Exhibit 10.3
PENN TREATY AMERICAN CORPORATION
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is made as of February
19, 2002, by and among Penn Treaty American Corporation, a Pennsylvania
corporation (the "Company"), and Centre Strategic Investment Holdings Limited, a
Bermuda corporation (the "Investor").
Recitals
Whereas, the Company is issuing to the Investor on the date hereof
warrants for the purchase of certain shares of the Company's Series X-0, X-0,
X-0 and A-4 Convertible Preferred Stock (the "Warrants");
Whereas, the Warrants contemplate the execution and delivery of this
Agreement; and
Whereas, in connection with the issuance of the Warrants, the parties
desire to enter into this Agreement in order to grant registration rights to the
Investor and agree in certain other respects as set forth below.
Agreement
Now, Therefore, in consideration of the foregoing recitals and the
promises and mutual covenants hereinafter set forth and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto agree as follows:
1. Definitions. As used herein, the following terms shall have the following
respective meanings:
(a) "Affiliate" shall mean any entity controlling, controlled by or under
common control with another entity. For the purposes of this
definition, "control" shall have the meaning presently specified for
that word in Rule 405 promulgated by the SEC under the Securities Act.
(b) "Agreement" shall have the meaning set forth in the Preamble.
(c) "Board" shall mean the Board of Directors of the Company.
(d) "Common Stock" shall mean (except where the context otherwise
indicates) the Common Stock, par value $.10 per share, of the Company
as constituted on the date hereof, and any capital stock into which
such Common Stock may thereafter be changed, and shall also include
(i) capital stock of the Company of any other class (regardless of how
denominated) issued to the holders of shares of Common Stock upon any
reclassification thereof which is also not preferred as to dividends
or assets over any other class of stock of the Company and which is
not subject to redemption, and (ii) shares of common stock of any
successor or acquiring corporation received by or distributed to the
holders of Common Stock of the Company in the circumstances
contemplated by Section 8(e) of the Warrants.
(e) "Company" shall have the meaning set forth in the preamble.
(f) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended.
(g) "Form S-3" shall mean such form under the Securities Act as in effect
on the date hereof or any successor or similar registration form under
the Securities Act subsequently adopted by the SEC which permits
inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(h) "Holder" shall mean any person owning of record Registrable Securities
that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2(i) hereof.
(i) "Investor" shall have the meaning set forth in the Preamble.
(j) "Preferred Stock" shall mean the Series A-1, Series A-2, Series A-3
and Series A-4 Convertible Preferred Stock, par value $1.00, of the
Company issuable upon the exercise of the Warrants.
(k) "Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement or other
document in compliance with the Securities Act, and the effectiveness
of such registration statement or document.
(l) "Registrable Securities" shall mean (a) any Common Stock of the
Company issued or issuable upon the conversion of the Preferred Stock;
or (b) any Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which
is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, such above-described securities;
provided that any share of Common Stock shall cease to be considered
Registrable Securities upon any transfer of such share pursuant to a
registration statement or pursuant to Rule 144 under the Securities
Act.
(m) "Registrable Securities then outstanding" shall mean the number of
shares determined by calculating the total number of shares of the
Company's Common Stock that are Registrable Securities and either (a)
are then issued and outstanding, or (b) are issuable pursuant to then
exercisable or convertible securities.
(n) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 2(a), 2(b), and 2(c) hereof,
including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company,
reasonable fees and disbursements of a single special counsel for the
Holders, blue sky fees and expenses and the expense of any special
audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be
paid in any event by the Company).
(o) "SEC" shall mean the Securities and Exchange Commission.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended.
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(q) "Seller" shall mean each Holder of Registrable Securities of the
Company as to which Registrable Securities the Company could be
required to file a registration statement or could be registered under
the Securities Act at the request of such Holder pursuant to any of
the provisions of this Agreement.
(r) "Selling Expenses" shall mean all underwriting discounts and selling
commissions.
(s) "Series" shall mean the Series A-1, Series A-2, Series A-3 or Series
A-4 Preferred Stock, as applicable.
(t) "Significant Subsidiary" shall mean any subsidiary of the Company
which would constitute a significant subsidiary within the meaning of
Rule 1-02 of Regulation S-x promulgated by the SEC as in effect on the
date hereof.
(u) "Special Registration Statement" shall mean a registration statement
relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities
Act.
(v) "Warrants" shall mean the Warrants as defined in the first "Whereas"
clause above and all warrants issued upon transfer, division or
combination thereof, or in substitution therefor.
2. Registration.
(a) Demand Registration.
(i) Subject to the conditions of this Section 2(a), if the Company
shall receive a written request from the Holders of at least five
percent (5%) of the Registrable Securities (the "Initiating
Holders") that the Company file a registration statement under
the Securities Act, then the Company shall, within thirty (30)
days of the receipt thereof, give written notice of such request
to all Holders, and subject to the limitations of this Section
2(a), use its best efforts to effect, as expeditiously as
reasonably possible, the registration under the Securities Act of
all Registrable Securities that the Holders request in writing to
be registered.
(ii) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made
pursuant to this Section 2(a) or any request pursuant to Section
2(c) and the Company shall include such information in the
written notice referred to in Section 2(a)(i) or Section 2(c)(i),
as applicable. In such event, the right of any Holder to include
its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing
to distribute their securities through such underwriting shall
enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the
Company (which underwriter or underwriters shall be reasonably
acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of Sections 2(a) or 2(c), if
the underwriter advises the Company that marketing factors
require a limitation of the number of securities to be
underwritten (including Registrable Securities), then the Company
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shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of
shares that may be included in the underwriting shall be
allocated to the Holders of such Registrable Securities on a pro
rata basis based on the number of Registrable Securities held by
all such Holders (including the Initiating Holders); provided
that the number of shares of Registrable Securities to be
included in such underwriting and registration shall not be
reduced unless all other securities of the Company proposed to be
sold by its stockholders are first entirely excluded from the
underwriting and registration. Any Registrable Securities
excluded or withdrawn from such underwriting shall be withdrawn
from the registration.
(iii) The Company shall not be required to effect a registration
pursuant to this Section 2(a):
(A) after the Company has effected two (2) registrations
pursuant to this Section 2(a), and such registrations have
become effective;
(B) if the Company shall furnish to the Holders requesting a
registration statement pursuant to this Section 2(a), a
certificate signed by the Chairman of the Board stating
that, in the good faith judgment of the Board, it would be
seriously detrimental to the Company and its stockholders
for such registration statement to be effected at such time,
in which event the Company shall have the right to defer
such filing for a period of not more than ninety (90) days
after receipt of the request of the Initiating Holders;
provided that such right to delay a request shall be
exercised by the Company for periods aggregating not more
than ninety (90) days in any twelve (12) month period; or
(C) if the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on
Form S-3 pursuant to a request made pursuant to Section 2(c)
below.
(b) Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least twenty (20) days prior to
the filing of any registration statement under the Securities Act for
purposes of a public offering of securities of the Company (including,
but not limited to, registration statements relating to secondary
offerings of securities of the Company, but excluding Special
Registration Statements) and will afford each such Holder an
opportunity to include in such registration statement all or part of
such Registrable Securities held by such Holder. Each Holder desiring
to include in any such registration statement all or any part of the
Registrable Securities held by it shall, within fifteen (15) days
after the above-described notice from the Company, so notify the
Company in writing. Such notice shall state the intended method of
disposition of the Registrable Securities by such Holder. If a Holder
decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder
shall nevertheless continue to have the right to include any
Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to
offerings of its securities, all upon the terms and conditions set
forth herein.
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(i) Underwriting. If the registration statement under which the
Company gives notice under this Section 2(b) is for an
underwritten offering, the Company shall so advise the Holders of
Registrable Securities. In such event, the right of any such
Holder to be included in a registration pursuant to this Section
2(b) shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities
through such underwriting shall enter into an underwriting
agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding
any other provision of the Agreement, if the underwriter
determines in good faith that marketing factors require a
limitation of the number of shares to be underwritten, the number
of shares that may be included in the underwriting shall be
allocated first to the Company, second to the Holders of
Registrable Securities to be included in such registration
statement, and third to all other stockholders proposing to sell
securities pursuant to such registration statement; provided that
in no event shall the number of shares of Registrable Securities
to be included in such underwriting and registration be reduced,
if applicable, below twenty-five percent (25%) of the total
number of securities to be sold pursuant to such underwriting and
registration. In addition, no shares of any other selling
stockholder will be included in such registration which would
reduce the number of shares which may be included by Holders
without the written consent of Holders of not less than sixty-six
and two-thirds percent (662/3%) of the Registrable Securities
proposed to be sold in the offering. If any Holder disapproves of
the terms of any such underwriting, such Holder may elect to
withdraw therefrom by written notice to the Company and the
underwriter, delivered at least two (2) business days prior to
the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder
which is a partnership, limited liability company or corporation,
the partners, retired partners, members, retired members,
stockholders and Affiliates of such Holder, or the estates and
family members of any such partners, retired partners, members
and retired members, and any trusts for the benefit of any of the
foregoing person shall be deemed to be a single "Holder," and any
pro rata reduction with respect to such Holder shall be based
upon the aggregate amount of shares carrying registration rights
owned by all entities and individuals included in such "Holder,"
as defined in this sentence.
(ii) Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under
this Section 2(b) prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in
such registration. The Registration Expenses of such withdrawn
registration shall be borne by the Company in accordance with
Section 2(d) hereof.
(c) Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or
requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders, the
Company will:
(i) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders of
Registrable Securities;
(ii) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as
would permit or facilitate the sale and distribution of all or
such portion of such Holder's or Holders' Registrable Securities
as are specified in such request, together with all or such
portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such
written notice from the Company; provided that the Company shall
not be obligated to effect any such registration, qualification
or compliance pursuant to this Section 2(c):
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(A) if Form S-3 is not available for such offering by the
Holders;
(B) if within thirty (30) days of receipt of a written request
from any Holder or Holders pursuant to this Section 2(c),
the Company gives notice to such Holder or Holders of the
Company's intention to make a public offering with respect
to shares to be sold by the Company (as opposed to resales
by stockholders of the Company) within ninety (90) days,
other than pursuant to a Special Registration Statement,
and, as part of such notice, the Company agrees to use its
best efforts to file a registration statement in connection
with such public offering within such ninety (90) day
period;
(C) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board stating that, in the
good faith judgment of the Board, it would be seriously
detrimental to the Company and its stockholders for such
Form S-3 registration to be effected at such time, in which
event the Company shall the right to defer the filing of the
Form S-3 registration statement for a period of not more
than ninety (90) days after receipt of the request of the
Holder or Holders under this Section 2(c), provided that
such right to delay a request shall be exercised by the
Company no more than once in any twelve (12) month period;
or
(D) In any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general
consent to service of process in effecting such
registration, qualification or compliance.
(iii) Subject to the foregoing, the Company shall file a Form S-3
registration statement covering the Registrable Securities and
other securities so requested to be registered as soon as
practicable after receipt of the request or requests of the
Holders. Registrations effected pursuant to this Section 2(c)
shall not be counted as demands for registration or registrations
effected pursuant to Sections 2(a) or 2(b), respectively.
(d) Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Sections 2(a), 2(b), or 2(c)
herein shall be borne by the Company. All Selling Expenses incurred in
connection with Sections 2(a), 2(b) and 2(c) hereof shall be borne by
the Company and the holders of the securities so registered pro rata
on the basis of the number of shares so registered. The Company shall
not, however, be required to pay for expenses of any registration
proceeding, the request of which has been subsequently withdrawn by
the Initiating Holders, begun pursuant to (a) Sections 2(a) or 2(c),
unless the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware
at the time of such request; or (b) Section 2(a), unless the Holders
of at least sixty-six and two-thirds percent (662/3%) of Registrable
Securities, including the Holders of at least sixty-six and two-thirds
percent (66 2/3%) of each Series then outstanding and the Holders of
outstanding Warrants which are exercisable for at least sixty-six and
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two-thirds percent (66 2/3%) of each Series of Preferred Stock
issuable upon the exercise of such Warrants, agree to forfeit their
right to one of the two registrations allowable under Section 2(a), in
which event such right shall be forfeited on behalf of all Holders. If
the Holders are required to pay the Registration Expenses, such
expenses shall be borne by the holders of securities (including
Registrable Securities) requesting such registration in proportion to
the number of shares for which registration was requested. If the
Company is required to pay the Registration Expenses of a withdrawn
offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Sections 2(a) or 2(c) to a demand
registration.
(e) Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(i) Prepare and file with the SEC, in no event later than forty-five
(45) days after receipt of the request (or thirty (30) days after
such receipt in the case of a registration on Form S-3), a
registration statement with respect to such Registrable
Securities and use its best efforts to cause such registration
statement to become effective and to keep such registration
statement effective until the Holder or Holders have completed
the distribution related thereto (such period not to exceed one
hundred eighty (180) days); provided that, before filing a
registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish counsel for the
Holders of Registrable Securities being included in such
registration statement copies of all such documents proposed to
be filed, which documents will be subject to the reasonable
review of such counsel; provided further that (a) such 180-day
period shall be extended for a period of time equal to the period
the Holder or Holders refrain from selling any securities
included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (b) in the
case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed
basis, such 180-day period shall be extended, if necessary, to
keep the registration statement effective until all such
Registrable Securities are sold, but in no event shall such
period be so extended to be more than three hundred sixty (360)
days.
(ii) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply
with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration
statement for the period set forth in paragraph (i) above.
(iii) Furnish to the Holders as soon as reasonably practicable prior
to filing such number of copies of a prospectus and any
amendments or supplements to such prospectus, including a
preliminary prospectus, in conformity with the requirements of
the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(iv) Use its best efforts to register and qualify the securities
covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be
reasonably requested by the Holders; provided that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to do business, file a general consent to
service of process or subject itself to taxation in any such
states or jurisdictions.
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(v) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual
and customary form, with the managing underwriter(s) of such
offering. Each Holder participating in such underwriting shall
also enter into and perform its obligations under such an
agreement.
(vi) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of
the happening of any event as a result of which the prospectus
included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state
a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the
circumstances then existing. The Company will use its best
efforts to amend or supplement such prospectus in order to cause
such prospectus not to include any untrue statement of a material
fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing.
(vii)Use its best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for
sale, if such securities are being sold through underwriters, (i)
an opinion, dated as of such date, of the counsel representing
the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an
underwritten public offering, addressed to the underwriters, if
any, and (ii) a letter dated as of such date, from the
independent certified public accountants of the Company, in form
and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public
offering addressed to the underwriters.
(viii)Cause all securities covered by such registration statement to
be listed on each securities exchange on which securities of the
same class are then listed.
(ix) 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 not later than the
effective date of such registration.
(x) Make available for inspection by any Seller, any underwriter
participating in a disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained
by any such Seller or underwriter, upon reasonable request, all
financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers,
directors and employees to supply all information reasonably
requested by any such Seller, underwriter, attorney, accountant
or agent in connection with such registration statement.
(xi) Notify each Holder of Registrable Securities covered by such
registration statement, promptly after it shall receive notice
thereof, of the time when such registration statement has become
effective or a supplement to any prospectus forming a part of
such registration statement has been filed.
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(xii) Notify each Holder of Registrable Securities covered by such
registration statement of any request by the SEC for the amending
or supplementing of such registration statement or prospectus or
for additional information.
(xiii) Advise each Holder of Registrable Securities covered by such
registration statement promptly after it shall receive notice or
obtain knowledge thereof, of the issuance of any stop order by
the SEC suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for
such purpose and promptly use all reasonable efforts to prevent
the issuance of any stop order or to obtain its withdrawal if
such stop order should be issued.
(f) Termination of Registration Rights. All rights under this Agreement
shall terminate as to any Holder (and its Affiliates, partners, former
partners, members and former members) of Registrable Securities at
such time as such Holder (and its Affiliates, partners, former
partners, members and former members) is free to sell all shares of
Registrable Securities held by such Holder (and its Affiliates,
partners, former partners, members and former members) pursuant to
Rule 144(k) under the Securities Act or a comparable exemption from
registration that enables such Holder to sell all shares of
Registrable Securities held by such Holder without registration under
the Securities Act and without restriction as to the volume of shares
sold, the manner of sale or otherwise. This Agreement shall terminate
as to all Holders of Registrable Securities at such time as no shares
of Registrable Securities remain outstanding.
(g) Furnishing Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections
2(a), (b) or (c) that the Sellers shall furnish to the Company such
information regarding themselves, the Registrable Securities held by
them and the intended method of disposition of such securities as
shall be required to effect the registration of their Registrable
Securities.
(h) Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2(a), 2(b) or 2(c):
(i) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors
of each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such
Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or
liabilities (joint or several) to which they may become subject
under the Securities Act, the Exchange Act or other federal or
state law, insofar as such losses, claims, damages or liabilities
(or actions in respect thereof) arise out of or are based upon
any of the following statements, omissions or violations
(collectively, a "Violation") by the Company: (i) any untrue
statement or alleged untrue statement of a material fact
contained in such registration statement, including any
preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto; (ii) the omission or
alleged omission to state therein a material fact required to be
stated therein, or necessary to make the statements therein, in
light of the circumstances in which they were made, not
misleading; or (iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any state securities law in
connection with the offering covered by such registration
statement. The Company will pay as incurred to each such Holder,
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partner, officer, director, underwriter or controlling person for
any legal or other expenses reasonably incurred by them in
connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the
indemnity agreement contained in this Section 2(h)(i) shall not
apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected
without the consent of the Company, which consent shall not be
unreasonably withheld, nor shall the Company be liable in any
such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation
which occurs in reliance upon and in conformity with written
information furnished expressly for use in connection with such
registration by such Holder, partner, officer, director,
underwriter or controlling person of such Holder; provided,
further, that this indemnity shall not be deemed to relieve any
underwriter of any of its due diligence obligations; and
provided, further, that if any claim, action, demand, loss,
damage, liability, cost or expense arises out of or is based upon
an untrue statement or alleged untrue statement or omission or
alleged omission contained in any preliminary prospectus which
did not appear in the final prospectus and if the Holder
delivered a copy of the preliminary prospectus to the person
alleging damage and failed to deliver a copy of the final
prospectus to such persons, the Company shall not be liable with
respect to the claims of such person.
(ii) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as
to which such registration, qualifications or compliance is being
effected, severally and not jointly, indemnify and hold harmless
the Company, each of its directors, its officers and each person,
if any, who controls the Company within the meaning of the
Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other
Holder's partners, directors or officers or any person who
controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such
director, officer, controlling person, underwriter or other such
Holder, or partner, director, officer or controlling person of
such other Holder may become subject under the Securities Act,
the Exchange Act or other federal or state law, insofar as such
losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each
case to the extent (and only to the extent) that such Violation
occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in
connection with the registration; and each such Holder will pay
as incurred any legal or other expenses reasonably incurred by
the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or
controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was
such a Violation; provided, however, that the indemnity agreement
contained in this Section 2(h)(ii) shall not apply to amounts
paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the
Holder, which consent shall not be unreasonably withheld;
provided, further, that in no event shall any indemnity under
this Section 2(h) exceed the net proceeds from the offering
received by such Holder.
(iii) Promptly after receipt by an indemnified party under this
Section 2(h) of notice of the commencement of any action
(including any governmental action), such indemnified party will,
if a claim in respect thereof is to be made against any
indemnifying party under this Section 2(h), deliver to the
indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate
in, and, to the extent the indemnifying party so desires, jointly
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with any other indemnifying party similarly noticed, to assume
the defense thereof with counsel mutually satisfactory to the
parties; provided, however, that an indemnified party shall have
the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying
party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party
represented by such counsel in such proceeding. The failure to
deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if
materially prejudicial to its ability to defend such action,
shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2(h), but the omission so to
deliver written notice to the indemnifying party will not relieve
it of any liability that it may have to any indemnified party
otherwise than under this Section 2(h). No indemnifying party
shall be liable to an indemnified party for any settlement of any
action or claim made without the consent of the indemnifying
party; and no indemnifying party may unreasonably withhold its
consent to any such settlement. No indemnifying party will
consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving
by the claimant or plaintiff to such indemnified party of a
release from all liability in respect to such claim or
litigation.
(iv) If the indemnification provided for in this Section 2(h) is held
by a court of competent jurisdiction to be unavailable to an
indemnified party with respect to any losses, claims, damages or
liabilities referred to herein, the indemnifying party, in lieu
of indemnifying such indemnified party thereunder, shall to the
extent permitted by applicable law contribute to the amount paid
or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate
to reflect the relative fault of the indemnifying party on the
one hand and of the indemnified party on the other in connection
with the Violation(s) that resulted in such loss, claim, damage
or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and
of the indemnified party shall be determined by a court of law by
reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a
material fact relates to information supplied by the indemnifying
party or by the indemnified party and the parties' relative
intent, knowledge, access to information and opportunity to
correct or prevent such statement or omission; provided that in
no event shall any contribution by a Holder hereunder exceed the
net proceeds from the offering received by such Holder.
(v) The obligations of the Company and Holders under this Section
2(h) shall survive completion of any offering of Registrable
Securities in a registration statement and the termination of
this Agreement.
(i) Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable
Securities which (a) is an Affiliate, general partner, limited
partner, retired partner, member or retired member of a Holder; (b) is
a Holder's family member or trust for the benefit of an individual
Holder; or (c) acquires at least one hundred thousand (100,000) shares
of Registrable Securities (as adjusted pursuant to the terms of the
Warrants); provided (i) the transferor shall furnish to the Company
written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are
being assigned; and (ii) such transferee shall agree to be subject to
all restrictions set forth in this Agreement.
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(j) Amendment of Registration Rights. Any provision of this Section 2 may
be amended and the observance thereof may be waived (either generally
or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the
Holders of at least sixty-six and two-thirds percent (662/3%) of the
total number of shares of Registrable Securities then outstanding,
including the Holders of at least sixty-six and two-thirds percent
(662/3%) of each Series then outstanding and the Holders of
outstanding Warrants which are exercisable for at least sixty-six and
two-thirds percent (662/3%) of each Series of Preferred Stock issuable
upon the exercise of such Warrants. Any amendment or waiver effected
in accordance with this Section 2(j) shall be binding upon each Holder
and the Company. By acceptance of any benefits under this Section 2,
Holders of Registrable Securities hereby agree to be bound by the
provisions hereunder.
(k) Limitation on Subsequent Registration Rights. After the date of this
Agreement, the Company shall not, without the prior written consent of
the Holders of at least sixty-six and two-thirds percent (662/3%) of
the Registrable Securities, including the Holders of at least
sixty-six and two-thirds percent (662/3%) of each Series then
outstanding and the Holders of outstanding Warrants which are
exercisable or at least sixty-six and two-thirds percent (662/3%) of
each Series of Preferred Stock issuable upon the exercise of such
Warrants, enter into any agreement with any holder or prospective
holder of any securities of the Company that would grant such holder
registration rights with respect to any of the Company's equity
securities unless such rights are subordinate to those granted to the
Holders hereunder.
(l) Rule 144. With a view to making available to the Holders the benefits
of certain rules and regulations of the SEC which may permit the sale
of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(i) At all times make and keep public information available, as those
terms are understood and defined in SEC Rule 144 or any similar
or analogous rule promulgated under the Securities Act;
(ii) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act; and
(iii) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: a written statement by the
Company as to its compliance with the reporting requirements of
said Rule 144 under the Securities Act and of the Exchange Act; a
copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a Holder may
reasonably request in availing itself of any rule or regulation
of the SEC allowing it to sell any such securities without
registration.
3. Board of Directors.
(a) Observation Rights. For so long as the Investor and/or its Affiliates
hold Warrants for Preferred Stock, and/or any shares of Preferred
Stock, the Investor shall have the right to designate a representative
of the Investor to attend all meetings of the Board and of the boards
12
of directors of the Subsidiaries, and all committees of each thereof,
in a non-voting observer capacity. In this respect, the Company shall
provide, or cause to be provided, to such representative copies of all
notices, minutes, consents and other materials that the Company and
the Subsidiaries provide to their respective directors at the same
time that the Company or the Subsidiaries provide such materials to
their respective directors. The Company shall pay, or cause to be
paid, all expenses incurred by such representative in connection with
traveling to and attending meetings of such boards and committees.
(b) Board Membership. At such time as any Holder owns Registrable
Securities equal to at least ten percent (10%) of the Fully Diluted
Outstanding shares of the Company's Common Stock, and for so long as
such Holder continues to hold at least ten percent (10%) of the Fully
Diluted Outstanding shares of the Company's Common Stock, the Company
shall cause one (1) person designated by such Holder to be duly
appointed as a member of the Board and each of its committees and of
the boards and each of the committees of the boards of each of the
Subsidiaries and shall take all such action as may be necessary or
appropriate to cause the appointment of such director designee. The
Company shall pay, or cause to be paid, all expenses incurred by such
director designee in connection with traveling to and attending
meetings of such boards and committees.
4. Certain Covenants. For so long as any Warrants remain outstanding, the
written consent of the holders of outstanding Warrants which are
exercisable for sixty-six and two-thirds percent (662/3%) of each Series of
Preferred Stock issuable upon the exercise of all such Warrants shall be
necessary for effecting or validating the following actions:
(a) Any amendment, alteration or waiver of any provision of the Company's
Articles of Incorporation or By-laws (including any filing of a
statement with respect to shares) which adversely affects any of the
rights, preferences or privileges of any of the holders of the
applicable Series of Preferred Stock in a manner disproportionate to
the rights, preferences or privileges of other holders of the
Company's securities;
(b) Any increase or decrease (other than by conversion) in the authorized
number of shares of Common Stock or Preferred Stock;
(c) Any authorization, designation or issuance, whether by
reclassification or otherwise, of any new class or series of stock or
any other securities convertible into equity securities of the Company
ranking on a parity with or senior to the Preferred Stock in right of
redemption, liquidation preference, voting or dividends or any
increase in the authorized or designated number of any such new class
or series;
(d) Any redemption or repurchase of Common Stock (except for acquisitions
of Common Stock by the Company pursuant to agreements which permit the
Company to repurchase such shares upon termination of services to the
Company or in exercise of the Company's right of first refusal upon a
proposed transfer);
(e) Any change in the authorized number of directors of the Company;
(f) Any liquidation or dissolution of the Company;
13
(g) Any merger or consolidation of the Company or a Significant Subsidiary
with or into another corporation or other entity or any other
corporate reorganization in which the shareholders of the Company
immediately prior to such merger, consolidation or reorganization own
less than fifty percent (50%) of the Company's voting power
immediately after such merger, consolidation or reorganization, or any
transaction or series of transactions in which in excess of fifty
percent (50%) of the Company's voting power is transferred;
(h) Any sale, transfer or other disposition of all or substantially all of
the property, assets or business of the Company; and
(i) Any sale, transfer or other disposition of all or substantially all of
the stock or assets of any Significant Subsidiary of the Company.
5. Miscellaneous.
(a) Governing Law. This Agreement shall be governed by and construed and
enforced in accordance with the internal laws of the State of New York
without regard to the principles of conflicts of law thereof.
(b) Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding
upon, the successors and assigns of the parties hereto and shall inure
to the benefit of and be enforceable by each person who shall be a
holder of Registrable Securities from time to time; provided, however,
that prior to the receipt by the Company of adequate written notice of
the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the
person listed as the holder of such shares in its records as the
absolute owner and holder of such shares for all purposes, including
the payment of dividends.
(c) Entire Agreement. This Agreement and the Warrants constitute the full
and entire understanding and agreement between the parties with regard
to the subjects hereof.
(d) Severability. In case any one or more of the terms or provisions of
this Agreement shall be invalid or unenforceable in any respect, the
validity and enforceability of the remaining terms and provisions of
this Agreement shall not in any way be affected or impaired thereby
and the parties will attempt in good faith to agree upon a valid and
enforceable provision which shall be a commercially reasonable
substitute therefor, and upon so agreeing, shall incorporate such
substitute provision in this Agreement.
(e) Amendment and Waiver.
(i) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company
and the holders of sixty-six and two-thirds percent (662/3%) of
the total number of shares of Registrable Securities, including
the Holders of at least sixty-six and two-thirds percent (662/3%)
of each Series then outstanding and the Holders of outstanding
Warrants which are exercisable for at least sixty-six and
two-thirds percent (662/3%) of each Series of Preferred Stock
issuable upon the exercise of such Warrants.
14
(ii) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be
waived only with the written consent of the holders of sixty-six
and two-thirds percent (662/3%) of the total number of shares of
Registrable Securities, including the Holders of at least
sixty-six and two-thirds percent (662/3%) of each Series then
outstanding and the Holders of outstanding Warrants which are
exercisable for at least sixty-six and two-thirds percent
(662/3%) of each Series of Preferred Stock issuable upon the
exercise of such Warrants.
(iii) For the purposes of determining the number of Holders entitled
to vote or exercise any rights hereunder, the Company shall be
entitled to rely solely on the list of record holders of the
Warrants or its Preferred Stock or Common Stock as maintained by
or on behalf of the Company.
(f) Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to any Holder, upon any
breach, default or noncompliance of the Company under this Agreement,
shall impair any such right, power or remedy, nor shall it be
construed to be a waiver of any such breach, default or noncompliance,
or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent or approval of any kind or character on any
Holder's part of any breach, default or noncompliance under this
Agreement or any waiver on such Holder's part of any provisions or
conditions of this Agreement must be in writing and shall be effective
only to the extent specifically set forth in such writing. All
remedies, either under this Agreement, by law, or otherwise afforded
to Holders, shall be cumulative and not alternative.
(g) Notices. Any and all notices or other communications or deliveries
hereunder shall be in writing and shall be deemed given and effective
on the earliest of (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile telephone
number specified in this Section prior to 4:30 p.m. (Eastern time) on
a Business Day, (ii) the Business Day after the date of transmission,
if such notice or communication is delivered via facsimile at the
facsimile telephone number specified in this Section later than 4:30
p.m. (Eastern time), (iii) the Business Day following the date of
mailing, if sent by nationally recognized overnight courier service,
or (iv) upon actual receipt by the party to whom such notice is
required to be given. The addresses for such communications shall be:
(i) if to the Company, to 0000 Xxxxxx Xxxxxx, Xxxxxxxxx, Xxxxxxxxxxxx
00000-0000, Attn: Xxxx Xxxxxx, facsimile number (000) 000-0000, or
(ii) if to a Holder, to the address or facsimile number appearing in
the records of the Company or such other address or facsimile number
as the Holder may provide to the Company in accordance with this
Section 3(g).
(h) Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees,
costs and expenses of enforcing any right of such prevailing party
under or with respect to this Agreement, including without limitation,
such reasonable fees and expenses of attorneys and accountants, which
shall include, without limitation, all fees, costs and expenses of
appeals.
(i) Headings. The headings herein are for convenience only, do not
constitute a part of this Agreement and shall not be deemed to limit
or affect any of the provisions hereof.
15
(j) Counterparts. This Agreement may be executed in counterparts, each of
which shall be an original, but all of which together shall constitute
one instrument.
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Signature Pages Follow
16
In Witness Whereof, the parties hereto have executed this Investor
Rights Agreement as of the date set forth above.
COMPANY: INVESTOR:
PENN TREATY AMERICAN CENTRE STRATEGIC INVESTMENT
CORPORATION HOLDINGS LIMITED
By: By:
------------------------- -------------------------
Its: Its:
------------------------- -------------------------
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