EXHIBIT 4.2
INVESTORS RIGHTS AGREEMENT
INVESTORS RIGHTS AGREEMENT (this "Agreement") is dated as of April 30,
2001 by and among (i) Footwear Acquisition, Inc., a Delaware corporation (the
"Company"), (ii) cre-8-net Ventures L.L.C. ("cre-8-net"), (iii) Perseus
Acquisition/Recapitalization Fund, L.L.C. ("Perseus") and any Affiliates or
co-investors of Perseus that become parties to this Agreement by executing and
delivering an appropriate joinder agreement with the Company (the "Perseus
Investors"), (iv) Union Overseas Holdings Limited ("UOHL") and (v) Itochu
Corporation ("Itochu" and together with cre-8-net, the Perseus Investors and any
subsequent or additional stockholder that becomes a party to this agreement, the
"Stockholders" and individually a "Stockholder"). Certain terms used in this
Agreement are defined in Exhibit A hereto.
R E C I T A L S
A. Each of Stockholders owns shares of the Company's capital
stock (the "Shares"), purchased pursuant to a Stock and Note Purchase Agreement
dated as of the date hereof (the "SPA") or, with respect to Itochu, pursuant to
a certain Stock Purchase and Trademark Agreement dated as of February 24, 2001
by and among cre-8-net, Itochu and the Company.
B. To induce the Stockholders to acquire their Shares, the
Company has agreed to enter into this Agreement and to grant to the Stockholders
the rights set forth herein.
C. The Stockholders have agreed to enter into this Agreement and
to grant to the other Stockholders and the Company the rights set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the Stockholders and the Company
(collectively, the "Parties") agree as follows:
1. BOARD OF DIRECTORS REPRESENTATION; BOARD APPROVAL; MANAGEMENT
1.01. Representation. From and after the date hereof, each
Stockholder shall vote all of the voting securities of the Company over which
such Stockholder has voting control so as to effect the following:
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(a) Composition of the Board of Directors. The number of
directors comprising the Company's Board of Directors (the "Board") shall
initially be up to seven and shall include:
(i) Xxxxxxx X. Xxxxx and Xxxxxxx X. Xxxxx, who
shall serve so long as (A) they remain senior executive officers and members of
cre-8-net and (B) cre-8-net is managing the Company under the management
agreement;
(ii) Two directors designated by the Perseus
Investors who shall initially be Xxx X. Xxxxxx III and Xxxxxx Xxxxxxx;
(iii) One director designated by UOHL; and
(iv) Two directors, each nominated by the Perseus
Investors, who shall be reasonably acceptable to a majority of the directors
previously appointed to the Board. Such directors shall not be employees,
officers or control persons of the Company or any Stockholder or any Affiliate
of such Stockholder (the "Independent Directors").
(b) At any time, any Person designated to serve on the
Board hereunder shall be removed from the Board (and thereupon from all
committees thereof) with or without cause, at the written request of the
Stockholder that designated or nominated such director in accordance herewith.
(c) If any Person designated to serve on the Board
hereunder for any reason ceases to serve as a director of the Board or any
committee thereof during such director's term of office, the resulting vacancy
on the Board or any Committees shall be filled by a Person designated or
nominated by the Stockholder that designated or nominated the director vacating
the office in accordance herewith. The procedures set forth in (a)(iv) hereof
shall be used for replacing Independent Directors.
(d) Directors shall be reimbursed for their reasonable
travel or other expenses incurred in connection with their attendance at board
meetings or other Company business. Additional director compensation may be paid
to the directors appointed pursuant to Section 1.01(a)(iv) at the discretion of
the Board.
1.02. Protective Provisions. The Company covenants and agrees that
the Company shall not take any of the following material actions without the
approval of the Board:
(i) adopt, approve or amend the Company's annual
business plan or budgets or make any material change in the principal business
activity of the Company;
(ii) terminate or otherwise discharge any
executive officer of the Company or hire any replacement therefor;
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(iii) engage or continue in any loans, leases,
contracts or other similar transactions with any officer or director of the
Company or any members of any such officer's immediate family (including
parents, children, siblings and spouse) or of his Affiliates;
(iv) make or agree to make any capital
expenditures that vary from the terms of the Company's business plan or budget
by more than 5% in the aggregate; or
(v) enter into any material agreements which
exceed the Company's business plan or budget by more than 5% in the aggregate or
is outside the ordinary course of business; or
(vi) any other actions determined by the Board.
1.03. Management of the Company
The Company shall enter into an appropriate management agreement with
Cre-8-Net which shall provide inter alia, that in consideration of an annual
management fee of $400,000 per year to be paid by the Company to cre-8-net, each
of Xxxxxxx Xxxxx and Xxxxxxx Xxxxx (each an "Officer") will: (i) subject to
customary exceptions, devote his business efforts on a full-time basis to the
Company; (ii) agree not to actively engage in any other employment or consulting
activity for any direct or indirect remuneration without the prior approval of
the Board, which approval shall not be unreasonably withheld; and (iii) not be
entitled to receive any salary from the Company.
2. REGISTRATION RIGHTS
2.01. Definitions. For purposes of this Section 2:
"Commencement Date" means the date that is 180 days after a
Qualified IPO.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor statute.
"Form S-3" means such form under the Securities Act as in
effect on the date hereof or any successor form under the Securities Act that
permits significant incorporation by reference of the Company's public filings
under the Securities Exchange Act of 1934;
"Holder" means (i) a Stockholder, (ii) the partners, members
or stockholders of a Stockholder collectively provided that such partners,
members or stockholders act through such Stockholder or its successor and (iii)
any person or entity to whom a Holder sells, transfers or assigns 5% or more of
its Registrable Securities, other than in a sale pursuant to Rule 144 under the
Securities Act or a registration effected pursuant to this Agreement.
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"Register," "registered," and "registration" refer to an
underwritten registration effected by preparing and filing with the Securities
and Exchange Commission (the "Commission") a registration statement or similar
document in compliance with the Securities Act, and the declaration or ordering
by the Commission of effectiveness of such registration statement or document.
"Registration Expenses" means all expenses in connection with
the Company's performance of or compliance with its obligations under this
Section 2, including, without limitation, all (i) registration, qualification
and filing fees; (ii) fees, costs and expenses of compliance with securities or
blue sky laws (including reasonable fees, expenses and disbursements of counsel
for the underwriters in connection with blue sky qualifications of the
Registrable Securities under the laws of such jurisdictions as the managing
underwriter or underwriters in a registration may designate, subject to the
limitation as set forth in subsection (h) of Section 2.06 hereof); (iii)
printing expenses; (iv) messenger, telephone and delivery expenses; (v) fees,
expenses and disbursements of counsel for the Company and of all independent
certified public accountants retained by the Company (including the expenses of
any special audit and "cold comfort" letters required by or incident to such
performance); (vi) Securities Act liability insurance if the Company so desires;
(vii) fees, expenses and disbursements of any other individuals or entities
retained by the Company in connection with the registration of the Registrable
Securities; (viii) fees, costs and expenses incurred in connection with the
listing of the Registrable Securities on each national securities exchange or
automated quotation system on which the Company has made application for the
listing of its Common Stock; and (ix) internal expenses of the Company
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties and expenses of any annual
audit). Registration Expenses shall not include selling commissions, discounts
or other compensation paid to underwriters or other agents or brokers to effect
the sale of Registrable Securities, or counsel fees and any other expenses
incurred by Holders in connection with any registration that are not specified
in the immediately preceding sentence.
"Registrable Securities" means any shares of Common Stock of
the Company owned by any Holder or that may be acquired by any Holder upon the
conversion of any convertible security or the exercise of any warrant or option
owned by any Holder, but only to the extent such shares constitute "restricted
securities" under Rule 144 under the Securities Act or are not subject to an
effective registration statement under the Securities Act.
"Securities Act" means the Securities Act of 1933, as amended,
or any successor statute.
2.02. Demand Registrations.
(a) Request for Registration. If at any time after the
Commencement Date, but on not more than two occasions, one or more Holders who
in the aggregate hold at least a majority of the Registrable Securities
(together, the "Requestor") submits a written request (a "Demand Notice") to the
Company that the Company register
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Registrable Securities under and in accordance with the Securities Act (a
"Demand Registration"), then (if the anticipated aggregate offering price, net
of underwriting discounts and commissions, would exceed $10,000,000) the Company
shall:
(i) within five days after receipt of such
Demand Notice, give written notice of the proposed registration to all other
Holders; and
(ii) as soon as practicable, use diligent efforts
to effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holders joining in such request as are
specified in written requests received by the Company within 20 days after the
date the Company mails the written notice referred to in clause (i) above.
Notwithstanding the foregoing, if the Company shall furnish to the
Requestor a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of the Company, it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed on or before the date filing would be required in connection with any
Demand Registration and it is therefore advisable to defer the filing of such
registration statement, the Company shall have the right to defer such filing or
delay its effectiveness for a reasonable period not to exceed 90 days provided
that such right shall not be exercised more than once with respect to a request
for registration hereunder during any period of twelve consecutive months. The
Company will pay all Registration Expenses in connection with such withdrawn
request for registration.
Notwithstanding any other provision of this Section 2.02, if the
managing underwriter of any underwritten offering effected pursuant to this
Section 2.02 determines that market factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the number of
Registrable Securities to be included in such registration. The Company shall so
advise all Holders distributing Registrable Securities through such
underwriting, and there shall be excluded from such registration and
underwriting, to the extent necessary to satisfy such limitation, Registrable
Securities allocated in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities required to be included (determined without
regard to any requirement of a request to be included in such registration) in
such registration, held by all Holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the number of shares allocated to any Holder may be rounded to the
nearest 100 shares.
(b) Underwriting. In connection with any registration
under this Section 2.02, if so requested by the Requestor, the Company shall
enter into an underwriting agreement with one or more underwriters selected by
the Requestor and reasonably acceptable to the Company having terms and
conditions customary for such agreements.
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(c) Limits. The Company shall not be obligated to effect
registrations under this Section 2.02 if (i) the Company has filed a
registration statement within the 90 day period immediately preceding such
request or (ii) the Registrable Securities are immediately registrable under
Form S-3, in which case Section 2.04 shall apply.
2.03. Company Registration.
(a) Notice of Registration. If at any time or from time
to time, the Company shall determine to register any of its capital stock,
whether or not for its own account, other than a registration relating to
employee benefit plans, a registration effected on Form S-4 or a registration
effected pursuant to Section 2.02 hereof, the Company shall:
(i) provide to each Holder written notice
thereof at least ten days prior to the filing of the registration statement by
the Company in connection with such registration; and
(ii) include in such registration, and in any
underwriting involved therein, all those Registrable Securities specified in a
written request by each Holder received by the Company within twenty days after
the Company mails the written notice referred to above, subject to the
provisions of Section 2.03(b) below.
(b) Underwriting. The right of any Holder to registration
pursuant to this Section 2.03 shall be conditioned upon the participation by
such Holder in the underwriting arrangements specified by the Company in
connection with such registration and the inclusion of the Registrable
Securities of such Holder in such underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities through such
underwriting shall (together with the Company) enter into an underwriting
agreement in customary form with the managing underwriter selected for such
underwriting by the Company and take all other actions, and deliver such
opinions and certifications, as may be reasonably requested by such managing
underwriter. Notwithstanding any other provision of this Section 2.03, if the
managing underwriter determines that market factors require a limitation of the
number of shares to be underwritten, the managing underwriter may limit the
number of Registrable Securities to be included in such registration. The
Company shall so advise all Holders distributing Registrable Securities through
such underwriting, and there shall be excluded from such registration and
underwriting, to the extent necessary to satisfy such limitation, Registrable
Securities allocated in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities required to be included (determined without
regard to any requirement of a request to be included in such registration) in
such registration, held by all Holders at the time of filing the registration
statement. To facilitate the allocation of shares in accordance with the above
provisions, the number of shares allocated to any Holder may be rounded to the
nearest 100 shares.
(c) Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 2.03 prior to the
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effectiveness of such registration whether or not any Holder has elected to
include Registrable Securities in such registration.
2.04. Form S-3 Registration.
(a) Request for S-3 Registration. If one or more Holders
who in the aggregate hold at least a majority of the Registrable Securities
(together, the "Requestor") submits a written request (an "S-3 Notice") or
requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, then (if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$1,000,000) the Company shall:
(i) within five days after receipt of such S-3
Notice, give written notice of the proposed registration to all other Holders;
and
(ii) as soon as practicable, use diligent efforts
to effect such registration as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holders joining in such request as are
specified in written requests received by the Company within 20 days after the
date the Company mails the written notice referred to in clause (i) above.
Notwithstanding the foregoing, if the Company shall furnish to the
Requestor a certificate signed by the President of the Company stating that in
the good faith judgment of the Board of the Company, it would be seriously
detrimental to the Company or its stockholders for a registration statement to
be filed on or before the date filing would be required in connection with any
Demand Registration and it is therefore advisable to defer the filing of such
registration statement, the Company shall have the right to defer such filing or
delay its effectiveness for a reasonable period not to exceed 90 days provided
that such right shall not be exercised more than once with respect to a request
for registration hereunder during any period of twelve consecutive months. The
Company will pay all Registration Expenses in connection with such withdrawn
request for registration.
Notwithstanding any other provision of this Section 2.04, if the
managing underwriter of any underwritten offering effected pursuant to this
Section 2.04 determines that market factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit the number of
Registrable Securities to be included in such registration. The Company shall so
advise all Holders distributing Registrable Securities through such
underwriting, and there shall be excluded from such registration and
underwriting, to the extent necessary to satisfy such limitation, Registrable
Securities allocated in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities required to be included (determined without
regard to any requirement of a request to be included in such registration) in
such registration, held by all Holders at the time of filing the registration
statement. To facilitate the allocation
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of shares in accordance with the above provisions, the number of shares
allocated to any Holder may be rounded to the nearest 100 shares.
Notwithstanding any other provision of this Section 2.04, the Company
shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 2.04 if Form S-3 is not available for such
offering by the Holders or within three months of any previous Form S-3
registration effectuated hereunder.
(b) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. Registrations effected pursuant to this
Section 2.04 shall not be counted as demands for registration or registrations
effected pursuant to Sections 2.02.
2.05. Expense of Registration. All Registration Expenses incurred in
connection with the registration and other obligations of the Company pursuant
to Sections 2.02, 2.03 and 2.04 shall be borne by Company.
2.06. Registration Procedures. If and whenever the Company is
required by the provisions of this Section 2 to effect the registration of
Registrable Securities, the Company shall:
(a) promptly prepare and file with the Commission a
registration statement with respect to such Registrable Securities on any form
that may be utilized by the Company and that shall permit the disposition of the
Registrable Securities in accordance with the intended method or methods of
disposition thereof, and use its reasonable diligent efforts to cause such
registration statement to become effective as promptly as practicable and remain
effective thereafter as provided herein, provided that prior to filing a
registration statement or prospectus or any amendments or supplements thereto,
including documents incorporated by reference after the initial filing of any
registration statement, the Company will furnish to each of the Stockholders
whose Registrable Securities are covered by such registration statement, their
counsel and the underwriters copies of all such documents proposed to be filed
sufficiently in advance of filing to provide them with a reasonable opportunity
to review such documents and comment thereon;
(b) prepare and file with the Commission such amendments
(including post-effective amendments) and supplements to such registration
statement and the prospectus used in connection therewith as may be necessary to
keep such registration statement effective and current and to comply with the
provisions of the Securities Act with respect to the sale or other disposition
of all Registrable Securities covered by such registration statement, including
such amendments (including post-effective amendments) and supplements as may be
necessary to reflect the intended method of disposition by the prospective
seller or sellers of such Registrable Securities, provided that such
registration statement need not be kept effective and current for longer than
120 days subsequent to the effective date of such registration statement;
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(c) provide customary indemnity and contribution
arrangements to any qualified independent underwriter or qualified independent
pricer as defined in Schedule E of the Bylaws of the National Association of
Securities Dealers, Inc. (a "Qualified Independent Underwriter/Pricer"), if
requested by such Qualified Independent Underwriter/Pricer, on such reasonable
terms as such Qualified Independent Underwriter/Pricer customarily requires;
(d) subject to receiving reasonable assurances of
confidentiality, for a reasonable period after the filing of such registration
statement, and throughout each period during which the Company is required to
keep a registration effective, make available for inspection by the selling
holders of Registrable Securities being offered, and any underwriters, and their
respective counsel, such financial and other information and books and records
of the Company, and cause the officers, directors, employees, counsel and
independent certified public accountants of the Company to respond to such
inquiries as shall be reasonably necessary, in the judgment of such counsel, to
conduct a reasonable investigation within the meaning of Section 11 of the
Securities Act;
(e) promptly notify the selling holders of Registrable
Securities and any underwriters and confirm such advice in writing, (i) when
such registration statement or the prospectus included therein or any prospectus
amendment or supplement or post-effective amendment has been filed, and, with
respect to such registration statement or any post-effective amendment, when the
same has become effective, (ii) of any comments by the Commission, by the
National Association of Securities Dealers Inc. ("NASD"), and by the blue sky or
securities commissioner or regulator of any state with respect thereto or any
request by any such entity for amendments or supplements to such registration
statement or prospectus or for additional information, (iii) of the issuance by
the Commission of any stop order suspending the effectiveness of such
registration statement or the initiation or threatening of any proceedings for
that purpose, (iv) if at any time the representations and warranties of the
Company set forth in the underwriting agreement with respect to such
registration statement cease to be true and correct in all material respects,
(v) of the receipt by the Company of any notification with respect to the
suspension of the qualification of the Registrable Securities for sale in any
jurisdiction or the initiation or threatening of any proceeding for such
purpose, or (vi) at any time when a prospectus is required to be delivered under
the Securities Act, that such registration statement, prospectus, prospectus
amendment or supplement or post-effective amendment, or any document
incorporated by reference in any of the foregoing, contains an untrue statement
of a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances under which they are made, not misleading;
(f) furnish to each selling holder of Registrable
Securities being offered, and any underwriters, prospectuses or amendments or
supplements thereto, in such quantities as they may reasonably request and as
soon as practicable, that update previous prospectuses or amendments or
supplements thereto;
(g) permit selling holders of Registrable Securities to
rely on any representations and warranties made to any underwriter of the
Company or any opinion
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of counsel or "cold comfort" letter delivered to any such underwriter, and
indemnify each such holder to the same extent that it indemnifies any such
underwriter;
(h) use reasonable diligent efforts to (i) register or
qualify the Registrable Securities to be included in a registration statement
hereunder under such other securities laws or blue sky laws of such
jurisdictions within the United States of America as any selling holder of such
Registrable Securities or any underwriter of the securities being sold shall
reasonably request, (ii) keep such registrations or qualifications in effect for
so long as the registration statement remains in effect and (iii) take any and
all such actions as may be reasonably necessary or advisable to enable such
holder or underwriter to consummate the disposition in such jurisdictions of
such Registrable Securities owned by such holder; provided, however, that the
Company shall not be required for any such purpose to (x) qualify generally to
do business as a foreign corporation in any jurisdiction wherein it would not
otherwise be required to qualify but for the requirements of this Section
2.06(h), (y) subject itself to taxation in any such jurisdiction or (z) consent
to general service of process in any such jurisdiction;
(i) cause all such Registrable Securities to be listed or
accepted for quotation on each securities exchange or automated quotation system
on which the Company's Common Stock then trades; and
(j) otherwise use reasonable diligent efforts to comply
with all applicable provisions of the Securities Act, and rules and regulations
of the Commission, and make available to its security holders, as soon as
reasonably practicable, an earnings statement covering a period of at least
twelve months which shall satisfy the provisions of Section 11(a) of the
Securities Act and Rule 158 thereunder.
2.07. Indemnification. In the event any of the Registrable
Securities are included in a registration statement under this Section 2:
(a) the Company will indemnify each Holder who
participates in such registration, each of its officers and directors and
partners and such Holder's separate legal counsel and independent accountants,
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation with the Company's consent (not be unreasonably withheld), commenced
or threatened, arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any registration statement,
prospectus, offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, qualification or compliance, or
based on any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances in which they were made, not misleading, or any
violation by the Company of any rule or regulation promulgated under the
Securities Act applicable to the Company in connection with any such
registration, qualification or compliance, and the Company will reimburse each
such Holder, each of its officers and
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directors and partners and such Holder's separate legal counsel and independent
accountants and each person controlling such Holder, each such underwriter and
each person who controls any such underwriter, for any legal and any other
expenses reasonably incurred in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information expressly furnished to the
Company by such Holder or underwriter for use therein.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers and its legal counsel and independent accountants,
each underwriter, if any, of the Company's securities covered by such a
registration statement, each person who controls the Company or such underwriter
within the meaning of Section 15 of the Securities Act, and each other such
Holder, each of its officers and directors and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) arising
out of or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any such registration statement, prospectus, offering
circular or other document, or any omission (or alleged omission) to state
therein a material fact required to be stated therein or necessary to make the
statement therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
or any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information expressly furnished to the Company by
such Holder for use therein.
(c) Each party entitled to indemnification under this
Section 2.07 (the "Indemnified Party") shall give notice to the party required
to provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought provided that failure to give such prompt notice shall not relieve the
Indemnifying Party of its obligations hereunder unless it is materially
prejudiced thereby, and shall permit the Indemnifying Party to assume the
defense of any such claim or any litigation resulting therefrom, provided that
counsel for the Indemnifying Party, who shall conduct the defense of such claim
or litigation, shall be approved by the Indemnified Party (whose approval shall
not unreasonably be withheld). Such Indemnified Party shall have the right to
employ separate counsel in any such action and to participate in the defense
thereof, but the fees and expenses of such counsel shall be that of such
Indemnified Party unless (i) the Indemnifying Party has agreed to pay such fees
and expenses or (ii) the Indemnifying Party shall have failed to assume the
defense of such action or proceeding and employ counsel reasonably satisfactory
to such Indemnified Party in any such action or proceeding or (iii) the named
parties to any such action or proceeding (including any impleaded parties)
include both
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such Indemnified Party and the Indemnifying Party and such Indemnified Party
shall have been advised by counsel that there may be one or more legal defenses
available to such Indemnified Party which are different from or additional to
those available to the Indemnifying Party (in which case, if such Indemnified
Party notifies the Indemnifying Party in writing of an election to employ
separate counsel at the expense of the Indemnifying Party, the Indemnifying
Party shall not have the right to assume the defense of such action or
proceeding on behalf of such Indemnified Party, it being understood, however,
that the Indemnifying Party then shall have the right to employ separate counsel
at its own expense and to participate in the defense thereof, and shall not, in
connection with any one such action or proceeding or separate but substantially
similar or related actions or proceedings in the same jurisdiction arising out
of the same general allegations or circumstances, be liable for the reasonable
fees and expenses of more than one separate firm of attorneys at any time for
all Indemnified Parties, which firm shall be designated in writing by a majority
of the Indemnified Parties who are eligible to select such counsel). No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation. No
Indemnified Party may consent to entry of any judgment or enter into any
settlement without the prior written consent of the Indemnifying Party.
(d) If the indemnification provided for in this Section
2.07 is held by a court of competent jurisdiction to be unavailable to an
Indemnified Party with respect to any loss, liability, claim, damage or expense
referred to herein, then the Indemnifying Party, in lieu of indemnifying the
Indemnified Party, shall contribute to the amount paid or payable by such
Indemnified Party with respect to such loss, liability, claim, damage or
expenses in the proportion that is appropriate to reflect the relative fault of
the Indemnifying Party and the Indemnified Party in connection with the
statements or omissions that resulted in such loss, liability, claim, damage, or
expense, 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 material fact or the omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party, and the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission.
2.08. Rule 144 Reporting. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock,
the Company shall use reasonably diligent efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, beginning
90 days after the Company registers a class of securities under Section 12 of
the Exchange Act or completes a registered offering under the Securities Act; or
12
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities Act and
the Exchange Act (at any time after it has become subject to such reporting
requirements);
(c) Furnish to any Holder promptly upon request a written
statement as to its compliance with the reporting requirements of Rule 144 (at
any time after 90 days after the Company completes a registered offering under
the Securities Act), and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company and other information in the possession of or
reasonably obtainable by the Company as an Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing an Holder
to sell Registrable Securities without registration.
2.09. Termination of Registration Rights. No Holder shall be
entitled to exercise any right provided for in this Section 2 after the date all
Registrable Securities held by such Holder may be sold in a single three-month
period under Rule 144 under the Securities Act.
2.10. Information To Be Provided by the Holders. Each Holder whose
Registrable Securities are included in any registration pursuant to this
Agreement shall furnish the Company such information regarding such Holder and
the distribution proposed by such Holder as may be reasonably requested in
writing by the Company and as shall be required in connection with such
registration or the registration or qualification of such securities under any
applicable state securities law.
2.11. "Stand-Off" Agreement. Each Holder, if requested by the
managing underwriter of a registered public offering of securities by the
Company, shall agree not to sell or otherwise transfer or dispose of any
Registrable Securities or other securities of the Company then held by such
Holder for a specified period of time that is customary under the circumstances
(not to exceed 180 days) following the effective date of the registration
statement for such offering, provided that (a) no such agreement shall be
required unless the Holders enter into a similar agreement covering the same
period of time and (b) such agreement shall contain terms customary for such
agreements. The Company may impose stop transfer instructions to enforce any
required agreement of the Holders under this Section 2.11.
2.12. Transferability. The registration rights set forth herein may
be transferred by any Holder to a transferee who acquires at least 5% of the
shares of the Company's Common Stock held by a Stockholder; provided that the
foregoing restriction shall not apply to a transfer of rights to an affiliate of
any Stockholder.
3. INFORMATION AND INSPECTION RIGHTS
3.01. Information. The Company shall deliver to each Stockholder for
so long as such Stockholder (together with and any Persons whose securities are
aggregated with those of such Stockholder pursuant to Section 9.09 hereof for
purposes of the
13
Agreement) holds Common Share Equivalents that in the aggregate equal at least
25% of the total Common Share Equivalents originally purchased by such
Stockholder:
(a) as soon as practicable, but in any event within 90
days after the end of each fiscal year of the Company, an income statement of
the Company for such fiscal year, a cash flow statement of the Company for such
fiscal year, and a balance sheet of the Company as of the end of such fiscal
year, with each such financial statement to be in reasonable detail, prepared in
accordance GAAP, and audited and certified by a firm of independent public
accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within 45
days after the end of each of the first three quarters of each fiscal year of
the Company, unaudited statements of income and cash flows of the Company for
such fiscal quarter and an unaudited balance sheet of the Company as of the end
of such fiscal quarter;
(c) as soon as practicable, but in any event at least
thirty days prior to the end of each fiscal year, a budget and business plan of
the Company for the next fiscal year, prepared on a monthly basis, including
balance sheets and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(d) with respect to the financial statements called for
in subsections (a) and (b) of this Section 3.01, an instrument executed by the
Chief Financial Officer or President of the Company certifying that such
financial statements were prepared in accordance with GAAP consistently applied
with prior practice for earlier periods (with the exception of footnotes that
may be required by GAAP) and fairly present the financial condition of the
Company and its results of operation, cash flows and changes in shareholders'
equity for the period specified, subject to year-end audit adjustments; and
(e) written information provided to the Board with
respect to the operating activities of the Company and such other information
relating to the financial condition, business, prospects or corporate affairs of
the Company as such Stockholder may from time to time request in good faith.
Notwithstanding any provision of this Section 3.01 to the contrary, the Company
will not be required to provide any information which it reasonably considers to
be a trade secret, other confidential information or that is protected by any
privilege.
3.02. Inspection. During any period in which a Stockholder is
entitled to receive the materials specified in Section 3.01 hereof, the Company
shall permit such Stockholder, at such Stockholder's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times and upon reasonable notice as may be requested by
such Stockholder.
4. RIGHT OF FIRST REFUSAL
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4.01. Notice. In the event any Stockholder (a "Selling Stockholder")
desires to sell, transfer or otherwise dispose of any or all of the shares of
capital stock of the Company owned of record or beneficially by such Stockholder
or any securities ultimately convertible into or exercisable for any such shares
of capital stock (collectively, the "Target Shares"), such Selling Stockholder
shall promptly deliver to the Company and the other Stockholders a written
notice of such intended disposition (a "Disposition Notice") setting forth the
proposed terms and conditions thereof, including the number and type of
securities to be disposed of, any conditions to such disposition, the proposed
timing of such disposition, the proposed acquirer of such Target Shares, and the
consideration to be paid for such securities. Except as otherwise provided
herein, a Stockholder may not sell, transfer or otherwise dispose of any shares
of capital stock of the Company or any securities ultimately convertible into or
exercisable for such shares of capital stock unless it delivers to the Company
and the other Stockholders a Disposition Notice and complies with the provisions
of this Section 4.01 or unless the proposed sale, transfer or disposition is
exempt under Section 4.06 hereof from the right of first offer granted herein.
4.02. The Company's Right. The Company shall, for a period of thirty
days following receipt of a Disposition Notice, have the right to purchase the
Target Shares specified therein upon the terms and conditions specified in the
Disposition Notice, subject to the conditions contained in this Section 4.02. If
such terms contemplate property other than cash constituting all or a portion of
the purchase price for the Target Shares, the Company shall substitute cash in
an amount equal to the fair value of such property for such property. The fair
value of such property shall be determined by the Company's Board in good faith,
in consultation with such independent investment bank or appraiser as the Board
shall deem appropriate. The Company's purchase right shall be exercisable by
written notice (the "Exercise Notice") delivered to the Selling Stockholder and
the other Stockholders prior to the expiration of such thirty-day exercise
period. If such right is exercised with respect to all of the Target Shares
specified in the Disposition Notice, then the Company shall complete the
repurchase of such Target Shares, by no later than twenty Business Days after
the delivery of the Exercise Notice. At such time, the Selling Stockholder shall
deliver to the Company the certificates representing the Target Shares to be
repurchased, each certificate to be properly endorsed for transfer.
Alternatively, if such right is exercised with respect to only a portion of the
Target Shares specified in the Disposition Notice, then such right to repurchase
shall be contingent upon the election of one or more of the Stockholders to
repurchase the remaining Target Shares. The Company shall notify the other
Stockholders of its intent to repurchase only a portion of the Target Shares
within the thirty-day exercise period above defined. In such event, the
Company's repurchase of such Target Shares shall be consummated, if at all, at
the time of the exercise of the repurchase rights granted to the Stockholders in
accordance with Section 4.03 hereof. In the event one or more of the
Stockholders do not elect to repurchase the remaining Target Shares, the Company
shall be deemed to have waived its right under this Section 4.02.
4.03. The Stockholders' Right. Subject to the rights of the Company
under Section 4.02 hereof, the Stockholders (other than the Selling
Stockholder), for a period of the longer of (i) thirty days from receipt of the
Disposition Notice and (ii) fifteen days
15
from receipt of written notice of the Company's election either to waive its
purchase right or to repurchase only a portion of the Target Shares, shall have
the right to purchase the remaining balance, if any after the Company's
repurchase of the Target Shares, upon the terms and conditions specified in the
Disposition Notice. The Stockholders shall exercise such right in the same
manner and subject to the same rights and conditions as the Company, as more
specifically set forth in paragraph 4.02 above. To the extent that the Target
Shares need to be allocated among the Stockholders, they shall be allocated pro
rata based on the holdings of Common Share Equivalents of each such Stockholder
that desires to exercise its purchase right.
4.04. Non-Exercise of Purchase Right. In the event an Exercise
Notice with respect to any portion of the Target Shares is not given to the
Selling Stockholder by the Company or any of the other Stockholders within the
period specified herein following the date of the Company's and the other
Stockholders' receipt of the Disposition Notice, then subject to compliance with
the provisions of Section 4.05 hereof, the Selling Stockholder shall have a
period of 30 days thereafter in which to sell the Target Shares upon terms and
conditions (including the purchase price) no more favorable to the acquirer than
those specified in the Disposition Notice. It shall be a condition to any such
disposition that the acquirer agree to be bound by and comply with all of the
provisions of this Agreement applicable to such Selling Stockholder with respect
to such Target Shares. In the event the Selling Stockholder does not consummate
the sale or disposition of the Target Shares within such 30 day period, the
Company's and the Stockholders' purchase rights shall continue to be applicable
to any subsequent disposition of the Target Shares by the Selling Stockholder.
4.05. No Partial Exercise of Right. If the Company and/or the other
Stockholders do not exercise the purchase rights pursuant to this Section 4 with
respect to all Target Shares described in a particular Disposition Notice, then
such right shall not apply to any Target Shares described in such Disposition
Notice.
4.06. Exempt Transfers. Notwithstanding the foregoing, the purchase
rights of the Company and the other Stockholders set forth in this Section 4
shall not apply to any transfer by a Selling Stockholder to (a) the descendants,
siblings or spouse of the Selling Stockholder or to trusts for the benefit of
such persons or the Selling Stockholder, (b) to such Selling Stockholder's
Affiliates, or (c) in the case of a Selling Stockholder that is a private
investment company, to the partners, members, stockholders or other investors of
such Selling Stockholders as a distribution or similar transfer from such
Selling Stockholder; provided that in each of the foregoing cases, the
transferee shall furnish the Stockholders and the Company with a written
agreement to be bound by and comply with all provisions of this Agreement. Such
transferred stock shall remain subject to the provisions of this Agreement, and
such transferee shall be treated as a "Stockholder" for the purposes of this
Agreement.
5. CO-SALE RIGHTS
5.01. Notice. Subject to the provisions of Section 4, if any
Stockholder (the "Selling Stockholder") desires to accept a bona fide offer from
a financially capable
16
acquirer for the sale, transfer or other disposition of any of the shares of any
class of capital stock of the Company owned of record or beneficially by such
Stockholder or any securities ultimately convertible into or exercisable for any
such shares of capital stock (collectively, the "Sale Shares"), the Selling
Stockholder shall promptly deliver to the Company and the other Stockholders, a
written notice of such intended disposition (a "Sale Notice") setting forth the
terms and conditions thereof, including the number and type of securities to be
disposed of, any conditions to such disposition, the proposed timing of such
disposition, the consideration to be paid for such securities and the identity
of the proposed acquirer. Except as otherwise provided herein, the Selling
Stockholder may not sell, transfer or otherwise dispose of any shares of capital
stock of the Company or any securities ultimately convertible into or
exercisable for such shares of capital stock unless Selling Stockholder delivers
to the Company and the other Stockholders a Sales Notice and complies with the
provisions of this Section 5 or unless the proposed sale, transfer or
disposition is exempt under Section 5.05 hereof from the co-sale rights granted
herein.
5.02. Grant of Co-Sale Rights. Each Stockholder (other than the
Selling Stockholder) shall have the right, exercisable upon written notice to
the Selling Stockholder within ten days after receipt of the Selling
Stockholder's Sale Notice, to participate in such sale of the Sale Shares on the
same terms and conditions as those set forth in the Sale Notice. To the extent
any other Stockholder exercises such right of participation (a "Participating
Stockholder") and the acquirer is not willing to acquire all of the shares to be
sold by the Selling Stockholder and such other Stockholders, the number of
shares of Sale Shares that the Selling Stockholder may sell in the transaction
shall be correspondingly reduced. The right of participation of each Stockholder
shall be subject to the terms and conditions set forth in this Section 5.02.
(a) Each Participating Stockholder and the Selling
Stockholder shall be deemed to own the number of shares of Common Stock that it
actually owns plus the number of shares of Common Stock that are issuable upon
conversion of any convertible securities of the Company or upon the exercise of
any warrants, options or similar rights then owned by it at an exercise price
less than the purchase price specified in the Sale Notice.
(b) Each Participating Stockholder may sell all or any
part of a number of Sale Shares equal to the product obtained by multiplying (i)
the aggregate number of Sale Shares by (ii) a fraction, the numerator of which
is the number of shares of Common Stock of the Company deemed to be owned by
such Participating Stockholder and the denominator of which is the total number
of outstanding shares of Common Stock of the Company deemed to be owned by all
Stockholders.
(c) Each Participating Stockholder may effect its
participation in the sale by delivering to the Selling Stockholder for transfer
to the acquirer one or more certificates, properly endorsed for transfer, which
represent:
(i) the number of shares that it elects to sell
pursuant to this Section 5.02;
17
(ii) that number of shares of convertible
securities of the Company that is at such time convertible into the number of
shares of Common Stock that it has elected to sell pursuant to this Section
5.02, if any; provided, however, that if the acquirer objects to the delivery of
convertible securities of the Company in lieu of Common Stock, the Participating
Stockholder may, to the extent permitted by the terms of such security, convert
and deliver Common Stock as provided in subparagraph (i) above; or
(iii) a combination of the foregoing that in the
aggregate represents the number of shares of Common Stock to be sold by the
Participating Stockholder.
5.03. Payment of Proceeds. The stock certificates that the
Participating Stockholders deliver to the Selling Stockholder pursuant to
Section 5.02 shall be transferred by the Selling Stockholder to the acquirer in
consummation of the sale of the Sale Shares pursuant to the terms and conditions
specified in the Sale Notice, and the Selling Stockholder shall promptly
thereafter remit to the Participating Stockholders that portion of the sale
proceeds to which such Participating Stockholder is entitled by reason of its
participation in such sale.
5.04. Non-Exercise. The exercise or non-exercise of the rights of
the Participating Stockholders hereunder to participate in one or more sales of
Sale Shares made by the Selling Stockholder shall not adversely affect its right
to participate in subsequent sales by the Selling Stockholder. In the event none
of the Stockholders elect to exercise their co-sale rights hereunder with
respect to a disposition, the Selling Stockholder may consummate such
disposition in accordance with the terms specified in the Sale Notice but only
within 120 days after the expiration of the other Stockholders' co-sale rights.
5.05. Exempt Transfers. The provisions of this Section 5 shall not
apply to any transfer by a Selling Stockholder to (i) the descendants, siblings
or spouse of such Selling Stockholder or to trusts for the benefit of such
persons or the Selling Stockholder, (ii) to a Selling Stockholder's Affiliates,
or (iii) to the partners, members, stockholders or other investors of a Perseus
Investor as a distribution or similar transfer from such Perseus Investor;
provided that in each of the foregoing cases, the transferee shall furnish the
Company with a written agreement to be bound by and comply with all provisions
of this Agreement. Such transferred stock shall remain subject to the provisions
of this Agreement, and such transferee shall be treated as a Stockholder for the
purposes of this Agreement.
6. BRING ALONG RIGHTS
Subject to complying with its obligations under Section 4, if the
Perseus Investors, so long as they hold 40% or more of the Common Share
Equivalents outstanding of the Company, determines to sell all of their Shares
in the Company in a single or series of related transactions to a bona fide
third party (a "Control Sale"), the Perseus Investors shall have the right, but
not the obligation to require each other
18
Stockholder to participate in such Control Sale. The Perseus Investors may
exercise their rights under this Section 6 by delivering to the other
Stockholders (excluding the Perseus Investors) a written notice (a "Control Sale
Notice") describing in reasonable detail the terms of the Control Sale and
notifying the other Stockholders that the Perseus Investors are exercising their
rights under this Section 6. Upon the receipt by the other Stockholders of a
Control Sale Notice, all Stockholders shall be obligated to sell their Shares in
the Control Sale on the same or financially equivalent terms as those applicable
to the Perseus Investors, and shall cooperate with the Perseus Investors in
consummating such sale. No Stockholder shall take any action to impede or
otherwise disrupt the consummation of such Control Sale. Once a Control Sale
Notice has been delivered no Stockholder may enter into any agreement or
arrangement to sell, transfer, pledge, encumber or otherwise dispose of such
Stockholder's Shares until it receives notification that such Control Sale has
been abandoned. The Perseus Investors shall have the right to abandon any
Control Sale at any time in their sole discretion and shall be deemed to have
abandoned such Control Sale if it has not been consummated within three months
after it has delivered a Control Sale Notice to the other Stockholders regarding
such Control Sale.
7. PURCHASE RIGHTS REGARDING FUTURE SALES OF CAPITAL SECURITIES BY THE
COMPANY.
7.01. Subject to the terms and conditions specified in this Section
7, the Company hereby grants to each Stockholder a purchase right with respect
to future sales by the Company of its Capital Securities (as hereinafter
defined). Each Stockholder shall be entitled to apportion the purchase right
hereby granted it among itself and its members, partners and affiliates in such
proportions as it deems appropriate. Each time the Company proposes to offer any
shares of, or any securities convertible into or exercisable or exchangeable for
any shares of, any class of its capital stock (collectively, "Capital
Securities"), the Company shall first make an offering of such Capital
Securities to each Stockholder in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
(a "Company Sales Notice") to the Stockholders stating (i) its bona fide
intention to offer such Capital Securities, (ii) the number of such Capital
Securities to be offered, and (iii) the price and terms, if any, upon which it
proposes to offer such Capital Securities.
(b) Within 20 Business Days after receipt of a Company
Sales Notice, each Stockholder that desires to purchase any of the Capital
Securities specified in such Company Sales Notice at the price and on the terms
specified in such Sales Notice shall provide to the Company a written notice (a
"Company Purchase Notice") setting forth the number of such Capital Securities
such Stockholder is willing to purchase. If the total number of Capital
Securities specified in all of the Company Purchase Notices received by the
Company within such period exceeds the total number of Capital Securities
specified in such Company Sales Notice or such greater number of Capital
Securities that the Company is willing to sell at the price and on the terms
specified in such Company Sales Notice, then the Capital Securities to be sold
shall be allocated
19
among the Stockholders in the same proportion that each such Stockholder's
Common Share Equivalents bear to the total Common Share Equivalents owned by all
of the Stockholders that have delivered Company Purchase Notices; provided that
if such allocation would result in any Stockholder being allocated Capital
Securities under this subsection (b) in excess of the total number of Capital
Securities that it specified in its Purchase Notice, such excess Capital
Securities shall be allocated among the other Stockholders that have not been
allocated Capital Securities equal to the number of Capital Securities specified
in their Company Purchase Notices in a manner that results in such other
Stockholders receiving in the aggregate under this subsection (b) an equal
percentage of the total number of Capital Securities specified in their
respective Company Purchase Notices. All allocations made pursuant to this
subsection (b) shall be rounded to the nearest whole Capital Security. The
Capital Securities allocated to each Stockholder under this subsection (b) shall
be purchased by such Stockholder at the price and on the terms specified in the
Company Sales Notice at a closing to be held within 40 Business Days after the
delivery of the Company Sales Notice. Such date shall be specified by the
Company in a written notice delivered to each Stockholder participating in such
sale at least 10 Business Days prior thereto.
(c) If all Capital Securities that the Stockholders are
entitled to obtain pursuant to Section 7.01(b) are not elected to be obtained as
provided in Section 7.01(b), the Company may, during the 120-day period
following the expiration of the period provided in Section 7.01(b), offer the
remaining unsubscribed portion of such Capital Securities to any Person or
Persons at a price not less than, and upon terms no more favorable to the
offeree than, those specified in the Company Sales Notice with respect thereto.
If the Company does not enter into an agreement for the sale of such Capital
Securities within such period, or if such agreement is not consummated within 30
days of the execution thereof, the right provided hereunder shall be deemed to
be revived and such Capital Securities shall not be offered unless first
reoffered to the Stockholders in accordance herewith.
(d) The purchase right granted in this Section 7 shall
not be applicable (i) to the issuance or sale of Common Stock (or options
therefor) to consultants, officers, directors and employees for the primary
purpose of soliciting or retaining their employment or services in a transaction
or pursuant to a plan approved by the Company's Board, (ii) as part of or after
a Qualified Initial Public Offering, (iii) the issuance of securities pursuant
to the redemption, conversion or exercise of outstanding convertible or
redeemable securities or warrants, options or similar rights, (iv) the issuance
of securities in connection with a bona fide business acquisition by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, (v) the issuance of warrants, options or similar securities
to a bank or other institutional lender as consideration for the extension of
credit by such lender to the Company, (vi) the issuance of stock, warrants or
other securities or rights to persons or entities with which the Company has
business relationships provided such issuances are for other than primarily
equity financing purposes and provided that at the time of any such issuance,
the aggregate of such issuance and similar issuances in the preceding
twelve-month period do not exceed 2% of the then outstanding Common Stock of the
Company (assuming full conversion and exercise of all convertible and
exercisable
20
securities then outstanding) or such issuance is expressly approved by a
majority of the director representatives of the Stockholders on the Company's
Board.
(e) The rights granted by this Section 7 shall be
available to any Stockholder only so long as such Stockholder owns 50% of more
of the Common Share Equivalents originally owned by such Stockholder.
8. LEGEND REQUIREMENTS
8.01. Legend. Each certificate representing the shares of capital
stock (or securities convertible into or exercisable for shares of capital
stock) of the Company owned by the Stockholders shall be endorsed with the
following legend:
"THE SALE OR TRANSFER, THE VOTING AND CERTAIN OTHER RIGHTS RELATING TO
THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS
AND CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND AMONG THE
COMPANY AND CERTAIN STOCKHOLDERS OF THE COMPANY. A COPY OF SUCH
AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY."
8.02. Removal. The legend set forth in Section 8.01 hereof shall be
removed upon termination of this Agreement in accordance with the provisions of
Section 9.01.
9. COVENANTS The Company covenants and agrees with each of the
Stockholders that:
9.01. Corporate Existence. The Company shall maintain its corporate
existence, rights and franchises in full force and effect. The Company shall
also preserve and maintain all licenses and other rights to use licenses,
trademarks, trade names, inventions, intellectual property rights or copyrights
owned or possessed by it and necessary to the conduct of its business.
9.02. Compliance with Laws. The Company shall comply in all material
respects with all requirements of law of any governmental authority having
jurisdiction over it, except as such may be contested in good faith or as to
which a bona fide dispute may exist.
9.03. Payment of Taxes. The Company shall pay and discharge all
taxes, assessments and governmental charges or levies imposed upon it or upon
its income or profits or business, or upon any properties belonging to it, prior
to the date on which penalties attach thereto, and all lawful claims which, if
unpaid, might become a lien or charge upon any properties of the Company,
provided that the Company shall not be required to pay any such tax, assessment,
charge, levy or claim which is being contested in good faith and by appropriate
proceedings if the Company shall have set aside on its books adequate reserves
with respect thereto.
21
9.04. Insurance. The Company shall maintain as to its business, with
financially sound and reputable insurers, insurance against such casualties and
contingencies and of such types and in such amounts as is customary for
companies similarly situated, which insurance shall be deemed by such Company to
be sufficient.
9.05. Interested Party Transactions. The Company shall not and shall
not permit any subsidiary to, without first obtaining the affirmative vote of a
majority of the disinterested directors, (i) engage in any loans, leases,
contracts or other transactions with any director, officer, key employee or
greater than ten percent (10%) stockholder of the Company, or any member of any
such person's immediate family or any Affiliate of the foregoing (ii) amend or
modify any arrangement approved in accordance with clause (i). Excluded from the
foregoing paragraph are (a) transactions between the Company and its
subsidiaries, (b) where such loans, leases, contracts or other transactions are
in amounts less than $25,000 in the aggregate in any twelve month period and are
at prices and on terms and conditions no less favorable to the Company or its
subsidiaries, as the case may be, than could reasonably be obtained from third
parties, (c) the Sourcing Rights Letter Agreement (as defined in the SPA)between
the Company and UOHL and transactions relating thereto, (d) the Management
Agreement, as defined in the SPA, and transactions related thereto.
In the event that any Purchaser shall have good faith reason
to believe that any of the covenants set forth in this Section 9 have not been
adhered to, such Purchaser shall deliver written notice to the Board with a
detailed description of the alleged breach. After receipt of the letter, the
Board shall have 30 days to provide a reasonably detailed response to such
letter.
10. MISCELLANEOUS PROVISIONS
10.01. Termination. This Agreement shall terminate immediately upon
the earlier of (a) the closing of a Qualified Initial Public Offering, (b) the
consummation of a Change in Control, or (c) the execution by the Company of a
general assignment for the benefit of creditors or the appointment of a receiver
or trustee to take possession of the property and assets of the Company.
Notwithstanding the foregoing, the provisions of Section 2 of this Agreement
shall terminate as provided in Section 2.09 hereof.
10.02. Notices. All notices, requests and other communications
hereunder shall be in writing and shall be deemed to have been duly given at the
time of receipt if delivered by hand, overnight courier or by facsimile
transmission or three Business Days after being mailed, registered or certified
mail, return receipt requested, with postage prepaid, to the address or
facsimile number (as the case may be) listed below the signature of each Party
on such Party's signature page hereto if any Party shall have designated a
different address or facsimile number by notice to the other Parties given as
provided above, then to the last address or facsimile number so designated.
10.03. Severability. In the event one or more of the provisions of
this Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this
22
Agreement, and this Agreement shall be construed and interpreted in such manner
as to be effective and valid under applicable law.
10.04. Waiver or Modification. Any amendment or modification of this
Agreement shall be effective only if evidenced by a written instrument executed
by the Company and by Stockholders that hold a majority of the total Common
Share Equivalents held by all of the Stockholders, and by any Stockholder whose
rights and obligations may be affected thereby.
10.05. Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York without regard to
the principles of conflicts of laws thereof.
10.06. Attorneys' Fees. In the event of any dispute involving the
terms hereof, the prevailing parties shall be entitled to collect legal fees and
expenses from the other party to the dispute.
10.07. Further Assurances. Each Party agrees to act in accordance
herewith and not to take any action that is designed to avoid the intention
hereof.
10.08. Successors and Assigns. This Agreement and the rights and
obligations of the Parties hereunder shall inure to the benefit of, and be
binding upon, their respective successors, assigns and legal representatives.
Each Stockholder may assign its rights hereunder to (i) any transferee of Shares
held by such Stockholder that holds, in the aggregate, at least 1% of the total
Common Share Equivalents after such transfer, (ii) the descendants, siblings or
spouse of such Stockholder or to trusts for the benefit of such persons or such
Stockholder, (iii) to such Stockholder's Affiliates, or (iv) in the case of any
Perseus Investor, to the partners, members, stockholders or other investors of
such Perseus Investor as a distribution or similar transfer from such Perseus
Investor; provided that in each of the foregoing cases, the transferee shall
furnish the other Stockholders and the Company with a written agreement to be
bound by and comply with all provisions of this Agreement. Such transferee shall
be treated as a "Stockholder" (and a transferee of a Perseus Investor shall be
treated as a "Perseus Investor") for the purposes of this Agreement.
10.09. Aggregation of Stock. For purposes of determining the
availability of any rights under this Agreement, the number of shares of Common
Stock or other securities of the Company deemed to be owned by a Stockholder
shall include all such shares or
23
other securities owned by such Stockholder or other Person, such Stockholder's
(or other Person's) Affiliates and their respective partners, members, or
shareholders, and any other person or entity that acquires any such shares or
other securities from any of the foregoing by gift, will or intestate
succession.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
[Company Investor Rights Agreement Signature page]
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
FOOTWEAR ACQUISITION, INC.
By: /s/ Xxxxxxx X. Xxxxx
----------------------------------
Name: Xxxxxxx X. Xxxxx
---------------------------------
Title: Executive Director
-------------------------------
ADDRESS FOR NOTICE:
---------------------------------------
---------------------------------------
Facsimile No. :
----------------------
Attn:
---------------------------------
With a copy to:
---------------------------------------
---------------------------------------
Facsimile No. :
-----------------------
Attn:
---------------------------------
[cre-8-net Investor Rights Agreement Signature page]
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
CRE-8-NET VENTURES L.L.C.
BY: /s/ Xxxxxxx X. Xxxxx
----------------------------
NAME: Xxxxxxx X. Xxxxx
TITLE: Managing Member
ADDRESS FOR NOTICE:
000 Xxxxxxx Xxxxxxx
Xxxxx 0000
Xxxx Xxxxxx, Xxxxxxxxxx 00000
Phone: 000-000-0000
Fax: 000-000-0000
Attn: Xxxxxxx X. Xxxxx
With a copy to:
XXXXXX XXXXXXX XXXXXXXX & XXXXXX, P.C.
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attn: Xxxx Xxxxxx, Esq.
2
[UOHL Investor Rights Agreement Signature page]
IN WITNESS WHEREOF, the undersigned has executed this Agreement as of
the day and year first above written.
UNION OVERSEAS HOLDINGS LIMITED
BY: /s/ Xxxxxx X. Xx
----------------------------
NAME: Xxxxxx X. Xx
TITLE: Director
ADDRESS FOR NOTICE:
Suite 306
Third Floor
Island Xxxxx Xxxxx
Xx. 000 Xxxx'x Xxxx, Xxxxx Xxxxx
Xxxx Xxxx
Facsimile No. 852-2907-8118
Attn: Xx. Xx Xx
With a copy to:
Mintz, Levin, Cohn, Ferris, Glovsky
and Popeo
Xxx Xxxxxxxxx Xxxxxx
Xxxxxx, Xxxxxxxxxxxxx 00000
Facsimile: (000) 000-0000
Attention: Xxxx Xxxxx Xxxxxx, Esq. and
Xxxxxx Xxxxxxx, Esq.
3
[Perseus Investors Investor Rights Agreement Signature page]
IN WITNESS WHEREOF, the undersigned Perseus Stockholder has executed
this Agreement as of the day and year first above written.
PERSEUS ACQUISITION/RECAPITALIZATION
FUND, L.L.C.
By: /s/ Xxxxxx X. Xxxxxxx
---------------------------------
Name: Xxxxxx X. Xxxxxxx
--------------------------------
Title: Managing Director
------------------------------
ADDRESS FOR NOTICE:
000 Xxxxxxx Xxxxxx, 00xx Xx.
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxx X. Xxxxxx, III
With a copy to:
Xxxxxx & Xxxxxx
000 Xxxxxxx Xxxxxx X.X.
Xxxxxxxxxx, X.X. 00000-0000
Facsimile: (000) 000-0000
Attention: Xxxxxx Xxx, Esq.
4
[Itochu Corporation Investor Rights Agreement Signature page]
IN WITNESS WHEREOF, the undersigned Perseus Stockholder has executed
this Agreement as of the day and year first above written.
ITOCHU CORPORATION
By: /s/ Xxxxxxxxx Xxxxxxxxx
---------------------------------
Name: Xxxxxxxxx Xxxxxxxxx
--------------------------------
Title: Section Manager
------------------------------
ADDRESS FOR NOTICE:
Itochu Corporation
0-0 Xxxxxxx-xxxxx 0-xxxxx
Xxxx-xx, Xxxxx 000-0000 Xxxxx
Attention: Kenichiu Kamiyoshi
Operating Officer of Import Textile
And Fashion Good Division
Telephone: 00-0-0000-0000
Facsimile: 00-0-0000-0000
With a copy to:
Xxxxxxxxx Xxxxxxxxx
Manager of Import Textile
And Fashion Goods Division
Section No. 6
5
EXHIBIT A
CERTAIN DEFINITIONS
For purposes of the Agreement to which this Exhibit A is attached, the
following terms have the following meanings:
"Affiliate" of any Person (the "Subject Person") means any Person that
Controls, is Controlled by or is under common Control with the Subject Person.
"Business Day" means any day other than a Saturday, Sunday or other day
on which the national or state banks located in the State of New York are
authorized to be closed.
"Common Share Equivalents" means all shares of Common Stock that are
issued and outstanding or are issuable upon the exchange, exercise or conversion
of any other security of the Company. The number of Common Share Equivalents
owned by a Person shall equal the sum of (i) the number of shares of Common
Stock owned by such Person plus (ii) the number of shares of Common Stock
issuable upon the exchange, exercise or conversion of any other security of the
Company owned by such Person plus (iii) the number of accrued but unpaid shares
of Common Stock payable as dividends on any other security of the Company
(assuming, in the case of (iii), that such dividends were to be entirely paid as
"In-Kind Dividends" as defined in the Company's Certificate of Incorporation).
Common Share Equivalents shall not include unexercised options to purchase
Common Stock issued to executives, officers, employees or others, whether
pursuant to an incentive stock option plan or otherwise.
"Common Stock" means the common stock, par value $.01 per share, of the
Company.
"Change in Control" means the occurrence, after the date hereof, of the
consolidation or merger of the Company or sale of all or substantially all of
its assets (other than solely for the purpose of changing the jurisdiction of
incorporation of the Company) in which the shareholders of the Company
immediately prior to the transaction possess less than 50% of the voting power
of the surviving entity (or its parent, if any) immediately following the
transaction.
"Control" and derivatives thereof mean the power to control the
management and policies of a Person subject to Control whether by ownership of
voting securities, contract or otherwise.
"GAAP" means United States generally accepted accounting principles
consistently applied.
"Lien" means all liens, security interests, pledges, charges,
mortgages, conditional sales agreements, title retention agreements and other
encumbrances.
6
"Person" means any individual, entity or governmental body.
"Permitted Liens" means Liens that (i) arise out of taxes not in
default and payable without penalty or interest or the validity of which is
being contested in good faith by appropriate proceedings, (ii) are mechanics',
carriers', workers', repairmen's, or other similar Liens that are not,
individually or in the aggregate, material in amount and arise in the ordinary
course of business, (iii) represent the rights of customers, suppliers,
licensees and subcontractors in the ordinary course of business under contracts
or under general principles of commercial law, (iv) any Lien existing or which
comes into existence pursuant to the terms of a certain Senior Note or Senior
Notes dated as of the date hereof and (v) any Lien existing as of the date
hereof pursuant to the terms of any agreement existing as of the date hereof
between the Company and any bank or other lender.
"Qualified Initial Public Offering" means a public offering of Common
Stock pursuant to an effective registration statement under the Securities Act
of 1933, as amended, that is underwritten on a firm commitment basis that
results in (a) the Company receiving at least $20 million in gross proceeds; (b)
the Common Stock being traded on the New York Stock Exchange or the Nasdaq
National Market; and (c) a fully diluted, post-IPO valuation of the Company in
excess of $200 million.
7
