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Exhibit 10.5
INVESTOR'S RIGHTS AGREEMENT
THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is made as of August
21, 1996, by and between Nevada Bob's Holdings, Inc., a Delaware corporation
(the "Company"), and The Xxxxxx Xxxxxx Golf Company, a Tennessee corporation
(the "Shareholder").
SECTION 1
Restrictions on Transferability of Securities;
Registration Rights
1.1 Certain Definitions. As used in Sections 1, 2, 3 and 4 of this
Agreement, the following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Securities
Act.
"Common Equivalent Basis" shall mean the basis upon which the
Shareholder's percentage of the equity in the Company is computed,
determined as follows: divide: (i) the number of shares of Series A
Common Stock (other than Conversion Stock) owned by the Stockholder
plus the number of shares of Conversion Stock which the Stockholder
owns or to which the Stockholder is entitled; by (ii) the number of
shares of Series A Common Stock outstanding plus the number of shares
of Series A Common Stock issuable upon conversion (at the then
applicable conversion rate) of all then outstanding shares of
convertible Preferred Stock and Common Stock.
"Common Stock" shall mean the authorized shares of Common
Stock, $0.001 par value per share, of the Company.
"Conversion Stock" shall mean the Series A Common Stock issued
or issuable pursuant to conversion of the Series D Preferred stock.
"Exchange Act" shall mean the Securities Exchange Act of 1934,
as amended, or any similar federal statute and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Preferred Stock" shall mean the authorized shares of Preferred
Stock, $0.001 per value per share, of the Company.
"Registrable Securities" shall mean (i) the Conversion Stock of
the Shareholder, (ii) any Common Stock acquired by the Shareholder
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pursuant to its exercise of its right of first refusal under Section
2.1 hereof and (iii) any Common Stock issued or issuable in respect of
items (i) and (ii) of this paragraph upon any stock split, stock
dividend, recapitalization, or similar event, or any Common Stock
otherwise issued or issuable with respect to the Series D Preferred
Stock or the Conversion Stock of the Shareholder; provided, however,
that the shares of Common Stock or other securities shall only be
treated as Registrable Securities if and so long as they have not been
(1) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction or (2) sold or are
available for sale in the opinion of counsel to the Company in a single
transaction exempt from the registration and prospectus delivery
requirements of the Securities Act so that all transfer restrictions
and restrictive legends with respect thereto are or may be removed upon
the consummation of such sale.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing with the Commission a
registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration
statement.
"Registration Expenses" shall mean all expenses, except Selling
Expenses as defined below, incurred by the Company in complying with
Sections 1.5 and 1.6 hereof, including, without limitation, all
registration, qualification and filing fees, printing expenses, courier
and shipping charges, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, 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).
"Restricted Securities" shall mean any Registrable Securities
required to bear the legend set forth in Section 1.3 hereof.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal statute and the rules and regulations
of the Commission thereunder, all as the same shall be in effect at the
time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
securities registered by the Shareholder and all fees and disbursements
of counsel for the Shareholder.
"Series A Common Stock" shall mean the shares of Common Stock
designated "Series A Common Stock".
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"Series D Preferred Stock" shall mean the shares of Preferred
Stock of the Company designated "Series D Preferred Stock".
1.2 Restrictions on Transferability.
(a) The Series D Preferred Stock and the Conversion Stock of the
Shareholder shall not be sold, assigned, transferred or pledged except
upon satisfaction of the conditions specified in this Section 1, which
conditions are, among other things, intended to ensure compliance with
the provisions of the Securities Act. The Shareholder shall cause any
proposed purchaser, assignee, transferee or pledgee of the Series D
Preferred Stock or Conversion Stock held by the Shareholder to agree to
take and hold such securities subject to the provisions and conditions
of this Section 1.
(b) The Shareholder may transfer or assign the registration
rights granted by the Company under this Section 1 only to a transferee
or assignee of not less than 100,000 shares of Registrable Securities
(as adjusted for stock dividends, combinations or splits with respect to
such shares), provided that (i) the Company is given written notice at
the time of or within a reasonable time after said transfer or
assignment, stating the name and address of the transferee or assignee
and identifying the securities with respect to which such registration
rights are being transferred or assigned and (ii) the transferee or
assignee of such rights assumes in writing the obligations of the
Shareholder under this Section 1 and any other obligations that the
transferee or assignee may be obligated to assume under any other
sections of this Agreement.
1.3 Restrictive Legend. Each certificate representing (a) the Series D
Preferred Stock, (b) any Common Stock of the Shareholder issued pursuant to the
conversion of the Series D Preferred Stock, (c) any securities acquired by the
Shareholder pursuant to its exercise of its right of first refusal under
Section 2.1 hereof and (d) any other securities issued in respect of the Series
D Preferred Stock, the Conversion Stock or the Series A Common Stock of the
Shareholder upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a
legend in the following form (in addition to any legend required by the Company
under Section 3.1 of this Agreement and any other legends that the Company
determines are necessary or appropriate under applicable securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933. SUCH SHARES MAY NOT BE SOLD, OFFERED
FOR SALE, PLEDGED OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT OR AN OPINION
OF
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COUNSEL SATISFACTORY TO THE CORPORATION THAT SUCH REGISTRATION IS NOT
REQUIRED. COPIES OF THE AGREEMENTS TO WHICH THE CORPORATION IS A PARTY
COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR TRANSFER MAY
BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD
OF THIS CERTIFICATE TO THE SECRETARY OF THE CORPORATION AT THE PRINCIPAL
EXECUTIVE OFFICES OF THE CORPORATION.
The Shareholder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Series A Common
Stock, Series D Preferred Stock or the Conversion Stock of the Shareholder in
order to implement the restrictions on transfer established in this Section 1.
1.4 Notice of Proposed Transfers. The holder of each certificate
representing Restricted Securities, by acceptance thereof, agrees to comply in
all respects with the provisions of this Section 1.4. Prior to any proposed
sale, assignment, transfer or pledge of any Restricted Securities, unless there
is in effect a registration statement under the Securities Act covering the
proposed transfer, the holder thereof shall give written notice to the Company
of such holder's intention to effect such transfer, sale, assignment or
pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail, and shall
be accompanied, at such holder's expense by either (a) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected
without registration under the Securities Act, or (b) a "no action" letter from
the Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, whereupon the holder of such
Restricted Securities shall be entitled to transfer such Restricted Securities
in accordance with the terms of the notice delivered by the holder to the
Company, subject in every case to the right of first refusal of the Company set
forth in Section 3.1. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.3 above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provision of the Securities
Act.
1.5 Company Registration.
(a) Notice of Registration. If at any time or from time to time
the Company shall determine to register any of its securities, either
for its own account or the account of a security holder or holders,
other
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than (i) a registration relating solely to employee benefit plans or
(ii) a registration relating solely to a transaction pursuant to Rule
145 of the Securities Act (a "Rule 145 Transaction"), the Company will:
(1) promptly give to the Shareholder and/or its assigns
written notice thereof; and
(2) include in such registration (and any related
qualification under blue sky laws or other compliance), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests made within twenty
(20) days after receipt of such written notice to the Company, by
the Shareholder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting,
the Company shall so advise the Shareholder as part of the written
notice given pursuant to Section 1.5(a)(1). In such event the right of
the Shareholder to registration pursuant to this Section 1.5 shall be
conditioned upon its participation in such underwriting and the
inclusion of the Shareholder's Registrable Securities in the
underwriting to the extent provided herein. When proposing to
distribute its securities through such underwriting, the Shareholder
shall (together with the Company and any and all other shareholders
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter
selected for such underwriting by the Company. Notwithstanding any
other provision of this Section 1.5, if the managing underwriter
determines that marketing factors require a limitation of the number of
shares to be underwritten, it shall so advise the Shareholder in
writing specifying the marketing factors imposing a limitation on the
number of shares to be underwritten, and the managing underwriter may
limit the Registrable Securities to be included in such registration on
a pro-rata basis with all other securities to be included in such
registration other than those being registered for the Company's own
account.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under
this Section 1.5 prior to the effectiveness of such registration
whether or not any holder has elected to include securities in such
registration. If the Shareholder disapproves of the final terms of any
underwriting undertaken pursuant to this Section 1.5, the Shareholder.
may elect to withdraw therefrom by written notice to the Company and
the managing underwriter. If the Shareholder so elects, the Company
shall either (i) withdraw such Registrable Securities from registration
or (ii) substitute newly issued shares of the Company for such
Registrable Securities in such registration.
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1.6 Registration on Form S-3.
(a) If the Shareholder requests that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3)
for public offering of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed One Million U.S. Dollars
(US$1,000,000), and the Company is then entitled to use Form S-3 under
applicable Commission rules to register the Registrable Securities for
such an offering, the Company shall use its best efforts to cause such
Registrable Securities to be registered for the offering on such form
and to cause such Registrable Securities to be qualified in such
jurisdictions as the Shareholder may reasonably request; provided,
however, that the Company shall not be required to effect more than one
registration pursuant to this Section 1.6 in any twelve (12) month
period or in the excess of two (2) registrations under this Section
1.6. The substantive provisions of Section 1.5(b) shall be applicable
to each registration initiated under this Section 1.6.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 1.6; (i) in any
particular jurisdiction in which the Company would be required to
execute a general consent to service of process in effecting such
registration, qualification or compliance unless the Company is already
subject to service in such jurisdiction and except as may be required
by the Securities Act; (ii) if the Company, within ten (10) days of the
receipt of the request of the Shareholder, gives notice of its bona
fide intention to effect the filing of a registration statement with
the Commission within ninety (90) days of receipt of such request
(other than with respect to a registration statement relating to a Rule
145 Transaction, an offering solely to employees or any other
registration which is not appropriate for the registration of
Registrable Securities); (iii) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and
ending on the date six (6) months immediately following, the effective
date of any registration statement pertaining to securities of the
Company (other than a registration of securities in a Rule 145
Transaction or with respect to an employee benefit plan), provided that
the Company is actively employing in good faith all reasonable efforts
to cause such registration statement to become effective or (iv) if the
Company shall furnish to the Shareholder a certificate signed by the
President of the Company stating that in the good faith Judgment of the
Board of Directors it would be seriously detrimental to the Company or
its shareholders for registration statements to be filed in the near
future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one
hundred twenty (120) days from the receipt of the Shareholder's request
to file such registration.
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1.7 Limitations on Subsequent-Registration Rights. From and after the
date hereof, the Company shall not enter into any agreement granting any holder
or prospective holder of any securities of the Company registration rights with
respect to such securities unless (a) such new registration rights, including
standoff obligations, are on a pari passu basis with those rights of the
Shareholder hereunder; or (b) such new registration rights, including standoff
obligations, are subordinate to the registration rights granted to the
Shareholder hereunder. The Company will notify the Shareholder of any such
rights so granted.
1.8 Expenses of Registration. All Registration Expenses incurred in
connection with all registrations pursuant to Sections 1.5 and 1.6, shall be
borne by the Company. All Selling Expenses relating to securities registered on
behalf of the Shareholder pursuant to Sections 1.5 and 1.6 shall be borne by
the Shareholder.
1.9 Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section 1,
the Company shall keep the Shareholder advised in writing as to the initiation
of each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company shall:
(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to
cause such registration statement to become and remain effective for at
least one hundred twenty (120) days, provided that no such registration
shall constitute a shelf registration under Rule 415 promulgated by the
Commission under the Securities Act;
(b) Enter into a written underwriting agreement in customary
form and substance reasonably satisfactory to the Company, the
Shareholder and the managing underwriter or underwriters of the public
offering of such securities, if the offering is to be underwritten in
whole or in part;
(c) Furnish to the Shareholder and to the underwriters of the
securities being registered such reasonable number of copies of the
registration statement, preliminary prospectus, final prospectus and
such other documents as such underwriters may reasonably request in
order to facilitate the public offering of such securities;
(d) Use its best efforts to register or qualify the securities
covered by such registration statement under such state securities or
blue sky laws of such jurisdiction as the Shareholder may reasonably
request within ten (10) days prior to the original filing of such
registration statement, except that the Company shall not for any
purpose be required to execute a general consent to service of process
or
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to qualify to do business as a foreign corporation in any jurisdiction
where it is not so qualified;
(e) Notify the Shareholder 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;
(f) Notify the Shareholder promptly of any request by the
Commission for the amending or supplementing of such registration
statement or prospectus or for additional information;
(g) Prepare and file with the Commission promptly upon the
request of the Shareholder any amendments or supplements to such
registration statement or prospectus which, in the reasonable opinion
of counsel for the Shareholder, is required under the Securities Act or
the rules and regulations thereunder in connection with the
distribution of the Registrable Securities by the Shareholder;
(h) Prepare and promptly file with the Commission, and promptly
notify the Shareholder of the filing of, any such amendments or
supplements to such registration statement or prospectus as may be
necessary to correct any statements or omissions if, at the time when a
prospectus relating to such securities is required to be delivered
under the Securities Act, any event has occurred as the result of which
any such prospectus or any other prospectus as then in effect would
include an untrue statement of a material fact or omit to state any
material fact necessary to make the statements therein not misleading
in light of the circumstances in which they were made;
(i) In case the Shareholder or any underwriter for the
Shareholder is required to deliver a prospectus at a time when the
prospectus then in effect may no longer be used under the Securities
Act, prepare promptly upon request such amendment or amendments to such
registration statement and such prospectuses as may be necessary to
permit compliance with the requirements of the Securities Act;
(j) Advise the Shareholder promptly after it shall receive
notice or obtain knowledge thereof of the issuance of any stop order by
the Commission suspending the effectiveness of such registration
statement or the initiation or threatening of any proceeding for that
purpose and promptly use its best efforts to prevent the issuance of
any stop order or to obtain its withdrawal if such stop order should be
issued; and
(k) At the request of the Shareholder, furnish on the effective
date of the registration statement and, if such registration includes
an underwritten public offering at the closing provided for in the
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underwriting agreement, (i) an opinion, dated each such date, of the
counsel representing the Company for the purposes of such registration,
addressed to the underwriters, if any, and to the Shareholder, covering
such matters with respect to the registration statement, the prospectus
and each amendment or supplement thereto, proceedings under state and
federal securities laws, other matters relating to the Company, the
securities being registered and the offer and sale of such securities
as are customarily the subject of opinions of issuer's counsel provided
to underwriters in underwritten public offerings; and (ii) use its best
efforts to obtain a letter dated each such date, from the independent
public accountants of the Company, to the extent that such accountants
are willing to provide such a letter, addressed to the underwriters, if
any, and to the Shareholder, stating that they are independent public
accountants within the meaning of the Securities Act and that in the
opinion of such accountants the financial statements and other
financial data of the Company included in the registration statement or
the prospectus or any amendment or supplement thereto comply in all
material respects with the applicable accounting requirements of the
Securities Act, and additionally covering such other financial
matters, including information as to the period ending not more than
five (5) business days prior to the date of such letter with respect to
the registration statement and prospectus, as the underwriters or the
Shareholder may reasonably request.
1.10 Indemnification.
(a) The Company shall indemnify the Shareholder, each of its
officers, directors and partners, and each person controlling the
Shareholder within the meaning of Section 15 of the Securities Act,
with respect to the registration, qualification or compliance which has
been effected pursuant to this Section 1, and each underwriter, if any,
and each person who controls any underwriter within the meaning of
Section 15 of the Securities Act, against all claims, losses,
liabilities, damages, deficiencies, costs and expenses, including,
reasonable attorneys', accountants' and expert witnesses' fees,
reasonable costs and expenses of investigation, and the reasonable
costs and expenses of enforcing the indemnification (individually, a
"Loss" and collectively, "Losses"), including, without limitation,
Losses resulting from the defense, settlement and/or compromise of a
claim and/or demand and/or assessment), arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular
or other document, or any amendment or supplement thereto, incident to
any such registration, qualification or compliance, or based on any
omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not
misleading, or any violation by the Company of the Securities Act or
any rule or regulation promulgated
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under the Securities Act applicable to the Company in connection with
any such registration, qualification or compliance, provided that the
Company will not be liable in any such case to the extent that any Loss
arises out of or is based on any untrue statement or omission or
alleged untrue statement or omission, made in reliance upon and in
conformity with written information furnished to the Company by an
instrument duly executed by the Shareholder, controlling person of the
Shareholder or underwriter and stated to be specifically for use
therein.
(b) The Shareholder shall, if its Registrable Securities are
included in the securities as to which such registration, qualification
or compliance is being effected, indemnify the Company, each of its
directors and officers and each person controlling the Company within
the meaning of Section 15 of the Securities Act, each underwriter, if
any, of the Company's securities covered by such a registration
statement, each person who controls the underwriter within the meaning
of Section 15 of the Securities Act, against all Losses arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus,
offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading, in
each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering
circular or other document in reliance upon and in conformity with
written information furnished to the Company by an instrument duly
executed by the Shareholder and stated to be specifically for use
therein. Notwithstanding the foregoing, the liability of the
Shareholder under this subsection (b) shall be limited to an amount
equal to the initial public offering price of the shares sold by the
Shareholder, unless such liability arises out of or is based on willful
conduct by the Shareholder.
(c) The party entitled to indemnification under this Section
1.10 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after
such Indemnified Party has actual knowledge of any claim as to which
indemnity may be sought, and shall permit the Indemnifying Party to
assume the defense of any such claim or any litigation resulting
therefrom, provided that counsel for the Indemnifying Party, who shall
conduct the defense of such claim or litigation, shall be approved by
the Indemnified Party (whose approval shall not unreasonably be
withheld) and the Indemnified Party may participate in such defense at
such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Section 1.10
unless the failure to give such notice is materially prejudicial to
an Indemnifying Party's ability to defend such action and provided
further, that the
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Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. The
Indemnifying Party, in the defense of any such claim or litigation,
shall not, except with the consent of the Indemnified Party, consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to the Indemnified Party of a release from all liability in
respect to such claim or litigation.
1.11 STANDOFF AGREEMENT. The Shareholder agrees, so long as it holds
at least one percent (1%) of the Company's outstanding voting equity
securities, in connection with the initial public offering of the Company's
securities upon request of the Company or the underwriters managing an
underwritten offering, not to sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Registrable Securities
(other than those included in the registration) without the prior written
consent of the Company or such underwriters, as the case may be, for such a
period of time (not to exceed one hundred eighty (180) days) from the effective
date of registration as may be requested by the underwriters; provided, that
each officer and director of the Company who owns at least one percent (1%) of
the Company's outstanding voting equity securities also agrees to such
restrictions; and provided further that the terms and conditions of any such
standoff agreement offered to the Shareholder shall be no less favorable than
those offered to any other shareholder of the Company.
1.12 TERMINATION OF REGISTRATION RIGHTS. The right of the Shareholder
to request registration pursuant to Section I shall terminate on such date as
the Shareholder is entitled to immediately sell all shares of Registrable
Securities held by the Shareholder under Rule 144 during any 90 day period.
SECTION 2
SHAREHOLDER'S RIGHT OF FIRST REFUSAL
2.1 RIGHT OF FIRST REFUSAL. The Company hereby grants to the
Shareholder (the "Holder") the right of first refusal to purchase its pro rata
share of all or any part of any New Securities (as defined in this Section 2.1)
which the Company may, from time to time, propose to sell and issue, but only
if and to the extent that the exercise of such right of first refusal is
necessary for Shareholder to maintain its Equity Interest.
(a) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company including Common Stock and
Preferred Stock, whether now authorized or not, and rights, options or
warrants to purchase said shares of Common Stock or Preferred Stock,
and securities of any type whatsoever that are, or may become, con-
vertible into said shares of Common Stock or Preferred Stock. Notwith-
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standing the foregoing, "New Securities" does not include (i)
securities offered to the public generally pursuant to a registration
statement or pursuant to Regulation A under the Securities Act; (ii)
securities issued in the acquisition of another corporation by the
Company by merger, stock purchase, or other reorganization whereby the
Company or its shareholders own not less than fifty-one percent (51%)
of the voting power of the surviving or successor corporation; (iii)
securities issued in connection with the purchase by the Company of
substantially all of the assets of another company; (iv) securities
issued in connection with the acquisition by the Company of a franchise
territory from any of its franchisees; (v) securities issued in
connection with any debt financing by the Company in which the majority
of the consideration received is borrowed funds; (vi) securities issued
pursuant to any rights or agreements, including without limitation
convertible securities, options and warrants, provided that the rights
of first refusal established by this Section 2.1 apply with respect to
the initial sale or grant by the Company of such rights or agreements;
(vii) stock issued in connection with any stock split, stock dividend
or recapitalization by the Company and (viii) stock issued pursuant to
any rights or options under any stock option plan or other similar
stock plan for officers, directors, employees, independent contractors
or agents of the Company not to exceed thirty percent (30%) of the
total fully-diluted Common Stock then outstanding.
(b) In the event the Company proposes to undertake an issuance
of New Securities, it shall inform Holder of the fact of such proposed
issuance at least thirty (30) days in advance of the closing of such
issuance or if the closing of any such issuance will occur within
thirty (30) days of the time that the Company initially proposes to
undertake it, the Company will inform Holder of the fact of such
proposed issuance promptly after it determines to undertake it, and, in
addition, it shall give Holder written notice (the "Formal Notice") of
its intention to undertake such issuance, describing the type of New
Securities, and the price and terms upon which the Company proposes to
issue the same. Holder shall have fifteen (15) days from the date of
receipt of the Formal Notice to agree to purchase up to Holder's pro
rata share (determined on a fully diluted basis; i.e. assuming the
conversion of all convertible securities and the exercise of all
outstanding options and warrants) of such New Securities for the price
and upon the terms specified in the Formal Notice by giving written
notice to the Company and stating therein the quantity of New
Securities to be purchased.
(c) In the event Holder fails to exercise such right of first
refusal within said fifteen (15) day period, the Company shall have
ninety (90) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities not elected to be purchased by
Holder at the price and upon the terms no more favorable to the
purchasers of such securities
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than specified in the Company's notice. In the event the Company has not
sold the New Securities or entered into an agreement to sell the New
Securities within said ninety (90) day period (or sold and issued New
Securities in accordance with the foregoing within sixty (60) days from
the date of said agreement), the Company shall not thereafter issue or
sell any of such New Securities without first offering such securities
in the manner provided above.
(d) The right of first refusal under this Section 2.1 shall
terminate upon the earliest to occur of (i) the closing of the sale of
shares of Common Stock of the Company to the public incident to a
registration statement (but excluding registrations relating to employee
interest or a Rule 145 Transaction filed with and declared effective by
the Commission; or (ii) Shareholder holding less than three percent
(3%) of the equity of the Company on a Common Equivalent Basis.
SECTION 3
COMPANY'S RIGHT OF FIRST REFUSAL
3.1 RIGHT OF FIRST REFUSAL. In addition to any other limitation on
transfer created by applicable securities laws, while the Shareholder holds any
Common Stock or Preferred Stock of the Company (the "Shareholder Stock"), the
Shareholder will not assign, encumber or dispose of the Shareholder Stock or
any interest therein, except as provided below:
(a) If the Shareholder intends (or is required by operation of
law or other involuntary transfer) to sell or transfer in any manner
any Shareholder Stock to another party (the "Third Party"), the
Shareholder first will offer to sell the same number (but not less) of
such Shareholder Stock to the Company or its assignee at the same
price, and upon the same terms (or terms as similar as reasonably
possible) as the Shareholder is proposing to dispose or is to dispose,
of said Shareholder Stock; provided, however, that if such transfer
does not establish a price, then the price will be fair market value as
determined by the Board of Directors of the Company. The Company or
its assignee may elect to purchase some or all of such Shareholder
Stock upon such terms within a period of thirty (30) days following
receipt by the Company of written notice from the Shareholder of the
terms and conditions of said proposed sale or transfer. If the Company
(or its assignee) does not purchase all of such Shareholder Stock
within such period, the Shareholder may sell any such Shareholder Stock
not so purchased upon the same terms (or terms as similar as reasonably
possible) to the identified Third Party. In the event such Shareholder
Stock is not disposed of by the Shareholder upon terms substantially
the same as offered to the Company within sixty (60) days following
expiration of the thirty (30) day period of the Company's right of
first refusal, the
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Shareholder Stock will once again be subject to the right of first
refusal, as herein provided.
(b) In the event of a transfer by operation of law or other
involuntary transfer, the person acquiring the Shareholder Stock will
promptly notify the Secretary of the Company of such transfer and the
Company's right of first refusal will commence upon receipt by the
Company of written notice by the person acquiring the Shareholder
Stock.
(c) Sections 3.1(a) and 3.1(b) shall not apply to (i) any
pledge by the Shareholder of the Shareholder Stock to a Third Party as
security, (ii) any transfer by the Shareholder to a Third Party in
connection with that Shareholder's estate planning, (iii) any transfer
by the Shareholder to a Third Party who is a member of that
Shareholder's immediate family, so long as, in each case, the Third
Party transferee signs a joinder agreement reasonably acceptable to the
Company's counsel pursuant to which the Third Party transferee agrees
in writing that any transfer of the Shareholder Stock by such Third
Party transferee shall be subject to the right of first refusal and
notification requirements set forth in Sections 3.1(a) and 3.1(b) and
any other restrictions on transfer set forth in this Agreement (For the
purpose of the preceding sentence, "immediate family" shall mean the
wife or husband of the Shareholder, as the case may be, and any of the
children of the Shareholder), or (iv) any transfer by the Shareholder
to the Xxxxxx Xxxxxx Xxxxxx Trust f/b/o Xxxx X. Xxxxxx and issue or
any person who is a controlling person of the Shareholder (a
"Controlling Person") so long as, in each case, (a) the Controlling
Person signs a joinder agreement reasonably acceptable to the Company's
counsel pursuant to which the Controlling Person expressly agrees that
any transfer of the Shareholder Stock by such Controlling Person shall
be subject to the right of first refusal and notification requirements
set forth in Sections 3.1(a) and 3.1(b) and any other restrictions on
transfer set forth in this Agreement (For the purpose of this sentence,
"controlling person" shall mean a director, president or chief
executive officer of the Shareholder or a person who owns ten percent
or more of the outstanding equity of the Shareholder calculated on a
common equivalent basis), and (b) the Controlling Person does not
control any company that is a competitor of the Company (For the
purpose of this sentence, "competitor" shall mean a company that
operates or franchises retail stores that sell golf equipment and
related products.).
(d) The rights of first refusal contained herein will
terminate upon the closing of the sale of shares of Common Stock to the
public incident to a registration statement (but excluding registrations
relating to employee interests or Rule 145 Transactions) filed with and
declared effective by the Commission.
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(e) Certificates, representing all of the Shareholder Stock
shall be imprinted with a legend satisfactory to counsel to the Company
referring to the restriction on transfer set forth in this Section 3.1.
SECTION 4
Affirmative Covenants of the Company
The Company hereby covenants and agrees as follows:
4.1 Financial Information.
(a) The Company shall mail the following reports to the
Shareholder for so long as the Shareholder and/or its assigns are
holders of not less than one percent (1%) of the equity of the Company
on a Common Equivalent Basis:
(1) As soon as practicable after the end of each fiscal
year, and in any event within one hundred twenty (120) days
thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of income and consolidated statements of
changes in financial position of the Company and its
subsidiaries, if any, for such year, prepared in accordance with
generally accepted accounting principles applicable in the
United States and setting forth in each case in comparative form
the figures for the previous fiscal year, all in reasonable
detail and audited by independent public accountants of national
standing selected by the Company.
(2) As soon as practicable after the end of the first,
second and third quarterly accounting periods in each fiscal
year of the Company and in any event within sixty (60) days
thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly
period, and consolidated statements of income and consolidated
statements of changes in financial position of the Company and
its subsidiaries, if any, for such a period and for the current
fiscal year to date, prepared in accordance with generally
accepted accounting principles applicable in the United States
(other than for accompanying notes), all in reasonable detail
and signed, subject to changes resulting from year-end audit
adjustments, by the principal financial or accounting officer of
the Company.
(3) With reasonable promptness after being approved by
the Company's Board of Directors, and in all events prior to the
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commencement of the relevant fiscal year, a copy of the
Company's annual business plan and budget.
(b) The covenants set forth in Sections 4.1(a)(1), 4.1(a)(2)
and 4.1(a)(3) shall terminate and be of no further force and effect at
such time as the Company is required to file reports pursuant to
Section 13 or 15(d) of the Exchange Act.
(c) The Shareholder acknowledges that, under this Section 4.1,
it will acquire information about the, Company, its business activities
and operations, its technical information and trade secrets, of a
highly confidential and proprietary nature. The Shareholder agrees to
hold such information in strict confidence and shall not reveal the
same to any third party or use the same in any way, except to third
party professional advisors on a need-to-know basis but only if such
third party professional advisors agree to keep such information
confidential upon receipt thereof.
SECTION 5
Miscellaneous
5.1 Further Actions. Each party hereto agrees that it will, at any time
and from time to time after the date hereof, upon reasonable request of the
other party hereto, do, execute, perform, acknowledge and deliver all such
further acts, deeds, assignments, certificates, transfers, conveyances and
assurances as may be reasonably required for the consummation of the
transactions contemplated hereunder.
5.2 Governing Law. This Agreement shall be governed in all respects by
the internal laws of the State of Delaware without reference to conflicts of
law principles.
5.3 Dispute Resolution--Arbitration. In the event of a dispute between
the parties hereto, such parties agree to submit the matter to binding
arbitration to be conducted under the auspices of the American Arbitration
Association (hereinafter referred to as "AAA").
(a) The dispute shall be resolved in accordance with the
Commercial Arbitration Rules in effect for AAA, which form of rules pertaining
on the date of the demand for arbitration shall apply and govern the
arbitration proceeding.
(b) The arbitration shall be held in the State of Delaware, at
such place as shall be designated by the arbitrator. Delaware law, both
substantive and procedural, shall govern the proceedings.
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(c) All procedural rules for arbitration shall be strictly
followed in resolving disputes under this Agreement, whether by the
arbitrator, or by a court of competent jurisdiction in enforcing such
provisions.
(d) The dispute shall be resolved by a single arbitrator. The
arbitrator shall be a member of the Delaware State Bar, actively engaged in the
practice of law for at least ten (10) years, with expertise in the process of
deciding disputes and/or interpreting contracts (in the particular field of law
involving the subject controversy). If the parties cannot agree on an
arbitrator after having been presented with three (3) lists of potential
candidates by AAA, AAA shall select an arbitrator from among its commercial
arbitration panel members who are retired Delaware judges.
(e) The parties may resort to the courts for injunctive relief
pending arbitration, without thereby waiving arbitration.
(f) The arbitration shall be conducted in the English language
in Delaware, according to the rules of evidence contained in Delaware law.
(g) In rendering the award, the arbitrator shall determine the
rights and obligations of the parties according to the substantive and
procedural laws of Delaware, as though the arbitrator was a court of competent
jurisdiction in Delaware.
(h) The award must be accompanied by a written statement of
decision. The award will be final and binding in the absence of manifest
mistake or fraud. Judgment on the award may be entered in any court of
competent jurisdiction,
(i) The arbitrator shall have the discretion to order a
prehearing exchange of information by the parties, including, without
limitation, production of requested documents, exchange of summaries of
testimony of proposed witnesses, an examination by deposition of parties and
third-party witnesses.
(j) Any prevailing party is entitled to recover costs (and
expenses) which shall include reasonable attorney's fees as well as the fees
and expenses of the arbitrators and the administrative fees of AAA. A
"prevailing party" shall be a party in whose favor any portion of the award is
rendered and that is determined by the arbitrator to be the prevailing party.
(k) The arbitrator shall have the authority to employ the law
and motion process and to award any remedy or relief that a court of the State
of Delaware could order or grant, including, without limitation, rescission,
specific performance of any obligation created under the agreement, the
awarding of punitive damages, the issuance of an injunction, or the imposition
of sanctions for abuse or frustration of the arbitration or judicial process.
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(1) The issue of fraud in the inducement of a contract
containing an arbitration clause, such as this contract, may be decided by the
arbitrator and not by the court, unless it is alleged that fraud permeated the
entire contract.
5.4 Successors and Assigns. Except as otherwise provided herein, the
provisions hereof, including without limitation Section 1 hereof, shall inure
to the benefit of, and be binding upon, the permitted successors, assigns,
heirs, executors and administrators of the parties hereto without the consent
of the Company; provided, however, that the rights of Shareholder pursuant to
Section 2 hereof are personal to Shareholder and may not be assigned to, or
exercised by or for the benefit of, any third party (whether or not such third
party purchases shares of Series D Preferred Stock from Shareholder) without
the prior written consent of the Company.
5.5 Entire Agreement; Amendment. This Agreement constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof, and no party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Neither this Agreement nor any term
hereof may be amended, waived, discharged or terminated other than by a written
instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought.
5.6 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, or otherwise delivered by hand or by
messenger, addressed at such address as the Shareholder and the Company shall
have furnished to each other in writing. Each such notice or other
communication shall for all purposes of this Agreement be treated as effective
or having been given when delivered if delivered personally, or, if sent by
mail, at the earlier of its receipt or seventy-two (72) hours after the same
has been deposited in a regularly maintained receptacle for the deposit of the
United States mail, addressed and mailed as aforesaid.
5.7 Delays or Omissions. Except as expressly provided herein, no delay
or omission to exercise any right, power or remedy accruing to the
Shareholder, upon any breach or default of the Company under this Agreement,
shall impair any such right, power or remedy of the Shareholder nor shall it be
construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default be deemed a waiver of any
other breach or default theretofore or thereafter occurring. Any waiver,
permit, consent or approval of any kind or character on the part of the
Shareholder of any breach or default under this Agreement, or any waiver on the
part of the Shareholder of any provisions or conditions of this Agreement, must
be in writing and shall be effective only to the extent specifically set for in
such writing. All remedies, either under this Agreement or by law or otherwise
afforded to the Shareholder, shall be cumulative and not alternative.
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5.8 Expenses. The Company and the Shareholder shall each bear its own
expenses incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby, except as otherwise specifically provided
with respect to expenses of registration under Section I hereof.
5.9 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective
if it materially changes the economic benefit of this Agreement to any party.
5.10 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not considered in construing or
interpreting this Agreement.
The foregoing Agreement is hereby executed as of the date first above
written.
NEVADA BOB'S HOLDINGS, INC.
/s/ Xxxx X. Xxxxxxx
--------------------------------------
By: Xxxx X. Xxxxxxx
Its: President
THE XXXXXX XXXXXX GOLF
COMPANY
/s/ Xxxxxx X. Xxxxxxx
--------------------------------------
By: Xxxxxx X. Xxxxxxx
Its: President
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