INVESTOR RIGHTS AGREEMENT
Exhibit 10.1
This Investor Rights Agreement (this
“Agreement”) is
made and entered into as of December 23, 2009, among Charleston Basics, Inc., a
Delaware corporation (the “Company”), and the
investors signatory hereto.
WHEREAS, concurrent with or immediately
prior to the execution of this Agreement, the Company, Paragon Capital LP, a
Delaware limited partnership (the “Lead Investor”) and
certain other investors introduced by Paragon (the “Paragon Introduced
Investors”) entered into that certain Securities Purchase Agreement to which a
form of this Agreement is annexed as Exhibit D (the “Purchase Agreement”),
pursuant to which the Lead Investor and/or the Paragon Introduced Investors have
invested an aggregate of $1,500,000 in an offering of the Company’s securities,
pursuant to the provisions of the Purchase Agreement (the “Offering”);
WHEREAS, the Lead Investor and/or the
Paragon Introduced Investors have purchased the Securities, including shares of
the Company’s Preferred Stock and the Warrants, pursuant to the terms and
conditions of the Purchase Agreement;
WHEREAS, certain other investors (the
“Secondary Investors”) may also purchase Securities in the Offering, pursuant to
a securities purchase agreement substantially similar to the Purchase Agreement,
which with the Purchase Agreement shall be referred to hereafter as the “Purchase Agreements,”
and such Secondary Investors also will execute and be parties to this Agreement
and shall collectively sometimes be referred to hereafter collectively with the
Lead Investor and the Paragon Introduced Investors as the “Investors” and each
individually as an “Investor”);
WHEREAS, the Company has agreed to
provide certain additional rights to the Investors or their permitted assignees,
to the extent that such Persons continue to be the registered holders of the
Securities including, without limitation certain registration rights with
respect to the Underlying Shares; and
WHEREAS, the Company and the Investors
have agreed to enter into this Agreement in connection with the Company’s
agreement to provide such additional rights to each of them.
NOW, THEREFORE, IN CONSIDERATION of the
mutual covenants contained in this Agreement, and for other good and valuable
consideration the receipt and adequacy of which are hereby acknowledged, the
Company and the Investors agree as follows:
1. Definitions. In
addition to the terms defined elsewhere in this Agreement, (a) capitalized terms
that are not otherwise defined herein have the meanings given to such terms in
the Purchase Agreement, and (b) the following terms have the meanings
indicated:
“Certificate of
Designations” means the Certificate of Designations, Preferences and
other Rights and Qualifications of Series A Convertible Preferred Stock in the
form of Exhibit A attached to the Purchase Agreement, as such may be amended
from time to time.
“Closing Price” means,
for any date, the price determined by the first of the following clauses that
applies: (i) if the Common Stock is then listed or quoted on the Trading
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Market,
the closing bid price per share of Common Stock for such date (or the nearest
preceding date) on the Trading Market or exchange on which the Common Stock is
then listed or quoted; or (ii) in all other cases, the fair market value of a
share of Common Stock as determined by an independent appraiser selected in good
faith by the Lead Investor.
“Commission Comments”
means written comments which are received by the Company from the Commission,
and a copy of which shall have been provided by the Company to the Holder, to a
filed Registration Statement which limit the amount of shares which may be
included therein to a number of shares which is less than such amount sought to
be included thereon as filed with the Commission.
“Commission
Guidance” means (i)
any publicly-available written or oral guidance, comments, requirements or
requests of the Commission staff, and (ii) the Securities Act.
“Effective Date” means
the date that a Registration Statement is declared effective by the
Commission.
“Effectiveness Period”
means the period commencing on the Effective Date of a Registration Statement
and ending on the first to occur of (a) the third anniversary of the Effective
Date and (b) the date when all Registrable Securities covered by such
Registration Statement cease to be Registrable Securities
“Holder” means any
holder, from time to time, of Registrable Securities.
“Investor Counsel”
means Xxxxxxx LLP, counsel to the Investors for purposes of this Agreement;
provided, however, that if neither the
Lead Investor nor any of its Affiliates are listed as a “Selling Stockholder” in
a Registration Statement, the Holders of a majority of the Registrable
Securities to be sold pursuant to such Registration Statement shall be entitled
to select alternative counsel to act as “Investor Counsel” with respect to such
Registration Statement.
“Prospectus” means the
prospectus included in a Registration Statement (including, without limitation,
a prospectus that includes any information previously omitted from a prospectus
filed as part of an effective Registration Statement in reliance upon Rule 430A
promulgated under the Securities Act), as amended or supplemented by any
prospectus supplement, with respect to the terms of the offering of any portion
of the Registrable Securities covered by a Registration Statement, and all other
amendments and supplements to the Prospectus, including post-effective
amendments, and all material incorporated by reference or deemed to be
incorporated by reference in such Prospectus.
“Registrable
Securities” means (i) any Common Stock, including Underlying Shares and
any other shares of Common Stock issued or issuable upon conversion of any
shares of Preferred Stock (without giving effect to any limitations on
conversion contained in the Certificate of Designations) or issuable upon
exercise of the Warrants; and (ii) any securities issued or issuable upon any
stock split, dividend or other distribution, recapitalization or similar event
with respect to the foregoing. As to any particular Registrable
Securities, such securities will cease to be Registrable Securities when such
securities have been sold by a Person: (i) in a transaction in which such
Person’s rights under this Agreement are not assigned in accordance
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with the
provisions of this Agreement; (ii) pursuant to an effective registration
statement under the Securities Act; or (iii) pursuant to Rule 144 (or
any similar provision then in force) under the Securities
Act.
“Registration
Statement” means any registration statement to be filed under the
Securities Act, which covers any of the Registrable Securities pursuant to the
provisions of this Agreement, including the Prospectus included therein, all
amendments and supplements to such Registration Statement or Prospectus,
including pre- and post-effective amendments, all exhibits thereto and all
material incorporated by reference or deemed to be incorporated by reference in
such Registration Statement.
“Rule 424” means Rule
424 promulgated by the Commission pursuant to the Securities Act, as such Rule
may be amended from time to time, or any similar rules or regulation hereafter
adopted by the Commission having substantially the same effect as such
Rule.
“Selling Stockholder”
means each Holder named in a Registration Statement as a “selling
stockholder.”
1. Demand
Registration.
a) At anytime commencing (90) days
after the date of this Agreement, after receipt of a written request (a “Demand Request”) from
the Lead Investor requesting that the Company effect a registration (a “Demand Registration”)
under the Securities Act covering all or part of the Registrable Securities held
by the Holders, which specifies the intended method or methods of disposition
thereof, the Company shall promptly notify all Holders in writing of the receipt
of such request and each such Holder, in lieu of exercising its rights under
Section 2
hereof, may elect (by written notice sent to the Company within twenty (20) days
from the date of such Holder’s receipt of the aforementioned Company’s notice,
in accordance with Section 15(f)) to
have all or part of such Holder’s Registrable Securities included in such
registration thereof pursuant to this Section 1, and such Holder shall specify
in such notice the number of Registrable Securities that such Holder elects to
include in such registration. Thereupon the Company shall, as
expeditiously as is reasonably possible, file with the Commission and use best
efforts to cause to be declared effective, a registration statement (a “Demand Registration
Statement”) to register all of the Registrable Securities which the
Company has been so requested to register by such Holders (“Participating Demand
Holders”) for sale, to the extent required to permit the disposition (in
accordance with the intended method or methods thereof, as aforesaid) of the
Registrable Securities so registered.
b) If the
Holders intend to distribute the Registrable Securities covered by their request
by means of an underwriting, they shall so advise the Company as a part of their
request made pursuant to this Section 1 and the
Company shall include such information in the written notice referred to in
Section
15(f). In such event, the right of any Holder to include such
Holder’s Registrable Securities in such registration shall be conditioned upon
such Holder’s participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in the underwriting to the extent provided
herein. The Lead Investor, in consultation with the Company, shall
select the managing underwriter or underwriters in such underwriting, which
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underwriter
shall be reasonably acceptable to the Company. All Holders proposing
to distribute their securities through such underwriting shall (together with
the Company as provided in Section 5(m)) enter into an underwriting agreement in
customary form with the underwriter or underwriters so selected for such
underwriting by the Lead Investor; provided, however, that no
Holder (or any of their assignees) shall be required to make any
representations, warranties or indemnities except as they relate to such
Holder’s ownership of shares and authority to enter into the underwriting
agreement and to such Holder’s intended method of distribution, and the
liability of such Holder shall be limited to an amount equal to the net proceeds
from the offering received by such Holder. Notwithstanding any other
provision of this Section 1, if the
underwriter advises a Holder that marketing factors require a limitation of the
number of shares to be underwritten, then the Holder shall so advise the Company
and the Company shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated as follows: (i) first, among Holders of Registrable
Securities that have elected to participate in such underwritten offering, in
proportion (as nearly as practicable) to the aggregate amount of Registrable
Securities held by all such Holders, until such Holders have included in the
underwriting all shares requested by such Holders to be included, and
(ii) thereafter, among all other holders of Common Stock, if any, that have
the right and have elected to participate in such underwritten offering, in
proportion (as nearly as practicable) to the amount of shares of Common Stock
owned by such holders. Without the consent of the Lead Investor, no
securities other than Registrable Securities shall be covered by such
registration if the inclusion of such other securities would result in a
reduction of the number of Registrable Securities covered by such registration
or included in any underwriting or if, in the opinion of the managing
underwriter, the inclusion of such other securities would adversely impact the
marketing of such offering.
c) The
Company shall not be required to prepare and file more than one (1) Demand
Registration Statement pursuant to Section 1(a) hereof pursuant to a Demand
Request under this Section 1; provided, however that an
offering which is not consummated shall not be counted for this purpose unless
such offering is withdrawn at the request of the Lead Investor.
d) Notwithstanding
the foregoing, if the Company shall furnish to the Participating Demand Holders
requesting a Registration Statement pursuant to this Section 1, a
certificate signed by the chief executive officer or chief financial officer of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be detrimental to the Company and its stockholders for
such registration statement to be filed by reason of a material pending
transaction and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer such filing
for a period of not more than ninety (90) days after receipt of the Demand
Request; provided,
however, that the Company may not utilize this right more than once in
any twelve (12) month period.
2. Piggy-Back
Registrations.
a) If (but
without any obligation to do so) the Company proposes to register (including for
this purpose a registration effected by the Company for stockholders other than
the Investors) any of its stock or other securities under the Securities Act in
connection with the public offering of such securities solely for cash (other
than a registration on Form S-8 (or
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similar
or successor form) relating solely to the sale of securities to participants in
a Company stock plan or to other compensatory arrangements to the extent
includable on Form S-8 (or similar or successor form), or a registration on Form
S-4 (or similar or successor form)), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 14(f), the
Company shall use its best efforts to cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered and to name each such Holder as a Selling Stockholder
in the applicable Registration Statement. The Company shall have no
obligation under this Section 2(a) to make
any offering of its securities, or to complete an offering of its securities
that it proposes to make.
b) If the
Company intends to distribute the stock or other securities referenced in Section 2(a) by means
of an underwriting with an underwriter selected in the Company’s sole
discretion, it shall so advise the Holders as a part of the written notice
referred to in Section
2(a). In such event, the right of any Holder to include such
Holder’s Registrable Securities in such registration shall be conditioned upon
such Holder’s participation in such underwriting and the inclusion of such
Holder’s Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their securities through
such underwriting shall (together with the Company as provided in Section 5(m)) enter
into an underwriting agreement in customary form with the underwriter or
underwriters so selected for such underwriting.
c) If any
registration undertaken pursuant to this Section 2 is an
underwritten primary registration on behalf of the Company, and the managing
underwriters advise the Company that marketing factors require a limitation of
the number of shares to be underwritten, then the Company shall include in such
registration: (i) first, the securities the Company proposes to sell; and (ii)
second, the Registrable Securities requested to be included in such
registration, pro rata among the Holders of such Registrable Securities on the
basis of the number of Registrable Securities owned by each such Holder. In
addition, with respect to an underwritten primary registration, the Holders of
such Registrable Securities will agree to enter into any lock-up letters
requested by the managing underwriter, not to exceed one hundred eighty (180)
days.
d) If, at
any time after giving notice of its intention to register any of its securities
as set forth in Section 2(a) and
before the Effective Date of the Registration Statement filed in connection with
such registration, the Company shall determine, for any reason, not to register
such securities, the Company may, in its sole discretion, give written notice of
such determination to each Holder that requested to have its Registrable
Securities included in such registration and thereupon shall be relieved of its
obligation pursuant to Section 2 to register
any Registrable Securities in connection with such registration.
3. Obligations of Parent and
Successor Entities. The obligations of the Company as
described in this Agreement, hereunder shall apply to any parent company or
successor entity of the Company.
4. Mandatory
Registrations. In the event all of the Registrable Securities
of the Holders are not included in a Registration Statement due to Commission
Comments or
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underwriter
cutbacks as described in Section 2(c) herein,
the Company shall prepare and file an additional Registration Statement (the
“Follow-up
Registration Statement”) with the Commission within ninety (90) days
following the effectiveness of the previously filed Registration Statement (or
such greater period of time, in the event of an underwriter cutback, as shall be
required by the applicable underwriter); provided, however, that the
time period for filing the Follow-up Registration Statement shall be extended to
the extent that the Commission publishes written Commission Guidance or the
Company receives written Commission Guidance which provides for a longer period
before a Follow-up Registration Statement may be filed. The Follow-up
Registration Statement shall cover the resale of all of the Registrable
Securities that were excluded from any previously filed Registration Statement.
In the event that all of the Registrable Securities have not been registered in
a Registration Statement after the Follow-up Registration Statement has been
declared effective, the Company shall use its commercially reasonable best
efforts thereafter to register any remaining unregistered Registrable
Securities.
5. Registration
Procedures. In connection with the Company’s registration
obligations hereunder, the Company shall:
a) Prepare
and file with the Commission a Registration Statement with respect to the
Registrable Securities and use its best efforts to cause such Registration
Statement (which shall include any Follow-up Registration Statement) to become
and remain Effective during the Effectiveness Period.
b) Not less
than three Trading Days prior to the filing of each Registration Statement or
any related Prospectus or any amendment or supplement thereto (including any
document that would be incorporated or deemed to be incorporated therein by
reference), the Company shall (i) furnish to the Holders and Investor Counsel
copies of all such documents proposed to be filed, which documents (other than
those incorporated or deemed to be incorporated by reference) will be subject to
the review of such Holders and Investor Counsel, and (ii) cause its officers and
directors, counsel and independent certified public accountants (to the extent
available) to respond to such inquiries as shall be necessary, in the reasonable
opinion of respective counsel, to conduct a reasonable investigation within the
meaning of the Securities Act. The Company shall not file such a
Registration Statement or any such Prospectus or any amendments or supplements
thereto to which the Holders of a majority of the Registrable Securities and
Investor Counsel shall reasonably object.
c) (i)
Prepare and file with the Commission such amendments, including post-effective
amendments, to each Registration Statement and the Prospectus used in connection
therewith as may be necessary to keep such Registration Statement continuously
effective as to the applicable Registrable Securities for the Effectiveness
Period; (ii) cause the related Prospectus to be amended or supplemented by any
required Prospectus supplement, and as so supplemented or amended to be filed
pursuant to Rule 424; and (iii) respond as promptly as reasonably possible, and
in any event within fifteen (15) Trading Days, to any comments received from the
Commission with respect to any Registration Statement or any amendment thereto
and as promptly as reasonably possible provide the Holders and Investor Counsel
true and complete copies of all correspondence from and to the Commission
relating to a Registration Statement.
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d) Notify
the Holders of Registrable Securities to be sold and Investor Counsel as
promptly as reasonably possible, and (if requested by any such Person) confirm
such notice in writing no later than two Trading Days thereafter, of any of the
following events: (i) the Commission notifies the Company whether there will be
a “review” of any Registration Statement; (ii) the Commission comments in
writing on any Registration Statement (in which case the Company shall deliver
to each Holder a copy of such comments and of all written responses thereto);
(iii) any Registration Statement or any post-effective amendment is declared
effective; (iv) the Commission or any other federal or state governmental
authority requests any amendment or supplement to a Registration Statement or
Prospectus or requests additional information related thereto; (v) the
Commission issues any stop order suspending the effectiveness of any
Registration Statement or initiates any Proceedings for that purpose; (vi) the
Company receives notice of any suspension of the qualification or exemption from
qualification of any Registrable Securities for sale in any jurisdiction, or the
initiation or threat of any Proceeding for such purpose; or (vii) the financial
statements included in any Registration Statement become ineligible for
inclusion therein or any statement made in any Registration Statement or
Prospectus or any document incorporated or deemed to be incorporated therein by
reference is untrue in any material respect or any revision to a Registration
Statement, Prospectus or other document is required so that it will not contain
any untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not
misleading.
e) Use its
best efforts to cause the effectiveness of any Registration Statement or
Follow-up Registration Statement and avoid the issuance of or, if issued, obtain
the withdrawal of (i) any order suspending the effectiveness of any Registration
Statement or (ii) any suspension of the qualification (or exemption from
qualification) of any of the Registrable Securities for sale in any
jurisdiction, at the earliest practicable moment.
f) Furnish
to each Holder and Investor Counsel, without charge, at least one conformed copy
of each Registration Statement and each amendment thereto, including financial
statements and schedules, all documents incorporated or deemed to be
incorporated therein by reference, and all exhibits to the extent requested by
such Person (including those previously furnished or incorporated by reference)
promptly after the filing of such documents with the Commission.
g) Promptly
deliver to each Holder and Investor Counsel, without charge, as many copies of
the Prospectus or Prospectuses (including each form of prospectus) and each
amendment or supplement thereto as such Persons may reasonably
request. Subject to the limitations set forth in this Agreement, the
Company hereby consents to the use of such Prospectus and each amendment or
supplement thereto by each of the selling Holders in connection with the
offering and sale of the Registrable Securities covered by such Prospectus and
any amendment or supplement thereto.
h) (i) In
the time and manner required by each Trading Market, if at all, prepare and file
with such Trading Market an additional shares listing application covering all
of the Registrable Securities included in any registration; (ii) take all steps
necessary to cause such Registrable Securities to be approved for listing on
each Trading Market as soon as reasonably practicable thereafter; (iii) to the
extent available to the Company, provide to the Investors evidence of such
listing; and (iv) maintain the listing of such Registrable Securities on each
such Trading Market.
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i) Prior to
any public offering of Registrable Securities, use its best efforts to register
or qualify or cooperate with the selling Holders and Investor Counsel in
connection with the registration or qualification (or exemption from such
registration or qualification) of such Registrable Securities for offer and sale
under the securities or Blue Sky laws of such jurisdictions within the United
States as any Holder requests in writing, to keep each such registration or
qualification (or exemption therefrom) effective during the Effectiveness Period
and to do any and all other acts or things necessary or advisable to enable the
disposition in such jurisdictions of the Registrable Securities covered by a
Registration Statement (provided that the Company shall not be required to (i)
qualify generally to do business in any jurisdiction where it would not
otherwise be required to qualify but for this Section 5(i), (ii)
subject itself to taxation in any such jurisdiction, or (iii) consent to general
service of process in any such jurisdiction).
j) Cooperate
with the Holders to facilitate the timely preparation and delivery of
certificates representing Registrable Securities to be delivered to a transferee
pursuant to an effective Registration Statement, which certificates shall be
free, to the extent permitted pursuant to Section 13(b) of this
Agreement and Section 4.1 of the Purchase Agreement, of all restrictive legends,
and to enable such Registrable Securities to be in such denominations and
registered in such names as any such Holders may request.
k) Upon the
occurrence of any event described in Section (c)(vii), as
promptly as reasonably possible, prepare a supplement or amendment, including a
post-effective amendment, to such a Registration Statement or a supplement to
the related Prospectus or any document incorporated or deemed to be incorporated
therein by reference, and file any other required document so that, as
thereafter delivered, neither such Registration Statement nor its related
Prospectus will contain an untrue statement of a material fact or omit to state
a material fact required to be stated therein or necessary to make the
statements therein, in light of the circumstances under which they were made,
not misleading.
l) Subject
to the execution of appropriate confidentiality agreements, cooperate with any
due diligence investigation undertaken by the Holders in connection with the
sale of Registrable Securities, including without limitation by making available
any documents and information; provided that the Company will not deliver or
make available to any Holder material, nonpublic information unless such Holder
specifically requests in advance to receive material, nonpublic
information.
m) If
securities are being sold pursuant to any underwritten public offering, the
Company shall enter into and perform its obligations under an underwriting
agreement, in usual and customary form, including, without limitation, by
providing customary legal opinions, comfort letters and indemnification and
contribution obligations.
n) Comply
with all applicable rules and regulations of the Commission.
6. Changes in Capital
Stock. If, and as often as, there is any change in the capital
stock of the Company by way of forward or reverse stock split, stock dividend,
combination or reclassification, or through a merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions hereof so that the rights and
privileges hereby shall continue.
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7. Registration
Expenses. All fees and expenses incident to the performance of
or compliance with this Agreement by the Company shall be borne by the Company
whether or not any Registrable Securities are sold pursuant to a Registration
Statement. The fees and expenses referred to in the foregoing
sentence shall include, without limitation, (a) all registration and filing fees
(including, without limitation, fees and expenses (i) with respect to filings
required to be made with any Trading Market, and (ii) in compliance with
applicable state securities or Blue Sky laws (including, without limitation,
fees and disbursements of counsel for the Company in connection with Blue Sky
qualifications or exemptions of the Registrable Securities and determination of
the eligibility of the Registrable Securities for investment under the laws of
such jurisdictions as requested by the Holders)), (b) printing expenses
(including, without limitation, expenses of printing certificates for
Registrable Securities and of printing prospectuses requested by the Holders),
(c) messenger, telephone and delivery expenses, (d) fees and disbursements of
counsel for the Company and Investor Counsel for the Holders (which Investor
Counsel’s fees shall not exceed $30,000, and (e) fees and expenses of all other
Persons retained by the Company in connection with the consummation of the
transactions contemplated by this Agreement. Notwithstanding the
foregoing, all underwriting fees, brokerage discounts and selling commissions
applicable to a sale by a Holder incurred in connection with any registration of
Registrable Securities, together with any legal fees and expenses in excess of
the $30,000 limitation, shall be borne pro rata by the Holders
in accordance with the number of Registrable Securities included in such
registration by each such Holder.
8. Indemnification
a) Indemnification by the
Company. The Company shall, notwithstanding any termination of
this Agreement, indemnify and hold harmless each Holder, the officers,
directors, partners, members, agents, brokers (including brokers who offer and
sell Registrable Securities as principal as a result of a pledge or any failure
to perform under a margin call of Common Stock), investment advisors and
employees of each of them, each Person who controls any such Holder (within the
meaning of Section 15 of the Securities Act or Section 20 of the Exchange Act)
and the officers, directors, partners, members, agents and employees of each
such controlling Person, to the fullest extent permitted by applicable law, from
and against any and all losses, liabilities, obligations, claims, contingencies,
damages, costs and expenses, including all judgments, amounts paid in
settlements, court costs and reasonable attorneys’ fees and costs of
investigation (collectively, “Losses”), as
incurred, arising out of or relating to any untrue or alleged untrue statement
of a material fact contained in a Registration Statement, any Prospectus or any
form of prospectus or in any amendment or supplement thereto or in any
preliminary prospectus, or arising out of or relating to any omission or alleged
omission of a material fact required to be stated therein or necessary to make
the statements therein (in the case of any Prospectus or form of prospectus or
supplement thereto, in light of the circumstances under which they were made)
not misleading, except to the extent, but only to the extent, that (i) such
untrue statements or omissions are based solely upon information regarding such
Holder furnished in writing to the Company by such Holder expressly for use
therein, or to the extent that such information relates to such Holder or such
Holder’s proposed method of distribution of
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Registrable
Securities and was reviewed and expressly approved in writing by such Holder
expressly for use in a Registration Statement, such Prospectus or such form of
Prospectus or in any amendment or supplement thereto or (ii) in the case of an
occurrence of an event of the type specified in Section
5(c)(v)-(vii), the use by such Holder of an outdated or defective
Prospectus after the Company has notified such Holder in writing that the
Prospectus is outdated or defective and prior to the receipt by such Holder of
the Advice contemplated in Section
15(e). The Company shall notify the Holders promptly of the
institution, threat or assertion of any Proceeding of which the Company is aware
in connection with the transactions contemplated by this
Agreement.
b) Indemnification by
Holders. Each Holder shall, severally and not jointly,
indemnify and hold harmless the Company, its directors, officers, agents and
employees, each Person who controls the Company (within the meaning of Section
15 of the Securities Act and Section 20 of the Exchange Act), and the directors,
officers, agents and employees of such controlling Persons, to the fullest
extent permitted by applicable law, from and against all Losses (as determined
by a court of competent jurisdiction in a final judgment not subject to appeal
or review) arising solely out of any untrue statement of a material fact
contained in any Registration Statement, any Prospectus, or any form of
prospectus, or in any amendment or supplement thereto, or arising solely out of
any omission of a material fact required to be stated therein or necessary to
make the statements therein not misleading to the extent, but only to the
extent, that such untrue statement or omission is contained in any information
so furnished in writing by such Holder to the Company specifically for inclusion
in such Registration Statement or such Prospectus. In no event shall
the liability of any selling Holder hereunder be greater in amount than the
dollar amount of the net proceeds received by such Holder upon the sale of the
Registrable Securities giving rise to such indemnification
obligation.
c) Conduct of Indemnification
Proceedings. If any Proceeding shall be brought or asserted
against any Person entitled to indemnity hereunder (an “Indemnified Party”),
such Indemnified Party shall promptly notify the Person from whom indemnity is
sought (the “Indemnifying Party”)
in writing, and the Indemnifying Party shall assume the defense thereof,
including the employment of counsel reasonably satisfactory to the Indemnified
Party and the payment of all fees and expenses incurred in connection with
defense thereof; provided, that the failure of any Indemnified Party to give
such notice shall not relieve the Indemnifying Party of its obligations or
liabilities pursuant to this Agreement, except (and only) to the extent that
such failure shall have proximately and materially adversely prejudiced the
Indemnifying Party.
An
Indemnified Party shall have the right to employ separate counsel in any such
Proceeding and to participate in the defense thereof, but the fees and expenses
of such counsel shall be at the expense of such Indemnified Party or Parties
unless: (i) the Indemnifying Party has agreed in writing to pay such
fees and expenses; or (ii) the Indemnifying Party shall have failed promptly to
assume the defense of such Proceeding and to employ counsel reasonably
satisfactory to such Indemnified Party in any such Proceeding; or (iii) the
named parties to any such Proceeding (including any impleaded parties) include
both such Indemnified Party and the Indemnifying Party, and such Indemnified
Party shall have been advised by counsel that a conflict of interest is likely
to exist if the same counsel were to represent such Indemnified Party and the
Indemnifying Party (in which case, if such Indemnified Party notifies the
Indemnifying
10
Party in
writing that it elects to employ separate counsel at the expense of the
Indemnifying Party, the Indemnifying Party shall not have the right to assume
the defense thereof and such counsel shall be at the expense of the Indemnifying
Party). The Indemnifying Party shall not be liable for any settlement
of any such Proceeding effected without its written consent, which consent shall
not be unreasonably withheld. No Indemnifying Party shall, without
the prior written consent of the Indemnified Party, effect any settlement of any
pending Proceeding in respect of which any Indemnified Party is a party, unless
such settlement includes an unconditional release of such Indemnified Party from
all liability on claims that are the subject matter of such
Proceeding.
All fees
and expenses of the Indemnified Party (including reasonable fees and expenses to
the extent incurred in connection with investigating or preparing to defend such
Proceeding in a manner not inconsistent with this Section 8(c)) shall
be paid to the Indemnified Party, as incurred, within ten Trading Days of
written notice thereof to the Indemnifying Party (regardless of whether it is
ultimately determined that an Indemnified Party is not entitled to
indemnification hereunder; provided, that the Indemnified Party undertakes to
reimburse all such fees and expenses to the extent it is finally judicially
determined that such Indemnified Party is not entitled to indemnification
hereunder).
d) Contribution. If
a claim for indemnification under Section 8(a) or 8(b) is unavailable
to an Indemnified Party (by reason of public policy or otherwise), then each
Indemnifying Party, in lieu of indemnifying such Indemnified Party, shall
contribute to the amount paid or payable by such Indemnified Party as a result
of such Losses, in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and Indemnified Party in connection with the
actions, statements or omissions that resulted in such Losses as well as any
other relevant equitable considerations. The relative fault of such
Indemnifying Party and Indemnified Party shall be determined by reference to,
among other things, whether any action in question, including any untrue or
alleged untrue statement of a material fact or omission or alleged omission of a
material fact, has been taken or made by, or relates to information supplied by,
such Indemnifying Party or Indemnified Party, and the parties’ relative intent,
knowledge, access to information and opportunity to correct or prevent such
action, statement or omission. The amount paid or payable by a party
as a result of any Losses shall be deemed to include, subject to the limitations
set forth in Section
8(c), any reasonable attorneys’ or other reasonable fees or expenses
incurred by such party in connection with any Proceeding to the extent such
party would have been indemnified for such fees or expenses if the
indemnification provided for in this Section 8 was
available to such party in accordance with its terms.
The
parties hereto agree that it would not be just and equitable if contribution
pursuant to this Section 8(d) were
determined by pro rata allocation or by any other method of allocation that does
not take into account the equitable considerations referred to in the
immediately preceding paragraph. Notwithstanding the provisions of
this Section
8(d), no Holder shall be required to contribute, in the aggregate, any
amount in excess of the amount by which the proceeds actually received by such
Holder from the sale of the Registrable Securities subject to the Proceeding
exceeds the amount of any damages that such Holder has otherwise been required
to pay by reason of such untrue or alleged untrue statement or omission or
alleged omission. 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.
11
The
indemnity and contribution agreements contained in this Section 8 are in
addition to any liability that the Indemnifying Parties may have to the
Indemnified Parties.
9. Right of First
Refusal.
In the event that the Company proposes
to issue, sell or exchange, agree to issue, sell or exchange, or reserve or set
aside for issuance, sale or exchange: (i) any shares of Common Stock, (ii) any
other equity securities of the Company or any Subsidiary, including, without
limitation, shares of Preferred Stock, (iii) any option, warrant or other right
to subscribe for, purchase or otherwise acquire any equity securities of the
Company or any Subsidiary, or (iv) any debt or other securities directly or
indirectly convertible into capital stock of the Company or any Subsidiary, the
holders of Preferred Stock, shall have the right to exercise the “First Refusal
Right” as set forth in Section 5(j) of the Certificate of
Designations.
10. Conversion of Preferred
Stock into Subsequent Financings. In the event the Company
effects any debt or equity financing at any time prior to the second year
anniversary of the Secondary Closing Date (or at any time after the second year
anniversary of the Initial Closing Date, if there is no Secondary Closing), the
holders of Preferred Stock, to the extent that they have not exercised their
First Refusal Right described in Section 5(j) of the Certificate of
Designations, shall have the right to convert their shares of Preferred Stock
pursuant to the Subsequent Conversion Right described in Section 5(k) of the
Certificate of Designations.
11. Delivery of
Certificates. In addition to any other rights available to an
Investor including, without limitation, any amounts due and payable pursuant to
the provisions of Section 4.1(d) of the Purchase Agreement, if the Company fails
to deliver or to cause to be delivered to such Investor a certificate
representing shares of Common Stock on the date on which delivery of such
certificate is required by any Transaction Document, and if after such date such
Investor purchases (in an open market transaction or otherwise) shares of Common
Stock to deliver in satisfaction of a sale by such Investor of the shares that
such Investor anticipated receiving from the Company (a “Buy-In”), then the
Company shall, within four (4) Trading Days after such Investor’s request (which
request, to the extent required pursuant to such Transaction Document, shall be
accompanied by an opinion of counsel reasonably satisfactory to the Company),
and in such Investor’s discretion, either (i) pay cash to such Investor in an
amount equal to such Investor’s total purchase price (including brokerage
commissions, if any) for the shares of Common Stock so purchased (the “Buy-In Price”), at
which point the Company’s obligation to deliver such certificate (and to issue
such shares of Common Stock) shall terminate, or (ii) promptly honor its
obligation to deliver to such Investor a certificate or certificates
representing such shares of Common Stock and pay cash to such Investor in an
amount equal to the excess (if any) of the Buy-In Price over the product of (A)
such number of shares of Common Stock, times (B) the Closing Price on the date
of the event giving rise to the Company’s obligation to deliver such
certificate.
12. Assignment of Registration
Rights. The rights to cause the Company to register
Registrable Securities pursuant to this Agreement may be assigned (but only with
all related obligations) by a Holder to: (i) any subsidiary, affiliate,
parent, partner, limited partner, retired partner or stockholder of such Holder;
(ii) any immediate family member (spouse
12
or child)
of, or trust for the benefit of, such Holder (if such Holder is a natural
person) or such Holder’s immediate family member; or (iii) any Person to
whom such Holder transfers at least ninety percent (90%) of its Registrable
Securities; provided,
however, that it shall
be a condition to the effectiveness of such assignment that: (x) the
Company is, within three (3) Business Days after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
Registrable Securities with respect to which such registration rights are being
assigned; and (y) such transferee or assignee agrees in writing (a copy of
which writing is provided to the Company at the time of transfer) to be bound by
and subject to all of the terms and conditions of this
Agreement.
13. Additional Rights of
Investors.
a) Rights, Preferences and
Designations under Certificate of Designations. The Investors,
with respect to their shares of Preferred Stock, shall be entitled to all
rights, preferences and designations with respect to their shares of Preferred
Stock, as set forth in the Certificate of Designations.
b) Right to Designate a
Director to Serve on the Board; Obligation to Vote Shares of Preferred Stock for
“Series A Director.” For as long as the Preferred Stock
remains outstanding, the Lead Investor shall have the right to designate the
“Series A Director,” as such class director is designated in the Certificate of
Designations, to serve on the Company’s Board of Directors,” and the holders of
the Preferred Stock, voting separately as a class, shall have the exclusive and
special right to elect and remove the Series A Director, as further provided in
the Certificate of Designations. The holders of Preferred Stock
executing this Agreement agree to vote their shares of Preferred Stock for the
election of the “Series A Director” designated by the Lead
Investor. These voting obligations shall be transferred and assumed
by any transferee of shares of Preferred Stock.
c) Directors and Officers
Liability Insurance. Within sixty (60) days after the date of
the initial closing of the Offering, the Company shall secure directors and
officers liability insurance (“D&O Insurance”)
for coverage in an amount of not less than $1,000,000 and the Company agrees to
maintain such D&O Insurance for at least as long as there is a “Series A
Director” serving on the Company’s Board of Directors.
d) Transfer
Restrictions. The transfer restrictions set forth in Section
4.1 of the Purchase Agreement shall apply to each Investor, with respect to its
Securities, as applicable.
e) Furnishing of Information;
Public Information. The provisions of Section 4.3 of the
Purchase Agreement relating to the furnishing of information to Investors and
public information shall be applicable herein.
f) Access. The
Company shall give each Investor that owns Registrable Securities and its
representatives, at the request of such Investor, access during reasonable
business hours to (i) all properties, assets, books, contracts, commitments,
reports and records relating to the Company and its Subsidiaries, and (ii) the
management, accountants (to the extent available), lenders, customers and
suppliers of the Company and its subsidiaries; provided, however, that the
Company shall not be required to provide such Investor access to any
13
information
or Persons if the Company reasonably determines that access to such information
or Persons cannot be provided to such Investor in a manner that would avoid an
adverse affect on the attorney-client privilege between the Company and its
counsel or the disclosure of trade secrets, material nonpublic information or
other confidential or proprietary information, as applicable.
g) State Securities Law
Compliance – Resale. Beginning on the earlier of (x) six (6)
months following the date of this Agreement and (y) the Effective Date of any
Registration Statement and continuing until either (i) the Investors have sold
all of their Registrable Securities under a Registration Statement pursuant to
this Agreement or (ii) the Common Stock becomes a “covered security” under
Section 18(b)(1)(A) of the Securities Act, the Company shall maintain within
either Mergent’s Industrial Manual or Standard and Poor’s Standard Corporation
Descriptions (or any successors to these manuals which are similarly qualified
as “recognized securities manuals” under state Blue Sky laws) an updated listing
containing (i) the names of the officers and directors of the Company, (ii) a
balance sheet of the Company as of a date that is at no time older than eighteen
(18) months and (iii) a profit and loss statement of the Company for either the
preceding fiscal year or the most recent year of operations.
14. Miscellaneous.
a) Engagement of Investor
Relations Firm. Within sixty (60) days after the Initial
Closing Date, the Company shall hire and retain an investor relations firm or
firms acceptable to the Lead Investor. The Company shall maintain the
services of an investor relations firm acceptable to the Lead Investor for at
least twelve months after the date that initial investor relations firm was
engaged shall reserve and allocate not less than $120,000 for such services
during such twelve month period..
b) Remedies. In
the event of a breach by the Company or by an Investor of any of their
obligations under this Agreement, each Investor or the Company, as the case may
be, in addition to being entitled to exercise all rights granted by law and
under this Agreement, including recovery of damages, will be entitled to
specific performance of its rights under this Agreement. The Company
and each Investor agree that monetary damages would not provide adequate
compensation for any losses incurred by reason of a breach by it of any of the
provisions of this Agreement and hereby further agrees that, in the event of any
action for specific performance in respect of such breach, it shall waive the
defense that a remedy at law would be adequate.
c) Amendments and
Waivers. The provisions of this Agreement, including the
provisions of this sentence, may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given,
unless the same shall be in writing and signed by the Company and the Lead
Investor; provided,
however, that if any amendment modification, supplement, waiver or
consent relates to the registration of Registrable Securities pursuant to the
provisions of this Agreement, then such shall require a writing signed by the
Company and the Holders of at least a majority of the Registrable Securities
then outstanding or deemed to be outstanding. Notwithstanding the
foregoing, a waiver or consent to depart from the provisions hereof with respect
to a matter that relates exclusively to the rights of
14
Holders
and that does not directly or indirectly affect the rights of other Holders may
be given by Holders of at least a majority of the Registrable Securities to
which such waiver or consent relates; provided, however, that the provisions
of this sentence may not be amended, modified, or supplemented except in
accordance with the provisions of the immediately preceding
sentence.
d) No Inconsistent
Agreements. Neither the Company nor any of its Subsidiaries
has entered, as of the date hereof, nor shall the Company or any of its
Subsidiaries, on or after the date of this Agreement, enter into any agreement
with respect to its securities that would have the effect of impairing the
rights granted to the Investors in this Agreement or otherwise conflicts with
the provisions hereof. Neither the Company nor any Subsidiary has
previously entered into any agreement granting any registration rights with
respect to any of its securities to any Person that have not been satisfied in
full.
e) Compliance. Each
Holder covenants and agrees that it will comply with the prospectus delivery
requirements of the Securities Act as applicable to it in connection with sales
of Registrable Securities pursuant to a Registration Statement.
f) Discontinued
Disposition. Each Holder agrees by its acquisition of such
Registrable Securities that, upon receipt of a notice from the Company of the
occurrence of any event of the kind described in Sections 5(c)(v),
5(c)(vi), or
5(c)(vii), such
Holder will forthwith discontinue disposition of such Registrable Securities
under a Registration Statement until such Holder’s receipt of the copies of the
supplemented Prospectus and/or amended Registration Statement contemplated by
Section 5(a),
or until it is advised in writing (the “Advice”) by the
Company that the use of the applicable Prospectus may be resumed, and, in either
case, has received copies of any additional or supplemental filings that are
incorporated or deemed to be incorporated by reference in such Prospectus or
Registration Statement. The Company may provide appropriate stop
orders to enforce the provisions of this paragraph.
g) Notices. Any and all
notices or other communications or deliveries required or permitted to be
provided hereunder shall be in writing and shall be deemed given and effective
on the earliest of: (i) the date of transmission, if such notice or
communication is delivered via facsimile at the facsimile number set forth on
the signature pages attached hereto prior to 5:30 p.m. (New York City time) on a
Business Day, (ii) the next Business Day after the date of transmission, if such
notice or communication is delivered via facsimile at the facsimile number set
forth on the signature pages attached hereto on a day that is not a Business Day
or later than 5:30 p.m. (New York City time) on any Business Day, (iii) the
second Business Day following the date of mailing, if sent by U.S. nationally
recognized overnight courier service or (iv) upon actual receipt by the party to
whom such notice is required to be given. The address for such
notices and communications shall be as set forth on the signature pages attached
hereto.
h) Successors and
Assigns. Subject to the express limitations contained herein,
this Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign
this Agreement or any rights or obligations hereunder without the prior written
consent of the Lead Investor (other than by merger). Any Investor may
assign any or all of its rights under this Agreement to any Person to whom such
Investor assigns or transfers any Securities, provided that such transferee
agrees in writing to be bound, with respect to the transferred Securities, by
the provisions of this Agreement.
15
i) Counterparts. This
Agreement may be executed in any number of counterparts, each of which shall be
deemed an original and all of which together shall constitute one and the same
instrument. The exchange of copies of this Agreement or amendments
thereto and of signature pages by facsimile transmission or by email
transmission in portable digital format, or similar format, shall constitute
effective execution and delivery of such instrument(s) as to the parties and may
be used in lieu of the original Agreement or amendment for all
purposes. Signatures of the parties transmitted by facsimile or by
email transmission in portable digital format, or similar format, shall be
deemed to be their original signatures for all purposes.
j) Governing
Law. All questions concerning the construction, validity,
enforcement and interpretation of this Agreement shall be governed by and
construed and enforced in accordance with the internal laws of the State of New
York, without regard to the principles of conflicts of law
thereof. Each party agrees that all legal proceedings concerning the
interpretations, enforcement and defense of the transactions contemplated by
this Agreement (whether brought against a party hereto or its respective
affiliates, directors, officers, shareholders, employees or agents) shall be
commenced exclusively in the state and federal courts sitting in the City of New
York. Each party hereby irrevocably submits to the exclusive
jurisdiction of the state and federal courts sitting in the City of New York,
borough of Manhattan for the adjudication of any dispute hereunder or in
connection herewith or with any transaction contemplated hereby or discussed
herein (including with respect to the enforcement of this Agreement), and hereby
irrevocably waives, and agrees not to assert in any suit, action or proceeding,
any claim that it is not personally subject to the jurisdiction of any such
court, that such suit, action or proceeding is improper or is
an inconvenient venue for such proceeding. Each party
hereby irrevocably waives personal service of process and consents to process
being served in any such suit, action or proceeding by mailing a copy thereof
via registered or certified mail or overnight delivery (with evidence of
delivery) to such party at the address in effect for notices to it under this
Agreement and agrees that such service shall constitute good and sufficient
service of process and notice thereof. Nothing contained herein shall
be deemed to limit in any way any right to serve process in any other manner
permitted by law. If any party shall commence an action or proceeding
to enforce any provisions of this Agreement, then the prevailing party in such
action or proceeding shall be reimbursed by the other party for its reasonable
attorneys’ fees and other costs and expenses incurred with the investigation,
preparation and prosecution of such action or proceeding.
k) Cumulative
Remedies. The remedies provided herein are cumulative and not
exclusive of any remedies provided by law.
l) Severability. If
any term, provision, covenant or restriction of this Agreement is held by a
court of competent jurisdiction to be invalid, illegal, void or unenforceable,
the remainder of the terms, provisions, covenants and restrictions set forth
herein shall remain in full force and effect and shall in no way be affected,
impaired or invalidated, and the parties hereto shall use their reasonable
efforts to find and employ an alternative means to achieve the same or
substantially the same result as that contemplated by such term, provision,
covenant or restriction. It is hereby stipulated and declared to be
the intention of the parties that they
16
would
have executed the remaining terms, provisions, covenants and restrictions
without including any of such that may be hereafter declared invalid, illegal,
void or unenforceable.
m) Headings. The
headings in this Agreement are for convenience of reference only and shall not
limit or otherwise affect the meaning hereof.
Remainder
of the Page Intentionally Left Blank
17
IN WITNESS WHEREOF, the parties have
executed this Investors’ Rights Agreement as of the date first written
above.
|
CHARLESTON
BASICS, INC.
|
|||
|
|
By:
|
/s/ Xxxxx Xxxx | |
| Name: Xxxxx Xxxx | |||
| Title: President | |||
|
Address
for Notice:
|
|
|
0000
Xxxx Xxxxxxx Xxx
|
|
|
Xxxxxxx,
XX 00000
|
|
|
Facsimile:
(000) 000-0000
|
|
|
Attn: Xxxxx
Xxxxxxxx
|
|
With
a copy to:
|
|
| Xxxxxx Xxxxxxxx Frome Xxxxxxxxxx & Xxxxxxx LLP | |
|
Park
Avenue Tower
|
|
|
00
Xxxx 00xx
Xxxxxx
|
|
|
Xxx
Xxxx, XX 00000
|
|
|
Facsimile
No.: (000) 000-0000
|
|
|
Telephone
No.: (000) 000-0000
|
|
|
Attn:
Xxxxxxx X. Xxxxxxxxxxx, Esq.
|
[Remainder
of page intentionally left blank.
Signature
pages for the Investors follow.]
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| PARAGON CAPITAL LP | |||
|
|
By:
|
/s/ Xxxx X. Xxxxxxxxx | |
| Name: Xxxx X. Xxxxxxxxx | |||
| Title: General Partner | |||
| Address for Notice: | ||
| 000 Xxxx 00xx Xxxxxx | ||
| Xxx Xxxx, Xxx Xxxx 00000 | ||
| Facsimile No.: (000) 000-0000 | ||
| Telephone No.: (000) 000-0000 | ||
| Attn: Xxxx X. Xxxxxxxxx |
| with a copy (which shall not constitute notice) to: | ||
| Xxxxxxx LLP | ||
| 000 Xxxxxxxxx Xxxxxx, Xxxxx 0000 | ||
| Xxx Xxxx, Xxx Xxxx 00000 | ||
| Facsimile No.: (000) 000-0000 | ||
| Telephone No.: (000) 000-0000 | ||
| Attn: Xxxxx X. Xxxxxxx, Esq. |
[Remainder
of page intentionally left blank.
Signature
pages of other Investors to follow.]
19
[INVESTOR
SIGNATURE PAGES TO INVESTORS’ RIGHTS AGREEMENT]
IN WITNESS WHEREOF, the parties have
executed this Investors’ Rights Agreement as of the date first written
above.
Name of
Investor: _________________________________________________________
Signature of Authorized Signatory of
Investor: ___________________________________
Name of
Authorized Signatory:
_______________________________________________
Title of
Authorized Signatory
________________________________________________
Address
for Notice of
Investor: ______________________________________________
______________________________________________
______________________________________________
Facsimile
No.: ___________________________________________________________
Telephone
No.:__________________________________________________________
[SIGNATURE
PAGES CONTINUE]
20
