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STOCK PURCHASE AGREEMENT
DATED AS OF DECEMBER 23, 1999
AMONG
QAD INC.
XXXXXX X. XXXXXX
XXXX X. XXXXXX
THE LOPKER LIVING TRUST DATED MARCH 23, 1993
AND
RECOVERY EQUITY INVESTORS II, L.P.
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STOCK PURCHASE AGREEMENT dated as of December 23, 1999, among
RECOVERY EQUITY INVESTORS II, L.P., a Delaware limited partnership (the
"Purchaser"), XXXXXX X. XXXXXX, XXXX X. XXXXXX, THE XXXXXX LIVING TRUST DATED
MARCH 23, 1993, a trust organized under the laws of California (the "Trust");
Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx and the Trust being hereinafter collectively
referred to as the "Selling Stockholders"), and QAD INC., a Delaware corporation
(the "Company"; the Selling Stockholders and the Company being hereinafter
collectively referred to as the "Seller Parties").
WHEREAS, the Purchaser desires to purchase from the Company,
and the Company desires to issue and sell to the Purchaser, the number of shares
of Common Stock set forth opposite the Company's name in Schedule I (the "Issued
Shares");
WHEREAS, the Purchaser desires to purchase from the Trust, and
the Trust desires to sell to the Purchaser, the number of shares of Common Stock
set forth opposite the Trust's name in Schedule I (hereinafter collectively
referred to as the "Selling Stockholders' Shares");
WHEREAS, Xxxxxx X. Xxxxxx and Xxxx X. Xxxxxx are the sole
beneficiaries and the sole trustees of the Trust;
WHEREAS, in connection with the closing of the purchase and
sale of the Issued Shares hereunder, the Company desires to issue to the
Purchaser, and the Purchaser desires to accept from the Company, the Warrant;
and
WHEREAS, the capitalized terms used and not otherwise defined
in the foregoing recitals have the respective meanings set forth in Section 1.1.
NOW, THEREFORE, in consideration of the mutual covenants and
agreements set forth in this Agreement, and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto hereby agree as follows:
ARTICLE I
DEFINITIONS
1.1 Definitions. As used in this Agreement, the following
terms shall have the respective meanings set forth below:
"Actions or Proceedings" means any action, suit, proceeding,
arbitration or Governmental or Regulatory Authority investigation or audit.
"Affiliate" means, as applied to any Person, (i) any other
Person directly or indirectly controlling, controlled by or under common control
with that Person, (ii) any other Person that owns
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or controls 5% or more of any class of equity securities (including any equity
securities issuable upon the exercise of any Option) of that Person or any of
its Affiliates, or (iii) any member, director, partner, officer, agent, employee
or relative of that Person. For the purposes of this definition, "control"
(including, with correlative meanings, the terms "controlling", "controlled by",
and "under common control with"), as applied to any Person, means the
possession, directly or indirectly, of the power to direct or cause the
direction of the management and policies of that Person, whether through
ownership of voting securities or by Contract or otherwise.
"Agreement" means this Stock Purchase Agreement and the
Schedules and Exhibits hereto and the certificates delivered in connection
herewith, as the same may be amended, supplemented or otherwise modified from
time to time in accordance with the provisions hereof.
"Assets and Properties" of any Person means all assets and
properties of every kind, nature, character and description (whether real,
personal or mixed, whether tangible or intangible, whether absolute, accrued,
contingent, fixed or otherwise and wherever situated), including the goodwill
related thereto, operated, owned or leased by such Person, including cash, cash
equivalents, accounts and notes receivable, chattel paper, documents,
instruments, general intangibles, real estate, equipment, inventory, goods and
Intellectual Property.
"Business Day" means a day other than Saturday, Sunday or any
day on which banks located in the State of New York or California are authorized
or obligated to close.
"Business or Condition of the Company" means the business,
condition (financial or otherwise), results of operations, prospects, or Assets
and Properties of the Company and the Subsidiaries, taken as a whole.
"Claim Notice" has the meaning ascribed to it in Section
10.2(a).
"Closing" means the closing of the transactions contemplated
by Section 2.1.
"Closing Date" means the date on which the Closing actually
occurs.
"Common Stock" means the common stock, par value $.001 per
share, of the Company.
"Company" has the meaning ascribed to it in the introductory
paragraph hereto.
"Contract" means any agreement, lease, debenture, note,
evidence of Indebtedness, mortgage, indenture, security agreement or other
contract or commitment (whether written or oral).
"Dispute Notice" means any written notice by an Indemnifying
Party pursuant to Section 10.2(c) of a dispute with respect to an Indemnity
Notice specifying the nature of and basis for such a dispute.
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"Dispute Period" means the period ending 30 calendar days
following receipt by an Indemnifying Party of an Indemnity Notice.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, and the rules and regulations promulgated by the SEC thereunder.
"Financial Statement Date" means October 31, 1999.
"GAAP" means United States generally accepted accounting
principles, consistently applied throughout the specified period and all prior
comparable periods.
"Holdback Agreement" means the Holdback Agreement, to be dated
as of the Closing Date, between the Purchaser and the Selling Stockholders
substantially in the form of Exhibit A, as the same may be amended, supplemented
or otherwise modified from time to time.
"Governmental or Regulatory Authority" means any court,
tribunal, authority, agency, commission, official or other instrumentality of
the United States, any foreign country or any domestic or foreign state, county,
city or other political subdivision, any arbitrator or panel of arbitrators, any
stock exchange or quotation service, and the NASD.
"Indebtedness" of any Person means all obligations of such
Person (i) for borrowed money, (ii) evidenced by notes, bonds, debentures or
similar instruments, (iii) for the deferred purchase price of goods or services
(other than trade payables or accruals incurred in the ordinary course of
business), (iv) under capital leases, (v) as an account party in respect of
letters of credit and similar instruments and (vi) in the nature of guarantees
of any obligation described in clauses (i) through (v) above of any other
Person.
"Indemnified Party" means any Person claiming indemnification
under any provision of Article X.
"Indemnifying Party" means any Person against whom a claim for
indemnification is being asserted under any provision of Article X.
"Indemnity Notice" has the meaning ascribed to it in Section
10.2(c).
"Intellectual Property" means all patents and patent rights,
trademarks and trademark rights, trade names and trade name rights, service
marks and service xxxx rights, service names and service name rights, brand
names, inventions, processes, formulae, copyrights and copyright rights, trade
dress, business and product names, logos, slogans, trade secrets, industrial
models, designs, methodologies, computer programs (including all source codes)
and related documentation, technical information, manufacturing, engineering and
technical drawings, know-how and all pending applications for and registrations
of patents, trademarks, service marks and copyrights.
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"Issued Securities" means, collectively, the Issued Shares and
the Warrant.
"Issued Shares" has the meaning ascribed to it in the recitals
hereto.
"Laws" means all laws, statutes, rules, regulations,
ordinances and other pronouncements having the effect of law of the United
States, any foreign country or any domestic or foreign state, county, city or
other political subdivision or of any Governmental or Regulatory Authority.
"Liabilities" means any and all Indebtedness, liabilities and
obligations, whether accrued, fixed, absolute, contingent, matured or unmatured,
known or unknown or otherwise, including those arising under any Law, Order,
Actions or Proceedings of any Governmental or Regulatory Authority and those
arising under any Contract, license, arrangement, undertaking or otherwise.
"Liens" means any mortgage, pledge, assessment, security
interest, lease, lien, adverse claim, levy, charge or other encumbrance of any
kind, whether voluntary or involuntary (including any conditional sale Contract,
title retention Contract or Contract committing to grant any of the foregoing).
"Loss" means any and all damages, fines, fees, penalties,
deficiencies, losses and expenses, including interest, reasonable expenses of
investigation, court costs, reasonable fees and expenses of attorneys,
accountants and other experts and other expenses associated with litigation or
other proceedings or with any claim, default or assessment (such fees and
expenses to include all fees and expenses, including the reasonable fees and
expenses of attorneys, incurred in connection with (i) the investigation or
defense of any Third Party Claims or (ii) asserting or disputing any rights
under this Agreement or any Transaction Document against any party hereto or
otherwise). As applied to the Purchaser, "Loss" shall also be deemed to include
any diminution in the value of the Issued Securities or Selling Stockholders'
Shares being acquired by the Purchaser hereunder (or any successor securities).
"NASD" means the National Association of Securities Dealers,
Inc.
"Option" with respect to any Person means any security, right,
subscription, warrant, option, "phantom" stock right or other Contract that
gives the right to (i) purchase or otherwise receive or be issued any shares of
capital stock of, or other equity interests in, such Person or any security of
any kind convertible into or exchangeable or exercisable for any shares of
capital stock of, or other equity interests in, such Person or (ii) receive any
benefits or rights similar to any rights enjoyed by or accruing to the holder of
shares of capital stock of, or other equity interests in, such Person, including
any rights to participate in the equity, income or election of directors,
management committee members or officers of such Person.
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"Order" means any writ, judgment, decree, injunction or
similar order of any Governmental or Regulatory Authority (in each case whether
preliminary or final).
"Person" or "person" means any individual, corporation, joint
stock corporation, limited liability company or partnership, general
partnership, limited partnership, proprietorship, joint venture, other business
organization, trust, union, association, Governmental or Regulatory Authority or
other entity of any kind.
"Progress" means Progress Software Corporation, a
Massachusetts corporation.
"Purchase Price" means (a) with respect to the Company, the
dollar amount set forth opposite the Company's name in Schedule I, and (b) with
respect to the Trust, the dollar amount set forth opposite the Trust's name in
Schedule I.
"Purchased Shares" means the Issued Shares and the Selling
Stockholders' Shares.
"Purchaser" has the meaning ascribed to it in the introductory
paragraph hereto.
"Resolution Period" means the period ending 30 calendar days
following receipt by an Indemnified Party of a Dispute Notice.
"Registration Rights Agreement" means the Registration Rights
Agreement, to be dated as of the Closing Date, between the Purchaser and the
Company substantially in the form of Exhibit B, as the same may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof.
"SEC" means the Securities and Exchange Commission.
"SEC Document" has the meaning ascribed to it in Section 3.7.
"Securities Act" means the Securities Act of 1933, as amended,
and the rules and regulations promulgated by the SEC thereunder.
"Seller Parties" has the meaning ascribed to it in the
introductory paragraph hereto.
"Selling Stockholders" has the meaning ascribed to it in the
introductory paragraph hereto.
"Selling Stockholders' Shares" has the meaning ascribed to it
in the recitals hereto.
"Stockholders' Agreement" means the Stockholders' Agreement,
to be dated as of the Closing Date, among the Purchaser and the Seller Parties
substantially in the form of Exhibit C,
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as the same may be amended, supplemented or otherwise modified from time to time
in accordance with the provisions thereof.
"Subsidiary" means any Person in which the Company, directly
or indirectly through one or more Subsidiaries or otherwise, beneficially owns
or otherwise holds more than 50% of either the equity interests in, or the
voting control of, such Person.
"Third Party Claim" has the meaning ascribed to it in Section
10.2(a).
"Third Party Software" means all computer software used by or
on behalf of the Company or its Subsidiaries, as applicable, developed by a
third party that was not developed by or on behalf of the Company or its
Subsidiaries, as applicable (including source code, object code, comments, user
interfaces, menus, buttons and icons and all files, data, manuals, design notes
and other items and documentation related thereto), but excluding commercially
available shrink-wrapped software.
"Transaction Documents" means the Holdback Agreement, the
Stockholders' Agreement, the Registration Rights Agreement, the Warrant and any
support or other agreements to be entered into by the Purchaser and one or more
of the other parties hereto in connection with the transactions contemplated by
this Agreement.
"Trust" has the meaning ascribed to it in the introductory
paragraph hereto.
"VCOC" has the meaning ascribed to it in Section 6.3.
"Warrant" means the Warrant, to be dated as of the Closing
Date, to be issued from the Company to the Purchaser, substantially in the form
of Exhibit D, as the same may be amended, supplemented or otherwise modified
from time to time in accordance with the provisions thereof.
"Warrant Shares" means, as of any time of determination, the
shares of Common Stock (or any successor securities) which are then issuable
under the Warrant upon the exercise thereof in full.
"Year 2000 Compliant" means, with respect to any of the
services, products, operations or businesses of the Company or its Subsidiaries
as demonstrated through appropriate testing of the same, design and performance
capabilities (including the ability of services and products distributed by the
Company or its Subsidiaries to recognize the century and to manage and
manipulate data involving dates, including single century and multi-century
formulas and date values, without resulting in the generation of incorrect
values involving such dates or causing any abnormal endings) such that prior to,
during, and after the calendar year 2000, none of the assets, services, products
or operations of the Company or its Subsidiaries will malfunction, produce
errors, cause or suffer premature cancellation or expiration of contractual
rights, cause or suffer deletion of data or invalid or incorrect results, or
abnormally cease to function or exhibit any other problems in
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connection with (i) the year 2000 (and all subsequent years) as distinct from
1900s years, (ii) the date February 29, 2000, and all subsequent leap years,
(iii) the date September 9, 1999, or (iv) any other calendar date (such failures
and other problems, the "Year 2000 Problem").
"Year 2000 Plan" has the meaning ascribed to it in Section
3.16.
"Year 2000 Problem" has the meaning ascribed to it in this
Section 1.1.
1.2 Certain Conventions. Unless the context of this Agreement
otherwise requires, (i) words of any gender include each other gender, (ii)
words using the singular or plural number also include the plural or singular
number, respectively, (iii) the terms "hereof," "herein," "hereby" and
derivative or similar words refer to this entire Agreement, (iv) the terms
"Article", "Section", "Schedule" and "Exhibit" refer to the specified Article or
Section of, or the specified Schedule or Exhibit to, this Agreement, (v) the
words "include", "includes" and "including" are deemed to be followed by the
phrase "without limitation", and (vi) the phrases "ordinary course of business"
and "ordinary course of business consistent with past practice" refer to the
business and practice of the Company or a Subsidiary. All accounting terms used
herein and not expressly defined herein shall have the respective meanings given
to them under GAAP.
ARTICLE II
SALE OF SHARES; CLOSING
2.1 Purchase and Sale.
(a) At the Closing, on the terms and subject to the conditions
of this Agreement, the Company shall issue and sell to the Purchaser, and the
Purchaser shall purchase from the Company, the Issued Shares, free and clear of
all Liens, for an aggregate purchase price (payable in cash in the manner
provided in Section 2.2) equal to the Purchase Price with respect to the
Company.
(b) At the Closing, on the terms and subject to the conditions
of this Agreement, the Trust shall sell to the Purchaser, and the Purchaser
shall purchase from the Trust, the Selling Stockholders' Shares, free and clear
of all Liens, for an aggregate purchase price (payable in cash in the manner
provided in Section 2.2) equal to the Purchase Price with respect to the Trust.
2.2 Closing. The Closing will take place at such location as
the Purchaser and the Seller Parties mutually agree on the first Business Day as
of which each of the conditions precedent set forth in Article VII and Article
VIII shall have been satisfied or waived as provided therein, or on such other
date as the Purchaser and the Seller Parties shall mutually agree. At the
Closing, the Purchaser shall pay the Purchase Price with respect to the Company
or the Trust (as applicable) by wire transfer of immediately available funds to
the account specified by the Company or the Trust (as applicable) by written
notice delivered to the Purchaser at least two Business Days
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before the Closing Date. Simultaneously, (a) the Company shall deliver to the
Purchaser (i) one or more stock certificates, registered in the name of the
Purchaser, representing the Issued Shares and (ii) the Warrant, issued in the
name of the Purchaser, and (b) the Trust shall deliver, or cause to be
delivered, to the Purchaser one or more stock certificates representing the
Selling Stockholders' Shares, together with all necessary instruments of
transfer, all in form and substance reasonably satisfactory to the Purchaser. At
the Closing, there shall also be delivered to the Seller Parties and the
Purchaser the opinions, certificates and other Contracts, documents and
instruments to be delivered under Articles VII and VIII.
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser
that the statements contained in this Article III are true and correct as of the
date of this Agreement and will be true and correct as of the Closing Date
(except to the extent any such statement is expressly made as of a specific
date, in which case such statement will be true and correct as of such date):
3.1 Organization of the Company. The Company is a corporation
duly organized, validly existing and in good standing under the Laws of the
State of Delaware, and is duly qualified, licensed or admitted to do business
and in good standing in those jurisdictions in which the ownership, use or
leasing of its Assets and Properties or the conduct or nature of its business
makes such qualification, licensing or admission necessary, except for such
failures to be so qualified, licensed, admitted or in good standing which will
not, individually or in the aggregate, have a material adverse effect on the
Business or Condition of the Company.
3.2 Power and Authority. The Company has the requisite power
and authority to execute and deliver this Agreement and the Transaction
Documents to which it is a party, to perform its obligations hereunder and
thereunder, and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by the Company of this Agreement and the Transaction
Documents to which it is a party, the performance by the Company of its
obligations hereunder and thereunder, and the consummation of the transactions
contemplated hereby and thereby, have been duly and validly authorized by all
necessary action on the part of the board of directors of the Company, which
action is the only action necessary to authorize the execution, delivery and
performance by the Company of this Agreement and the Transaction Documents to
which it is a party. This Agreement has been duly and validly executed and
delivered by the Company and (assuming the due and valid authorization,
execution and delivery hereof by the Selling Stockholders and the Purchaser)
constitutes, and upon the execution and delivery by the Company of each
Transaction Document to which it is a party (assuming the due and valid
authorization, execution and delivery thereof by the other parties thereto, if
any) each such Transaction Document will constitute, a legal, valid and binding
obligation of the Company enforceable against the Company in accordance with its
terms, except, in each case, as the
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enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
3.3 Capital Stock. As of the date hereof and as of the Closing
Date immediately before giving effect to the Closing, the authorized capital
stock of the Company consists of 150,000,000 shares of Common Stock and
5,000,000 shares of preferred stock, par value $.001 per share. As of the date
hereof and as of the Closing Date, immediately before giving effect to the
Closing, 30,223,361 shares of Common Stock are outstanding, all of which shares
are duly authorized, fully paid and nonassessable and have been validly issued
in compliance with all applicable federal and, to the knowledge of the Company,
state securities laws. No shares of Common Stock are held as treasury stock. No
other shares of capital stock of the Company have been issued or are
outstanding. Except for the Warrant or as disclosed in Schedule 3.3(a) , there
are no outstanding Options or agreements, arrangements or understandings to
issue Options with respect to the Company, and there are no preemptive rights or
agreements, arrangements or understandings to issue preemptive rights with
respect to the issuance or sale of shares of capital stock or other equity
interests in the Company. On the date hereof, the Company has delivered to the
Purchaser, in writing, a true and complete description of the nature, holder,
exercise price and other material terms of each outstanding Option of the
Company, in each case as of the date hereof. On the Closing Date, the delivery
to the Purchaser of the certificate or certificates representing the Issued
Shares will vest in the Purchaser good and valid title to the Issued Shares,
free and clear of all Liens, and the Issued Shares will have been duly
authorized, validly issued, fully paid and nonassessable. On the Closing Date,
the delivery to the Purchaser of the Warrant will vest in the Purchaser good and
valid title to the Warrant, free and clear of all Liens. The Company and its
board of directors and stockholders have taken all actions necessary to reserve
the full number of shares of Common Stock issuable upon exercise of the Warrant.
The shares of Common Stock issuable upon exercise of the Warrant, when issued
upon any exercise thereof, will be duly authorized, validly issued, fully paid
and nonassessable. Except as set forth herein or in Schedule 3.3(b), none of the
execution, delivery or performance by the Company of this Agreement or the
Transaction Documents to which it is a party, the issuance of the Issued
Securities as contemplated hereby, the sale of the Selling Stockholders' Shares
as contemplated hereby, the issuance of shares of Common Stock upon any exercise
of the Warrant, the performance by the Company of its obligations under the
Transaction Documents to which it is a party or the exercise by any holder of
Issued Securities of the rights granted to such holder under the Transaction
Documents to which the Company is a party, will give rise to or result in (with
or without notice, lapse of time or both) any antidilution adjustment,
acceleration of vesting or other change under or to any Option. Other than the
Transaction Documents, the Company is not a party or subject to any agreement or
understanding and, to the knowledge of the Company, there is no agreement or
understanding between or among Persons which relates to the voting or giving of
written consents or nominating directors, with respect to the Company, any of
its Subsidiaries or any of its or their respective securities.
3.4 Subsidiaries. Each Subsidiary is a corporation duly
organized, validly existing and in good standing under the Laws of its
jurisdiction of incorporation and has full
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corporate power and authority to conduct its business as and to the extent now
conducted and to own, use and lease its Assets and Properties. Each Subsidiary
is duly qualified, licensed or admitted to do business and in good standing in
those jurisdictions in which the ownership, use or leasing of such Subsidiary's
Assets and Properties, or the conduct or nature of its business, makes such
qualification, licensing or admission necessary, except for such failures to be
so qualified, licensed, admitted or in good standing which will not,
individually or in the aggregate, have a material adverse effect on the Business
or Condition of the Company. All of the outstanding shares of capital stock of
each Subsidiary have been duly authorized and validly issued and are fully paid
and nonassessable. Except as disclosed in Schedule 3.4(a), all of the
outstanding shares of capital stock of each Subsidiary are owned, beneficially
and of record, by the Company or a Subsidiary that is wholly owned by the
Company, free and clear of all Liens. There are no outstanding Options with
respect to any Subsidiary and no agreements, arrangements or understandings to
issue Options with respect to any Subsidiary, and there are no preemptive rights
or agreements, arrangements or understandings to issue preemptive rights with
respect to the issuance or sale of capital stock of or other equity interests in
any Company. Except for the capital stock of the Subsidiaries, or as disclosed
in Schedule 3.4(b), neither the Company nor any Subsidiary holds any equity,
partnership, limited liability company, joint venture or other interest in any
Person.
3.5 No Conflicts. The execution and delivery by the Company of
this Agreement and the Transaction Documents to which it is a party, the
performance by the Company of its obligations hereunder and thereunder, and the
consummation of the transactions contemplated hereby and thereby, does not and
will not: (a) conflict with or result in a violation or breach of any of the
terms, conditions or provisions of the Company's certificate of incorporation or
by-laws; (b) conflict with or result in a violation or breach of any term or
provision of any Law or Order applicable to the Company or any Subsidiary or any
of their respective Assets and Properties; or (c) except as set forth in
Schedule 3.5, (i) conflict with or result in a violation or breach of, (ii)
constitute (with or without notice or lapse of time or both) a default under,
(iii) require the Company or any Subsidiary to obtain any consent, approval or
action of, make any filing with or give any notice to any Person as a result or
under the terms of, (iv) result in any termination, cancellation, acceleration
or modification of, or give to any Person any right of termination,
cancellation, acceleration or modification in or with respect to, (v) result in
or give to any Person any additional rights or entitlement to increased,
additional, accelerated or guaranteed payments under, (vi) result in the
creation of any new, additional or increased liability of the Company or any
Subsidiary under, or (vii) result in the creation or imposition of any Lien upon
the Company or any Subsidiary or any of their respective Assets and Properties
under, any Contract to which the Company or any Subsidiary is a party or by
which any of their respective Assets and Properties is bound.
3.6 Governmental Approvals and Filings. Except as set forth in
Schedule 3.6, no consent, approval or action of, filing with or notice to any
Governmental or Regulatory Authority on the part of the Company is required in
connection with the execution, delivery and performance of this Agreement or the
Transaction Documents to which it is a party or the consummation of the
transactions contemplated hereby or thereby.
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3.7 SEC Documents; Financial Statements; Projections.
(a) Each report, schedule, form, statement and other document
required to be filed by the Company with the SEC (each an "SEC Document", and
collectively, the "SEC Documents") has been so filed. As of its filing date,
each SEC Document, and any SEC Documents that will be filed prior to or after
the Closing, complied or will comply in all material respects with the
applicable requirements of the Securities Act and the Exchange Act. None of the
SEC Documents, except to the extent that information contained therein has been
revised or superseded by an SEC Document subsequently filed with the SEC,
contains or will contain any untrue statement of a material fact or omits,
omitted or will omit to state a material fact (x) necessary in order to make the
statements therein, in light of the circumstances under which they were made,
not misleading or (y) required to be stated therein or necessary to make the
statements therein not misleading. The financial statements of the Company and
its Subsidiaries included in the SEC Documents comply in all material respects
with the applicable requirements under the Securities Act and the Exchange Act
and any other published rules and regulations of the SEC with respect to
accounting requirements, have been prepared in accordance with GAAP (except as
may be indicated in the notes thereto) and fairly present the consolidated
financial position of the Company and its Subsidiaries as of the respective
dates thereof and the consolidated results of their operations and cash flows
for the respective periods then ended (subject, in the case of unaudited
statements, to normal year-end audit adjustments which will not have or reflect
a material adverse effect on the Business or Condition of the Company).
(b) The Confidential Offering Memorandum submitted to the
Purchaser and the Company's one-year projections delivered to the Purchaser and
dated December 10, 1999 set forth (i) the Company's business plan and (ii) the
most recently prepared five-year and one-year financial internal projections for
the Company and its Subsidiaries. Such Memorandum and projections set forth the
Company's present intentions regarding its business plan and financial
strategies. The assumptions upon which such projections are based are, in the
Company's opinion, reasonable, and to the best of the Company's knowledge, are
mathematically correct based upon those assumptions.
3.8 Absence of Changes. Since the Financial Statement Date,
except as set forth in Schedule 3.8 or as disclosed in the SEC Documents filed
prior to the date hereof, there has not been any event or development which,
individually or together with other such events, did have or could reasonably be
expected to have a material adverse effect on the Business or Condition of the
Company. None of the other representations or warranties in this Agreement shall
be deemed to limit the foregoing.
3.9 Legal Proceedings. Except as set forth in Schedule 3.9,
there are no Actions or Proceedings pending or, to the knowledge of the Company
threatened overtly against, relating to or affecting any of the Company or any
Subsidiary or any of their respective Assets and Properties, which (i) could
reasonably be expected to result in the issuance of an Order restraining,
enjoining or otherwise prohibiting or making illegal the consummation of any of
the transactions contemplated by this Agreement or the Transaction Documents to
which the Company is a party, (ii) have been
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brought by end users of products or services provided by the Company or any
Subsidiary in connection with the performance of such products or services, or
(iii) if determined adversely to the Company or such Subsidiary, could
reasonably be expected to, individually or in the aggregate with other such
Actions or Proceedings, have a material adverse effect on the Business or
Condition of the Company.
3.10 Compliance with Laws; Anti-Takeover Plans.
(a) Neither the Company nor any Subsidiary is in violation of
any Laws or any Orders of any Governmental or Regulatory Authority applicable to
the Company or such Subsidiary, or by which it is bound, except for violations
the existence of which would not, individually or in the aggregate, have a
material adverse effect on the Business or Condition of the Company.
(b) Except as expressly set forth in the Company's certificate
of incorporation and by-laws (true and correct copies of which are incorporated
by reference in the Company's Form 10- K for the fiscal year ended January 31,
1999, as filed with the SEC), there are no rights plans, "poison pill" plans,
voting trusts or similar arrangements, "golden parachute" or similar plans or
provisions, or other arrangements or Contracts relating to the Company or its
capital stock that are intended to increase the cost or difficulty of effecting
a change of control of the Company (collectively, "Anti-Takeover Plans").
Neither the Company nor its board of directors has any present intention of
adopting any Anti-Takeover Plan. Notwithstanding the foregoing, the Company
intends to enter into employee retention agreements with certain key executives.
3.11 Other Negotiations; Brokers. None of the Company, any
Subsidiary or any of their respective Affiliates (nor any investment banker,
financial advisor, attorney, accountant or other Person retained by or acting
for or on behalf of the Company, any Subsidiary or any such Affiliate) (i) has
entered into any Contract that conflicts with any of the transactions
contemplated by this Agreement or the Transaction Documents to which the Company
is a party or (ii) has entered into any Contract or had any discussions with any
third party regarding any transaction involving the Company or any Subsidiary
which could result in the Purchaser, any of its general or limited partners, or
any officer, director, employee, partner, agent or Affiliate of the Purchaser or
any such partner being subject to any claim for liability to said third party in
connection with this Agreement or the Transaction Documents to which the Company
is a party or the consummation of any of the transactions contemplated hereby or
thereby. Except for Xxxxxxxx Xxxxx Xxxxxx & Xxxxx Capital, whose fees and
expenses are being paid by the Company, no agent, broker, finder, investment
banker, financial advisor or other similar Person will be entitled to any fee,
commission or other compensation in connection with any of the transactions
contemplated by this Agreement or the Transaction Documents to which the Company
is a party on the basis of any act or statement made or alleged to have been
made by the Company, any Subsidiary, any of their respective Affiliates, or any
investment banker, financial advisor, attorney, accountant or other Person
retained by or acting for or on behalf of the Company, any Subsidiary, or any
such Affiliate.
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3.12 Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities. Assuming the representations and warranties
of the Purchaser set forth in Section 5.3 are true and correct in all material
respects, the offer and sale of the Issued Shares made to the Purchaser pursuant
to this Agreement and the issuance of the Warrant to the Purchaser pursuant to
this Agreement are in each case exempt from the registration requirements of the
Securities Act. Neither the Company nor any Person authorized to act on its
behalf has, in connection with the offering of the Issued Shares or the issuance
of the Warrant, engaged in (i) any form of general solicitation or general
advertising (as those terms are used within the meaning of Rule 502(c) under the
Securities Act), (ii) any action involving a public offering within the meaning
of Section 4(2) of the Securities Act, or (iii) any action that would require
the registration under the Securities Act of the (x) offering and sale of any
Issued Shares pursuant to this Agreement or (y) the issuance of the Warrant
pursuant to this Agreement, or that would violate applicable state securities or
"blue sky" laws. Neither the Company nor any Person authorized to act on its
behalf has made, directly or indirectly, any offer or sale of any Issued
Securities or of securities of the same or a similar class as any Issued
Securities that could cause any offer, sale or issuance of any Issued Securities
contemplated hereby to fail to be entitled to exemption from the registration
requirements of the Securities Act. As used herein, the terms "offer" and "sale"
have the meanings specified in Section 2(3) of the Securities Act.
3.13 No Undisclosed Liabilities. Except as reflected or
reserved against in the Company's unaudited consolidated balance sheet as set
forth in the Company's Quarterly Report, for the quarter ended October 31, 1999,
filed with the SEC on Form 10-Q (or in the notes thereto) or as disclosed in
Schedule 3.13, there are no Liabilities of, relating to or affecting the Company
or any of its Subsidiaries or any of their respective Assets and Properties,
other than Liabilities incurred in the ordinary course of business consistent
with past practice since the Financial Statement Date in accordance with the
provisions of this Agreement and which (a) in the aggregate, could not
reasonably be expected to have a material adverse effect on the Business or
Condition of the Company and (b) to the knowledge of the Company or any
Subsidiary, are not for tort or for breach of contract.
3.14 Affiliate Transactions. Except as disclosed in Schedule
3.14 and except as between Company and the Subsidiaries, (i) there are no
Liabilities owed to the Company or any Subsidiary by any Selling Stockholder,
any Affiliate of the Company or any Affiliate of any Selling Stockholder, (ii)
there are no Liabilities owed by the Company or any Subsidiary to any Selling
Stockholder, any Affiliate of the Company or any Affiliate of any Selling
Stockholder, (iii) none of the Selling Stockholders nor any of their respective
Affiliates, nor any other Affiliate of the Company, provides or causes to be
provided any Assets and Properties, services or facilities to the Company or any
Subsidiary, and (iv) neither the Company nor any Subsidiary provides, or causes
to be provided, any Assets and Properties, services or facilities to any Selling
Stockholder or any Affiliate thereof or to any other Affiliate of the Company.
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3.15 Substantial Customers and Suppliers; Related Matters.
(a) Prior to the date hereof, the Company has delivered to the
Purchaser a true and complete list of the ten (10) largest customers of the
Company and its Subsidiaries, collectively, on the basis of revenues for goods
sold or services provided for the twelve months ended October 31, 1999. Such
customers, in the aggregate, accounted for less than 15% of the consolidated
gross revenues of the Company and the Subsidiaries for such twelve-month period.
To the knowledge of the Company or any Subsidiary, no such customer is
threatened with bankruptcy or insolvency. To the knowledge of the Company or any
Subsidiary, no customer of the Company or any Subsidiary, as of the date hereof,
intends to discontinue or alter the prices or terms of, or substantially
diminish, its relationship with the Company or any Subsidiary except where such
discontinuation, alteration or diminution has not had, and is not reasonably
likely to have, individually or in the aggregate, a material adverse effect on
the Business or Condition of the Company. To the knowledge of the Company, there
is no reason to believe that the Company's historical reserves with respect to
sales allowances are inadequate to cover such allowances.
(b) Other than Progress, there is no material supplier of
goods or services to the Company which the Company would be unable to replace on
a timely basis with a comparable supplier on comparable terms. Progress has not
ceased or materially reduced its provision of products and services to the
Company or any of its Subsidiaries since the Financial Statement Date nor, to
the knowledge of the Company or any Subsidiary, has threatened to cease or
materially reduce such provision of products and services after the date hereof.
To the knowledge of the Company or any Subsidiary, Progress is not threatened
with bankruptcy or insolvency.
(c) The Company and it Subsidiaries enjoy normal commercial
relationships with their selling partners and distributors taken as a whole.
(d) The Company has delivered to the Purchaser a current
version of its sales prospect report, which sets forth an estimate of the
weighted probability of sales by the Company or a Subsidiary to the extent that
likely specific prospects have been identified. The Company believes that the
assumptions upon which such report has been prepared are reasonable.
3.16 Year 2000. The Company and its Subsidiaries have (i)
initiated a review and assessment of the business operations of Company and its
Subsidiaries (including recommended products and services provided to customers
and those areas affected by suppliers and vendors) that could reasonably be
affected by the Year 2000 Problem, (ii) developed a comprehensive plan, as
disclosed in the SEC Documents (the "Year 2000 Plan"), to address the Year 2000
Problem, and (iii) implemented and complied with (including dates by which steps
and actions are to be taken and performed by) the Year 2000 Plan in accordance
with the terms thereof. The Year 2000 Plan includes all appropriate, necessary
and timely steps, actions and plans to make the Company and its Subsidiaries
(including all recommended products and services provided to customers) Year
2000 Compliant in all material respects in accordance with the methods and the
time frames set forth therein. As of the date hereof, there are no material
issues or events that prevent the Company and
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its Subsidiaries from fully addressing the Year 2000 Problem consistent with the
terms of the Year 2000 Plan. All Third Party Software and all hardware used by
the Company or its Subsidiaries has been represented by the providers thereof to
be Year 2000 Compliant for the intended uses and purposes of such Third Party
Software and such hardware. Provided that the relevant customer uses a
recommended version of the Company's or a Subsidiary's product and complies with
the applicable software product description concerning date management
functionality, each of the products furnished by the Company or a Subsidiary to
any customer thereof (whether before or after the date hereof) will be Year 2000
Compliant in all material respects.
3.17 Holding Company Act and Investment Company Act Status.
Neither the Company nor any Subsidiary is a "holding company" or a "public
utility company", as such terms are defined in the Public Utility Holding
Company Act of 1935, as amended. Neither the Company nor any Subsidiary is an
"investment company", or a company "controlled" by an "investment company",
within the meaning of the Investment Company Act of 1940, as amended.
3.18 NASD Matters. The Common Stock is listed on the NASDAQ
National Market, and the listing agreement between the NASD and the Company with
respect thereto is in full force and effect. The Purchased Shares will be
approved for listing on the NASDAQ National Market upon the approval by the NASD
of the Company's listing application for additional shares filed pursuant to the
terms of Section 6.4.
3.19 Intellectual Property.
(a) To the knowledge of the Company, the Company and the
Subsidiaries either own or have a valid and bending license to use each item of
Intellectual Property that is material to the conduct of their business, taken
as a whole.
(b) The Company has shipped a beta version of its eQ software
to two customers, and each customer continues its participation in the beta
tests.
3.20 Bank One Credit Facilities. Neither the Company nor any
Subsidiary is or has received any notice that it is currently in violation or
breach of or default under any covenant or other provision of any Contract
relating to the Company's credit facilities with Banc One. The Company has no
presently active request from Banc One with respect to the availability formula
or total amount of such facilities.
3.21 Disclosure. No representation or warranty on the part of
the Company contained in this Agreement, and no statement contained in any
schedule or in any certificate, list or other writing furnished to the Purchaser
pursuant to any provision of this Agreement, including pursuant to Article VII,
contains any untrue statement of a material fact or omits to state a material
fact necessary in order to make the statements herein or therein, in the light
of the circumstances under which they were made, not misleading.
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ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING STOCKHOLDERS
The Selling Stockholders hereby jointly and severally
represent and warrant to the Purchaser that the statements contained in this
Article IV are true and correct as of the date of this Agreement and will be
true and correct as of the Closing Date (except to the extent any such statement
is expressly made as of a specific date, in which case such statement will be
true and correct as of such date):
4.1 Power and Authority. The Trust has been duly formed and is
validly existing under the laws of the State of California. Each Selling
Stockholder has the requisite power and authority and legal capacity to execute
and deliver this Agreement and the Transaction Documents to which it is a party,
to perform its obligations hereunder and thereunder, and to consummate the
transactions contemplated hereby and thereby. The execution and delivery by the
Trust of this Agreement and the Transaction Documents to which it is a party,
the performance by the Trust of its obligations hereunder and thereunder, and
the consummation of the transactions contemplated hereby and thereby, have been
duly and validly authorized by all necessary action on the part of the trustees
and beneficiaries of the Trust, which action is the only action necessary to
authorize the execution, delivery and performance by the Trust of this Agreement
and the Transaction Documents to which it is a party. This Agreement has been
duly and validly executed and delivered by each Selling Stockholder and
(assuming the due and valid authorization, execution and delivery hereof by the
Company and the Purchaser) constitutes, and upon the execution and delivery by
each Selling Stockholder of the Transaction Documents to which it is a party
(assuming the due and valid authorization, execution and delivery thereof by the
Company (of the Transaction Documents to which it is a party) and the
Purchaser), each such Transaction Document will constitute, a legal, valid and
binding obligation of such Selling Stockholder enforceable against such Selling
Stockholder in accordance with its terms, except, in each case, as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
4.2 Ownership of the Selling Stockholders' Shares.
(a) The Trust owns, beneficially and of record and free and
clear of all Liens, the Selling Stockholders' Shares. Other than the Transaction
Documents to which he or she is a party, none of the Selling Stockholders is a
party or subject to any agreement or understanding with respect to the Selling
Stockholders' Shares and, to the knowledge of the Selling Stockholders, there is
no agreement or understanding between or among any Persons which relates to the
voting or giving of written consents or nominating directors with respect to the
Company, any of its Subsidiaries or any of their respective securities.
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(b) At the Closing, the delivery to the Purchaser of the
certificate or certificates representing the Selling Stockholders' Shares will
vest in the Purchaser good and valid title to the Selling Stockholders' Shares,
free and clear of all Liens.
(c) As of the date hereof, the Trust owns, beneficially and of
record, 18,181,706 shares of Common Stock. As of the Closing Date, after giving
effect to the Closing, the Trust will own, beneficially and of record,
17,737,261 shares of Common Stock.
4.3 No Conflicts. The execution and delivery by each of the
Selling Stockholders of this Agreement and the Transaction Documents to which it
is a party, the performance by each of the Selling Stockholders of its
respective obligations hereunder and thereunder, and the consummation of the
transactions contemplated hereby and thereby, does not and will not: (a)
conflict with or result in a violation or breach of any of the terms, provisions
or conditions of the constitutive documents of the Trust; (b) conflict with or
result in a violation or breach of any term or provision of any Law or Order
applicable to any of the Selling Stockholders or any of their respective Assets
and Properties; or (c) except as set forth in Schedule 4.3, (i) conflict with or
result in a violation or breach of, (ii) constitute (with or without notice or
lapse of time or both) a default under, (iii) require any of the Selling
Stockholders to obtain any consent, approval or action of, make any filing with
or give any notice to any Person as a result or under the terms of, (iv) result
in any termination, cancellation, acceleration or modification of, or give to
any Person any right of termination, cancellation, acceleration or modification
in or with respect to, (v) result in or give to any Person any additional rights
or entitlement to increased, additional, accelerated or guaranteed payments
under, (vi) result in the creation of any new, additional or increased liability
of any of the Selling Stockholders under, or (vii) result in the creation or
imposition of any Lien upon the Selling Stockholders' Shares or any other assets
of any Selling Stockholder under, any Contract to which any of the Selling
Stockholders is a party or by which any of their respective Assets and
Properties is bound.
4.4 Governmental Approvals and Filings. No consent, approval
or action of, filing with or notice to any Governmental or Regulatory Authority
on the part of any Selling Stockholder is required in connection with the
execution, delivery and performance of this Agreement or the Transaction
Documents to which any Selling Stockholder is a party or the consummation of the
transactions contemplated hereby or thereby.
4.5 Other Negotiations; Brokers. None of the Selling
Stockholders or any of their respective Affiliates (nor any investment banker,
financial advisor, attorney, accountant or other Person retained by or acting
for or on behalf of any of the Selling Stockholders or any such Affiliate) (i)
has entered into any Contract that conflicts with any of the transactions
contemplated by this Agreement or the Transaction Documents to which any Selling
Stockholder is a party or (ii) has entered into any Contract or had any
discussions with any third party regarding any transaction involving the
Company, any Subsidiary or any of the Selling Stockholders which could result in
the Purchaser, any of its general or limited partners, or any officer, director,
employee, partner, agent or Affiliate of the Purchaser or any such partner being
subject to any claim for liability to said third
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party in connection with this Agreement or the Transaction Documents to which
any Selling Stockholder is a party or the consummation of any of the
transactions contemplated hereby or thereby. No agent, broker, finder,
investment banker, financial advisor or other similar Person will be entitled to
any fee, commission or other compensation in connection with any of the
transactions contemplated by this Agreement or the Transaction Documents to
which any Selling Stockholder is a party on the basis of any act or statement
made or alleged to have been made by any of the Selling Stockholders, any of
their respective Affiliates, or any investment banker, financial advisor,
attorney, accountant or other Person retained by or acting for or on behalf of
any of the Selling Stockholders or any such Affiliate.
4.6 Exemption from Registration; Restrictions on Offer and
Sale of Same or Similar Securities. Assuming the representations and warranties
of the Purchaser set forth in Section 5.3 are true and correct in all material
respects, the offer and sale of the Selling Stockholders' Shares made to the
Purchaser pursuant to this Agreement is exempt from the registration
requirements of the Securities Act. None of the Selling Stockholders nor any
Person authorized to act on behalf of any of them has, in connection with the
offering of the Selling Stockholders' Shares, engaged in (i) any form of general
solicitation or general advertising (as those terms are used within the meaning
of Rule 502(c) under the Securities Act), or (ii) any other action that would
require the registration under the Securities Act of the sale of any Selling
Stockholders' Shares pursuant to this Agreement or that would violate applicable
state securities or "blue sky" laws. None of the Selling Stockholders nor any
Person authorized to act on their behalf has made, directly or indirectly, any
offer or sale of any Selling Stockholders' Shares or of securities of the same
or a similar class as any Selling Stockholders' Shares that could cause any
offer or sale of any Selling Stockholders' Shares contemplated hereby to fail to
be entitled to exemption from the registration requirements of the Securities
Act. As used herein, the terms "offer" and "sale" have the meanings specified in
Section 2(3) of the Securities Act.
4.7 Legal Proceedings. There are no Actions or Proceedings
pending or, to the knowledge of the Purchaser, overtly threatened against,
relating to or affecting the Purchaser which could reasonably be expected to
result in the issuance of an Order restraining, enjoining or otherwise
prohibiting or making illegal the consummation by the Purchaser of any of the
transactions contemplated by this Agreement or any of the Transaction Documents
to which the Purchaser is a party.
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Seller
Parties that the statements contained in this Article V are true and correct as
of the date of this Agreement and will be true and correct as of the Closing
Date (except to the extent any such statement is expressly made as of a specific
date, in which case such statement will be true and correct as of such date):
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5.1 Organization; Power and Authority. The Purchaser is a
limited partnership duly organized, validly existing and in good standing under
the Laws of the State of Delaware. The Purchaser has the requisite partnership
power and authority to execute and deliver this Agreement and the Transaction
Documents to which it is a party, to perform its obligations hereunder and
thereunder and to consummate the transactions contemplated hereby and thereby.
The execution and delivery by the Purchaser of this Agreement and the
Transaction Documents to which it is a party, the performance by the Purchaser
of its obligations hereunder and thereunder, have been duly and validly
authorized by all requisite partnership action on the part of the Purchaser.
This Agreement has been duly and validly executed and delivered by the Purchaser
and (assuming the due and valid authorization, execution and delivery hereof by
each of the Seller Parties) constitutes, and upon the execution and delivery by
the Purchaser of the Transaction Documents to which it is a party (assuming the
due and valid authorization, execution and delivery thereof by each of the
Seller Parties that is a party thereto) each such Transaction Document will
constitute, a legal, valid and binding obligation of the Purchaser enforceable
against the Purchaser in accordance with its terms, except in each case as the
enforceability thereof may be limited by bankruptcy, insolvency, fraudulent
conveyance, reorganization, moratorium or other similar laws relating to the
enforcement of creditors' rights generally and by general principles of equity.
5.2 No Conflicts. The execution, delivery and performance by
the Purchaser of this Agreement, and the consummation by the Purchaser of the
transactions contemplated hereby, will not conflict with, or constitute a
default under, any agreement, indenture or instrument to which the Purchaser is
a party, or result in a violation of (a) the Purchaser's constitutive documents
(and the purchase of the Purchased Shares is permitted under such constitutive
documents) or (b) any Order of any Governmental or Regulatory Authority having
jurisdiction over the Purchaser or any of its properties. Except for such
filings as may be required by the Exchange Act, no consent, approval or action
of, or filing or registration with, any Governmental or Regulatory Authority is
required on the part of the Purchaser for its execution, delivery and
performance of this Agreement.
5.3 Acquisition for Investment. The Purchased Shares and the
Warrant will be acquired by the Purchaser for its own account for the purpose of
investment and not with a view to the resale or distribution of all or any part
of the Purchased Shares or the Warrant in violation of the Securities Act, it
being understood that the right to dispose of the Purchased Shares and the
Warrant shall be entirely within the discretion of the Purchaser. The Purchaser
is an "accredited investor" (as such term is defined in Rule 501(a) of
Regulation D under the Securities Act). The Purchaser has such knowledge and
experience in financial and business matters as to be able to evaluate the
merits and risks of its acquisition of the Purchased Shares and the Warrant
pursuant to this Agreement and is able to bear the economic risk of such
acquisition (including a complete loss of its investment). The Purchaser
understands that the Purchased Shares and the Warrant being acquired by it
hereunder have not been registered under the Securities Act or any state
securities laws in reliance on exemptions from the registration requirements of
the Securities Act and such state securities laws, which depend upon, among
other things, the accuracy of the representations of the Purchaser set forth in
this Section 5.3.
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5.4 Brokers. No agent, broker, finder, investment banker,
financial advisor or other similar Person will be entitled to any fee,
commission or other compensation in connection with any of the transactions
contemplated by this Agreement on the basis of any act or statement made by the
Purchaser.
ARTICLE VI
COVENANTS OF THE SELLER PARTIES
Each of the Seller Parties covenants and agrees with the
Purchaser that, at all times from and after the date hereof and until the
Closing and, with respect to any covenant or agreement by its terms to be
performed in whole or in part after the Closing, for the period specified herein
or, if no period is specified herein, indefinitely, such Seller Party will
comply with all the covenants and provisions contained in this Article VI that
are applicable to it, except to the extent that the Purchaser may otherwise
consent in writing.
6.1 Regulatory and Other Approvals. Each of the Seller Parties
shall, and the Company shall cause each of the Company's Subsidiaries to, (a)
take all necessary or desirable steps and proceed diligently and in good faith
and use its best efforts, as promptly as practicable, to obtain all consents,
approvals or actions of, to make all filings with and to give all notices to,
Governmental or Regulatory Authorities and other Persons required on its part to
consummate the transactions contemplated by this Agreement and the Transaction
Documents, and (b) provide such other information and communications to such
Governmental or Regulatory Authority or other Persons as the Purchaser or any
such Governmental or Regulatory Authority or other Person may reasonably request
and (c) cooperate with the Purchaser as promptly as practicable in obtaining all
consents, approvals or actions of, making all filings with and giving all
notices to, Governmental or Regulatory Authorities and other Persons required on
the part of the Purchaser to consummate the transactions contemplated by this
Agreement and the Transaction Documents. Each of the Seller Parties shall
provide prompt notification to the Purchaser when any such consent, approval,
action, filing or notice on its part (and, in the case of the Company, on a
Subsidiary's part) referred to in clause (a) above is (or is caused to be)
obtained, taken, made or given, as applicable, and will advise the Purchaser of
any communications (and, unless precluded by Law, provide the Purchaser with
copies of any such communications that are in writing) with any Governmental or
Regulatory Authority regarding any of the transactions contemplated by this
Agreement or the Transaction Documents.
6.2 Use of Proceeds. The Company shall use the proceeds from
the sale of the Issued Shares for general corporate purposes.
6.3 Venture Capital Operating Company Status. Without limiting
any other right contained herein, the Purchaser shall have the right to consult
with and advise the management of the Company and to receive all materials
provided to members of the board of directors of the
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Company so long as may be required to enable the Purchaser to qualify as a
"venture capital operating company" within the meaning of Section 2510.3-101 of
the plan asset regulations promulgated by the United States Department of Labor
(a "VCOC"). In addition, in the event that (i) at any time there is no person
designated by the Purchaser on the Company's board of directors, or (ii) the
United States Department of Labor through formal or informal rules, regulations
or interpretations provides, or it is otherwise established through governmental
or court action, that such representation does not constitute the exercise of
management rights of the kind necessary to enable the Purchaser to continue to
qualify as a VCOC, then the Seller Parties and the Purchaser shall in good faith
negotiate provisions to enable the Purchaser to exercise the minimum amount of
such management rights necessary in order for the Purchaser to continue to
qualify as a VCOC.
6.4 NASDAQ National Market. Prior to the Closing, the Seller
Parties shall cause the Purchased Shares to be approved for listing, subject to
notice of issuance, by the NASDAQ National Market.
6.5 Notice of Defaults. Each of the Seller Parties shall
notify the Purchaser promptly in writing of, and contemporaneously shall provide
the Purchaser with true and complete copies of any and all information or
documents relating to, any event, transaction or circumstance that causes or
will cause any covenant or agreement of such Seller Party under this Agreement
to be materially breached (if not qualified by materiality) or breached (if
qualified by materiality) or that renders or shall render materially untrue (if
not qualified by materiality) or untrue (if qualified by materiality) any
representation or warranty of such Seller Party contained in this Agreement as
if the same were made on or as of the date of such event, transaction or
circumstance. Each of the Seller Parties also shall notify the Purchaser
promptly in writing of any material violation or material breach (in each case,
if not qualified by materiality) or any violation or breach (in each case, if
qualified by materiality) of any representation, warranty, covenant or agreement
made by such Seller Party in this Agreement, whether occurring or arising
before, on or after the date of this Agreement. No notice given pursuant to this
Section 6.5, and no representation made by the Purchaser contained in Section
5.3, shall have any effect on the representations, warranties, covenants and
agreements contained in this Agreement for purposes of determining satisfaction
of any condition contained herein or shall in any way limit the Purchaser's
right to seek indemnity under Article IX.
6.6 Reservation of Shares. At all times that all or any
portion of the Warrant is outstanding, the Company shall keep reserved the full
number of shares of Common Stock (or any successor security) then issuable upon
exercise in full of the Warrant.
6.7 Management Services; Management Fee.
(a) The Company hereby engages the Purchaser for the Term,
upon the terms set forth in this Section 6.7, to provide consulting and
management advisory services to the Company. These services will be in the field
of financial and strategic corporate planning and such other management areas as
the Purchaser and the Company shall mutually agree. In consideration of the
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compensation specified in this Section 6.7, the Purchaser accepts such
engagement and agrees to perform the services specified herein, in each case
upon the term set forth in this Section 6.7.
(b) The engagement of the Purchaser under this Section 6.7
shall be for a term (the "Term") commencing on the Closing Date and ending on
the earlier of (i) the fifth anniversary of the Closing Date and (ii) the first
date as of which the Purchaser ceases to own Subject Securities (as defined in
the Stockholders' Agreement) representing (on a fully-diluted basis) at least 1%
of the Purchaser's Original Ownership Level (as defined in the Stockholders'
Agreement).
(c) The Purchaser shall devote such time and efforts to the
performance of the consulting and management advisory services contemplated in
this Section 6.6 as the Purchaser deems necessary or appropriate to the
performance of such services. However, no precise number of hours is to be
devoted by the Purchaser on a weekly, monthly or annual basis. The Purchaser may
perform services under this Agreement directly, through its employees or agents
or, with the approval of the Company, with such outside consultants as the
Purchaser may engage for such purpose. The Company acknowledges that the
Purchaser's services to it are not exclusive and that the Purchaser, its
Affiliates and their respective partners, members, officers, directors,
employees, representatives or agents will render similar services to other
Persons.
(d) In consideration of the Purchaser's provision of
management and advisory services to the Company pursuant to the Section 6.6, the
Company shall pay the Purchaser an annual fee of $312,500, which shall be paid
quarterly in arrears (and prorated on a daily basis in the case of any partial
calender quarter) on the last day of each calendar quarter during the Term and
on the last day of the Term; provided, however, that if on any quarterly (or
other) payment date, the Purchaser owns Subject Securities (on a fully-diluted
basis) constituting less than 50% of the Purchaser's Original Ownership Level,
the fee payable on such date shall equal the product of (i) $312,500 (prorated
for any fractions of a quarter) multiplied by (ii) the fraction of the
Purchaser's Original Ownership Level represented by the Subject Securities (on a
fully-diluted basis) then owned by the Purchaser.
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PURCHASER
The obligations of the Purchaser hereunder are subject to the
fulfillment, at or before the Closing, of each of the following conditions (all
or any of which may be waived in whole or in part by the Purchaser in its sole
discretion):
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7.1 Representations and Warranties. Each of the
representations and warranties made by the Seller Parties in this Agreement
shall be true and correct in all material respects (if not qualified by
materiality) and in all respects (if qualified by materiality) on and as of the
Closing Date as though such representation or warranty was made on and as of the
Closing Date.
7.2 Performance. Each of the Seller Parties shall have
performed and complied with each agreement, covenant and obligation required by
this Agreement to be performed or complied with by such Seller Party at or
before the Closing.
7.3 Certificates. The Company shall have delivered to the
Purchaser a certificate, dated the Closing Date and executed by the President or
any Vice President of the Company, substantially in the form and to the effect
of Exhibit E-1 hereto, and a certificate, dated the Closing Date and executed by
the Secretary or any Assistant Secretary of the Company, substantially in the
form and to the effect of Exhibit E-2 hereto. The Selling Stockholders shall
have delivered to the Purchaser a certificate, dated the Closing Date, executed
by each of the Selling Stockholders, substantially in the form and to the effect
of Exhibit E-3 hereto.
7.4 Orders and Laws. There shall not be in effect on the
Closing Date any Order or Law restraining, enjoining or otherwise prohibiting or
making illegal the consummation of any of the transactions contemplated by this
Agreement or the Transaction Documents.
7.5 Regulatory Consents and Approvals. All consents, approvals
and actions of, filings with and notices to any Governmental or Regulatory
Authority necessary to permit the Purchaser and the Seller Parties to perform
their respective obligations under this Agreement and the Transaction Documents
and to consummate the transactions contemplated by this Agreement and the
Transaction Documents (i) shall have been duly obtained, made or given, (ii)
shall be in form and substance reasonably satisfactory to the Purchaser, (iii)
shall not be subject to the satisfaction of any condition that has not been
satisfied or waived and (iv) shall be in full force and effect, and all
terminations or expirations of waiting periods imposed by any Governmental or
Regulatory Authority necessary for the consummation of the transactions
contemplated by this Agreement and the Transaction Documents shall have
occurred.
7.6 Third Party Consents. All consents (or in lieu thereof
waivers) to the performance by the Purchaser and the Seller Parties of their
respective obligations under this Agreement and the Transaction Documents or to
the consummation of the transactions contemplated by this Agreement or the
Transaction Documents, as are required under any Contract to which the
Purchaser, the Seller Parties or any Subsidiary is a party or by which any of
their respective Assets and Properties are bound and where the failure to obtain
any such consent (or in lieu thereof waiver) could reasonably be expected,
individually or in the aggregate with other such failures, to materially
adversely affect the Purchaser or the Business or Condition of the Company or
otherwise result in a material diminution of the benefits of the transactions
contemplated by this Agreement or the Transaction Documents to the Purchaser in
its sole discretion, (i) shall have been obtained, (ii) shall
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be in form and substance reasonably satisfactory to the Purchaser in its sole
discretion, (iii) shall not be subject to the satisfaction of any condition that
has not been satisfied or waived and (iv) shall be in full force and effect.
7.7 Opinion of Counsel. The Purchaser shall have received the
opinions of Nida & Xxxxxxx LLP, counsel to the Seller Parties, dated the Closing
Date, in substantially the form of Exhibit F.
7.8 Transaction Documents. The Warrant shall have been duly
executed and issued to the Purchaser, and each of the other Transaction
Documents shall have been duly executed and delivered by the respective parties
thereto (other than the Purchaser) and shall be in full force and effect.
7.9 Closing Fee. In addition to the Warrant, the Purchaser
shall have received from the Company, by wire transfer of immediately available
funds to an account designated by the Purchaser, a closing fee in the amount of
$300,000.
7.10 Delivery of Certificates. Duly executed stock
certificates representing the Issued Shares, and stock certificates representing
the Selling Stockholders' Shares, together with all necessary instruments of
transfer, in form and substance reasonably satisfactory to the Purchaser, shall
have been delivered to the Purchaser.
7.11 NASDAQ National Market. The Purchased Shares shall have
been approved for listing, subject to notice of issuance, by the NASDAQ National
Market.
7.12 Proceedings. All proceedings to be taken on the part of
the Seller Parties in connection with the transactions contemplated by this
Agreement and all documents incident thereto shall be reasonably satisfactory in
form and substance to the Purchaser, in its sole discretion, and its legal
counsel, and the Purchaser shall have received copies of all such documents and
other evidence as the Purchaser may reasonably request in order to establish the
consummation of such transactions and the taking of all proceedings in
connection therewith.
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE SELLER PARTIES
The obligations of the Seller Parties hereunder are subject to
the fulfillment, at or before the Closing, of each of the following conditions
(all or any of which may be waived in whole or in part (as to any Seller Party)
by such Seller Party in its sole discretion):
8.1 Representations and Warranties. Each of the
representations and warranties made by the Purchaser in this Agreement shall be
true and correct in all material respects on and as
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of the Closing Date as though such representation or warranty was made on and as
of the Closing Date.
8.2 Performance. The Purchaser shall have performed and
complied with, in all material respects, each agreement, covenant and obligation
required by this Agreement to be so performed or complied with by the Purchaser
at or before the Closing.
8.3 Certificate. The Purchaser shall have delivered to the
Seller Parties a certificate, dated the Closing Date and executed by a duly
authorized representative of the Purchaser, substantially in the form and to the
effect of Exhibit G attached hereto.
8.4 Orders and Laws. There shall not be in effect on the
Closing Date any Orders or Laws that became effective after the date of this
Agreement restraining, enjoining or otherwise prohibiting or making illegal the
consummation of any of the transactions contemplated by this Agreement or the
Transaction Documents.
8.5 Transaction Documents. Each of the Transaction Documents
shall have been duly executed and delivered by the respective parties thereto
other than the Seller Parties, and shall be in full force and effect.
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS
Notwithstanding any right of the Purchaser (whether or not
exercised) to investigate the affairs of any of Seller Parties or any right of
any party (whether or not exercised) to investigate the accuracy of the
representations and warranties of another party contained in this Agreement or
the waiver of any condition to Closing, each of the Seller Parties and the
Purchaser has the right to rely fully upon the representations, warranties,
covenants and agreements of the others contained in this Agreement. The
representations, warranties, covenants and agreements of each of the Seller
Parties and the Purchaser contained in this Agreement will survive the Closing
(a) indefinitely with respect to the covenants and agreements contained herein
and the representations and warranties contained in Sections 3.1, 3.2, 3.3, 3.4,
3.11, 4.1, 4.2, 4.5, 5.1 and 5.4 and (b) until the third anniversary of the
Closing Date with respect to all other representations and warranties, except
that any representation or warranty that would otherwise terminate in accordance
with clause (b) above will continue to survive if a Claim Notice or Indemnity
Notice (as applicable) shall have been timely given under Article X on or prior
to such termination date, until the related claim for indemnification has been
satisfied or otherwise resolved as provided in Article X, but only with respect
to matters described in such Claim Notice or Indemnity Notice.
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ARTICLE X
INDEMNIFICATION
10.1 Indemnification.
(a) Whether or not the transactions contemplated by this
Agreement are consummated, the Company shall indemnify the Purchaser and its
Affiliates, and each of their respective officers, directors, managers,
partners, employees, agents, members, authorized representatives and
stockholders (collectively, the "Purchaser Indemnified Parties", and each, a
"Purchaser Indemnified Party"), in respect of, and hold each of them harmless
from and against, any and all Losses suffered, incurred or sustained by any of
them or to which any of them becomes subject, resulting from, arising out of or
relating to (i) any breach of any representation or warranty on the part of the
Company contained in this Agreement, (ii) any nonfulfillment of or failure to
perform any covenant or agreement on the part of the Company contained in this
Agreement, (iii) the assertion by any Person not a party to this Agreement of
any claim against a Purchaser Indemnified Party in connection with the matters
or transactions that are the subject of or contemplated by this Agreement or any
of the Transaction Documents to which the Company is a party (including any
claim asserted in any actual or threatened Action or Proceeding with respect to
any use made or proposed to be made of the proceeds from the issuance or sale of
any Issued Shares), or (iv) violations of applicable securities laws by the
Company in connection with the offering of any Issued Shares. Notwithstanding
the immediately preceding sentence, (x) the Company shall not have any
obligations hereunder to a Purchaser Indemnified Party in respect of clause
(iii) of this Section 10.1(a) to the extent that a Loss claimed by such
Purchaser Indemnified Party thereunder is finally adjudicated by a court of
competent jurisdiction to have resulted primarily from the gross negligence or
wilful misconduct of such Purchaser Indemnified Party and (y) the Company shall
not have any obligations to a Purchaser Indemnified Party in respect of a claim
for indemnification relating to this Section 10.1(a) unless and until the
aggregate amount of the Purchaser Indemnified Parties' Losses in respect of all
such claims then exceeds $105,000, after which the Purchaser shall be obligated
for all such aggregate Losses of the Purchaser Indemnified Parties in respect of
such claims only in excess of such amount. If and to the extent that the
indemnification set forth herein is finally determined by a court of competent
jurisdiction to be unenforceable, the Company shall make the maximum
contribution to the payment and satisfaction of the indemnified Losses as shall
be permissible under applicable laws.
(b) Whether or not the transactions contemplated by this
Agreement are consummated, the Selling Stockholders, jointly and severally,
shall indemnify the Purchaser Indemnified Parties, in respect of, and hold each
of them harmless from and against, any and all Losses suffered, incurred or
sustained by any of them or to which any of them becomes subject, resulting
from, arising out of or relating to (i) any breach of any representation or
warranty on the part of any Selling Stockholder contained in this Agreement,
(ii) any nonfulfillment of or failure to perform any covenant or agreement on
the part of any Selling Stockholder contained in this Agreement, (iii) the
assertion by any Person not a party to this Agreement of any claim against a
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Purchaser Indemnified Party in connection with the matters or transactions that
are the subject of or contemplated by this Agreement or the Transaction
Documents to which any Selling Stockholder is a party (including any claim
asserted in any actual or threatened Action or Proceeding with respect to any
use made or proposed to be made of the proceeds from the sale of any Selling
Stockholders' Shares) and (iv) violations of applicable securities laws by the
Selling Stockholders in connection with the sale of any Selling Stockholders'
Shares. Notwithstanding the immediately preceding sentence, (x) the Selling
Stockholders shall not have any obligations hereunder to a Purchaser Indemnified
Party in respect of clause (iii) of this Section 10.1(b) to the extent that a
Loss claimed by such Purchaser Indemnified Party thereunder is finally
adjudicated by a court of competent jurisdiction to have resulted primarily from
the gross negligence or wilful misconduct of such Purchaser Indemnified Party
and (y) the Selling Stockholders shall not have any obligations to a Purchaser
Indemnified Party in respect of a claim for indemnification relating to this
Section 10.1(b) unless and until the aggregate amount of the Purchaser
Indemnified Parties' Losses in respect of all such claims exceeds $20,000, after
which the Selling Stockholders shall be obligated for all such aggregate Losses
of the Purchaser Indemnified Parties in respect of such claims only in excess of
such amount. If and to the extent that the indemnification set forth herein is
finally determined by a court of competent jurisdiction to be unenforceable, the
Selling Stockholders shall jointly and severally make the maximum contribution
to the payment and satisfaction of the indemnified Losses as shall be
permissible under applicable laws.
(c) The Purchaser shall indemnify the Company and the Selling
Stockholders and their respective directors, officers, employees, trustees,
beneficiaries, successors and assigns (collectively, the "Seller Indemnified
Parties") in respect of, and hold each of them harmless from and against, any
and all Losses suffered, incurred or sustained by any of them or to which any of
them becomes subject, resulting from, arising out of or relating to (i) any
breach of any representation or warranty on the part of the Purchaser contained
in this Agreement, (ii) any nonfulfillment of or failure to perform any covenant
or agreement on the part of the Purchaser contained in this Agreement or (iii)
violations of applicable securities laws by the Purchaser in connection with any
resale of the Purchased Shares or the Warrant (other than in connection with a
resale pursuant to the Registration Rights Agreement). Notwithstanding the
immediately preceding sentence, the Purchaser shall not have any obligations to
a Seller Indemnified Party in respect of a claim for indemnification relating to
this Section 10.1(c) unless and until the aggregate amount of the Seller
Indemnified Parties' Losses in respect of all such claims exceeds $125,000,
after which the Purchaser shall be obligated for all such aggregate Losses of
the Seller Indemnified Parties in respect of such claims in excess of such
amount.
10.2 Method of Asserting Claims. All claims for
indemnification by any Indemnified Party under Section 10.1 will be asserted and
resolved as follows:
(a) In order for an Indemnified Party to be entitled to any
indemnification provided for under Section 10.1 in respect of, arising out of or
involving a claim or demand made by any Person not a party to this Agreement
against the Indemnified Party (a "Third Party Claim"), the Indemnified Party
must deliver a claim notice (a "Claim Notice") to the Indemnifying Party
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within 30 Business Days after receipt by such Indemnified Party of written
notice of the Third Party Claim; provided, however, that failure to give such
Claim Notice shall not affect the indemnification provided hereunder except to
the extent that the Indemnifying Party shall have been actually prejudiced as a
result of such failure.
(b) If a Third Party Claim is made against an Indemnified
Party, the Indemnifying Party shall be entitled to participate in the defense
thereof and, if it so chooses, to assume the defense thereof with counsel
selected by the Indemnifying Party, which counsel must be reasonably
satisfactory to the Indemnified Party. Subject to the next succeeding sentence,
should the Indemnifying Party so elect to assume the defense of a Third Party
Claim, the Indemnifying Party shall not be liable to the Indemnified Party for
legal expenses subsequently incurred by the Indemnified Party in connection with
the defense thereof, but shall continue to pay for any Loss suffered, including
expenses of investigations; and if the Indemnifying Party assumes such defense,
the Indemnified Party shall have the right to participate in such defense and to
employ counsel, at its own expense, separate from the counsel employed by the
Indemnifying Party. If (i) the Indemnifying Party shall not assume the defense
of a Third Party Claim with counsel reasonably satisfactory to the Indemnified
Party within 20 Business Days after the delivery to the Indemnifying Party of
the related Claim Notice, or (ii) legal counsel for the Indemnified Party
notifies the Indemnifying Party in writing that there are or may be legal
defenses available to the Indemnified Party or to other Indemnified Parties
which are different from or additional to those available to the Indemnifying
Party, which, if the Indemnified Party and the Indemnifying Party were to be
represented by the same counsel, would constitute a conflict of interest for
such counsel or prejudice prosecution of the defenses available to such
Indemnified Party, or (iii) the Indemnifying Party shall assume the defense of a
Third Party Claim and fail to diligently prosecute such defense, then in each
such case the Indemnified Party, by notice to the Indemnifying Party, may employ
its own counsel and control the defense of the Third Party Claim and the
Indemnifying Party shall be liable for the reasonable fees, charges and
disbursements of counsel employed by the Indemnified Party; and the Indemnified
Party shall be promptly reimbursed for any such fees, charges and disbursements,
as and when incurred. Whether the Indemnifying Party or the Indemnified Party
controls the defense of any Third Party Claim, the parties hereto shall
cooperate in the defense thereof. Such cooperation shall include the retention
and provision to the counsel of the controlling party of records and information
which are reasonably relevant to such Third Party Claim, and making employees
available on a mutually convenient basis to provide additional information and
explanation of any material provided hereunder. The Indemnifying Party shall
have the right to settle, compromise or discharge a Third Party Claim (other
than any such Third Party Claim in which criminal conduct is alleged) without
the Indemnified Party's consent if such settlement, compromise or discharge (i)
constitutes a complete and unconditional discharge and release of the
Indemnified Party, and (ii) provides for no relief other than the payment of
monetary damages and such monetary damages are paid in full by the Indemnifying
Party. Any amounts reimbursed to any Indemnified Party hereunder with respect to
a particular Third Party Claim shall be repaid to the Indemnifying Party in the
event that it is finally adjudicated by a court of competent jurisdiction that
such Indemnified Party is not entitled to indemnification by the Indemnifying
Party with respect to such Third Party Claim.
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(c) In the event any Indemnified Party shall have a claim
under Section 10.1 against the Indemnifying Party that does not involve a Third
Party Claim, the Indemnified Party shall deliver an indemnity notice (an
"Indemnity Notice") with reasonable promptness to the Indemnifying Party. The
failure by any Indemnified Party to give the Indemnity Notice shall not impair
such party's rights hereunder except to the extent that the Indemnifying Party
demonstrates that it has been materially prejudiced thereby. If the Indemnifying
Party notifies the Indemnified Party that it does not dispute the claim
described in such Indemnity Notice or fails to notify the Indemnified Party
within the Dispute Period as to whether the Indemnifying Party disputes the
claim described in such Indemnity Notice, the Loss in the amount specified in
the Indemnity Notice will be conclusively deemed a liability of the Indemnifying
Party under Section 10.1 and, subject to the "basket" provisions of Section
10.1, the Indemnifying Party shall pay the amount of such Loss to the
Indemnified Party on demand. If the Indemnifying Party has timely disputed its
liability with respect to such claim, the Indemnifying Party and the Indemnified
Party will proceed in good faith to negotiate a resolution of such dispute, and
if not resolved through negotiations within the Resolution Period, such dispute
shall be resolved by litigation in a court of competent jurisdiction.
(d) The rights accorded to Indemnified Parties hereunder shall
be in addition to any rights that any Indemnified Party may have at law or in
equity, under federal and state securities laws, by separate agreement
(including under the Transaction Documents) or otherwise.
ARTICLE XI
[INTENTIONALLY OMITTED.]
ARTICLE XII
MISCELLANEOUS
12.1 Notices. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested, or
mailed by overnight courier prepaid, to the parties at the following addresses
or facsimile numbers:
(a) if to the Purchaser, to:
Recovery Equity Investors II, L.P.
000 Xxxxxxx'x Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxx Xxxxx, XX 00000
Facsimile No.: (000) 000-0000
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Attn: Xxxxxx X. Xxxx-Xxxx
Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
(b) if to the Seller Parties, to:
QAD INC.
0000 Xxx Xxxx
Xxxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxxxxxx, General Counsel
and to:
Xxxx X. Xxxxxx
000 Xxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
and to:
Xxxxxx X. Xxxxxx
000 Xxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
with a copy to:
Nida & Xxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000-0000
Facsimile No.: 000-000-0000
All such notices, requests and other communications to any party hereto will (i)
if delivered personally to such party at its address as provided in this Section
12.1, be deemed given upon delivery, (ii) if delivered by facsimile transmission
to such party at its facsimile number as provided in this Section 12.1, be
deemed given upon receipt, (iii) if delivered by mail in the manner described
above to such party at its address as provided in this Section 12.1, be deemed
given on the earlier
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of the third Business Day following mailing or upon receipt and (iv) if
delivered by overnight courier to such party at its address as provided in this
Section 12.1, be deemed given on the earlier of the first Business Day following
the date sent by such overnight courier or upon receipt (in each case regardless
of whether such notice, request or other communication is received by any other
Person to whom a copy of such notice is to be delivered pursuant to this Section
12.1). Any party from time to time may change its address, facsimile number or
other information for the purpose of notices to that party by giving notice
specifying such change to the other parties hereto.
12.2 Entire Agreement. This Agreement and the Transaction
Documents supersede all prior discussions and agreements between the parties
hereto with respect to the subject matter hereof and thereof and contain the
sole and entire agreement between the parties hereto with respect to the subject
matter hereof and thereof.
12.3 Fees and Expenses. Except as otherwise expressly provided
herein or in any Transaction Document, each party hereto shall be responsible
for the payment of all fees and expenses incurred by it in connection with this
Agreement or any Transaction Document.
12.4 Public Announcements. At all times at or before the
Closing, the Purchaser will not issue or make any statements or releases to the
public with respect to this Agreement or the transactions contemplated hereby
without the consent of the Company, which consent shall not be unreasonably
withheld. If the Purchaser is unable to obtain the approval of its public
statement or release from the Company and such statement or release is, in the
opinion of legal counsel to the Purchaser, required by Law in order to discharge
the Purchaser's disclosure obligations, then the Purchaser may make or issue the
legally required statement or release and promptly furnish the other parties
hereto with a copy thereof. The Purchaser will also obtain the Company's prior
approval of any press release to be issued by or on behalf of the Purchaser
following the Closing announcing the consummation of the transactions
contemplated by this Agreement.
12.5 Further Assurances. At any time and from time to time
after the Closing, the Seller Parties shall execute and deliver to the Purchaser
such other documents and instruments, provide such materials and information and
take such other actions as the Purchaser may reasonably request more effectively
to vest title in such Purchaser to the Purchased Shares and the Warrant and
otherwise to cause the Seller Parties to fulfill their obligations under this
Agreement and the Transaction Documents.
12.6 Waiver. Any term or condition of this Agreement may be
waived at any time by the party that is entitled to the benefit thereof, but no
such waiver shall be effective unless set forth in a written instrument duly
executed by or on behalf of the party waiving such term or condition (and no
such waiver shall in any event be binding on any other party hereto that is
entitled to the benefits of such term or provision). No waiver by any party
hereto of any term or condition of this Agreement, in any one or more instances,
shall be deemed to be or construed as a waiver of the same or any other term or
condition of this Agreement on any future occasion. All remedies, either under
this Agreement or by Law or otherwise afforded, will be cumulative and not
alternative.
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12.7 Amendment. This Agreement may be amended, supplemented or
modified only by a written instrument duly executed by or on behalf of each
party hereto.
12.8 Third Party Beneficiaries. The terms and provisions of
this Agreement are intended solely for the benefit of the parties hereto and
their respective successors and permitted assigns, and it is not the intention
of the parties to confer third-party beneficiary rights, and this Agreement does
not confer any such rights, upon any other Person other than any Person entitled
to indemnity under Article X.
12.9 No Assignment; Binding Effect. Neither this Agreement nor
any right, interest or obligation hereunder may be assigned (by operation of Law
or otherwise) by any of the Seller Parties without the prior written consent of
the Purchaser, and any attempt to do so will be void ab initio. Neither this
Agreement nor any right, interest or obligation hereunder may be assigned by the
Purchaser without the prior written consent of the other parties hereto, and any
attempt to do so will be void ab initio. Subject to the immediately preceding
sentence, this Agreement shall bind and inure to the benefit of and be
enforceable by the parties hereto and their respective successors and assigns,
including any holder of Purchased Shares (or any successor securities) or the
Warrant.
12.10 Headings; Construction. The headings used in this
Agreement have been inserted for convenience of reference only and do not define
or limit the provisions hereof. The parties hereto agree that this Agreement is
the product of negotiation between sophisticated parties and individuals, all of
whom were represented by counsel, and each of whom had an opportunity to
participate in and did participate in, the drafting of each provision hereof.
Accordingly, ambiguities in this Agreement, if any, shall not be construed
strictly or in favor of or against any party hereto but rather shall be given a
fair and reasonable construction without regard to the rule of contra
proferentum.
12.11 Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future Law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (i) such provision will be
fully severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
12.12 Governing Law. This Agreement shall be governed by and
construed in accordance with the laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
State of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
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12.13 Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
12.14 Limited Recourse. Notwithstanding anything in this
Agreement, any Transaction Document or any other document, agreement or
instrument contemplated hereby to the contrary, (a) the obligations of the
Purchaser hereunder shall be without recourse to any Affiliate of the Purchaser
or any stockholder, partner, member, officer, director, manager, employee or
agent of the Purchaser or any such Affiliate, and shall be limited to the assets
of the Purchaser and (b) the obligations of the Company hereunder shall be
without recourse to any Affiliate of the Company or any stockholder, officer,
director, employee or agent of the Company (in each case other than the Selling
Stockholders), and shall be limited to the assets of the Company.
12.15 Consent to Jurisdiction and Service of Process. EACH OF
THE SELLER PARTIES AND THE PURCHASER CONSENTS TO THE JURISDICTION OF ANY STATE
OR FEDERAL COURT LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK, AND
IRREVOCABLY AGREES THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT OR
THE TRANSACTION DOCUMENTS MAY BE LITIGATED IN SUCH COURTS. EACH OF THE SELLER
PARTIES AND THE PURCHASER ACCEPTS FOR ITSELF AND IN CONNECTION WITH ITS
RESPECTIVE PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT OR THE TRANSACTION DOCUMENTS. EACH OF THE
SELLER PARTIES AND THE PURCHASER FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF
PROCESS OUT OF ANY OF THE AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING
BY THE MAILING OF COPIES THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE
PREPAID, TO IT AT THE ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO
BECOME EFFECTIVE 15 DAYS AFTER SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE
DEEMED TO LIMIT THE ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS,
SUMMONS, NOTICES AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW
OR TO OBTAIN JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST
ANY OF THE OTHER PARTIES HERETO IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER,
AS MAY BE PERMITTED BY ANY APPLICABLE LAW.
[SIGNATURE PAGE TO FOLLOW]
-33-
35
IN WITNESS WHEREOF, this Agreement has been duly executed and
delivered by the duly authorized officer or other representative of each party
hereto as of the date first above written.
QAD INC.
By:
Name:
Title:
XXXXXX X. XXXXXX
XXXX X. XXXXXX
RECOVERY EQUITY INVESTORS II, L.P.
By: RECOVERY EQUITY PARTNERS, II, L.P.,
its General Partner
By:
Name: Xxxxxx X. Xxxx-Xxxx
Title: General Partner
By:
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
[SIGNATURE PAGE TO STOCK PURCHASE AGREEMENT]
36
THE LOPKER LIVING TRUST
DATED MARCH 23, 1993
By:
-------------------------------------
Xxxx X. Xxxxxx, in his capacity as
trustee of such trust and not in his
individual capacity
[SIGNATURE PAGE TO PURCHASE AGREEMENT]
37
TABLE OF CONTENTS
Page
----
ARTICLE I
DEFINITIONS.............................................................................................. 1
1.1 Definitions.................................................................................... 1
1.2 Certain Conventions............................................................................ 7
ARTICLE II
SALE OF SHARES; CLOSING.................................................................................. 7
2.1 Purchase and Sale............................................................................... 7
2.2 Closing......................................................................................... 7
ARTICLE III
REPRESENTATIONS AND WARRANTIES OF THE COMPANY............................................................ 8
3.1 Organization of the Company.................................................................... 8
3.2 Power and Authority............................................................................. 8
3.3 Capital Stock................................................................................... 9
3.4 Subsidiaries.................................................................................... 9
3.5 No Conflicts................................................................................... 10
3.6 Governmental Approvals and Filings............................................................. 10
3.7 SEC Documents; Financial Statements; Projections............................................... 11
3.8 Absence of Changes............................................................................. 11
3.9 Legal Proceedings.............................................................................. 11
3.10 Compliance with Laws; Anti-Takeover Plans...................................................... 12
3.11 Other Negotiations; Brokers.................................................................... 12
3.12 Exemption from Registration; Restrictions on Offer and Sale of Same or Similar
Securities..................................................................................... 13
3.13 No Undisclosed Liabilities..................................................................... 13
3.14 Affiliate Transactions......................................................................... 13
3.15 Substantial Customers and Suppliers; Related Matters........................................... 14
3.16 Year 2000. ................................................................................... 14
3.17 Holding Company Act and Investment Company Act Status.......................................... 15
3.18 NASD Matters................................................................................... 15
3.19 Intellectual Property.......................................................................... 15
3.20 Bank One Credit Facilities..................................................................... 15
3.21 Disclosure..................................................................................... 15
38
ARTICLE IV
REPRESENTATIONS AND WARRANTIES OF THE SELLING
STOCKHOLDERS............................................................................................ 16
4.1 Power and Authority............................................................................ 16
4.2 Ownership of the Selling Stockholders' Shares.................................................. 16
4.3 No Conflicts................................................................................... 17
4.4 Governmental Approvals and Filings............................................................. 17
4.5 Other Negotiations; Brokers.................................................................... 17
4.6 Exemption from Registration; Restrictions on Offer and Sale of Same
or Similar Securities.......................................................................... 18
4.7 Legal Proceedings.............................................................................. 18
ARTICLE V
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER......................................................... 19
5.1 Organization; Power and Authority.............................................................. 19
5.2 No Conflicts................................................................................... 19
5.3 Acquisition for Investment..................................................................... 19
5.4 Brokers........................................................................................ 20
ARTICLE VI
COVENANTS OF THE SELLER PARTIES......................................................................... 20
6.1 Regulatory and Other Approvals................................................................. 20
6.2 Use of Proceeds................................................................................ 21
6.3 Venture Capital Operating Company Status....................................................... 21
6.5 Notice of Defaults............................................................................. 21
6.6 Reservation of Shares.......................................................................... 22
6.7 Management Services; Management Fee............................................................ 22
ARTICLE VII
CONDITIONS TO OBLIGATIONS OF THE PURCHASER.............................................................. 23
7.1 Representations and Warranties................................................................. 23
7.2 Performance.................................................................................... 23
7.3 Certificates................................................................................... 23
7.4 Orders and Laws................................................................................ 23
7.5 Regulatory Consents and Approvals.............................................................. 23
7.6 Third Party Consents........................................................................... 23
7.7 Opinion of Counsel............................................................................. 24
7.8 Transaction Documents.......................................................................... 24
7.9 Closing Fee.................................................................................... 24
7.10 Delivery of Certificates....................................................................... 24
ii
39
7.11 NASDAQ National Market......................................................................... 24
7.12 Proceedings.................................................................................... 24
ARTICLE VIII
CONDITIONS TO OBLIGATIONS OF THE SELLER PARTIES......................................................... 25
8.1 Representations and Warranties................................................................. 25
8.2 Performance.................................................................................... 25
8.3 Certificate.................................................................................... 25
8.4 Orders and Laws................................................................................ 25
8.5 Transaction Documents.......................................................................... 25
ARTICLE IX
SURVIVAL OF REPRESENTATIONS, WARRANTIES,
COVENANTS AND AGREEMENTS................................................................................ 25
ARTICLE X
INDEMNIFICATION......................................................................................... 26
10.1 Indemnification................................................................................ 26
10.2 Method of Asserting Claims..................................................................... 28
ARTICLE XI
[INTENTIONALLY OMITTED.]................................................................................ 29
ARTICLE XII
MISCELLANEOUS........................................................................................... 30
12.1 Notices........................................................................................ 30
12.2 Entire Agreement............................................................................... 31
12.3 Fees and Expenses.............................................................................. 31
12.4 Public Announcements........................................................................... 31
12.5 Further Assurances............................................................................. 32
12.6 Waiver......................................................................................... 32
12.7 Amendment...................................................................................... 32
12.8 Third Party Beneficiaries...................................................................... 32
12.9 No Assignment; Binding Effect.................................................................. 32
12.10 Headings; Construction......................................................................... 32
12.11 Invalid Provisions............................................................................. 33
12.12 Governing Law.................................................................................. 33
12.13 Counterparts................................................................................... 33
12.14 Limited Recourse............................................................................... 33
iii
40
12.15 Consent to Jurisdiction and Service of Process................................................. 33
EXHIBITS
Exhibit A -- Form of Holdback Agreement
Exhibit B -- Form of Registration Rights Agreement
Exhibit C -- Form of Stockholders' Agreement
Exhibit D -- Form of Warrants
Exhibit E-1 -- Form of Company Officer's Certificate
Exhibit E-2 -- Form of Company Secretary's Certificate
Exhibit E-3 -- Form of Selling Stockholders' Certificate
Exhibit F -- Form of Opinion of Nida & Xxxxxxx LLP
Exhibit G -- Form of Purchaser's Closing Certificate
SCHEDULES
Schedule I -- Purchased Shares; Purchase Price; Address for Notices
Schedule 3.3(a) -- Outstanding Options
Schedule 3.3(b) -- Antidilution Adjustments, etc.
Schedule 3.4(a) -- Majority Owned Subsidiaries
Schedule 3.4(b) -- Other Equity Interests
Schedule 3.5 -- No Conflicts - the Company
Schedule 3.6 -- Governmental Approvals and Filings
Schedule 3.8 -- Absence of Changes
Schedule 3.9 -- Legal Proceedings
Schedule 3.13 -- No Undisclosed Liabilities
Schedule 3.14 -- Affiliate Transactions
Schedule 4.3 -- No Conflicts - Selling Stockholders
iv
41
EXHIBIT A TO STOCK PURCHASE AGREEMENT
HOLDBACK AGREEMENT ("Agreement"), dated as of December 23, 1999, between
Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx, The Xxxxxx Living Trust dated March 23, 1993
(the "Lopker Trust") and Recovery Equity Investors II, L.P., a Delaware limited
partnership ("REI").
WHEREAS, pursuant to that certain Stock Purchase Agreement, dated as of
December 23, 1999 (as the same may be amended, supplemented or otherwise
modified from time to time, the "Purchase Agreement"), by and among QAD Inc., a
Delaware corporation (the "Company"), REI, Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx and
the Lopker Trust, REI is purchasing 2,333,333 shares of common stock of the
Company, par value $.001 per share (the "Common Stock") from the Company and
444,445 shares of Common Stock from the Lopker Trust;
WHEREAS, as a condition to the closing of the transactions contemplated by
the Purchase Agreement, the Company and REI are, contemporaneously with this
Agreement, entering into that certain Registration Rights Agreement, dated as of
December 23, 1999 (the "Registration Rights Agreement");
WHEREAS, as a condition to the closing of the transactions contemplated by
the Purchase Agreement, the Company, REI, Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx and
the Lopker Trust are, contemporaneously with this Agreement, entering into that
certain Stockholders' Agreement, dated as of December 23, 1999 (the
"Stockholders' Agreement"); and
WHEREAS, the Purchase Agreement provides, among other things, that the
execution and delivery of an agreement in substantially the form hereof by
Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx, the Xxxxxx Trust and REI is a condition to the
consummation of the other transactions contemplated by the Purchase Agreement.
NOW THEREFORE, in connection with the Purchase Agreement and for other
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
HOLDBACK PROVISIONS
1.1 Holdback Obligations. Unless the managing underwriter of the relevant
underwritten Demand Registration (as defined in the Registration Rights
Agreement) or an underwritten Piggyback Registration (as defined in the
Registration Rights Agreement) otherwise agrees, each of Xxxxxx X. Xxxxxx, Xxxx
X. Xxxxxx and the Lopker Trust shall not, and shall not permit any of the other
Lopker Stockholders (as defined in the Stockholders' Agreement) to, effect any
public sale or distribution of equity securities issued by the Company, or any
securities convertible, exchangeable or exercisable for or into such securities,
during the 14 days prior to, or during the 90-day period beginning on, the
effective date of any underwritten Demand Registration or any underwritten
Piggyback Registration in which the holders of Registrable Securities (as
defined in the Registration Rights Agreement) are selling stockholders
42
(except as part of such underwritten registration or pursuant to registrations
on Forms S-4 or S-8 or any successor forms).
ARTICLE II
GENERAL PROVISIONS
2.1 Notices. All notices hereunder, to be effective, shall be in writing
and shall be delivered in person or by facsimile transmission or mailed by
certified mail, postage prepaid, or mailed by overnight courier prepaid, to the
parties at the following addresses or facsimile numbers:
(a) if to REI, to:
Recovery Equity Investors II, L.P.
000 Xxxxxxx'x Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Facsimile No.: 000-000-0000
Attn: Xxxxxx X. Xxxx-Xxxx
Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No.: 000-000-0000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
(b) if to Lopker Stockholders, to:
Lopker Living Trust dated
March 23, 1999
000 Xxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
Attn.:Xxxxxx X. or Xxxx X. Xxxxxx
Xxxxxx X. Xxxxxx
000 Xxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
Xxxx X. Xxxxxx
000 Xxxxxxx Xxxx
Xxxxx Xxxxxxx, XX 00000
with a copy to:
43
Nida & Xxxxxxx LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000-0000
Facsimile No.: 000-000-0000
2.1 Modifications. This Agreement constitutes the entire agreement between
the parties hereto with regard to the subject matter hereof, superseding all
prior understandings and agreements, whether written or oral, with respect to
such subject matter. This Agreement may not be amended or modified except by a
writing signed by the parties hereto.
2.2 Successors and Assigns. This Agreement shall be binding upon and inure
to the benefit of the parties hereto and their respective successors and
permitted assigns; provided, however, that neither party hereto may assign any
of its rights or obligations hereunder without the prior written consent of the
other parties hereto.
2.3 Captions. Captions have been inserted solely for convenience of
reference and in no way define, limit or describe the scope or substance of any
provisions of this Agreement.
2.4 Severability. The provisions of this Agreement are severable, and the
invalidity of any provision shall not affect the validity of any other
provision.
2.5 Governing Law. This Agreement shall be governed by and construed in
accordance with the domestic laws of the State of New York, without giving
effect to any choice of law or conflict of law provision or rule (whether of the
Sate of New York or any other jurisdiction) that would cause the application of
the laws of any jurisdiction other than the State of New York.
2.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be deemed an original but all of which
together will construe one and the same instrument.
44
IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first written above.
RECOVERY EQUITY INVESTORS II, L.P.
By: RECOVERY EQUITY PARTNERS II, L.P.,
its General Partner
By:
--------------------------------
Xxxxxx X. Xxxx-Xxxx
General Partner
By:
--------------------------------
Xxxxxxx X. Xxxxxx
General Partner
-----------------------------------------
XXXXXX X. XXXXXX
-----------------------------------------
XXXX X. XXXXXX
THE LOPKER LIVING TRUST
DATED MARCH 23, 1993
By:
---------------------------------------
Xxxx X. Xxxxxx, in his capacity as
trustee of such trust and not in his
individual capacity
[SIGNATURE PAGE TO HOLDBACK AGREEMENT]
45
EXHIBIT B TO STOCK PURCHASE AGREEMENT
REGISTRATION RIGHTS AGREEMENT dated as of December 23, 1999, between
QAD INC., a Delaware corporation (the "Company") and RECOVERY EQUITY INVESTORS
II, L.P., a Delaware limited partnership (together with its permitted
successors, transferees and assigns hereunder, "REI"). Capitalized terms are
used as defined in Article X hereto.
RECITALS
WHEREAS, pursuant to that certain Stock Purchase Agreement (as the
same may be amended, supplemented or otherwise modified from time to time, the
"Stock Purchase Agreement") dated as of December 23, 1999, among REI, the
Company, Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx and The Lopker Living Trust dated
Xxxxx 00, 0000, XXX is acquiring an aggregate of 2,777,778 shares of Common
Stock of the Company for an aggregate purchase price equal to $12,500,000;
WHEREAS, pursuant to the Stock Purchase Agreement, the Company is
issuing to REI a warrant exercisable for an aggregate of 225,000 shares of
Common Stock (as such amount may be adjusted from time to time pursuant to the
anti-dilution provisions of such warrant);
WHEREAS, each of REI and the Company desires to enter into this
Agreement to provide for registration rights with respect to the Common Stock,
including shares issuable upon exercise of the aforementioned warrant;
WHEREAS, the Purchase Agreement provides, among other things, that
the execution and delivery of an agreement in substantially the form hereof is a
condition to the consummation of the other transactions contemplated by the
Stock Purchase Agreement.
NOW THEREFORE, in connection with the Stock Purchase Agreement and
for other good and valuable consideration, the receipt and sufficiency of which
are hereby acknowledged, the parties hereto hereby agree as follows:
ARTICLE I
DEMAND REGISTRATIONS
1.1 REQUESTS FOR REGISTRATION. (a) Subject to Sections 1.2 and 1.7,
at any time after the date hereof, any or all of the Required REI Stockholders
may request in writing registration under the Securities Act of all or part of
their Registrable Securities (i) on Form S-1 or Form S-2 or any similar or
successor long-form registration statement (any such registration, a "Long-Form
Registration") or (ii) on Form S-3 or any similar or successor short-form
registration statement (any such registration, a "Short-Form Registration") if
the Company qualifies to use such short form. Within 10 days after its
46
receipt of any such request, the Company will give written notice of
such request to all other Participating Stockholders. Thereafter, the Company
will use all reasonable efforts to effect the registration under the Securities
Act on the form requested by the Requesting Investors, and to include in such
registration, (i) all Registrable Securities which the Requesting Investors have
so requested to be included therein, and (ii) all other Registrable Securities
with respect to which the Company has received written requests for inclusion
therein by the Participating Stockholders within 30 days after their receipt of
the Company's notice, subject in each case to the provisions of Section 1.4.
Each Long-Form Registration or Short-Form Registration requested in accordance
with this Section 1.1 is referred to herein as a "Demand Registration."
(b) The Requesting Investors which request a Demand Registration
pursuant to this Section 1.1 may, at any time prior to the effective date of the
registration statement relating to such Demand Registration, revoke such request
by providing written notice to the Company; provided, however, that
notwithstanding such revocation, such Demand Registration shall be deemed a
request for purposes of Section 1.2 unless, after consultation with the Company
and any proposed underwriter, the Requesting Investors in good faith determine
that more than 25% of the amount of Registrable Securities which they have
requested to be registered (before giving effect to any cutback pursuant to
Section 1.4) would not be sold pursuant to such Demand Registration within a
reasonable amount of time or at a price reasonably acceptable to such Requesting
Investors.
(c) Any request for a Demand Registration pursuant to Section 1.1
shall specify the number of Registrable Securities proposed to be sold by the
Requesting Investors and the intended method of disposition thereof.
1.2 DEMAND REGISTRATIONS. The Required REI Stockholders will be
entitled to request pursuant to Section 1.1 two Demand Registrations. The
Company will pay all Registration Expenses in connection with any such Demand
Registration. All Demand Registrations (unless otherwise requested by the
Requisite Registration Participants) shall be underwritten registrations.
1.3 EFFECTIVE REGISTRATION STATEMENT. No Demand Registration shall
be deemed to have been requested or effected for purposes of Section 1.1(a) or
1.2:
(i) unless a registration statement with respect thereto has
been declared effective by the Commission (other than in connection
with a revocation notice delivered pursuant to Section 1.1(b)) and
the Company has complied in all material respects with all
obligations required to be performed by it on or prior to the date
of such declaration in connection with such Demand Registration;
2
47
(ii) if after such registration statement has become
effective, any stop order, injunction or other order or requirement
of the Commission or any other Governmental or Regulatory Authority
affecting any of the Registrable Securities covered by such
registration statement, is for any reason threatened in writing or
issued by the Commission or such other Governmental or Regulatory
Authority and, as a result thereof, none of the Registrable
Securities covered thereby have been sold;
(iii) if the conditions to closing specified in the purchase
agreement or underwriting agreement entered into in connection with
such Demand Registration are not satisfied by reason of a failure by
or inability of the Company to satisfy any of such conditions to
closing;
(iv) if the Company declines to effect such Demand
Registration pursuant to Section 1.7(a) or delivers a Black-Out
Notice with respect to such Demand Registration;
(v) if the Requesting Investors have made the determination
contemplated by the proviso to Section 1.1(b) with respect to such
Demand Registration and have notified the Company of such
determination in accordance with Section 1.1(b);
(vi) if the Requesting Investors are not able to register and
sell at least 75% of the amount of Registrable Securities which they
requested (before giving effect to any cutback effected pursuant to
Section 1.4) to be included in such registration; or
(vii) if the registration statement with respect to such
Demand Registration does not remain effective for a period of at
least 180 days beyond the effective date thereof or, in the case of
any Demand Registration that constitutes an underwritten offering of
Registrable Securities, until 45 days after the commencement of the
distribution by the holders of the Registrable Securities included
in such Demand Registration, in each case unless all of the
Registrable Securities included in such Demand Registration have
been sold to the public prior thereto in accordance with the plan of
distribution specified in such registration statement.
If a Demand Registration requested pursuant to this Article I is
deemed not to have been requested or effected as provided in this Section 1.3,
then the Company shall continue to be obligated to effect the number of Demand
Registrations set forth in Section 1.2 without giving effect to such requested
Demand Registration and will pay all Registration Expenses in connection with
such Demand Registration.
3
48
1.4 PRIORITY ON DEMAND REGISTRATIONS. The Company will not include
in any Demand Registration any securities which are not Registrable Securities
of the Participating Stockholders without the written consent of the Requisite
Registration Participants. If the Requesting Investors and other holders of
Registrable Securities request Registrable Securities to be included in a Demand
Registration which is an underwritten offering and the managing underwriter
advises the Company in writing that in its opinion the number of Registrable
Securities requested to be included exceeds the number of Registrable Securities
which can be sold in such offering within a price range acceptable to the
Requisite Requesting Investors, the Company will include any securities to be
sold in such Demand Registration in the following order: (i) first, the
Registrable Securities requested to be included in such registration by the
Requesting Investors in accordance with Section 1.1(a); (ii) second, the
Registrable Securities requested to be included in such registration by other
Participating Stockholders in accordance with Section 1.1(a); (iii) third, the
securities which the Company proposes to sell; and (iv) fourth, any securities
other than Registrable Securities to be sold by persons other than the Company
included in such registration in compliance with Section 1.6.
1.5 SELECTION OF UNDERWRITERS. The Requisite Registration
Participants with respect to any Demand Registration will have the right to
select the underwriters and the managing underwriter to administer such Demand
Registration (which underwriters and managing underwriters shall be reasonably
acceptable to the Company).
1.6 OTHER REGISTRATION RIGHTS. Except as provided in this Agreement,
without the written consent of the Participating Stockholders which then hold
Registrable Securities representing at least a majority (by number of shares) of
the Registrable Securities (on a Fully-Diluted Basis) then held by all
Participating Stockholders, the Company will not grant to any Person the right
to request the Company to register any equity securities of the Company, or any
securities convertible, exchangeable or exercisable for or into such securities,
other than piggyback registration rights entitling the holder thereof to
participate in Company-initiated registrations, subject to the prior rights of
Participating Stockholders to include their Registrable Securities in
Company-initiated registrations in accordance with Section 2.3; provided,
however, that this Section 1.6 shall not apply to any grant of registration
rights that is made by the Company after the Participating Stockholders cease to
hold shares of Common Stock and Equity Equivalents representing (on a
Fully-Diluted Basis) at least 50% of REI's Original Ownership Level.
1.7 BLACK-OUT RIGHTS AND POSTPONEMENT. (a) The Company shall not be
required to effect a Demand Registration if the Company, within the 120-day
period preceding the date of a request for a Demand Registration, has effected a
registration of securities in which the Participating Stockholders were able to
register and sell at least 75% of the amount of Registrable Securities which
they requested (before
4
49
giving effect to any cutback effected pursuant to Section 1.4, 2.3 or 2.4) to be
included in such registration pursuant to Demand Registration rights under
Article I or Piggyback Registration rights under Article II.
(b) The Company may, upon written notice (a "Black-Out Notice") to
the Requesting Investors requesting a Demand Registration, require such
Requesting Investors to withdraw such Demand Registration upon the good faith
determination by the Company that such postponement is necessary (i) to avoid
disclosure of material non-public information or (ii) as a result of a pending
material financing or acquisition transaction, and in each case, each of the REI
Stockholders may not request another Demand Registration for a period of up to
120 days, as specified by the Company in such Black-Out Notice. The Company may
only give a Black-Out Notice where the giving of such notice has been
specifically approved by the Board of Directors of the Company. Upon receipt of
a Black-Out Notice, the related Demand Registration shall be deemed to be
rescinded and retracted and shall not be counted as a Demand Registration for
any purpose hereunder. The Company may not deliver more than three Black-Out
Notices in any 12-month period; provided, however, that the aggregate number of
days covered by Black-Out Notices in any 12-month period shall not under any
circumstances exceed 120.
ARTICLE II
PIGGYBACK REGISTRATIONS
2.1 RIGHT TO PIGGYBACK. Whenever the Company proposes to register
any of its equity securities under the Securities Act (other than pursuant to a
Demand Registration and other than on Forms S-4 or S-8 or any successor forms),
whether for the Company's own account or for the account of any other Person,
and the registration form to be used may be used for the registration of
Registrable Securities (a "Piggyback Registration"), the Company will give
prompt written notice (in any event within 10 days after its receipt of notice
of any exercise of other demand registration rights) to all Participating
Stockholders of its intention to effect such a registration. Such notice shall
offer each Participating Stockholder the opportunity to register, on the same
terms and conditions, such number of such Participating Stockholder's
Registrable Securities as such Participating Stockholder may request. The
Company will include in such registration all Registrable Securities with
respect to which the Company has received written requests for inclusion therein
by Participating Stockholders within 30 days after their receipt of the
Company's notice, subject to the provisions of Sections 2.3 and 2.4. Such
requests for inclusion shall specify the number of Registrable Securities
intended to be disposed of and the intended method of distribution thereof.
2.2 PIGGYBACK EXPENSES. The Registration Expenses of the
Participating Stockholders will be paid by the Company in all Piggyback
Registrations.
5
50
2.3 PRIORITY ON PRIMARY REGISTRATIONS. If a Piggyback Registration
is an underwritten primary registration on behalf of the Company, and the
managing underwriter advises the Company in writing that in its opinion the
number of securities requested to be included in such registration is such that
the success of the Company's offering will be materially and adversely affected,
then the Company will include any securities to be sold in such Piggyback
Registration in the following order: (i) first, the securities the Company
proposes to sell; (ii) second, the Registrable Securities requested to be
included in such registration by the Participating Stockholders in accordance
with Section 2.1, provided that if the managing underwriter in good faith
determines that a lower number of Registrable Securities of the Participating
Stockholders should be included, then the Company shall be required to include
in such registration only that lower number of Registrable Securities, and the
Participating Stockholders shall participate in such registration on a pro rata
basis in accordance with the number of Registrable Securities requested to be
included in such registration by each Participating Stockholder; and (iii)
third, if all Registrable Securities requested to be included in such
registration by the Participating Stockholders in accordance with Section 2.1
are included in such registration, any other securities requested to be included
in such registration in compliance with Section 1.6.
2.4 PRIORITY ON SECONDARY REGISTRATIONS. If a Piggyback Registration
is an underwritten secondary registration on behalf of holders of the Company's
securities, and the managing underwriter advises the Company in writing that in
its opinion the number of securities requested to be included in such
registration is such that the success of such holders' offering would be
materially and adversely affected, then the Company will include any securities
to be sold in such Piggyback Registration in the following order: (i) first, the
securities which such holders propose to sell in compliance with Section 1.6;
(ii) second, the Registrable Securities requested to be included in such
registration by the Participating Stockholders in accordance with Section 2.1,
provided that if the managing underwriter determines in good faith that a lower
number of Registrable Securities of the Participating Stockholders should be
included, then the Company shall be required to include in such registration
only that lower number of Registrable Securities, and the Participating
Stockholders shall participate in such registration on a pro rata basis in
accordance with the number of Registrable Securities requested to be included in
such registration by each; and (iii) third, any other securities proposed to be
included in such registration in compliance with Section 1.6.
6
51
ARTICLE III
HOLDBACK AGREEMENTS
3.1 HOLDER'S HOLDBACK OBLIGATIONS. Each Participating Stockholder
agrees not to effect any public sale or distribution of Registrable Securities,
or any securities convertible, exchangeable or exercisable for or into
Registrable Securities during the seven days prior to, and the 180-day period
beginning on, the effective date of any underwritten Demand Registration or any
underwritten Piggyback Registration in which such Participating Stockholder had
an opportunity to participate without cutback under Article II hereof (in each
case except as part of such underwritten registration), unless the managing
underwriter of such underwritten registration otherwise agrees.
3.2 COMPANY'S HOLDBACK OBLIGATIONS. Unless the managing underwriter
of the relevant underwritten Demand Registration or an underwritten Piggyback
Registration otherwise agrees, the Company agrees (i) not to effect any public
sale or distribution of its equity securities, or any securities convertible,
exchangeable or exercisable for or into such securities, during the 14 days
prior to, and during the 90-day period beginning on, the effective date of any
underwritten Demand Registration or any underwritten Piggyback Registration in
which holders of Registrable Securities are selling stockholders (except as part
of such underwritten registration or pursuant to registrations on Form S-4 or
S-8 or any successor forms), and (ii) to use all reasonable efforts to cause
each holder of at least 5% (on a Fully-Diluted Basis) of its equity securities
to agree not to effect any public sale or distribution of any such equity
securities or any securities convertible, exchangeable or exercisable for into
such equity securities during the 180-day period beginning on the effective date
of any underwritten Demand Registration or any underwritten Piggyback
Registration in which holders of Registrable Securities are selling stockholders
(except as part of such underwritten registration, if otherwise permitted).
ARTICLE IV
REGISTRATION PROCEDURES
Whenever Participating Stockholders have requested that any
Registrable Securities be registered in accordance with Article I or II, the
Company will use all reasonable efforts to effect the registration and the sale
of such Registrable Securities in accordance with the intended method of
disposition thereof, and pursuant thereto the Company will as reasonably
expeditiously as possible (or, in the case of clause (p) below, will not):
(a) promptly prepare and file with the Commission a registration
statement with respect to such Registrable Securities (such registration
statement to include all information which the Participating Stockholders
holding the Registrable
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Securities to be registered thereby shall reasonably request) and use all
reasonable efforts to cause such registration statement to become effective,
provided, that as promptly as practicable before filing a registration statement
or prospectus or any amendments or supplements thereto, the Company will (i)
furnish to one counsel selected by the Requisite Registration Participants
copies of all such documents proposed to be filed, and the Company shall not
file any such document to which such counsel shall have reasonably objected on
the grounds that such document does not comply in all material respects with the
requirements of the Securities Act, and (ii) notify each Participating
Stockholder holding Registrable Securities covered by such registration
statement of (x) any request by the Commission to amend such registration
statement or amend or supplement any prospectus, or (y) any stop order issued or
threatened by the Commission, and take all reasonable actions required to
prevent the entry of such stop order or to promptly remove it if entered;
(b) (i) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective at
all times during the period commencing on the effective date of such
registration statement and ending on the first date as of which all Registrable
Securities of the Participating Stockholders covered by such registration
statement are sold in accordance with the intended plan of distribution set
forth in such registration statement and (ii) comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement during such period in accordance with the intended
methods of disposition by the sellers thereof set forth in such registration
statement;
(c) furnish to each Participating Stockholder holding Registrable
Securities covered by such registration statement, without charge, such number
of conformed copies of such registration statement, each amendment and
supplement thereto, the prospectus included in such registration statement
(including each preliminary prospectus and, in each case, including all exhibits
thereto and documents incorporated by reference therein) and such other
documents as such Participating Stockholder may reasonably request in order to
facilitate the disposition of the Registrable Securities covered thereby that
are held by such Participating Stockholder;
(d) use its best efforts to register or qualify the Registrable
Securities covered by such registration statement under such other securities or
blue sky laws of such jurisdictions in the United States as any Participating
Stockholder holding any such Registrable Securities shall reasonably request, to
keep such registration or qualification in effect for so long as such
registration statement remains in effect and to do any and all other acts and
things which may be reasonably necessary or advisable to enable such
Participating Stockholder to consummate the disposition in such jurisdictions of
any such Registrable Securities held by such Participating Stockholder;
provided, however, that the
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Company will 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
clause (d), (ii) subject itself to taxation in any such jurisdiction or (iii)
consent to general service of process in any such jurisdiction;
(e) furnish to each Participating Stockholder holding Registrable
Securities covered by such registration statement a signed copy, addressed to
such Participating Stockholder (and the underwriters, if any), of an opinion of
counsel for the Company or special counsel to such Participating Stockholder
dated the effective date of such registration statement (and, if such
registration statement includes an underwritten public offering, dated the date
of the closing under the underwriting agreement), reasonably satisfactory in
form and substance to the Requisite Registration Participants, covering
substantially the same matters with respect to such registration statement (and
the prospectus included therein) as are customarily covered in opinions of
issuer's counsel delivered to the underwriters in underwritten public offerings,
and such other legal matters as the Requisite Registration Participants (or the
underwriters, if any) may reasonably request;
(f) notify each Participating Stockholder holding Registrable
Securities covered by such registration statement, at a time when a prospectus
relating to such Registrable Securities is required to be delivered under the
Securities Act, of the occurrence of any event known to the Company as a result
of which the prospectus included in such registration statement, as then in
effect, contains an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances under which they were made,
and, at the request of any such Participating Stockholder, (i) the Company will
prepare and furnish such Participating Stockholder a reasonable number of copies
of a supplement to or an amendment of such prospectus as may be necessary so
that, as thereafter delivered to the purchasers of such Registrable Securities,
such prospectus shall not include 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 not misleading in the light of the circumstances under which
they were made and (ii) the Company shall extend the period during which such
registration statement shall be maintained effective by the number of days
during the period from and including the date of the giving of such notice to
such Participating Stockholder to the date when the Company made available to
such Participating Stockholder an appropriately amended or supplemented
prospectus;
(g) cause all Registrable Securities of the Participating
Stockholders covered by such registration statement to be listed on each
securities exchange and quotation system on which similar securities issued by
the Company are then listed and to enter into such customary agreements as may
be required in furtherance thereof, including listing applications and
indemnification agreements in customary form;
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(h) provide a transfer agent and registrar for the Registrable
Securities of the Participating Stockholders covered by such registration
statement not later than the effective date of such registration statement;
(i) enter into such customary arrangements and take all such other
actions as the Requisite Registration Participants or the underwriters, if any,
for the offering of the Registered Securities covered by such registration
statement reasonably request in order to expedite or facilitate the disposition
of such Registrable Securities;
(j) make available for inspection by any Participating Stockholder
holding Registrable Securities covered by such registration statement, any
underwriter participating in any disposition of securities pursuant to such
registration statement and any attorney, accountant or other agent retained by
any such Participating Stockholder or underwriter, all pertinent financial and
other records, corporate documents and properties of the Company and all
correspondence between the Commission and the Company or its counsel or auditors
and all memoranda relating to discussions with the Commission or its staff in
connection with such registration statement, and cause the Company's officers,
directors, employees and independent accountants to supply all information
reasonably requested by any such Participating Stockholder, underwriter,
attorney, accountant or agent in connection with such registration statement;
(k) subject to other provisions hereof, use all reasonable efforts
to cause the Registrable Securities of the Participating Stockholders covered by
such registration statement to be registered with or approved by such
Governmental or Regulatory Authorities or self-regulatory organizations as may
be necessary to enable such Participating Stockholders to consummate the
disposition of such Registrable Securities;
(l) use all reasonable efforts to obtain a "cold comfort" letter,
dated the effective date of such registration statement (and, if such
registration includes an underwritten offering, dated the date of the closing
under the underwriting agreement), signed by the independent public accountants
who have certified the Company's financial statements included in such
registration statement, addressed to the Company, to each Participating
Stockholder holding Registrable Securities covered by such registration
statement, and to the underwriters, if any, covering substantially the same
matters with respect to such registration statement (and the prospectus included
therein) and with respect to events subsequent to the date of such financial
statements, as are customarily covered in accountants' letters delivered to the
underwriters in underwritten public offerings of securities and such other
financial matters as the Requisite Registration Participants (or the
underwriters, if any) may reasonably request;
(m) otherwise use all reasonable efforts to comply with all
applicable rules and regulations of the Commission and make available to its
security holders, in
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each case as soon as practicable, an earnings statement covering a period of at
least 12 months, beginning with the first month after the effective date of such
registration statement, which earnings statement shall satisfy the provisions of
Section 11(a) of the Securities Act;
(n) permit any Participating Stockholder holding Registrable
Securities covered by such registration statement, which Participating
Stockholder, in its sole judgment exercised in good faith, might be deemed to be
a controlling person of the Company (within the meaning of the Securities Act or
the Exchange Act) to participate in the preparation of such registration
statement and to include therein material, furnished to the Company in writing,
which in the reasonable judgment of such Participating Stockholder should be
included and which is reasonably acceptable to the Company;
(o) promptly notify the Participating Stockholders holding the
Registrable Securities covered by such registration statement of the issuance by
any state securities commission or other Governmental or Regulatory Authority of
any order suspending the qualification or exemption from qualification of any
such Registrable Securities under any state securities or "blue sky" law, and
use every reasonable effort to obtain the lifting at the earliest possible time
of any stop order (whether issued by the Commission or otherwise) suspending the
effectiveness of such registration statement or of any order preventing or
suspending the use of any preliminary prospectus included therein;
(p) at any time file or make any amendment to such registration
statement, or any amendment of or supplement to the prospectus included therein
(including amendments of the documents incorporated by reference into the
prospectus), (i) of which each Participating Stockholder holding Registrable
Securities covered by such registration statement or the managing underwriter,
if any, shall not have previously been advised and furnished a copy or (ii) to
which the Requisite Registration Participants, the managing underwriter (if any)
or counsel for the Requisite Registration Participants or any such managing
underwriter shall reasonably object;
(q) make such representations and warranties (subject to appropriate
disclosure schedule exceptions) to the Participating Stockholders holding
Registrable Securities covered by such registration statement and the
underwriters, if any, in form, substance and scope as are customarily made by
issuers to underwriters and selling holders, as the case may be, in underwritten
public offerings of substantially the same type;
(r) during the period when the prospectus included in such
registration statement is required to be delivered under the Securities Act,
promptly file all documents required to be filed with the Commission pursuant to
Section 13(a), 13(c), 14 or 15(d) of the Exchange Act; and
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(s) if such registration statement refers to any Participating
Stockholder holding Registrable Securities covered thereby by name or otherwise
as the holder of any securities of the Company, then (whether or not, in the
sole judgment, exercised in good faith, of such Participating Stockholder, such
Participating Stockholder is or might be deemed to be a controlling person of
the Company), (i) at the request of such Participating Stockholder, insert
therein language, in form and substance reasonably satisfactory to such
Participating Stockholder, the Company and the managing underwriter (if any), to
the effect that the holding by such Participating Stockholder of such securities
is not to be construed as a recommendation by such Participating Stockholder of
the investment quality of the Company's Registrable Securities or the Company's
other securities covered thereby and that such holding does not imply that such
Participating Stockholder will assist in meeting any future financial
requirements of the Company, or (ii) in the event that such reference to such
Participating Stockholder by name or otherwise is not required by the Securities
Act, any similar Federal or state statute, or any rule or regulation of any
Governmental or Regulatory Authority having jurisdiction over the offering, then
in force, the Company shall be required at the request of such Participating
Stockholder to delete the reference to such Participating Stockholder.
ARTICLE V
REGISTRATION EXPENSES
5.1 FEES AND EXPENSES GENERALLY. Subject to the next succeeding
sentence, all expenses incident to the Company's performance of or compliance
with this Agreement, including internal expenses (including all salaries and
expenses of its officers and employees performing legal or accounting duties),
the expense of any annual or special audit or quarterly review, the expense of
any liability insurance, the expenses and fees for listing securities on one or
more securities exchanges or quotation systems pursuant to clause (g) of Article
IV, all registration and filing fees, fees and expenses of compliance with
securities or blue sky laws (including reasonable fees and disbursements of
counsel in connection with blue sky qualifications of the Registrable
Securities), printing expenses, messenger and delivery expenses, and fees and
disbursements of counsel for the Company and all independent certified public
accountants, underwriters (excluding underwriting fees, discounts and
commissions) and other Persons retained by the Company (all such expenses being
herein called "Registration Expenses"), will be borne by the Company.
Notwithstanding anything in this Agreement to the contrary, each Participating
Stockholder shall pay any underwriting fees, discounts or commissions
attributable to the sale of its Registrable Securities.
5.2 COUNSEL FEES. In connection with each Demand Registration, the
Company will reimburse the Participating Stockholders for the reasonable fees
and disbursements of one counsel selected by the Requisite Registration
Participants.
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ARTICLE VI
UNDERWRITTEN OFFERINGS
6.1 DEMAND UNDERWRITTEN OFFERINGS. If requested by the underwriters
for any underwritten offering of Registrable Securities pursuant to a Demand
Registration, the Company will enter into an underwriting agreement with such
underwriters for such offering, such agreement to be consistent with the terms
hereof, to contain such representations and warranties by the Company and such
other terms as are generally included in agreements of this type, including
indemnities customarily included in such agreements, and to be otherwise
reasonably satisfactory in form and substance to the Requisite Registration
Participants, the Company and the underwriters. The Participating Stockholders
holding the Registrable Securities to be distributed by such underwriters will
cooperate in good faith with the Company in the negotiation of the underwriting
agreement. The Participating Stockholders holding the Registrable Securities to
be distributed by such underwriters shall be parties to such underwriting
agreement and may, at the option of the Requisite Registration Participants,
require that any or all of the representations and warranties by, and the other
agreements on the part of, the Company to and for the benefit of such
underwriters shall also be made to and for the benefit of such Participating
Stockholders and that any or all of the conditions precedent to the obligations
of such underwriters under such underwriting agreement also be conditions
precedent to the obligations of such Participating Stockholders. The Company
shall cooperate as reasonably requested by any such Participating Stockholder in
order to limit (a) any representations or warranties to, or agreements with, the
Company or the underwriters to be made by such Participating Stockholder only to
representations, warranties or agreements regarding such Participating
Stockholder, such Participating Stockholder's Registrable Securities and such
Participating Stockholder's intended method of distribution and any other
representation required by applicable law and (b) such Participating
Stockholder's maximum liability in respect of its indemnification and
contribution obligations under such underwriting agreement to an amount equal to
the net proceeds actually received by such Participating Stockholder (after
deducting any underwriting fees, discounts and expenses) from the sale of
Registrable Securities pursuant to such Demand Registration.
6.2 INCIDENTAL UNDERWRITTEN OFFERINGS. If the Company at any time
proposes to register any of its equity securities under the Securities Act as
contemplated by Article II and such equity securities are to be distributed by
or through one or more underwriters, the Company will, if requested by any
Participating Stockholder as provided in Article II, arrange for such
underwriters to include all the Registrable Securities to be offered and sold by
such Participating Stockholder, subject to the limitations set forth in Article
II, among the securities to be distributed by such underwriters. The
Participating Stockholders holding Registrable Securities to be distributed by
such underwriters shall be parties to the underwriting agreement between
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the Company and such underwriters (provided that such underwriting agreement is
consistent with the terms hereof), and may, at their option, require that any or
all of the representations and warranties by, and the other agreements on the
part of, the Company to and for the benefit of such underwriters shall also be
made to and for the benefit of such Participating Stockholders and that any or
all of the conditions precedent to the obligations of such underwriters under
such underwriting agreement also be conditions precedent to the obligations of
such Participating Stockholders. The Company shall cooperate as reasonably
requested by any such Participating Stockholder in order to limit (a) any
representations or warranties to, or agreements with, the Company or the
underwriters to be made by such Participating Stockholder only to
representations, warranties or agreements regarding such Participating
Stockholder, such Participating Stockholder's Registrable Securities and such
Participating Stockholder's intended method of distribution and any other
representation required by applicable law and (b) such Participating
Stockholder's maximum liability in respect of its indemnification and
contribution obligations under such underwriting agreement to an amount equal to
the net proceeds actually received by such Participating Stockholder (after
deducting any underwriting fees, discounts and expenses) from the sale of
Registrable Securities pursuant to the applicable Piggyback Registration.
ARTICLE VII
INDEMNIFICATION
7.1 INDEMNIFICATION BY THE COMPANY. The Company agrees to indemnify
and hold harmless, to the fullest extent permitted by law, each of the
Participating Stockholders holding any Registrable Securities covered by a
registration statement that has been filed with the Commission pursuant to this
Agreement, each underwriter for such Participating Stockholder in connection
therewith, each other Person, if any, who controls such Participating
Stockholder or any such underwriter within the meaning of the Securities Act or
the Exchange Act, and each of their respective managers, partners, officers,
directors, employees and general partners, as follows:
(i) against any and all loss, liability, claim, damage or
expense (other than amounts paid in settlement) incurred by such
Person arising out of or based upon an untrue statement or alleged
untrue statement of a material fact contained in such registration
statement (or any amendment or supplement thereto), including all
documents incorporated therein by reference, or in any preliminary
prospectus or prospectus included therein (or any amendment or
supplement thereto) or the omission or alleged omission therefrom of
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;
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(ii) against any and all loss, liability, claim, damage and
expense incurred by such Person to the extent of the aggregate
amount paid in settlement of any litigation, investigation or
proceeding by any Governmental or Regulatory Authority, in each case
whether commenced or threatened, or of any claim whatsoever, that is
based upon any such untrue statement or omission or any such alleged
untrue statement or omission, if such settlement is effected with
the written consent of the Company (which consent shall not be
unreasonably withheld or delayed); and
(iii) against any and all expense incurred by such Person in
connection with investigating, preparing or defending against any
litigation or any investigation or proceeding by any Governmental or
Regulatory Authority, in each case whether commenced or threatened
in writing, or against any claim whatsoever, that is based upon any
such untrue statement or omission or any such alleged untrue
statement or omission, to the extent that any such expense is not
paid under clause (i) or (ii) above;
provided, however, that this indemnity does not apply to any loss, liability,
claim, damage or expense to the extent arising out of or based upon an untrue
statement or alleged untrue statement or omission or alleged omission made in
reliance upon and in conformity with written information furnished to the
Company by or on behalf of any Participating Stockholder expressly for use in
the preparation of such registration statement (or any amendment or supplement
thereto), including all documents incorporated therein by reference, or in any
preliminary prospectus or prospectus included therein (or any amendment or
supplement thereto); and provided further, however, that the Company will not be
liable to any Participating Stockholder (or any other indemnified Person) under
the indemnity agreement in this Section 7.1, with respect to any preliminary
prospectus or the final prospectus or the final prospectus as amended or
supplemented, as the case may be, to the extent that any such loss, liability,
claim, damage or expense of such Participating Stockholder (or other indemnified
Person) results from the fact that such Participating Stockholder sold
Registrable Securities to a Person to whom there was not sent or given, at or
prior to the written confirmation of such sale, a copy of the final prospectus
or of the final prospectus as then amended or supplemented, whichever is most
recent, if the Company has previously and timely furnished copies thereof to
such Participating Stockholder. Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of any Participating
Stockholder or any other Person eligible for indemnification under this Section
7.1, and shall survive the transfer of the relevant Registrable Securities by
the Participating Stockholder who theretofore held them.
7.2 INDEMNIFICATION BY A SELLING SHAREHOLDER. In connection with
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any registration statement which covers Registrable Securities of a
Participating Stockholder pursuant to this Agreement, each such Participating
Stockholder agrees to indemnify and hold harmless (in the same manner and to the
same extent as set forth in Section 7.1 of this Agreement), to the extent
permitted by law, the Company and each underwriter for the Company or any such
Participating Stockholder in connection therewith, each other Person who
controls the Company or any such underwriter within the meaning of the
Securities Act or the Exchange Act, and each of their respective managers,
officers, directors and general partners, with respect to any statement or
alleged statement in or omission or alleged omission from such registration
statement, any preliminary, final or summary prospectus contained therein, or
any amendment or supplement thereto or to any such prospectus, if such statement
or alleged statement or omission or alleged omission was made in reliance upon
and in conformity with written information that relates only to such
Participating Stockholder and its affiliates or the plan of distribution and
that is furnished to the Company by or on behalf of such Participating
Stockholder expressly for use in the preparation of such registration statement,
preliminary, final or summary prospectus or amendment or supplement. Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of the Company or any other Person eligible under this
Section 7.2, and shall survive the transfer of Registrable Securities by such
Participating Stockholder. The obligations of each Participating Stockholder
pursuant to this Section 7.2 are to be several and not joint. Additionally, with
respect to each claim pursuant to this Section 7.2 and each corresponding claim
for contribution under Section 7.5, each such Participating Stockholder's
maximum aggregate liability under this Section 7.2 and Section 7.5 shall be
limited to an amount equal to the net proceeds actually received by such
Participating Stockholder (after deducting any underwriting fees, discounts and
expenses) from the sale of Registrable Securities being sold pursuant to such
registration statement or prospectus by such Participating Stockholder.
7.3 INDEMNIFICATION PROCEDURE. Within 10 days after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding involving a claim referred to in Section 7.1 or 7.2, such
indemnified party will, if a claim in respect thereof is to be made against an
indemnifying party, give written notice to the latter of the commencement of
such action; provided, however, that the failure of any indemnified party to
give notice as provided herein shall not relieve the indemnifying party of its
obligations under Section 7.1 or 7.2, except to the extent that the indemnifying
party is actually prejudiced by such failure to give notice. In case any such
action or proceeding is brought against an indemnified party, the indemnifying
party will be entitled to participate in and to assume the defense thereof,
jointly with any other indemnifying party similarly notified, with counsel
reasonably satisfactory to such indemnified party; and after notice from the
indemnifying party to such indemnified party of its election so to assume the
defense thereof, the indemnifying party will not be liable to such indemnified
party for any legal fees and expenses subsequently incurred by the latter in
connection with the defense thereof, unless in such indemnified party's
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reasonable judgment an actual or potential conflict of interest between such
indemnified and indemnifying parties may exist in respect of such claim, in
which case the indemnifying party shall not assume the defense of such claim but
also shall not be liable for the fees and expenses of (i) in the case of a claim
referred to in Section 7.1, more than one counsel (in addition to any local
counsel) for all indemnified parties selected by the holders of a majority (by
number of shares) of the Registrable Securities held by such indemnified
parties, or (ii) in the case of a claim referred to in Section 7.2, more than
one counsel (in addition to any local counsel) for the Company, in each case in
connection with any one action or separate but similar or related actions or
proceedings. An indemnifying party who is not entitled to (pursuant to the
immediately preceding sentence), or elects not to, assume the defense of a claim
will not be obligated to pay the fees and expenses of more than one counsel (in
addition to any local counsel) for all parties indemnified by such indemnifying
party with respect to such claim, unless in the reasonable judgment of any
indemnified party an actual or potential conflict of interest may exist between
such indemnified party and any other of such indemnified parties with respect to
such claim, in which event the indemnifying party shall be obligated to pay the
fees and expenses of such additional counsel or counsels as may be reasonable in
light of such conflict. The indemnifying party will not, without the prior
written consent of each indemnified party, settle or compromise or consent to
the entry of any judgment in any pending or threatened claim, action, suit,
investigation or proceeding in respect of which indemnification may be sought
hereunder (whether or not such indemnified party or any Person who controls such
indemnified party is a party to such claim, action, suit, investigation or
proceeding), unless such settlement, compromise or consent includes an
unconditional release of such indemnified party from all liability arising out
of such claim, action, suit, investigation or proceeding. An indemnified party
will not settle or compromise or consent to the entry of any judgment in any
pending or threatened claim, action, suit, investigation or proceeding in resect
of which it is then seeking (or thereafter seeks) indemnification hereunder, in
each case without the prior written consent of the indemnifying party (which
consent shall not be unreasonably withheld or delayed). Notwithstanding anything
to the contrary set forth herein, and without limiting any of the rights set
forth above, an indemnified party hereunder will have the right to retain, at
its own expense, counsel with respect to the defense of a claim.
7.4 UNDERWRITING AGREEMENT. The Company and each Participating
Stockholder requesting registration of all or any part of its Registrable
Securities pursuant to Article I or II, shall provide for the foregoing
indemnity (with appropriate modifications) in any underwriting agreement entered
into in connection with a Demand Registration or a Piggyback Registration with
respect to any required registration or other qualification of Registrable
Securities under any Federal or state law or regulation of any Governmental or
Regulatory Authority.
7.5 CONTRIBUTION. If the indemnification provided for in Sections
7.1 and 7.2 of this Agreement is unavailable to hold harmless an indemnified
party under
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such Section, then each indemnifying party shall contribute to the amount paid
or payable by such indemnified party as a result of the losses, claims, damages,
liabilities and expenses referred to in Section 7.1 or 7.2, as the case may be,
in such proportion as is appropriate to reflect the relative fault of such
indemnifying party, on the one hand, and such indemnified party, on the other
hand, in connection with statements or omissions which resulted in such losses,
liabilities, claims, damages or expenses, as well as any other relevant
equitable considerations, including the relative benefits received by each party
from the offering of the securities covered by the relevant registration
statement, the parties' relative knowledge and access to information concerning
the matter with respect to which the relevant claim was asserted and the
parties' relative opportunities to correct and prevent any relevant statement or
omission. Without limiting the generality of the foregoing, the parties'
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 or the indemnified party and the parties' relative intent,
knowledge, access to relevant information and opportunity to correct or prevent
such alleged untrue or untrue statement or omission. The parties hereto agree
that it would not be just and equitable if contributions pursuant to this
Section 7.5 were to be determined by pro rata or per capita allocation (even if
the underwriters were treated as one entity for such purpose) or by any other
method of allocation which does not take account of the equitable considerations
referred to in the first and second sentences of this Section 7.5. The amount
paid by an indemnified party as a result of the losses, claims, damages,
liabilities or expenses referred to in the first sentence of this Section 7.5
shall be deemed to include any legal or other expenses reasonably incurred by
such indemnified party in connection with investigating or defending the
relevant action or proceeding and shall be limited as provided in Section 7.3 if
the indemnifying party has assumed the defense of the relevant action or
proceeding in accordance with the provisions of Section 7.3. Promptly after
receipt by an indemnified party under this Section 7.5 of notice of the
commencement of any action or proceeding against such party in respect of which
a claim for contribution may be made against an indemnifying party under this
Section 7.5, such indemnified party shall notify the indemnifying party in
writing of the commencement thereof if the notice specified in Section 7.3 has
not been given with respect to such action or proceeding; provided, however,
that the omission to so notify the indemnifying party shall not relieve the
indemnifying party from any liability which it may otherwise have to any
indemnified party under this Section 7.5, except to the extent that the
indemnifying party is actually prejudiced by such failure to give notice. The
Company and the Participating Stockholders agree with each other, and will agree
with and the underwriters of Registrable Securities registered pursuant to
Article I or II, if requested by such underwriters, that (i) the underwriters'
portion of the contribution paid to the Participating Stockholders pursuant to
this Section 7.5 shall not exceed the total underwriting fees, discounts and
commissions in connection with the relevant offering of Registrable Securities
and (ii) the total amount of such Participating Stockholder's contributions
under this Section 7.5 and any amounts paid by such Participating
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Stockholder in respect of corresponding claims for indemnification under Section
7.2 shall not exceed an amount equal to the net proceeds actually received by
such Participating Stockholder from the sale of Registrable Securities in the
offering to which the losses, liabilities, claims, damages or expenses of the
indemnified parties relate. 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.
7.6 PERIODIC PAYMENTS. The indemnification required by this Article
VII shall be made by periodic payments of the amount thereof during the course
of the relevant investigation or defense, as and when bills are received or
expense, loss, damage or liability is incurred; provided, however, that if it is
finally determined by a court of competent jurisdiction that the relevant
indemnified party was not entitled to indemnification hereunder in respect of
such investigation or defense, such indemnified party shall repay to the
indemnifying party, on demand, all amounts received by it in respect of such
investigation or defense pursuant to this Section 7.6, together with interest
thereon at a rate per annum equal to the "prime rate" (as published from time to
time in the Wall Street Journal) for the period from and including the date on
which the indemnified party received the relevant amount to but excluding the
date on which it repaid such amount to the indemnifying party.
ARTICLE VIII
RULE 144
The Company shall file all reports required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted by
the Commission thereunder (or, if the Company is not required to file such
reports, it will, upon the request of any Participating Stockholder, make
publicly available other information), and it will take such further action as
any Participating Stockholder may reasonably request, all to the extent required
from time to time to enable such Participating Stockholder to sell shares of
Registrable Securities without registration under the Securities Act in
compliance with (i) Rule 144 under the Securities Act, as such Rule may be
amended from time to time, or (ii) any similar rule or regulation hereafter
adopted by the Commission. Upon the request of any Participating Stockholder,
the Company will deliver to such Participating Stockholder a written statement
as to whether it has complied with such requirements.
ARTICLE IX
PARTICIPATION IN UNDERWRITTEN REGISTRATIONS
No Participating Stockholder may participate in any underwritten
registration hereunder unless such Participating Stockholder (i) agrees to sell
its
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Registrable Securities on the basis provided in any underwriting arrangements
approved by the Person or Persons entitled hereunder to approve such
arrangements and (ii) completes and executes all questionnaires, powers of
attorney, indemnities, underwriting agreements, escrow agreements and other
documents reasonably required under the terms of such underwriting arrangements
and consistent with the provisions of this Agreement. If the Requesting
Investors with respect to any Demand Registration are subsequently not entitled
to participate in such Demand Registration solely by reason of their failure to
comply with any material requirement of this Article IX then, notwithstanding
anything in Section 1.1(b) or 1.3 to the contrary, the request by such
Requesting Investors for such Demand Registration shall continue to be counted
for purposes of Section 1.2.
ARTICLE X
DEFINITIONS
10.1 TERMS. As used in this Agreement, the following defined terms
shall have the meanings set forth below:
"ADDITIONAL STOCKHOLDER" means any person to whom the Company has
granted registration rights in compliance with Section 1.6 and who has executed
a Registration Rights Joinder Agreement in substantially the form of Exhibit A,
so long as any such person shall hold Registrable Securities.
"BUSINESS DAY" means a day other than Saturday, Sunday or any day on
which banks located in the State of New York or California are authorized or
obligated to close.
"COMMISSION" means the U.S. Securities and Exchange Commission.
"COMMON STOCK" means the Common Stock, par value $.001 per share, of
the Company, any securities into which such Common Stock shall have been changed
and any securities resulting from any reclassification or recapitalization of
such Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution, liquidation
or winding up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
"EQUITY EQUIVALENTS" means any securities (other than employee
options) which, by their terms, are or may be exercisable, convertible or
exchangeable for or into Common Stock at the election of the holder thereof.
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"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended, or any similar Federal statute then in effect, and any reference to a
particular section thereof shall include a reference to a comparable section, if
any, of any such similar Federal statute, and the rules and regulations
thereunder.
"FULLY-DILUTED BASIS" means with respect to the calculation of the
number of shares of Common Stock, (i) all shares of Common Stock outstanding at
the time of determination, (ii) all shares of Common Stock issuable upon the
exercise, conversion or exchange of any Equity Equivalents outstanding at the
time of determination and (iii) all shares of Common Stock issuable upon the
exercise, conversion or exchange of any securities that are issuable upon the
exercise, conversion or exchange of any Equity Equivalents outstanding at the
time of determination.
"ORIGINAL OWNERSHIP LEVEL" has the meaning ascribed to it in the
Stockholders' Agreement.
"PARTICIPATING STOCKHOLDERS" means the REI Stockholders and any
Additional Stockholders or transferee of any of the foregoing persons who has
acquired Registrable Securities and who has executed a Registration Rights
Joinder Agreement.
"PERMITTED TRANSFEREE" means:
(i) with respect to any Stockholder who is a natural person, the
spouse or any lineal descendant (including by adoption and stepchildren) of such
Stockholder, or any trust of which such Stockholder is the trustee and which is
established solely for the benefit of any of the foregoing individuals and whose
terms are not inconsistent with the terms of this Agreement;
(ii) with respect to any Stockholder who is not a natural person,
(A) any Affiliate of such Stockholder and any trustee, officer, director or
employee of such Stockholder or any such Affiliate, (B) any spouse, lineal
descendant (including by adoption and stepchildren) of the trustees, officers,
directors and employees referred to in clause (A) above, and any trust where a
majority in interest of the beneficiaries thereof are one or more of the persons
described in this clause (B) and the trustees, officers, directors and employees
described in clause (A) above and whose terms are not inconsistent with the
terms of this Agreement; and
(iii) as to any REI Stockholder, (w) any other REI Stockholder, (x)
any general partner or limited partner of REI (and any subsequent transferee of
such partner), (y) any partner, member, director, officer, employee or
investment advisor of any such general partner or limited partner, (z) any
Affiliate of any such general partner or limited partner, (ww) any director,
officer, employee, investment advisor, partner or member of any such Affiliate,
and (xx) any liquidating trust or similar entity established by REI or
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any of the foregoing entities for the benefit of its partners or interest
holders and their Permitted Transferees for the purpose of holding Restricted
Securities.
"PRO RATA" means, with respect to one or more Participating
Stockholders, in proportion to the number of shares of Common Stock on a
Fully-Diluted Basis owned by such Participating Stockholder or Stockholders or
which may be acquired by any such Participating Stockholder or Stockholders upon
exercising any rights under any Equity Equivalent owned by such Participating
Stockholder or Stockholders.
"REGISTRABLE SECURITIES" means, at any time of determination, (i)
the shares of Common Stock then issued and outstanding or which are issuable
upon the conversion, exercise or exchange of Equity Equivalents, (ii) any then
outstanding securities into which shares of Common Stock shall have been changed
and (iii) any then outstanding securities resulting from any reclassification or
recapitalization of Common Stock; provided, however, that "Registrable
Securities" shall not include any shares of Common Stock or other securities
obtained or transferred pursuant to an effective registration statement under
the Securities Act or in a Rule 144 Transaction; and provided further, however,
that "Registrable Securities" shall not include any shares of Common Stock or
other securities which are held by a Person who is not a Participating
Stockholder.
"REI STOCKHOLDERS" means REI and its Permitted Transferees who have
executed a Registration Rights Joinder Agreement in substantially the form of
Exhibit A, so long as any such person shall hold Registrable Securities.
"REQUESTING INVESTORS" means, with respect to any Demand
Registration, the Required REI Stockholders that have requested such Demand
Registration in accordance with Section 1.1.
"REQUISITE REGISTRATION PARTICIPANTS" means, with respect to any
Demand Registration or Piggyback Registration, Participating Stockholders which
then hold Registrable Securities representing at least a majority (by number of
shares) of the Registrable Securities requested to be included in such Demand
Registration (whether as Requesting Investors or otherwise) or Piggyback
Registration pursuant to Section 1.1 or
2.1, as applicable.
"REQUIRED REI STOCKHOLDERS" means, as of the date of any
determination thereof, REI Stockholders which then hold Registrable Securities
representing at least a majority (by number of shares) of the Registrable
Securities on a Fully-Diluted Basis, then held by all REI Stockholders.
"REQUISITE REQUESTING INVESTORS" means, as of the date of any
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determination thereof with respect to any Demand Registration, Requesting
Investors which then hold a majority (by number of shares) of the Registrable
Securities, on a Fully-Diluted Basis, then held by all Requesting Investors of
such Demand Registration.
"RESTRICTED SECURITIES" means the Common Stock, any Equity
Equivalents and any securities issued with respect to any of the foregoing as a
result of any stock dividend, stock split, reclassification, recapitalization,
reorganization, merger, consolidation or similar event or upon the conversion,
exchange or exercise thereof.
"RULE 144 TRANSACTION" means a transfer of Common Stock (a)
complying with Rule 144 under the Securities Act (or any successor statute or
rule) as such Rule (or such successor statute or rule, as the case may be) is in
effect on the date of such transfer (but not including a sale other than
pursuant to a "brokers transaction" as defined in clauses (1) and (2) of
paragraph (g) of such Rule as in effect on the date hereof) and (b) occurring at
a time when shares of Common Stock are registered pursuant to Section 12 of the
Exchange Act (or any successor to such Section).
"SECURITIES ACT" means the Securities Act of 1933, as amended, or
any similar Federal statute then in effect, and any reference to a particular
section thereof shall include a reference to a comparable section, if any, of
any such similar Federal statute, and the rules and regulations thereunder.
"STOCKHOLDERS' AGREEMENT" means the Stockholders' Agreement dated as
of the date hereof among the parties to the Stock Purchase Agreement, as such
Stockholders' Agreement may be amended, supplemented or otherwise modified from
time to time.
"TRANSFER" means any direct or indirect sale, transfer, assignment,
grant of a participation in, gift, hypothecation, pledge or other disposition of
any Restricted Security or any interest therein or, as the context may require,
to sell, transfer, assign, grant a participation in, give as a gift,
hypothecate, pledge or otherwise dispose of, directly or indirectly, any
Restricted Security or any interest therein.
10.2 OTHER DEFINED TERMS. Unless otherwise defined herein,
capitalized terms used in this Agreement shall have the respective meanings
assigned to them in the Stock Purchase Agreement.
10.3 DEFINED TERMS IN CORRESPONDING SECTIONS. The following defined
terms, when used in this Agreement, shall have the meaning ascribed to them in
the corresponding Sections of this Agreement listed below:
"Black-Out Notice" -- Section 1.7(b)
"Company" -- Preamble
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"Demand Registration" -- Section 1.1
"Investment Agreements" -- Recitals
"Long-Form Registration" -- Section 1.1(a)
"Piggyback Registration" -- Section 2.1
"Registration Expenses" -- Section 5.1
"REI" -- Preamble
"Short-Form Registration -- Section 1.1(a)
"Stock Purchase Agreement -- Recitals
ARTICLE XI
MISCELLANEOUS
11.1 NO INCONSISTENT AGREEMENTS. The Company represents and warrants
that it does not currently have, and covenants that it will not hereafter enter
into any Contract which is inconsistent with, or would otherwise restrict the
performance by the Company of, its obligations hereunder.
11.2 ADJUSTMENTS AFFECTING REGISTRABLE SECURITIES. The Company will
use all reasonable efforts not to take any action, and not to fail to take any
action which it may properly take, with respect to its securities if such action
or failure to act would adversely affect (a) the ability of the holders of
Registrable Securities to include Registrable Securities in a registration
undertaken pursuant to this Agreement or (b) to the extent within the Company's
control, would adversely affect the marketability of such Registrable Securities
in any such registration (it being understood that the actions referred to in
this Section 11.2 include effecting a stock split or a combination of shares).
11.3 SPECIFIC PERFORMANCE. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement was not
performed in accordance with the terms hereof and that the parties hereto shall
be entitled to specific performance of the terms hereof, in addition to any
other remedy that may be available to any of them at law or equity; provided,
however, that each of the parties hereto agrees to provide the other parties
hereto with written notice at least two Business Days prior to filing any motion
or other pleading seeking a temporary restraining order, a temporary or
permanent injunction, specific performance, or any other equitable remedy and to
give the other parties hereto and their counsel a reasonable opportunity to
attend and participate in any judicial or administrative hearing or other
proceeding held to adjudicate or rule upon any such motion or pleading.
11.4 AMENDMENTS AND WAIVERS. Except as otherwise provided herein, no
modification, amendment or waiver of any provision of this Agreement will be
effective against the Company or any holder of Registrable Securities or
Restricted
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Securities, unless such modification, amendment or waiver is approved in writing
by the Company and the Required REI Stockholders. Each of the Participating
Stockholders and the Company shall be bound by each modification, amendment or
waiver authorized in accordance with this Section 11.4, regardless of whether
the certificates evidencing the Registrable Securities or the Restricted
Securities shall have been marked to indicate such modification, amendment or
waiver. The failure of any party hereto to enforce any of the provisions of this
Agreement will in no way be construed as a waiver of such provisions and will
not affect the right of such party thereafter to enforce each and every
provision of this Agreement in accordance with its terms.
11.5 SUCCESSORS AND ASSIGNS. This Agreement shall be binding upon
and inure to the benefit of and be enforceable by the parties hereto and their
respective successors and permitted assigns. In addition, whether or not any
express assignment has been made, the provisions of this Agreement which are for
the benefit of purchasers or holders of Registrable Securities are also for the
benefit of, and enforceable by, any subsequent holder of Registrable Securities,
except to the extent reserved to or by the transferor in connection with any
such transfer; provided, however, that the benefits of this Agreement shall
inure to and be enforceable by any transferee of Registrable Securities only if
such transferee shall have executed a Registration Rights Joinder Agreement
substantially in the form of Exhibit A hereto.
11.6 NOTICES. All notices, requests and other communications
hereunder must be in writing and will be deemed to have been duly given only if
delivered personally against written receipt or by facsimile transmission or
mailed by prepaid first class certified mail, return receipt requested or mailed
by reputable overnight courier, fee prepaid, to the parties at the following
addresses or facsimile numbers:
(a) if to the Company, to:
QAD Inc.
0000 Xxx Xxxx
Xxxxxxxxxxx, XX 00000-0000
Facsimile No: (805)
Attn: Chief Financial Officer
with a copy to
10,000 Midlantic, #000 Xxxx
Xx. Xxxxxx, XX 00000-0000
Facsimile No: (000) 000-0000
Attn: General Counsel
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And a copy to
Nida & Xxxxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000-0000
Facsimile No: (000) 000-0000
Attn: Xxxxxx X. Xxxx, Esq.
(b) if to any REI Stockholder, to:
Recovery Equity Investors II, L.P.
000 Xxxxxxxx Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxx, XX 00000
Facsimile No: (000) 000-0000
Attn: Xxxxxx X. Xxxx-Xxxx
Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, XX 00000
Facsimile No: (000) 000-0000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
All such notices, requests and other communications will (i) if delivered
personally to the address as provided in this Section 11.6, be deemed given upon
delivery, (ii) if delivered by facsimile transmission to the facsimile number as
provided in this Section 11.6, be deemed given upon receipt, (iii) if delivered
by mail in the manner described above to the address as provided in this Section
11.6, be deemed given on the earlier of the third full Business Day following
the day of mailing or upon receipt, and (iv) if delivered by overnight courier
to the address provided in this Section 11.6, be deemed given on the earlier of
the first Business Day following the date sent by such overnight courier or upon
receipt (in each case regardless of whether such notice, request or other
communication is received by any other Person to whom a copy of such notice is
to be delivered pursuant to this Section 11.6). Any party from time to time may
change its address, facsimile number or other information for the purpose of
notices to that party by giving notice specifying such change to the other
parties hereto.
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11.7 HEADINGS, CERTAIN CONVENTIONS. The headings used in this
Agreement have been inserted for convenience of reference only and do not define
or limit any terms or provisions hereof. Unless the context otherwise expressly
requires, all references herein to Articles, Sections and Exhibits are to
Articles and Sections of, and Exhibits to, this Agreement. The words "herein,"
"hereunder" and "hereof" and words of similar import refer to this Agreement as
a whole and not to any particular Section or provision. The words "include,"
"includes" and "including" shall be deemed to be followed by the phrase "without
limitation."
11.8 GENDER. Whenever the pronouns "he" or "his" are used herein
they shall also be deemed to mean "she" or "hers" or "it" or "its" whenever
applicable. Words in the singular shall be read and construed as though in the
plural and words in the plural shall be construed as though in the singular in
all cases where they would so apply.
11.9 INVALID PROVISIONS. If any provision of this Agreement is held
to be illegal, invalid or unenforceable under any present or future law, and if
the rights or obligations of any party hereto under this Agreement will not be
materially and adversely affected thereby, (i) such provision will be fully
severable, (ii) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(iii) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (iv) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
11.10 GOVERNING LAW. This Agreement shall be governed by and
construed in accordance with the domestic laws of the State of New York, without
giving effect to any choice of law or conflict of law provision or rule (whether
of the State of New York or any other jurisdiction) that would cause the
application of the laws of any jurisdiction other than the State of New York.
11.11 CONSENT TO JURISDICTION AND SERVICE OF PROCESS. EACH OF THE
PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES
THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT MAY BE LITIGATED IN
SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY
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JUDGMENT RENDERED THEREBY IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES
HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE
AFOREMENTIONED COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES
THEREOF BY REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PARTY AT THE
ADDRESS SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 15 DAYS
AFTER SUCH MAILING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE
ABILITY OF ANY PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS, SUMMONS, NOTICES
AND DOCUMENTS IN ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN
JURISDICTION OVER OR TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST ANY OF THE
OTHER PARTIES HERETO IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE
PERMITTED BY ANY APPLICABLE LAW.
11.12 WAIVER OF JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY WAIVES
ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION BASED UPON
OR ARISING OUT OF THIS AGREEMENT. EACH OF THE PARTIES HERETO ALSO WAIVES ANY
BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS WAIVER, BE
REQUIRED OF SUCH PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING WITHOUT LIMITATION
CONTRACT CLAIMS, TORT CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW
AND STATUTORY CLAIMS. EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS
THAT IT HAS REVIEWED THIS WAIVER WITH ITS LEGAL COUNSEL, AND THAT IT KNOWINGLY
AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING CONSULTATION WITH LEGAL
COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY NOT BE MODIFIED EITHER
ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY SUBSEQUENT AMENDMENTS,
RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT. IN THE EVENT OF
LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO A TRIAL BY THE
COURT.
11.13 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument.
[Signature Page Follows]
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the date first above written.
QAD INC.
By:___________________________________
Name:
Title:
RECOVERY EQUITY INVESTORS II, L.P.
By: RECOVERY EQUITY PARTNERS II, L.P.,
its General Partner
By: _____________________________
Name: Xxxxxx X. Xxxx-Xxxx
Title: General Partner
By: _____________________________
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
[Signature Page to Registration Rights Agreement]
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EXHIBIT A TO REGISTRATION RIGHTS AGREEMENT
Form of Registration Rights Joinder Agreement
QAD Inc.
0000 Xxx Xxxx
Xxxxxxxxxxx, XX 00000-0000
Attention: Chief Financial Officer
Ladies & Gentlemen:
In consideration of the transfer to the undersigned of ____ shares
of Common Stock of QAD Inc., a Delaware corporation (the "Company"), by [INSERT
NAME OF TRANSFEROR], the undersigned agrees that, as of the date written below,
[HE][SHE][IT] shall become a party to that certain Registration Rights Agreement
dated as of December 23, 1999, as such agreement may have been amended from time
to time (the "Agreement"), among the Company and the persons named therein, and
shall be fully bound by, and subject to, all of the covenants, terms and
conditions of the Agreement that were applicable to the undersigned's
transferor, as though an original party thereto, and shall be deemed an
Additional Stockholder for all purposes thereof.
Executed as of the day of , .
SIGNATORY:___________________________
Address: ___________________________
___________________________
ACKNOWLEDGED AND
ACCEPTED:
QAD INC.
By __________________________________
Name:
Title:
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EXHIBIT C TO STOCK PURCHASE AGREEMENT
STOCKHOLDERS' AGREEMENT
STOCKHOLDERS' AGREEMENT dated as of December 23, 1999, by and among
QAD INC., a Delaware corporation (the "Company"), RECOVERY EQUITY INVESTORS II,
L.P., a Delaware limited partnership ("REI"), Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx
and The Lopker Family Trust dated March 23, 1993, a trust formed under the laws
of California (the "Lopker Trust") (Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx, the Xxxxxx
Trust, REI and any other persons who may become party to this Agreement pursuant
to the terms hereof, the "Stockholders").
W I T N E S E T H:
WHEREAS, pursuant to that certain Stock Purchase Agreement dated as
of December 23, 1999, by and among the Company, REI, Xxxxxx X. Xxxxxx, Xxxx X.
Xxxxxx and the Lopker Trust (as the same may be amended, supplemented or
otherwise modified from time to time, the "Purchase Agreement"), the Company is
issuing 2,333,333 shares of the common stock, par value $.001 per share, of the
Company (the "Common Stock") to REI on the terms and subject to the conditions
set forth in the Purchase Agreement;
WHEREAS, pursuant to the Purchase Agreement, REI is purchasing from
the Lopker Trust, on the date hereof, 444,445 shares of Common Stock on the
terms and subject to the conditions set forth in the Purchase Agreement;
WHEREAS, pursuant to the Purchase Agreement, the Company is issuing
to REI a warrant exercisable for an aggregate of 225,000 shares of Common Stock
(as the same may be amended, supplemented or otherwise modified from time to
time, including with respect to the aggregate number of shares of Common Stock
issuable thereunder, the "Warrant");
WHEREAS, contemporaneously with the execution of this Agreement, the
Company and REI are entering into a Registration Rights Agreement pursuant to
which the Company is granting to REI Stockholders certain registration rights
with respect to the Common Stock, including shares issuable upon any exercise of
the Warrant;
WHEREAS, it is a condition precedent to the Company's, REI's, Xxxxxx
X. Xxxxxx'x, Xxxx X. Xxxxxx'x and the Lopker Trust's respective obligations to
consummate the transactions contemplated by the Purchase Agreement that the
parties hereto shall have entered into this Agreement; and
WHEREAS, the parties desire to enter into certain agreements for the
purpose of governing certain aspects of the management of the Company and their
relationship as stockholders.
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NOW, THEREFORE, in consideration of the agreements and mutual
covenants contained herein, the parties hereto hereby agree as follows:
SECTION 1. Certain Definitions. The following defined terms, when
used in this Agreement, shall have the respective meanings set forth below (such
definitions to be equally applicable to both singular and plural forms of the
terms defined):
"Affiliate" means, with respect to any Person, (a) any other Person
directly or indirectly controlling, controlled by or under common control with,
that Person, (b) any other Person that owns or controls (i) 5% or more of any
class of equity securities of that Person or any of its Affiliates or (ii) 5% or
more of any class of equity securities (including any equity securities issuable
upon the exercise of any option, warrant, convertible security or similar right)
of that Person or any of its Affiliates, or (c) any director, partner, officer,
agent, employee or relative of that Person. For the purposes of this definition,
"control" (including, with correlative meanings, the terms "controlling",
"controlled by" and "under common control with"), as applied to any Person,
means the possession, directly or indirectly, of the power to direct or cause
the direction of the management and policies of that Person, whether through
ownership of voting securities or by Contract or otherwise.
"Commission" means the Securities and Exchange Commission and any
other similar or successor agency of the federal government administering the
Securities Act.
"Equity Equivalents" means the Warrant and any other securities
which, by their terms, are or may be exercisable, convertible or exchangeable
for or into Common Stock at the election of the holder thereof.
"Fully-Diluted Basis" means, with respect to the calculation of the
number of shares of Common Stock of the Company, the sum of (i) the number of
shares of Common Stock outstanding at the time of determination plus (ii) the
number of shares of Common Stock issuable upon the exercise, conversion or
exchange of any Equity Equivalents outstanding at the time of determination.
"Lopker Stockholders" means Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx, the
Xxxxxx Trust and their respective Permitted Transferees who have executed a
Joinder Agreement in substantially the form of Exhibit A, so long as any such
person shall hold Subject Securities.
"Original Ownership Level" means, with respect to any Stockholder,
the number of shares of Common Stock (on a Fully-Diluted Basis), as adjusted for
any stock splits, stock dividends, recapitalizations or other similar events,
held by such Stockholder immediately after the consummation of the transactions
contemplated by the Purchase Agreement.
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"Permitted Transferee" means:
(i) with respect to any Stockholder who is a natural person, the
spouse or any lineal descendant (including by adoption and stepchildren) of such
Stockholder, or any trust or family limited partnership of which such
Stockholder is the trustee or the general partner and which is established
solely for the benefit of any of the foregoing individuals and whose terms are
not inconsistent with the terms of this Agreement; and
(ii) with respect to any Stockholder who is not a natural person,
(A) any Affiliate of such Stockholder and any trustee, officer, director or
employee of such Stockholder or any such Affiliate, (B) any spouse, lineal
descendant (including by adoption and stepchildren) of the trustees, officers,
directors and employees referred to in clause (A) above, and any trust where a
majority in interest of the beneficiaries thereof are one or more of the persons
described in this clause (B) and the trustees, officers, directors and employees
described in clause (A) above and whose terms are not inconsistent with the
terms of this Agreement; and
(iii) as to any REI Stockholder, (A) any other REI Stockholder, (B)
any general partner or limited partner of REI (and any subsequent transferee of
such partner), (C) any partner, member, director, officer, employee or
investment advisor of any such general partner or limited partner, (D) any
Affiliate of any such general partner or limited partner, (E) any director,
officer, employee, investment advisor, partner or member of any such Affiliate,
and (F) any liquidating trust or similar entity established by REI or any of the
foregoing entities for the benefit of its partners or interest holders and their
Permitted Transferees for the purpose of holding Restricted Securities.
"Person" or "person" means an individual, partnership, corporation,
trust, unincorporated organization, limited liability company, joint venture,
government (or any agency or political subdivision thereof) or any other entity
of any kind.
"REI Stockholders" means REI and its Permitted Transferees who have
executed a Joinder Agreement in substantially the form of Exhibit A, so long as
any such person shall hold Subject Securities.
"Registration Rights Agreement" means that certain Registration
Rights Agreement, dated as of December 23, 1999, between the Company and REI as
the same may be amended, supplemented or otherwise modified from time to time.
"Securities Act" means the Securities Act of 1933, as amended from
time to time, and the rules and regulations of the Commission thereunder.
"Subject Securities" means the Common Stock, any Equity Equivalents
and any securities issued with respect thereto as a result of any stock
dividend, stock split, reclassification, recapitalization, reorganization,
merger, consolidation or similar event or upon the conversion, exchange or
exercise thereof.
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"Transfer" means any direct or indirect sale, transfer, assignment,
grant of a participation in, gift, hypothecation, pledge or other disposition of
any securities or any interests therein or, as the context may require, to sell,
transfer, assign, grant a participation in, give as a gift, hypothecate, pledge
or otherwise dispose of, directly or indirectly, any securities or any interests
therein.
SECTION 2. Election and Removal of Directors.
(a) Designation of Directors. At any time when directors of the
Company are nominated and elected, for so long as REI shall hold Subject
Securities representing (on a Fully-Diluted Basis) at least 50% of REI's
Original Ownership Level, REI shall be entitled to designate one person for
election to the board of directors of the Company (the "Board"), in each case by
written notice to the Company and the other Stockholders; provided, however,
that REI shall no longer be permitted to designate any person for election to
the Board pursuant to this Section 2 if REI shall at any time cease to hold
Subject Securities representing (on a Fully-Diluted Basis) at least 50% of REI's
Original Ownership Level. Each person designated by REI for election to the
Board pursuant to this Section 2 (an "REI Designee") shall be included in the
slate of nominees recommended by the Board to the Company's stockholders for
election as directors at each annual meeting (or special meeting or solicitation
for the election of directors) of the stockholders of the Company and each of
the Company and the Stockholders agree to take such other action as is necessary
to nominate and elect the REI Designee as a member of the Board as soon as
practicable following receipt of any such notice and, in the case of the first
such notice, in any event not later than the time of the first meeting of the
Board, or the first written consent executed by the Board, following the Closing
(as defined in the Purchase Agreement).
(b) If, prior to his or her election to the Board pursuant to this
Section 2, the REI Designee shall be unable or unwilling to serve as a director
of the Company, REI shall be entitled to nominate a replacement who shall then
be the REI Designee for purposes of this Section 2. Subject to the immediately
preceding sentence but notwithstanding anything else in this Section 2 to the
contrary, Xxxxxxx X. Xxxxxx shall be the REI Designee for so long as he shall be
a general partner of REI's general partner. In the event that Xx. Xxxxxx ceases
to be a general partner of REI's general partner or is otherwise unwilling or
unable to serve as a director of the Company, REI shall use its reasonable
efforts to designate, as the REI Designee, a person (x) as to whom no disclosure
would be required to be made at the time of such designation pursuant Rule
401(f) or Rule 404 of Regulation S-K (other than by reason of the management and
closing fees payable to REI pursuant to the Purchase Agreement), (y) who, at the
time of such designation, is not an officer, director or Affiliate of either (A)
a significant customer of the Company or (B) a significant competitor of the
Company, and (z) who, prior to the time of such designation, has not engaged in
conduct that has resulted in the disqualification of another Person from listing
on a national securities exchange or Nasdaq.
(c) Removal. Subject to paragraph (b) above, REI shall have the
exclusive right, at any time and for any reason (or for no reason), to require
that the REI Designee be removed from the Board by written notice to the each of
the Company and the other Stockholders. Each of the Company and the Stockholders
agree to take such action, and to cause the remaining directors of the Company
to take such action, as is necessary to remove such person as a director of the
Company as soon as practicable following receipt of such notice.
79
(d) Filling Vacancies. If at any time a vacancy is created on the
Board by reason of the death, removal or resignation of the REI Designee, REI
shall have the exclusive right to designate a person to fill such vacancy by
written notice to the Company and the other Stockholders. The Company and the
Stockholders agree to take such action and to cause the remaining directors of
the Company to take such action, as is necessary to nominate, approve and elect
such person as a director of the Company as soon as practicable following
receipt of such notice.
(e) Covenant to Vote. The Stockholders agree to vote or cause to be
voted the Subject Securities owned or controlled by them (i) at any annual or
special meeting of stockholders of the Company called for the purpose of voting
on the election or removal of directors of the Company, or (ii) by executing a
written consent in lieu of a meeting of the stockholders of the Company with
respect to the election or removal of directors, in favor of the election or
removal of directors of the Company in accordance with the provisions of this
Section 2.
(f) Irrevocable Proxy. If any Stockholder fails for any reason to
vote its Subject Securities in accordance with the requirements of this
Agreement, then REI shall have the right to vote such shares, and each
Stockholder hereby constitutes and appoints, with full power of substitution,
REI as his, her or its true and lawful proxy and attorney-in-fact, to attend,
speak and vote at any meeting of the stockholders and to sign a written consent
in respect of, all of the Subject Securities owned by the grantor of the proxy
for the election to or removal from the Board of the directors designated by
REI, upon the failure of such Stockholder to vote in accordance with Section 2
of this Agreement. Such appointment shall terminate at such time as the grantor
no longer is obligated to vote his, her or its Subject Securities in accordance
with the requirements of this Agreement. Each Stockholder acknowledges that the
proxy granted by it hereby is for valuable consideration and is irrevocable to
the full extent permitted by law.
SECTION 3. Transfer Restrictions.
(a) Each Stockholder agrees that all Transfers by it of Subject
Securities shall be made in accordance with the terms of this Agreement. Any
attempt to Transfer or any purported Transfer of any Subject Securities not in
accordance with the terms of this Agreement shall be null and void and neither
the Company nor any transfer agent of such securities shall give any effect to
such attempted Transfer in its stock records.
(b) Each of the Stockholders severally agrees that upon any Transfer
by it of Subject Securities to a Permitted Transferee, it shall cause such
Permitted Transferee to execute a Joinder Agreement substantially in the form of
Exhibit A and thereby become a party to this Agreement.
(c) Each certificate representing the Subject Securities now or
hereafter held by a Stockholder shall be stamped with a legend in substantially
the following form:
"THE SECURITIES EVIDENCED BY THIS CERTIFICATE HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR
80
HYPOTHECATED UNLESS THERE IS AN EFFECTIVE REGISTRATION STATEMENT
UNDER SUCH ACT COVERING SUCH SECURITIES, OR THE ISSUER, UPON
REQUEST, RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THESE
SECURITIES REASONABLY SATISFACTORY TO THE ISSUER, STATING THAT SUCH
SALE, TRANSFER, ASSIGNMENT OR HYPOTHECATION IS EXEMPT FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT. THE SHARES REPRESENTED BY
THIS CERTIFICATE ARE SUBJECT TO A STOCKHOLDERS' AGREEMENT DATED
DECEMBER 23, 1999, A COPY OF WHICH IS ON FILE AT THE OFFICE OF THE
ISSUER AND WILL BE FURNISHED TO ANY PROSPECTIVE PURCHASER ON
REQUEST. SUCH STOCKHOLDERS' AGREEMENT PROVIDES, AMONG OTHER THINGS,
FOR CERTAIN RESTRICTIONS ON THE SALE, TRANSFER OR OTHER DISPOSITION
OF THE SHARES REPRESENTED BY THIS CERTIFICATE."
Each Stockholder agrees that he, she or it will deliver all
certificates for the Subject Securities owned by it to the Company for the
purpose of affixing such legend thereto. Any certificate issued at any time in
exchange or substitution for any certificate bearing such legends (except a new
certificate issued upon the completion of a Transfer pursuant to a registered
public offering under the Securities Act and made in accordance with the
Securities Act) shall also bear such legends, unless the Subject Securities
represented thereby are no longer subject to the provisions of this Agreement
or, in the opinion of the Company (with advice from counsel to the Company, as
the Company may deem appropriate), the restrictions imposed under the Securities
Act or any state securities law, in which case the applicable legend (or
legends) may be removed.
SECTION 4. Rights of Inclusion (Tag-Along Rights).
(a) In the event that one or more Lopker Stockholders propose to
Transfer any shares (or other units) of Subject Securities (the "Transferor
Shares") to any Person (the "Buyer"), other than a Transfer to a Permitted
Transferee or a Rule 144 Transaction (as such term is defined in the
Registration Rights Agreement), as a condition to such Transfer, the Lopker
Stockholders shall cause the Buyer to offer (the "Inclusion Offer") to purchase
from each REI Stockholder, at such REI Stockholder's option, up to that number
of shares of Subject Securities determined in accordance with Section 4(b) on
the same terms and conditions as are applicable to the Transferor Shares, except
that each REI Stockholder shall not be required to provide any representation,
warranty or indemnification other than with respect to its ownership of, and
authority to Transfer, the Subject Securities owned by it free of any liens or
encumbrances. The Lopker Stockholders shall provide prompt written notice to
each REI Stockholder (the "Inclusion Notice") setting forth all the terms and
conditions of the Inclusion Offer, and each REI Stockholder may accept the
Inclusion Offer in whole or in part by providing a written notice of acceptance
with respect to the Subject Securities owned by it to the Lopker Stockholders
within 10 business days of delivery of the Inclusion Notice to it (the
"Acceptance Notice").
(b) The REI Stockholders, in the aggregate, shall have the right to
sell, pursuant to the Inclusion Offer, Subject Securities representing (on a
Fully-Diluted Basis) the
81
same percentage of all shares of Subject Securities owned by them as the
Transferor Shares are of all shares of Subject Securities (on a Fully-Diluted
Basis, but excluding any Equity Equivalents that are then either (i) not
exercisable at the election of the holder thereof or (ii) "out of the money")
owned by the Lopker Stockholders. In the event the number of shares of Subject
Securities for which the REI Stockholders elect to exercise such right, along
with the shares of Subject Securities to be sold by the Lopker Stockholders,
exceed the number of shares which the Buyer is willing to purchase, the number
of shares to be Transferred to the Buyer by each REI Stockholder shall be
reduced so that each REI Stockholder is entitled to Transfer the same percentage
of its shares included in its Acceptance Notice as each other REI Stockholder.
(c) The Lopker Stockholders shall have 90 days, commencing on the
date of the Inclusion Notice, in which to Transfer, on behalf of themselves and
the REI Stockholders, up to the number of shares covered by the Inclusion Offer
(including the Transferor Shares) to the Buyer. The terms of such Transfer,
including, without limitation, price and form of consideration, shall be as set
forth in the Inclusion Notice. If at the end of such 90 day period, the Lopker
Stockholders have not completed the Transfer of the shares of Common Stock
proposed to be Transferred, the Lopker Stockholders may not proceed with such
Transfer or any other Transfer without first giving a new Inclusion Notice
pursuant to the provisions of this Section 4.
(d) If the Lopker Stockholders are able to complete the Transfer of
the shares proposed to be Transferred within such 90 day period, at the closing
thereof, each REI Stockholder shall deliver to the Buyer a certificate or
certificates representing the Subject Securities owned by it to be Transferred
pursuant to the Inclusion Offer, free and clear of all liens and encumbrances,
and the Buyer shall pay to each REI Stockholder the purchase price for the
Subject Securities so Transferred pursuant to this Section 4 and shall furnish
such other evidence of the completion of such Transfer and the terms thereof as
may be reasonably requested by such REI Stockholder.
SECTION 5. After-Acquired Shares. All of the provisions of this
Agreement shall apply to all of the Subject Securities now owned or hereafter
issued or transferred to a Stockholder in consequence of any additional
issuance, purchase, exchange, exercise of conversion rights or reclassification
of shares of Common Stock, corporate reorganization, or any other form of
recapitalization, or consolidation, or merger, or share split, or share
dividend, or capitalization issue; provided, however, that the provisions of
this Agreement shall not apply to any Subject Securities acquired by any REI
Stockholder from any Person (other than any other REI Stockholder or the
Company) after the date hereof, it being understood that the Subject Securities
held by any REI Stockholder shall be treated for purposes of this Section 5 as
being owned on a "first in, first out" basis.
SECTION 6. Governing Law. This Agreement shall be governed and
construed in accordance with the laws of the State of New York without giving
effect to any choice of law or conflict of law provision or rule that would
cause the application of the laws of any jurisdiction other than the State of
New York, except to the extent that the General Corporation Law of the State of
Delaware applies as a result of the Company being incorporated in the State of
Delaware, in which case such General Corporation Law shall apply.
82
SECTION 7. Entire Agreement; Amendments. This Agreement constitutes
the entire agreement of the parties hereto with respect to the subject matter
hereof and may be amended, modified or supplemented only by a written instrument
duly executed by (a) the Company, (b) REI Stockholders which then hold in the
aggregate more than 50% of the aggregate shares of Subject Securities on a
Fully-Diluted Basis then held by all REI Stockholders, and (c) Lopker
Stockholders which then hold in the aggregate more than 50% of the aggregate
shares of Subject Securities on a Fully-Diluted Basis then held by all Lopker
Stockholders. In the event of an amendment, modification or supplement of this
Agreement in accordance with its terms, each of the Company and the Stockholders
shall take all actions reasonably within its control that are necessary or
appropriate, within 30 calendar days following such amendment, modification or
supplement, or as soon thereafter as is practicable, to cause the adoption of
any amendment to the Certificate of Incorporation or By-Laws of the Company that
may be required as a result of such amendment, modification or supplement to
this Agreement. The Stockholders hereby agree to vote their shares of Subject
Securities to approve each such amendment to the Certificate of Incorporation or
By-Laws of the Company.
SECTION 8. Term. Except for the provisions of Sections 6 through 18
hereof, this Agreement shall automatically and without further action terminate
upon the earliest to occur of (i) the first date as of which the REI
Stockholders cease to own Subject Securities representing (on a Fully-Diluted
Basis) at least 25% of REI's Original Ownership Level and (ii) the written
agreement of (x) REI Stockholders which then hold in the aggregate more than 50%
of the aggregate shares of Subject Securities on a Fully-Diluted Basis then held
by all REI Stockholders and (y) Lopker Stockholders which then hold in the
aggregate more than 50% of the aggregate shares of Subject Securities on a
Fully-Diluted Basis then held by all Lopker Stockholders.
SECTION 9. Waiver. No waiver by any party hereto of any term or
condition of this Agreement, in one or more instances, shall be valid unless in
writing, and no such waiver shall be deemed to be construed as a waiver of any
subsequent breach or default of the same or any other term or condition hereof.
SECTION 10. Successors and Assigns. Except as otherwise expressly
provided herein, this Agreement shall be binding upon and inure to the benefit
of the parties hereto and their respective successors and permitted assigns
(including transferees of Subject Securities); provided, however, that nothing
contained herein shall be construed as granting any Stockholder the right to
Transfer any of its Subject Securities except in accordance with this Agreement.
SECTION 11. Remedies. In the event of a breach by any party to this
Agreement of its obligations under this Agreement, any party hereto injured by
such breach, in addition to being entitled to exercise all rights granted by
law, including recovery of damages and costs (including reasonable attorneys'
fees), will be entitled to specific performance of its rights under this
Agreement. The parties hereto agree that the provisions of this Agreement shall
be specifically enforceable, it being agreed by the parties hereto that the
remedy at law, including monetary damages, for breach of any such provision will
be inadequate compensation for any loss and that any defense in any action for
specific performance that a remedy at law would be adequate is waived. Such
equitable remedies and all other remedies are cumulative and not exclusive and
shall be in addition to any remedies which any party hereto may have under this
Agreement or otherwise.
83
SECTION 12. Invalid Provisions. If any provision of this Agreement
is held to be illegal, invalid or unenforceable under any present or future law,
and if the rights or obligations of any party hereto under this Agreement will
not be materially and adversely affected thereby, (a) such provision will be
fully severable, (b) this Agreement will be construed and enforced as if such
illegal, invalid or unenforceable provision had never comprised a part hereof,
(c) the remaining provisions of this Agreement will remain in full force and
effect and will not be affected by the illegal, invalid or unenforceable
provision or by its severance herefrom and (d) in lieu of such illegal, invalid
or unenforceable provision, there will be added automatically as a part of this
Agreement a legal, valid and enforceable provision as similar in terms to such
illegal, invalid or unenforceable provision as may be possible.
SECTION 13. Headings; Certain Conditions. The headings of the
various Articles and Sections of this Agreement are for convenience of reference
only and shall not define, limit or otherwise affect any of the terms or
provisions hereof. Unless the context otherwise expressly requires, all
references herein to Articles, Sections and Exhibits, are to Article and
Sections of, and Exhibits to, this Agreement. The words "herein," "hereunder"
and "hereof" and words of similar import refer to this Agreement as a whole and
not to any particular Section or provision. The words "include," "includes" and
"including" shall be deemed to be followed by the phrase "without limitation".
SECTION 14. Further Assurances. Each party hereto shall cooperate
and shall take such further action and shall execute and deliver such further
documents as may be reasonably requested by any other party hereto in order to
carry out the provisions and purposes of this Agreement.
SECTION 15. Gender. Whenever the pronouns "he" or "his" are used
herein they shall also be deemed to mean "she" or "hers" or "it" or "its"
whenever applicable, and vice versa. Words in the singular shall be read and
construed as though in the plural and words in the plural shall be construed as
though in the singular in all cases where they would so apply.
SECTION 16. Counterparts. This Agreement may be executed in any
number of counterparts, each of which will be deemed an original, but all of
which together will constitute one and the same instrument.
SECTION 17. Notices.
(a) All notices, requests and other communications hereunder must be
in writing and will be deemed to have been duly given only if delivered
personally against written receipt or by facsimile transmission or mailed (by
registered or certified mail, postage prepaid, return receipt requested) or
delivered by reputable overnight courier, fee prepaid, to the parties hereto at
the following addresses or facsimile numbers:
(i) If to any REI Stockholder, to:
Recovery Equity Investors II, L.P.
000 Xxxxxxx'x Xxxxxx Xxxxxxxxx, Xxxxx 000
Xxx Xxxxx, Xxxxxxxxxx 00000
84
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxx-Xxxx
Xxxxxxx X. Xxxxxx
with a copy to:
Xxxxxx, Xxxxx & Xxxxxxx LLP
000 Xxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxx X. Xxxxxxxxxx, Esq.
(ii) If to the Company, to:
QAD Inc.
0000 Xxx Xxxx
Xxxxxxxxxxx, XX 00000-0000
Facsimile No: (000) 000-0000
Attn: Chief Financial Officer
with a copy to
10,000 Midlantic, #000 Xxxx
Xx. Xxxxxx, XX 00000-0000
Facsimile No: (000) 000-0000
Attn: General Counsel
And a copy to
Nida & Xxxxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000-0000
Facsimile No: (000) 000-0000
Attn: Xxxxxx X. Xxxx, Esq.
(iii) If to any Lopker Stockholder, to:
Xxxx X. Xxxxxx
c/o QAD Inc.
0000 Xxx Xxxx
Xxxxxxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
85
with a copy to:
Nida & Xxxxxxx, LLP
000 Xxxxxxx Xxxxxx
Xxxxx Xxxxxxx, XX 00000
Facsimile No.: (000) 000-0000
Attn: Xxxxxx X. Xxxx
(b) All such notices, requests and other communications will be
deemed delivered upon receipt. Any party hereto may from time to time change its
address, facsimile number or other information for the purpose of notices to
such party by giving notice specifying such change to the other parties hereto
in accordance with Section 17(a).
SECTION 18. Consent to Jurisdiction and Service of Process. EACH OF
THE PARTIES HERETO CONSENTS TO THE JURISDICTION OF ANY STATE OR FEDERAL COURT
LOCATED WITHIN THE COUNTY OF NEW YORK, STATE OF NEW YORK AND IRREVOCABLY AGREES
THAT ALL ACTIONS OR PROCEEDINGS RELATING TO THIS AGREEMENT MAY BE LITIGATED IN
SUCH COURTS. EACH OF THE PARTIES HERETO ACCEPTS FOR ITSELF AND IN CONNECTION
WITH ITS PROPERTIES, GENERALLY AND UNCONDITIONALLY, THE NONEXCLUSIVE
JURISDICTION OF THE AFORESAID COURTS AND WAIVES ANY DEFENSE OF FORUM NON
CONVENIENS, AND IRREVOCABLY AGREES TO BE BOUND BY ANY JUDGMENT RENDERED THEREBY
IN CONNECTION WITH THIS AGREEMENT. EACH OF THE PARTIES HERETO FURTHER
IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS OUT OF ANY OF THE AFOREMENTIONED
COURTS IN ANY SUCH ACTION OR PROCEEDING BY THE MAILING OF COPIES THEREOF BY
REGISTERED OR CERTIFIED MAIL, POSTAGE PREPAID, TO THE PARTY AT THE ADDRESS
SPECIFIED IN THIS AGREEMENT, SUCH SERVICE TO BECOME EFFECTIVE 15 DAYS AFTER SUCH
MAILING. NOTHING HEREIN SHALL IN ANY WAY BE DEEMED TO LIMIT THE ABILITY OF ANY
PARTY HERETO TO SERVE ANY SUCH LEGAL PROCESS, SUMMONS, NOTICES AND DOCUMENTS IN
ANY OTHER MANNER PERMITTED BY APPLICABLE LAW OR TO OBTAIN JURISDICTION OVER OR
TO BRING ACTIONS, SUITS OR PROCEEDINGS AGAINST ANY OF THE OTHER PARTIES HERETO
IN SUCH OTHER JURISDICTIONS, AND IN SUCH MANNER, AS MAY BE PERMITTED BY ANY
APPLICABLE LAW.
SECTION 19. Waiver of Jury Trial. EACH OF THE PARTIES HERETO HEREBY
WAIVES ITS RESPECTIVE RIGHTS TO A JURY TRIAL OF ANY CLAIM OR CAUSE OF ACTION
BASED UPON OR ARISING OUT OF THIS AGREEMENT. EACH OF THE PARTIES HERETO ALSO
WAIVES ANY BOND OR SURETY OR SECURITY UPON SUCH BOND WHICH MIGHT, BUT FOR THIS
WAIVER, BE REQUIRED OF SUCH PARTY. THE SCOPE OF THIS WAIVER IS INTENDED TO BE
ALL-ENCOMPASSING OF ANY AND ALL DISPUTES THAT MAY BE FILED IN ANY COURT AND THAT
RELATE TO THE SUBJECT MATTER OF THIS AGREEMENT, INCLUDING CONTRACT CLAIMS, TORT
CLAIMS, BREACH OF DUTY CLAIMS, AND ALL OTHER COMMON LAW AND STATUTORY CLAIMS.
EACH OF THE PARTIES HERETO FURTHER WARRANTS AND REPRESENTS THAT IT HAS REVIEWED
THIS WAIVER WITH ITS LEGAL COUNSEL,
86
AND THAT IT KNOWINGLY AND VOLUNTARILY WAIVES ITS JURY TRIAL RIGHTS FOLLOWING
CONSULTATION WITH LEGAL COUNSEL. THIS WAIVER IS IRREVOCABLE, MEANING THAT IT MAY
NOT BE MODIFIED EITHER ORALLY OR IN WRITING, AND THIS WAIVER SHALL APPLY TO ANY
SUBSEQUENT AMENDMENTS, RENEWALS, SUPPLEMENTS OR MODIFICATIONS TO THIS AGREEMENT.
IN THE EVENT OF LITIGATION, THIS AGREEMENT MAY BE FILED AS A WRITTEN CONSENT TO
A TRIAL BY THE COURT.
[Signature Page Follows]
87
IN WITNESS WHEREOF, the parties hereto have executed this Agreement
as a deed on the date first above written.
QAD INC.
By:________________________________
Name:
Title:
RECOVERY EQUITY INVESTORS II, L.P.
By: RECOVERY EQUITY PARTNERS II, L.P.,
its General Partner
By:_____________________________
Name: Xxxxxx X. Xxxx-Xxxx
Title: General Partner
By:_____________________________
Name: Xxxxxxx X. Xxxxxx
Title: General Partner
_________________________________
XXXXXX X. XXXXXX
_________________________________
XXXX X. XXXXXX
THE LOPKER LIVING TRUST DATED
MARCH 23, 1993
By: _______________________________
Xxxx X. Xxxxxx, in his capacity as a
trustee of such trust and not in his
individual capacity
[Signature page to Stockholders' Agreement]
88
EXHIBIT A
Form of Joinder Agreement
QAD Inc.
[Address]
Attention:
Ladies & Gentlemen:
In consideration of the transfer to the undersigned of ____ shares
of Common Stock of QAD INC., a Delaware corporation (the "Company"), by [INSERT
NAME OF TRANSFEROR], the undersigned agrees that, as of the date written below,
[HE][SHE][IT] shall become a party to that certain Stockholders' Agreement dated
as of December 23, 1999, as such agreement may have been amended from time to
time (the "Agreement"), among the Company and the persons named therein, and
shall be fully bound by, and subject to, all of the covenants, terms and
conditions of the Agreement that were applicable to the undersigned's
transferor, as though an original party thereto, and shall be deemed a
Stockholder for all purposes thereof.
Executed as of the day of , .
SIGNATORY:___________________________
Address: ___________________________
___________________________
ACKNOWLEDGED AND
ACCEPTED:
QAD INC.
By __________________________________
Name:
Title:
89
EXHIBIT D TO STOCK PURCHASE AGREEMENT
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF, HAVE
NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED,
AND MAY NOT BE SOLD, TRANSFERRED, ASSIGNED OR HYPOTHECATED UNLESS
THERE IS AN EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT COVERING
THIS WARRANT OR SUCH SECURITIES (AS APPLICABLE), OR THE ISSUER, UPON
REQUEST, RECEIVES AN OPINION OF COUNSEL TO THE HOLDER OF THIS
WARRANT OR SUCH SECURITIES (AS APPLICABLE) REASONABLY SATISFACTORY
TO THE ISSUER STATING THAT SUCH SALE, TRANSFER, ASSIGNMENT OR
HYPOTHECATION IS EXEMPT FROM THE REGISTRATION REQUIREMENTS OF SUCH
ACT.
THIS WARRANT, AND THE SECURITIES ISSUABLE UPON EXERCISE HEREOF, ARE
SUBJECT TO A STOCKHOLDERS' AGREEMENT DATED AS OF DECEMBER 23, 1999,
AS IN EFFECT FROM TIME TO TIME, A COPY OF WHICH IS ON FILE AT THE
OFFICE OF THE ISSUER AND WILL BE FURNISHED TO ANY PROSPECTIVE
PURCHASER ON REQUEST. SUCH STOCKHOLDERS' AGREEMENT PROVIDES, AMONG
OTHER THINGS, FOR CERTAIN RESTRICTIONS ON THE SALE, TRANSFER OR
OTHER DISPOSITION OF THIS WARRANT OR SUCH SECURITIES.
STOCK PURCHASE WARRANT
Date of Issuance: December 23, 1999 Certificate No. 1
For value received, QAD INC., a Delaware corporation (the "Company"),
hereby grants to RECOVERY EQUITY INVESTORS II, L.P., a Delaware limited
partnership, or its registered assigns (the "Registered Holder"), the right to
purchase from the Company, at any time or from time to time during the Exercise
Period, 225,000 Warrant Shares at the Exercise Price. This Warrant is issued to
REI on the Date of Issuance pursuant to the Stock Purchase Agreement. The
Exercise Price and number of Warrant Shares (and the amount and kind of other
securities) for which this Warrant is exercisable shall be subject to adjustment
and subject to rights to receive other securities, all as provided herein.
Certain capitalized terms used herein are defined in Section 5 hereof.
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This Warrant is subject to the following provisions:
SECTION 1. Exercise of Warrant.
1A. Exercise Period. The purchase rights represented by this Warrant may
be exercised, in whole or in part, at any time and from time to time, commencing
on the Date of Issuance through 5:00 p.m., New York time, on December 22, 2003,
or, if such day is not a Business Day, on the next succeeding Business Day (the
"Exercise Period").
1B. Exercise Procedure.
(i) This Warrant shall be deemed to have been exercised when all of
the following items have been delivered to the Company (the "Exercise Time"):
(a) a completed Exercise Agreement, as described in Section 1C
below, executed by the Person exercising all or part of the purchase
rights represented by this Warrant (the "Purchaser");
(b) this Warrant;
(c) if the Purchaser is not the Registered Holder, an
Assignment or Assignments in the form set forth in Exhibit II hereto
evidencing the assignment of this Warrant to the Purchaser; and
(d) either (A) a check or wire transfer payable to the Company
in an amount equal to the product of (x) the Exercise Price multiplied by
(y) the number of Warrant Shares being purchased upon such exercise (the
"Aggregate Exercise Price") or (B) the delivery of a notice to the Company
that the Purchaser is exercising this Warrant (or a portion thereof) by
authorizing the Company to reduce the number of Warrant Shares to be
delivered to the Purchaser upon such exercise of this Warrant (or such
portion thereof) by the number of Warrant Shares having an aggregate Fair
Market Value determined as of the Exercise Time equal to the Aggregate
Exercise Price.
(ii) Certificates for Warrant Shares (rounded up to the nearest
whole share) purchased upon exercise of this Warrant shall be delivered by the
Company to the Purchaser within three Business Days after the date of the
Exercise Time.
(iii) Unless this Warrant has expired or all of the purchase rights
represented hereby have been exercised, the Company shall prepare a new Warrant,
substantially identical hereto, representing the rights formerly represented by
this Warrant which have not expired or been exercised and shall, within three
Business Days after the date of the Exercise Time, deliver such new Warrant to
the Person designated for delivery in the Exercise Agreement.
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(iv) The Warrant Shares issuable upon the exercise of this Warrant
shall be deemed to have been issued to the Purchaser at the Exercise Time, and
the Purchaser shall be deemed for all purposes to have become the Registered
Holder of such Warrant Shares at the Exercise Time.
(v) The issuance of certificates for Warrant Shares upon exercise of
this Warrant shall be made without charge to the Registered Holder or the
Purchaser for any issuance tax in respect thereof or other cost incurred by the
Company in connection with such exercise and the related issuance of Warrant
Shares; provided, however, that the Company shall not be required to pay any tax
or taxes which may be payable in respect of any transfer involved in the
issuance of any Warrants or any certificates representing Warrant Shares in a
name other than that of a Registered Holder, and the Company shall not be
required to issue or deliver such Warrant or certificate for Warrant Shares
unless and until the Person requesting the issuance thereof shall have paid to
the Company the amount of such tax or shall have established to the reasonable
satisfaction of the Company that such tax has been paid.
(vi) The Company shall not close its books against the transfer of
this Warrant or of any Warrant Shares issued or issuable upon the exercise of
this Warrant in any manner which interferes with the timely exercise of this
Warrant. The Company shall from time to time take all such action as may be
necessary to assure that the par value per share, if any, of the unissued
Warrant Shares acquirable upon exercise of this Warrant is at all times equal to
or less than the Exercise Price then in effect. In the event that the Company
fails to comply with its obligations set forth in the foregoing sentence, in
addition to all other rights which the Registered Holder or Purchaser may have
at law or in equity, the Purchaser may (but shall not be obligated to) purchase
Warrant Shares hereunder at par value, and the Company shall be obligated to
reimburse the Purchaser for the aggregate amount of consideration paid in
connection with such exercise in excess of the Exercise Price then in effect.
(vii) The Company shall assist and cooperate with any reasonable
request by the Registered Holder or Purchaser in connection with any
governmental filings or approvals required to be obtained or made by any of them
prior to or in connection with any exercise of this Warrant (including, without
limitation, making any filings or obtaining any approvals required to be made or
obtained by the Company).
(viii) Notwithstanding any other provision hereof, if an exercise
of any portion of this Warrant is to be made in connection with a public
offering or a sale of the Company (pursuant to a merger, sale of stock, sale of
assets or otherwise), then such exercise may at the election of the Registered
Holder be conditioned upon the consummation of such transaction, in which case
such exercise shall not be deemed to be effective until immediately prior to the
consummation of such transaction.
(ix) The Company shall at all times reserve and keep available out
of its authorized but unissued Warrant Shares and solely for the purpose of
issuance upon the exercise
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of this Warrant, the maximum number of Warrant Shares issuable upon the exercise
of this Warrant. All Warrant Shares which are so issuable shall, when issued and
upon the payment of the applicable Exercise Price, be duly and validly issued,
fully paid and nonassessable and free from all taxes, liens and charges. The
Company shall take all such actions as may be necessary to ensure that all such
Warrant Shares may be so issued without violation by the Company of any
applicable law or governmental regulation or any requirements of any domestic
securities exchange upon which shares of Common Stock or other securities
constituting Warrant Shares may be listed (except for official notice of
issuance which shall be immediately delivered by the Company upon each such
issuance) or any violation by the Company of any agreement to which the Company
or any of its assets or properties may be subject. The Company will cause the
Warrant Shares, immediately upon such exercise, to be listed on each domestic
securities exchange or quotation system upon which shares of Common Stock or
other securities constituting Warrant Shares are listed or quoted at the time of
such exercise.
(x) If the Warrant Shares issuable by reason of exercise of this
Warrant are convertible into or exchangeable for any other stock or securities,
then the Company shall, at the Purchaser's option and upon surrender of this
Warrant by such Purchaser as provided above together with any notice, statement
or payment required to effect such conversion or exchange of Warrant Shares,
deliver to such Purchaser (or as otherwise specified by such Purchaser) a
certificate or certificates representing the stock or securities into which the
Warrant Shares issuable by reason of such exercise are convertible or
exchangeable, registered in such name or names and in such denomination or
denominations as such Purchaser has specified.
1C. Exercise Agreement. Upon any exercise of this Warrant, the Purchaser
shall deliver to the Company an Exercise Agreement in substantially the form set
forth in Exhibit I hereto, except that if the Warrant Shares are not to be
issued in the name of the Registered Holder, the Exercise Agreement shall also
state the name of the Person to whom the certificates for the Warrant Shares are
to be issued, and if the number of Warrant Shares to be issued does not include
all of the Warrant Shares purchasable hereunder, it shall also state the name of
the Person to whom a new Warrant for the unexercised portion of the rights
hereunder is to be issued.
SECTION 2. Adjustment of Exercise Price and Number of Shares. In order to
prevent dilution of the rights granted under this Warrant, the Exercise Price
shall be subject to adjustment from time to time as provided in this Section 2,
and the number of Warrant Shares obtainable upon exercise of this Warrant shall
be subject to adjustment from time to time, as provided in this Section 2.
2A. Adjustment of Exercise Price and Number of Shares upon Issuance of
Common Stock. If and whenever, on or after the Date of Issuance, the Company
issues or sells, or in accordance with Section 2B is deemed to have issued or
sold, other than pursuant to a Permitted Issuance, and other than pursuant to an
event for which an adjustment is made pursuant to Section 2C, any shares of
Common Stock for a consideration per share less than the Exercise
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Price in effect immediately prior to such issuance or sale, then immediately
upon such issuance or sale the Exercise Price shall be reduced to equal the
amount determined by multiplying the Exercise Price in effect immediately prior
to such issuance or sale by a fraction, the numerator of which will be the sum
of (A) the number of shares of Common Stock Deemed Outstanding immediately prior
to such issuance or sale multiplied by the Exercise Price in effect immediately
prior to such issuance or sale, plus (B) the consideration, if any, received by
the Company upon such issuance or sale, and the denominator of which will be the
product derived by multiplying the Exercise Price in effect immediately prior to
such issuance or sale by the number of shares of Common Stock Deemed Outstanding
immediately after such issuance or sale. Upon each such adjustment of the
Exercise Price hereunder, the number of Warrant Shares acquirable upon exercise
of this Warrant shall be adjusted to equal the number of shares determined by
multiplying the Exercise Price in effect immediately prior to such adjustment by
the number of Warrant Shares acquirable (whether or not then acquirable or
subject to a contingency) upon exercise of this Warrant immediately prior to
such adjustment and dividing the product thereof by the Exercise Price resulting
from such adjustment. For purposes of this Section 2, the calculation of the
number of shares of Common Stock Deemed Outstanding shall exclude the number of
Warrant Shares issuable upon exercise of the Warrants.
2B. Effect on Exercise Price of Certain Events. For purposes of
determining the adjusted Exercise Price under Section 2A, the following shall be
applicable:
(i) Issuance of Rights or Options. If the Company in any manner
grants any rights or options to subscribe for or to purchase (including, without
limitation, the issuance of any notes or other debt instruments convertible into
or payable in) Common Stock or any stock or other securities convertible into or
exchangeable for Common Stock (including without limitation convertible common
stock) (such rights or options being herein called "Options" and such
convertible or exchangeable stock or securities being herein called "Convertible
Securities") other than a Permitted Issuance, and the price per share for which
Common Stock is issuable upon the exercise of such Options or upon conversion or
exchange of such Convertible Securities is less than the Exercise Price in
effect immediately prior to such issuance or sale, then the total maximum number
of shares of Common Stock issuable upon the exercise of such Options or upon
conversion or exchange of the total maximum amount of such Convertible
Securities issuable upon the exercise of such Options shall be deemed to be
outstanding and to have been issued and sold by the Company for such price per
share. For purposes of this paragraph, the "price per share for which Common
Stock is issuable upon exercise of such Options or upon conversion or exchange
of such Convertible Securities" is determined by dividing (A) the total amount,
if any, received or receivable by the Company as consideration for the granting
of such Options, plus the minimum aggregate amount of additional consideration
payable to the Company upon the exercise of all such Options, plus in the case
of such Options which are exercisable for Convertible Securities, the minimum
aggregate amount of additional consideration, if any, payable to the Company
upon the issuance or sale of such Convertible Securities and the conversion or
exchange thereof, by (B) the total maximum number of shares of Common Stock
issuable upon exercise of such Options or upon the conversion or exchange of all
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such Convertible Securities issuable upon the exercise of such Options. No
further adjustment of the Exercise Price shall be made upon the actual issuance
of such Common Stock or of such Convertible Securities upon the exercise of such
Options or upon the actual issuance of such Common Stock upon conversion or
exchange of such Convertible Securities.
(ii) Issuance of Convertible Securities. If the Company in any
manner issues or sells any Convertible Securities and the price per share for
which Common Stock is issuable upon such conversion or exchange is less than the
Exercise Price in effect immediately prior to such issuance or sale, then the
total maximum number of shares of Common Stock issuable upon conversion or
exchange of such Convertible Securities shall be deemed to be outstanding from
and after the date on which such Convertible Securities were issued and sold,
and to have been issued and sold by the Company for such price per share. For
the purposes of this paragraph, the "price per share for which Common Stock is
issuable upon such conversion or exchange" is determined by dividing (A) the
total amount received or receivable by the Company as consideration for the
issue or sale of all such Convertible Securities, plus the minimum aggregate
amount of additional consideration, if any, payable to the Company upon the
conversion or exchange thereof, by (B) the total maximum number of shares of
Common Stock issuable upon the conversion or exchange of all such Convertible
Securities. No further adjustment of the Exercise Price shall be made upon the
actual issuance of such Common Stock upon conversion or exchange of such
Convertible Securities, and if any such issuance or sale of such Convertible
Securities is made upon exercise of any Options for which adjustment of the
Exercise Price has been or is to be made pursuant to other provisions of this
Section 2B, no further adjustment of the Exercise Price shall be made by reason
of such issuance or sale.
(iii) Change in Option Price or Conversion Rate. If the purchase
price provided for in any Options, the amount of Common Stock or Convertible
Securities that may be purchased upon exercise of any Option, the additional
consideration, if any, payable upon the issuance, conversion or exchange of any
Convertible Securities, or the rate at which any Convertible Securities are
convertible into or exchangeable for Common Stock, changes at any time, the
Exercise Price in effect at the time of such change shall be adjusted to the
Exercise Price which would have been in effect at such time had such Options or
Convertible Securities still outstanding provided for such changed purchase
price, amount of Common Stock or Convertible Securities, additional
consideration or changed conversion rate, as the case may be, at the time
initially granted, issued or sold and the number of Warrant Shares shall be
correspondingly readjusted.
(iv) Treatment of Expired Options and Unexercised Convertible
Securities. Upon the expiration of any Option or the termination of any right to
convert or exchange any Convertible Securities, in either case without the
exercise of such Option or right, the Exercise Price then in effect and the
number of Warrant Shares acquirable hereunder (whether or not then acquirable or
subject to a contingency) shall be adjusted to the Exercise Price and number of
Warrant Shares which would have been in effect at the time of such expiration or
termination had
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such Option or Convertible Securities, to the extent not exercised in full and
outstanding immediately prior to such expiration or termination, never been
issued.
(v) Calculation of Consideration Received. If any Common Stock,
Options or Convertible Securities are issued or sold or deemed to have been
issued or sold for cash, the consideration received therefor shall be deemed to
be the net amount received by the Company therefor. In case any Common Stock,
Options or Convertible Securities are issued or sold for a consideration other
than cash, the amount of the consideration other than cash received by the
Company shall be the fair value of such consideration, except where such
consideration consists of marketable securities, in which case the amount of
consideration received by the Company shall be the market price thereof as of
the date of receipt. In case any Common Stock, Options or Convertible Securities
are issued to the owners of the non-surviving entity in connection with any
merger or other business combination in which the Company is the surviving
entity, the amount of consideration therefor shall be deemed to be the fair
value of such portion of the net assets and business of the non-surviving entity
as is attributable to such Common Stock, Options or Convertible Securities, as
the case may be. The fair value of any consideration other than cash or
marketable securities shall be determined jointly by the Company and the
Required Holders. If such parties are unable to reach agreement within a
reasonable period of time, such fair value shall be determined by an independent
investment banking or appraisal firm jointly selected by the Company and the
Required Holders, whose determination shall be final and binding on the Company
and the Registered Holder. If the Required Holders and the Company are unable to
agree upon an independent investment banking or appraisal firm, then the
Required Holders shall select one such independent investment banking or
appraisal firm and the Company shall select another such firm, and the
calculation of fair value shall be made by a third independent investment
banking or appraisal firm that has been selected by the two firms so chosen by
the Required Holders and the Company. In each such case, the firm calculating
fair value shall submit to the Company and to each Registered Holder such firm's
written opinion addressed to each such Registered Holder setting forth such
determination of fair value. If the independent investment banking or appraisal
firm gives a range for its calculation of fair value, then fair value for
purposes of this paragraph shall be the midpoint of such range. The fees and
expenses of such firm shall be paid by the Company.
(vi) Integrated Transactions. In case any Option is issued in
connection with the issue or sale of other securities of the Company, together
comprising one integrated transaction in which no specific consideration is
allocated to such Options by the parties thereto, the Option shall be deemed to
have been issued for no consideration.
(vii) Treasury Shares. For the purposes of this Section 2, (A) the
number of shares of Common Stock outstanding at any given time does not include
shares owned or held by or for the account of the Company or any direct or
indirect subsidiary of the Company and (B) the disposition of any shares so
owned or held shall be considered an issue or sale of Common Stock.
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(viii)Record Date. If the Company takes a record of the holders of
Common Stock for the purpose of entitling them (A) to receive a dividend or
other distribution payable in Common Stock, Options or Convertible Securities or
(B) to subscribe for or purchase Common Stock, Options or Convertible
Securities, then such record date shall be deemed to be either (x) the date of
the issue or sale of the shares of Common Stock deemed to have been issued or
sold upon the declaration of such dividend or the making of such other
distribution or (y) the date of the issuance, granting or sale of such right of
subscription or purchase, as the case may be.
2C. Subdivision or Combination of Common Stock. If the Company at any time
subdivides (by any stock split, stock dividend, recapitalization or otherwise)
the outstanding Common Stock into a greater number of shares or pays a dividend
or makes a distribution to holders of the Common Stock in the form of shares of
Common Stock, then the Exercise Price in effect immediately prior to such
subdivision shall be proportionately reduced and the number of Warrant Shares
obtainable upon exercise of this Warrant (whether or not then acquirable or
subject to a contingency), as the case may be, shall be proportionately
increased. If the Company at any time combines (by reverse stock split or
otherwise) the outstanding Common Stock into a smaller number of shares, then
the Exercise Price in effect immediately prior to such combination shall be
proportionately increased and the number of Warrant Shares obtainable upon
exercise of this Warrant (whether or not then acquirable or subject to a
contingency), as the case may be, shall be proportionately decreased.
2D. Organic Change. Any recapitalization, reorganization,
reclassification, consolidation, merger, sale of all or substantially all of the
Company's assets or other transaction which is effected in such a way that
holders of Common Stock are entitled to receive (either directly or upon
subsequent liquidation) stock, securities or assets with respect to or in
exchange for Common Stock is referred to herein as an "Organic Change". Prior to
the consummation of any Organic Change, the Company shall make appropriate
provision (in form and substance reasonably satisfactory to the Required
Holders) to ensure that each Registered Holder shall thereafter have the right
to acquire and receive upon exercise thereof, in lieu of or addition to (as the
case may be) the Warrant Shares immediately theretofore acquirable and
receivable upon exercise of such Registered Holder's Warrants (whether or not
then acquirable or subject to a contingency), such shares of stock, securities
or assets as may be issued or payable with respect to or in exchange for the
number of Warrant Shares immediately theretofore acquirable and receivable
(whether or not then acquirable or subject to a contingency) upon exercise of
such Registered Holder's Warrants had such Organic Change not taken place. In
any such case, the Company shall make appropriate provision (in form and
substance satisfactory to the Required Holders) with respect to such Registered
Holder's rights and interests to insure that the provisions hereof (including,
without limitation, Sections 2, 3 and 4) shall thereafter be applicable to the
Warrants (including, without limitation, in the case of any such Organic Change
in which the successor entity or purchasing entity is other than the Company, an
immediate adjustment of the Exercise Price to the product of the Exercise Price
immediately prior to such Organic Change multiplied by the ratio of such value
of the Common Stock reflected by the terms of such Organic Change divided by the
Fair Market Value of the Common Stock in effect
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immediately prior to such Organic Change and a corresponding immediate
adjustment to the number of Warrant Shares acquirable and receivable upon
exercise of the Warrants (whether or not then acquirable or subject to a
contingency), if the value so reflected is less than the Fair Market Value of
the Common Stock in effect immediately prior to such Organic Change). The
Company shall not effect any such Organic Change unless, prior to the
consummation thereof, the successor entity (if other than the Company) resulting
from such Organic Change (including a purchaser of all or substantially all the
Company's assets) assumes by written instrument (in form and substance
satisfactory to the Required Holders) the obligation to deliver to each
Registered Holder such shares of stock, securities or assets as, in accordance
with the foregoing provisions, such Registered Holder may be entitled to acquire
upon exercise of Warrants.
2E. Certain Events. If any event occurs of the type contemplated by the
provisions of this Section 2 but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights with equity features but excluding any
Permitted Issuance), then the Company's Board of Directors shall make an
appropriate adjustment in the Exercise Price and the number of Warrant Shares
obtainable upon exercise of this Warrant (whether or not then acquirable or
subject to a contingency) so as to protect the rights of the Registered Holder
of this Warrant; provided that no such adjustment shall increase the Exercise
Price or decrease the number of Warrant Shares issuable upon exercise hereof
other than as a readjustment in a manner consistent with that contemplated by
Section 2(B)(iv).
2F. Actions to Maintain Exercise Price Above Par Price. Before taking any
action that would cause an adjustment to the Exercise Price such that, upon
exercise of the Warrant, Warrant Shares would be deemed to be issued below the
then par value (if any) of the Common Stock, the Company will take any corporate
action which may, in the opinion of its counsel, be reasonably necessary in
order that the Company may validly and legally issue fully paid and
non-assessable Warrant Shares at the Exercise Price.
2G. Notices.
(i) Immediately upon any adjustment of the Exercise Price, the chief
financial officer or president of the Company shall compute such adjustment in
accordance with the provisions hereof and prepare and sign a certificate showing
such adjustment, and shall mail such certificate, by first class mail, postage
prepaid, to the Registered Holder. The certificate shall set forth the
computations on which such adjustment is based, showing in detail the facts upon
which such adjustment is based, including without limitation a statement of the
number of Warrant Shares which will issuable upon the exercise of this Warrant.
(ii) The Company shall give written notice to the Registered Holder
at least 30 days prior to the date on which the Company closes its books or
takes a record (A) with respect to any dividend or distribution upon the Common
Stock, (B) with respect to any pro rata
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subscription offer to holders of Common Stock, or (C) for determining rights to
vote with respect to any Organic Change or any dissolution, liquidation or
winding-up of the Company.
(iii) The Company shall also give written notice to the Registered
Holder at least 30 days prior to the date on which any Organic Change or any
dissolution, liquidation or winding-up of the Company shall take place.
SECTION 3. Purchase Rights. If at any time the Company grants, issues or
sells any Options, Convertible Securities or rights to purchase stock, warrants,
securities or other property pro rata to the record holders of the Common Stock
(the "Purchase Rights"), then the Registered Holder shall be entitled to
acquire, upon the terms applicable to such Purchase Rights, the aggregate
Purchase Rights which such Registered Holder would have acquired if such
Registered Holder had held the maximum number of Warrant Shares acquirable
(whether or not then acquirable or subject to a contingency) upon complete
exercise of this Warrant immediately before the date on which a record is taken
for the grant, issuance or sale of such Purchase Rights or, if no such record is
taken, the date as of which the record holders of Common Stock are to be
determined for the grant, issue or sale of such Purchase Rights.
SECTION 4. Definitions. The following terms have the meanings set forth
below and terms not otherwise defined herein have the meaning assigned to them
in the Stock Purchase Agreement:
"Aggregate Exercise Price" has the meaning ascribed to it in Section
1B(i)(d) hereof.
"Business Day" means a day other than Saturday, Sunday or any day on which
banks located in the States of New York or California are authorized or
obligated to close.
"Common Stock" means the Common Stock, par value $.001 per share, of the
Company, any securities into which such Common Stock shall have been changed or
any securities resulting from any reclassification or recapitalization of such
Common Stock, and all other securities of any class or classes (however
designated) of the Company the holders of which have the right, without
limitation as to amount, after payment on any securities entitled to a
preference on dividends or other distributions upon any dissolution or winding
up, either to all or to a share of the balance of payments upon such
dissolution, liquidation or winding up.
"Common Stock Deemed Outstanding" means, at any given time, the number of
shares of all classes of the Company's Common Stock actually outstanding at such
time, plus the number of shares of the Company's Common Stock deemed to be
outstanding pursuant to Section 2B(i) or 2B(ii) hereof.
"Company" has the meaning ascribed to it in the first paragraph of this
Warrant.
"Convertible Securities" has the meaning ascribed to it in Section 2B(i)
hereof.
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"Date of Issuance" means December 23, 1999, regardless of the number of
times new certificates representing the unexpired and unexercised rights
formerly represented by this Warrant shall be issued.
"Exercise Period" has the meaning ascribed to it in Section 1A hereof.
"Exercise Price" means $7.50 for each Warrant Share, as such price may be
adjusted from time to time pursuant to Section 2 hereof.
"Exercise Time" has the meaning ascribed to it in Section 1B(i) hereof.
"Fair Market Value" means, with respect to each share of Common Stock as
of a particular date (i) the closing sales price on such date of the Common
Stock on the principal domestic securities exchange on which the Common Stock is
listed, or (ii) if there have been no sales on such exchange on any day, the
average of the highest bid and lowest asked prices on such exchange at the end
of such day, or (iii) if on any day the Common Stock is not listed on any
domestic securities exchange, the sales price for the Common Stock as of 4:00
P.M., New York time, as reported on the Nasdaq National Market, in each such
case averaged over a period of 30 trading days consisting of the day before
"Fair Market Value" is being determined and the immediately prior 29 trading
days prior to such day during which the Common Stock was traded. Notwithstanding
the foregoing, if at any time of determination either (x) the Common Stock is
not registered pursuant to Section 12 of the Securities Exchange Act of 1934, as
amended, and either listed on a national securities exchange or authorized for
quotation in the Nasdaq National Market, or (y) less than 25% of the outstanding
Common Stock is held by the public free of transfer restrictions under the
Securities Act of 1933, as amended, then Fair Market Value shall mean the price
that would be paid per share for the entire common equity interest in the
Company in an orderly sale transaction between a willing buyer and a willing
seller, using valuation techniques then prevailing in the securities industry
and assuming full disclosure of all relevant information and a reasonable period
of time for effectuating such sale, without discount for lack of liquidity, or
minority position. Fair Market Value shall be determined jointly by the
Company's Board of Directors in its good faith judgment and the Required
Holders. If such parties are unable to agree as to such a joint determination of
Fair Market Value within 15 days of notice by one party to the other of the
necessity of calculating Fair Market Value for purposes of this Warrant, then,
such value shall be determined by an independent investment banking or appraisal
firm mutually acceptable to the Company and the Required Holders. If the
Required Holders and the Company are unable to agree upon an independent
investment banking or appraisal firm, then the Required Holders shall select one
such independent investment banking or appraisal firm and the Company shall
select another such firm, and the calculation of Fair Market Value shall be made
by a third such independent investment banking or appraisal firm that has been
selected by the two firms so chosen by the Required Holders and the Company. In
each such case, the firm calculating Fair Market Value shall submit to the
Company and each Registered Holder such firm's written opinion addressed to each
such Registered Holder setting
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forth such determination. If the independent investment banking or appraisal
firm gives a range for its calculation of Fair Market Value, then Fair Market
Value shall be the midpoint of such range. The fees and expenses of such firm
will be borne by the Company, and the determination of such firm will be final
and binding upon all parties.
"Options" has the meaning ascribed to it in Section 2B(i) hereof.
"Organic Change" has the meaning ascribed to it in Section 2D hereof.
"Permitted Issuance" means (i) the issuance from time to time by the
Company of shares of Common Stock upon exercise of the Warrant (as the Warrant
may be amended, supplemented or otherwise modified from time to time in
accordance with the provisions hereof) (and any replacements hereof), (ii) the
issuance form time to time by the Company of shares of Common Stock upon
exercise of any Option that is outstanding on the Date of Issuance and disclosed
in the attachment to Schedule 3.3(a) of the Stock Purchase Agreement, (iii) the
issuance of any Options or Common Stock from time to time in accordance with the
provisions of the Stock Plans or any comparable equity participation plan for
directors, officers and employees of the Company that has been duly approved by
stockholders representing at least 662/3% of the Company's then outstanding
Common Stock, and the issuance from time to time of shares of Common Stock upon
exercise of any such Options, and (iv) the issuance of any other Options,
Convertible Securities or Common Stock, provided that this clause (iv) shall not
apply to any such issuance if, after giving effect thereto, the aggregate amount
of Common Stock issued in all transactions covered by this clause (iv) (assuming
the exercise, conversion or exchange of all such Options and Convertible
Securities) would exceed 10% of the number of shares of Common Stock outstanding
on the Date of Issuance.
"Person" means any individual, corporation, joint stock corporation,
limited liability company or partnership, general partnership, limited
partnership, proprietorship, joint venture, other business organization, trust,
union, association or governmental or regulatory authority.
"Purchase Rights" has the meaning ascribed to it in Section 3 hereof.
"Purchaser" has the meaning ascribed to it in Section 1B(i)(a) hereof.
"Registered Holder" has the meaning ascribed thereto in the first
paragraph of this Warrant.
"REI" means Recovery Equity Investors II, L.P., a Delaware limited
partnership.
"Required Holders" means, at any time of determination, holders of
Warrants that represent more than 50% of all of the Warrant Shares then issuable
upon exercise of the Warrants then outstanding.
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"Stock Plans" means the QAD Inc. 1994 Stock Program and the QAD Inc. 1997
Stock Incentive Program, in each case as in effect on the Date of Issuance.
"Stock Purchase Agreement" means the Stock Purchase Agreement, dated as of
the date hereof, among the Company, Xxxxxx X. Xxxxxx, Xxxx X. Xxxxxx, The Xxxxxx
Living Trust dated March 23, 1993 and REI (as such agreement may be amended,
supplemented or otherwise modified from time to time in accordance with the
provisions thereof).
"Stockholders' Agreement" means the Stockholders' Agreement, dated as of
the date hereof, among the parties to the Stock Purchase Agreement (as such
Stockholders' Agreement may be amended, supplemented or otherwise modified from
time to time in accordance with the provisions thereof).
"Warrants" means this Stock Purchase Warrant and any other Warrants issued
pursuant to Section 7 or 8 hereof.
"Warrant Shares" means shares of Common Stock; provided, that if the
securities issuable upon exercise of the Warrants are issued by an entity other
than the Company or there is a change in the class of securities so issuable,
then the term "Warrant Shares" shall mean shares of the security issuable upon
exercise of the Warrants if such security is issuable in shares, or shall mean
the equivalent units in which such security is issuable if such security is not
issuable in shares.
SECTION 5. No Voting Rights; Limitations of Liability. This Warrant shall
not entitle the Registered Holder hereof to any voting rights or other rights as
a stockholder of the Company. No provision hereof, in the absence of affirmative
action by the Registered Holder to purchase Warrant Shares, and no enumeration
herein of the rights or privileges of the Registered Holder shall give rise to
any liability of such Registered Holder for the Exercise Price of Warrant Shares
acquirable by exercise hereof or as a stockholder of the Company.
SECTION 6. Warrant Transferable. Subject to the transfer conditions
referred to in the legend endorsed hereon, this Warrant and all rights hereunder
are transferable, in whole or in part, without charge to the Registered Holder
(subject to the provisions of paragraph 1B(iv) hereof), upon surrender of this
Warrant with a properly executed Assignment (in the form of Exhibit II hereto)
at the principal office of the Company. The Registered Holder shall not sell,
transfer or otherwise dispose of this Warrant or any Warrant Shares, in whole or
in part, except pursuant to an effective registration statement under the
Securities Act or an exemption from registration thereunder.
Each certificate evidencing shares of Warrant Shares and each Warrant
issued upon such transfer shall bear the restrictive legends set forth on this
Warrant and those required by the Stockholders' Agreement.
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SECTION 7. Warrant Exchangeable for Different Denominations. This Warrant
is exchangeable, upon the surrender hereof by the Registered Holder at the
principal office of the Company, for new Warrants of like tenor representing in
the aggregate the purchase rights hereunder, and each of such new Warrants shall
represent such portion of such rights as is designated by the Registered Holder
at the time of such surrender. All Warrants representing portions of the rights
hereunder are also referred to herein as "Warrants."
SECTION 8. Replacement. Upon receipt of evidence reasonably satisfactory
to the Company (an affidavit of the Registered Holder shall be satisfactory) of
the ownership and the loss, theft, destruction or mutilation of any certificate
evidencing this Warrant, and in the case of any such loss, theft or destruction,
upon receipt of indemnity reasonably satisfactory to the Company (provided that
if the Registered Holder is a financial institution or other institutional
investor its own agreement shall be satisfactory) or, in the case of any such
mutilation upon surrender of such certificate, the Company shall (at its
expense) execute and deliver in lieu of such certificate a new certificate of
like kind representing the same rights represented by such lost, stolen,
destroyed or mutilated certificate and dated the date of such lost, stolen,
destroyed or mutilated certificate.
SECTION 9. Notices. Except as otherwise expressly provided herein, all
notices and deliveries referred to in this Warrant shall be in writing, shall be
delivered personally, sent by registered or certified mail, return receipt
requested and postage prepaid or sent via nationally recognized overnight
courier or via facsimile, and shall be deemed to have been given when so
delivered (or when received, if delivered by any other method) if sent (i) to
the Company, at its principal executive offices and (ii) to a Registered Holder,
at such Registered Holder's address as it appears in the records of the Company
(unless otherwise indicated by any such Registered Holder).
SECTION 10. Amendment and Waiver. Except as otherwise provided herein, the
provisions of the Warrants may be amended and the Company may take any action
herein prohibited, or omit to perform any act herein required to be performed by
it, only if the Company has obtained the prior written consent of the Required
Holders.
SECTION 11. Warrant Register. The Company shall maintain at its principal
executive offices books for the registration and the registration of transfer of
Warrants. The Company may deem and treat the Registered Holder as the absolute
owner hereof (notwithstanding any notation of ownership or other writing thereon
made by anyone) for all purposes and shall not be affected by any notice to the
contrary.
SECTION 12. Descriptive Headings; Governing Law. The descriptive headings
of the several Sections and paragraphs of this Warrant are inserted for
convenience only and do not constitute a part of this Warrant. ALL QUESTIONS
CONCERNING THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN ACCORDANCE WITH
THE DOMESTIC LAWS OF THE STATE OF NEW YORK WITHOUT GIVING EFFECT TO
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ANY CHOICE OF LAW OR CONFLICT OF LAW PROVISION OR RULE (WHETHER OF THE STATE OF
NEW YORK OR ANY OTHER JURISDICTION) THAT WOULD CAUSE THE APPLICATION OF THE LAWS
OF ANY JURISDICTION OTHER THAN THE STATE OF NEW YORK.
* * * * *
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IN WITNESS WHEREOF, the Company has caused this Warrant to be signed and
attested by its duly authorized officers under its corporate seal and to be
dated as of the date hereof.
QAD INC.
By:____________________________________
Name:
Title:
Attest:
__________________________
Name:
Title:
[Certificate No. 1]
105
EXHIBIT I
EXERCISE AGREEMENT
Dated:
To:
The undersigned, pursuant to the provisions set forth in the
attached Warrant (Certificate No. ____), hereby agrees to subscribe for the
purchase of [ALL OF THE] [INSERT NUMBER] Warrant Shares covered by such Warrant
and makes payment herewith in full therefor at the price per share and in the
manner provided by such Warrant.
Signature______________________________
Address________________________________
106
EXHIBIT II
ASSIGNMENT
FOR VALUE RECEIVED,________________________________________ hereby sells,
assigns and transfers all of the rights of the undersigned under the attached
Warrant (Certificate No. ___) with respect to [ALL OF THE] [INSERT NUMBER]
Warrant Shares covered thereby set forth below, unto:
Names of Assignee Address No. of Shares
----------------- ------- -------------
Dated: Signature ________________________________
________________________________
Witness ________________________________
