EXHIBIT 10.29
THE SECURITIES PURCHASED PURSUANT TO THE TERMS OF THIS AGREEMENT HAVE NOT BEEN
REGISTERED UNDER EITHER THE SECURITIES ACT OF 1933, AS AMENDED (THE "1933 ACT"),
OR APPLICABLE STATE SECURITIES LAWS (THE "STATE ACTS"), AND SHALL NOT BE SOLD,
PLEDGED, HYPOTHECATED, DONATED OR OTHERWISE TRANSFERRED (WHETHER OR NOT FOR
CONSIDERATION) BY THE HOLDER EXCEPT BY REGISTRATION OR PURSUANT TO AN EXEMPTION
FROM REGISTRATION UPON THE ISSUANCE TO THE COMPANY OF A FAVORABLE OPINION OF
COUNSEL OR OTHER EVIDENCE REASONABLY SATISFACTORY TO THE COMPANY TO THE EFFECT
THAT ANY SUCH TRANSFER SHALL NOT BE IN VIOLATION OF THE 1933 ACT AND THE STATE
ACTS.
STOCK PURCHASE AGREEMENT
North American Technologies Group, Inc., a Delaware corporation (the
"Company"), its Operating Subsidiaries (as defined herein) signatory hereto (for
purposes of SECTION 2 only), NationsBanc Capital Corporation, a Texas
corporation ("NBCC"), and the other parties signatory hereto (the "Initial
Investors") or who may become a signatory hereto after the date hereof pursuant
to SECTION 1.3 (the "Additional Investors"), enter into this Agreement, dated as
of March 31, 1997, relating to the issuance by the Company of certain of its
securities. NBCC, the Initial Investors and the Additional Investors are
hereinafter each individually referred to as an "Investor" and collectively as
the "Investors."
SECTION 1. DESCRIPTION OF TRANSACTIONS.
1.1 DESCRIPTION OF SECURITIES. The Company agrees to issue as provided
herein to the Investors, and the Investors severally but not jointly agree to
purchase from the Company, shares of subseries (each, a "Subseries") of the
Company's authorized but unissued Series G Preferred Stock, $.001 par value per
share (the "Series G Shares," which shall include any Series G Shares issued as
stock dividends and/or payments-in-kind), at the times and from time to time as
provided herein. The Series G Shares will be convertible into shares of the
Company's Common Stock, $.001 par value per share (the "Common Stock"), as
provided in the Master Certificate of Designation with respect to the Series G
Shares in the form of Exhibit 1 attached hereto and a Designation of Subseries
filed with the Secretary of State of Delaware pursuant thereto. The purchase
price per share of each Subseries shall be $100 per share and the terms of each
Subseries shall be identical except that the number of securities of the Company
issued or issuable upon conversion of Series G Shares in each Subseries and the
initial Conversion Price for each Subseries shall be as set forth in the
applicable Designation of Subseries. Any securities of the Company issued or
issuable upon conversion of the Series G Shares (and any Common Stock issued as
stock dividends and/or payments-in-kind on the Series G Shares) are referred to
as "Conversion Shares."
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1.2 INITIAL CLOSING; ISSUANCE OF SUBSERIES I SHARES. The initial
closing (the "Initial Closing") of the purchase and sale of Series G Shares,
which shall be designated as Series G Preferred Stock, Subseries I (the
"Subseries I Shares"), shall take place at the principal offices of the Company
located in Bellaire, Texas, at 1:00 p.m., on the date of this Agreement, or such
other time and place as agreed to by the parties (the "Initial Closing Date").
At the Initial Closing, the Company will deliver the Subseries I Shares being
acquired by the Initial Investors upon payment of the purchase price by the
Initial Investors to the Company by either (a) wire transfer or (b) certified or
bank cashier's check. The Company will not be obligated to issue any Subseries I
Shares unless the Initial Investors purchase all of the Subseries I Shares
indicated on Exhibit 2 to be purchased at the Initial Closing.
1.3 PURCHASE OF ADDITIONAL SUBSERIES BY ADDITIONAL INVESTORS. Subject
to: (i) any preemptive rights and/or rights of first refusal, and (ii) no Event
of Default (as defined in SECTION 4.1(D) of this Agreement) being in existence,
the Company may, at its election, sell and issue additional shares of Subseries
of Series G Shares to Additional Investors (who may also be Initial Investors
and who shall be deemed Additional Investors), at one or more closings selected
by the Company (hereinafter referred to as an "Additional Closing"), on the
following terms and subject to the following conditions:
(a) the Company shall provide to each Additional Investor and the
Initial Investors a written request, substantially in the form of Exhibit 3, not
less than thirty (30) days preceding the date of such Additional Closing, which
shall set forth among other things (i) the time, date and place (each an
"Additional Closing Date" and with the Initial Closing Date, each a "Closing
Date") of such Additional Closing (which shall be the then principal offices of
the Company in the State of Texas, unless the Company and the Additional
Investors purchasing such additional Subseries agree otherwise), (ii) the
designation and number of shares of the Subseries to be purchased by and sold to
such Additional Investor and the aggregate number of shares of the Subseries to
be purchased by and sold to all Additional Investors at such Additional Closing,
and (iii) the proposed initial Conversion Price on which the conversion
privilege of the Subseries shall be based;
(b) unless any such Initial Investor agrees otherwise, such Initial
Investor shall be able to purchase a number of shares of the Subseries of the
Series G Shares to be sold at such Additional Closing at least equal to the
total number of shares of the Subseries of the Series G Shares to be sold at
such Additional Closing multiplied by the proportion that the number of shares
of all Subseries of Series G Shares owned of record by such Initial Investor
bears to the total number of all Subseries of Series G Shares outstanding
immediately prior to the notice delivered pursuant to the terms of Section
1.3(a) above;
(c) the aggregate purchase price for the Subseries to be purchased and
sold at such Additional Closing shall be not less than $250,000;
(d) no such Additional Closings shall occur after March 31, 1999, and
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(e) At each Additional Closing, the Company will deliver the
certificates for the Subseries of Series G Shares being sold to each Additional
Investor, upon payment of the purchase price by the Additional Investors to the
Company by either (a) wire transfer or (b) certified or bank cashier's check.
Each Additional Investor agrees jointly but not severally to pay such purchase
price for the Subseries of Series G Shares to be sold to such Additional
Investor at such Additional Closing. The Company shall not be obligated to issue
any shares of such Subseries of Series G Shares at such Additional Closing
unless the Additional Investors purchase all the shares of such Subseries of
Series G Shares contemplated to be purchased and sold at such Additional
Closing. At each Additional Closing, by its payment of the purchase price for
the shares of Subseries of Series G Shares to be purchased by it, each
Additional Investor severally but not jointly shall be deemed to have made to
the Company, as of the date of the Additional Closing, the representations and
warranties with respect to such Additional Investor as are set forth in SECTION
3 of this Agreement; and each such Additional Investor who has not previously
executed this Agreement shall execute and deliver a copy of this Agreement.
1.4 CONDITIONS TO CLOSING. The obligation of each Investor to purchase
and pay for the Series G Shares to be purchased by each Investor at the Initial
Closing or any Additional Closing (each, a "Closing") is subject to the
satisfaction at or prior to such Closing of each of the following conditions:
(a) the Company shall have duly authorized and filed a Master
Certificate of Designation with the Secretary of State of the State of Delaware
substantially in the form attached hereto as Exhibit 1, and a Designation of
Subseries for the Subseries to be issued as provided therein;
(b) each of the Investors not already a party thereto shall have
entered into that certain Stockholders' Agreement, by and between the Company,
Xxx X. Xxxxxxxxxx, Xxxxxx Xxxxxx Xxxxxxx, Xxxxx X. Xxxxxxx and Xxxxxxx X. Xxxx,
and certain other shareholders of the Company who own shares of the Series F
Preferred Shares of the Company (the "Stockholders' Agreement");
(c) Xxxxxxxx Ingersoll Professional Corporation, Philadelphia,
Pennsylvania, counsel for the Company, shall have delivered to each Investor a
legal opinion, dated as of the Closing Date, in form and substance reasonably
satisfactory to the Investors;
(d) at each Closing where NBCC is an Investor, the Company shall have
delivered to NBCC the information required by the Small Business Administration
(the "SBA"), including SBA Forms 480 (Size Status Declaration), 652 (Assurance
of Compliance for Nondiscrimination) and 1031 (Portfolio Financing Report), that
is requested by NBCC;
(e) the Company shall have delivered to each Investor the financial
statements referred to in SECTION 2.7 below; and
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(f) the Company shall have delivered to each Investor:
(i) the Certificate of Incorporation of the Company and all
amendments thereto, certified by the Secretary of State of Delaware;
(ii) (A) copies of the Company's and each Operating Subsidiary's
resolutions of the Board of Directors authorizing and approving this
Agreement and all of the transactions and agreements contemplated
hereby and thereby, (B) the Bylaws of the Company and (C) the names of
the officer or officers of the Company and each Operating Subsidiary
authorized to execute this Agreement and any and all documents,
agreements and instruments contemplated herein, all certified by the
Secretary of the Company to be true, correct, complete and in full
force and effect and unmodified as of such Closing Date;
(iii) a good standing certificate for the Company and each
Operating Subsidiary from the Secretary of State of the jurisdiction
of organization of each and a certificate from each state where the
Company and each Operating Subsidiary is required (as provided in
SECTION 2.1 hereof) to be qualified as a foreign corporation showing
such qualification, dated as of a date within ten (10) days of such
Closing Date;
(iv) the latest available consolidated budget/operating forecast
of the Company and the Subsidiaries;
(v) a certificate of the President of the Company and of an
authorized executive officer of each Operating Subsidiary, dated as of
such Closing Date, stating that (i) there has been no Event of Default
(as defined in SECTION 4.1(D)), other than any of the same that has
been waived as provided in the first sentence of SECTION 9.1 hereof,
and (ii) the representations and warranties set out in this Agreement
are true, complete and accurate as of the date of such Closing Date,
other than any changes thereto reflected in any Quarterly Report on
Form 10-Q or 10-QSB (or other appropriate form then in use), any
Annual Report on Form 10-K or 10-KSB (or other appropriate form then
in use), any amendment thereto, or any other report or registration
statement of the Company filed with the Securities and Exchange
Commission (the "Commission") since the date of this Agreement, a copy
of which was delivered to each Investor prior to such Investor's
agreement to purchase any such Subseries of Series G Shares; and (y)
such other matters as may be set out in such Certificate, none of
which could have a material adverse effect on the Company and the
Operating Subsidiaries, taken as a whole, in the discretion of the
Investors; and
(vi) such other documents, instruments, and certificates as the
Investors may reasonably request.
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SECTION 2. REPRESENTATIONS OF THE COMPANY. As part of the basis of this
Agreement, the Company (which such representations of the Company for the
purposes of this SECTION 2 shall be deemed to be both with respect to the
Company itself and with respect to the Company and the Subsidiaries, taken as a
whole) and each Operating Subsidiary signatory hereto, jointly and severally,
represent to the Investors on the date hereof and on each Closing Date that:
2.1 ORGANIZATION. Each of the Company and EET, Inc., Industrial Pipe
Fittings, Inc., GAIA Technologies, Inc. and Riserclad International, Inc.
(collectively, the "Operating Subsidiaries" and each an "Operating Subsidiary"
and, with the other entities listed in Schedule 2.16 hereto, collectively, the
"Subsidiaries" and each a "Subsidiary") is a corporation duly organized, validly
existing and in good standing under the laws of the jurisdiction of its
organization, and except as described in Schedule 2.1, is not required to be
qualified to do business as a foreign corporation in any other jurisdiction
where the failure to so qualify would have a material adverse effect on the
Company and the Operating Subsidiaries. Schedule 2.1 sets forth the
jurisdictions in which the Company and each Operating Subsidiary is qualified.
2.2 CORPORATE POWER. The Company and each Operating Subsidiary have all
required corporate power and authority to own their respective properties and to
carry on their respective businesses as presently conducted and as proposed to
be conducted. The Company and each Operating Subsidiary have all required
corporate power and authority to enter into, deliver and perform this Agreement
and to fully carry out the transactions contemplated by this Agreement. The
copies of the Certificate or Articles, as applicable, of Incorporation and
Bylaws of the Company and each Operating Subsidiary, as amended to date, which
have been furnished to counsel for the Investors, are true, correct and
complete.
2.3 AUTHORIZATION. This Agreement and all documents executed pursuant to
this Agreement are valid and binding obligations of the Company and the
Operating Subsidiaries, as the case may be, enforceable according to their
terms, except as may be limited by (a) applicable bankruptcy, insolvency,
reorganization or other similar laws of general application relating to or
affecting the enforcement of creditor rights, (b) laws and judicial decisions
regarding indemnification for violations of federal securities laws, and (c) the
availability of specific performance or other equitable remedies. The
execution, delivery and performance of this Agreement and the issuance of the
Series G Shares and the Conversion Shares have been duly authorized by all
necessary corporate action of the Company and the Operating Subsidiaries, as the
case may be.
2.4 GOVERNMENTAL AUTHORIZATION; THIRD PARTY CONSENTS. Except as may have
been obtained, no approval, consent, exemption, authorization, or other action
by, or notice to, or filing with, any governmental authority or any other
individual, corporation, partnership, trust, incorporated or unincorporated
association, joint venture, joint stock company, government (or an agency or
political subdivision thereof) or other entity of any kind is necessary or
required in connection with the execution, delivery, performance or enforcement
against the Company and
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the Operating Subsidiaries of this Agreement, or any other documents executed
pursuant to this Agreement, except for federal and state securities filings.
2.5 CAPITALIZATION. The authorized and issued capital stock of the Company
and each Operating Subsidiary is as set forth in Schedule 2.5. All of the
presently outstanding shares of capital stock of the Company and each Subsidiary
have been validly authorized and issued and are fully paid and nonassessable.
The Series G Shares have been validly authorized and, when delivered and paid
for pursuant to this Agreement, will be validly issued, fully paid and
nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable securities laws, the Certificate
of Incorporation, the Stockholders' Agreement and/or this Agreement. The
relative rights, preferences, restrictions and other provisions relating to the
Series G Shares are as set forth in the Master Certificate of Designation and
the Designation of Subseries. The Company has authorized and reserved for
issuance upon conversion of the Series G Shares not less than 6,000,000 shares
of its Common Stock, and the Conversion Shares will be, when and if issued in
accordance with the terms of the Master Certificate of Designation and
applicable Designation of Subseries, validly authorized and issued, fully paid
and nonassessable, and free of all encumbrances and restrictions, except
restrictions on transfer imposed by applicable securities laws, the Certificate
of Incorporation, the Stockholders' Agreement and/or this Agreement. Except as
provided in Schedule 2.5, neither the Company nor any Subsidiary has issued any
other shares of its capital stock and there are no outstanding subscriptions,
warrants, options, calls, commitments, or other rights to purchase or acquire,
or securities convertible into or exchangeable for, any capital stock of the
Company or any Subsidiary. Except as disclosed on Schedule 2.5 or as
contemplated under this Agreement (and the other agreements executed in
connection herewith), there are no agreements to which the Company or any
Subsidiary is a party or has knowledge regarding the issuance, registration,
voting, transfer of or obligation (contingent or otherwise) of the Company or
any Subsidiary to repurchase or otherwise acquire or retire or redeem any of its
outstanding shares of capital stock.
2.6 PREEMPTIVE RIGHTS. There are no preemptive rights affecting the
issuance or sale of the Company's capital stock, except as described in
SECTION 7 hereof and the Stockholders' Agreement.
2.7 FINANCIAL STATEMENTS. The Financial Statements (as defined below) have
been prepared in accordance with generally accepted accounting principles
("GAAP") applied on a consistent basis throughout the periods indicated and with
each other, except that the unaudited Financial Statements do not contain
footnotes required by GAAP. The Financial Statements fairly present the
consolidated financial condition and operating results of the Company as of the
dates, and for the periods, indicated therein, subject in the case of the
unaudited Financial Statements to normal year-end and quarter-end adjustments.
Except as set forth in the Financial Statements, neither the Company nor any
Operating Subsidiary has any liabilities, contingent or otherwise, other than
(a) obligations under contracts and commitments incurred in the ordinary course
of business and not required under GAAP to be reflected in the Financial
Statements and which, individually or in the aggregate, are not material to the
financial condition or operating
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results of the Company or any Operating Subsidiary or (b) as set forth on
Schedule 2.7 hereto or as otherwise disclosed in this SECTION 2 or any Schedule
hereto. Except as disclosed in the Financial Statements, on Schedule 2.7 hereto
and for inter-company transactions with or between Operating Subsidiaries,
neither the Company nor any Subsidiary has any indebtedness for borrowed money
and none of them is a guarantor or indemnitor of any indebtedness of any other
person, firm or corporation. The Company and the Subsidiaries maintain and will
continue to maintain a standard system of accounting established and
administered in accordance with GAAP. With regard to the Initial Closing,
Financial Statements shall mean the Company's audited financial statements as of
December 31, 1996 as filed with the Commission. With regard to any Additional
Closing, Financial Statements shall mean the Company's most recent year end
audited financial statements, as filed with the Commission prior to the date of
any such Additional Closing, and any quarterly unaudited financial statements,
as filed with the Commission prior to the date of any such Additional Closing,
for all periods subsequent to the date of the most recent year end audited
financial statements.
2.8 ABSENCE OF CERTAIN DEVELOPMENTS. Except as disclosed in Schedule 2.8 or
in the Financial Statements, since the date of the latest Financial Statements,
(a) there has been no material adverse change in the financial condition of
either the Company or any of the Operating Subsidiaries, (b) neither the Company
nor any Operating Subsidiary has incurred any material liabilities or material
contingent liabilities, (c) the Company has not declared any dividends or
purchased any of its capital stock, (d) neither the Company nor any Operating
Subsidiary has entered into any material transactions outside the ordinary
course of business, (e) neither the Company nor any Operating Subsidiary has
waived a valuable right or cancelled any debt or claim held by the Company or
any Operating Subsidiary, (f) neither the Company nor any Operating Subsidiary
has made a loan to any officer, director, employee or shareholder of the
Company, or any agreement or commitment therefor, (g) neither the Company nor
any Operating Subsidiary has had or committed to any increase, direct or
indirect, in the compensation paid or payable to any officer, director, employee
or agent of the Company or any Operating Subsidiary, except as required by
written employment agreements to which the Company or any Operating Subsidiary
is a party (and which such increases are described in Schedule 2.8), (h) neither
the Company nor any Operating Subsidiary has had any material loss, destruction
or damage to any property, whether or not insured, (i) neither the Company nor
any Operating Subsidiary has had any change in personnel or the terms and
conditions of their employment, (j) neither the Company nor any Operating
Subsidiary has had any acquisition or disposition of any assets (or any contract
or arrangement therefor), or any other transaction otherwise than for fair value
in the ordinary course of business, and (k) neither the Company nor any
Operating Subsidiary has committed itself to any of (a) through (j) above.
2.9 TAX MATTERS. All required tax returns of the Company and each
Subsidiary have been accurately prepared in all material respects and filed
(including applicable extensions), and all taxes and penalties required to be
paid with respect to the periods covered by such returns have been timely paid.
Neither the Company nor any Subsidiary is delinquent in the payment of any tax,
assessment or governmental charge, has had any tax deficiency proposed or
assessed
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against it that is still outstanding, or has executed any waiver still in effect
of any statute of limitations on the assessment or collection of any tax. None
of the federal or state income tax returns or state franchise tax returns of
either the Company or any Subsidiary has ever been audited by governmental
authorities. There is no pending dispute with any taxing authority that, if
determined adversely to the Company or any Operating Subsidiary, would result in
the assertion by any taxing authority of any material tax deficiency, and
neither the Company nor any Operating Subsidiary has any knowledge of a proposed
liability for any tax to be imposed upon the Company's or any Subsidiary's
properties or assets for which there is not an adequate reserve reflected in the
Financial Statements.
2.10 TITLE TO ASSETS; CONDITION OF ASSETS. Except as disclosed in the notes
to the latest Financial Statements, if any, and on Schedule 2.10, the Company
and the Operating Subsidiaries have good and indefeasible title to their
respective assets, including, without limitation, those reflected on the
Financial Statements (other than those since disposed of in the ordinary course
of business), free and clear of all security interests, liens, charges and other
encumbrances, except for (a) liens for taxes not yet due and payable or being
contested in good faith in appropriate proceedings, and (b) encumbrances that
are incidental to the conduct of their respective businesses or ownership of
property, not incurred in connection with the borrowing of money or the
obtaining of credit, and which do not in the aggregate materially detract from
the value of the assets affected or materially impair their use by the Company
or such Operating Subsidiary, as the case may be. With respect to the assets of
the Company and each Operating Subsidiary that are leased, the Company or such
Operating Subsidiary, as the case may be, is in compliance with all material
provisions of such leases. The equipment and other tangible assets of the
Company and the Operating Subsidiaries are in good operating condition (except
for reasonable wear and tear), and have been reasonably maintained.
2.11 PROPRIETARY RIGHTS. Except as set forth in Schedule 2.11, the Company
and the Subsidiaries have ownership of all material copyrights, trademarks,
service marks and other proprietary rights used in their respective businesses
(collectively the "Intellectual Property"). Such copyrights, trademarks, service
marks and other proprietary rights are sufficient for its business as now
conducted and as proposed to be conducted without any conflict with, or
infringement of, the rights of others. The present products and services of the
Company and the Operating Subsidiaries do not infringe any patent, copyright,
trademark or other proprietary rights of others, neither the Company nor any
Operating Subsidiary believes the Company or any Operating Subsidiary is
utilizing the inventions of any employee (or person currently intended to be
hired) created prior to his employment with the Company or such Operating
Subsidiary, as the case may be, which the Company or such Operating Subsidiary,
as the case may be, does not have rights to use, and neither the Company nor any
Operating Subsidiary has received any notice from any third party of any such
alleged infringement by the Company or such Operating Subsidiary. The Company
and the Operating Subsidiaries have taken all necessary steps to establish and
preserve their respective ownership, licenses or rights of use of all material
trademarks, service marks, copyrights, trade secrets and other proprietary
rights with respect to their products, services and technology. Neither the
Company nor any Operating Subsidiary is
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aware of any infringement by others of its respective Intellectual Property.
Except as set forth on Schedule 2.11, there are no outstanding options,
licenses, or agreements of any kind relating to the Intellectual Property, nor
is the Company or any Operating Subsidiary bound by or a party to any options,
licenses, or agreements of any kind with respect to the patents, trademarks,
service marks, trade names, copyrights, trade secrets, licenses, information and
proprietary rights and processes of any other person or entity. None of the
agreements referred to in Schedule 2.11 gives the other parties thereto any
rights or interests in or to the Intellectual Property of the Company or any
Operating Subsidiary other than to use such Intellectual Property solely in
connection with the internal operations of their business and neither they nor
any other third party have the right to license, sublicense, distribute or
market all or part of the Company's or any Operating Subsidiary's products,
except as described on Schedule 2.11. Neither the execution nor delivery of this
Agreement, nor the carrying on of the Company's and each Operating Subsidiary's
business by the employees of the Company and each Operating Subsidiary, nor the
conduct of the Company's and each Operating Subsidiary's business as proposed,
will, to the best of the Company's and each Operating Subsidiary's knowledge,
conflict with or result in a material breach of the terms, conditions, or
provisions of, or constitute a material default under, any contract, covenant or
instrument under which any such employee is now obligated.
2.12 MANUFACTURING AND MARKETING RIGHTS. Except as set forth in
Schedule 2.12, neither the Company nor any Operating Subsidiary has granted
rights to manufacture, produce, assemble, license, market or sell its products
to any other person and is not bound by any agreement that affects the Company's
or any Operating Subsidiary's exclusive right to develop, manufacture, assemble,
distribute, market or sell its products.
2.13 EFFECT OF TRANSACTIONS; COMPLIANCE WITH OBLIGATIONS. The Company's and
each Operating Subsidiary's execution and delivery of this Agreement, and its
performance of the transactions contemplated by this Agreement, will not violate
any judgment, decree or order, or any material contract or obligation of the
Company or any Operating Subsidiary, as the case may be, or, to such entity's
knowledge, any statute, rule or regulation of any federal, state or local
government or agency applicable to the Company or any Operating Subsidiary, or
any material contract to which any employee of the Company or any Operating
Subsidiary is bound. Based upon the representations of the Investors, the offer
and sale of the Series G Shares will be in compliance with all applicable
federal and state securities laws. No consent, approval or filing with any
regulatory agency is required to be taken by the Company or any Operating
Subsidiary in connection with the transactions contemplated by this Agreement,
except those which the Company or any Operating Subsidiary has obtained or made
in a timely manner, and except for any filing of Form D or any applicable state
blue sky filing that may be made by the Company after the relevant Closing.
2.14 LITIGATION. Except as disclosed in the Company's Commission Documents
(as defined herein) and/or the latest Financial Statements, there is no
litigation, arbitration or governmental proceeding or investigation pending or,
to the knowledge of the Company or any Operating Subsidiary, threatened (a)
against the Company or any Subsidiary, (b) affecting any of
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the properties or assets of the Company or any Subsidiary, (c) that questions
the validity of this Agreement, or the right of the Company or any Operating
Subsidiary to enter into this Agreement or to consummate the transactions
contemplated hereby, or (d) against any officer, director, shareholder or
employee of the Company or any Subsidiary in such capacity or relating to his
prior employment relationships. Neither the Company nor any Operating Subsidiary
is aware of any unasserted claim that is likely to result in any litigation,
arbitration or legal or administrative proceeding against it or any other
Subsidiary.
2.15 LEGAL COMPLIANCE. The Company and the Operating Subsidiaries have all
material franchises, permits, licenses and other rights and privileges necessary
to permit them to own their respective properties and to conduct their
respective businesses as presently conducted and as proposed to be conducted.
The business and operations of the Company and each Operating Subsidiary have
been, are being and will be conducted in all material respects in accordance
with all applicable laws, rules and regulations, and neither the Company nor any
Operating Subsidiary is in violation of any judgment, or to such entity's
knowledge, any law or regulation, the violation of which could reasonably be
expected to result in a material adverse effect on the Company or such Operating
Subsidiary.
2.16 SUBSIDIARIES; JOINT VENTURES. Except as described in Schedule 2.16
hereto or in the Commission Documents, the Company does not have any direct or
indirect subsidiaries, nor any interests in partnerships, joint ventures,
limited liability companies, or other business entities. The Operating
Subsidiaries are the only Subsidiaries of the Company which either individually
or in the aggregate, have any material assets, liabilities or operations and
which constitute "significant subsidiaries" as defined in Rule 1-02 of
Regulation S-X promulgated under the Securities Act of 1933, as amended (the
"Securities Act"). Each Subsidiary named in Schedule 2.16 hereto is wholly owned
by the Company, except as set forth in Schedule 2.16 hereto, and the Company has
no present intention of (a) disposing of any of the capital stock of any such
Subsidiary presently owned by the Company or (b) allowing any Subsidiary to sell
or otherwise dispose of any material portion of such Subsidiary's assets, except
for normal dispositions in the ordinary course of business.
2.17 NO DEFAULTS; MATERIAL CONTRACTS. The Company and the Operating
Subsidiaries have in all respects performed all obligations required to be
performed by them and are not in default under any contract, commitment or
instrument, and no event or condition has occurred which, with the giving of
notice or passage of time, or both, would constitute such a default, except
where the failure to perform any such obligation, or except where any such
default, would not reasonably be expected to have a material adverse effect on
the business, assets, results of operations, condition (financial or otherwise),
or prospects of the Company and its Operating Subsidiaries taken as a whole.
Schedule 2.17 contains an accurate list of all agreements, and any contracts or
commitments, oral or written, of the Company and each Operating Subsidiary, that
require the expenditure by the Company or such Operating Subsidiary of more than
$100,000 over the term of such contract or commitment, or that are not
terminable by the Company or such Operating Subsidiary without penalty prior to
the first anniversary of this Agreement.
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Except as indicated on Schedule 2.17, (a) neither the Company nor any Operating
Subsidiary is under any material obligation that cannot be performed by it on
time and without substantial or unusual expenditure of money and effort, or (b)
any party having material contracts with the Company or any Operating Subsidiary
are, to the knowledge of such entity, in compliance with such agreements in all
material respects.
2.18 INSURANCE. The Company and the Subsidiaries maintain insurance
coverages which are adequate for the businesses being conducted, and the
properties owned or leased, by the Company and the Subsidiaries. The Company has
provided access to the Investors to correct and complete copies of all such
insurance policies of the Company and the Subsidiaries.
2.19 EMPLOYEE MATTERS; AFFILIATE TRANSACTIONS. Except as disclosed in
Schedule 2.19 or in the Commission Documents or as described in this Agreement,
(a) neither the Company nor any Operating Subsidiary has in effect or any
obligation to put into effect any employment agreements, deferred compensation,
pension or retirement agreements or arrangements, bonus, incentive or profit-
sharing plans or arrangements, or labor or collective bargaining agreements, (b)
there are no existing or proposed loans, leases, licenses or other such
agreements or arrangements between the Company or any Operating Subsidiary, on
the one hand, and any officer, director or stockholder of the Company or any
Operating Subsidiary, on the other hand, and (c) neither the Company nor any
Operating Subsidiary (i) is a party to any contract with any labor union or
organization representing any employee, or any other employee representative, or
(ii) has had at any time during the past five years, nor to the knowledge of
such entity is there now threatened, any walkout, strike, picketing, work
stoppage or any other similar occurrence which has had or would have a material
adverse effect on the assets, business, prospects or operations of the Company
and the Operating Subsidiaries. The Company has made available to the Investors
a true and correct summary of the policies, if any, followed by the Company and
each Operating Subsidiary regarding confidentiality of sensitive information and
ownership of patents, know-how and other such matters relating to the business
of the Company and each Operating Subsidiary. Except as disclosed in Schedule
2.19, to the knowledge of the Company and the Operating Subsidiaries, (A) no
officer or other key employee of the Company or any Operating Subsidiary has any
present intention of terminating his employment with the Company or such
Operating Subsidiary, and (B) no key employee is bound by any agreement with any
other employer (past or present) that adversely affects the performance of his
duties as an employee of the Company or any such Operating Subsidiary or the
businesses of the Company or any such Operating Subsidiary.
2.20 BROKERAGE. Except as listed in Schedule 2.20, there are no claims for
brokerage commissions, finder's fees or similar compensation in connection with
the transactions contemplated by this Agreement based on any arrangement or
agreement made by the Company or any Subsidiary, for which any of the Investors
are or could under any circumstance be liable.
2.21 DISCLOSURE. This Agreement, including the exhibits and schedules
hereto, and the other documents and certificates furnished by the Company and/or
any Subsidiary to the
11
Investors or their counsel do not contain any untrue statement of material fact
or, when taken as a whole, omit any material fact necessary in order to make the
statements not misleading. There is no fact known to the Company or any
Operating Subsidiary that has not been disclosed in the Commission Documents or
that the Company and the Operating Subsidiaries have not disclosed to the
Investors prior to the date of this Agreement or any Additional Closing, as
applicable, that materially adversely affects the business, assets, properties,
prospects or condition (financial or otherwise) of the Company or any Operating
Subsidiary or the ability of the Company or any Operating Subsidiary to perform
under this Agreement or to consummate the transactions contemplated hereby.
2.22 EMPLOYEE BENEFIT PLANS. Except as set forth in Schedule 2.22 hereto,
neither the Company nor any Operating Subsidiary maintains, sponsors, or
contributes to any program or arrangement that is an "employee pension benefit
plan," an "employee welfare benefit plan," or a "multiemployer plan," as those
terms are defined in Sections 3(2), 3(1), and 3(37) of the Employee Retirement
Security Act of 1974, as amended. Except as listed in Schedule 2.22, neither the
Company nor any Operating Subsidiary has any incentive or benefit arrangements.
2.23 ENVIRONMENTAL.
(a) Except for items which could not reasonably be expected to have a
material adverse effect on the Company or any Subsidiary, no part of the
Company's or any of its Subsidiaries' assets, including, without limitation, any
real property owned or, to the knowledge of such entity after diligent and
appropriate inquiry by the officers of such entity, leased by any such entity,
is contaminated by any substance or material presently identified to be toxic, a
pollutant, a contaminant or a hazardous substance according to any Applicable
Environmental Law. Neither the Company nor any Subsidiary has caused or
suffered to occur any material discharge, release, spillage, emission,
uncontrolled loss, seepage or filtration of oil or petroleum or chemical liquids
or solids, liquid or gaseous products or hazardous waste or hazardous substance
at, from, upon, and under or within any real property owned or leased by the
Company or any Subsidiary, or any contiguous real property. Neither the Company
nor any Subsidiary has been and none of such entities has committed any acts or
omissions which could reasonably be expected to lead to the imposition on the
Company or any Subsidiary of material liability, or creation of a lien on the
Company's or any Subsidiary's assets, under any Applicable Environmental Law.
(b) For purposes of this Section, "Applicable Environmental Law" shall mean
any law affecting real or personal property owned, operated or leased by the
Company or any Subsidiary or any other operation of the Company or any
Subsidiary in any way pertaining to health, safety, or the environment,
including, without limitation, (i) the Comprehensive Environmental Response,
Conservation and Liability Act of 1980, as amended by the Superfund Amendments
and Reauthorization Act of 1986 (as amended from time to time, herein referred
to as "CERCLA"), (ii) the Resource Compensation and Recovery Act of 1976, as
amended by the Used Oil Recycling Act of 1980, the Solid Waste Disposal Act of
1980, and the Hazardous and
12
Solid Waste Amendments of 1984 (as amended from time to time, herein referred to
as "RCRA"), (iii) the Safe Drinking Water Act, as amended from time to time,
(iv) the Toxic Substances Control Act, as amended from time to time, (v) the
Clean Air Act, as amended from time to time, (vi) the Occupational Safety and
Health Act, as amended from time to time, and (vii) any laws which may now or
hereafter require removal of asbestos or other hazardous wastes or impose any
liability related to asbestos or other hazardous wastes. The terms "hazardous
substance", "petroleum", "release", and "threatened release" have the meanings
specified in CERCLA, and the terms "solid waste" and "disposal" (or "disposed")
have the meanings specified in RCRA; provided, however, that in the event either
CERCLA or RCRA is amended so as to broaden the meaning of any term defined
thereby, such broader meaning shall apply subsequent to the effective date of
such amendment with respect to all provisions of this Agreement; and provided
further, however, that to the extent the laws of any nation, province, state or
political subdivision thereof in which any real or personal property owned,
operated or leased by the Company or any Subsidiary is located or in which the
Company or any Subsidiary conducts operations establish a meaning for "hazardous
substance", "petroleum", "release", "solid waste" or "disposal" which is broader
than that specified in either CERCLA or RCRA such broader meaning shall apply.
2.24 AFFILIATED TRANSACTIONS. Schedule 2.24 hereto and the Commission
Documents contain a complete listing of all compensation and other agreements of
the Company and each Subsidiary with or for the benefit of any of their
respective affiliates, any shareholder of the Company and the Subsidiaries,
respectively, or any affiliate of any shareholder of the Company and the
Subsidiaries, respectively, other than inter-company transactions with or
between Operating Subsidiaries. Except for the employment contracts listed on
Schedule 2.24 hereto or in the Commission Documents, copies of which have been
provided to the Investors, neither the Company nor any Operating Subsidiary
have, as of the Closing Date, any written employment contracts.
2.25 PRIVATE OFFERING. Neither the Company nor anyone acting on its behalf
has offered or will offer shares of the Company or any part thereof or any
similar securities for issuance or sale to, or solicit any offer to acquire any
of the same from, anyone so as to make the issuance and sale of the Series G
Shares not exempt from the registration requirements of Section 5 of the
Securities Act; provided, however, that with respect to the offer and sale
thereof to the Investors, the Company is relying on the representations,
warranties and agreements of the Investors set forth herein. All shares of
capital stock of the Company have been offered and sold in compliance with all
applicable federal and state securities laws. Assuming that each Investor's
representations and warranties contained in SECTION 3 of this Agreement are true
and correct on each Closing Date on which such Investor purchased any Series G
Shares, the offer, issuance and sale of the Series G Shares are and will be
exempt from the registration and prospectus delivery requirements of the
Securities Act, as then in effect, and have been or will be registered or
qualified (or are or will be exempt from registration and qualification) under
the registration, permit or qualification requirements of all applicable state
securities laws, as then in effect.
13
2.26 COMMISSION DOCUMENTS. The Company has filed all registration
statements, proxy statements, reports and other documents required to be filed
by it under the Securities Act and the Exchange Act, and all amendments thereto;
and the Company has furnished to the Investors copies of all of such documents,
each as filed with the Commission, other than all exhibits thereto, since
January 1, 1996 (collectively, the "Commission Documents"), and has furnished
access to all other Commission Documents, and all exhibits thereto. Each
Commission Document (as finally amended) was true and accurate in all material
respects and was in material compliance with the requirements of its respective
report form at the time such document was filed.
2.27 HOLDING COMPANY AND INVESTMENT COMPANY STATUS. Neither the Company
nor any Subsidiary is a "holding company," or a "subsidiary company" of a
"holding company," or an "affiliate" of a "holding company," or a "public
utility," within the meaning of the Public Utility Holding Company Act of 1935,
as amended, or a "public utility" within the meaning of the Federal Power Act,
as amended. Neither the Company nor any Subsidiary is an "investment company"
or a company "controlled" by an "investment company" within the meaning of the
Investment Company Act of 1940, as amended, or an "investment adviser" within
the meaning of the Investment Advisers Act of 1940, as amended.
SECTION 3. REPRESENTATIONS OF THE INVESTORS
As part of the basis of this Agreement, each Investor, severally and not
jointly, hereby represents that on the date hereof and on each Closing Date:
3.1 AUTHORIZATION. The execution of this Agreement and the documents
executed by the Investor pursuant to this Agreement have been authorized by all
necessary action on the part of the Investor, have been executed and delivered,
and constitute valid, legal, binding and enforceable agreements of the Investor.
3.2 INVESTMENT PURPOSE. The Investor is acquiring the Series G Shares for
its own account, for investment, and not with a view to any "distribution"
within the meaning of the Securities Act. The Investor has no present intention
to make any transfer of the Series G Shares. No broker-dealer acted on behalf
of the Investor in connection with the offer or sale of the Series G Shares.
3.3 RESTRICTIONS ON TRANSFERABILITY. The Investor understands that
because the Series G Shares have not been registered under the Securities Act
and applicable state securities laws (based in part on the representations,
warranties and agreements of the Investor contained herein), it cannot dispose
of any of the Series G Shares or the Conversion Shares unless they are
subsequently registered under the Securities Act or exemptions from registration
are available and that the Investor must bear the economic risk of an investment
in such securities as a result thereof. The Investor acknowledges and
understands that, except as provided in SECTION 5 of this Agreement, it has no
registration rights. Although it may be possible in the future to make
14
limited public sales of the Series G Shares and/or Conversion Shares without
registration under the Securities Act, Rule 144 is not now available and there
is no assurance that it will become available for such purpose. By reason of
these restrictions, the Investor understands that it may be required to hold the
Series G Shares and the Conversion Shares for an indefinite period of time. The
Investor understands that each certificate representing the Series G Shares and
the Conversion Shares will bear appropriate state "blue sky" legends and a
legend substantially to the effect that:
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. THESE SECURITIES MAY NOT BE
SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN
EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES
ACT OF 1933, AS AMENDED, OR AN OPINION OF COUNSEL OR OTHER EVIDENCE
SATISFACTORY TO THE CORPORATION THAT REGISTRATION IS NOT REQUIRED UNDER
APPLICABLE SECURITIES LAWS.
The Investor also acknowledges that appropriate stop transfer orders will be
noted on the Company's stock records for the securities bearing such legend.
3.4 STATUS OF INVESTOR. The Investor is knowledgeable and experienced in
making venture capital investments, including investments similar to those
securities to be acquired by it pursuant to this Agreement, and is able to bear
the economic risk of loss of its investment in the Company. The Investor is an
"accredited investor" as that term is defined in Rule 501(a) of Regulation D
under the Securities Act or is a "purchaser," as that term is defined in Rule
506(b)(2)(ii) of Regulation D of the Securities Act. The Investor's state of
incorporation, organization or residence and principal place of business, are
listed on Exhibit 2, and the Investor has not been organized for purposes of
investing in the Company.
3.5 BROKERAGE. There are no claims for brokerage commissions, finder's
fees or similar compensation in connection with the transactions contemplated by
this Agreement based on any arrangement or agreement made by the Investor,
except as may otherwise be provided in Exhibit 2, all of which claims shall be
paid entirely by such Investor.
3.6 OWN ACCOUNT. The Investor is acting on its own behalf in connection
with the investigation and examination of the Company and its decision to
execute these documents.
3.7 RECEIPT OF INFORMATION. The Investor has received and reviewed with
such investment, legal, financial and other advisors as the Investor has elected
a copy of each of the documents furnished to the Investor pursuant to SECTION
2.26 hereof. The Investor believes it has received all the information it
considers necessary or appropriate for deciding whether to purchase the Series G
Shares. The Investor further represents that it has had an opportunity to ask
questions and receive answers from the Company and each Subsidiary regarding the
terms and conditions of the offering of the Series G Shares and the business,
properties, prospects, and financial condition of the Company and each
Subsidiary and to obtain additional information (to
15
the extent the Company or any such Subsidiary possessed such information or
could acquire it without unreasonable effort or expense) necessary to verify the
accuracy of any information furnished to it or to which it had access. The
foregoing, however, does not limit or modify the representations and warranties
in SECTION 2 of this Agreement or the right of the Investor to rely thereon.
SECTION 4. COVENANTS OF THE PARTIES.
The Company hereby covenants that, except as provided for below for so long
as (a) the Investors hold at least twenty percent (20%) of all Subseries of the
Series G Shares, with respect to the covenants contained in SECTIONS 4.4 through
4.22, excluding 4.7, and (b) the Investors hold any of the Series G Shares with
respect to the covenants contained in SECTIONS 4.1 through 4.3 and 4.7, unless
waived by at least two (2) holders of Series G Shares holding in the aggregate
at least a two-thirds interest in all of the Subseries of the Series G Shares
then outstanding, the Company will comply and will cause its Subsidiaries to
comply with the provisions of this SECTION 4.
4.1 FINANCIAL INFORMATION. The Company will maintain a system of accounts
in accordance with GAAP and procedures, will keep full and complete financial
records and will furnish to the Investors the following reports:
(a) within fifty-five (55) days after the end of each quarterly fiscal
period in each fiscal year of the Company (other than the last quarterly fiscal
period of each such fiscal year), duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries
as at the end of such quarter, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, for such
quarter,
setting forth in each case in comparative form the figures for the corresponding
periods in the previous fiscal year, all in reasonable detail, prepared in
accordance with GAAP, applicable to quarterly financial statements generally,
and certified by a senior financial officer of the Company as fairly presenting,
in all material respects, the financial position of the companies being reported
on and their results of operations and cash flows, subject to changes resulting
from year-end adjustments; provided, that delivery within the time period
specified above of copies of the Company's Quarterly Report on Form l0-Q or 10-
QSB (or, if the Company files with the Commission a Form 12b-25 with respect to
a particular 10-Q or 10-QSB in accordance with the Exchange Act, no later than
five (5) days after the filing of such Form) prepared in compliance with the
requirements therefor and filed with the Commission shall be deemed to satisfy
the requirements of this Section;
16
(b) within one hundred (100) days after the end of each fiscal year of the
Company, duplicate copies of,
(i) a consolidated balance sheet of the Company and its Subsidiaries,
as at the end of such year, and
(ii) consolidated statements of income, changes in shareholders'
equity and cash flows of the Company and its Subsidiaries, for such year,
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail, prepared in accordance with GAAP and
accompanied by an opinion thereon of independent certified public accountants of
recognized national standing, which opinion shall state that such financial
statements present fairly, in all material respects, the financial position of
the companies being reported upon and their results of operations and cash flows
and have been prepared in conformity with GAAP, and the examination of such
accountants in connection with such financial statements has been made in
accordance with generally accepted auditing standards, and that such audit
provides a reasonable basis for such opinion in the circumstances; provided,
that delivery within the time period specified above (or, if the Company files
with the Commission a Form 12b-25 with respect to a particular Form 10-K or 10-
KSB in accordance with the Exchange Act, no later than fifteen (15) days after
the filing of such Form) of the Company's Annual Report on Form 10-K or 10-KSB
for such fiscal year, together with the Company's annual report to shareholders,
if any, prepared pursuant to Rule 14a-3 under the Exchange Act, prepared in
accordance with the requirements therefor and filed with the Commission, shall
be deemed to satisfy the requirements of this Section;
(c) promptly upon their becoming available, one copy of (i) each financial
statement, report, notice or proxy statement sent by the Company or any
Subsidiary to public securities holders generally, and (ii) each regular or
periodic report, each final registration statement (without exhibits except as
expressly requested by such holder), and each final prospectus and all
amendments thereto filed by the Company or any Subsidiary with the Commission
and of all press releases and other statements made available generally by the
Company or any Subsidiary to the public concerning developments that are
material;
(d) promptly, and in any event within ten (10) days after a Responsible
Officer (as defined below) becomes aware of the existence of any default in the
performance of any covenant, obligation or agreement of the Company hereunder or
pursuant to any other document executed pursuant to the terms of this Agreement
or any material breach of any representation made by the Company or any
Operating Subsidiary hereunder (each an "Event of Default") or that any person
has given any notice or taken any action with respect to a claimed Event of
Default, a written notice specifying the nature and period of existence thereof
and what action the Company is taking or proposes to take with respect thereto
(as used herein, the terms "Responsible Officer" shall mean any of the following
officers of the Company: the Chairman, the President, the Chief Executive
Officer, the Chief Operating Officer, the Chief Financial
17
Officer, the Treasurer, and Senior or Executive Vice Presidents and the
controller or the chief accounting officer (and any person who performs one of
the same functions under a different title));
(e) promptly, and in any event within thirty (30) days of receipt thereof,
copies of any notice to the Company or any Subsidiary from any government entity
relating to any order, ruling, statute or other law or regulation that would
reasonably be expected to have a material adverse effect on the business,
assets, results of operations, condition (financial or otherwise), or prospects
of the Company and its Subsidiaries considered as a whole; and
(f) with reasonable promptness, such other data and information relating to
the business, operations, affairs, financial condition, assets or properties of
the Company or any Subsidiary or relating to the ability of the Company or any
Subsidiary to perform its obligations hereunder as from time to time may be
reasonably requested by any Investor.
4.2 ACCESS TO INFORMATION. The Company will permit any Investor to
inspect at the Investor's expense any of the properties or books and records of
the Company and any Subsidiary, to make copies of extracts from such books and
records at the Investor's expense and to discuss the affairs and condition of
the Company and the Subsidiaries with representatives of the Company and such
Subsidiaries, all to such reasonable extent and at such reasonable times and
intervals as such Investor may reasonably request. If any Investor exercises
the right to inspection it must, unless otherwise required by law, at the
request of the Company or a Subsidiary, as appropriate, sign an agreement to
hold in confidence any confidential information received as a result of such
inspection under circumstances indicating the confidentiality of such
information until such information has been publicly disclosed or until
disclosure is required by law or by court order.
4.3 USE OF PROCEEDS. The Company shall timely report to the SBA the use
of proceeds from the sale of any Subseries of the Series G Shares on SBA Form
1031 and will provide NBCC with a copy of such report as soon as practicable
after its filing with the SBA. In addition, the Company shall promptly provide
to NBCC or the SBA, as the case may be, all such information specified in (S)610
of the SBA regulations. The Company and each Subsidiary shall provide NBCC (in
addition to the rights granted pursuant to SECTION 4.2 hereof) and/or the SBA,
upon written request from NBCC or the SBA, as the case may be, access to the
Company's and each Subsidiary's, as the case may be, books and records to
confirm the use of proceeds reported by the Company to the SBA on SBA Form 1031.
The Company will use the proceeds from the sale of any Subseries of the Series G
Shares for only those purposes specified in such SBA Form 1031 and,
notwithstanding anything else to the contrary contained herein or therein, the
Company shall not use the proceeds from the sale of the Series G Shares for any
restricted or ineligible purpose, as set forth in (S)720 of the SBA regulations.
4.4 KEY MAN INSURANCE. The Company shall maintain key man term life
insurance in the amount of $2,000,000 on Xxx X. Xxxxxxxxx, $1,000,000 on Xxxxxxx
X. Xxxx, $1,700,000
18
on Xxx Xxxxx and $500,000 on each of Xxxxxx Xxxxxx Xxxxxxx and Xxxxxxx Xxxxx
during the respective period or periods that each such person is employed by the
Company or any Subsidiary, with the Company as the sole beneficiary of the
proceeds of the policies described herein.
4.5 INTELLECTUAL PROPERTY. From the date hereof, the Company and each
Subsidiary will use all reasonable efforts to keep confidential all know-how,
trade secrets, proprietary rights and other confidential intellectual property
and information which is material to the respective businesses or prospective
businesses of the Company and the Subsidiaries, and to provide the Company
and/or each Subsidiary with sufficient title to, ownership of, or rights to such
intellectual property as is or may become necessary for the conduct of their
respective businesses. From the date hereof, the Company and each Subsidiary
will use its best efforts to enter into such agreements with its respective
employees, consultants, licensees, customers and other third parties as may be
reasonably required to carry out its obligations under this SECTION 4.5.
4.6 PRESERVATION OF CORPORATE EXISTENCE AND PROPERTY. Except as otherwise
determined by the Board of Directors to be in the best interests of the Company,
the Company and each Subsidiary will preserve, protect, and maintain, (a) its
corporate existence, and (b) all rights, franchises, accreditation, privileges,
and properties the failure of which to preserve, protect, and maintain would
reasonably be expected to have a material adverse effect on the business,
affairs, assets, prospects, operations, or condition, financial or otherwise, of
the Company and its Subsidiaries.
4.7 SBA REPORTS. Within twenty (20) days after NBCC shall have made a
request therefor, the Company and each Subsidiary will furnish to NBCC in
writing all information reasonably available to the Company and the Subsidiaries
that NBCC shall request with respect to the Company, the Subsidiaries, or any
firm or corporation in which the Company or any Subsidiary may from time to time
have or have had any interest, which is needed in connection with the
preparation of SBA forms or any other report or form that NBCC may be required
to make to any governmental agency or regulatory authority in connection with
its purchase and/or ownership of shares of any Subseries of Series G Shares or
the Conversion Shares.
4.8 LIABILITY INSURANCE. The Company will use its best efforts to
maintain comprehensive liability insurance (including automobile liability
coverage) at regular premium rates with insurer(s) of recognized responsibility
in an amount which is commercially reasonable for the benefit of itself and the
Subsidiaries.
4.9 NO IMPAIRMENT. The Company and the Subsidiaries will observe and
honor in good faith all rights of the Investors, under the terms of this
Agreement or any other documents executed in connection herewith, and will take
no action that would impair or otherwise prejudice such rights.
19
4.10 BOARD MEETINGS. The Company's Board of Directors shall meet at least
once in every fiscal quarter ending on the last day of March, June, September
and December of each year, beginning with the quarter ending on March 31, 1997.
The Chairman of the Board of Directors shall meet with the representatives of
the Investors not on the Board of Directors in a separate meeting to be held
immediately subsequent to each quarterly meeting of the Board of Directors of
the Company.
4.11 BOARD OF DIRECTORS.
(a) The Board of Directors of the Company shall consist of no more than
nine (9) members, composed of:
(i) four (4) members (three (3) members at such time as at least one-
third of the aggregate number of shares of the Company's Series F Preferred
stock $.001 par value per share (the "Series F Preferred Shares") and all
Subseries of the Series G Shares, taken together as a group, issued at or
before the date of such determination are no longer issued and outstanding)
designated by the holders of a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and all Subseries of
the Series G Shares, taken as a group (at least one (1) of which shall be
designated by NBCC so long as NBCC owns at least fifty percent (50%) of the
aggregate number of Series F Preferred Shares and all Subseries of the
Series G Shares, taken together as a group, then outstanding); and
(ii) four (4) members designated by the holders of Common Stock (five
(5) members at such time as the holders of the Series F Preferred Shares
and all Subseries of the Series G Shares are entitled to designate three
(3) members pursuant to the terms of clause (i) above); and
(iii) one (1) member designated jointly by the holders of the Common
Stock and the holders of the Series F Preferred Shares and all Subseries of
the Series G Shares, taken together as a group. The size and composition
of the Board is subject to the right of the holders of the Series F
Preferred Shares and all Subseries of the Series G Shares to elect a
majority of the Board as provided hereunder.
(b) Except as provided below in SECTION 4.11(D), at any time that the
Company increases the size of its Board of Directors to a number greater than
nine (9), then (i) the holders of a majority of the aggregate number of then
outstanding Series F Preferred Shares and all Subseries of the Series G Shares,
taken together as a group, then issued and outstanding and (ii) the holders of
the Common Stock, shall each designate the same number of additional new
directors to fill any newly created vacancies on the Board of Directors
subsequent to the date of this Agreement.
20
(c) The Company agrees to propose the designees of the holders of the
Series F Preferred Shares and the Series G Shares (and the designee(s) of NBCC)
as provided above for election to its Board of Directors and to take all such
action to effect such election as are within its power. The rights and
obligations under this SECTION 4.11 shall terminate at such time as at least
two-thirds, of the aggregate number of Series F Preferred Shares and all
Subseries of the Series G Shares, taken together as a group, issued at or before
the time such determination is made are no longer issued and outstanding;
provided, however, that a majority of the aggregate number of shares of Series F
Preferred Shares and all Subseries of the Series G Shares, taken together as a
group, then outstanding shall continue to have the right to designate one (1)
member of the Board of Directors of the Company so long as at least ten percent
(10%) of the aggregate number of Series F Preferred Shares and all Subseries of
the Series G Shares, taken together as a group, issued at or before the time
such determination is made remain outstanding (which shall be the designee of
NBCC in the event NBCC owns any of such remaining ten percent (10%)).
(d) If the Company shall breach any of the covenants or obligations set
forth in the Master Certificate of Designation or any of its obligations,
covenants and/or agreements contained in (a) SECTIONS 4.1 through 4.14, 4.16,
4.18, 4.19, 4.21, SECTION 5, SECTION 6, SECTION 7, or SECTION 8 herein, and such
breach remains uncured or unremedied for a period of ninety (90) days, (b)
SECTION 4.16 herein, and such breach remains uncured or unremedied for thirty
(30) days, (c) SECTION 4.15 herein, and such breach remains uncured for a period
of fifteen (15) days or (d) SECTION 4.22, then in any such event, the holders of
a majority of the aggregate number of then outstanding shares of all Subseries
of the Series G Shares, taken together as a group, shall be entitled then and
thereafter to nominate and elect a majority of directors to the Company's Board
of Directors (at least two (2) of which shall be designees of NBCC); provided,
however, that if there is, simultaneously with such breach, a breach by the
Company of any covenant or obligation set out in that certain Stock and Warrant
Purchase Agreement, dated as of April 5, 1996, pursuant to which the Company
issued and sold Series F Preferred Shares (as amended on or before the date
hereof, the "Series F Purchase Agreement"), and as a result thereof, the
provisions of the Series F Purchase Agreement granted to the holders of the
Series F Preferred Shares a similar right to nominate and elect a majority of
directors to the Company's Board of Directors, then the rights granted in this
SECTION 4.11(D) to the holders of a majority of the aggregate number of then
outstanding shares of the Series G Shares to nominate and elect a majority of
directors to the Company's Board of Directors shall instead be a right granted
in favor of the holders of a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and the Series G Shares,
taken together as a group. Any vacancy on the Board of Directors occurring
because of the death, resignation or removal of a director elected by the
holders of the Series G Shares (or a majority of the aggregate number of then
outstanding shares of the Series F Preferred Shares and all Subseries of the
Series G Shares, taken as a group), as contemplated by this SECTION 4.11, shall
be filled by the vote or written consent of the holders of a majority of the
aggregate number of then outstanding shares of all Subseries of the Series G
Shares (or a majority of the aggregate number of then outstanding shares of the
Series F Preferred Shares and the Series G Shares, taken together as a group, as
appropriate); provided, however, that any designee of a particular holder of
Series F Preferred
21
Shares or Series G Shares shall be replaced by such holder. A director may be
removed from the Board of Directors with or without cause by the vote or consent
of the holders of the outstanding class with voting power entitled to elect him
or her in accordance with the Delaware General Corporation Law. Any such
additional directors appointed pursuant to the terms of SECTION 4.11(D) shall
resign from the Board of Directors at the first regularly scheduled annual
meeting of the shareholders of the Company subsequent to the cure or remedy of
the breach giving rise to the holders of the majority of the aggregate number of
then outstanding shares of the Series G Shares (or a majority of the aggregate
number of then outstanding shares of the Series F Preferred Shares and all
Subseries of the Series G Shares, taken together as a group, as appropriate)
having the right to nominate and elect a majority of the directors of the Board
of Directors of the Company pursuant to this Section.
(e) In the event that the holders of Series G Preferred Shares (or the
holders of a majority of the aggregate number of then outstanding shares of the
Series F Preferred Shares and all Subseries of the Series G Shares, taken
together as a group, as appropriate) are entitled to a majority of seats on the
Company's Board of Directors, the Company agrees promptly to take all actions
necessary or appropriate (including, if necessary, amending the Company's
Certificate of Incorporation or Bylaws to increase the number of seats on the
Board of Directors) to nominate to the Company's Board of Directors, such number
of additional nominees designated by such holders as are required to give such
designees of such holders (and/or NBCC, as applicable) a majority of seats on
the Board of Directors.
(f) Any designees of the Investors serving on the Board of Directors
pursuant to this SECTION 4.11 shall have the right to be reimbursed, upon
reasonable notice and documentation of such costs and expenses to the Company,
for his or her reasonable costs of travel and out-of-pocket expenses incurred in
connection with his or her service on the Board of Directors.
4.12 DIRECTORS AND OFFICERS INSURANCE; INDEMNITY. The Company will use its
best efforts to maintain in full force and effect directors and officers
insurance at regular premium rates with insurers of recognized responsibility in
amounts and on terms comparable to other companies in the same industry as the
Company. The Company shall enter into indemnification agreements with the
designees of the Investors to the Company's Board of Directors, in form and
substance acceptable to such designees, on or prior to such designees becoming
members of the Board of Directors of the Company.
4.13 OPTION POOL. The Company shall not establish a stock grant, option
plan or purchase plan, other employee stock incentive program or agreement that
in the aggregate exceeds five percent (5%) of the fully diluted Common Stock of
the Company (excluding options and warrants in existence on the Closing Date) on
April 5, 1996 (the "Option Pool"). The provisions of this Section 4.13 shall be
in addition to, and not in any manner limit, obligations pursuant to any option,
warrant, employment agreement or other written obligation, agreement or
commitment of the Company or any Operating Subsidiary as of the date of this
Agreement (which such obligations shall be disclosed in Schedule 2.5).
22
4.14 REVERSE STOCK SPLIT. Subsequent to April 5, 2001, upon the request of
the holders of a majority of the aggregate number of then outstanding shares of
Series F Preferred Shares and Subseries of Series G Shares, taken as a group,
the Company shall use its best efforts (which shall include, if required by law,
submitting such proposal to the stockholders of the Company) to implement a
reverse stock split which would, if consummated, create a Common Stock price in
excess of $12.00 per share, assuming that the average of the price earnings
ratio for the Company's Common Stock over the sixty (60) days prior to the
consummation of such reverse stock split is projected to remain unchanged or
improve after such reverse stock split.
4.15 RESTRICTED CORPORATE ACTIONS. Neither the Company nor any of the
Subsidiaries will, without the approval of the holders of a majority of the
aggregate number of shares of all Subseries of the Series G Shares then
outstanding, take any of the following actions:
(a) make any loans or advances to any officers, directors or affiliates of
the Company or any Subsidiary, other than travel or miscellaneous cash advances
in the ordinary course of business and as provided for in existing employment
agreements;
(b) incur any obligation, contingent or otherwise, to guarantee the debt or
any other obligations or liabilities of any other person or entity other than in
the normal and ordinary course of business (not including inter-company
transactions with or between Operating Subsidiaries);
(c) mortgage, pledge, hypothecate or otherwise encumber any assets or
properties if, as a result thereof, more than fifty percent (50%) of the
aggregate book value of the assets of the Company or such Subsidiary would be
subject to a mortgage, pledge, hypothecation or other encumbrance;
(d) create any new non-wholly owned subsidiary, or permit any Subsidiary to
issue any equity securities to anyone other than the Company or a wholly owned
Subsidiary of the Company;
(e) engage in any line or lines of business activity other than the
businesses in which they are engaged on the Initial Closing Date and lines of
business reasonably related thereto;
(f) directly or indirectly acquire (whether by acquisition of stock, assets
or license rights, or by entering into a joint venture, development agreement or
otherwise) the business or operations of any other corporation, person, or
entity;
(g) repurchase any shares of any employee or stockholder that would cause
the Investors not to qualify their Conversion Shares under Section 1202 of the
Internal Revenue Code of 1986, as amended, as qualified small business stock;
23
(h) enter into any transaction, including, without limitation, the
purchase, sale, or exchange of property or the rendering of any service, with
any affiliate of the Company or such Subsidiary (not including inter-company
transactions with or between Operating Subsidiaries), except in the ordinary
course of and pursuant to the reasonable requirements of the Company's or such
Subsidiary's business and upon fair and reasonable terms no less favorable to
the Company or such Subsidiary than would be obtained in a comparable arms-
length transaction with a person not an affiliate of the Company or such
Subsidiary;
(i) incur any additional Debt (as defined below) if, immediately upon the
incurrence of such Debt, the ratio of Consolidated Debt (as defined below) to
Consolidated Net Worth (as defined below) would be equal to or greater than 1.0
to 1.0. As used in this SECTION 4.15(I), the term "Consolidated Debt" shall
mean, as of the date of determination, the total of all Debt of the Company and
its Subsidiaries outstanding on such date, after eliminating all offsetting
debits and credits between the Company and its Subsidiaries and all other items
required to be eliminated in the course of the preparation of consolidated
financial statements of the Company and its Subsidiaries in accordance with
GAAP. Notwithstanding anything contained herein to the contrary, Consolidated
Net Worth shall be deemed to include the shares outstanding from time to time of
the Company's Series E Convertible Preferred Stock, the Series F Preferred
Shares, the Series G Shares and any series of preferred stock issued subsequent
to the date hereof. As used in this SECTION 4.15(I), the term "Consolidated Net
Worth" shall mean, as of the date of determination, the total assets of the
Company and its Subsidiaries which would be shown as assets on a consolidated
balance sheet of the Company and its Subsidiaries as of such time prepared in
accordance with GAAP, after eliminating all amounts properly attributable to
minority interests, if any, in the stock and surplus of Subsidiaries, minus the
total liabilities of the Company and its Subsidiaries which would be shown on a
consolidated balance sheet of the Company and its Subsidiaries as of such time
prepared in accordance with GAAP. As used in this SECTION 4.15(I), the term
"Debt" shall mean, with respect to a particular person, without duplication, (i)
its liabilities for borrowed money, (ii) its liabilities for the deferred
purchase price of property acquired by such person (including, without
limitation, all liabilities created or arising under any conditional sale or
other title retention agreement with respect to such property), (iii) the amount
of any obligation under a capital lease which would, under GAAP, appear as a
liability on the balance sheet of such person, (iv) all liabilities for borrowed
money secured by a lien with respect to any property owned by such a person
(whether or not it has assumed or otherwise become liable for such liabilities),
(v) accrued but unpaid interest on any of the liabilities of the type described
in clauses (i) through (iv) above, and (vi) any guaranty of such person with
respect to the liabilities of the type described in clauses (i) through (v)
above;
(j) increase the number of shares under all stock option plans above
2,500,000 shares of Common Stock (on a fully diluted basis and as appropriately
adjusted for recapitalizations, stock splits and the like), excluding shares of
Common Stock issued or to be issued pursuant to obligations of the Company under
any option, warrant, employment agreement or other written obligation of the
Company or any Subsidiary as of April 5, 1996 (which such obligations shall be
disclosed in Schedule 2.5);
24
(k) sell, lease, transfer, assign, license or pledge any material license,
intellectual property right, patent or trade secret, except in the ordinary
course of business to end users, manufacturers or distributors of its products
or services and except for security interests granted to lenders for money
borrowed;
(l) repurchase, redeem or retire any shares of capital stock of the Company
other than pursuant to (i) the Stockholders' Agreement, (ii) this Agreement,
(iii) as required by the Series E Convertible Preferred Stock Certificate of
Designation, (iv) as permitted by the Designations pursuant to which the Series
F Preferred Shares were issued or by the Master Certificate of Designation, (v)
any contractual rights to repurchase shares of Common Stock held by employees,
directors or consultants of the Company or the Subsidiaries upon termination of
their employment or services, (vi) the exercise of a contractual right of first
refusal held by the Company existing as of the date of this Agreement or
subsequently issued in connection with the Option Pool, (vii) any cashless
exercise provision of any option, warrant or right to purchase any securities of
the Company outstanding as of the date of this Agreement or (viii) as
contemplated by SECTION 6 hereof; or
(m) consolidate or merge with or into any other business entity or sell or
transfer in a single transaction or a series of related transactions all or
substantially all of the assets of the Company (or stock or assets of any
Subsidiary), or otherwise reorganize the Company (or any Subsidiary), unless
upon consummation of such merger or consolidation, the holders of voting
securities of the Company own directly or indirectly 51% or more of the voting
power to elect directors of the surviving, acquiring or consolidated
corporation, partnership or other entity.
4.16 MINIMUM NET WORTH. The consolidated net worth of the Company, as
shown on the audited financial statements of the Company for the fiscal year
ended December 31, 2000, determined in accordance with GAAP, shall be greater
than or equal to $45,000,000.
4.17 RESERVATION OF SHARES. In the event that, on the date an Investor
exercises its right to receive shares of Common Stock in accordance with the
terms of a Subseries of the Series G Shares and, there is not then available a
sufficient number of unreserved shares of Common Stock or shares reserved for
issuance in connection with the Subseries to permit such conversion, then the
Company shall, in lieu thereof, issue as many shares of Common Stock so to be
received as are then available for conversion of the Subseries and immediately
pay to such exercising Investor in cash, an amount equal to the product of: (i)
the then current fair market value of a share of Common Stock less the then
existing conversion price for those shares of the Subseries which could not be
converted, multiplied by (ii) the number of shares of Common Stock that would
otherwise be required to have been delivered by the Company upon such conversion
but are then unavailable.
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4.18 AUDITED FINANCIAL STATEMENTS. On or before April 15, 1997, the
Company shall deliver to the Investors its audited financial statements as at
and for the year ended December 31, 1996, which shall not be materially
different from those in Schedule 2.7.
4.19 ADDITIONAL KEY MAN INSURANCE. [Intentionally Omitted]
4.20 OTHER PREFERRED STOCK. [Intentionally Omitted]
4.21 DELISTING. The Company shall use its best efforts not to allow the
shares of Common Stock to be delisted such that they are no longer listed on any
national securities exchange (including among others the NASDAQ Small-Cap
Market).
4.22 CHANGE OF CONTROL. The Company shall not allow one or more persons
acting in concert, together with all affiliates, to acquire in one or more
related transactions, more than fifty percent (50%) of the shares of capital
stock of the Company that are then entitled to vote for the election of the
directors of the Company.
SECTION 5. REGISTRATION RIGHTS
5.1 DEFINITIONS. When used in this Section, unless otherwise defined
herein, the following terms shall have the respective meanings assigned to them
in this Section or in the sections, subsections or other subdivisions or other
documents referred to below:
"Demand Registration" shall have the meaning assigned to it in SECTION 5.2.
"Holder" shall mean any Person that holds Registrable Securities.
"Lockup Period" shall mean the six-month period following the Initial
Closing Date. "Person" shall mean any individual, corporation, partnership,
joint venture, limited partnership, limited liability company, trust,
unincorporated organization or government or any agency or political subdivision
thereof.
"Piggyback Registration" shall have the meaning assigned to it in
SECTION 5.3.
"Registrable Securities" shall mean (i) the Conversion Shares, and (ii) any
securities issued or issuable with respect to the foregoing shares by way of a
stock dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization.
"Registration Expenses" shall mean (i) all expenses incident to the
Company's performance of or compliance with the registration rights granted
hereunder, including (without limitation) all registration and filing fees, fees
and expenses of compliance with securities and blue sky laws, printing and
engraving expenses, messenger, telephone and delivery expenses, and
26
fees and disbursements of counsel for the Company, all independent certified
public accountants and underwriters (excluding discounts and commissions) and
(ii) in connection with each registration hereunder, the reasonable fees and
disbursements of no more than one counsel chosen by the holders of a majority of
the Registrable Securities included in such registration in an amount not to
exceed $10,000; provided, that, Registration Expenses shall not include any
Selling Expenses.
"Registration Request" shall have the meaning assigned to it in
SECTION 5.2.
"Registration Rights Expiration Point" shall mean April 5, 2004.
"Selling Expenses" shall mean underwriting discounts or commissions and any
selling commissions attributable to sales of Registrable Securities.
5.2 MANDATORY REGISTRATION. If, on or after the Lockup Period but prior
to the Registration Rights Expiration Point, and provided that at least one year
has elapsed since the most recent Registration Request (as defined below), (a)
Holders of at least twenty-five percent (25%) of the Registrable Securities not
theretofore registered pursuant to this SECTION 5, so long as the aggregate
gross proceeds to be received from such proposed offering is expected to be not
less than $500,000, or (b) Holders of at least fifty percent (50%) of the
Registrable Securities not theretofore registered pursuant to this SECTION 5, so
long as the aggregate gross proceeds to be received from such proposed offering
is expected to be not less than $1,000,000, request in writing that the Company
register under the Securities Act at least 25% of the Registrable Securities not
theretofore registered pursuant to this SECTION 5 (a "Registration Request"),
the Company shall promptly give written notice of such Registration Request to
all holders of Registrable Securities and will, as expeditiously as possible,
use its best efforts to effect the registration under the Securities Act of (i)
the Registrable Securities which the Company has been requested to register for
disposition in accordance with the intended method of disposition described in
the Registration Request and (ii) the Registrable Securities of any Holder that
elects to join in the Registration Request within twenty (20) days after receipt
of the above written notice from the Company. The Company may include in any
such registration (x) similar securities held by other parties with registration
rights and (y) similar securities that the Company desires to register;
provided, that, in connection with an underwritten offering, such additional
similar securities shall be reduced to a number, if any, that in the reasonable
opinion of the managing underwriters of such offering, would not adversely
affect the marketability or offering price of the Registrable Securities to be
included in such offering. Notwithstanding anything herein to the contrary, any
registration requested pursuant to this SECTION 5.2 (a "Demand Registration")
will not be deemed to have been effected unless it has become effective and
remained effective no less than one hundred and eighty (180) days; provided,
further, that any such registration which does not become effective after the
Company has filed a registration statement in accordance with the provisions of
this SECTION 5.2 solely by reason of the refusal to proceed of the Holder or
Holders that have made or joined in the Registration Request, including failure
to comply with the provisions of this Agreement (other than any refusal to
proceed based
27
upon the advice of counsel to such Holder or Holders that the registration
statement, or the prospectus contained therein, contains 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, or that such registration statement or such
prospectus, or the distribution contemplated thereby, otherwise violates or
would, if such distribution using such prospectus took place, violate any
applicable state or federal securities law) shall be deemed to have been
effected by the Company at the request of such Holder or Holders. This SECTION
5.2 shall not apply to a request for registration on Form S-3 (or successor
form) which shall be governed by SECTION 5.4. The Holders of Registrable
Securities may make one (1) Demand Registration pursuant to the terms of clause
(a) above and two (2) Demand Registrations pursuant to the terms of clause (b)
above.
5.3 OPTIONAL REGISTRATIONS. If, on or after the Lockup Period but prior
to the Registration Rights Expiration Point, the Company proposes to register
any of its securities under the Securities Act other than (a) under employee
compensation or benefit programs, (b) an exchange offer or an offering of
securities solely to the existing stockholders or employees of the Company, and
(c) any registration conducted solely in connection with a proposed acquisition
by the Company or any of its Subsidiaries, and the registration form to be used
may be used for the registration of Registrable Securities, the Company will
give prompt written notice to all holders of Registrable Securities of its
intention to effect such a registration and will include in such registration
all Registrable Securities with respect to which the Company has received
written requests for inclusion therein within twenty (20) days after the receipt
of the Company's notice (a "Piggyback Registration"). The Company shall use its
best efforts to cause the managing underwriters of a proposed underwritten
offering to permit the Registrable Securities requested to be included in the
registration statement (or registration statements) for such offering to be
included therein on the same terms and conditions as any similar securities of
the Company included therein. Notwithstanding the foregoing, if the Company
gives notice of such a proposed registration, the total number of Registrable
Securities which shall be included in such registration shall be reduced pro
rata to such number, if any, as in the reasonable opinion of the managing
underwriters of such offering would not adversely affect the marketability or
offering price of all of the securities proposed to be offered by the Company in
such offering; provided, however, that (i) if such Piggyback Registration is
incident to a primary registration on behalf of the Company, and to the extent
not prohibited by any registration rights agreements existing as of the date
hereof, the securities to be included in the registration statement (or
registration statements) for any person other than the Holders or the holders of
Series F Preferred Shares and the Company shall be first reduced prior to any
such pro rata reduction, and (ii) if such Piggyback Registration is incident to
a secondary registration on behalf of holders of securities of the Company, the
securities to be included in the registration statement (or registration
statements) for any person not exercising "demand" registration rights other
than the Holders and the holders of the Series F Preferred Shares shall, to the
extent not prohibited by any registration rights agreements existing as of the
date hereof, be first reduced prior to any such pro rata reduction.
28
5.4 FORM S-3. If, on or after the Lockup Period but prior to the
Registration Rights Expiration Point, the Company is eligible to effect a
registration of its securities under Form S-3 (or a successor form), the Holders
will have the right to request and have effected unlimited registrations of
shares of Registrable Securities on Form S-3 as long as the aggregate proposed
offering price is not less than $500,000 for such registration. Upon written
request of a Holder delivered to the Company, the Company will use all
reasonable efforts to cause the registration of all shares of Registrable
Securities on Form S-3 or such successor form to the extent requested by the
Holder. All expenses incurred in connection with such registration requested
pursuant to this SECTION 5.4 shall be borne by the Holder; provided, however,
that if the Company for its own account or any other holder of shares elects to
register its shares as permitted below, the expenses of such registration shall
be borne pro rata by all parties to the registration based upon the ratio that
the number of such shares registered by such entity bears to the total number of
shares to be registered. In connection with any such registration pursuant to
this SECTION 5.4, the Company will in good faith use its best efforts to keep
such expenses to be incurred by the Holders at a reasonable level (consistent
with registrations of a similar nature and form). Any registration statement
filed pursuant to this SECTION 5.4 may include other securities of the Company,
with respect to which "piggy back" registration rights have been granted, and
may include securities of the Company being sold for the account of the Company;
provided, however, that any cutback shall be dealt with in the same manner as
provided in SECTION 5.3.
5.5 PROCEDURE FOR REGISTRATION. In connection with any request that any
Registrable Securities be registered pursuant to this Agreement, the Company
will use its best efforts to effect the registration of the Registrable
Securities in accordance with the intended method of disposition thereof, and
pursuant thereto the Company will use its best efforts to as expeditiously as
possible:
(a) prepare and file with the Commission a registration statement on the
appropriate form with respect to such Registrable Securities and use its best
efforts to cause such registration statement to become effective (provided that
before filing a registration statement or prospectus or any amendments or
supplements thereto, the Company will furnish to the counsel, if any, selected
by the Holders of a majority of the Registrable Securities covered by such
registration statement copies of all such documents proposed to be filed)
(provided, however, that in connection with a Demand Registration, the Company
shall be deemed to have met its obligations under this paragraph (a) so long as
it files a registration statement within six (6) months of a Registration
Request);
(b) prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection therewith as
may be necessary to keep such registration statement effective for a period of
not less than six (6) months or such shorter period which will terminate when
Registrable Securities covered by such registration statement have been sold
(but not before the expiration of the applicable prospectus delivery period) and
comply with the provisions of the Securities Act with respect to the disposition
of all
29
securities covered by such registration statement during such period in
accordance with the intended methods of disposition by the sellers thereof set
forth in such registration statement;
(c) furnish to each seller of Registrable Securities such number of copies
of such registration statement, each amendment and supplement thereto, the
prospectus included in such registration statement (including, without
limitation, each preliminary prospectus) and such other documents as such seller
may reasonably request in order to facilitate the disposition of the Registrable
Securities owned by such seller;
(d) use its best efforts to register or qualify such Registrable Securities
under such other securities or blue sky laws of such jurisdictions within the
United States as any seller reasonably requests and do any and all other acts
and things which may be reasonably necessary or advisable to enable such seller
to consummate the disposition in such jurisdictions of the Registrable
Securities owned by such seller (provided that the Company will not be required
to qualify generally to do business or subject itself to any general service of
process in any jurisdiction where it is otherwise not then so subject);
(e) notify each seller of such Registrable Securities, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company becomes aware which
requires the making of any change in the prospectus included in such
registration statement so that such document will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading, and,
at the request of any such seller, the Company will prepare a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(f) use its best efforts to cause all such Registrable Securities to be
listed on each securities exchange or exchanges, automated quotation system or
over-the-counter market upon which securities of the Company of the same class
are then listed;
(g) enter into such customary agreements (including, without limitation,
underwriting agreements in customary form, substance, and scope) and take all
such other actions as the Holders of a majority of the Registrable Securities
being sold or the underwriters, if any, reasonably request in order to expedite
or facilitate the disposition of such Registrable Securities;
(h) otherwise use its best efforts to comply with all applicable rules and
regulations of the Commission and make generally available to its security
holders an earnings statement no later than ninety (90) days after the end of
the 12-month period beginning with the first day of the Company's first full
calendar quarter after the effective date of the registration statement, which
earnings statement shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder;
30
(i) in the event of the issuance of any stop order suspending the
effectiveness of a registration statement, or of any order suspending or
preventing the use of any related prospectus or suspending the disqualification
of any common stock included in such registration statement for sale in any
jurisdiction, the Company will use its best efforts promptly to obtain the
withdrawal of such order; and
(j) use its best efforts to cause such Registrable Securities covered by
such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable the sellers
thereof to consummate the disposition of such Registrable Securities.
5.6 REGISTRATION EXPENSES. The Company shall pay all Registration
Expenses in connection with (a) the first three (3) Demand Registrations and (b)
each registration effected pursuant to SECTION 5.3 and, in any event, shall pay
its internal expenses (including, without limitation, all salaries and expenses
of its officers and employees performing legal and accounting duties, but
subject to the last sentence of this SECTION 5.6), the expense of any annual
audit and the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which similar
securities issued by the Company are then listed. All Registration Expenses in
connection with a Demand Registration other than the first three (3) Demand
Registrations shall be borne by the seller or sellers of Registrable Securities
pro rata based upon the number of Registrable Securities included in such
registration. All Selling Expenses incurred in connection with a registration
effected pursuant to the terms hereof shall be borne by the seller or sellers of
Registrable Securities pro rata based upon the number of Registrable Securities
included in such registration. Notwithstanding the foregoing, however, if, in
connection with any Demand Registration effected other than the first three (3)
Demand Registrations, the Company in good faith determines it is necessary to
hire or engage additional temporary employees or consultants in connection with
the preparation and consummation of such registration, the reasonable fees,
costs and expenses of such employees or consultants incurred by the Company
shall be borne by the seller or sellers of Registrable Securities pro rata based
upon the number of Registrable Securities included in such registration.
5.7 INDEMNIFICATION.
(a) The Company shall indemnify and hold harmless, with respect to any
registration statement filed by it, to the full extent permitted by law, each
holder of Registrable Securities covered by such registration statement, and
each other Person, if any, who controls such holder within the meaning of
Section 15 of the Securities Act (collectively, "Holder Indemnified Parties")
against all losses, claims, damages, liabilities and expenses, joint or several
to which any such Holder Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of a material fact
contained in
31
any registration statement in which such Registrable Securities were included as
contemplated hereby 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, (ii) any untrue statement or alleged untrue statement of
a material fact contained in any preliminary, final or summary prospectus,
together with the documents incorporated by reference therein (as amended or
supplemented if the Company shall have filed with the Commission any amendment
thereof or supplement thereto), or any omission or alleged omission to state
therein a material fact required to be stated therein or necessary in order to
make the statements therein, in the light of the circumstances under which they
were made, not misleading, or (iii) any violation by the Company of any federal,
state or common law rule or regulation applicable to the Company and relating to
action of or inaction by the Company in connection with any such registration;
and in each such case, the Company shall reimburse each such Holder Indemnified
Party for any reasonable legal or other expenses incurred by any of them in
connection with investigating or defending any such loss, claim, damage,
liability, expense, action or proceeding; provided, however, that the Company
shall not be liable to any such Holder Indemnified Party in any such case to the
extent that any such loss, claim, damage, liability or expense (or action or
proceeding, whether commenced or threatened, in respect thereof) arises out of
or is based upon any untrue statement or alleged untrue statement or omission or
alleged omission made in such registration statement or amendment thereof or
supplement thereto or in any such preliminary, final or summary prospectus in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any such Holder Indemnified Party for use in the
preparation thereof. Such indemnity and reimbursement of expenses and other
obligations shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties and shall
survive the transfer of such securities by such Holder Indemnified Parties.
(b) Each holder of Registrable Securities participating in any registration
hereunder shall severally (and not jointly or jointly and severally) indemnify
and hold harmless, to the fullest extent permitted by law, the Company, its
directors, officers, employees and agents, and each Person who controls the
Company (within the meaning of Section 15 of the Securities Act) (collectively,
"Company Indemnified Parties") against all losses, claims, damages, liabilities
and expenses to which any Company Indemnified Party may become subject under the
Securities Act, the Exchange Act, at common law or otherwise, insofar as such
losses, claims, damages, liabilities or expenses (or actions or proceedings,
whether commenced or threatened, in respect thereof) are caused by (i) any
untrue statement or alleged untrue statement of a material fact contained in any
registration statement in which such holder's Registrable Securities were
included or the omission or alleged omission to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, (ii) any untrue statement or alleged untrue statement of a material
fact contained in any preliminary, final or summary prospectus, together with
the documents incorporated by reference therein (as amended or supplemented if
the Company shall have filed with the Commission any amendment thereof or
supplement thereto), or the omission or alleged omission to state therein a
material fact required to be stated therein or necessary in order to make the
statements therein, in the light of the
32
circumstances under which they were made, not misleading to the extent in the
cases described in clauses (i) and (ii), that such untrue statement or omission
was furnished in writing by or on behalf of such holder for use in the
preparation thereof, or (iii) any violation by such holder of any federal, state
or common law rule or regulation applicable to such holder and relating to
action of or inaction by such holder in connection with any such registration.
Such indemnity obligation shall remain in full force and effect regardless of
any investigation made by or on behalf of the Company Indemnified Parties
(except as provided above) and shall survive the transfer of such securities by
such holder.
(c) Promptly after receipt by an indemnified party under SECTION 5.7(A) or
SECTION 5.7(B) of written notice of the commencement of any action, suit,
proceeding, investigation or threat thereof made in writing with respect to
which a claim for indemnification may be made pursuant to this SECTION 5, such
indemnified party shall, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the indemnifying party of the threat
or commencement thereof; provided, however, that the failure to so notify the
indemnifying party shall not relieve it from any liability which it may have to
any indemnified party except to the extent that the indemnifying party is
actually prejudiced by such failure to give notice. If any such claim or action
referred to under SECTION 5.7(A) or SECTION 5.7(B) is brought against any
indemnified party and it then notifies the indemnifying party of the threat or
commencement thereof, the indemnifying party shall be entitled to participate
therein and, to the extent that it wishes, jointly with any other indemnifying
party similarly notified, to assume the defense thereof with counsel reasonably
satisfactory to such indemnified party. After notice from the indemnifying
party to such indemnified party of its election so to assume the defense of any
such claim or action, the indemnifying party shall not be liable to such
indemnified party under this SECTION 5 for any legal expenses of counsel or any
other expenses subsequently incurred by such indemnified party in connection
with the defense thereof other than reasonable costs of investigation unless the
indemnifying party has failed to assume the defense of such claim or action or
to employ counsel reasonably satisfactory to such indemnified party. Under no
circumstances will the indemnifying party be obligated to pay the fees and
expenses of more than one law firm for all indemnified parties. The
indemnifying party shall not be required to indemnify the indemnified party with
respect to any amounts paid in settlement of any action, proceeding or
investigation entered into without the written consent of the indemnifying
party, which consent shall not be unreasonably withheld. No indemnifying party
shall consent to the entry of any judgment or enter into any settlement without
the consent of the indemnified party unless (i) such judgment or settlement does
not impose any obligation or liability upon the indemnified party other than the
execution, delivery or approval thereof, and (ii) such judgment or settlement
includes as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a full release and discharge from all
liability in respect of such claim for all persons that may be entitled to or
obligated to provide indemnification or contribution under this SECTION 5.
(d) Indemnification similar to that specified in the preceding subsections
of this SECTION 5 (with appropriate modifications) shall be given by the Company
and each seller of
33
Registrable Securities with respect to any required registration or
qualification of securities under any state securities or blue sky laws.
(e) If the indemnification provided for in this SECTION 5 is unavailable to
or insufficient to hold harmless an indemnified party under SECTION 5.7(A) or
SECTION 5.7(B), then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) referred
to in SECTION 5.7(A) or SECTION 5.7(B) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and the
indemnified party on the other in connection with the statements, omissions,
actions or inactions which resulted in such losses, claims, damages, liabilities
or expenses as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by the indemnifying party or the
indemnified party, any action or inaction by any such party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement, omission, action or inaction. The amount paid or
payable by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses (or actions or proceedings in respect thereof) pursuant
to this SECTION 5.7(E) shall be deemed to include, without limitation, any
reasonable legal or other expenses incurred by such indemnified party in
connection with investigating or defending any such action or claim (which shall
be limited as provided in SECTION 5.7(C) if the indemnifying party has assumed
the defense of any such action in accordance with the provisions thereof) which
is the subject of this SECTION 5.7(E). No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Promptly after receipt by an indemnified party
under this SECTION 5.7(E) of written notice of the commencement of any action,
suit, proceeding, investigation or threat thereof made in writing with respect
to which a claim for contribution may be made against an indemnifying party
under this SECTION 5.7(E), such indemnified party shall, if a claim for
contribution in respect thereof is to be made against an indemnifying party,
give written notice to the indemnifying party of the commencement thereof (if
the notice specified in SECTION 5.6(C) has not been given with respect to such
action); provided, however, that the failure to so notify the indemnifying party
shall not relieve it from any obligation to provide contribution which it may
have to any indemnified party under this SECTION 5 except to the extent that the
indemnifying party is actually prejudiced by the failure to give notice. The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section were determined by pro rata allocation or by any other
method of allocation which does not take account of the equitable considerations
referred to in this paragraph. If indemnification is available under this
SECTION 5, the indemnifying parties shall indemnify each indemnified party to
the fullest extent provided in SECTIONS 5.7(A) and 5.7(B), without regard to the
relative fault of said indemnifying party or any other equitable consideration
provided for in this paragraph. The provisions of this paragraph shall be in
addition to any other rights to indemnification or contribution which any
indemnified party may have pursuant to law
34
or contract, shall remain in full force and effect regardless of any
investigation made by or on behalf of any indemnified party, and shall survive
the transfer of securities by any such party. In connection with any
underwritten offering contemplated by this Agreement which includes Registrable
Securities, the Company and all sellers of Registrable Securities included in
any registration statement shall agree to customary provisions for
indemnification and contribution (consistent with the other provisions of this
SECTION 5) in respect of losses, claims, damages, liabilities and expenses of
the underwriters of such offering.
5.8 UNDERWRITING. If any registration effected pursuant to SECTION 5.2 is
an underwritten offering, or a best efforts underwritten offering, the
investment banker or investment bankers and manager or managers that will
administer the offering shall be mutually agreed upon by the Company and the
holders of a majority of the Registrable Securities to be included in such
offering. If any Piggyback Registration is an underwritten offering, the
Company shall have the right to select the investment banker or investment
bankers and manager or managers to administer the offering; provided, that such
investment bankers and managers must be reasonably satisfactory to the holders
of a majority of the Registrable Securities to be registered in such Piggyback
Registration, if any Person (other than the Company) has the right, in the case
of an underwritten secondary offering, to select the same.
5.9 RULE 144 REQUIREMENTS. The Company covenants to each Holder that, to
the extent that the Company shall be required to do so under the Exchange Act,
the Company shall (a) timely file the reports required to be filed by it under
the Exchange Act or the Securities Act (including, but not limited to, the
reports under Sections 13 and 15(d) of the Exchange Act referred to in
subparagraph (c)(l) of Rule 144 adopted by the Commission under the Securities
Act) and the rules and regulations adopted by the Commission thereunder, and (b)
take such further action as any Holder may reasonably request, all to the extent
required from time to time to enable such Holder to sell Registrable Securities
without registration under the Securities Act within the limitations of the
exemption provided by Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or any similar rule or regulation hereafter adopted
by the Commission. Upon the request of any Holder, the Company shall deliver to
such Holder a written statement as to whether it has complied with such
requirements.
5.10 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company will not enter into any agreement with
respect to its securities which is inconsistent with or violates the rights
granted to the holders of Registrable Securities in this Agreement.
5.11 OBLIGATIONS OF HOLDERS IN A REGISTRATION. Each Holder agrees as
follows:
(a) If any Registrable Securities are included in a registration statement,
the holder thereof will not (until further notice) effect sales thereof after
receipt of telegraphic or written notice from the Company to suspend sales to
permit the Company to correct or update a registration statement or prospectus;
provided, that the obligations of the Company with respect
35
to maintaining any registration statement current and effective shall be
extended by a period of days equal to the period said suspension is in effect.
(b) If any Registrable Securities are being registered in any registration
pursuant to this Agreement, the holder thereof will comply with all anti-
stabilization, manipulation and similar provisions of Section 10 of the Exchange
Act, as amended, and any rules promulgated thereunder by the Commission and, at
the request of the Company, will execute and deliver to the Company and to any
underwriter participating in such offering, an appropriate agreement to such
effect.
(c) At the end of any period during which the Company is obligated to keep
a registration statement current and effective as described herein, the holders
of Registrable Securities included in the registration statement shall
discontinue sales thereof pursuant to such registration statement.
(d) If any Registrable Securities are included in a registration statement,
the holder thereof will (i) furnish to the Company in writing such information
as is reasonably requested by the Company for use in the registration statement
(or any prospectus included therein), (ii) complete and execute all customary
questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents required by an underwriter relating to the terms of the
underwriting agreements and (iii) only sell such Registrable Securities on the
basis provided in any such underwriting agreements.
5.12 MISCELLANEOUS. In connection with its obligations under this
SECTION 5, the Company shall have no obligation (a) to assist or cooperate in
the offering or disposition of the Registrable Securities or (b) to obtain a
commitment from an underwriter relative to the sale of the Registrable
Securities.
SECTION 6. DEFAULT REMEDIES.
6.1 REMEDIES. At any time after an Event of Default (as defined in
SECTION 4.1(D) other than an Event of Default relating to SECTIONS 4.16 or
4.22), unless waived pursuant to the terms of SECTION 9.1, the Investors shall
have the right to sell ("Remedy") to the Company all or part of the Series G
Shares held by such Investors on the Remedy Date (as defined below) (the "Remedy
Securities") pursuant to the following terms:
(a) In the event Investors wish to exercise their right to sell the Remedy
Securities, the Investors shall notify the Company at least sixty (60) days
prior to the effective Remedy Date of their intention to exercise their Remedy
right, the number of the Remedy Securities, and their intended Remedy Date,
which date shall be no more than one hundred twenty (120) days from the date of
the notice; provided, however, that if a "fair market value" determination made
pursuant to SECTION 6.1(B) below extends beyond the effective Remedy Date as
specified in the notice above, then such effective Remedy Date shall be ten (10)
days after such "fair market
36
value" determination. For purposes of this SECTION 6, the term "Remedy Date"
shall mean each date on which Investors exercise their right to Remedy pursuant
to this SECTION 6, and Investors shall be deemed to have exercised a Remedy
right only upon the closing of such Remedy right as specified in SECTION 6.1(E)
hereto.
(b) The purchase price per share (the "Remedy Price") of the Remedy
Securities shall be the greater of (x) the "fair market value" (plus, if not
taken into account by the party or parties determining the fair market value
pursuant to (B)(I), (B)(II) or (B)(III) below, (A) any accrued or declared but
unpaid dividends payable on each of the Remedy Securities and (B) interest, if
any) of each of such Remedy Securities or (y) the initial purchase price per
Series G Share hereunder (plus any accrued or declared but unpaid dividends
payable on the Remedy Securities, plus interest, if any). For purposes of this
SECTION 6, the term "fair market value" shall mean the fair market value of such
security on the Remedy Date, determined as follows:
(i) by written agreement of the Company and the Investors exercising
such Remedy right; or
(ii) if the Company and the Investors exercising such Remedy right
fail to reach a written agreement within thirty (30) days after the notice
given by the Investors exercising such Remedy right pursuant to SECTION
6.1(A) above, the Company and the Investors exercising such Remedy right
shall together appoint an independent appraiser to determine the "fair
market value" of the Remedy Securities, which shall be binding on the
parties; or
(iii) if (x) the Company and the Investors are unable to agree upon
the choice of an independent appraiser under (ii) hereof within forty (40)
days after the notice given by the Investors pursuant to SECTION 6.1(A) or
(y) such appraiser, after being duly selected, fails to determine the "fair
market value" within thirty (30) days of being selected, then the Company,
on the one hand, and the Investors exercising such Remedy right, on the
other hand, shall each appoint, within ten (10) days following the
expiration of the applicable time period under (x) or (y) above, an
independent appraiser, and the two appraisers together shall determine the
"fair market value." If only one appraiser is appointed during the 10-day
period referred to above, then such appraiser shall alone determine the
"fair market value," which determination shall be binding on the Company
and the Investors exercising such Remedy right. If both appraisers are
appointed within such 10-day period, and within thirty (30) days after the
appointment of the second of the two appraisers, they cannot agree on the
"fair market value" of the Remedy Securities, then each appraiser shall
prepare a separate appraisal report of the fair market value ("FMV") of the
Company and the "fair market value" of the Remedy Securities within sixty
(60) days after the appointment of the second of the two appraisers, and if
the lower of the two FMVs of the Company is equal to at least 85% of the
higher FMV of the Company, then the "fair market value" of the Remedy
Securities shall be the average of the "fair market value" of the Remedy
Securities as determined by the two appraisers. If
37
only one of the appraisers submits an appraisal report on or before such
60th day, then the "fair market value" of the Remedy Securities shall be
the "fair market value" of the Remedy Securities as determined by such
report; or
(iv) if neither of the appraisers submits an appraisal request on or
before such 60th day, or if both appraisers submit an appraisal report but
the averaging requirements set forth in (iii) above are not met, then the
two appraisers shall promptly appoint a third appraiser who shall determine
the "fair market value" of the Remedy Securities. If the two appraisers
fail to appoint a third appraiser as required hereunder, either party shall
have the right to submit the determination to arbitration under the rules
and procedures of the American Arbitration Association.
(c) The appraisers and arbitrators shall have access to all books and
records of the Company and the Subsidiaries and shall have the right to examine
all of its accounts, books, assets and equipment and do all things fully and
completely to enable them to arrive at the FMV of the Company and the "fair
market value" of the Remedy Securities. The cost of any appraisal proceedings
shall be paid one-half (1/2) by the Company and one-half (1/2) by the Investors
exercising such Remedy Right (pro rata). An appraiser making an appraisal
pursuant to this Agreement shall assume an all cash sale with respect to the
subject Remedy Securities and shall assume that the restrictions on transfer
specified in this Agreement, the Stockholders' Agreement and/or any applicable
federal or state securities law restrictions on transfer are not applicable to
such Remedy Securities. All appraisers appointed shall be experienced and
knowledgeable in the industry or industries in which the Company does business.
The "fair market value" determination pursuant to SECTION 6.1(B)(III) or SECTION
6.1(B)(IV) hereof, as the case may be, shall be binding on the Company and the
Investors exercising such Remedy Right.
(d) If the Company is unable to purchase all Remedy Securities required to
be purchased on a Remedy Date due to federal or state law restrictions or due to
any restriction imposed by any listing agreement with any securities exchange to
which the Company is then a party, Remedy Securities shall be repurchased (on a
pro rata basis from the holders of the Remedy Securities based upon the Common
Stock equivalents) from time to time, to the extent the Company is legally
permitted to do so, and the Remedy obligations of the Company under this SECTION
6 will be a continuing obligation until the Company's repurchase of all such
Remedy Securities.
(e) On each Remedy Date (including any subsequent purchase closing date if
multiple purchases result from the application of SECTION 6.1(D)), the Remedy
closing shall occur at the Company's principal office. At the Remedy closing,
to the extent applicable, the Investors exercising such Remedy Right shall
deliver the Remedy Securities being sold, duly endorsed in blank, accompanied by
such supporting documents as may be necessary to pass to the Company good title
to the Remedy Securities, free and clear of all liens (other than restrictions
under applicable securities laws and/or the Stockholders' Agreement). In
consideration therefor, the Company shall deliver to each of the Investors
exercising such Remedy Right (i) payment, by
38
certified check, cashier's check or wire transfer, of the aggregate Remedy Price
or (ii) at the option of the Company, a full recourse promissory note or notes
evidencing the aggregate Remedy Price (the "Remedy Notes"). Each Remedy Note
shall be secured by a pledge from the Company of the Remedy Securities for which
the Remedy Note is executed, and the Company hereby agrees to take all actions
and execute all documents (in form reasonably satisfactory to the Investors
exercising such Remedy Right) necessary or appropriate to properly and fully
secure each Remedy Note with the Remedy Securities transferred in exchange
therefor. In addition, each Remedy Note shall be in form reasonably satisfactory
to the Investors exercising such Remedy Right and shall in any case, unless
otherwise agreed to by the parties, (i) have a term of three (3) years, (ii)
provide for repayment of the aggregate Remedy Price at a rate of no less than
one-third per year, with principal and interest payable in equal semi-annual
installments, (iii) provide that the unpaid balance of the Remedy Note shall
accrue simple interest at the rate of 13.5% per annum from the date of issuance
until full payment of the aggregate Remedy Price is made and (iv) provide that
all amounts due under such Remedy Note may be accelerated and declared
immediately payable upon a default in any payment by the Company under such
Remedy Note, which is not cured within sixty (60) days.
6.2 TRANSFER OF REMEDY RIGHT. The Remedy Right granted hereunder is not
assignable except by an Investor to any party who acquires at least fifty
percent (50%) of the Series G Shares originally issued to such Investor
hereunder (appropriately adjusted for recapitalizations, stock splits and the
like).
SECTION 7. RIGHT OF FIRST REFUSAL ON ISSUANCE OF NEW SECURITIES
7.1 GRANT OF RIGHT. The Company hereby grants to each Investor, for so
long as the Investors hold at least twenty percent (20%) of all Subseries of the
Series G Shares then outstanding, the right of first refusal to purchase its Pro
Rata Share (as defined below) of New Securities (as defined below) which the
Company may, from time to time, propose to sell and issue. A "Pro Rata Share,"
for purposes of this right of first refusal, is the ratio that (a) the sum of
the total number of shares of Common Stock which are then held or obtainable by
the Investor (including those which each such Investor has the right to obtain
pursuant to exercise or conversion of any option, warrant, right or convertible
security) bears to (b) the sum of the total number of shares of Common Stock
then outstanding and which are issuable pursuant to exercise or conversion of
any then outstanding options, warrants, rights or convertible securities.
7.2 NEW SECURITIES. Except as set forth below, "New Securities" shall
mean any shares of capital stock of the Company, including Common Stock and any
series of 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, convertible into or
exchangeable for said shares of Common Stock or preferred stock.
Notwithstanding the foregoing, the term "New Securities" does not include (a)
the Conversion Shares, (b) securities issued pursuant to the acquisition of
another corporation by the Company by merger, purchase of all or substantially
all of the assets or other reorganization whereby the
39
Company or its stockholders own more than seventy-five percent (75%) of the
voting power of the surviving or successor corporation, (c) securities issued or
sold in connection with the Option Pool, (d) securities issued pursuant to any
rights, agreements or convertible securities, including, without limitation,
options and warrants, provided that the rights of first refusal established by
this SECTION 7 applied with respect to the initial sale or grant by the Company
of such rights, agreements or convertible securities, (e) securities issued
pursuant to the conversion of shares of the Company's Series E Preferred Stock
or Series F Preferred Stock, (f) securities issued pursuant to any warrant,
option, agreement or convertible security of the Company outstanding as of the
date of this Agreement (and disclosed in Schedule 2.5), (g) securities exempt
from the registration requirements of the Securities Act as a result of
Regulation S promulgated under the Securities Act, (h) securities issued in
connection with any stock split, stock dividend or recapitalization by the
Company not involving new financing or (i) any additional shares of Subseries of
Series G Shares.
7.3 NOTICE. In the event the Company proposes to undertake an issuance or
sale of New Securities, it shall give the Investors written notice of its
intention, describing the amount and type of New Securities, and the price and
general terms upon which the Company proposes to issue the same. Each Investor
shall have thirty (30) days from the date of receipt of any such notice to agree
to purchase up to its respective Pro Rata Share of such New Securities for the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased.
7.4 ELIGIBLE SALES TO THIRD PARTIES. After giving the notice and
opportunity for each Investor to participate as required under SECTION 7.3
above, the Company shall have one hundred and twenty (120) days thereafter to
issue and sell the New Securities not elected nor eligible to be purchased by
the Investors at the price and upon the terms no more favorable to the
purchasers of such securities than specified in the Company's notice under
SECTION 7.3. In the event the Company has not sold such New Securities within
said one hundred and twenty (120) day period, the Company shall not thereafter
issue or sell any New Securities without first offering such securities in the
manner provided above.
7.5 ASSIGNMENT. The right of first refusal hereunder is not assignable
except by any Investor to any party who acquires at least fifty percent (50%) of
the Series G Shares originally issued to such Investor hereunder and/or
Conversion Shares (appropriately adjusted for recapitalizations, stock splits
and the like).
7.6 ACCREDITED INVESTOR. The rights granted to the Investors pursuant to
this SECTION 7 shall only be exercisable by an Investor who demonstrates, at the
time of exercise of such rights, to the reasonable satisfaction of the Company,
that (a) such Investor is an "accredited investor," as defined in Regulation D
promulgated under the Securities Act or (b) another exemption from the
registration requirements of the Securities Act is available.
40
SECTION 8. SPECIAL DEFAULT
8.1 VIOLATION IN USE OF PROCEEDS. Notwithstanding anything herein to the
contrary, any breach by the Company of the reported use of proceeds pursuant to
SECTION 4.3 hereof (without the prior written consent of NBCC) shall give each
Investor the right, in its sole and absolute discretion, to demand (and receive,
upon thirty (30) days' notice of such demand) repayment by the Company of the
amounts paid by such Investor to the Company hereunder (plus interest thereon at
the highest legal rate permitted under applicable law or SBA regulation). All
such amounts due hereunder shall be paid to such Investor by certified check,
cashier's check or wire transfer. In the event an Investor demands and receives
such repayment, the Series G Shares issued to such Investor pursuant to this
Agreement (and the Conversion Shares into which such Series G Shares may from
time to time have been converted or exercised for) shall be surrendered by such
Investor to the Company, duly endorsed in blank, accompanied by such supporting
documents as may be necessary to pass to the Company good title to such
securities, free and clear of all liens (other than restrictions under
applicable securities laws and/or the Stockholders' Agreement) and, at the
option of the Company, canceled by the Company. Notwithstanding the foregoing,
however, to the extent that SBA regulations permit the Company to cure any
default under this SECTION 8.1, the Company may cure such default prior to the
expiration of the 30-day notice period above, and in such case the rights of the
Investors to require the Company to repurchase any of their Series G Shares and
Conversion Shares to the Company under this SECTION 8.1 shall cease with respect
to such default. Any such cure shall in no way be deemed to limit an Investor's
rights under this SECTION 8.1 with respect to any subsequent default. Nothing
in this SECTION 8.1 shall be construed to restrict or otherwise limit an
Investor's right to seek all other remedies available to it as provided
hereunder, or at law or in equity, including the remedy of specific performance.
The provisions of this SECTION 8.1 shall expire upon evidence satisfactory to
NBCC that the Company has utilized the proceeds received pursuant to this
Agreement in a manner that is consistent with their use reported to the SBA on
SBA Form 1031. The rights of an Investor pursuant to this SECTION 8 shall not
be transferable or assignable except to an affiliate of such Investor.
SECTION 9. GENERAL.
9.1 AMENDMENTS, WAIVERS AND CONSENTS. Except as otherwise provided
herein, any consents required and any waiver, amendment or other action of the
Investors or holders of the Series G Shares (or Conversion Shares) may be made
by consent(s) in writing signed by at least two (2) holders of Series G Shares
holding in the aggregate at least two-thirds of all Subseries of the Series G
Shares the outstanding (including, for such purposes, any Conversion Shares into
which any of the Series G Shares have been converted that have not been sold to
the public). Any amendment or waiver made according to this paragraph will be
binding upon each holder of any securities purchased under this Agreement at the
time outstanding (including securities into which such securities have been
converted) and each future holder. Any amendment or waiver by the Company must
be made in writing.
41
9.2 SURVIVAL; ASSIGNABILITY OF RIGHTS. All representations of the parties
made in this Agreement and in the certificates, exhibits, schedules or other
written information delivered or furnished by one party to the other in
connection with this Agreement will survive the delivery of the Series G Shares
for a period of three (3) years. Except as otherwise expressly provided for
herein, all covenants and agreements made in this Agreement will survive the
Initial Closing Date, and will bind and inure to the benefit of the parties'
successors and assigns.
9.3 GOVERNING LAW. THIS AGREEMENT IS TO BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF DELAWARE, WITHOUT GIVING EFFECT TO THE
CHOICE OF LAW PROVISIONS THEREOF.
9.4 COUNTERPARTS. This Agreement may be executed simultaneously in any
number of counterparts, each of which will be taken to be an original, but such
counterparts will together constitute one document.
9.5 NOTICES AND DEMANDS. Any notice or demand which is permitted or
required hereunder will be deemed to have been sufficiently received (except as
otherwise provided herein) (a) upon receipt when personally delivered, (b) one
(1) day after sent by overnight delivery or telecopy providing confirmation or
receipt of delivery, or (c) three (3) days after being sent by certified or
registered mail, postage and charges prepaid, return receipt requested to the
following addresses: if to the Company or an Operating Subsidiary, at the
address as shown on the signature page of this Agreement, or at any other
address designated by such corporation to the Investors in writing; if to an
Investor, at its mailing address as shown on Exhibit 2, or at any other address
designated by the Investors to the Company in writing.
9.6 SEVERABILITY. If any provision of this Agreement is held invalid
under applicable law, such provision will be ineffective to the extent of such
invalidity, and such invalid provision will be modified to the extent necessary
to make it valid and enforceable. Any such invalidity will not invalidate the
remainder of this Agreement.
9.7 EXPENSES; SPECIFIC ENFORCEMENT. The Company will pay (a) all costs
and expenses that it incurs with respect to the negotiation, execution, delivery
and performance of this Agreement, and (b) the reasonable out-of-pocket expenses
of the Investors and the reasonable legal fees and disbursements incurred by one
counsel for the Investors (up to a maximum of $10,000) with respect to this
Agreement and the transactions contemplated hereby. The Investors, other than
Xxxxxx Capital Investors, L.P. and Xxxxxx Partners, a limited partnership,
designate Jenkens & Xxxxxxxxx, a Professional Corporation, as their counsel for
this transaction. The parties agree that the rights created by this Agreement
are unique and that the loss of any such right is not susceptible to monetary
quantification. Consequently, the parties agree that an action for specific
enforcement (including for temporary and/or permanent injunctive relief) is a
proper remedy for the breach of the provisions of this Agreement, without the
necessity of proving actual damages. If either party is required to take any
action to enforce its rights under
42
this Agreement, the prevailing party shall be entitled to its reasonable
expenses, including attorneys' fees, in connection with any such action.
9.8 ENTIRE AGREEMENT. This Agreement (including the schedules and
exhibits hereto) and the agreements referenced as exhibits to this Agreement
constitute the entire agreement of the parties, and supersede any prior
agreements.
43
The undersigned have executed this Agreement as of the day and year first
written above.
COMPANY:
NORTH AMERICAN TECHNOLOGIES GROUP, INC.
By: /s/ Xxx X. Xxxxxxxxxx
____________________________________
Xxx X. Xxxxxxxxxx,
President and Chief Executive Officer
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
OPERATING SUBSIDIARIES:
EET, INC.
By: /s/ Xxx X. Xxxxxxxxxx
____________________________________
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
44
INDUSTRIAL PIPE FITTINGS, INC.
By: /s/ Xxx X. Xxxxxxxxxx
---------------------------------
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
GAIA TECHNOLOGIES, INC.
By: /s/ Xxx X. Xxxxxxxxxx
_________________________________
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
RISERCLAD INTERNATIONAL, INC.
By: /s/ Xxx X. Xxxxxxxxxx
_________________________________
Xxx X. Xxxxxxxxxx, Vice President
Address for notices:
0000 Xxxxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, Xxxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxx X. Xxxxxxxxxx
45
NBCC:
NATIONSBANC CAPITAL CORPORATION
By: /s/ Xxxxxxx X. Xxxxxxxxxx
__________________________________
Xxxxxxx X. Xxxxxxxxxx
Address for notices:
000 Xxxx Xxxxxx, 00xx Xxxxx
Xxxxxx, Xxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxxx X. Xxxxxxxxxx
46
INVESTORS:
X. XXXXXX & PARTNERS-1993 L.P.
By: X. XXXXXX & CO., INC.
By: /s/ Xxxxxx X. Xxxxxx
______________________________
Xxxxxx X. Xxxxxx, President & CEO
Address for notices:
909 Xxxxxx, Suite 0000
Xxx Xxxxxxx Xxxxxx
Xxxxxxx, Xxxxx 00000-0000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxxx X. Xxxxxx
47
THE CCG CHARITABLE REMAINDER
UNITRUST #1
By: CCG VENTURE PARTNERS, LLC
By: /s/ Xxxx X. Xxxxxxx
_______________________________
Xxxx X. Xxxxxxx, Manager
Address for notices:
14450 X.X. Xxxxxx Xxxx., #000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxx X. Xxxxxxx
48
XXXXXXXX INTERESTS, LTD.
By: /s/ Xx Xxxxxx
_______________________________
Xx Xxxxxx, Attorney-in-Fact
Address for notices:
Xxxxx Xxxxxxxx Xxxx Xxxx., Xxxxx 0000
Xxxxxxx, XX 00000-0000
Telephone: (000) 000-0000
Facsimile:: (000) 000-0000
Attention: Xx Xxxxxx
49
XXXXXX X. XXXX
/s/ Xxxxxx X. Xxxx
_______________________________
Xxxxxx X. Xxxx
Address for notices:
c/o Zinn Petroleum Co.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx
00
XXXXXX XX XXXXXXX X. HELIS,
A LOUISIANA PARTNERSHIP
By: /s/ Xxxxx X. Xxxxxxxx
_______________________________
Xxxxx X. Xxxxxxxx, General Agent
Address for notices:
000 Xx. Xxxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxx X. Xxxxxxxx
51
XXXXXX CAPITAL INVESTORS, L.P.
By: /s/ Xxxxxx Xxxxxx
_______________________________
Xxxxxx Xxxxxx, General Partner
Address for notices:
000 0xx Xxxxxx
Xxxxx Xxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxx
52
PECAUT PARTNERS, A LIMITED PARTNERSHIP
By: /s/ Xxxxxx Xxxxxx
_______________________________
Xxxxxx Xxxxxx, General Partner
Address for notices:
000 0xx Xxxxxx
Xxxxx Xxxx, Xxxx 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
Attention: Xxxxx Xxxxx
53
THE XXXXX PARTNERSHIP II, LTD.
By: Xxxxxxxxxxx X. Xxxxx,
member of the General Partner,
Xxxxx Ventures, LLC
/s/ Xxxxxxxxxx X. Xxxxx
_______________________________
Xxxxxxxxxxx X. Xxxxx
Address for notices:
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
54
XXXXXXXXX X. XXXXX
By: /s/ Xxxxxxxxxxx X. Xxxxx
_______________________________
Xxxxxxxxxxx X. Xxxxx
Attorney-in Fact
Address for notices:
0000 Xxxxxx Xxxxxx
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
00
XXX XXXXXX FUND
By: /s/ X. X. Xxxxxxxx, III
---------------------------------
Name: X. X. Xxxxxxxx, III
Title: Managing Partner
Address for notices:
000 Xxxxx Xxxxxx, Xxxxx 0000
Xxxxxxxxxx, XX 00000
Telephone:
Telecopy:
56
XXXXXX X. XXXXXXXX
By: /s/ Xxxxxx X. Xxxxxxxx
_______________________________
Xxxxxx X. Xxxxxxxx
Address for notices:
0000 Xxxxxxxx, Xxxxx 000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Telecopy: (000) 000-0000
57
XXXXXXX X. XXXX
/s/ Xxxxxx X. Xxxx
_______________________________
Xxxxxx X. Xxxx, Attorney and
Agent-in-Fact for Xxxxxxx X. Xxxx
Address for notices:
c/o Zinn Petroleum Co.
0000 Xxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Telephone: (000) 000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx X. Xxxx
58
