EXHIBIT D
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1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS.............................................1
1.1 Certain Definitions. As used in this Agreement, the following terms shall have the meanings set
forth below:.............................................................................................1
1.2 Restrictions on Transfer.............................................................................3
1.3 Requested Registration...............................................................................4
1.4 Company Registration.................................................................................6
1.5 Expenses of Registration. All Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Sections 1.3, 1.4 and 1.6 hereof and reasonable fees of one
counsel for the selling stockholders in the case of registrations pursuant to Section 1.3 and 1.6 shall
be borne by the Company; provided, however, that if the Holders bear the Registration Expenses for any
registration proceeding begun pursuant to Section 1.3 and subsequently withdrawn by the Holders
registering shares therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.3 hereof. Furthermore, in the event that a withdrawal by the Holders
is based upon material adverse information relating to the Company that is different from the
information known or available (upon request from the Company or otherwise) to the Holders requesting
registration at the time of their request for registration under Section 1.3, such registration shall
not be treated as a counted registration for purposes of Section 1.3 hereof, even though the Holders do
not bear the Registration Expenses for such registration. All Selling Expenses relating to securities so
registered shall be borne by the holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf, as shall any other expenses in connection with the
registration required to be borne by the Holders of such securities......................................7
1.6 Registration on Form S-3.............................................................................7
1.7 Registration Procedures. In the case of each registration effected by the Company pursuant to
Section 1, the Company will keep each Holder advised in writing as to the initiation of each
registration and as to the completion thereof. At its expense, the Company will use its best efforts to:.8
1.8 Indemnification.....................................................................................10
1.9 Information by Xxxxxx. Each Holder of Registrable Securities shall furnish to the Company such
information regarding such Holder and the distribution proposed by such Holder as the Company may
reasonably request in writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1..............................................12
1.10 Rule 144 Reporting. With a view to making available the benefits of certain rules and regulations
of the Commission that may permit the sale of the Restricted Securities to the public without
registration, the Company agrees to use its best efforts to:............................................12
1.11 Transfer or Assignment of Registration Rights. The rights to cause the Company to register
securities granted to a Holder by the Company under this Article 1 may be transferred or assigned by a
Holder only to its partners and Affiliates, provided that the Company is given written notice at the
time of or within a reasonable time after said
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transfer or assignment, stating the name and address of
the transferee or assignee and identifying the securities with respect to which such registration rights
are being transferred or assigned, and, provided further, that the transferee or assignee of such rights
assumes in writing the obligations of such Holder under this Section 1..................................12
1.12 "Market Stand-Off" Agreement. If requested by an underwriter of Common Stock (or other securities)
of the Company, a Holder shall not sell or otherwise transfer or dispose of any Common Stock (or other
securities) of the Company held by such Holder (other than those included in the registration) during
the one hundred eighty (180) day period following the effective date of a registration statement of the
Company filed under the Securities Act; provided, however, that this Section 1.12 shall not apply unless
all officers and directors of the Company and other Investors holding five percent (5%) of the Shares
enter into similar agreements...........................................................................13
1.13 Allocation of Registration Opportunities. In any circumstance in which all of the Registrable
Securities and other shares of Common Stock of the Company (including shares of Common Stock issued or
issuable upon conversion of shares of any currently unissued series of Preferred Stock of the Company)
with registration rights (the "Other Shares") requested to be included in a registration on behalf of
the Holders or other selling stockholders cannot be so included as a result of limitations of the
aggregate number of shares of Registrable Securities and Other Shares that may be so included, the
number of shares of Registrable Securities and Other Shares that may be so included shall be allocated
among the Holders and other selling stockholders requesting inclusion of shares pro rata on the basis of
the number of shares of Registrable Securities and Other Shares that would be held by such Holders and
other selling stockholders, assuming conversion; provided, however, that such allocation shall not
operate to reduce the aggregate number of Registrable Securities and Other Shares to be included in such
registration, if any Holder or other selling stockholder does not request inclusion of the maximum
number of shares of Registrable Securities and Other Shares allocated to him pursuant to the
above-described procedure, in which case the remaining portion of his allocation shall be reallocated
among those requesting Holders and other selling stockholders whose allocations did not satisfy their
requests pro rata on the basis of the number of shares of Registrable Securities and Other Shares which
would be held by such Holders and other selling stockholders, assuming conversion, and this procedure
shall be repeated until all of the shares of Registrable Securities and Other Shares which may be
included in the registration on behalf of the Holders and other selling stockholders have been so
allocated. The Company shall not limit the number of Registrable Securities to be included in a
registration pursuant to this Agreement in order to include shares held by stockholders with no
registration rights or to include shares of stock issued to employees, officers, directors, or
consultants pursuant to the Company's stock option or similar compensation plan, or in the case of
registrations under Sections 1.3 or 1.6 hereof, in order to include in such registration securities
registered for the Company's own account................................................................13
1.14 Delay of Registration. No Holder shall have any right to take any action to restrain,
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xxxxxx, or
otherwise delay any registration as the result of any controversy that might arise with respect to the
interpretation or implementation of this Article 1......................................................13
1.15 Termination of Registration Rights.................................................................14
2. COVENANTS OF THE COMPANY......................................................................................14
2.1 Basic Financial Information. The Company will furnish the following reports to each Holder who,
together with its Affiliates, owns at least twenty percent (20%) of the Shares issued pursuant to the
Series A Agreement (each a "Significant Holder"):.......................................................14
2.2 Additional Information and Rights...................................................................14
2.3 Right of First Refusal. The Company hereby grants to each Holder who owns any Shares or any shares
of Common Stock issued upon conversion of the Shares the right of first refusal to purchase a pro rata
share of New Securities (as defined in this Section 2.3) which the Company may, from time to time,
propose to sell and issue. An Investor's pro rata share, for purposes of this right of first refusal, is
the ratio of the number of Shares purchased by such Investor pursuant to the Series A Agreement, to the
total number of Shares issued pursuant to the Series A Agreement. Each Investor shall have a right of
over-allotment such that if any Investor fails to exercise its right hereunder to purchase its pro rata
share of New Securities, the other......................................................................15
Investors may purchase the non-purchasing Investor's portion on a pro rata basis within ten (10) days
from the date such non-purchasing Investor fails to exercise its right hereunder to purchase its pro
rata share of New Securities. This right of first refusal shall be subject to the following provisions:16
2.4 Board of Directors. For so long as at least twenty-five percent (25%) of the authorized Shares are
outstanding, the Company's Board of Directors shall maintain a Compensation Committee to be comprised of
at least a majority of outside directors, including one (1) member to be appointed by the holders of a
majority of the Shares..................................................................................17
2.5 Form S-3 Eligibility. The Company shall use its best efforts to maintain its qualification for
registration on Form S-3 or any comparable or successor form or forms...................................17
2.6 Key Executive Insurance. For a period of at least three (3) years from the date of the Closing, the
Company shall maintain key executive life insurance policies with a financially sound and reputable
insurer in the amount of $3,000,000 covering the life of Xxxxxxx X. Xxxxxxxx, the proceeds of which
shall be payable to the Company. Such policies shall not be cancelable without at least 30 days'
written notice from the insurer to the Holders..........................................................17
2.7 Employee Non-Competition, Confidentiality, Non-Solicitation and Invention Agreements. For so long
as at least twenty-five percent (25%) of the authorized Shares are outstanding, the Company shall
include non-competition, confidentiality, non-solicitation and invention provisions reasonably
acceptable to the Holders in the employment agreement for each current and future officer or key
employee of the Company or any of its subsidiaries......................................................17
3. MISCELLANEOUS.................................................................................................17
3.1 Governing Law. This Agreement shall be governed in all respects by the laws of the
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State of Delaware, without regard to its conflicts of laws principles...................................17
3.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall
inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and
administrators of the parties hereto....................................................................17
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including the Exhibits hereto) constitutes the
full and entire understanding and agreement between the parties with regard to the subjects hereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company and the Initiating Holders and any such amendment, waiver,
discharge or termination shall be binding on all the Holders............................................17
3.4 Notices, etc. All notices and other communications required or permitted hereunder shall be in
writing and shall be mailed by United States first-class mail, postage prepaid, sent by facsimile or
delivered personally by hand or nationally recognized courier addressed (a) if to a Holder, as indicated
on the list of Holders attached hereto as Exhibit A, or at such other address or facsimile number as
such holder or permitted assignee shall have furnished to the Company in writing, or (b) if to the
Company, at such address or facsimile number as the Company shall have furnished to each Holder in
writing. All such notices and other written communications shall be effective on the date of mailing,
confirmed facsimile transfer or delivery................................................................18
3.5 Delays or Omissions. No delay or omission to exercise any right, power or remedy accruing to any
Holder, upon any breach or default of the Company under this Agreement shall impair any such right,
power or remedy of such Holder nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of or in any similar breach or default thereafter occurring; nor shall
any waiver of any single breach or default be deemed a waiver of any other breach or default therefore
or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part
of any Holder of any breach or default under this Agreement or any waiver on the part of any Holder of
any provisions or conditions of this Agreement must be made in writing and shall be effective only to
the extent specifically set forth in such writing. All remedies, either under this Agreement or by law
or otherwise afforded to any Holder, shall be cumulative and not alternative............................18
3.6 Rights; Separability. Unless otherwise expressly provided herein, a Xxxxxx's rights hereunder are
several rights, not rights jointly held with any of the other Holders. In case any provision of the
Agreement shall be invalid, illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby...............................18
3.7 Information Confidential. Each Holder acknowledges that the information received pursuant hereto
may be confidential and for its use only, and it will not use such confidential information in violation
of the Exchange Act or reproduce, disclose or disseminate such information to any other person (other
than its employees or agents having a need to know the contents of such information, and its attorneys),
except in
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connection with the exercise of rights under this Agreement, unless the Company has made such
information available to the public generally or such Holder is required to disclose such information by
a governmental body.....................................................................................18
3.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs of this Agreement are for
convenience of reference only and are not to be considered in construing or interpreting this Agreement.18
3.9 Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be
an original, but all of which together shall constitute one instrument..................................18
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ENCORE MEDICAL CORPORATION
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
into as of the ___ day of June, 2001 by and among Encore Medical Corporation, a
Delaware corporation (the "Company"), and the persons identified on Exhibit A
attached hereto (the "Investors").
Recitals
WHEREAS, the Investors are parties to the Amended and Restated Series A
Preferred Stock Purchase Agreement dated as of May 3, 2001 between the Company
and the Investors (the "Series A Agreement"), and certain of the Company's and
the Investors' obligations under the Series A Agreement are conditioned upon the
execution and delivery by the Investors and the Company of this Agreement.
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, and for other good and valuable consideration, the receipt and
sufficiency of which is hereby acknowledged, the parties hereto hereby agree as
follows:
1. RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS.
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the meanings set forth below:
(a) "Affiliate" shall have the same meaning given to such term in the
Series A Agreement.
(b) "Closing" shall mean the date of the initial sale of shares of the
Company's Series A Preferred Stock.
(c) "Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
(e) "Holder" shall mean any Investor who holds Registrable Securities and
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance with Section 1.2 and
Section 1.12 hereof.
(f) "Initiating Holders" shall mean any Holder or Holders who in the
aggregate hold more than fifty percent (50%) of the outstanding Registrable
Securities.
(g) "Investors" shall mean persons who purchased Shares pursuant to the
Series A Agreement.
(h) "Material Adverse Effect" shall mean a material adverse effect upon the
business, assets, financial condition, income or prospects of the Company.
(i) "Other Stockholders" shall mean persons other than Holders who, by
virtue of agreements with the Company, are entitled to include their securities
in certain registrations hereunder.
(j) "Registrable Securities" shall mean (i) shares of Common Stock issued
or issuable pursuant to the conversion of the Shares, and (ii) any Common Stock
issued as a dividend or other distribution with respect to or in exchange for or
in replacement of the shares referenced in clause (i) above, provided, however,
that Registrable Securities shall not include any shares of Common Stock which
have previously been registered or which have been sold to the public either
pursuant to a registration statement or Rule 144, or which have been sold in a
private transaction in which the transferor's rights under this Agreement are
not assigned.
(k) The terms "register," "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
(l) "Registration Expenses" shall mean all expenses incurred in effecting
any registration pursuant to this Agreement, including, without limitation, all
registration, qualification, and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses,
and expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses, fees and
disbursements of counsel for the Holders and the compensation of regular
employees of the Company, which shall be paid in any event by the Company.
(m) "Restricted Securities" shall mean any Registrable Securities required
to bear the legend set forth in Section 1.2(b) hereof.
(n) "Rule 144" shall mean Rule 144 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(o) "Rule 145" shall mean Rule 145 as promulgated by the Commission under
the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
(p) "Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
(q) "Selling Expense" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of counsel for any Holder (other than the
fees and disbursements of counsel included in Registration Expenses).
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(r) "Shares" shall mean the Company's Series A Preferred Stock par value
$.001 per share.
1.2 Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any portion of
the Registrable Securities unless and until the transferee has agreed in writing
for the benefit of the Company to be bound by this Section 1.2, provided and to
the extent such Section is then applicable, and:
(i) There is then in effect a registration statement under the
Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) Such Holder shall have notified the Company of the proposed
disposition and shall have furnished the Company with a detailed statement
of the circumstances surrounding the proposed disposition, and (B) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company,
that such disposition will not require registration of such shares under
the Securities Act. It is agreed that the Company will not require opinions
of counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder which is (A) a partnership to its partners or retired partners in
accordance with partnership interests, (B) a corporation to its shareholders in
accordance with their interest in the corporation, (C) a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (D) to the Holder's family member or trust for
the benefit of an individual Holder or for the benefit of a Holder's family
member, provided the transferee will be subject to the terms of this Section 1.2
to the same extent as if such transferee were an original Holder hereunder.
(b) Each certificate representing Registrable Securities shall (unless
otherwise permitted by the provisions of this Agreement) be stamped or otherwise
imprinted with a legend substantially similar to the following (in addition to
any legend required under applicable state securities laws):
THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT Of 1933, AS AMENDED, AND MAY NOT BE SOLD OR
TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER SUCH ACT OR UNLESS THE COMPANY HAS
RECEIVED AN OPINION OF COUNSEL OR OTHER EVIDENCE, SATISFACTORY
TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT
REQUIRED.
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(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any Holder thereof if the Holder shall have
obtained an opinion of counsel at such Holder's expense (which counsel may be
counsel to the Company) reasonably acceptable to the Company to the effect that
the securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable state
securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
1.3 Requested Registration.
(a) Request for Registration. If the Company shall receive from Initiating
Holders at any time or times not earlier than April 30, 2002, a written request
that the Company effect any registration with respect to all or a part of the
Registrable Securities, the Company will:
(i) promptly, and in any event no later than ten (10) days of the
receipt of such written request; give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration (including, without limitation, filing post-effective
amendments, appropriate qualifications under applicable blue sky or other
state securities laws, and appropriate compliance with the Securities Act)
to permit or facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any Holder or Holders
joining in such request as are specified in a written request received by
the Company within twenty (20) days after such written notice from the
Company is mailed or delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.3:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
(B) After the Company has initiated two (2) such registrations
pursuant to this Section 1.3(a) (counting for these purposes only
registrations which have been declared or ordered effective and pursuant to
which securities have been sold and registrations which have been withdrawn
by the Holders as to which the Holders have not elected to bear the
Registration Expenses pursuant to Section 1.5 hereof and would, absent such
election, have been required to bear such expenses);
(C) During the period starting with the date sixty (60) days prior to
the Company's good faith estimate of the date of filing of, and ending on a
date one
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hundred eighty (180) days after the effective date of, a Company-initiated
registration; provided that the Company is actively employing in good faith
all reasonable efforts to cause such registration statement to become
effective; or
(D) If the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.6 hereof.
(b) Subject to the foregoing clauses (A) through (D), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable, and in any event no later than
forty-five (45) days, after receipt of the request or requests of the Initiating
Holders; provided, however, that if (i) in the good faith judgment of the Board
of Directors of the Company, such registration would be seriously detrimental to
the Company and the Board of Directors of the Company concludes, as a result,
that it is essential to defer the filing of such registration statement at such
time, and (ii) the Company shall furnish to the Initiating Holders a certificate
signed by the Chief Executive Officer of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company for such registration statement to be filed in the
near future and that it is, therefore, essential to defer the filing of such
registration statement, then the Company shall have the right to defer such
filing (except as provided in clause (C) above) for a period of not more than
one hundred thirty-five (135) days after receipt of the request of the
Initiating Holders, and, provided further, that the Company shall not defer its
obligation in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Sections 1.3(d) and 1.14 hereof,
include other securities of the Company, with respect to which registration
rights have been granted, and may include securities of the Company being sold
for the account of the Company.
(c) Participation. A Holder may elect to include in any registration and
underwriting, if applicable, all or a part of the Registrable Securities he
holds.
(d) Procedures. If (i) the Company shall request inclusion in any
registration pursuant to this Section 1.3 of securities being sold for its own
account, or if other persons shall request inclusion in any registration
pursuant to this Section 1.3 and (ii) the Initiating Holders request that
pursuant to this Section 1.3, Registrable Securities be registered pursuant to
an underwriting, the Initiating Holders shall, on behalf of all Holders, offer
to include such securities in the underwriting and may condition such offer on
their acceptance of the further applicable provisions of this Article 1
(including Section 1.13). The Company shall (together with all Holders and other
persons proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters selected for such underwriting by a majority
in interest of the Initiating Holders, which underwriters are reasonably
acceptable to the Company. Notwithstanding any other provision of this Section
1.3, if the representative of the underwriters advises the Initiating Holders in
writing that marketing factors require a limitation on the number of shares to
be underwritten, then the number of such shares to be included in the
underwritten
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public offering shall be reduced, and shares shall be excluded from such
underwritten public offering in a number deemed necessary by such underwriters,
first by excluding shares held by the Company, directors, officers, employees
and founders of the Company, and then, to the extent necessary, by excluding
Registrable Securities in accordance with the allocation provisions contained in
Section 1.13.
(e) If a person who has requested inclusion in such registration as
provided above does not agree to the terms of any such underwriting, such person
shall be excluded therefrom by written notice from the Company, the underwriter
or the Initiating Holders. Any Registrable Securities or other securities so
excluded or withdrawn from such underwriting shall also be withdrawn from such
registration. If shares are so withdrawn from the registration and if the number
of shares to be included in such registration was previously reduced as a result
of marketing factors pursuant to this Section 1.3(d), then the Company shall
offer to all Holders who have retained rights to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among such Holders requesting additional inclusion in accordance
with Section 1.13.
1.4 Company Registration.
(a) If the Company shall determine to register any of its securities either
for its own account or the account of a security holder or holders exercising
their respective demand registration rights (other than pursuant to Section 1.3
or 1.6 hereof), other than a registration relating solely to employee benefit
plans on Form S-1, Form S-8 or any successor Forms or a registration relating to
a corporate reorganization or other transaction on Form S-4 or any successor to
Form S-4, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any
related qualification under blue sky laws or other compliance), except as
set forth in Section 1.4(b) below, and in any underwriting involved
therewith, all the Registrable Securities specified in a written request or
requests, made by any Holder and received by the Company within ten (10)
days after the written notice from the Company described in clause (i)
above is mailed or delivered by the Company. Such written request may
specify all or a part of a Holder's Registrable Securities.
(b) Underwriting. If the registration of which the Company gives notice is
for a registered public offering involving an underwriting, the Company shall so
advise the Holders as a part of the written notice given pursuant to Section
1.4(a)(i). In such event, the right of any Holder to registration pursuant to
this Section 1.4 shall be conditioned upon such Xxxxxx's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through
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such underwriting shall (together with the Company and the other holders of
securities of the Company with registration rights to participate therein
distributing their securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
Notwithstanding any other provision of this Section 1.4, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities from, or limit the number of Registrable Securities to be
included in, the registration and underwriting. The Company shall so advise all
holders of securities requesting registration, and the number of shares of
securities that are entitled to be included in the registration and underwriting
shall be allocated first to the Company for securities being sold for its own
account and thereafter as set forth in Section 1.13.
If any person does not agree to the terms of any such underwriting, he
shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities or other securities so excluded from
such underwriting shall be withdrawn from such registration. If shares are so
withdrawn from the registration and if the number of shares of Registrable
Securities to be included in such registration was previously reduced as a
result of marketing factors, the Company shall then offer to all persons who
have retained the right to include securities in the registration the right to
include additional securities in the registration in an aggregate amount equal
to the number of shares so withdrawn, with such shares to be allocated among the
persons requesting additional inclusion in accordance with Section 1.13 hereof.
1.5 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 1.3, 1.4 and 1.6 hereof and reasonable fees of one counsel for the
selling stockholders in the case of registrations pursuant to Section 1.3 and
1.6 shall be borne by the Company; provided, however, that if the Holders bear
the Registration Expenses for any registration proceeding begun pursuant to
Section 1.3 and subsequently withdrawn by the Holders registering shares
therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.3 hereof. Furthermore, in the event that a
withdrawal by the Holders is based upon material adverse information relating to
the Company that is different from the information known or available (upon
request from the Company or otherwise) to the Holders requesting registration at
the time of their request for registration under Section 1.3, such registration
shall not be treated as a counted registration for purposes of Section 1.3
hereof, even though the Holders do not bear the Registration Expenses for such
registration. All Selling Expenses relating to securities so registered shall be
borne by the holders of such securities pro rata on the basis of the number of
shares of securities so registered on their behalf, as shall any other expenses
in connection with the registration required to be borne by the Holders of such
securities.
1.6 Registration on Form S-3.
(a) If the Company qualifies for the use of Form S-3, in addition to the
rights contained in the foregoing provisions of this Article 1, the Holders of
Registrable Securities shall have the right to request registrations on Form S-3
(such requests shall be in writing and shall
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state the number of shares of Registrable Securities to be disposed of and the
intended methods of disposition of such shares by such Holder or Holders),
provided, however, that any such request must be made by Holders who in the
aggregate hold more than ten percent (10%) of the outstanding Registrable
Securities, provided, further, that the Company shall not be obligated to effect
any such registration (i) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) on Form S-3 at an
aggregate price to the public of less than $1,000,000, (ii) in the circumstances
described in clauses (A) and (C) of Section 1.3(a), (iii) if the Company shall
furnish the certification described in Section 1.3(b) (but subject to the
limitations set forth therein) or (iv) if, in a given twelve month period, the
Company has effected one such registration in such period.
(b) If a request complying with the requirements of Section 1.6(a) hereof
is delivered to the Company, the provisions of Sections 1.3(a)(i) and (ii) and
Section 1.3(b) hereof shall apply to such registration. If the registration is
for an underwritten offering, the rights of any Holder to registration pursuant
to this Section 1.6 shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless mutually agreed by a majority in interest of the
Initiating Holders and such Holder with respect to such participation and
inclusion) to the extent provided herein and the provisions of Section 1.3(d)
hereof shall apply to such registration. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
1.7 Registration Procedures. In the case of each registration effected by
the Company pursuant to Section 1, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense, the Company will use its best efforts to:
(a) Keep such registration effective for a period of one hundred twenty
(120) days or until the Holder or Holders have completed the distribution
described in the registration statement relating thereto, whichever first
occurs; provided, however, that (i) such 120-day period shall be extended for a
period of time equal to the period the Holder refrains from selling any
securities included in such registration at the request of an underwriter of
Common Stock (or other securities) of the Company; and (ii) in the case of any
registration of Registrable Securities on Form S-3 which are intended to be
offered on a continuous or delayed basis, such 120-day period shall be extended,
if necessary, to keep the registration statement effective until all such
Registrable Securities are sold, however in no event longer than one year from
the effective date of the registration statement and provided that Rule 145, or
any successor rule under the Securities Act, permits an offering on a continuous
or delayed basis, and provided further that applicable rules under the
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment, that (I) includes any
prospectus required by Section 10(a)(3) of the Securities Act, or (II) reflects
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (I) and (II) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
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(b) Prepare and file with the Commission such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement;
(c) Furnish such number of prospectuses and other documents incident
thereto, including any amendment of or supplement to the prospectus, as a Holder
from time to time may reasonably request;
(d) Notify each seller of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller 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 shares, 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 or
incomplete in the light of the circumstances then existing;
(e) Cause all such Registrable Securities registered pursuant hereunder to
be listed on each securities exchange on which similar securities issued by the
Company are then listed;
(f) Use its best efforts to register and qualify the securities covered by
such registration statement under such other securities or Blue Sky laws of such
jurisdictions as shall be reasonably requested by the Holders, provided that the
Company shall not be required in connection therewith or as a condition thereto
to qualify to do business or to file a general consent to service of process in
any such states or jurisdictions;
(g) Use its best efforts to furnish, at the request of any underwriter on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, (i) an
opinion, dated such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
and (ii) a letter dated such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering, addressed to the underwriters.;
(h) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration; and
(i) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 1.3 hereof, the Company will enter into an
underwriting agreement in form reasonably necessary to effect the offer and sale
of Common Stock, provided such underwriting agreement contains reasonable and
customary provisions.
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1.8 Indemnification.
(a) The Company will indemnify each Holder, each of its officers, directors
and partners, legal counsel, and accountants and each person controlling such
Holder within the meaning of Section 15 of the Securities Act, with respect to
which registration, qualification, or compliance has been effected pursuant to
this Article 1, and each underwriter, if any, and each person who controls
within the meaning of Section 15 of the Securities Act any underwriter, against
all expenses, claims, losses, damages, and liabilities (or actions, proceedings,
or settlements in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
prospectus, offering circular, or other document (including any related
registration statement, notification, or the like) incident to any such
registration, qualification, or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of the Securities Act or any rule or regulation thereunder applicable to
the Company and relating to action or inaction required of the Company in
connection with any such registration, qualification, or compliance, and will
reimburse each such Holder, each of its officers, directors, partners, legal
counsel, and accountants and each person controlling such Holder, each such
underwriter, and each person who controls any such underwriter, for any legal
and any other expenses reasonably incurred in connection with investigating and
defending or settling any such claim, loss, damage, liability, or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability, or expense rises out of or is based on
any untrue statement or omission based upon written information furnished to the
Company by such Holder or underwriter and stated to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
1.8(a) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld).
(b) Each Holder will, if Registrable Securities held by such Holder are
included in the securities as to which such registration, qualification, or
compliance is being effected, indemnify the Company, each of its directors,
officers, partners, legal counsel, and accountants and each underwriter, if any,
of the Company's securities covered by such a registration statement, each
person who controls the Company or such underwriter within the meaning of
Section 15 of the Securities Act, each other such Holder and Other Stockholder,
and each of their officers, directors, and partners, and each person controlling
such Holder or Other Stockholder, against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular, or other
document, or any omission (or alleged omission) to state therein a material fact
required to be stated therein or necessary to make the statements therein not
misleading, and will reimburse the Company and such Holders, other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons for any legal or any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability, or action, in each case to the extent, but only to the
extent, that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus, offering
circular, or other document in reliance upon and in conformity with written
information
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furnished to the Company by such Holder (with respect to such Holder) and stated
to be specifically for use therein provided, however, that the obligations of
such Holder hereunder shall not apply to amounts paid in settlement of any such
claims, losses, damages, or liabilities (or actions in respect thereof) if such
settlement is effected without the consent of such Holder (which consent shall
not be unreasonably withheld); and provided that in no event shall any indemnity
under this Section 1.8 exceed the gross proceeds from the offering received by
such Holder.
(c) Each party entitled to indemnification under this Section 1.8 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably withheld), and the Indemnified Party may participate in such
defense at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section 1.8, to the extent such
failure is not prejudicial. Notwithstanding the foregoing, any Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be at the expense of the Indemnified Party unless (i) the Indemnified
Party shall have been advised by counsel that representation of the Indemnified
Party by counsel provided by the Indemnifying Party would be inappropriate due
to actual or potential conflicting interests between the Indemnifying Party and
the Indemnified Party, including situations in which there are one or more legal
defenses available to the Indemnified Party that are different from or
additional to those available to the Indemnifying Party, (ii) the Indemnifying
Party shall have authorized in writing the employment of counsel for the
Indemnified Party at the expense of the Indemnifying Party, or (iii) the
Indemnifying Party shall have failed to assume the defense or retain counsel
reasonably satisfactory to the Indemnified Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
that does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect to such claim or litigation. Each Indemnified Party shall furnish
such information regarding itself or the claim in question as an Indemnifying
Party may reasonably request in writing and as shall be reasonably required in
connection with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 1.8 is held by a
court of competent jurisdiction to be unavailable to an Indemnified Party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the Indemnifying Party, in lieu of indemnifying such Indemnified Party
hereunder, shall contribute to the amount paid or payable by such Indemnified
Party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party on the one hand and of the Indemnified Party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the Indemnifying Party and of the Indemnified Party shall be
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determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the Indemnifying Party or by the Indemnified
Party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission. In no event shall
any contribution by a Holder under this Section 1.8(d) exceed the net proceeds
from the offering received by such Xxxxxx.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in any underwriting agreement entered
into in connection with the underwritten public offering of Registrable
Securities are in conflict with the foregoing provisions, the provisions in the
underwriting agreement shall control.
(f) This Section 1.8 shall survive the completion of any offering of
Registrable Securities in a registration statement under this Section 1, and
otherwise.
1.9 Information by Xxxxxx. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 1.
1.10 Rule 144 Reporting. With a view to making available the benefits of
certain rules and regulations of the Commission that may permit the sale of the
Restricted Securities to the public without registration, the Company agrees to
use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after the date hereof;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144, and of the
Securities Act and the Exchange Act, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
1.11 Transfer or Assignment of Registration Rights. The rights to cause the
Company to register securities granted to a Holder by the Company under this
Article 1 may be transferred or assigned by a Holder only to its partners and
Affiliates, provided that the Company is given written notice at the time of or
within a reasonable time after said transfer or assignment, stating the name and
address of the transferee or assignee and identifying the securities with
respect to which such registration rights are being transferred or assigned,
and, provided further, that the transferee or assignee of such rights assumes in
writing the obligations of such Holder under this Section 1.
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1.12 "Market Stand-Off" Agreement. If requested by an underwriter of Common
Stock (or other securities) of the Company, a Holder shall not sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Holder (other than those included in the registration) during the
one hundred eighty (180) day period following the effective date of a
registration statement of the Company filed under the Securities Act; provided,
however, that this Section 1.12 shall not apply unless all officers and
directors of the Company and other Investors holding five percent (5%) of the
Shares enter into similar agreements.
The obligations described in this Section 1.12 shall not apply to a
registration relating solely to employee benefit plans on Form S-1 or Form S-8
or similar forms that may be promulgated in the future, or a registration
relating solely to a transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of such one hundred eighty (180) day period.
1.13 Allocation of Registration Opportunities. In any circumstance in which
all of the Registrable Securities and other shares of Common Stock of the
Company (including shares of Common Stock issued or issuable upon conversion of
shares of any currently unissued series of Preferred Stock of the Company) with
registration rights (the "Other Shares") requested to be included in a
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the
above-described procedure, in which case the remaining portion of his allocation
shall be reallocated among those requesting Holders and other selling
stockholders whose allocations did not satisfy their requests pro rata on the
basis of the number of shares of Registrable Securities and Other Shares which
would be held by such Holders and other selling stockholders, assuming
conversion, and this procedure shall be repeated until all of the shares of
Registrable Securities and Other Shares which may be included in the
registration on behalf of the Holders and other selling stockholders have been
so allocated. The Company shall not limit the number of Registrable Securities
to be included in a registration pursuant to this Agreement in order to include
shares held by stockholders with no registration rights or to include shares of
stock issued to employees, officers, directors, or consultants pursuant to the
Company's stock option or similar compensation plan, or in the case of
registrations under Sections 1.3 or 1.6 hereof, in order to include in such
registration securities registered for the Company's own account.
1.14 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Article 1.
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1.15 Termination of Registration Rights.
(a) Except as set forth in subparagraph (b) below, the right of any Holder
to request registration or inclusion in any registration pursuant to Section
1.3, 1.4 or 1.6 shall terminate if all shares of Registrable Securities held or
entitled to be held upon conversion by such Holder may immediately be sold under
Rule 144 during any 90-day period.
(b) The provisions of subparagraph (a) above shall not apply to any Holder
who owns more than one percent (1%) of the Company's outstanding stock until
such time as such Holder owns less than one percent (1%) of the outstanding
stock of the Company.
2. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Share, as follows:
2.1 Basic Financial Information. The Company will furnish the following
reports to each Holder who, together with its Affiliates, owns at least twenty
percent (20%) of the Shares issued pursuant to the Series A Agreement (each a
"Significant Holder"):
(a) As soon as practicable, and in any event, within ninety (90) days after
the end of each fiscal year of the Company, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such fiscal year, and
consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied and certified by independent
public accountants of recognized national standing selected by the Company.
(b) As soon as practicable, and in any event, within forty-five (45) days
after the end of the first, second, and third quarterly accounting periods in
each fiscal year of the Company, a consolidated balance sheet of the Company and
its subsidiaries, if any, as of the end of each such period, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such period and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles consistently applied and setting
forth in comparative form the figures for the corresponding periods of the
previous fiscal year, subject to changes resulting from normal year-end audit
adjustments, except that such financial statements need not contain the notes
required by generally accepted accounting principles.
2.2 Additional Information and Rights.
(a) The Company will deliver the reports and information described below in
this Section 2.2 to each Significant Holder:
(i) As soon as practical after the end of each month and in any event
within thirty (30) days thereafter, a consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such month and
consolidated statements of income
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and cash flows of the Company and its subsidiaries, for each month and for
the current fiscal year of the Company to date, all subject to normal
year-end audit adjustments, prepared in accordance with generally accepted
accounting principles consistently applied, together with a comparison of
such statements to the corresponding periods of the prior fiscal year,
subject to changes resulting from normal year-end audit adjustments, except
that such financial statements need not contain the notes required by
generally accepted accounting principles.
(ii) Annually (and in any event no later than ten (10) days after
adoption by the Board of Directors of the Company) the budget of the
Company, in the form approved by its Board of Directors, which operating
plan shall include at least a projection of income and a projected cash
flow statement for each fiscal quarter in such fiscal year, a projected
balance sheet as of the end of each fiscal quarter in such fiscal year and
proposed management incentives for the fiscal year (the "Budget").
(iii) With reasonable promptness, all press releases issued by the
Company or any subsidiary, any filings made with the Commission by the
Company or any subsidiary, and such other data and information as from time
to time may be reasonably requested by any Holder or such other data as the
Company may from time to time furnish to any of the holders of its
securities.
(b) The provisions of Section 2.1 and this Section 2.2 shall not be in
limitation of any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(c) Anything in Article 2 to the contrary notwithstanding, no Holder by
reason of this Agreement shall have access to any trade secrets or classified
information of the Company. Each Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 2.2. The Company shall not be required to comply with
this Section 2.2 in respect of any Holder whom the Company reasonably determines
to be, directly or indirectly, a competitor or an officer, employee, director or
greater than two percent (2%) stockholder of a competitor.
(d) In lieu of the financial information required pursuant to Section 2.1,
copies of the Company's annual reports on Form 10-K and its quarterly reports on
Form 1O-Q, respectively, may be provided to the Significant Holders.
2.3 Right of First Refusal. The Company hereby grants to each Holder who
owns any Shares or any shares of Common Stock issued upon conversion of the
Shares the right of first refusal to purchase a pro rata share of New Securities
(as defined in this Section 2.3) which the Company may, from time to time,
propose to sell and issue. An Investor's pro rata share, for purposes of this
right of first refusal, is the ratio of the number of Shares purchased by such
Investor pursuant to the Series A Agreement, to the total number of Shares
issued pursuant to the Series A Agreement. Each Investor shall have a right of
over-allotment such that if any Investor fails to exercise its right hereunder
to purchase its pro rata share of New Securities, the other
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Investors may purchase the non-purchasing Investor's portion on a pro rata basis
within ten (10) days from the date such non-purchasing Investor fails to
exercise its right hereunder to purchase its pro rata share of New Securities.
This right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
and/or Preferred Stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided, that, the term "New Securities" does not include (i) securities
purchased under the Series A Agreement; (ii) securities issued upon conversion
of the Shares; (iii) securities issued pursuant to the acquisition of another
business entity or business segment of any such entity by the Company by merger,
purchase of substantially all the assets or other reorganization whereby the
Company will own more than fifty percent (50%) of the voting power of such
business entity or business segment of any such entity; (iv) any borrowings,
direct or indirect, from financial institutions or other persons by the Company,
whether or not presently authorized, including any type of loan or payment
evidenced by any type of debt instrument; (v) securities issued to employees,
consultants, officers, directors or agents of the Company pursuant to any stock
option, stock purchase or stock bonus plan, agreement or arrangement approved by
the Board of Directors at any time; (vi) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors; (vii) securities issued
in connection with obtaining lease financing, whether issued to a lessor,
guarantor or other person; (viii) securities issued in a public offering
pursuant to a registration under the Securities Act; (ix) securities issued in
connection with any stock split, stock dividend or recapitalization of the
Company; (x) securities issued in connection with corporate partnering
transactions on terms approved by the Board of Directors; and (xi) any right,
option or warrant to acquire any security convertible into the securities
excluded from the definition of New Securities pursuant to subsections (i)
through (x) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, and their price and the general terms
upon which the Company proposes to issue the same. Each Holder shall have twenty
(20) days after any such notice is mailed or delivered to agree to purchase such
Holder's pro rata share of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased.
(c) In the event the Holders fail to exercise fully the right of first
refusal within such 20-day period and after the expiration of the 10-day period
for the exercise of the over-allotment provisions of this Section 2.3, the
Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within ninety (90) days from the date of said agreement) to
sell the New Securities respecting which the Holders' right of first refusal
option set forth in this Section 2.3 was not exercised, at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice to Holders pursuant to Section 2.3(b). In the event the Company
has not sold within such ninety (90) day period or sold and issued New
Securities in accordance with the foregoing within 90 days from the date of such
agreement, the Company shall not thereafter issue
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or sell any New Securities, without first again offering such securities to the
Holders in the manner provided in Section 2.3(b) above.
(d) The right of first refusal granted under this Agreement shall expire on
June 12, 2002.
(e) The right of first refusal set forth in this Section 2.3 may not be
assigned or transferred, except that (i) such right is assignable by each Holder
to any Affiliate of such Holder, and (ii) such right is assignable between and
among any of the Holders.
2.4 Board of Directors. For so long as at least twenty-five percent (25%)
of the authorized Shares are outstanding, the Company's Board of Directors shall
maintain a Compensation Committee to be comprised of at least a majority of
outside directors, including one (1) member to be appointed by the holders of a
majority of the Shares.
2.5 Form S-3 Eligibility. The Company shall use its best efforts to
maintain its qualification for registration on Form S-3 or any comparable or
successor form or forms.
2.6 Key Executive Insurance. For a period of at least three (3) years from
the date of the Closing, the Company shall maintain key executive life insurance
policies with a financially sound and reputable insurer in the amount of
$3,000,000 covering the life of Xxxxxxx X. Xxxxxxxx, the proceeds of which shall
be payable to the Company. Such policies shall not be cancelable without at
least 30 days' written notice from the insurer to the Holders.
2.7 Employee Non-Competition, Confidentiality, Non-Solicitation and
Invention Agreements. For so long as at least twenty-five percent (25%) of the
authorized Shares are outstanding, the Company shall include non-competition,
confidentiality, non-solicitation and invention provisions reasonably acceptable
to the Holders in the employment agreement for each current and future officer
or key employee of the Company or any of its subsidiaries.
3. MISCELLANEOUS.
3.1 Governing Law. This Agreement shall be governed in all respects by the
laws of the State of Delaware, without regard to its conflicts of laws
principles.
3.2 Successors and Assigns. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 Entire Agreement; Amendment; Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subjects hereof. Neither this Agreement
nor any term hereof may be amended, waived, discharged or terminated, except by
a written instrument signed by the Company and the Initiating Holders and any
such amendment, waiver, discharge or termination shall be binding on all the
Holders.
-17-
3.4 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to a Holder, as indicated
on the list of Holders attached hereto as Exhibit A, or at such other address or
facsimile number as such holder or permitted assignee shall have furnished to
the Company in writing, or (b) if to the Company, at such address or facsimile
number as the Company shall have furnished to each Holder in writing. All such
notices and other written communications shall be effective on the date of
mailing, confirmed facsimile transfer or delivery.
3.5 Delays or Omissions. No delay or omission to exercise any right, power
or remedy accruing to any Holder, upon any breach or default of the Company
under this Agreement shall impair any such right, power or remedy of such Holder
nor shall it be construed to be a waiver of any such breach or default, or an
acquiescence therein, or of or in any similar breach or default thereafter
occurring; nor shall any waiver of any single breach or default be deemed a
waiver of any other breach or default therefore or thereafter occurring. Any
waiver, permit, consent or approval of any kind or character on the part of any
Holder of any breach or default under this Agreement or any waiver on the part
of any Holder of any provisions or conditions of this Agreement must be made in
writing and shall be effective only to the extent specifically set forth in such
writing. All remedies, either under this Agreement or by law or otherwise
afforded to any Holder, shall be cumulative and not alternative.
3.6 Rights; Separability. Unless otherwise expressly provided herein, a
Xxxxxx's rights hereunder are several rights, not rights jointly held with any
of the other Holders. In case any provision of the Agreement shall be invalid,
illegal or unenforceable, the validity, legality and enforceability of the
remaining provisions shall not in any way be affected or impaired thereby.
3.7 Information Confidential. Each Holder acknowledges that the information
received pursuant hereto may be confidential and for its use only, and it will
not use such confidential information in violation of the Exchange Act or
reproduce, disclose or disseminate such information to any other person (other
than its employees or agents having a need to know the contents of such
information, and its attorneys), except in connection with the exercise of
rights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
3.8 Titles and Subtitles. The titles of the paragraphs and subparagraphs of
this Agreement are for convenience of reference only and are not to be
considered in construing or interpreting this Agreement.
3.9 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
-18-
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
ENCORE MEDICAL CORPORATION
By:
------------------------------------------
Name: _________________________________
Title:
---------------------------------
INVESTORS:
XXXXX PARTNERS III, L.P.
By: Xxxxxxxx, L.L.C., its General Partner
By: ____________________________
Name:
Title:
XXXXX PARTNERS INTERNATIONAL III, L.P.
By: Xxxxxxxx, L.L.C., its General Partner
By: ____________________________
Name:
Title:
XXXXX EMPLOYEE FUND III, L.P.
By: Wesson Enterprises, Inc., its
General Partner
By: ____________________________
Name:
Title:
IVY ORTHOPEDIC PARTNERS, LLC
By: ____________________________
Name:
Title:
-19-
--------------------------------
XXXXXXX X. XXXXXXXX
---------------------------------
XXXXX XXXXXX
---------------------------------
XXXXXX XXXXXX
KANTER FAMILY FOUNDATION
By: _______________________________
Xxxx Xxxxxx, President
CHICAGO INVESTMENTS, INC.
By: _______________________________
Xxxxx Xxxxxxxxxxxx, President
------------------------------------
XXXXXXX XXXXXX
NORTHLEA PARTNERS, LTD.
By: ______________________________
Xxxx Xxxxxx, General Partner
----------------------------------
XXXX XXXXXXX
----------------------------------
XXXXX XXXXXXX
-20-
EXHIBIT A
INVESTORS:
Xxxxx Partners III, X.X. Xxxxxx Family Foundation
000 Xxxxx Xxxxxx 0000 Xxxxxx Xxxxxxxx Xxxxx
Xxx Xxxx, Xxx Xxxx 00000 Xxxxx 0000
Xxxxxx, XX 00000
Xxxxx Partners International III, L.P.
000 Xxxxx Xxxxxx Chicago Investments, Inc.
New York, New York 10020 C/o Xxxxx Xxxxx Enterprises, Inc.
N. 0000 Xxxxxxxxxx Xxxx
Xxxxx Employee Fund III, L.P. Deerbrook, WI 54424
000 Xxxxx Xxxxxx
Xxx Xxxx, Xxx Xxxx 00000 Northlea Partners, Ltd.
0000 XX 00xx.
Ivy Orthopedic Partners, LLC Boca Raton, FL 00000
Xxxx Xxxxxxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxx Xxxxxx 00000 Xxxxxx Xxxxxx
49 Briar Hollow #1902
Xxxxxxx X. Xxxxxxxx Houston, TX 77027
6133 Pasadena Pt. Xxxx
Xxxxxxxx, XX 00000 Xxxxx Xxxxxx
0000 Xxxxxxxx Xxx Xxxxx
Xxxxxxx Xxxxxx Xx. Xxxxxxxxxx, XX 00000
00000 Champagne Pt. Rd.
Kirkland, WA 98034 Xxxx and Xxxxx Xxxxxxx
0 Xxxxx Xxxx #0000
Xxxxxxx Xxxxx, XX 00000
A-i
