Exhibit 10.6
SHAREHOLDERS AGREEMENT
This Shareholders Agreement (this "Agreement"), dated as of January 21,
2003, is by and among (i) Southern Star Central Corp., a Delaware corporation
(the "Company"), (ii) AIG Highstar Capital, L.P., a Delaware limited partnership
("Highstar"), (iii) ASC Central, LLC, a Delaware limited liability company
("ASC") and (iv) each other person who becomes a party to this Agreement by
executing an Instrument of Accession in the form of Exhibit A hereto.
Capitalized terms used herein which are not otherwise defined shall have the
meanings ascribed to such terms in Section 11 hereof.
Highstar and any other holder of shares of Common Stock (as defined
herein) who becomes party to this Agreement are sometimes referred to in this
Agreement as (individually) a "Common Shareholder" or (collectively) the "Common
Shareholders." ASC is sometimes referred to in this Agreement as the "Warrant
Shareholder," but in all cases, only with respect to its ownership of Warrant
Shares, if any. The Common Shareholder and the Warrant Shareholder are sometimes
referred to in this Agreement as (individually) a "Shareholder" or
(collectively) the "Shareholders."
WHEREAS, the Company and ASC have entered into a Securities Purchase
Agreement (the "Purchase Agreement"), pursuant to which the Company has sold
shares of Preferred Stock and a warrant to purchase shares of Common Stock (the
"Warrant") to ASC on the terms and conditions set forth therein (the "ASC
Transaction");
WHEREAS, Highstar may in the future enter into one or more stock
purchase agreements with other parties ("Other Investors"), pursuant to which
Highstar may sell up to fifty percent (50%) of the Common Stock held by Highstar
to such Other Investors, provided, that, upon the consummation of any such
transactions, Highstar shall retain at least fifty percent (50%) of the economic
interest in, or voting power of the Common Stock (excluding for purposes of
calculating Highstar's ownership of the Common Stock, Common Stock issued upon
exercise of the Warrant) (such transactions referred to herein as, the "Common
Equity Transactions"), and upon completion of any such Common Equity
Transactions, such Other Investors shall become party to this Agreement as
"Common Shareholders";
WHEREAS, but for the execution and delivery of this Agreement by the
Company, ASC would not be willing to enter into the Purchase Agreement or to
consummate the ASC Transaction, which transaction will benefit the Company; and
WHEREAS, to induce ASC to enter into the Purchase Agreement and to
consummate the ASC Transaction contemplated thereby, the Company is willing to
enter into this Agreement.
NOW, THEREFORE, in consideration of the foregoing and for other good
and valuable consideration, the receipt of which is hereby acknowledged, the
parties hereto hereby agree as follows:
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1. Voting Agreement.
(a) Agreement with Respect to Voting. For so long as this Agreement
remains in effect, each Shareholder shall vote any and all shares of Common
Stock held by it from time to time, and shall use its best efforts to cause the
several members of the Company's board of directors (the "Board of Directors")
to vote, so as to elect members of the Board of Directors, to maintain the
membership of the Board of Directors, and to cause the Company to act or abstain
from acting, in accordance with the provisions of this Agreement.
(b) Board of Directors.
(i) From and after the completion of the ASC Transaction until
the completion of any Common Equity Transactions, if any such Common Equity
Transactions should occur, the Board of Directors shall be composed of a total
of no more than four (4) individuals, elected as follows:
(A) one (1) individual that may be designated by ASC
(so long as ASC holds at least fifty percent (50%) of the
outstanding shares of Preferred Stock); and
(B) three (3) individuals designated by Highstar,
which shall include an individual to serve as the Chairman of
the Board of Directors (the "Chairman").
(C) in the event that at any time, so long as ASC has
the right to designate a director, ASC does not have an
individual serving as a member of the Board of Directors, ASC
shall have the right to appoint one (1) individual to serve as
an observer to the Board of Directors, who shall be entitled
to attend all meetings of the Board of Directors and who shall
receive all informational materials and communications made
available to the Board of Directors.
(ii) Upon the closing of the Common Equity Transactions, if
any, the Board of Directors shall be composed of a total of no more than seven
(7) individuals, elected as follows:
(A) one (1) individual that may be designated by ASC
(so long as ASC holds at least fifty percent (50%) of the
outstanding shares of Preferred Stock);
(B) in the event that at any time, so long as ASC has
the right to designate a director, ASC does not have an
individual serving as a member of the Board of Directors, ASC
shall have the right to appoint one (1) individual to serve as
an observer to the Board of Directors, who shall be entitled
to attend all meetings of the Board of Directors and who shall
receive all informational materials and communications made
available to the Board of Directors;
(C) three (3) individuals designated by Highstar,
which shall include an individual to serve as the Chairman;
and
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(D) in the event that any Other Investor individually
purchases shares of Common Stock in Common Equity Transactions
representing twenty-five percent (25%) or more of the
outstanding shares of Common Stock, any such Other Investor
shall have the right to representation on the Board as
determined by mutual agreement between the Company, Highstar
and such Other Investor.
(iii) Any director elected pursuant to Section 1(b) may be
removed before the expiration of his term of office, with or without cause,
and any vacancy caused by the death, incapacity, resignation, removal, or
other termination of service of any director, may be filled, by (and only by)
the Common Shareholder or ASC, as the case may be, originally designating such
vacating director, provided, that, if a director elected pursuant to Section
1(b) is convicted of a felony or other crime of moral turpitude ("Special
Cause"), such director may be removed by an affirmative vote of the majority of
the Board. If a director is removed for Special Cause, the Shareholder
appointing such director shall have the right to appoint his or her replacement.
Each Shareholder agrees to vote any and all shares of the Company's Common
Stock held by it from time to time in order to comply with this Section 1(b).
(iv) All actions to be taken by the Board of Directors
concerning any matter regarding the Management Services Agreement shall exclude
any members of the Board of Directors designated by the Manager (as defined in
the Management Services Agreement) or any of its Affiliates, provided, that
any such members shall be included for purposes of determining whether a
quorum of directors is present to take action at any meeting with respect
thereto.
(v) The Shareholders agree that they shall cause their
designated directors to cause the Company not to appoint an independent auditor
that has been retained by the manager under the Management Services Agreement
to provide audit services at any time during the three years prior to the date
of this Agreement, unless approved by the directors appointed by Highstar
pursuant to Section 1(b).
2. Restrictions on Transfer of Securities.
(a) General. No Shareholder shall make any Transfer of equity
securities of the Company, or enter into, consent to, or vote in favor of any
transaction that would result in any Transfer of equity securities of the
Company by such Shareholder, unless all the provisions of this Agreement that
are applicable to such Transfer and/or such Shareholder have been complied with
by the parties to the Transfer. From and after the date of this Agreement until
July 21, 2003 (the "Restricted Period"), no Shareholder shall Transfer any
equity securities of the Company; except that any Shareholder may Transfer
equity securities of the Company to any Permitted Transferee, if prior to such
Transfer to such Permitted Transferee, such Permitted Transferee agrees in
writing by delivering an Instrument of Accession to the Company to be bound by
all of the terms of this Agreement that are applicable to such appropriate
Shareholder (any such transfer a "Permitted Transfer"). Following the expiration
of the Restricted Period, but subject to the other provisions of this Agreement
and the Amended Charter, a Shareholder may Transfer equity securities of the
Company, if prior to such Transfer, the transferee agrees in writing by
delivering an Instrument of Accession to the Company to be bound by all of the
terms of this Agreement that are applicable to such appropriate Shareholder.
Notwithstanding anything to the
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contrary contained herein, Highstar may complete its sale of Common Stock in
Common Equity Transactions irrespective of the restrictions on transfer
contained in this Section 2, provided, that, Highstar shall own at least fifty
percent (50%) of the economic interest in, or the voting power, of the Common
Stock, after such Common Equity Transactions (excluding for purposes of
calculating Highstar's ownership of the Common Stock, Common Stock issued upon
exercise of the Warrant).
(b) Prohibited Transfers Void. Any attempted Transfer in violation of
the terms of this Agreement shall be ineffective to vest in any purported
transferee any right, title, or interest in or to the securities purported to be
Transferred, and the Company shall not recognize any such purported transferee
as the holder or owner of such securities for any purpose, including without
limitation for purposes of exercising voting rights or rights to receive
dividends or other distributions in respect of such securities.
3. Right of First Offer and Certain Other Rights.
(a) Transfer Notice. At any time following the Restricted Period, a
Shareholder (the "Initiating Shareholder") may give notice (the "Transfer
Notice") to the Company and each other Shareholder (each, a "Remaining
Shareholder" and collectively the "Remaining Shareholders"), in accordance with
Section 12(b) hereof, setting forth (i) that such Initiating Shareholder wishes
to Transfer shares of Common Stock held by such Shareholder to a third party
that is not an Affiliate of the Initiating Shareholder; and (ii) the number of
shares of Common Stock (including for the purposes of this Section 3, the
Warrant Shares) proposed to be Transferred by such Initiating Shareholder (the
"Offered Securities") and the material terms and conditions, including price per
share, of such transfer.
(b) Company and Shareholders Options and Rights. Upon the giving of any
Transfer Notice, subject to all of the provisions of this Section 3, each
Remaining Shareholder will have certain options, rights and obligations as
follows.
(i) Right of First Offer. The Remaining Shareholders,
individually or collectively, will have the option (the "Right of First Offer"),
but not the obligation, to submit a bona fide written firm offer (an "Offer")
in writing to the Initiating Shareholder to purchase all but not less than all
of the Offered Securities on a pro-rata basis based on the Remaining
Shareholders' ownership of the Common Stock (on a fully-diluted basis). In the
event that any Remaining Shareholders elect to purchase less than their pro
rata share of the Offered Securities, the other Remaining Shareholders may
purchase their pro rata portion, if there is more than one such Remaining
Shareholder, or all, if there are no other such Remaining Shareholders, of any
Offered Securities any Remaining Shareholder has elected not to purchase. The
Offer must be submitted within thirty (30) days of the date the Transfer Notice
is deemed effective in accordance with Section 12(b) by such Remaining
Shareholder. Failure by the Remaining Shareholders to submit an Offer within
such time period will be deemed an election not to exercise their option to
submit an Offer. Within ten (10) days after receipt of an Offer, the Initiating
Shareholder shall deliver written notice to the Remaining Shareholders
indicating whether such Initiating Shareholder shall accept or reject such
Offer. If the Initiating
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Shareholder accepts an Offer, the closing of the purchase and sale of the
Offered Securities to the Remaining Shareholders will take place as soon as is
reasonably practicable thereafter at such date, time, and place as the
Initiating Shareholder and the Remaining Shareholders may reasonably determine.
If the Remaining Shareholders do not elect to make an Offer, or if the
Initiating Shareholder rejects the Offer, the Initiating Shareholder will
thereafter be free, subject to the Co-Sale Rights discussed below, for a period
of one hundred eighty (180) days after expiration of the thirty (30) day period
referred to above, to consummate a Transfer to an unaffiliated third party (a
"Third Party Sale"), at a per share price in excess of the price contained in
the Offer, if any; provided, that, the Initiating Shareholder provides prior
written notice (a "Sale Notice") of such Third Party Sale to the Remaining
Shareholders, which Sale Notice shall contain a description of the material
terms of such Third Party Sale; provided, further, that, prior to completing
any Third Party Sale, such transferee(s) first execute(s) and deliver(s) to the
Company a written agreement to be bound by all of the provisions of this
Agreement applicable to the Initiating Shareholder and naming the Shareholders
as intended third-party beneficiaries of such agreement. If a Third Party Sale
is not consummated within such 180-day period, the Initiating Shareholder will
not Transfer any of the Offered Securities as have not been purchased within
such period without again complying with all of the provisions of this
Section 3. A Third Party Sale that constitutes a Change of Control shall not
be prohibited so long as the Company otherwise complies with Article 4, Part A,
Section 3 of the Amended Charter.
(ii) Drag Along Rights. If the Remaining Shareholders elect
not to exercise their Right of First Offer under Section 3(b)(i), and the
Initiating Shareholder is a holder of at least twenty-five percent (25%) of the
outstanding Common Stock and further, that subsequently, such Initiating
Shareholder negotiates a Third Party Sale at a price not less than the price
set forth in the Offer, the Remaining Shareholders may be required to Transfer
all (but not less than all) of their Common Stock (including the Warrant and/or
Warrant Shares) then owned by them in such Third Party Sale to the proposed
transferee (the "Drag Along Right"), such to effect a sale of all of the
outstanding Common Stock. Each Remaining Shareholder will receive from the
proposed transferee, the same consideration to be received by the Initiating
Shareholder for its Common Stock (including the Warrant and/or Warrant Shares),
in such Third Party Sale. To exercise the Drag Along Right, the Initiating
Shareholder shall first give to the Company and to each Remaining Shareholder
a written notice (a "Drag Along Notice") containing (a) the name and address of
the proposed transferee, and (b) the proposed purchase price, terms of payment
and other material terms and conditions of the Third Party Sale. Each Remaining
Shareholder shall thereafter be obligated to sell to the proposed transferee its
shares of Common Stock subject to such Drag Along Notice, such Remaining
Shareholder a "Drag Along Shareholder", provided, that, the sale is consummated
within ninety (90) days of delivery of the Drag Along Notice, provided, further,
that (i) any instruments of conveyance and transfer for such sale shall not
include any representations and warranties of such Drag Along Shareholder
except such representations and warranties as are ordinarily given by a seller
of securities with respect to such seller's authority to sell, enforceability
of agreements against such seller, such seller's good title in such securities
and good title in such securities to be acquired at the closing of such sale
and (ii) that all representations and warranties, covenants, indemnities and
agreements shall be made by the Initiating Shareholder and each Drag Along
Shareholder thereunder severally and not jointly and that any liability of
the Initiating Shareholder and the Drag Along Shareholder
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thereunder shall be borne by each of them on a pro rata basis determined
according to the number of shares of Common Stock sold by each of them.
If such sale is not consummated within such ninety (90) day period, then each
affected Remaining Shareholder may sell, but shall no longer be obligated to
sell, such Remaining Shareholder's shares of Common Stock pursuant to such
Drag Along Notice.
(iii) Co-Sale Rights. If the Remaining Shareholders elect not
to exercise the Right of First Offer described above or if the Initiating
Shareholder rejects the offer from the Remaining Shareholders, and subsequently,
the Initiating Shareholder delivers a Sale Notice pursuant to Section 3(b)(i),
the Remaining Shareholders shall have the right, but not the obligation (the
"Co-Sale Right"), to participate in the Transfer at the same price and on the
same terms as specified in the Sale Notice. Each Remaining Shareholder shall
have the right to Transfer that number of shares of Common Stock (or if such
number is not an integral number, the next integral number which is greater
than such number) which shall be the product of (i) the aggregate number of
shares of Common Stock to be Transferred in the contemplated sale, times (ii)
the quotient determined by dividing (x) the aggregate number of shares of
Common Stock (including Warrant Shares) on a fully-diluted basis owned by such
Remaining Shareholder by (y) the aggregate number of shares of Common Stock
(including Warrant Shares) of the Company outstanding on a fully diluted basis.
The failure of any Remaining Shareholder to exercise such Co-Sale Rights shall
result in such Remaining Shareholder's exclusion from the sale specified in
the Sale Notice. If any Remaining Shareholder desires to exercise its Co-Sale
Rights, such Remaining Shareholder shall give written notice thereof to the
Initiating Shareholder no later than twenty (20) days after receipt of the
Sale Notice. Each Remaining Shareholder desiring to exercise its Co-Sale
Rights shall promptly take all steps described in the Sale Notice to
effectuate the sale of the shares covered thereby, including without limitation
the furnishing of information customarily provided in connection with such a
sale and the execution of such sales and other transfer documents with such
representations, warranties, agreements, covenants and indemnities as may be
required by the terms of the Sale Notice.
(c) Notwithstanding anything to the contrary contained herein, Highstar
may complete its sale of Common Stock in Common Equity Transactions without
compliance with the provisions of this Section 3; provided, that, Highstar shall
own at least fifty percent (50%) of the economic interest in, or the voting
power of, the Common Stock after such Common Equity Transactions (excluding for
purposes of calculating Highstar's ownership of the Common Stock, Common Stock
issued upon exercise of the Warrant).
4. Pre-Emptive Rights.
(a) Participation Rights. Subject to the exclusions set forth in
Section 4(c) below, and to the provisions of the following sentence of this
Section 4(a), if at any time prior to a Qualified Public Offering, the Company
authorizes the offer, issuance, or sale, or offers, issues or sells to any
person (the "Offeree") any shares of Common Stock, or other securities of the
Company (whether as newly issued shares or other securities or from the
Company's treasury) in an offering not registered under the Securities Act of
1933, as amended (the "Securities Act"), the Company will first offer to sell,
by written notice at least twenty (20) days prior to the proposed
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offer, issuance or sale, to each Shareholder a portion (such Shareholder's
"Portion") of such shares or securities authorized to be offered, issued or
sold, or proposed to be offered, issued or sold equal to the product obtained by
multiplying (i) the number of such shares or securities authorized to be
offered, issued or sold, or proposed to be offered, issued or sold, by (ii) the
quotient obtained by dividing (A) the number of shares of Common Stock
(including Warrant Shares as if the Warrant had been fully exercised) held by
such holder on a fully diluted basis by (B) the sum of the aggregate number of
shares of Common Stock (including Warrant Shares as if the Warrant had been
fully exercised) of the Company outstanding on a fully diluted basis.
(b) Procedure. Each Shareholder will be entitled (but not obligated) to
purchase all or part of such Shareholder's Portion at the same price and on the
same terms as such stock or securities are to be offered to the Offeree. Each
such Shareholder may exercise such purchase rights within twenty (20) days after
receipt of written notice from the Company describing in reasonable detail the
stock or securities to be offered to the Offeree, the purchase price thereof,
the payment terms, and such Shareholder's percentage allotment. If any such
Shareholder fails in whole or in part to exercise the purchase rights hereunder
within such twenty (20) day period (other than by reason of the Company's
failure to comply with the provisions of this Section 4), then the other
Shareholders of Common Stock shall have the right to acquire such Portion (which
right may be exercised by any such Shareholder by indication in such
Shareholder's notice to the Company of its exercise of purchase rights hereunder
such Shareholder's desire to acquire additional securities, or otherwise). If
oversubscribed for, any such Portion not purchased by the Shareholder initially
entitled thereto shall be allocated among the other Shareholders of Common Stock
desiring to acquire such Portion pro rata in proportion to the numbers of shares
of Common Stock held by each such other Shareholder. The Company may sell so
much, and only so much, of any Portion as to which no Shareholder, having been
offered the right to purchase such Portion in accordance with all of the
provisions of this Section 4, has exercised such purchase rights, to the Offeree
at the same price and on the same terms as those offered to such Shareholder,
provided, that, in the event that the whole of such Shareholder's Portion of
such securities is not sold to the Offeree within sixty (60) days following the
lapse of the twenty (20) day exercise period provided to the Shareholder
(subject to an extension of such 60 day period to obtain any necessary
regulatory consents, such extension to be approved by the Company, which
approval shall not unreasonably be withheld), such unsold securities will once
again be subject to the purchase rights hereunder. In the event that shares of
Common Stock are authorized to be issued and sold by the Company for services,
property, or other non-cash consideration, each Shareholder of Common Stock will
be allowed to participate in such issue and sale by substituting cash in the
amount of the Fair Market Value, per share, of such non-cash consideration.
(c) Excluded Transactions. The rights provided in this Section 4 will
not apply to (i) shares of capital stock issued by the Company pursuant to
stock dividends, stock splits, recapitalizations, and similar transactions; (ii)
options, warrants or other rights to purchase or receive capital stock, and any
shares of capital stock issued upon the exercise thereof or upon such a
purchase, in each case to officers, directors, consultants, agents and employees
of the Company pursuant to the Company's equity incentive plans, each as
approved by a majority of the Board of Directors (other than any directors that
also are officers of the Company); (iii) the
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issuance of shares of, or warrants to purchase, Common Stock to strategic
partners or licensors of the Company and approved by the Board of Directors in
an aggregate amount not to exceed five percent (5%) of the outstanding Common
Stock; (iv) other issuances of equity securities of the Company in connection
with any senior debt financing approved by the Board of Directors; and (v)
non-cash consideration issued or paid in connection with the acquisition of
another entity (whether through merger or otherwise), provided, that, such
issuance is otherwise permitted under the terms of the Company's Amended
Charter.
5. Procedures For Involuntary Transfers.
(a) Transfers by Operation of Law. In the event that any Shareholder:
(i) files a voluntary petition under any bankruptcy or insolvency law or a
petition for the appointment of a receiver or makes an assignment for the
benefit of creditors, (ii) is subjected involuntarily to such a petition or
assignment or to an attachment or other legal or equitable interest with respect
to any equity securities of the Company and such involuntary petition or
assignment or attachment is not discharged within ninety (90) days, or (iii) is
subjected to any other possible transfer of any equity securities of the Company
by operation of law, including without limitation an assignment pursuant to a
divorce decree or other similar proceeding, then such Shareholder shall notify
the Company and each other Shareholder of such event and the Company and each
other Shareholder shall have an option to purchase from any receiver,
petitioner, assignee, transferee, or other person obtaining an interest in such
equity securities (unless such person is a Permitted Transferee) (a "Transferee
by Law") all or any portion of such equity securities and all interests therein
as if, and upon the same terms and conditions as if, at the time of such event
such Transferee by Law had given a Transfer Notice in accordance with the
provisions of Section 3 of this Agreement, stating a price equal to the Fair
Market Value of such equity securities (as determined in accordance with Section
5(b) below).
(b) Determination of Fair Market Value. For the purposes of this
Agreement only, the "Fair Market Value" of securities of the Company shall be
determined as follows. The Company and the Transferee by Law (an "Involuntary
Transferee") shall in good faith attempt to agree upon the fair market value of
such securities. "Fair Market Value" shall in all cases be calculated on the
assumption of an arms'-length sale at open market value (taking into account any
discount applicable to a minority interest and/or illiquidity for purposes only
of this Section 5). If such Fair Market Value has not been agreed upon within
thirty (30) days after the date of the deemed Transfer Notice, then within five
(5) days after the end of that thirty (30) day period, the Company, the
Shareholders and the Involuntary Transferee shall in good faith agree upon and
appoint an independent appraiser. Within sixty (60) days after such appointment,
the appraiser shall submit to the Company, the Shareholders and the Involuntary
Transferee a written appraisal of the Fair Market Value, which shall be
conclusive. Each of the Company and the Involuntary Transferee shall be
responsible for one-half of the fees and expenses of such appraiser.
6. Restrictive Legends. For so long as this Agreement remains in
effect, the certificates representing any shares of capital stock or other
securities of the Company held by any Shareholder shall bear restrictive legends
in substantially the following form:
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"The securities represented by this certificate are subject to certain
restrictions with respect to the voting and the transfer of such
securities set forth in a Shareholders Agreement, dated as of January
21, 2003, by and among the issuer of such securities and the registered
holder of this certificate (or such holder's predecessor-in-interest)
and certain others. A copy of such agreement is on file and may be
inspected by the registered holder of this certificate at the principal
executive office of the issuer."
7. Termination of Restrictions. All restrictions on transfer contained
herein, will terminate immediately upon the closing of the first to occur of (i)
a Qualified Public Offering, or (ii) the sale, transfer, or other disposition of
all or substantially all of the Company's assets to one or more persons (other
than any wholly owned subsidiary of the Company) in a single transaction or
series of related transactions, whether effected through a merger,
consolidation, sale of assets or securities. No such termination shall affect
the rights or liabilities of any person in respect of any breach of this
Agreement prior to such termination.
8. Registration Rights.
(a) Definitions. As used in this Section 8:
Commission means the Securities and Exchange Commission.
Holder, for purposes of this Section 8 only, means all holders
to whom any Registrable Securities are transferred in accordance with the
provisions of this Agreement.
Registered and registration refer to a registration effected
by preparing and filing a registration statement in compliance with the
Securities Act and the declaration or ordering by the Commission of
effectiveness of such registration statement.
Registrable Securities means, at any particular time, all
shares of Common Stock, Warrants and/or Warrant Shares originally issued to the
Shareholders and outstanding at such time and which shall not have been
previously sold pursuant to a registration or Rule 144 under the Securities Act.
Underwriters' Maximum Number means for any Piggyback
Registration, or any Demand Registration or other registration which is an
underwritten registration, that number of securities to which such registration
should, in the opinion of the managing underwriters of such registration in
light of marketing factors, be limited.
(b) Demand Registration.
(i) Request for Demand Registration. Upon the later of (x) the
third anniversary of the Common Equity Transaction, or (y) a Qualified Public
Offering:
(A) Subject to the limitations contained in the following
paragraphs of this Section 8(b)(i), Holders holding in an aggregate
more than fifty percent (50%) of the
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outstanding Common Stock (including Warrant Shares), may on two and
only two occasions, give to the Company, pursuant to this clause (A), a
written request for the registration by the Company under the
Securities Act of all or any part of the Registrable Securities held by
the requesting Shareholders (such registration being herein called a
"Demand Registration"). Within ten (10) days after the receipt by the
Company of any such written request, the Company will give written
notice of such registration request to all other Holders of Registrable
Securities.
(B) Subject to the limitations contained in the following
paragraphs of this Section 8(b), after the receipt of such written
request for a Demand Registration, (x) the Company will be obligated
and required to include in such Demand Registration all Registrable
Securities with respect to which the Company shall receive from Holders
of Registrable Securities, within thirty (30) days after the date on
which the Company shall have given to all Holders a written notice of
registration request pursuant to Section 8(b)(i)(A) hereof, the written
requests of such Holders for inclusion in such Demand Registration, and
(y) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. All
written requests made by Holders of Registrable Securities pursuant to
this clause (y) will specify the number of shares of Registrable
Securities to be registered and will also specify the intended method
of disposition thereof. Such method of disposition shall, in any case,
be an underwritten offering if an underwritten offering is requested by
Holders of fifty-one percent (51%) or more of the Registrable
Securities to be included in such Demand Registration.
(ii) Limitations on Demand Registration.
(A) Any registration initiated by Holders of Registrable
Securities as a Demand Registration pursuant to Section 8(b) hereof
shall not count as a Demand Registration for purposes of the limitation
to two Demand Registrations for each Common Shareholder contained in
Section 8(b)(i) unless and until such registration shall have become
effective; provided, that, if within one hundred eighty (180) days
after it has become effective, the offering of Registrable Securities
pursuant to such registration is interfered with by any stop order,
injunction or other order or requirement of the Commission or other
governmental agency or court, then such registration will be deemed not
to have been effected.
(B) Except as otherwise provided in Section 8 of this
Agreement, the Company shall not be obligated or required to effect the
Demand Registration of any Registrable Securities pursuant to Section
8(b) hereof during the period commencing on the date falling sixty (60)
days prior to the Company's estimated date of filing of, and ending on
the date one hundred-eighty (180) days following the effective date of,
any registration statement pertaining to any underwritten offering
initiated by the Company, for the account of the Company; provided,
however, that the Company will use its best efforts in good faith to
cause any such registration statement for its own account to be filed
and to become effective as expeditiously as shall be reasonably
possible.
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(iii) Priority on Demand Registrations. If the managing
underwriters in any Demand Registration shall give written advice to the Company
and the Holders of Registrable Securities to be included in such registration
of an Underwriters' Maximum Number, then the Company will be obligated and
required to include in such registration that number of Registrable Securities
requested by the Holders thereof to be included in such registration which
does not exceed the Underwriters' Maximum Number, and such number of
Registrable Securities shall be allocated pro rata among the Holders of such
Registrable Securities on the basis of the number of Registrable Securities
requested to be included therein by each such Holder.
(iv) Selection of Underwriters. If any Demand Registration or
any registration effected pursuant to this Section 8 relates to an underwritten
offering, or a best efforts underwritten offering, the investment bankers and
managing underwriters in such registration will be selected by the Company,
subject to (i) the approval of Holders of fifty-one percent (51%) or more of
the Registrable Securities to be included in such registration (which approval
will not be unreasonably withheld or delayed) and (ii) the approval of the
Board of Directors of the Company (which approval shall not be unreasonably
withheld or delayed).
(c) Piggyback Registrations.
(i) Rights to Piggyback.
(A) If (and on each occasion that) the Company proposes to
register any of its securities under the Securities Act either for the
Company's own account or for the account of any of its security holders
(each such registration not withdrawn or abandoned prior to the
effective date thereof being herein called a "Piggyback Registration"),
the Company will give written notice to the Shareholders of such
proposal not later than forty-five (45) days prior to the anticipated
filing date of such Piggyback Registration. Within seven (7) days after
the receipt of each such notice, any Shareholder may, give to the
Company, pursuant to this clause (A), a written request for the
inclusion in such Piggyback Registration of all or any part of the
Registrable Securities held by the requesting Shareholder. Within seven
(7) days after the receipt by the Company of any such request, the
Company will give written notice of such request to all other Holders
of Registrable Securities.
(B) Subject to the provisions contained in paragraphs (b) and
(c) of this Section and in the last two sentences of this clause (ii),
(x) the Company will be obligated and required to include in each
Piggyback Registration all Registrable Securities with respect to which
the Company shall receive from Holders of Registrable Securities,
within fifteen (15) days after the date on which the Company shall have
given written notice of such Piggyback Registration to all Holders of
Registrable Securities pursuant to Section 8 hereof, the written
requests of such Holders for inclusion in such Piggyback Registration,
and (y) the Company will use its best efforts in good faith to effect
promptly the registration of all such Registrable Securities. The
Holders of Registrable Securities shall be permitted to withdraw all or
any part of the Registrable Securities of such Holders from any
Piggyback Registration at any time prior to the earlier of (a) the
deposit with the managing underwriters of such Registrable Securities
and the execution of
-12-
custody or similar agreements relating thereto, or (b) the effective
date of such Piggyback Registration. The Company will not be obligated
to include any Registrable Securities in any registration effected
solely to implement an employee benefit plan or a transaction to which
Rule 145 of the Commission is applicable.
(ii) Priority on Primary Registrations. If a Piggyback
Registration is an underwritten primary registration initiated by the Company,
and the managing underwriters shall give written advice to the Company of an
Underwriters' Maximum Number, then the Company will be obligated and required to
include in such registration only a number of Registrable Securities which shall
have been requested by the Holders thereof to be included in such registration
which shall not exceed the excess of the Underwriters' Maximum Number over the
number of shares proposed to be registered on behalf of the Company, such number
to be allocated pro rata among the Holders of such Registrable Securities on the
basis of the number of Registrable Securities requested to be included therein
by each such Holder.
(iii) Priority on Secondary Registrations. If any Piggyback
Registration is an underwritten secondary registration initiated by holders of
the Company's securities, and the managing underwriters shall give written
advice to the Company of an Underwriters' Maximum Number for such registration,
then: (x) the Company will be obligated and required to include in such
registration that number of Registrable Securities which shall have been
requested by the Holders thereof to be included in such registration and which
shall not be more than forty percent (40%) of the Underwriters' Maximum Number,
and such number of Registrable Securities shall be allocated pro rata among the
Holders of such Registrable Securities on the basis of the number of Registrable
Securities requested to be included therein by each such Holder; (y) the holders
initiating such Piggyback Registration shall be entitled to include in such
registration that number of securities which they proposed to offer and sell for
their own account and which does not exceed the difference between the
Underwriters' Maximum Number and the number of Registrable Securities which the
Company shall be required to include in such registration; and (z) if the
Underwriters' Maximum Number exceeds the sum of the number of Registrable
Securities which the Company shall be required to include in such registration
and the number of securities to be included in such registration by holders
initiating such registration, then the Company may include in such registration
that number of securities for its own account which shall not be greater than
such excess.
(iv) Selection of Underwriters. In any Piggyback Registration
effected in connection with an underwritten offering, the Company shall (unless
the Company shall otherwise agree) have the right to select the investment
bankers and managing underwriters in such registration.
(v) S-3 Registration Rights. After the Company has qualified
for the use of Form S-3 under the Securities Act, any Holder shall have the
right at any time to request registrations on Form S-3 or any related
qualifications or compliance with respect to all or part of the Registrable
Securities owned by such Holders. Such request shall be in writing and shall
state the number of shares of Registrable Securities that such Holder wishes to
dispose of and the intended method of disposition of shares.
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(d) Lockup Agreements.
(i) Restrictions on Public Sale by Holders of Registrable
Securities. Upon the request of the Company or the managing underwriters in
connection with an underwritten registration of the Company's securities, each
Holder of Registrable Securities to be included in any such registration will
not, upon receipt of written notice from the Company at least two (2) days prior
to the effective date of such underwritten registration without the prior
written consent of the Company or such underwriters, effect any public sale or
other distribution of any equity securities of the Company, including any sale
pursuant to Rule 144, during the seven (7) days prior to, and during the one
hundred and eighty (180) day period commencing on, the effective date of such
underwritten registration, except in connection with such underwritten
registration; provided, that each officer and director of the Company and each
other person who is also an affiliate of the Company shall enter into similar
agreements and
(ii) Restrictions on Public Sale by Company. The Company
agrees not to effect any public sale or other distribution of its equity
securities (other than pursuant to exercises of Warrants), or any securities
convertible into or exchangeable or exercisable for such equity securities,
during the period commencing on the seventh day prior to, and ending on the
ninetieth day following, the effective date of any underwritten registration,
except in connection with any such underwritten registration.
(e) Registration Procedures. If (and on each occasion that) the Company
shall become obligated to effect any registration of any Registrable Securities
hereunder, the Company will use its best efforts in good faith to effect
promptly the registration of such Registrable Securities and to permit the
public offering and sale of such Registrable Securities in accordance with the
intended method of disposition thereof, and, in connection therewith, the
Company, as expeditiously as shall be reasonably possible, will:
(i) prepare and file with the Commission a registration
statement with respect to such Registrable Securities, and use its commercially
reasonable best efforts in good faith to cause such registration statement to
become and remain effective as provided herein;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus included in such
registration statement as may be necessary or advisable to comply in all
material respects with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement or as may
be necessary to keep such registration statement effective and current, but for
no longer than ninety (90) days subsequent to the effective date of such
registration;
(iii) furnish to each seller of Registrable Securities such
number of copies of such registration statement, each amendment and supplement
thereto (in each case including all exhibits thereto), the prospectus included
in such registration statement (including each preliminary prospectus), and such
other documents as any such seller may reasonably request in order to facilitate
the disposition of the Registrable Securities held by such seller;
-14-
(iv) enter into such customary agreements and take all such
other action in connection therewith as the Holders of fifty-one percent (51%)
or more of the Registrable Securities being registered reasonably request in
order to expedite or facilitate the disposition of such Registrable Securities;
(v) use its commercially reasonable efforts in good faith to
register and qualify the Registrable Securities covered by such registration
statement under such securities or blue sky laws of such jurisdictions as any
seller shall reasonably request and do any and all such other acts and things as
may be reasonably necessary or advisable to enable such seller to consummate the
disposition in such jurisdictions of the Registrable Securities held by such
seller; provided, however, that the Company shall not be required in connection
therewith to qualify to do business or file a general consent to service of
process in any such jurisdiction; and
(vi) furnish to each prospective seller a signed counterpart,
addressed to the prospective sellers, of (x) an opinion of counsel for the
Company, dated the effective date of the registration statement, and (y) a
"comfort" letter signed by the independent public accountants who have certified
the Company's financial statements included in the registration statement,
covering substantially the same matters with respect to the registration
statement (and the prospectus included therein) and (in the case of the
"comfort" letter) with respect to events subsequent to the date of the financial
statements, as are customarily covered (at the time of such registration) in
opinions of issuer's counsel and in "comfort" letters delivered to the
underwriters in underwritten public offerings of securities.
(vii) 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 as a result of which the
prospectus included in such registration statement contains an untrue statement
of a material fact or omits any fact necessary to make the statements therein
not misleading, and, at the request of any such seller, the Company will
promptly prepare (and, when completed, give notice to each seller of Registrable
Securities) 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 fact
necessary to make the statements therein not misleading; provided, that upon
such notification by the Company, each seller of such Registrable Securities
will not offer or sell such Registrable Securities until the Company has
notified such seller that it has prepared a supplement or amendment to such
prospectus and delivered copies of such supplement or amendment to such seller;
(viii) notify counsel for the Holders of Registrable
Securities included in such registration statement and the managing underwriter
or agent, immediately, and confirm the notice in writing (i) when the
registration statement, or any post-effective amendment to the registration
statement, shall have become effective, or any supplement to the prospectus or
any amendment to the prospectus shall have been filed, (ii) of the receipt of
any comments from the Commission, (iii) of any request of the Commission to
amend the registration statement or amend or supplement the prospectus or for
additional information, and (iv) of the issuance by the Commission of any
-15-
stop order suspending the effectiveness of the registration statement or of any
order preventing or suspending the use of any preliminary prospectus, or of the
suspension of the qualification of the registration statement for offering or
sale in any jurisdiction, or of the institution or threatening of any
proceedings for any of such purposes;
(ix) cause all such Registrable Securities to be listed, prior
to the date of the first sale of such Registrable Securities pursuant to such
registration, on each securities exchange on which similar securities issued by
the Company are then listed and, if not so listed, to be listed with the
National Association of Securities Dealers automated quotation system ("NASDAQ")
or other similar system;
(x) provide a transfer agent and registrar for all such
Registrable Securities not later than the effective date of such registration
statement;
(xi) enter into all such customary agreements (including
underwriting agreements in customary form) and take all such other actions as
counsel for the holders of Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or facilitate the
disposition of such Registrable Securities (including, without limitation,
effecting a stock split or a combination of shares);
(xii) make available for inspection on a confidential basis by
any seller, any underwriter participating in any disposition pursuant to such
registration statement, and any attorney, accountant or other agent retained by
any such seller or underwriter (in each case after reasonable prior notice), all
relevant financial and other records, pertinent corporate documents and
properties of the Company, and cause the Company's officers, directors,
employees and independent accountants to supply on a confidential basis all
relevant information reasonably requested by any such seller, underwriter,
attorney, accountant or agent in connection with such registration statement;
(xiii) permit any Holder of Registrable Securities which
Holder, in its sole and exclusive judgment, might be deemed to be an underwriter
or a controlling person of the Company within the meaning of Section 15 of the
Securities Act, to participate in the preparation of such registration or
comparable statement and to permit the insertion therein of material, furnished
to the Company in writing, which in the reasonable judgment of such holder and
its counsel should be included, provided that such material shall be furnished
under such circumstances as shall cause it to be subject to the indemnification
provisions provided pursuant to Section 8(g) hereof;
(xiv) 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
qualification of any Registrable Securities included in such registration
statement for sale in any jurisdiction, use its best efforts promptly to obtain
the withdrawal of such order;
(xv) if requested by the managing underwriter or underwriters
or any Holder Registrable Securities in connection with any sale pursuant to a
registration statement, promptly incorporate in a prospectus supplement or
post-effective amendment such information relating to
-16-
such underwriting as the managing underwriter or underwriters or such holder
reasonably requests to be included therein, and make all required filings of
such prospectus supplement or post-effective amendment as soon as practicable
after being notified of the matters incorporated in such prospectus supplement
or post-effective amendment;
(xvi) cooperate with the Holders of Registrable Securities and
the managing underwriter or underwriters, if any, to facilitate the timely
preparation and delivery of certificates (not bearing any restrictive legends)
representing Registrable Securities to be sold under such registration, and
enable such Registrable Securities to be in such denominations and registered in
such names as the managing underwriter or underwriters, if any, or such Holders
may request; and
(xvii) otherwise comply with all applicable rules and
regulations of the Commission, and make generally available to its security
holders (as contemplated by Section 11(a) under the Securities Act) an earnings
statement satisfying the provisions of Rule 158 under the Securities Act no
later than ninety (90) days after the end of the twelve month period beginning
with the first month of the Company's first fiscal quarter commencing after the
effective date of the registration statement, which statement shall cover said
twelve month period.
(f) Cooperation by Prospective Sellers, Etc.
(i) Each prospective seller of Registrable Securities will
furnish to the Company in writing such information as the Company may reasonably
require from such seller, and otherwise reasonably cooperate with the Company in
connection with any registration statement with respect to such Registrable
Securities.
(ii) The failure of any prospective seller of Registrable
Securities to furnish any information or documents in accordance with any
provision contained in this Section 8 shall not affect the obligations of the
Company under this Section 8 to any remaining sellers who furnish such
information and documents unless in the reasonable opinion of counsel to the
Company or the underwriters, such failure impairs or may impair the viability of
the offering or the legality of the registration statement or the underlying
offering.
(iii) The Holders of Registrable Securities included in any
registration statement 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 such registration statement or
prospectus; but the obligations of the Company with respect to maintaining any
registration statement current and effective shall be extended by a period of
days equal to the period such suspension is in effect.
(iv) At the end of any period during which the Company is
obligated to keep any registration statement current and effective as provided
by Section 8 hereof (and any extensions thereof required by the preceding
paragraph (c) of this Section 8(f)), the Holders of Registrable Securities
included in such registration statement shall discontinue sales of shares
-17-
pursuant to such registration statement upon receipt of notice from the Company
of its intention to remove from registration the shares covered by such
registration statement which remain unsold, and such Holders shall notify the
Company of the number of shares registered which remain unsold promptly after
receipt of such notice from the Company.
(g) Registration Expenses.
(i) All costs and expenses incurred or sustained in connection
with or arising out of each registration pursuant to Sections 8(b) and (c)
hereof, including, without limitation, all registration, filing and NASD fees,
fees and expenses of compliance with securities or Blue Sky laws (including
reasonable fees and disbursements of counsel for the underwriters in connection
with the Blue Sky qualification of Registrable Securities), printing expenses,
messenger, telephone and delivery expenses, fees and disbursements of counsel
for the Company, reasonable fees and disbursements of one counsel representing
any or all of the Holders, fees and disbursements of all independent certified
public accountants (including the expenses relating to the preparation and
delivery of any special audit or "cold comfort" letters required by or incident
to such registration), the reasonable fees and expenses of any special experts
retained by the Company of its own initiative or at the request of the managing
underwriters in connection with such registration, and fees and expenses of all
(if any) other persons retained by the Company (all such costs and expenses
being herein called, collectively, the "Registration Expenses"), will be borne
and paid by the Company; provided, however, that the Company shall not pay nor
otherwise be responsible for fees, disbursements, discounts and commissions of
underwriters, any legal fees or disbursements of more than one counsel for any
of the Holders of Registrable Securities and the Company shall not pay nor
otherwise be responsible for any fees and expenses associated with the
registration of Securities of a Holder of Registrable Securities included in a
Piggyback Registration in a jurisdiction in which the Company would not
otherwise have registered Securities in connection with such Piggyback
Registration. The Company will, in any case, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the expense of any liability insurance, 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 of the Company are then
listed.
(ii) The Company will not bear the cost of nor pay for any
stock transfer taxes imposed in respect of the transfer of any Registrable
Securities to any purchaser thereof by any Holder of Registrable Securities in
connection with any registration of Registrable Securities pursuant to this
Section 8.
(iii) To the extent that Registration Expenses incident to any
registration are, under the terms of this Section 8, not required to be paid by
the Company, each Holder of Registrable Securities included in such registration
will pay all Registration Expenses which are clearly solely attributable to the
registration of such Holder's Registrable Securities so included in such
registration (including without limitation underwriting discounts and
commissions), and all other Registration Expenses not so attributable to one
Holder will be borne and paid by all Holders of Registrable Securities included
in such registration in proportion to the number of Registrable Securities so
included by each such Holder.
-18-
(h) Indemnification.
(i) Indemnification by Company. The Company will indemnify
each Holder joining in a registration and each underwriter of the securities so
registered, the officers, directors and partners of each such person and each
person who controls any thereof (within the meaning of the Securities Act) and
their respective successors in title and assigns against any and 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 any material
fact contained in any prospectus, offering circular or other document incident
to any registration, qualification or compliance (or in any related registration
statement, notification or the like) or any omission (or alleged omission) to
state therein any material fact required to be stated therein or necessary to
make the statements therein not misleading, or any violation by the Company of
any rule or regulation promulgated under the Securities Act applicable to the
Company and relating to any action or inaction required of the Company in
connection with any such registration, qualification or compliance, and the
Company will reimburse each such Holder, underwriter, officer, director, partner
and controlling person for any legal and any other expenses reasonably incurred
in connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that the Company will not be liable in
any such case to the extent that any such claim, loss, damage or liability
arises out of or is based on any actual or alleged untrue statement or omission
which (i) was based upon information furnished in writing to the Company by any
such Holder, underwriter, officer, director, partner or controlling person, or
(ii) related to a preliminary prospectus and was corrected in the final
prospectus if any such Holder, underwriter, officer, director, partner or
controlling person failed to deliver a copy of the final prospectus to the
applicable purchaser(s).
(ii) Indemnification by Each Holder. Each Holder joining in a
registration will indemnify each other holder, each underwriter of the
securities so registered, the Company and its officers and directors and each
person, if any, who controls any thereof (within the meaning of the Securities
Act) and their respective successors in title and assigns against any and 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 any
material fact relating to such Holder contained in any prospectus, offering
circular or other document incident to any registration, qualification or
compliance (or in any related registration statement, notification or the like)
or any omission (or alleged omission) to state therein any material fact
relating to such Holder required to be stated therein or necessary to make the
statements therein not misleading, and such Holder will reimburse each
underwriter, the Company and each other person indemnified pursuant to this
paragraph (b) for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action; provided, however, that this paragraph (b) shall apply only
if (and only to the extent that) such statement or omission relating to such
Holder was made in reliance upon and in conformity with written information
furnished to such underwriter or the Company in an instrument duly executed by
such Holder and stated to be specifically for use in such prospectus, offering
circular or other document (or related registration statement, notification or
the like) or any amendment or supplement thereto; and provided, further, that
each Holder's liability hereunder with respect to any particular registration
-19-
shall be limited to an amount equal to the net proceeds received by such Holder
from the Registrable Securities sold by such Holder in such registration.
(iii) Indemnification Proceedings. Each party entitled to
indemnification pursuant to this Section 8(h) (the "indemnified party") shall
give notice to the party required to provide indemnification pursuant to this
Section 8(h) (the "indemnifying party") promptly after such indemnified party
acquires actual knowledge of any claim as to which indemnity may be sought, and
shall permit the indemnifying party (at its expense) to assume the defense of
any 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 reasonably acceptable to the indemnified party, and the indemnified
party may participate in such defense at such party's expense; and provided,
further, that notwithstanding the election of the indemnifying party to assume
the defense of any such claim or litigation, the indemnified party shall have
the right to employ separate counsel and to participate in the defense of such
claim or litigation and the indemnifying party shall bear the reasonable fees,
costs and expenses of such separate counsel, if (x) there may be legal defenses
available to such indemnified party which are different from or additional to
those available to the indemnified party, or both are defendants in an action
and a conflict of interest would prevent the same counsel from representing
both; (y) the indemnifying party shall not have employed counsel to represent
the indemnified party reasonably satisfactory to such indemnified party within a
reasonable time after notice of any such claim or litigation; or (z) the
indemnifying party shall authorize such indemnified party to employ such
separate counsel at its expense; and provided, further, that the failure by any
indemnified party to give notice as provided in this paragraph (iii) shall not
relieve the indemnifying party of its obligations under this Section 8(h) except
to the extent that the failure results in a failure of actual notice to the
indemnifying party and such indemnifying party is damaged solely as a result of
the failure to give notice. 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. The reimbursement required by this Section 8(h) shall be
made by periodic payments during the course of the investigation or defense, as
and when bills are received or expenses incurred.
(iv) Contribution in Lieu of Indemnification. If the
indemnification provided for in Section 8(h) hereof is unavailable to a party
that would have been an indemnified party under such section in respect of any
losses, claims, damages or liabilities (or actions in respect thereof) referred
to therein, then each party that would have been an indemnifying party
thereunder shall, in lieu of indemnifying such indemnified party, contribute to
the amount paid or payable by such indemnified party as a result of such losses,
claims, damages or liabilities (or actions in respect thereof) in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and such indemnified party on the other in connection with
the statements or omissions which resulted in such losses, claims, damages or
liabilities (or actions in respect thereof). The relative fault 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
-20-
or such indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such statement or omission.
The Company agrees that it would not be just and equitable if contribution
pursuant to this Section 8(h) were determined by pro rata allocation or by any
other method of allocation which does not take account of the equitable
considerations referred to above in this Section 8(h). The amount paid or
payable by an indemnified party as a result of the losses, claims, damages or
liabilities (or actions in respect thereof) referred to above in this Section
8(h) shall include any legal or other expenses reasonably incurred by such
indemnified party in connection with investigating or defending any such action
or claim. 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.
(i) Rule 144 Requirements. From time to time after the earlier to occur
of (a) the ninetieth day following the date on which there shall first become
effective a registration statement filed by the Company under the Securities
Act, or (b) the date on which the Company shall register a class of securities
under Section 12 of the Exchange Act, the Company will make every effort in good
faith to make publicly available and available to the Holders of Registrable
Securities, pursuant to Rule 144 of the Commission under the Securities Act,
such information as shall be necessary to enable the Holders of Registrable
Securities to make sales of Registrable Securities pursuant to that Rule. The
Company will furnish to any Holder of Registrable Securities, upon request made
by such Holder at any time after the undertaking of the Company in the preceding
sentence shall have first become effective, a written statement signed by the
Company, addressed to such Holder, describing briefly the action the Company has
taken or proposes to take to comply with the current public information
requirements of Rule 144. The Company will, at the request of any Holder of
Registrable Securities, upon receipt from such Holder of a certificate
certifying (x) that such Holder has held such Registrable Securities for a
period of not less than two (2) consecutive years, (y) that such Holder has not
been an affiliate (as defined in Rule 144) of the Company for more than the
ninety (90) preceding days, and (z) as to such other matters as may be
appropriate in accordance with such Rule (or any similar successor rule), remove
from the stock certificates representing such Registrable Securities that
portion of any restrictive legend which relates to the registration provisions
of the Securities Act.
(j) Participation in Underwritten Registrations. No person may
participate in any underwritten registration pursuant to this Section 8 unless
such person (x) agrees to sell such person's securities on the basis provided in
any underwriting arrangements approved by the persons entitled, under the
provisions hereof, to approve such arrangements, and (y) completes and executes
all questionnaires, powers of attorney, indemnities, underwriting agreements and
other documents reasonably required by the terms of such underwriting
arrangements.
(k) Miscellaneous.
(i) No Inconsistent Agreements. The Company will not, at any
time after the date hereof, enter into any agreement or contract (whether
written or oral) with respect to any of its securities which provides
registration rights prior or superior to the registration rights granted by the
Company to Holders of Registrable Securities hereunder.
-21-
(ii) Term. The agreements of the Company contained in this
Section 8 shall continue in full force and effect so long as any Shareholder
holds any Registrable Securities.
9. Covenants. The Company covenants that it will comply and will cause
its subsidiaries to comply with the following provisions:
(a) Annual Statements. As soon as available and in any event within
ninety (90) days after the end of each Fiscal Year of the Company, the Company
will deliver to each holder of twenty-five percent (25%) or more of the
outstanding shares of Common Stock (a "Special Holder"), a copy of the audited
consolidated balance sheet of the Company and its consolidated Subsidiaries as
at the end of such year and the related audited consolidated statements of
income and of cash flows for such year, setting forth in each case in
comparative form the figures for the previous year, reported on without a "going
concern" or like qualification or exception, or qualification arising out of the
scope of the audit, by PriceWaterhouseCoopers or other independent certified
public accountants of nationally recognized standing.
(b) Quarterly Statements. As soon as available, but in any event not
later than 45 days after the end of each Fiscal Quarter (other than the last
Fiscal Quarter of a Fiscal Year) of the Company, the Company will deliver to
each Special Holder the unaudited consolidated balance sheet of the Company and
its consolidated Subsidiaries as at the end of such Fiscal Quarter and the
related unaudited consolidated statements of income and of cash flows for such
Fiscal Quarter and the portion of the Fiscal Year through the end of such Fiscal
Quarter, setting forth in each case in comparative form the figures for the
previous Fiscal Year, certified by a Responsible Officer as being fairly stated
in all material respects (subject to normal year-end audit adjustments).
All financial statements required to be delivered pursuant to paragraphs (a) and
(b) above shall be complete and correct in all material respects and shall be
prepared in reasonable detail and in accordance with GAAP applied consistently
throughout the periods reflected therein and with prior periods (except as
approved by such accountants or officer, as the case may be, and disclosed
therein).
(c) Other Financial Information. The Company will deliver to each
Special Holder at the time such information is provided to the Board of
Directors or as soon as reasonably practicable thereafter, an annual budget and
projected monthly balance sheets, statements of income and statements of cash
flows for such fiscal year, and as soon as reasonably practicable after
preparation thereof complete and correct copies of all monthly and quarterly (if
any) or annual budgetary analyses or forecasts of the Company in the form
customarily prepared by management for its own internal use or the use of the
board of directors of the Company. The Company will provide to each Special
Holder any other financial and business information as may be reasonably
requested by such Special Holder.
(d) Notice of Litigation, Defaults, Etc. The Company will promptly give
notice to each Special Holder of any litigation or any administrative proceeding
to which the Company or
-22-
any of its subsidiaries may hereafter become a party which may result in a
material adverse effect on the assets, liabilities, business, operations or
condition of the Company. Promptly upon any officer of the Company obtaining
knowledge of any material default or event of default or other material event
under any material agreement to which the Company or a subsidiary is a party,
the Company will furnish a notice specifying the nature and period of existence
thereof.
(e) Confidential Information. The information rights set forth in this
Section 9 shall be exercised solely in furtherance of the proper interests of
the Special Holder as an investor in the Company, and the Special Holder
exercising its rights of inspection hereunder, and its representatives shall
maintain the confidentiality of all financial and other confidential information
of the Company acquired by them in exercising such rights.
(f) Termination. The obligations of the Company set forth in this
Section 9 shall terminate in accordance with the termination of the restrictions
on transfer pursuant to Section 7 hereof.
10. Agreements of the Common Shareholders. Each of the Common
Shareholders agrees that:
(a) Such Common Shareholder is not a "holding company" or a "subsidiary
company" or an "affiliate" of a "holding company" as defined in the Public
Utility Holding Company Act of 1935, as amended (the "Holding Company Act").
(b) Such Common Shareholder shall not take or omit to take any action
which action or omission could cause the Company or any of its Subsidiaries
(including Southern Star Central Gas Pipeline, Inc.) to become a "subsidiary
company" or an "affiliate" of a "holding company" as defined in the Holding
Company Act or otherwise subject to any regulation thereunder.
11. Definitions. Unless the context otherwise requires, the terms
defined in this Section 11 shall have, for all purposes of this Agreement, the
meanings herein specified (with terms defined in the singular having comparable
meanings when used in the plural).
"Affiliate," except as otherwise defined in this Agreement,
means any person directly or indirectly controlling or controlled by or under
common control with the Company or any Subsidiary, provided, that, for purposes
of this definition, "control" (including, with correlative meanings, the terms
"controlled by" and "under common control with"), as used with respect to any
person, shall mean the possession, directly or indirectly, of the power to
direct or cause the direction of the management and policies of such person,
whether through the ownership of voting securities or by contract or otherwise.
"Amended Charter" means the Amended and Restated Certificate
of Incorporation of the Company, as amended from time to time.
"ASC" has the meaning set forth in the recitals hereto.
-23-
"ASC Transaction" has the meaning set forth in the recitals
hereto.
"Board of Directors" has the meaning set forth in Section 1(a)
hereof.
"Chairman" has the meaning set forth in Section 1(b)(i)(B)
hereof.
"Commission" means the Securities and Exchange Commission.
"Common Equity Transactions" has the meaning set forth in the
recitals hereto.
"Common Stock" means the common stock, $.01 par value per
share, of the Company.
"Common Shareholder" has the meaning set forth in the
introductory paragraphs.
"Company" means Southern Star Central Corp.
"Co-Sale Right" has the meaning set forth in Section 3(b)(iii)
hereof.
"Demand Registration" has the meaning set forth in Section
8(b)(i)(A) hereof.
"Dispute" has the meaning set forth in Section 12(i) hereof.
"Drag Along Rights" has the meaning set forth in the Section
3(b)(ii) hereof.
"Drag Along Notice" has the meaning set forth in Section
3(b)(ii) hereof.
"Economic Interest" shall mean the right to receive dividends
and other distributions with respect to the ownership of capital stock of the
Company.
"Fair Market Value" has the meaning set forth in Section 5(b)
hereof.
"Fiscal Quarter" means a calendar quarter ending on the last
day of March, June, September or December and beginning on the day following the
end of the immediately preceding calendar quarter.
"Fiscal Year" means any period of twelve consecutive calendar
months ending on December 31; references to a Fiscal Year with a number
corresponding to any calendar year (e.g. the "2002 Fiscal Year") refers to the
Fiscal Year ending on December 31 of such calendar year.
"GAAP" means generally accepted accounting principles in the
United States as in effect from time to time.
"Highstar" has the meaning set forth in the introductory
paragraph.
-24-
"Initiating Shareholder" has the meaning set forth in Section
3(a) hereof.
"Involuntary Transferee" has the meaning set forth in Section
5(b) hereof.
"Management Services Agreement" means that certain Management
Services Agreement, dated November 20, 2002, by and between Southern Union
Company (or one of its affiliates) and the Company.
"Offer" has the meaning set forth in Section 3(b)(i) hereof.
"Offered Securities" has the meaning set forth in Section 3(a)
hereof.
"Offeree" has the meaning set forth in Section 4(a) hereof.
"Other Investors" has the meaning set forth in the recitals
hereto.
"Permitted Transfer" has the meaning set forth in Section 2(a)
hereof.
"Permitted Transferee(s)" means a transfer by a Shareholder to
an entity which controls, is controlled by, or is under common control with,
such Shareholder.
"Person" means a corporation, an association, a partnership, a
limited liability company, an organization, a business, a business trust, a
trust, an individual, a government or political subdivision thereof or a
governmental agency.
"Portion" has the meaning set forth in Section 4(a) hereof.
"Preferred Stock" means the Series A Preferred Stock, $.01 par
value per share, of the Company.
"Purchase Agreement" has the meaning set forth in the
introductory paragraphs.
"Responsible Officer" means the chief executive officer,
president or chief financial officer of the Company, but in any event, with
respect to financial matters, the chief financial officer of the Company.
"Restricted Period" has the meaning set forth in Section 2(a)
hereof.
"Qualified Public Offering" means the closing of the Company's
underwritten public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of shares of Common Stock
at a price per share of not less than $1.00 (subject to adjustment for any stock
splits, stock dividends, reclassifications or the like) in which not less than
$100,000,000 of gross proceeds from such public offering are received by the
Company for the account of the Company.
-25-
"Remaining Shareholder" has the meaning set forth in Section
3(a) hereof.
"Right of First Offer" has the meaning set forth in Section
3(b)(i) hereof.
"Rules" has the meaning set forth in Section 12(i)(2).
"Sale Notice" has the meaning set forth in Section 3(b)(i)
hereof.
"Securities Act" has the meaning set forth in Section 4(a)
hereof.
"Shareholder" has the meaning set forth in the introductory
paragraphs hereto.
"Special Cause" has the meaning set forth in Section 1(b)(iii)
hereof.
"Special Holder" has the meaning set forth in Section 9
hereof.
"Subsidiary" means with respect to any person, (i) any
corporation, association or other business entity of which more than 50% of the
total voting power of shares of capital stock, entitled (without regard to the
occurrence of any contingency) to vote in the election of directors, managers or
trustees thereof is at the time owned or controlled, directly or indirectly, by
such person or one or more of the other Subsidiaries of that person (or a
combination thereof) and (ii) any partnership (a) the sole general partner or
the managing general partner of which is such person or a Subsidiary of such
person or (b) the only general partners of which are such person or one or more
Subsidiaries of such person (or any combination thereof).
"Third Party Sale" has the meaning set forth in Section
3(b)(i) hereof.
"Transfer" means any sale, pledge, assignment, encumbrance,
gift, or other disposition or transfer of shares of Common Stock or other equity
securities of the Company (as used in this Agreement, the terms "equity
security" and "equity securities" include without limitation options, warrants,
and other rights to acquire shares of the Company's capital stock, and
securities and other instruments that are convertible into or exchangeable for
shares of the Company's capital stock, and/or any legal or beneficial interest
in any of the foregoing), or any legal or beneficial interest therein, including
any tender or transfer in connection with any merger, recapitalization,
reclassification, or tender or exchange offer (for all or any part of the
Company's equity securities), whether or not the person making any such transfer
votes for or against any transaction involving any such Transfer.
"Transferee by Law" has the meaning set forth in Section 5(a)
hereof.
"Transfer Notice" has the meaning set forth in Section 3(a)
hereof.
"Warrant Shareholder" has the meaning set forth in the
introductory paragraphs.
"Warrant" has the meaning set forth in the introductory
paragraphs.
-26-
"Warrant Shares" means the shares of Common Stock issuable
pursuant to the exercise of the Warrant.
12. Miscellaneous Provisions.
(a) Amendments, Consents, Waivers, Etc.
(i) This Agreement or any provision hereof may be amended or
terminated by the written agreement of the Company and each of the Shareholders.
(ii) No course of dealing between or among any of the parties to
this Agreement shall operate as a waiver of any rights under this Agreement. No
waiver of any breach or default hereunder shall be valid unless in a writing
signed by the waiving party. No failure or other delay by any person in
exercising any right, power, or privilege hereunder shall be or operate as a
waiver thereof, nor shall any single or partial exercise thereof preclude any
other or further exercise thereof or the exercise of any other right, power, or
privilege.
(b) Notices. All notices, requests, payments, instructions or other
documents to be given hereunder shall be in writing or by written
telecommunication, and shall be deemed to have been duly given, if (i) delivered
personally (effective upon delivery), (ii) by certified mail, return receipt
requested, postage prepaid (effective five (5) business days after dispatch),
(iii) sent by a reputable, established courier service that guarantees overnight
delivery (effective the next business day), or (iv) dispatched by telecopier if
the telecopy is received in complete, readable form (effective upon dispatch),
at the appropriate and applicable address appearing in the books and records of
the Company.
(c) Counterparts. This Agreement may be executed by the parties in
separate counterparts, each of which when so executed and delivered shall be an
original, but all of which together shall constitute one and the same
instrument.
(d) Captions. The captions of sections or subsections of this Agreement
are for reference only and shall not affect the interpretation or construction
of this Agreement.
(e) Binding Effect and Benefits; Assignment. This Agreement shall bind
and inure to the benefit of the parties hereto and their respective successors
and permitted assigns. Except as otherwise provided in this Agreement, the
provisions of this Agreement that are for the Shareholder's benefit (as the
holders of any shares of Common Stock and Warrant) shall inure to the benefit of
all permitted transferees of such shares of Common Stock (including Warrant
Shares). Except as specifically permitted hereby, no party hereto may assign its
rights or delegate its obligations under this Agreement without the prior
written consent of the Company and the Shareholders, and any attempted
assignment or delegation without such consent shall be void and of no effect.
Nothing in this Agreement shall confer any rights or remedies on any person
other than the parties hereto and their respective successors and permitted
assigns.
-27-
(f) Construction. The language used in this Agreement is the language
chosen by the parties to express their mutual intent, and no rule of strict
construction shall be applied against any party.
(g) Entire Agreement. This Agreement contains the entire understanding
and agreement among the parties with respect to the matters contained herein, or
between or among any of them, and replaces and supersedes any prior
understandings or agreements between or among any of them, with respect to the
subject matter hereof.
(h) Severability. No invalidity or unenforceability of any section of
this Agreement or any portion thereof shall affect the validity or
enforceability of any other section or the remainder of such section.
(i) Dispute Resolution. Any dispute, controversy or claim among the
parties relating to, arising out of or in connection with this Agreement,
including claims in tort, whether arising before or after the termination of
this Agreement (any such dispute, controversy or claim being referred to as a
"Dispute") shall be settled without litigation and only by use of the following
alternative dispute resolution procedure:
(1) At the written request of a party, each party shall
appoint a knowledgeable, responsible representative to meet and negotiate in
good faith to resolve any Dispute. The discussions shall be left to the
discretion of the representatives. Upon agreement, the representatives may
utilize other alternative dispute resolution procedures such as mediation to
assist in the negotiations. Discussions and correspondence among the parties'
representatives for purposes of these negotiations shall be treated as
confidential information developed for the purposes of settlement, exempt from
discovery and production, and without the concurrence of all parties shall not
be admissible in the arbitration described below, or in any ancillary or other
legal proceedings. Documents identified in or provided with such communications,
which are not prepared for purposes of the negotiations, are not so exempted and
may, if otherwise admissible, be admitted in the arbitration.
(2) If negotiations between the representatives of the parties
do not resolve the Dispute within sixty (60) days of the initial written
request, the Dispute shall be submitted to binding arbitration by a single
arbitrator pursuant to the Commercial Arbitration Rules, as then amended and in
effect, of the American Arbitration Association (the "Rules"). Any party may
demand such arbitration in accordance with the procedures set out in the Rules.
The arbitration shall take place in New York, New York. The arbitration hearing
shall be commenced within six (6) months from the date on which an arbitrator is
appointed and continue until such time as an award has been determined,
provided, however, that the arbitrator may extend the arbitration beyond such
period for good cause. The arbitrator shall have the power to and will instruct
each party to produce evidence through discovery (i) that is reasonably
requested by the other party to the arbitration in order to prepare and
substantiate its case, and (ii) the production of which will not materially
delay the expeditious resolution of the dispute being arbitrated; each party
agrees to be bound by any such discovery order. The arbitrator shall conduct the
proceedings, including discovery, briefing and hearings, in a fair, efficient
and expedient manner. No party shall be
-28-
eligible to receive, and the arbitrator shall not have the authority to award,
exemplary or punitive damages unless a statute requires that compensatory
damages be increased in a specified manner. The arbitrator shall rule on the
Dispute by issuing a written and reasoned opinion within thirty (30) days after
the close of hearings. The arbitrator's decision shall be binding and final.
Judgment upon the award rendered by the arbitrator may be entered in any court
having jurisdiction.
(3) Each party will bear its own costs and expenses in
submitting and presenting its position with respect to any Dispute to the
arbitrator; provided, however, that if the arbitrator determines that the
position taken in the Dispute by the nonprevailing party taken as a whole is
unreasonable, the arbitrator may order the nonprevailing party to bear such fees
and expenses, and reimburse the prevailing party for all or such portion of its
reasonable costs and expenses in submitting and presenting its position, as the
arbitrator shall reasonably determine to be fair under the circumstances. Unless
the arbitrator orders otherwise pursuant to the foregoing sentence, each party
to the arbitration shall share equally the fees and expenses of the arbitrator
and the American Arbitration Association.
(4) Notwithstanding any other provision of this Agreement, (i)
either party may commence an action to compel compliance with this section, and
(ii) if any party, as part of a Dispute, seeks preliminary injunctive relief or
any other preliminary equitable remedy, then such party shall be permitted to
seek such preliminary injunctive or preliminary equitable relief in any federal
or state court or competent jurisdiction before, during or after the pendency of
a mediation or arbitration proceeding under this section.
(5) In no other event shall either party be liable for
consequential, incidental, punitive, exemplary, or indirect damages, in tort,
contract or otherwise.
(6) Pending final resolution of the dispute, the parties
hereto shall proceed with the performance of their obligations under this
Agreement.
(j) Governing Law. This Agreement shall be governed by and interpreted
and construed in accordance with the internal laws of the State of New York
(without reference to choice of law).
(k) Further Assurances. The parties shall execute and deliver such
further instruments and perform such further acts as may reasonably be required
to carry out the purposes of this Agreement.
IN WITNESS WHEREOF, each of the parties has executed this Shareholders
Agreement as an agreement under seal on and as of the date first above written.
SOUTHERN STAR CENTRAL CORP.
By: ____________________________________
Name: Xxxxxxxxxxx X. Xxx
Title: President
AIG HIGHSTAR CAPITAL, L.P.
By: AIG Highstar Capital GP, L.P.
Its General Partner
By: AIG Highstar Capital Management, LLC, Its
General Partner
By: AIG Global Investment Corp., Its Sole Member
By: __________________________________
Name: Xxxxxxxxxxx X. Xxx
Title: Managing Director
ASC CENTRAL, LLC
By: Aircraft Services Corporation,
its Managing Member
____________________________________
Name:
Title:
