (i) if they have not been filed pursuant to law and the time for
filing them has expired, (ii) if filed, they have not yet become due and payable
or payment is being withheld as provided by law, or (iii) if their validity is
being contested in good faith by appropriate action;
(vii) Rights reserved to or vested in any municipality or governmental,
statutory, public or tribal authority to control or regulate any of the Oil and
Gas Properties in any manner; and all applicable laws, rules, regulations and
orders of general applicability in the area which do not materially interfere
with the ownership, operation or value of the affected property for the purposes
of exploration and production of oil and gas;
(viii) Liens arising under operating agreements, unitization and pooling
agreements and production sales contracts containing terms and conditions
customary in the industry securing amounts not yet due or, if due, being
contested in good faith in the ordinary course of business;
(ix) Statutory liens securing the payment of production proceeds to Persons
entitled thereto not yet due or if due, being contested in good faith in the
ordinary course of business; and
(x) Such other defects or irregularities in the title to the Oil and Gas
Properties that would be considered not material by a Person engaged in the
business of acquiring, ownership or operation of oil and gas properties in
accordance with generally accepted industry standards.
"Permitted Transferee" means as to any Person, (i) any general partner or
managing member of such Person or (ii) any partnership, limited partnership,
limited liability company, corporation or other entity organized, formed or
incorporated and managed or controlled by such Person, its general partner or
managing member as a vehicle for purposes of making investments.
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"Person" means any individual, firm, corporation, company, partnership,
trust, incorporated or unincorporated association, limited liability company,
joint venture, joint stock company, government (or an agency or political
subdivision thereof) or other entity of any kind, and shall include any
successor (by merger or otherwise) of any such entity.
"Proposed Registration" is defined in Section 2.02.
"Purchaser" is defined in the preamble.
"Registrable Securities" means any shares of Preferred Stock or Common
Stock held by Purchaser or a permitted transferee hereunder including any shares
issued, by virtue of the effect of antidilution provisions or combination,
merger, consolidation or other similar event; provided, however, that shares of
Preferred Stock or Common Stock that are considered to be Registrable Securities
shall cease to be Registrable Securities (i) upon the sale thereof pursuant to
an effective registration statement, (ii) upon the sale thereof pursuant to Rule
144 (or successor rule) under the Securities Act or (iii) when such securities
cease to be outstanding; provided, further, that to the extent shares of
Preferred Stock or Common Stock would be considered Registrable Securities
hereunder but for the fact that a transferee does not succeed to the rights and
benefits of particular provisions hereof in accordance with the terms and
conditions of this Agreement, such securities shall not be considered
Registrable Securities for the purposes of such provisions, or with respect to
the amendment or waiver of such provisions.
"Registration Expenses" means all expenses (other than underwriting
discounts and commissions) arising from or incident to the performance of, or
compliance with, Article II, including, (i) SEC, stock exchange, NASD and other
registration and filing fees, (ii) all fees and expenses incurred in connection
with complying with any securities or blue sky laws (including, fees, charges
and disbursements of counsel in connection with blue sky qualifications of the
Registrable Securities), (iii) all printing, messenger and delivery expenses,
(iv) the fees, charges and disbursements of counsel to the Company and of its
independent public accountants and any other accounting and legal fees, charges
and expenses incurred by the Company (including, any expenses arising from any
special audits or "comfort letters" required in connection with or incident to
any registration), (v) the fees, charges and disbursements of any special
experts retained by the Company in connection with any registration pursuant to
the terms of this Agreement, (vi) all internal expenses of the Company
(including, all salaries and expenses of its officers and employees performing
legal or accounting duties), (vii) the fees and expenses incurred in connection
with the listing of the Registrable Securities on any securities exchange,
over-the-counter market or Nasdaq and (viii) Securities Act liability insurance
(if the Company elects to obtain such insurance), regardless of whether the
Registration Statement filed in connection with such registration is declared
effective. "Registration Expenses" shall also include fees, charges and
disbursements of one firm of counsel to all of the Participating Holders
participating in any underwritten public offering pursuant to Article II (which
shall be selected by a majority, based on the number of Registrable Securities
to be sold, of the Participating Holders, plus, to the extent necessary, one
firm of local counsel for all of the Participating Holders in each state or
country where reasonably necessary).
"Registration Statement" means the registration statement of the Company
filed with the SEC on the appropriate form pursuant to the Securities Act which
covers shares of Registrable Securities pursuant to the provisions of this
Agreement and all amendments and supplements to the Registration Statement,
including post-effective amendments, in each case including the prospectus
contained therein, all exhibits thereto and all materials incorporated by
reference therein.
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"Representatives" is defined in Section 3.03.
"Requesting Holders" is defined in Section 2.01(a).
"Request Notice" is defined in Section 2.01(a).
"Rights Holder" means a Holder (or group of Affiliated Holders) of 4,000 or
more shares of Preferred Stock, or at least that number of shares of Common
Stock into which 4,000 shares of Preferred Stock converted (or any combination
of the foregoing).
"Rights Holder Majority" means Rights Holders holding at least 50% of the
Registrable Securities held by all Rights Holders (on an as-converted basis).
"SEC" or "Commission" means the United States Securities and Exchange
Commission.
"Securities Act" means the Securities Act of 1933, as amended from time to
time.
"Selling Expenses" means the underwriting fees, discounts, selling
commissions and stock transfer taxes applicable to all Registrable Securities
registered by the Participating Holders.
"Subscription Agreement" is defined in the preamble.
"Successor Preferred" means the Series H Preferred Stock of the Company
issued to Holder as a result of the exchange of the Series A Preferred Stock of
GOGC for such Series H Preferred Stock.
"Substantial Holder" means a Holder (or group of Affiliated Holders) of
8,000 or more shares of Preferred Stock, or at least that number of shares of
Common Stock into which 8,000 shares of Preferred Stock converted (or any
combination of the foregoing).
"Substantial Holder Preferred Majority" means Substantial Holders holding
at least 50% of the Preferred Stock held by all Substantial Holders.
"Valid Business Reason" is defined in Section 2.01(e)(i).
ARTICLE II.
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REGISTRATION RIGHTS
Section 2.01 Demand Registration.
(a) Request by Holders. If the Company receives at any time a written
request from Holders owning at least 50% of the Registrable Securities (treating
the Preferred Stock and the Successor Preferred on an as converted basis) (the
"Requesting Holders") that the Company register Registrable Securities held by
Requesting Holders (a "Demand Request"), then the Company shall, within ten days
after receipt of such Demand Request, give written notice of such request
("Request Notice") to all Holders. Each Demand Request shall (x) specify the
number of Registrable Securities that the Requesting Holders intend to sell or
dispose of, (y) state the intended method or methods of sale or disposition of
the Registrable Securities and (z) specify the expected price range (net of
underwriting discounts and commissions) acceptable to the Requesting Holders to
be received for such Registrable Securities. Following receipt of a Demand
Request, the Company shall:
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(i) cause to be filed, as soon as practicable, but within 60 days of the
date of delivery to the Company of the Demand Request, a Registration Statement
covering such Registrable Securities which the Company has been so requested to
register by the Requesting Holders and other Holders who request to the Company
that their Registrable Securities be registered within 20 days of the mailing of
the Request Notice, providing for the registration under the Securities Act of
such Registrable Securities to the extent necessary to permit the disposition of
such Registrable Securities in accordance with the intended method of
distribution specified in such Demand Request;
(ii) use its best efforts to have such Registration Statement declared
effective by the Commission as soon as practicable thereafter; and
(iii) refrain from filing any other Registration Statements, other than
pursuant to a Registration Statement on Form S-4 or S-8 (or similar or successor
forms), with respect to any other securities of the Company until such date
which is 180 days following effectiveness of the Registration Statement filed in
response to the Demand Request.
(b) Effective Registration Statement. A registration requested pursuant to
this Section 2.01 shall not be deemed to have been effected: (i) unless a
Registration Statement with respect thereto has become effective and remained
effective in compliance with the provisions of the Securities Act with respect
to the disposition of all Registrable Securities covered by such Registration
Statement until such time as all of such Registrable Securities have been
disposed of in accordance with the intended methods of disposition by the
Holders thereof set forth in such Registration Statement; (ii) if, after it has
become effective, such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other governmental
agency or court and has not thereafter become effective, or if the offering of
Registrable Securities is not consummated for any reason, including if the
underwriters of an underwritten public offering advise the Participating Holders
that the Registrable Securities cannot be sold at a net price per share equal to
or above the net price disclosed in the preliminary prospectus; (iii) if the
conditions to closing specified in the underwriting agreement, if any, entered
into in connection with such registration are not satisfied or waived; or (iv)
if the Requesting Holders are cut back to fewer than 80% of the Registrable
Securities requested to be registered.
(c) Selection of Underwriters. If the Company is required to file a
Registration Statement covering any Registrable Securities of any Participating
Holders pursuant to Section 2.01(a) and the proposed public offering is to be an
underwritten public offering, the managing underwriter shall be one or more
nationally recognized investment banks selected by a majority in interest of the
Participating Holders and reasonably acceptable to the Company.
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(d) Priority for Demand Registration. Notwithstanding any other provision
of this Section 2.01, if the managing underwriter of an underwritten public
offering determines and advises the Participating Holders and the Company in
writing that the inclusion of all securities proposed to be included by the
Company and any other holders of securities to be registered in the underwritten
public offering would materially and adversely interfere with the successful
marketing of the Participating Holders' Registrable Securities, then the Company
and other holders of securities to be registered shall not include any
securities in excess of the amount, if any, of securities which the managing
underwriter of such underwritten public offering shall reasonably and in good
faith agree in writing to include in such public offering in addition to the
amount of Registrable Securities to be registered for the Participating Holders.
The Company will be obligated to include in such Registration Statement, as to
each Participating Holder, only a portion of the Registrable Securities such
Participating Holder has requested be registered equal to the ratio which such
Participating Holder's requested Registrable Securities bears to the total
number of Registrable Securities requested to be included in such Registration
Statement by all Participating Holders who have requested that their Registrable
Securities be included in such Registration Statement. Pursuant to the foregoing
provision, the securities to be included in a registration requested by the
Requesting Holders pursuant to Section 2.01 shall be allocated:
(i) first, to the Participating Holders; provided, however, that no
Registrable Securities requested to be included in the registration by a Holder
or its assignees shall be excluded from the registration until all shares
proposed to be registered by the Company's founders, officers, directors or
employees are excluded from the registration;
(ii) second, to the Company; and
(iii) third, to any other shareholders of the Company requesting
registration of securities of the Company (provided that each such shareholder
agrees to be bound by the provisions of Section 2.09 to the same extent as the
Holders with respect to such securities or any other securities convertible into
or exchangeable for such securities).
(e) Limitations on Demand Registrations.
(i) The Company may delay making a filing of a Registration Statement or
taking action in connection therewith by not more than 60 days if the Company
provides a written certificate signed by the President and Chief Executive
Officer of the Company to the Participating Holders, prior to the time it would
otherwise have been required to file such Registration Statement or take such
action pursuant to this Section 2.01, stating that the Board has determined in
good faith that the filing of such Registration Statement would be seriously
detrimental to the Company or would otherwise materially adversely affect a
financing, acquisition, disposition, merger or other material transaction
(collectively, a "Valid Business Reason") and that it is therefore essential to
defer the filing of the Registration Statement; provided, however, that such
right to delay a Demand Request shall be exercised by the Company not more than
once in any 12-month period and the Company shall only have the right to delay a
Demand Request so long as such Valid Business Reason exists, and during such
time, the Company may not file a Registration Statement for securities to be
issued and sold for its own account or for that of anyone other than the
Holders.
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(ii) The Company shall only be obligated to effect four Demand Requests
pursuant to this Section 2.01.
(iii) The Company shall not be required to comply with a Demand Request
unless the reasonably anticipated aggregate gross proceeds to be raised (before
any underwriting discounts and commissions) would be equal to or exceed the
greater of (i) $5,000,000 and (ii) 5% of the Registrable Securities, as
determined in good faith by the Board; provided, however, that if the Holders of
Registrable Securities are requesting to register the sale of 75% of the
remaining Registrable Securities, the foregoing thresholds shall not apply to
such Demand Request.
(f) Cancellation of Registration. A majority in interest of the
Participating Holders may cancel a proposed registration of Registrable
Securities pursuant to this Section 2.01 when, (i) in their discretion, market
conditions are so unfavorable as to be seriously detrimental to an offering
pursuant to such registration or (ii) the request for cancellation is based upon
material adverse information relating to the Company that is different from the
information known to the Participating Holders at the time of the Demand
Request. Such cancellation of a registration shall not be counted as one of the
four Demand Requests and notwithstanding anything to the contrary in the
Agreement, the Company shall be responsible for the expenses of the
Participating Holders incurred in connection with the registration before the
cancellation.
Section 2.02 Piggyback Registrations.
(a) Right to Include Registrable Securities. At any time the Company
proposes for any reason to register any of its Common Stock under the Securities
Act, either for its own account or for the account of a securityholder of the
Company exercising demand registration rights other than Demand Requests
pursuant to Section 2.01 or pursuant to a Registration Statement on Forms S-4 or
S-8 (or similar or successor forms) (a "Proposed Registration"), the Company
shall promptly give written notice of such Proposed Registration to all of the
Holders (which notice shall be given not less than 20 days before the expected
effective date of the Company's Registration Statement) and shall offer such
Holders the right to request inclusion of any of such Holder's Registrable
Securities in the Proposed Registration. No registration pursuant to this
Section 2.02 shall relieve the Company of its obligation to register Registrable
Securities pursuant to a Demand Request, as contemplated by Section 2.01. The
rights to piggyback registration may be exercised an unlimited number of
occasions.
(b) Piggyback Procedure. Each Holder shall have ten days from the date of
receipt of the Company's notice referred to in Section 2.02(a) to deliver to the
Company a written request specifying the number of Registrable Securities such
Holder intends to sell and such Holder's intended method of disposition. Any
Holder may withdraw such Holder's request for inclusion of such Holder's
Registrable Securities in any Registration Statement pursuant to this Section
2.02 by giving written notice to the Company of such withdrawal; provided,
however, that the Company may ignore a notice of withdrawal made within 24 hours
of the time the Registration Statement is to become effective. Subject to
Section 2.02(d), the Company shall use its best efforts to include in such
Registration Statement all such Registrable Securities so requested to be
included therein; provided, however, that the Company may at any time withdraw
or cease proceeding with any such Proposed Registration if it withdraws or
ceases proceeding with the registration of all other securities originally
proposed to be registered. If the Proposed Registration by the Company is, in
whole or in part, an underwritten public offering of securities of the Company,
any request under this Section 2.02(b) shall specify that the Registrable
Securities be included in the underwriting on the same terms and conditions as
the shares, if any, otherwise being sold through underwriters under such
registration.
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(c) Selection of Underwriters. The managing underwriter for any Proposed
Registration that involves an underwritten public offering shall be one or more
reputable regionally or nationally recognized investment banks selected by the
Company and reasonably acceptable to a majority in interest of the Participating
Holders.
(d) Priority for Piggyback Registration. Notwithstanding any other
provision of this Article II, if the managing underwriter of an underwritten
public offering determines and advises the Company and the Participating Holders
in writing that the inclusion of all Registrable Securities proposed to be
included by the Participating Holders in the underwritten public offering would
materially and adversely interfere with the successful marketing of the
Company's securities, then the Participating Holders may not include any
Registrable Securities in excess of the amount, if any, of Registrable
Securities which the managing underwriter of such underwritten public offering
shall reasonably and in good faith agree in writing to include in such public
offering in addition to the amount of securities to be registered for the
Company. The Company must include in such Registration Statement, as to each
Participating Holder, only a portion of the Registrable Securities such
Participating Holder has requested be registered equal to the ratio which such
Participating Holder's requested Registrable Securities bears to the total
number of Registrable Securities requested to be included in such Registration
Statement by all Participating Holders who have requested that their Registrable
Securities be included in such Registration Statement. Pursuant to the foregoing
provision, the securities to be included in a registration initiated by the
Company shall be allocated:
(i) first, to the Company;
(ii) second, if granted in accordance with Section 2.08, to any others
requesting registration of securities of the Company pursuant to demand
registration rights (provided that each such Person agrees to be bound by the
provisions of Section 2.09 to the same extent as the Holders with respect to
such securities or any other securities convertible into or exchangeable for
such securities);
(iii) third, to the Participating Holders; provided, however, that no
Registrable Securities requested to be included in the registration by a Holder
or its assignees shall be excluded from the registration until all shares
proposed to be registered by the Company's founders, officers, directors or
employees are excluded from the registration; and
10
(iv) fourth, to any others requesting registration of securities of the
Company (provided that each such Person agrees to be bound by the provisions of
Section 2.09 to the same extent as the Holders with respect to such securities
or any other securities convertible into or exchangeable for such securities).
If as a result of the provisions of this Section 2.02(d), any Participating
Holder may not include all of its Registrable Securities in a registration that
such Holder has requested to be so included, such Participating Holder may
withdraw such Participating Holder's request to include Registrable Securities
in such Registration Statement.
Section 2.03 Registration Procedures.
(a) Obligations of the Company. The Company shall use its best efforts to
effect the registration and sale of the Registrable Securities in accordance
with the intended method of distribution thereof as promptly as possible, and in
connection with any such request, the Company shall, as expeditiously as
possible:
(i) Preparation of Registration Statement; Effectiveness. Prepare and file
with the SEC a Registration Statement (in any event not later than 60 days after
receipt of a Demand Request to file a Registration Statement with respect to
Registrable Securities) on any form on which the Company then qualifies, which
counsel for the Company shall deem appropriate and pursuant to which such
offering may be made in accordance with the intended method of distribution
thereof (except that the Registration Statement shall contain such information
as may reasonably be requested for marketing or other purposes by the managing
underwriter), and use its best efforts to cause any registration required
hereunder to become effective as soon as practicable after the initial filing
thereof and remain effective until all Registrable Securities have been sold in
accordance with the methods of distribution set forth in the Registration
Statement;
(ii) Participation in Preparation. Provide any Participating Holder, any
underwriter participating in any disposition pursuant to the Registration
Statement, and any attorney, accountant or other agent retained by any
Participating Holder or underwriter (each, an "Inspector" and, collectively, the
"Inspectors"), the opportunity to participate (including reviewing, commenting
on and attending all meetings) in the preparation of the Registration Statement,
each prospectus included therein or filed with the SEC and each amendment or
supplement thereto;
(iii) Due Diligence. For a reasonable period prior to the filing of the
Registration Statement pursuant to this Agreement, make available for inspection
and copying by the Inspectors such financial and other information and books and
records, pertinent corporate documents and properties of the Company and its
subsidiaries and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company and its subsidiaries to
respond to such inquiries and to supply all information reasonably requested by
any such Inspector in connection with the Registration Statement, as shall be
reasonably necessary, in the judgment of the respective counsel referred to in
Section 2.03(a)(ii), to conduct a reasonable investigation within the meaning of
the Securities Act;
11
(iv) General Notifications. Promptly notify in writing the Participating
Holders, the sales or placement agent, if any, therefor and the managing
underwriter of the securities being sold, (A) when the Registration Statement or
the prospectus included therein or any prospectus amendment or supplement or
post-effective amendment has been filed, and, with respect to any the
Registration Statement or any post-effective amendment, when the same has become
effective, (B) when the SEC notifies the Company whether there will be a
"review" of the Registration Statement (C) of any comments (oral or written) by
the SEC and by the blue sky or securities commissioner or regulator of any state
with respect thereto and (D) of any request by the SEC for any amendments or
supplements to the Registration Statement or the prospectus or for additional
information;
(v) 10b-5 Notification. Promptly notify in writing the Participating
Holders, the sales or placement agent, if any, therefor and the managing
underwriter of the securities being sold pursuant to the Registration Statement
at any time when a prospectus relating thereto is required to be delivered under
the Securities Act upon discovery that, or upon the happening of any event as a
result of which, any prospectus included in the Registration Statement (or
amendment or supplement thereto) contains an 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 in light of the circumstances
under which they were made, and the Company shall promptly prepare a supplement
or amendment to such prospectus and file it with the SEC (in any event no later
than ten days following notice of the occurrence of such event to each
Participating Holder, the sales or placement agent and the managing underwriter)
so that after delivery of such prospectus, as so amended or supplemented, to the
purchasers of such Registrable Securities, such prospectus, as so amended or
supplemented, shall not contain an 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 in light of the circumstances under which
they were made;
(vi) Notification of Stop Orders; Suspensions of Qualifications and
Exemptions. Promptly notify in writing the Participating Holders, the sales or
placement agent, if any, therefor and the managing underwriter of the securities
being sold of the issuance by the SEC of (A) any stop order issued or threatened
to be issued by the SEC or (B) any notification with respect to the suspension
of the qualification or exemption from qualification of any of the Registrable
Securities for sale in any jurisdiction or the initiation or threatening of any
proceeding for such purpose and the Company agrees to use its best efforts to
(x) prevent the issuance of any such stop order, and in the event of such
issuance, to obtain the withdrawal of any such stop order and (y) obtain the
withdrawal of any order suspending or preventing the use of any related
prospectus or suspending the qualification of any Registrable Securities
included in the Registration Statement for sale in any jurisdiction at the
earliest practicable date;
(vii) Amendments and Supplements. Prepare and file with the SEC such
amendments, including post-effective amendments to the Registration Statement as
may be necessary to keep the Registration Statement continuously effective for
the applicable time period required hereunder and, if applicable, cause the
related prospectus to be supplemented by any required prospectus supplement, and
as so supplemented to be filed pursuant to Rule 424 (or any similar provisions
then in force) promulgated under the Securities Act; and comply with the
provisions of the Securities Act and the Exchange Act with respect to the
disposition of all securities covered by the Registration Statement during such
period in accordance with the intended methods of disposition by the sellers
thereof set forth in the Registration Statement as so amended or in such
prospectus as so supplemented. In addition to the foregoing, on two occasions,
at the request of Holders of greater than 50% of the Registrable Securities, the
Company shall prepare and file a prospectus supplement containing the
information reasonably requested by underwriters (which may include "S-1 level"
information) in connection with an underwritten offering of Registrable
Securities. The Holders may only make such a request if it is with respect to
the greater of (i) a sale of Registrable Securities with expected proceeds in
excess of $3.0 million and (ii) a sale of greater than 30% of the Registrable
Securities. To the extent any such supplement is not permitted under law at the
time of such request, the Company shall file a new registration statement with
respect to such securities on the form requested by the underwriters and such
Holders.
12
(viii) Acceleration. If a majority in interest of the Participating Holders
so request, request acceleration of effectiveness of the Registration Statement
from the SEC and any post-effective amendments thereto, if any are filed;
provided that at the time of such request, the Company believes in good faith
that it is unnecessary to amend further the Registration Statement to comply
with this subparagraph. If the Company wishes to further amend the Registration
Statement prior to requesting acceleration, it may take five business days to so
amend prior to requesting acceleration;
(ix) Copies. Furnish as promptly as practicable to each Participating
Holder and Inspector prior to filing the Registration Statement or any
supplement or amendment thereto, copies of the Registration Statement,
supplement or amendment as it is proposed to be filed, and after such filing
such number of copies of the Registration Statement, each amendment and
supplement thereto (in each case including all exhibits thereto), the prospectus
included in the Registration Statement (including each preliminary prospectus)
and such other documents as each such Participating Holder or underwriter may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such Participating Holder;
(x) Blue Sky. Use its reasonable best efforts to, prior to any public
offering of the Registrable Securities, register or qualify (or seek an
exemption from registration or qualifications) such Registrable Securities under
such other securities or blue sky laws of such jurisdictions as any
Participating Holder or underwriter may request, and to continue such
qualification in effect in each such jurisdiction for as long as is permissible
pursuant to the laws of such jurisdiction, or for as long as a Participating
Holder or underwriter requests or until all of such Registrable Securities are
sold, whichever is shortest, and do any and all other acts and things which may
be reasonably necessary or advisable to enable any Participating Holder to
consummate the disposition in such jurisdictions of the Registrable Securities;
13
(xi) Other Approvals. Use its reasonable best efforts to obtain all other
approvals, consents, exemptions or authorizations from such governmental
agencies or authorities as may be necessary to enable the Participating Holders
and underwriters to consummate the disposition of Registrable Securities;
(xii) Agreements. Enter into customary agreements (including any
underwriting agreements in customary form), and take such other actions as may
be reasonably required in order to expedite or facilitate the disposition of
Registrable Securities;
(xiii) "Cold Comfort" Letter. 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 "cold comfort" letters as the
managing underwriter may reasonably request, and reasonably satisfactory to a
majority in interest of the Participating Holders;
(xiv) Legal Opinion. Furnish, at the request of any underwriter of
Registrable Securities on the date such securities are delivered to the
underwriters for sale pursuant to such registration, an opinion, dated such
date, of counsel representing the Company for the purposes of such registration,
addressed to the Holders, and the placement agent or sales agent, if any,
thereof and the underwriters, if any, thereof, covering such legal matters with
respect to the registration in respect of which such opinion is being given as
such underwriter may reasonably request and as are customarily included in such
opinions, and reasonably satisfactory to a majority in interest of the
Participating Holders;
(xv) SEC Compliance, Earnings Statement. Comply with all applicable rules
and regulations of the SEC and make available to its shareholders, as soon as
reasonably practicable, but no later than 15 months after the effective date of
the Registration Statement, an earnings statement covering a period of 12 months
beginning after the effective date of the Registration Statement, in a manner
which satisfies the provisions of Section 11(a) of the Securities Act and Rule
158 thereunder;
(xvi) Certificates, Closing. Provide officers' certificates and other
customary closing documents;
(xvii) NASD. Cooperate with each Participating Holder and each underwriter
participating in the disposition of such Registrable Securities and
underwriters' counsel in connection with any filings required to be made with
the NASD;
(xviii) Road Show. Cause appropriate officers as are requested by an
managing underwriter to participate in a "road show" or similar marketing effort
being conducted by such underwriter with respect to an underwritten public
offering;
(xix) Listing. Use its best efforts to cause all such Registrable
Securities to be listed on each securities exchange on which similar securities
issued by the Company are then listed and if not so listed, to be listed on the
NASD automated quotation system;
14
(xx) Transfer Agent, Registrar and CUSIP. Provide a transfer agent and
registrar for all Registrable Securities registered pursuant hereto and a CUSIP
number for all such Registrable Securities, in each case, no later than the
effective date of such registration;
(xxi) Private Sales. Use its reasonable best efforts to assist a Holder in
facilitating private sales of Registrable Securities by, among other things,
providing officers' certificates and other customary closing documents; and
(xxii) Best Efforts. Use its reasonable best efforts to take all other
actions necessary to effect the registration of the Registrable Securities
contemplated hereby.
(b) Seller Information. The Company may require each Participating Holder
as to which any registration of such Holder's Registrable Securities is being
effected to furnish to the Company with such information regarding such
Participating Holder and such Participating Holder's method of distribution of
such Registrable Securities as the Company may from time to time reasonably
request in writing. If a Participating Holder refuses to provide the Company
with any of such information on the grounds that it is not necessary to include
such information in the Registration Statement, the Company may exclude such
Participating Holder's Registrable Securities from the Registration Statement if
the Company provides such Participating Holder with an opinion of counsel to the
effect that such information must be included in the Registration Statement and
such Participating Holder continues thereafter to withhold such information. The
exclusion of a Participating Holder's Registrable Securities shall not affect
the registration of the other Registrable Securities to be included in the
Registration Statement.
(c) Notice to Discontinue. Each Participating Holder whose Registrable
Securities are covered by the Registration Statement filed pursuant to this
Agreement agrees that, upon receipt of written notice from the Company of the
happening of any event of the kind described in Section 2.03(a)(v), such
Participating Holder shall forthwith discontinue the disposition of Registrable
Securities until such Participating Holder's receipt of the copies of the
supplemented or amended prospectus contemplated by Section 2.03(a)(v) or until
it is advised in writing by the Company that the use of the prospectus may be
resumed and has received copies of any additional or supplemental filings which
are incorporated by reference into the prospectus, and, if so directed by the
Company in the case of an event described in Section 2.03(a)(v), such
Participating Holder shall deliver to the Company (at the Company's expense) all
copies, other than permanent file copies then in such Participating Holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice.
Section 2.04 Registration Expenses. Except as otherwise provided herein,
all Registration Expenses shall be borne by the Company. All Selling Expenses
relating to Registrable Securities registered shall be borne by the
Participating Holders of such Registrable Securities pro rata on the basis of
the number of shares so registered.
Section 2.05 Indemnification.
(a) Indemnification by the Company. The Company agrees, notwithstanding
termination of this Agreement, to indemnify and hold harmless to the fullest
extent permitted by applicable law, each Holder, each of its directors,
officers, employees, advisors, agents and general or limited partners (and the
directors, officers, employees, advisors and agents thereof), their respective
Affiliates and each Person who controls (within the meaning of the Securities
Act or the Exchange Act) any of such Persons, and each underwriter and each
Person who controls (within the meaning of the Securities Act or the Exchange
Act) any underwriter (collectively, "Holder Indemnified Parties") from and
against any and all losses, claims, damages, expenses (including, reasonable
costs of investigation and fees, disbursements and other charges of counsel and
experts and any amounts paid in settlement effected with the Company's consent,
which consent shall not be unreasonably withheld or delayed) or other
liabilities (collectively, "Losses") to which any such Holder Indemnified Party
may become subject under the Securities Act, Exchange Act, any other federal
law, any state or common law or any rule or regulation promulgated thereunder or
otherwise, insofar as such Losses (or actions or proceedings, whether commenced
or threatened, in respect thereof) are resulting from or arising out of or based
upon (i) any untrue, or alleged untrue, statement of a material fact contained
in the Registration Statement, prospectus or preliminary prospectus (as amended
or supplemented) or any document incorporated by reference in any of the
foregoing or resulting from or arising out of or based upon any omission or
alleged omission to state therein a material fact required to be stated therein
or necessary to make the statements therein (in the case of a prospectus, in
light of the circumstances under which they were made), not misleading, or (ii)
any violation by the Company of the Securities Act, Exchange Act, any other
federal law, any state or common law or any rule or regulation promulgated
thereunder or otherwise incident to any registration, qualification or
compliance and in any such case, the Company will promptly reimburse each such
Holder Indemnified Party for any legal expenses and any other Losses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability, action or investigation or proceeding
(collectively, a "Claim"). Such indemnity obligation shall remain in full force
and effect regardless of any investigation made by or on behalf of the Holder
Indemnified Parties and shall survive the transfer of Registrable Securities by
such Holder Indemnified Parties.
15
(b) Indemnification by Holders. In connection with any proposed
registration in which a Holder is participating pursuant to this Agreement, each
such Holder shall furnish to the Company in writing such information with
respect to such Holder as the Company may reasonably request or as may be
required by law for use in connection with the Registration Statement or
prospectus or preliminary prospectus to be used in connection with such
registration and each Holder agrees, severally and not jointly, to indemnify and
hold harmless the Company, any underwriter retained by the Company and their
respective directors, officers, partners, employees, advisors and agents, their
respective Affiliates and each Person who controls (within the meaning of the
Securities Act or the Exchange Act) any of such Persons to the same extent as
the foregoing indemnity from the Company to the Holders as set forth in Section
2.05(a) (subject to the exceptions set forth in the foregoing indemnity, the
proviso to this sentence and applicable law), but only with respect to any such
information furnished in writing by such Holder expressly for use therein;
provided, however, that, unless such liability is directly caused by such
Holder's willful or intentional misconduct, the liability of any such Holder
under this Section 2.05(b) shall be limited to the amount of the net proceeds
received by such Holder in the offering giving rise to such liability. Such
indemnity obligation shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties (except as
provided above) and shall survive the transfer of Registrable Securities by such
Holder.
16
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, however, that, the failure so to notify
the Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder unless and to the extent
such Indemnifying Party is materially prejudiced by such failure. If notice of
commencement of any such action is given to the Indemnifying Party as above
provided, the Indemnifying Party may participate in and, to the extent it may
wish, jointly with any other Indemnifying Party similarly notified, to assume
the defense of such action at its own expense, with counsel chosen by it and
reasonably satisfactory to such Indemnified Party. The Indemnified Party may
employ separate counsel in any such action and participate in the defense
thereof, but the fees and expenses of such counsel shall be paid by the
Indemnified Party unless (i) the Indemnifying Party agrees to pay the same, (ii)
the Indemnifying Party fails to assume the defense of such action with counsel
satisfactory to the Indemnified Party in its reasonable judgment or (iii) the
named parties to any such action reasonably believe that the representation of
such Indemnified Party and the Indemnifying Party by the same counsel would be
inappropriate under applicable standards of professional conduct. In the case of
clause (ii) above and (iii) above, the Indemnifying Party may not assume the
defense of such action on behalf of such Indemnified Party. No Indemnifying
Party shall be liable for any settlement entered into without its written
consent, which consent shall not be unreasonably withheld. No Indemnifying Party
may, without the written consent of the Indemnified Party, effect the settlement
or compromise of, or consent to the entry of any judgment with respect to, any
pending or threatened Claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Party is an actual or
potential party to such Claim) unless such settlement, compromise or judgment
(A) includes an unconditional release of the Indemnified Party from all
liability arising out of such Claim and (B) does not include a statement as to,
or an admission of, fault, culpability or a failure to act by or on behalf of
any Indemnified Party. The rights afforded to any Indemnified Party hereunder
shall be in addition to any rights that such Indemnified Party may have at
common law, by separate agreement or otherwise.
(d) Contribution. If the indemnification provided for in this Section 2.05
from the Indemnifying Party is unavailable or insufficient to hold harmless an
Indemnified Party in respect of any Losses, then the Indemnifying Party, in lieu
of indemnifying the Indemnified Party, shall contribute to the amount paid or
payable by the Indemnified Party as a result of such Losses in such proportion
as is appropriate to reflect the relative fault of the Indemnifying Party and
the Indemnified Party, as well as any other relevant equitable considerations.
The relative faults of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, was made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
Indemnifying Party's and Indemnified Party's relative intent, knowledge, access
to information and opportunity to correct or prevent such action; provided,
however, that, unless such liability is directly caused by such Holder's willful
or intentional misconduct, the liability of any such Holder under this Section
2.05(d) shall be limited to the amount of the net proceeds received by such
Holder in the offering giving rise to such liability. The amount paid or payable
by a party as a result of the Losses or other liabilities referred to above
shall be deemed to include, subject to the limitations set forth in Section
2.05(a), (b) and (c), any legal or other fees, charges or expenses reasonably
incurred by such party in connection with any investigation or proceeding.
17
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 2.05(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
No person guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) shall be entitled to contribution pursuant to this
Section 2.05(d).
Section 2.06 Rule 144 and Rule 144A; Other Exemptions. The Company shall
(i) file in a timely manner all reports and other documents required to be filed
by it under the Securities Act and the Exchange Act and the rules and
regulations adopted by the SEC thereunder and (ii) take such further action as
each Holder may reasonably request (including providing any information
necessary to comply with Rule 144), all to the extent required from time to time
to enable such Holder to sell Registrable Securities without registration under
the Securities Act within the limitation of the exemptions provided by (x) Rule
144 under the Securities Act, as such rules may be amended from time to time or
(y) any other rules or regulations now existing or hereafter adopted by the SEC.
Upon the written request of a Holder, the Company shall deliver to the Holder a
written statement as to whether it has complied with such requirements.
Section 2.07 Certain Limitations On Registration Rights. No Holder may
participate in the Registration Statement hereunder unless such Holder completes
and executes all questionnaires, powers of attorney, indemnities, underwriting
agreements, and other documents reasonably required under the terms of such
underwriting arrangements and agrees to sell such Holder's Registrable
Securities on the basis provided in any underwriting agreement approved by the
Holder or Holders entitled hereunder to approve such arrangements; provided,
however, that no such Holder shall be required to make any representations or
warranties to the Company or the underwriters in connection with any such
registration other than representations and warranties as to (i) such Holder's
ownership of its Registrable Securities to be sold or transferred, (ii) such
Holder's power and authority to effect such transfer and (iii) such matters
pertaining to compliance with securities laws as may be reasonably requested.
Such Holders of Registrable Securities to be sold by such underwriters may, at
their option, require that any or all of the representations and warranties by,
and the other agreements on the part of the Company to and for the benefit of
such underwriters, shall also be made to and for the benefit of such Holders and
that any or all of the conditions precedent to the obligations of the
underwriters under the underwriting agreement be conditions precedent to the
obligations of the Holders.
Section 2.08 Limitations on Subsequent Registration Rights. The Company
will not, without the prior written consent of the Holders of at least 66-2/3%
of the Registrable Securities then outstanding, enter into any agreement (or
amendment or waiver of the provisions of any agreement) with any holder or
prospective holder of any securities of the Company that would grant such holder
registration rights that are more favorable, pari passu or senior to those
granted to the Holders hereunder.
18
Section 2.09 Restrictions on Public Sale by Holders. If requested by the
lead managing underwriter with respect to any firm underwriting public offering
in which Holders are permitted to participate hereunder, each Holder of
Registrable Securities agrees not to effect any public sale or distribution of
any Registrable Securities being registered or of any securities convertible
into or exchangeable or exercisable for such Registrable Securities, including a
sale pursuant to Rule 144 under the Securities Act, during a period of not more
than 180 days after any firm underwriting public offering of Common Stock of the
Company, commencing on the effective date of the Registration Statement (the
"Lock-Up Period"), unless expressly authorized to do so by the lead managing
underwriter; provided, however, that if any other holder of securities of the
Company is subject to a shorter period or receives more advantageous terms
relating to the Lock-Up Period, then the Lock-Up Period shall be such shorter
period and also on such more advantageous terms. Notwithstanding the foregoing,
the Holders shall not be required to sign lock-up agreements unless other
Persons permitted to include securities on such Registration Statement and all
of the Company's directors, officers and shareholders owning 5% or more of the
Company's fully diluted voting stock have signed substantially similar lock-up
agreements with the managing underwriters. Any such lock-up agreements signed by
the Holders shall contain reasonable and customary exceptions.
Section 2.10 Transfer of Registration Rights. The rights of a Holder
hereunder may be transferred or assigned in connection with a transfer of
Registrable Securities to any transferee who, after such transfer, by itself or
together with its Affiliates, would become a Rights Holder. Notwithstanding the
foregoing, such rights may only be transferred or assigned provided that all of
the following additional conditions are satisfied: (a) such transfer or
assignment is effected in accordance with applicable securities laws; (b) such
transferee or assignee executes a Joinder Agreement in the form of Exhibit B;
and (c) the Company is given written notice by such Holder of such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the Registrable Securities with respect to which such rights are
being transferred or assigned.
Section 2.11 Amendment. The provisions of this Article II may be waived or
amended by the agreement of a Rights Holder Majority.
19
ARTICLE III.
------------
INFORMATION RIGHTS
The Company may fail, in any particular instance, to comply with any
covenant or condition set forth in this Article III, or amend such covenant or
condition, if before or (in the case of a waiver) after the time for such
compliance a Substantial Holder Preferred Majority either waives or amends in
writing such compliance in such instance or generally waives or amends
compliance with such covenant or condition, but no such waiver or amendment
shall extend to or affect such covenant or condition except to the extent so
expressly waived or amended, and, until such waiver or amendment becomes
effective, the obligations and duties of the Company in respect of any such
covenant or condition shall remain in full force and effect.
20
Section 3.01 Financial Information to Holders. Other than for any period a
Substantial Holder requests to not receive the following information, the
Company shall furnish to such Substantial Holder:
(a) Monthly Reports. As soon as available, but in any event within 30 days
after the end of each calendar month (except the last month of the Company's
fiscal year), monthly unaudited financial statements, including a consolidated
balance sheet as of the end of such month, a consolidated statement of income
and a consolidated statement of cash flows for such month and the current fiscal
year to date, in each case setting forth in comparative form the figures for the
corresponding periods of the previous fiscal year and the Company's projected
financial statements for the current fiscal year and showing deviations from the
Company's budget, such financial statements to be prepared in accordance with
U.S. generally accepted accounting principles consistently applied (with the
exception of footnotes). Monthly financial statements shall be accompanied by a
certification of the principal financial or accounting officer of the Company as
to the conformity of the financial statements with this Section 3.01(a).
(b) Business Plan and Operating Budget. (i) as soon as practicable, but in
any event within five days after adoption by the Board and no later than 30 days
prior to the commencement of each fiscal year of the Company, an annual business
plan and operating budget for the next immediate fiscal year, which business
plan shall include a projection of income and projected cash flow statement for
each fiscal quarter in such fiscal year and a projected balance sheet as of the
end of each fiscal quarter in such fiscal year and (ii) within a reasonable time
after its preparation, any amendment to such previously delivered annual
business plan and operating budget.
(c) Document Delivery. promptly furnish (i) all documents that are, or
would be, required to be filed under the Exchange Act by a company whose
securities are listed on a national securities exchange; (ii) copies of any
document relating to the affairs of the Company that has been delivered to any
other securityholder of the Company or broadly to the financial community; (iii)
copies of all management letters from accountants; and (iv) all documents
prepared by or for the Company as to compliance, defaults, material adverse
changes, material litigation, disputes or similar matters.
(d) Reserve Reports. as soon as available, but in any event within five
days after receipt by the Company thereof, each oil and gas reserve engineering
report created on behalf of the Company.
(e) Requests from Substantial Holders. promptly upon request, such other
information relating to the financial condition, business, prospects,
litigation, regulatory or governmental matters or corporate affairs of the
Company that such Substantial Holders may from time to time reasonably request.
Section 3.02 Board Observation Rights. So long as any shares of the
Preferred Stock are outstanding, the Company shall permit a representative of
each Substantial Holder to attend all meetings of the Board (whether such
meeting is held by telephone or other telecommunications equipment or in person)
and shall furnish to each Substantial Holder notice of such meetings and a copy
of all communications made to or among the members of the Board
contemporaneously with the initial delivery of such communications.
21
Section 3.03 Confidentiality. Any Holder receiving non-public information
concerning the Company pursuant to Section 3.01 and/or Section 3.02
("Confidential Information") agrees and acknowledges that, except as required by
applicable law, it will take all measures reasonably practicable to ensure
Confidential Information will not be disclosed to anyone except its employees,
affiliates, officers, directors, partners, agents, advisors or representatives
(collectively, the "Representatives") to extent such Representatives are subject
to substantially similar terms and conditions as are referred to in this Section
3.03. For this Section 3.03, Confidential Information shall not include any
information that, with respect to any Holder (i) becomes generally available to
the public other than as a result of a disclosure by a Holder or any
Representative of a Holder in violation of Section 3.03, (ii) was in such
Holder's possession prior to the disclosure of the Confidential Information
pursuant to this Section 3.03 or (iii) becomes available to such Holder or such
Holder's Representative on a non-confidential basis from a source other than the
Company.
Section 3.04 Acknowledgement Regarding Confidential Information. Each
Holder acknowledges and agrees that certain laws prohibit such Holder from
trading securities of the Company on the basis of material Confidential
Information, though this Section 3.04 shall not be enforceable against, and
shall not give rise to a cause of action against, any Holder.
Section 3.05 Transfer of Information Rights. The rights and benefits of a
Holder hereunder may be transferred or assigned in connection with a transfer of
any of the Preferred Stock to any transferee who, after such transfer, by itself
or together with its Affiliates, would become a Substantial Holder.
Notwithstanding the foregoing, such rights may only be transferred or assigned
provided that all of the following additional conditions are satisfied: (a) such
transfer or assignment is effected in accordance with applicable securities
laws; (b) such transferee or assignee executes a Joinder Agreement in the form
of Exhibit B; and (c) the Company is given written notice by such Holder of such
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Registrable Securities with respect to which such
rights are being transferred or assigned.
ARTICLE IV.
-----------
COVENANTS OF THE COMPANY
Except with respect to Section 4.25 and Section 4.26, the Company may fail,
in any particular instance, to comply with any covenant or condition set forth
in this Article IV, or amend any such covenant or condition, if before or (in
the case of a waiver) after the time for such compliance a Substantial Holder
Preferred Majority either waives or amends in writing such compliance in such
instance or generally waives or amends compliance with such covenant or
condition, but no such waiver or amendment shall extend to or affect such
covenant or condition except to the extent so expressly waived or amended, and,
until such waiver or amendment shall become effective, the obligations and
duties of the Company in respect of any such covenant or condition shall remain
in full force and effect. With respect to Section 4.25, such waiver or amendment
may only be effected by the consent of a Rights Holder Majority and, with
respect to Section 4.26, such waiver or amendment may only be effected by the
consent of a Holder Preferred Majority.
22
Section 4.01 Corporate Existence. The Company shall preserve and maintain,
and, except as otherwise permitted by Section 4.11, cause each of its
subsidiaries to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each of its subsidiaries to qualify and remain
qualified, as a foreign corporation in each jurisdiction in which such
qualification is necessary or desirable in view of its business and operations
or the ownership or lease of its properties.
Section 4.02 Preservation of Property and Assets. The Company shall use its
best efforts to secure, preserve and maintain, and cause each of its
subsidiaries to use its best efforts to secure, preserve and maintain, all
licenses, permits and other rights to use all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, processes, designs, methodologies, computer programs (including all
source codes) and related documentation, technical information, manufacturing,
engineering and technical drawings, know-how, concepts and all pending
applications for and registrations of patents, trademarks, service marks and
copyrights owned or possessed by it and deemed by the Company to be material to
the conduct of its business or the business of such subsidiary. The Company
shall also use its best efforts to maintain and preserve, and cause each of its
subsidiaries to use its best efforts to maintain and preserve, all of its other
properties and assets necessary for the proper conduct of its business, in good
repair, working order and condition, ordinary wear and tear excepted, and, from
time to time, make all necessary and proper repairs, renewals, replacements,
additions and improvements thereto; and the Company and its subsidiaries will at
all times comply with each material provision of all leases to which any of them
is a party or under which any of them occupies property if the breach of such
provision might have a material and adverse effect on the business, assets,
liabilities, prospects, condition, financial or otherwise, or operations of the
Company.
Section 4.03 Properties, Business, Insurance. The Company shall obtain and
maintain and cause each of its subsidiaries to maintain as to its 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 consistent with past practices of the Company. The Company
shall not cause or permit any assignment or change in beneficiary and shall not
borrow against any such policy. If requested by a Holder (if holding, in the
aggregate, at least a majority of the then outstanding Preferred Stock (or
shares of Common Stock converted from the Preferred Stock)), the Company will
add one designee of such Holder as a notice party for such policy and shall
request that the issuer of such policy provide such designee with ten days
notice before such policy is terminated (for failure to pay premiums or
otherwise) or assigned or before any change is made in the beneficiary thereof.
Section 4.04 Directors and Officers Insurance. The Company will (i) upon a
Substantial Holder's written request, obtain and maintain directors and
officers' liability insurance in the amount of at least $5,000,000 and (ii) at
all times exercise the powers granted to it by its Articles of Incorporation and
bylaws (together, the "Organizational Documents"), and by applicable law to
indemnify and hold harmless to the fullest extent permitted by applicable law
present or former directors and officers of the Company against any threatened
or actual claim, action, suit, proceeding or investigation made against them
arising from their service in such capacities (or service in such capacities for
another enterprise at the request of the Company).
23
Section 4.05 Inspection, Consultation and Advice. The Company shall permit,
and cause each of its subsidiaries to permit, each Substantial Holder and such
persons as it may designate, at such Substantial Holder's expense, to visit and
inspect any of the properties of the Company and such subsidiary, examine their
books and take copies and extracts therefrom, discuss the affairs, finances and
accounts of the Company and such subsidiary with their officers, employees and
public accountants (and the Company hereby authorizes said accountants to
discuss with such holder and such designees such affairs, finances and
accounts), and consult with and advise the management of the Company and such
subsidiary as to the Company's affairs, finances and accounts, all at reasonable
times and upon reasonable notice; provided, however, that in the event of the
Company's breach of any of the covenants contained in this Section 4.05, the
Company shall be responsible for the fees and expenses incurred by such
Substantial Holder in enforcing its rights under this Section 4.05.
Section 4.06 Restrictive Agreements Prohibited. Neither the Company nor any
of its subsidiaries shall become a party to any agreement that by its terms
restricts the Company's performance of this Agreement, any of the other
Transaction Documents (as defined in the Subscription Agreement) or the
Organizational Documents.
Section 4.07 Expenses of Directors. The Company shall promptly reimburse in
full, each director of the Company who is not an employee of the Company and who
is appointed by the Holders of the Preferred Stock, for all of his or her
reasonable out-of-pocket expenses incurred in attending each meeting of the
Board or any committee thereof.
Section 4.08 Compensation. The Company shall not pay compensation to its
management in excess of that compensation customarily paid to management in
companies of similar size, of similar maturity, and in similar businesses
without the unanimous written consent of the Board.
Section 4.09 Payment of Taxes; Trade Debt. The Company shall pay and
discharge, and cause each of its subsidiaries to pay and discharge, all taxes,
assessments and governmental charges or levies imposed upon it or upon its
income, profits or business, or upon any properties belonging to it, prior to
the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a Lien or charge upon any properties of the Company or any
of its subsidiaries; provided, however, that neither the Company, nor its
subsidiaries, shall be required to pay any such tax, assessment, charge, levy or
claim which is being contested or extended in good faith and by appropriate
proceedings if the Company or such subsidiary shall have set aside on its books
sufficient reserves, if any, with respect thereto. The Company shall pay and
cause each of its subsidiaries to pay, when due, or in conformity with customary
trade terms, all lease obligations, all trade debt, and all other Indebtedness
incident to the operations of the Company or such subsidiary, except such as are
being contested in good faith and by proper proceedings if the Company or such
subsidiary shall have set aside on its books sufficient reserves, if any, with
respect thereto.
24
Section 4.10 Internal Accounting Controls. The Company shall devise and
maintain a system of internal accounting controls sufficient to provide
reasonable assurances that (a) transactions are executed in accordance with
Company management's general or specific authorization, (b) transactions are
recorded as necessary to permit preparation of financial statements in
conformity with generally accepted accounting principles or any other criteria
applicable to such statements, and to maintain accountability for assets, (c)
access to assets is permitted only in accordance with Company management's
general or specific authorization, and (d) the recorded accountability for
assets is compared with the existing assets at reasonable intervals and
appropriate action is taken with respect to any differences.
Section 4.11 Activities of the Company and its Subsidiaries. The Company
may not, nor may it permit any of its subsidiaries to, consummate an Asset Sale.
Further, the Company shall not (a) organize or acquire any entity that is a
subsidiary unless such subsidiary is wholly-owned (directly or indirectly) by
the Company, (b) permit any of its subsidiaries to consolidate or merge, or sell
or transfer greater than 15% of its assets, except that such subsidiaries may
(i) consolidate or merge into or with or sell or transfer assets to any other
subsidiary of the Company, or (ii) merge into or sell or transfer assets to the
Company, (c) sell, pledge or otherwise transfer any shares of capital stock of
any of its subsidiaries, except to the Company or another of its subsidiaries,
or permit any of its subsidiaries to issue, sell, pledge or otherwise transfer
any shares of its capital stock or the capital stock of any of its subsidiaries,
except to the Company or another of the Company's subsidiaries or (d) permit any
of its subsidiaries to purchase or set aside any sums for the purchase of, or
pay any dividend or make any distribution on, any shares of its stock, except
for dividends or other distributions payable to the Company or another of its
subsidiaries.
Section 4.12 Compliance with Laws. The Company shall use its commercially
reasonable efforts to comply, and to cause each of its subsidiaries to comply,
with all applicable laws, rules, regulations and orders.
Section 4.13 Keeping of Records and Books of Account. The Company shall
keep, and cause each of its subsidiaries to keep, adequate records and books of
account, in which complete entries will be made in accordance with generally
accepted accounting principles consistently applied, reflecting all financial
transactions of the Company and such 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.
Section 4.14 Change in Nature of Business. The Company shall not make, or
permit any of its subsidiaries to make, any material change in the nature of its
business as currently conducted and proposed to be conducted by the Company.
Section 4.15 Indemnity for Officers and Directors. The Company shall at all
times maintain provisions in its Organizational Documents indemnifying all
directors against liability to the maximum extent permitted under the laws of
the State of Texas.
Section 4.16 Publicity. The Company shall not issue or cause the
publication of any press release, advertisement or other public communication
relating to (a) any Holder (or any of its Affiliates) or (b) this Agreement or
any other Transaction Document, without each Holder's prior written consent.
25
Section 4.17 Employee and Other Stock Arrangements. The Company will not
issue any of its capital stock, or grant an option or rights to subscribe for,
purchase or acquire any of its capital stock, to any employee, consultant,
officer or director of the Company or any of its subsidiaries, except pursuant
to an equity compensation plan duly approved by the shareholders of the Company
or pursuant to options or warrants outstanding as of the date of this Agreement.
Each acquisition of any shares of capital stock of the Company or any option or
right to acquire any shares of capital stock of the Company by an employee,
officer or director of the Company will be conditioned upon the execution and
delivery by the Company and such employee, officer or director of an agreement
substantially in a form approved by the Board.
Section 4.18 Extension of Credit. The Company shall not, nor shall it
permit its subsidiaries to, extend credit by any method or in any form or manner
in excess of $1,000,000, other than open account credit extended to customers in
the ordinary course of business.
Section 4.19 Limitations on Liens. The Company shall not, nor shall it
permit any of its subsidiaries to, create, incur, assume, or suffer to exist any
Liens upon any of their respective assets, except for Permitted Encumbrances or
Liens securing Indebtedness permitted under Section 4.21.
Section 4.20 Loans, Advances, etc. The Company shall not, nor shall it
permit its subsidiaries to, make any loans, advances, or capital contributions
to, or Investments in, any other Person (other than to its wholly owned
subsidiaries to the extent that they remain wholly owned subsidiaries) in excess
of $500,000.
Section 4.21 No Indebtedness; Limits on Certain Securities. The Company
shall not, nor shall it permit any of its subsidiaries to, create, incur,
guarantee, or assume any Indebtedness or otherwise become liable or responsible
for the obligations of any other Person in excess of $1,000,000, except in
connection with a first priority secured reserve based credit facility with no
equity or reserve based incentives. If the Company issues any class of capital
stock that would be considered Junior Stock under the Statement of Resolution
with respect to the Preferred Stock without the consent of a Preferred Holder
Majority, then no such capital stock may be issued unless 50% of the net
proceeds therefrom are used to make an offer to all of the holders of Preferred
Stock to redeem their shares of Preferred Stock, on a pro rata basis at the
Preferred Liquidation Preference thereof (as defined in the statement of
resolution with respect thereto).
Section 4.22 Discharge of Obligations. The Company shall not, nor shall it
permit any subsidiary to, pay, discharge, or satisfy any claims, liabilities or
obligations (whether accrued, absolute, contingent, unliquidated, or otherwise,
and whether asserted or unasserted), other than the payment, discharge, or
satisfaction in the ordinary course of business consistent with past practice,
or in accordance with their terms.
Section 4.23 Affiliate Transactions. Neither the Company nor any of its
subsidiaries will, directly or indirectly enter into or permit to exist any
transaction (including, without limitation, the purchase, sale, lease or
exchange of any property or the rendering of any service) with or for the
benefit of any of its Affiliates (other than transactions between the Company
and a wholly-owned subsidiary of the Company or among wholly-owned subsidiaries
of the Company) (an "Affiliate Transaction"), unless approved of in good faith
by a majority of the members of the Board of Directors of the Company. The
foregoing restrictions on Affiliate Transactions will not apply to (i)
reasonable and customary directors' fees, indemnification, and similar
arrangements and payments thereunder, (ii) any issuance of securities pursuant
to stock option or stock ownership plans approved by the Board of Directors of
the Company, and (iii) transactions pursuant to agreements in existence on the
date hereof.
26
Section 4.24 Disclosure Controls and Procedures; Internal Controls.
(a) The Company will maintain disclosure controls and procedures (as such
term is defined in Rules 13a-15 and 15d-15 under the Exchange Act) that (i) are
designed to ensure that material information relating to the Company, including
its consolidated subsidiaries, is made known on a timely basis to management and
the individuals responsible for the preparation of the Company's filings with
the SEC and other public disclosure documents, particularly during the periods
in which the filings made by the Company with the SEC which it may make under
Sections 13(a), 13(c), 14 or 15(d) of the Exchange Act are being prepared, (ii)
are evaluated for effectiveness as of the end of the periods covered by the
Company's Annual Reports on Form 10-K and Quarterly Reports on Form 10-Q, as the
case may be, filed with the SEC, and (iii) are effective to perform the
functions for which they were established; and
(b) The independent registered public accountants and the Audit Committee
of the Board will be advised by the Company of (i) any significant deficiencies
in the design or operation of internal controls which could adversely affect the
Company's ability to record, process, summarize and report financial data and
(ii) any fraud, whether or not material, that involves management or other
employees who have a role in the Company's internal controls. Any material
weaknesses in internal controls will be identified for the Company's
accountants.
Section 4.25 Pre-emptive Rights (Right of First Refusal).
(a) Subject to the terms and conditions specified in this Section 4.25, the
Company hereby grants to each Rights Holder a right of first refusal with
respect to future sales by the Company of its New Securities (as defined).
(b) Each time the Company receives an offer to purchase any shares of or
securities convertible into or exercisable for any shares of any class of its
capital stock (the "New Securities"), the Company shall allow each Rights Holder
to purchase its Proportionate Share (as hereinafter defined) of such New
Securities in accordance with the following provisions:
(i) The Company shall deliver a notice by certified mail (the "Offer
Notice") to each Rights Holder stating (i) it has received from a third party a
bona fide offer to purchase such New Securities, (ii) the number and class of
New Securities proposed to be purchased by such third party (whether preferred
shares or common shares of the Company), and (iii) the per share purchase price
and terms, if any, upon which such third party proposes to purchase such New
Securities.
27
(ii) By written notification received by the Company within 20 days after
giving of the Offer Notice (the "Offer Period"), each Rights Holder may elect to
purchase or obtain, at the price and on the terms specified in the Offer Notice,
up to that portion and type of such New Securities specified in the Offer Notice
which equals the proportion (the "Proportionate Share") that the number of
Registrable Securities issued and held by such Rights Holder (on an as-converted
basis) bears to the total number of Registrable Securities (on an as-converted
basis).
(iii) In the notice of election made by a Rights Holder pursuant to
paragraph (ii) above, such Rights Holder shall state whether it has agreed to
purchase its Proportionate Share of the New Securities or a lesser number, and
if a lesser number, how many.
(iv) Any notice by a Rights Holder to purchase New Securities shall be
binding on such Rights Holder except to the extent otherwise provided in this
Section 4.25.
(v) Each Rights Holder shall have a right of oversubscription such that, if
any other Rights Holder fails to elect to purchase its full Proportionate Share
of the New Securities, the other Rights Holders shall, among them, have the
right to purchase up to the balance of such New Securities not so purchased.
Such Rights Holders may exercise such right of oversubscription by electing to
purchase more than their Proportionate Share of the New Securities by so
indicating in their written notice given pursuant to paragraph (ii) above. If,
as a result thereof, the oversubscription commitments of the Rights Holders
exceed the total number of the New Securities available, the oversubscribing
Rights Holders shall be cut back with respect to their oversubscriptions on a
pro rata basis in accordance with their respective Proportionate Share or as
they may otherwise agree among themselves.
(c) With respect to those New Securities that are not subscribed by the
Rights Holders, (a) the Company shall have a 60 day period following the
expiration of the Offer Period to sell or enter into an agreement to sell the
New Securities to the third party that so offered to purchase such New
Securities at a price not less than, and upon terms no more favorable to such
third party than those specified in the Offer Notice, and (b) no Rights Holder
that has exercised his, her or its right to purchase any New Securities pursuant
to this Section 4.25 shall be obligated to consummate such purchase unless and
until any New Securities available for issuance and sale to such third party
have actually been issued and sold in accordance with the terms set forth in the
Offer Notice, in which event a closing with respect to both the purchase by such
Rights Holder and such third party shall occur simultaneously. If the Company
does not sell such New Securities within such 60 day period or the agreement
entered into with respect to such New Securities within such 60 day period is
not consummated within 30 days of the execution thereof, the Company shall not
thereafter issue or sell any New Securities without first again offering such
securities to the Rights Holders in the manner provided above.
(d) The right of first refusal in this Section 4.25 shall not be applicable
(i) to the issuance or sale of Common Stock or incentive shares (or options
therefor) pursuant to a stock option plan (or similar equity incentive plan) to
employees, consultants, managers or directors and approved by the Board, (ii)
the issuance of securities pursuant to the conversion or exercise of convertible
or exercisable securities, (iii) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise, in each
case, approved by the Board, (iv) the issuance of securities to banks, equipment
lessors and similar financial institutions in connection with commercial credit
arrangements or equipment financings that have a primary purpose other than the
raising of equity capital, or (v) to or after consummation of any merger or
consolidation of the Company.
28
Section 4.26 Merger.
(a) Proxy Statement. As promptly as practicable after the execution of this
Agreement, the Company will prepare and file with the SEC a proxy statement
(together with any amendments thereof or supplements thereto, in each case in
the form or forms mailed to Company's shareholders, the "Proxy Statement")
relating to the meeting of Company's shareholders to be held in connection with
merger of the Company into a Delaware corporation and wholly owned subsidiary of
the Company governed by a Certificate of Incorporation ("Certificate of
Incorporation") substantially in the form attached as Exhibit A (the "Merger").
As promptly as practicable the Company will mail the Proxy Statement to its
shareholders. The Proxy Statement will include the recommendation of the Board
in favor of approving the Merger. The Proxy Statement will not be filed with the
SEC by, and no amendment or supplement to the Proxy Statement will be made by,
the Company without the approval of the Holders (which approval will not be
unreasonably withheld or delayed). The Holders and the Company each will advise
the other, promptly after it receives notice thereof, of any request by the SEC
for amendment of the Proxy Statement or comments thereon and responses thereto
or requests by the SEC for additional information.
(b) Shareholders Meeting. The Company will, in accordance with applicable
law and the Organizational Documents, duly call, give notice of, convene and
hold a special meeting of its shareholders for the purpose of approving the
Merger by the Company's shareholders in accordance with applicable law and the
Organizational Documents. The Company will use its reasonable efforts to cause
the meeting to occur within 60 days after the date on which the Proxy Statement
is first mailed to shareholders.
(c) Payments Under Certain Circumstances.
(i) Payments ("Payments") with respect to the Registrable Securities shall
be assessed as provided below if (i) the Merger has not been approved by the
Board and the Company's shareholders by July 30, 2005 or (ii) all requisite
filings to effectuate the Merger have not been made, and accepted by, each of
the Texas and Delaware Secretary of States by July 30, 2005 (a "Default"). The
foregoing will constitute a Default whatever the reason for any such event and
whether it is voluntary or involuntary or is beyond the Company's control or
pursuant to operation of law or as a result of any action or inaction by any
third party.
(ii) Payments shall accrue on the Preferred Stock from and including the
date on which the Default occurs to but excluding the date on which the Default
has been cured (or the date on which the New Preferred Stock has been created
and certain of the Preferred Stock has been converted into such New Preferred
Stock as provided for below), at a rate of $80 per share of Preferred Stock per
annum (subject to adjustment for splits, recombinations and similar matters).
Other than the obligation of payment of any Payments in accordance with the
terms hereof, the Company will have no other liabilities for monetary damages
with respect to a Default, except as set forth below regarding creation of the
New Preferred Stock and conversion of certain of the shares of the Preferred
Stock into such New Preferred Stock. With respect to each Holder, the Company's
obligations to pay Payments remain in effect only so long as the securities held
by the Holder are Registrable Securities.
29
(iii) Any amounts of Payments due will be payable in cash monthly at the
end of each month until the Default is cured or the New Preferred Stock is
created and certain of such Preferred Stock has been converted into such New
Preferred Stock as contemplated below. The amount of Payments will be determined
on the basis of a 360-day year comprised of twelve 30-day months, and the actual
number of days on which Payments accrued during such period.
(d) Creation of New Series of Preferred Stock. If, by December 31, 2005,
the Default is not cured, the Company shall use its best efforts to convert (on
a pro rata basis based on the number of shares of Preferred Stock held by each
such Holder in proportion to the total number of shares of Preferred Stock
issued and outstanding) an amount of shares of Preferred Stock into New
Preferred Stock, such that the remaining shares of Preferred Stock shall have
sufficient shares of Common Stock into which they may convert. The "New
Preferred Stock" shall be a series of preferred stock, substantially similar to
the Preferred Stock, except that:
(i) it shall not have the right to vote except as required by law;
(ii) it shall be mandatorily redeemable at the holder's option on January
15, 2008, and if not so redeemed, the dividend rate thereon shall increase to
14%;
(iii) it shall not be convertible;
(iv) it shall bear a quarterly dividend at an annual rate of 12%; and
(v) it shall be optionally redeemable by the Company at any time.
Section 4.27 Transfer of Covenants. Except with respect to Section 4.25 and
Section 4.26, the rights and benefits of a Holder hereunder may be transferred
or assigned in connection with a transfer of the Preferred Stock to any
transferee who, after such transfer, by itself or together with its Affiliates,
would become a Substantial Holder. With respect to Section 4.25, the rights of a
Holder hereunder may be transferred or assigned in connection with a transfer of
Registrable Securities to any transferee who, after such transfer, by itself or
together with its Affiliates, would become a Rights Holder. With respect to
Section 4.26, the rights of a Holder hereunder may be transferred or assigned in
connection with a transfer of Preferred Stock to any Person. Notwithstanding the
foregoing, such rights may only be transferred or assigned provided that all of
the following additional conditions are satisfied: (a) such transfer or
assignment is effected in accordance with applicable securities laws; (b) such
transferee or assignee executes a Joinder Agreement in the form of Exhibit B;
and (c) the Company is given written notice by such Holder of such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the securities with respect to which such rights are being
transferred or assigned.
30
ARTICLE V.
----------
GENERAL PROVISIONS
Section 5.01 Accounting. The Company covenants that it will not make any
change in the Company's accounting principles, methods or practices or
depreciation or amortization policies or rates currently in effect, including
any change from "full cost pool" to "successful efforts" accounting.
Section 5.02 Further Assurances. The Company and each Holder agree to take
such actions and execute and deliver such other documents or agreements as may
be necessary or desirable for the implementation of this Agreement and the other
Transaction Documents and the consummation of the transactions contemplated
hereby and thereby.
Section 5.03 Notices. Any notice, request, demand or other communication
required or permitted to be given to a party pursuant to the provisions of this
Agreement will be in writing and will be effective and deemed given under this
Agreement on the earliest of: (a) the date of personal delivery, (b) the date of
transmission by facsimile, with confirmed transmission and receipt, (c) two days
after deposit with a nationally-recognized courier or overnight service such as
Federal Express, or (d) five days after mailing via certified mail, return
receipt requested. All notices not delivered personally or by facsimile will be
sent with postage and other charges prepaid and properly addressed to the party
to be notified at the address set forth for such party:
If to Purchaser:
c/o Oaktree Capital Management, LLC
000 Xxxxx Xxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: B. Xxxxx Xxxx
Telecopier: (000) 000-0000
with a copy to (which does not constitute notice):
Akin Gump Xxxxxxx Xxxxx & Xxxx LLP
0000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx Xxxxxx
If to the Company:
000 X. Xxx Xxxxxxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxx
31
with a copy to (which does not constitute notice):
Xxxxxxx Xxxxxx L.L.P.
000 Xxxx Xxxxxx, Xxxxx 0000
Xxxxxx, Xxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
Attn: Xxxxxxx X. Xxxxxxxx
Any party hereto (and such party's permitted assigns) may change such
party's address for receipt of future notices hereunder by giving written notice
to the Company and the other parties hereto.
Section 5.04 Governing Law. This Agreement and the performance of the
transactions and the obligations of the parties hereunder will be governed by
and construed and enforced in accordance with the laws of the State of Texas,
without giving effect to any choice of law principles.
Section 5.05 Entire Agreement. This Agreement and each of the other
Transaction Documents, constitutes the entire agreement and understanding of the
parties hereto in respect of its subject matters and supersedes all prior
understandings, agreements, or representations by or among the parties hereto,
written or oral, to the extent they relate in any way to the subject matter
hereof or the transactions contemplated hereby.
Section 5.06 Counterparts. This Agreement may be executed in two or more
counterparts, each of which will be deemed an original but all of which together
will constitute one and the same instrument.
Section 5.07 Parties in Interest.
Except as otherwise set forth in this Agreement, all representations,
warranties, covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto whether so expressed or
not. Without limiting the generality of the foregoing, except as otherwise set
forth in this Agreement all representations, covenants and agreements benefiting
a Holder shall inure to the benefit of any and all subsequent Holders from time
to time of Registrable Securities. Nothing in this Agreement shall create or be
deemed to create any third-party beneficiary rights in any Person not a party to
this Agreement except with respect to any Indemnified Party under Section 2.05.
Section 5.08 Waiver, Amendment and Termination. Except as otherwise set
forth in this Agreement, the provisions of this Agreement may be waived or
amended by the agreement of a Holder Majority; provided, however, that no such
amendment or waiver may affect any provision of this Agreement, including the
second sentence of this Section 5.08, intended for the benefit of holders of a
specified percentage or amount of securities hereunder, or which would otherwise
affect the rights of such holders, unless such amendment or waiver is consented
to by a Holder Preferred Majority, Rights Holder Majority or Substantial Holder
Preferred Majority, as the case may be. Upon the conversion of all the
Registrable Securities that are Preferred Stock into Common Stock this Agreement
shall terminate except for Article I, Article II, the preamble to Article IV,
Section 4.25, Section 4.26, Section 4.27, and Article V (except for Section
5.01), which in each case shall survive termination or expiration of this
Agreement; provided, however, that (i) Section 4.25 shall terminate upon the
last to occur of (a) conversion of all the Registrable Securities that are
Preferred Stock into Common Stock and (b) five years from the date hereof and
(ii) Section 4.26 shall terminate upon the first to occur of (a) the Merger and
(b) the conversion of certain of the shares of Preferred Stock into New
Preferred Stock in accordance with Section 4.26(d).
32
Section 5.09 Severability. The provisions of this Agreement will be deemed
severable and the invalidity or unenforceability of any provision hereof will
not affect the validity or enforceability of the other provisions hereof;
provided that if any provision of this Agreement, as applied to any party or to
any circumstance, is adjudged by a court, governmental body, arbitrator not to
be enforceable in accordance with its terms, the parties agree that the court,
governmental body, arbitrator making such determination will have the power to
modify the provision in a manner consistent with its objectives such that it is
enforceable, and/or to delete specific words or phrases, and in its reduced
form, such provision will then be enforceable and will be enforced.
Section 5.10 Titles and Subtitles. The article and section headings
contained in this Agreement are inserted for convenience only and will not
affect in any way the meaning or interpretation of this Agreement.
Section 5.11 Third Parties. Nothing in this Agreement, express or implied,
is intended to confer upon any Person other than the parties hereto and the
Indemnified Parties and their successors and assigns, any rights or remedies by
reason of this Agreement.
Section 5.12 Construction. The parties hereto have jointly participated in
the negotiation and drafting of this Agreement. If an ambiguity or question of
intent or interpretation arises, this Agreement will be construed as if drafted
jointly by the parties hereto and no presumption or burden of proof will arise
favoring or disfavoring any party hereto because of the authorship of any
provision of this Agreement. Any reference to any federal, state, local or
foreign law will also be deemed to refer to such law as amended and all rules
and regulations promulgated thereunder, unless the context otherwise requires.
The words "include," "includes" and "including" shall be deemed to be followed
by "without limitation." Pronouns in masculine, feminine and neuter genders will
be construed to include any other gender, and words in the singular form will be
construed to include the plural and vice versa, unless the context otherwise
requires. The words "this Agreement," "herein," "hereof," "hereby," "hereunder"
and words of similar import refer to this Agreement as a whole and not to any
particular subdivision unless expressly so limited. The parties hereto intend
that each representation, warranty and covenant contained herein will have
independent significance. If any party hereto has breached any representation,
warranty or covenant contained herein in any respect, the fact that there exists
another representation, warranty or covenant relating to the same subject matter
(regardless of the relative levels of specificity) which such party has
breached, will not detract from or mitigate the fact that such party is in
breach of the first representation, warranty or covenant.
33
Section 5.13 Remedies. The parties shall have all remedies for breach of
this Agreement available to them as provided by law or equity. Without limiting
the generality of the foregoing, the parties agree that in addition to any other
rights and remedies available at law or in equity, the parties shall be entitled
to obtain specific performance of the obligations of each party to this
Agreement and immediate injunctive relief and that, in the event any action or
proceeding is brought in equity or to enforce the same, no party will urge, as a
defense, that there is an adequate remedy at law. No single or partial assertion
or exercise of any right, power or remedy of a party hereunder shall preclude
any other or further assertion or exercise thereof.
Section 5.14 Arbitration. Any and all claims, counterclaims, demands,
causes of action, disputes, controversies, and other matters in question arising
out of or relating to this Agreement or in any way relating to the subject
matter of this Agreement or the relationship between the parties hereto created
by this Agreement, involving the parties hereto or their respective
representatives ("Disputes") even though all or some of the Disputes allegedly
are extra-contractual in nature, whether such Disputes sound in contract, tort
or otherwise, at law or in equity, under state, provincial or federal law, for
damages or any other relief will be resolved as follows: first, representatives
of the Company and such Holder(s) will meet to attempt to resolve such Dispute.
If the Dispute cannot be resolved by agreement of the parties hereto, any party
may at any time make a written demand for binding arbitration of the Dispute in
accordance with this Section 5.14; provided that the foregoing shall not
preclude equitable or other judicial relief to enforce the provisions hereof or
to preserve the status quo pending resolution of Disputes; and provided further
that resolution of Disputes with respect to claims by third Persons will be
deferred until any judicial proceedings with respect thereto are concluded.
Subject to the provisions of this Section 5.14, such Holder(s) and the Company
will agree upon the rules of the arbitration prior to the arbitration and based
upon the nature of the Dispute; provided that to the extent that the parties
hereto cannot agree on the rules of the arbitration, then the Commercial
Arbitration Rules of the American Arbitration Association in effect on the date
hereof, and except as the applicable rules are modified by this Agreement, will
apply. As a minimum set of rules in the arbitration the parties hereto agree as
follows:
(a) To the extent the claims asserted are in excess of $4.0 million, the
arbitration will be held before a panel of three arbitrators consisting of one
arbitrator selected by such Holder(s), the other selected by the Company, and
the third then selected by those two arbitrators (such third arbitrator to be
neutral). If agreement cannot be reached on a third arbitrator within 30 days of
the need therefor, the Chief Judge of the U.S. District Court for the Southern
District of Texas shall appoint an arbitrator. If the claims asserted are less
than $4.0 million, the Chief Judge of the U.S. District Court for the Southern
District of Texas shall appoint a sole arbitrator. All arbitrators shall be
attorneys with at least ten years experience in oil and gas transactions.
(b) The arbitrator(s) will deliver their decision in writing within 20 days
after the termination of the arbitration hearings.
(c) The non-prevailing party will bear the costs and fees of the
arbitration.
34
(d) The arbitrator(s) final decision will be in writing but will not
specify the basis for their decision, the basis for the damages award or the
basis of any other remedy. The arbitrator(s)' decision will be considered as a
final and binding resolution of the disagreement, will not be subject to appeal
and may be entered as an order in any court of competent jurisdiction in the
United States; provided that this Agreement confers no power or authority upon
the arbitrator(s) (i) to render any decision that is based on clearly
erroneously findings of fact, (ii) that manifestly disregards the law, or (iii)
that exceeds the powers of the arbitrator(s), and no such decision will be
eligible for confirmation. Each party hereto agrees to submit to the
jurisdiction of any such court for purposes of the enforcement of any such
order. No party will xxx the other except for enforcement of the arbitrator(s)'
decision if the other party is not performing in accordance with the
arbitrator(s)' decision. The provisions of this Agreement will be binding on the
arbitrator(s).
(e) Any arbitration proceeding will be conducted on a confidential basis.
(f) Any arbitration proceeding shall be held in Houston, Texas.
(g) Any arbitration proceeding, including discovery, shall be conducted in
accordance with the Texas Rules of Civil Procedure and the Texas Rules of
Evidence.
Section 5.15 Attorneys' Fees. If any action at law or in equity is
necessary to enforce or interpret the terms of this Agreement or any other
agreement or document to be executed or delivered pursuant hereto, the
prevailing party shall be entitled to reasonable attorneys' fees, costs, and
disbursements in addition to any other relief to which such party may be
entitled.
Section 5.16 Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of any class or series, then, upon the occurrence of any subdivision,
combination or stock dividend of such class or series of stock, the specific
number of shares so referenced in this Agreement will automatically be
proportionally adjusted to reflect the effect of such subdivision, combination
or stock dividend on the outstanding shares of such class or series of stock.
Section 5.17 Aggregation of Stock. All shares held or acquired by
Affiliates will be aggregated together for the purpose of determining the
availability of any rights under this Agreement.Section 5.18 Series G Preferred
Stock Purchasers. Notwithstanding anything in this Agreement to the contrary,
the parties acknowledge that Purchaser may transfer shares of the Preferred
Stock to certain individuals as contemplated by Section 3.01 of the Subscription
Agreement, which individuals shall be entitled to the benefits of Article II as
would a Holder of Registrable Securities hereunder, regardless of the number of
shares received by such individuals, provided that each such individual agrees
in writing to be bound hereby to the same extent as Purchaser.
[SIGNATURE PAGE FOLLOWS]
35
IN WITNESS WHEREOF, the Company and Purchaser have executed this Agreement
as of the day and year first above written.
COMPANY: GULFWEST ENERGY, INC.
By: /s/ Xxxx X. Xxxxx
Name:Xxxx X. Xxxxx
Title: Chief Executive Officer
PURCHASER: OCM GW HOLDINGS, LLC
By: OCM Principal Opportunities Fund III, L.P., its
managing member
By: OCM Principal Opportunities Fund III GP, LLC, its
general partner
By: Oaktree Capital Management, LLC, its managing member
By: /s/ Xxxxxxx X. Xxxxxx
-----------------------
Name: Xxxxxxx X. Xxxxxx
Title: Principal
Signature Page to Shareholder Rights Agreement
Exhibit A
---------
CERTIFICATE OF INCORPORATION
OF
[GULFWEST ENERGY INC.]
THE UNDERSIGNED, acting as the incorporator of a corporation under and in
accordance with the General Corporation Law of the State of Delaware, as the
same exists or may hereafter be amended from time to time (the "DGCL"), hereby
adopts the following Certificate of Incorporation for such corporation:
ARTICLE VI.
-----------
NAME
The name of the corporation is [GulfWest Energy Inc.] (the "Corporation").
ARTICLE VII.
------------
PURPOSE
The purpose for which the Corporation is organized is to engage in any or
all lawful acts and activities for which corporations may be incorporated under
the DGCL.
ARTICLE VIII.
-------------
REGISTERED AGENT
The street address of the initial registered office of the Corporation in
the State of Delaware is 0000 Xxxxxx Xxxxxx in the City of Wilmington, County of
New Castle, and the name of the Corporation's initial registered agent at such
address is Corporation Trust Center.
ARTICLE IX.
-----------
CAPITALIZATION
Section 9.01 Authorized Capital Stock
The total number of shares of all classes of capital stock which the
Corporation is authorized to issue is [________] shares of common stock, par
value $0.001 per share (the "Common Stock"), and [________] shares of preferred
stock, par value $0.001 per share (the "Preferred Stock"). Unless specifically
provided otherwise herein, the holders of such shares shall be entitled to one
vote for each share held in any stockholder vote in which any of such holders is
entitled to participate.
Section 9.02 Preferred Stock
(a) The Preferred Stock may be issued from time to time in one or more
series. The Board of Directors (the "Board") is hereby expressly authorized to
provide for the issuance of shares of Preferred Stock in one or more series and
to establish from time to time the number of shares to be included in each such
series and to fix the designation, powers, preferences and relative,
participating, optional and other special rights, if any, of each such series
and the qualifications, limitations and restrictions thereof, as shall be stated
in the resolution(s) adopted by the Board providing for the issuance of such
series and included in a certificate of designations (a "Preferred Stock
Designation") filed pursuant to the DGCL. [Preferred Stock Designations to be
filed concurrently with the filing of this Certificate containing substantially
the same terms and conditions as those Preferred Stock Statements of Resolution,
as amended, to be in place with respect to GulfWest Energy Inc. immediately
following the closing of the Series G Preferred Stock purchase.]
(b) The number of authorized shares of Preferred Stock may be increased or
decreased (but not below the number of shares thereof then outstanding) by the
affirmative vote of the holders of a majority of the outstanding shares of
Common Stock, without a vote of the holders of the Preferred Stock, or any
series thereof, unless a vote of any such holders of Preferred Stock is required
pursuant to another provision of this Certificate (including any Preferred Stock
Designation).
Section 9.03 Common Stock
(a) The holders of shares of Common Stock shall be entitled to one vote for
each such share on each matter properly submitted to the stockholders on which
the holders of shares of Common Stock are entitled to vote. Except as otherwise
required by law or this Certificate (including any Preferred Stock Designation),
at any annual or special meeting of the stockholders the Common Stock shall have
the exclusive right to vote for the election of directors and on all other
matters properly submitted to a vote of the stockholders. Notwithstanding the
foregoing, except as otherwise required by law or this Certificate (including a
Preferred Stock Designation), holders of Common Stock shall not be entitled to
vote on any amendment to this Certificate (including any amendment to any
Preferred Stock Designation) that relates solely to the terms of one or more
outstanding series of Preferred Stock if the holders of such affected series are
entitled, either separately or together with the holders of one or more other
such series, to vote thereon pursuant to this Certificate (including any
Preferred Stock Designation).
(b) Subject to the rights of the holders of Preferred Stock, the holders of
shares of Common Stock shall be entitled to receive such dividends and other
distributions (payable in cash, property or capital stock of the Corporation)
when, as and if declared thereon by the Board from time to time out of any
assets or funds of the Corporation legally available therefor and shall share
equally on a per share basis in such dividends and distributions.
(c) In the event of any voluntary or involuntary liquidation, dissolution
or winding-up of the Corporation, after payment or provision for payment of the
debts and other liabilities of the Corporation, and subject to the rights of the
holders of Preferred Stock in respect thereof, the holders of shares of Common
Stock shall be entitled to receive all the remaining assets of the Corporation
available for distribution to its stockholders, ratably in proportion to the
number of shares of Common Stock held by them.
ARTICLE X.
----------
INCORPORATOR
The name and mailing address of the incorporator is as follows:
----------------------------------------------------- -----------------------------------------------------
Name Address
----------------------------------------------------- -----------------------------------------------------
----------------------------------------------------- -----------------------------------------------------
Xxxxxxxxx Xxx Xxxxxx Akin Gump Xxxxxxx Xxxxx & Xxxx LLP
0000 Xxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxxxxxx, Xxxxx 00000
----------------------------------------------------- -----------------------------------------------------
ARTICLE XI.
-----------
DIRECTORS
Section 11.01 Board Powers
The business and affairs of the Corporation shall be managed by, or under
the direction of, the Board. In addition to the powers and authority expressly
conferred upon the Board by statute, this Certificate or the Bylaws of the
Corporation (the "Bylaws"), the Board is hereby empowered to exercise all such
powers and do all such acts and things as may be exercised or done by the
Corporation, subject, nevertheless, to the provisions of the DGCL, this
Certificate and any Bylaws adopted by the stockholders; provided, however, that
no Bylaws hereafter adopted by the stockholders shall invalidate any prior act
of the Board that would have been valid if such Bylaws had not been adopted.
Section 11.02 Number and Election
(a) Unless and except to the extent that the Bylaws shall so require, the
election of directors need not be by written ballot.
(b) Except as required by any Preferred Stock Designation, the number of
directors of the Corporation, other than those who may be elected by the holders
of one or more series of Preferred Stock entitled to elect a specified number of
directors voting separately by class or series, shall be fixed from time to time
exclusively by the Board pursuant to a resolution adopted by a majority of the
Whole Board. For purposes of this Certificate, "Whole Board" shall mean the
total number of directors the Corporation would have if there were no vacancies.
Section 11.03 Initial Directors
Upon the filing of this Certificate, the powers of the incorporator shall
terminate. The name and mailing address of the persons who are to serve as the
initial directors until the first annual meeting of stockholders of the
Corporation or until such director's successor is duly elected and qualified are
as follows:
Name Address
---- -------
B. Xxxxx Xxxx 000 Xxxxx Xxx Xxxxxxx Xxxxxxx Xxxx
Xxxxx 000
Xxxxxxx, Xxxxx 00000
Xxxxxxx X. Xxxxx
J. Xxxxxx Xxxxxxxx
Xxxxx X. Xxxx
Xxxx Xxxxx
Section 11.04 Newly Created Directorships and Vacancies
Newly created directorships resulting from an increase in the number of
directors and any vacancies on the Board resulting from death, resignation,
retirement, disqualification, removal or other cause may be filled solely by a
majority vote of the directors then in office, even if less than a quorum, or by
a sole remaining director (and not by stockholders except as specified in a
Preferred Stock Designation), and any director so chosen shall hold office for
the remainder of the full term of such directorship and until his or her
successor has been elected and qualified, subject, however, to such director's
earlier death, resignation, retirement, disqualification or removal.
ARTICLE XII.
------------
BYLAWS
In furtherance and not in limitation of the powers conferred upon it by
law, the Board may adopt, amend, alter or repeal the Bylaws. The Bylaws also may
be adopted, amended, altered or repealed by the stockholders.
ARTICLE XIII.
-------------
MEETINGS OF STOCKHOLDERS
Section 13.01 Meetings
Except as otherwise required by law or the terms of any one or more series
of Preferred Stock, special meetings of stockholders of the Corporation may be
called only by the Chairman of the Board, President, or the Board pursuant to a
resolution adopted by a majority of the Whole Board, and the ability of the
stockholders to call a special meeting is hereby specifically denied.
Section 13.02 No Action by Written Consent
Except as otherwise expressly provided by the terms of any series of
Preferred Stock permitting the holders of such series of Preferred Stock to act
by written consent or as may be approved in advance by the Board, any action
required or permitted to be taken by stockholders of the Corporation must be
effected at a duly called annual or special meeting of the stockholders and may
not be effected by written consent in lieu of a meeting.
Section 13.03 Advance Notice
Advance notice of stockholder nominations for the election of directors and
of business to be brought by stockholders before any meeting of the stockholders
of the Corporation shall be given in the manner provided in the By-Laws.
ARTICLE XIV.
------------
LIMITED LIABILITY; INDEMNIFICATION
Section 14.01 Limitation of Personal Liability
No person who is or was a director of the Corporation shall be personally
liable to the Corporation or any of its stockholders for monetary damages for
breach of fiduciary duty as a director, except to the extent such exemption from
liability or limitation thereof is not permitted by the DGCL as the same exists
or hereafter may be amended. If the DGCL is hereafter amended to authorize
corporate action further limiting or eliminating the liability of directors,
then the liability of a director to the Corporation or its stockholders shall be
limited or eliminated to the fullest extent permitted by the DGCL, as so
amended. Any repeal or amendment of this Section 14.01 by the stockholders of
the Corporation or by changes in law, or the adoption of any other provision of
this Certificate inconsistent with this Section 14.01 will, unless otherwise
required by law, be prospective only (except to the extent such amendment or
change in law permits the Corporation to further limit or eliminate the
liability of directors) and shall not adversely affect any right or protection
of a director of the Corporation existing at the time of such repeal or
amendment or adoption of such inconsistent provision with respect to acts or
omissions occurring prior to such repeal or amendment or adoption of such
inconsistent provision.
Section 14.02 Indemnification
(a) Each person who is or was made a party or is threatened to be made a
party to or is otherwise involved in any threatened, pending or completed
action, suit or proceeding, whether civil, criminal, administrative or
investigative (hereinafter a "proceeding") by reason of the fact that he or she
is or was a director of the Corporation or, while a director of the Corporation,
is or was serving at the request of the Corporation as a director, officer,
employee or agent of another corporation or of a partnership, joint venture,
trust or other enterprise, including service with respect to an employee benefit
plan (hereinafter a "Covered Person"), whether the basis of such proceeding is
alleged action in an official capacity as a director, officer, employee or
agent, or in any other capacity while serving as a director, officer, employee
or agent, shall be indemnified and held harmless by the Corporation to the
fullest extent authorized or permitted by applicable law, as the same exists or
may hereafter be amended, against all expense, liability and loss (including,
without limitation, attorneys' fees, judgments, fines, ERISA excise taxes and
penalties and amounts paid in settlement) reasonably incurred or suffered by
such Covered Person in connection with such proceeding, and such right to
indemnification shall continue as to a person who has ceased to be a director,
officer, employee or agent and shall inure to the benefit of his or her heirs,
executors and administrators; provided, however, that, except for proceedings to
enforce rights to indemnification, the Corporation shall indemnify a Covered
Person in connection with a proceeding (or part thereof) initiated by such
Covered Person only if such proceeding (or part thereof) was authorized by the
Board. The right to indemnification conferred by this Section 14.02 shall be a
contract right and shall include the right to be paid by the Corporation the
expenses incurred in defending or otherwise participating in any such proceeding
in advance of its final disposition.
(b) The rights conferred on any Covered Person by this Section 14.02 shall
not be exclusive of any other rights which any Covered Person may have or
hereafter acquire under law, this Certificate, the Bylaws, an agreement, vote of
stockholders or disinterested directors, or otherwise.
(c) Any repeal or amendment of this Section 14.02 by the stockholders of
the Corporation or by changes in law, or the adoption of any other provision of
this Certificate inconsistent with this Section 14.02, will, unless otherwise
required by law, be prospective only (except to the extent such amendment or
change in law permits the Corporation to provide broader indemnification rights
on a retroactive basis than permitted prior thereto), and will not in any way
diminish or adversely affect any right or protection existing at the time of
such repeal or amendment or adoption of such inconsistent provision in respect
of any act or omission occurring prior to such repeal or amendment or adoption
of such inconsistent provision.
(d) This Section 14.02 shall not limit the right of the Corporation, to the
extent and in the manner authorized or permitted by law, to indemnify and to
advance expenses to persons other than Covered Persons.
ARTICLE XV.
-----------
AMENDMENT OF CERTIFICATE OF INCORPORATION
The Corporation reserves the right at any time from time to time to amend,
alter, change or repeal any provision contained in this Certificate, and any
other provisions authorized by the laws of the State of Delaware at the time in
force may be added or inserted, in the manner now or hereafter prescribed by
this Certificate, the Bylaws or the DGCL; and except as set forth in ARTICLE
XIV, all rights, preferences and privileges herein conferred upon stockholders,
directors or any other persons by and pursuant to this Certificate in its
present form or as hereafter amended are granted subject to the right reserved
in this Article.
[Signature page follows]
IN WITNESS WHEREOF, the incorporator of the Corporation hereto has caused
this Certificate of Incorporation to be duly executed as of [___________], 2005.
----------------------------------------
[______________], Incorporator
[Certificates of Designation to Come]
