▇▇▇▇▇▇▇▇ CAPITAL INCORPORATED
STOCKHOLDERS' AGREEMENT
DATED MARCH 11, 1997
A-3
TABLE OF CONTENTS
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Page
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ARTICLE 1
CERTAIN DEFINITIONS
ARTICLE 2
RESTRICTIONS ON TRANSFERS OF SHARES
2.1 Restricted Shares............................................ 2
2.2 Legend....................................................... 2
2.3 Initial Holding Requirement.................................. 3
2.4 Sale of Shares............................................... 3
2.5 Co-Sale Right................................................ 5
2.6 Offered Shares Not Purchased by Stockholders................. 5
2.7 Effect of Notices............................................ 6
2.8 Certain Exclusions........................................... 6
2.9 No Transfer to Certain Entities.............................. 6
2.10 Transfers in Violation of Agreement.......................... 7
ARTICLE 3
RIGHT OF FIRST REFUSAL FOR NEW ISSUANCES
3.1 Grant of Right of First Refusal by Company................... 9
3.2 Definition of New Securities................................. 9
3.3 Company Notice of Proposed Issuance.......................... 10
3.4 Company's Sale Right......................................... 10
3.5 Right Not Assignable......................................... 10
ARTICLE 4
REGISTRATION RIGHTS
4.1 Certain Definitions.......................................... 10
4.2 Company Registration......................................... 11
4.3 Requested Registration....................................... 13
4.4 Expenses of Registration..................................... 15
4.5 Registration Procedures...................................... 15
4.6 Conditions to Participation.................................. 17
4.7 Indemnification.............................................. 17
4.8 Transfer or Assignment of Registration Rights................ 19
4.9 "Market Stand-Off" Agreement................................. 19
4.10 Allocation of Registration Opportunities..................... 20
4.11 Delay of Registration........................................ 20
4.12 Limitation on Subsequent Registration Rights................. 20
4.13 Termination of Registration Rights........................... 21
ARTICLE 5
CERTAIN VOTING AND APPROVAL RIGHTS
5.1 Voting....................................................... 21
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5.2 FFC Approval Right............................................ 22
5.3 Other Approval Requirements................................... 22
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Financial Information......................................... 23
6.2 Inspection Rights............................................. 23
6.3 Opportunities................................................. 23
ARTICLE 7
NO SOLICITATION
7.1 By FFC........................................................ 25
7.2 By Elder...................................................... 25
7.3 By Brazy...................................................... 25
7.4 Definition of Solicitation.................................... 26
ARTICLE 8
MISCELLANEOUS
8.1 Retirement of Debt............................................ 26
8.2 Termination................................................... 26
8.3 Notices....................................................... 26
8.4 Successors and Assigns........................................ 26
8.5 Counterparts.................................................. 26
8.6 Severability.................................................. 26
8.7 Amendment..................................................... 27
8.8 Construction.................................................. 27
8.9 Attorney's Fees............................................... 27
8.10 Entire Agreement.............................................. 27
8.11 Arbitration or Mediation...................................... 27
8.12 Remedies...................................................... 27
8.13 Confidentiality Restrictions.................................. 28
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EXECUTION VERSION
STOCKHOLDERS' AGREEMENT
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This Stockholders' Agreement (this "Agreement") is made this 11th day
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of March, 1997, by and among ▇▇▇▇▇▇▇▇ Capital Incorporated, a Delaware
corporation (the "Company"), ▇▇▇▇▇ ▇. ▇▇▇▇▇, an individual ("Elder"), ▇▇▇▇▇▇ ▇.
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Brazy, Jr., an individual ("Brazy"), The Atherton Group Incorporated, a
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California corporation ("TAG"), and Franchise Finance Corp., a Delaware
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corporation ("FFC" and, together with Elder, Brazy and TAG, each a
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"Stockholder," and jointly and severally, the "Stockholders").
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RECITALS
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WHEREAS, the Stockholders constitute all of the stockholders of the
Company; and
WHEREAS, the Company and the Stockholders wish to provide for certain
rights and obligations relating to their shares in the Company;
AGREEMENT
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NOW, THEREFORE, the parties hereto agree as follows:
ARTICLE 1
CERTAIN DEFINITIONS
As used in this Agreement, the following terms shall have the
following meanings:
1.1 "Affiliate" means any person or entity, including a trust, that
directly, or indirectly through one or more intermediaries, controls or is
controlled by, or is under common control with a specified person or entity.
1.2 "Immediate Family" means any spouse, child, grandchild, parent,
brother, or sister of a Stockholder, and any trust for the benefit of any such
relatives.
1.3 "Initial Public Offering" means the closing of the first
underwritten public offering of securities of the Company registered with the
Securities and Exchange Commission under the Securities Act.
1.4 "Securities Act" means 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
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from time to time.
1.5 "Shares" means any shares of capital stock of the Company or any
securities convertible into or exchangeable for any class of capital stock of
the Company and all securities into which such Shares may be converted or
reclassified as a result of any merger, consolidation, stock split, stock
dividend, or other recapitalization of the Company whether now owned or
hereafter acquired.
1.6 The words "sale," "sell," "transfer" and the like shall include
any disposition by way of transfer, with or without consideration, to any person
for any purpose and shall include but shall not be limited in any way to
redemption by the issuer, private or public sale, exchanges of securities on
account of merger, consolidation, reorganization or any other transaction
affecting the securities of the Company held by the Stockholder; provided,
however, that the rights of the Stockholders under this Agreement shall not
pertain or apply to any pledge of Shares made by the Stockholder pursuant to a
bona fide loan transaction which creates a mere security interest provided that
any pledgee or transferee shall furnish the Stockholders with a written
agreement to be bound by and comply with all provisions of this Agreement
applicable to the Stockholder and any foreclosure upon any pledged Shares shall
be subject to Section 2.11.
ARTICLE 2
RESTRICTIONS ON TRANSFERS OF SHARES
2.1 Restricted Shares. Each Stockholder agrees that during the term
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of this Agreement all Shares owned by such Stockholder shall be subject to the
terms and conditions of this Agreement. No sale (as defined in Article 1
hereof), whether voluntary or involuntary, of any Shares shall be valid unless
the terms and conditions of this Agreement have been complied with. The Company
and each Stockholder represent and warrant that the total number of shares of
common stock (the "Common Stock") presently owned by each of the Stockholders is
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set forth under the signature of such Stockholder on the signature page of this
Agreement and that each Stockholder is the sole legal and beneficial owner of
such shares.
2.2 Legend. Each certificate representing Shares shall forthwith be
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endorsed on the face thereof with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE
SECURITIES REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE
TERMS AND CONDITIONS OF A CERTAIN STOCKHOLDERS' AGREEMENT BY
AND AMONG THE CORPORATION AND CERTAIN STOCKHOLDERS OF THE
CORPORATION. COPIES OF SUCH AGREEMENT MAY BE OBTAINED UPON
WRITTEN REQUEST TO THE SECRETARY OF
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THE CORPORATION."
This legend shall be removed upon termination of Article 2 of this Agreement in
accordance with the provisions of Section 8.2 hereof.
2.3 Initial Holding Requirement. No Stockholder may sell, assign or
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transfer its Shares to any person prior to January 1, 1999, other than (a) to
another Stockholder, an Immediate Family member of any Stockholder or an
employee of the Company, provided that in each case the Stockholder retains the
right to vote any Shares transferred to any such persons or entities, (b) to an
Affiliate of the Stockholder or (c) in connection with the Initial Public
Offering.
2.4 Sale of Shares.
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a. Notice of Sale. From and after January 1, 1999, a
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Stockholder may sell any or all Shares provided such sale is made pursuant to
the terms and conditions of this Agreement. If a Stockholder desires to sell any
Shares such Stockholder (the "Selling Stockholder") shall deliver a written
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notice of the intended sale (the "Sale Notice") to the other Stockholders and to
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the Secretary of the Company at least forty-five (45) calendar days prior to the
date of such intended sale, including, without limitation, the name and address
of the prospective purchaser, the purchase price and other terms and conditions
of payment, the date on or about which such sale is intended to be made, the
number of Shares to be sold (such Shares hereinafter being referred to as the
"Offered Shares"), the percentage of all Shares of such Selling Stockholder
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which the Offered Shares represent and that the purchaser has been informed of
the rights of the Stockholders under this Agreement.
b. Right of First Offer. Each Stockholder shall have the right,
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exercisable upon written notice to the Selling Stockholder within twenty-five
(25) calendar days from the date of receipt by such Stockholder of the Sale
Notice, to elect to purchase, in substitution for and in place of the intended
purchaser thereof, such percentage of the Offered Shares as set forth below:
(i) If only one Stockholder elects to purchase the
Offered Shares such Stockholder may elect to purchase all, or, subject to
clause (iii) below, any part of, the Offered Shares on the terms and
conditions stated in such Sale Notice.
(ii) If more than one Stockholder elects to exercise the
right of first offer granted hereby as to the Offered Shares, then each
electing Stockholder may purchase only the pro rata portion of the Offered
Shares determined by multiplying the number of Shares constituting Offered
Shares, by a fraction (A) the numerator of which shall be the number of
shares of Common Stock held by such Stockholder (assuming
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the conversion, exchange or exercise of all securities held by such
Stockholder convertible into or exchangeable or exercisable for Common
Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders) and (B) the denominator of which shall be the
number of shares of Common Stock (assuming the conversion, exchange or
exercise of all outstanding securities of the Company convertible into or
exchangeable or exercisable for Common Stock at the close of business on
the date of the mailing of the Sale Notice to the Stockholders) held by all
Stockholders who have elected to exercise the right of first offer granted
hereby, rounded to the nearest whole share. If any Stockholder should elect
not to purchase his entire pro rata portion, the Selling Stockholder shall
give written notice of such failure to the Stockholders that did elect to
purchase their pro rata portion within five (5) calendar days from the date
on which the Stockholders' right to elect to purchase the Offered Shares
expires pursuant to Section 2.4(b) hereof. The Stockholders who did so
elect then shall have the right on a pro rata basis, exercisable upon
notice to the Selling Stockholder within ten (10) calendar days from the
date of receipt by such Stockholders of the notice referred to in the prior
sentence, to purchase the remainder of the Offered Shares.
(iii) If the Stockholders in the aggregate do not elect to
purchase all of the Offered Shares, the Company may purchase any of the
remaining Offered Shares upon the terms and conditions stated in the Sale
Notice; provided, however, that if the Stockholders and the Company do not
elect to purchase all of the Offered Shares, the Selling Stockholder shall
not be required to sell more than 50% of the Offered Shares pursuant to
this Section 24, allocated among the Stockholders as specified in clause
(ii), or may rescind its offer to sell any Shares.
In the event that the consideration to be paid to the Selling
Stockholder shall consist, in whole or in part, of property other than cash, the
Selling Stockholder shall specify the cash equivalent value of such property in
the Sale Notice. In the event such property consists of securities for which a
public market exists, the cash equivalent value shall mean the average closing
price or quotation for such securities in the applicable public market for the
five business days prior to the date of the Sale Notice.
Except where determined pursuant to sales in a public market, the
Stockholders shall have the right to contest in good faith the cash equivalent
value set forth in the Sale Notice, provided such Stockholders (the "Contesting
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Stockholders") so notify the Selling Stockholder in writing within five (5)
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calendar days of their receipt of the Sale Notice. Upon receipt of such notice
of contest the Selling Stockholder and the Contesting Stockholders shall appoint
one (1) mutually acceptable independent
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appraiser to determine, within thirty (30) calendar days of such appointment,
the cash equivalent value of such property. If the Selling Stockholder and the
Contesting Stockholders cannot agree upon a mutually acceptable appraiser within
twenty (20) calendar days, then the Selling Stockholder shall appoint one
independent appraiser and the Contesting Stockholders, collectively, shall
appoint one independent appraiser, each within ten (10) calendar days. If the
two appraisers are unable to agree on the cash equivalent value of such property
within thirty (30) calendar days of their appointment, they shall appoint a
third independent appraiser within ten (10) calendar days. The decision in
writing of the single appraiser or, if applicable, any two of the three
appraisers so appointed, shall be binding on all parties. All fees and expenses
of such appraiser(s) shall be paid by the Selling Stockholder. During the period
preceding such determinations by the appraiser(s), all actions otherwise to be
taken hereunder shall be extended for the number of days between the appointment
of the single appraiser or the appointment of the two appraisers, as applicable,
and the announcement by the appraiser(s) to the Stockholders of its or their
final determination.
2.5 Co-Sale Right. In addition to its rights under Section 24 of
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this Agreement, each Stockholder shall have the right, exercisable upon written
notice to the Selling Stockholder within twenty (25) calendar days after receipt
of the Sale Notice, to elect to sell all of its Shares to the purchaser named in
the Sale Notice upon the terms specified in the Sale Notice if, after giving
effect to the proposed purchase, such purchaser would own more than 50% of the
issued and outstanding Common Stock, or Shares convertible into Common Stock, of
the Company (assuming the conversion, exchange or exercise of all outstanding
securities of the Company convertible into or exchangeable or exercisable for
Common Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders). A Selling Stockholder may not sell its Shares to
any such purchaser unless such purchaser agrees to purchase all of the Shares
elected to be sold pursuant to this Section 2.5.
Each Stockholder which elected to sell Shares pursuant to this
Section 25 shall effect its participation in the sale by promptly delivering to
the Selling Stockholder for transfer to the prospective purchaser, upon receipt
of consideration therefor, one or more certificates, properly endorsed for
transfer, which represent the type and number of Shares which such Stockholder
elects to sell.
2.6 Offered Shares Not Purchased by Stockholders. Stockholders may
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elect to either (a) purchase Offered Shares pursuant to the terms of Section 24
or (b) sell Shares pursuant to Section 25, but not both. To the extent the
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Stockholders do not elect to either purchase or sell their Shares as provided in
Sections 24 or 25, the Selling Stockholder may sell the remaining number of
Offered Shares to the purchaser at a price and upon
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terms no more favorable to the purchaser than specified in the Sale Notice. Any
Shares may only be sold, assigned or otherwise transferred to the prospective
purchaser if the prospective purchaser agrees to be bound by this Agreement. If
the Selling Stockholder has not sold the Offered Shares at a price and upon
terms no more favorable to the purchaser than specified in the Sale Notice
within one hundred and twenty (120) calendar days after the mailing of the Sale
Notice to the Stockholders, the Selling Stockholder shall not sell such Offered
Shares without again complying with the terms of this Agreement.
2.7 Effect of Notices. Any notice given by a Stockholder pursuant to
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Section 24 or 25 above shall, when taken together with the Sale Notice mailed to
such Stockholder, constitute a binding legal agreement on the terms and
conditions therein set forth, it being understood that any modification,
amendment, variance or other change by the Stockholder of the terms and
conditions set forth in the Sale Notice mailed to it other than as provided
herein shall be of no force and effect unless consented to in writing by the
Selling Stockholder.
The Selling Stockholder and each participating Stockholder shall
be entitled to rely conclusively upon any notice received pursuant to Section 24
or 25 above with respect to their respective rights and obligations under this
Article 2.
2.8 Certain Exclusions. Sections 24 and 25 shall not apply to a
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transfer of Shares: (a) to a member of the Stockholder's Immediate Family or to
a trust established for the benefit of a member or members of the Stockholder's
Immediate Family, where the Stockholder retains the right to vote such Shares,
(b) from Elder to Brazy or from Brazy to Elder, provided that the aggregate
cumulative amount of Shares so transferred does not exceed ten percent (10%) of
the issued and outstanding Common Stock, or Shares convertible into Common
Stock, of the Company (assuming the conversion, exchange or exercise of all
outstanding securities of the Company convertible into or exchangeable or
exercisable for Common Stock at the close of business on the date of any such
transfer), (c) to an Affiliate of the Stockholder, (d) to an employee of the
Company where the Stockholder retains the right to vote such Shares or (e) to
the estate of any of the foregoing by gift, will or intestate succession;
provided that the Stockholder notifies the Company of such transfer not less
than ten (10) nor more than ninety (90) calendar days prior to the transfer and
that the proposed transferee agrees to be bound by the terms and provisions of
this Agreement and to become a party to this Agreement immediately upon the
receipt of such Shares.
2.9 No Transfer to Certain Entities. A Stockholder may not transfer
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any Shares to (a) a competitor of the Company, or to any stockholder, partner or
other beneficial holder of an equity interest in a competitor or (b) an entity
whose ownership of Shares would prevent the Company from conducting its business
substantially in the manner conducted on the date of such proposed
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sale, including without limitation, the Company's ability to obtain any license
necessary to operate its business or to otherwise comply with any material
requirements applicable to the conduct of its business.
2.10 Transfers in Violation of Agreement. A transfer in violation of
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this Agreement is null and void and the Company agrees to issue stop transfer
instructions to its stock transfer agent, or, so long as it acts as its own
transfer agent, to make a stop transfer notation in its appropriate stock record
with respect to any such void transfer. The Company shall continue to treat any
Stockholder who made such transfer of Shares in violation of this Agreement as
the holder of such Shares.
2.11 Other Options to Purchase Shares.
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a. Option Events.
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(i) Upon the bankruptcy or incompetency of any
Stockholder, all of the Shares held by such Stockholder or his or her
estate shall be subject to the option to purchase Shares upon the terms
specified in this Section 2.11.
(ii) Upon the sale of any Shares to satisfy a judgment
against a Stockholder in any litigation or governmental proceeding, all of
the Shares so sold shall be subject to the option to purchase Shares upon
the terms specified in this Section 2.11.
(iii) Upon the acquisition by foreclosure of any Shares
pledged as collateral for an obligation, the Shares so foreclosed upon
shall be subject to the option to purchase Shares upon the terms specified
in this Section 2.11.
(iv) Each of the events specified in clauses (i) through
(iii) of this Section 2.11(a) is referred to as an "Option Event" and the
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Shares that are subject to such an Option Event are referred to herein as
the "Option Shares."
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b. Procedure. Each Stockholder or its legal representative shall
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promptly notify the Company and the other Stockholders in writing of the
occurrence of any Option Event with respect to any Shares owned by such
Stockholder (any such notice, an "Option Notice"). Upon the occurrence of an
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Option Event, each Stockholder (other than the Stockholder as to which the
Option Event has occurred) shall have the right, and the Stockholder as to which
the Option Event has occurred and any person or entity that owns any Option
Shares (any of such persons, a "Seller") shall be obligated, to sell and
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transfer the Option Shares pursuant to this Section 2.11.
Each Stockholder desiring to exercise its rights
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under this Section 2.11 shall so notify the Seller within thirty (30) calendar
days from the date of receipt by such Stockholder of the Option Notice.
Purchases of Option Shares are subject to the following requirements:
(i) If only one Stockholder elects to purchase the Option
Shares such Stockholder may elect to purchase all or any part of the Option
Shares at the Option Purchase Price (as defined in Section 2.11(c) below).
(ii) If more than one Stockholder elects to purchase Option
Shares, then each electing Stockholder may purchase only the pro rata
portion of the Option Shares determined by multiplying the number of shares
constituting Option Shares, by a fraction (A) the numerator of which shall
be the number of shares of Common Stock held by such Stockholder (assuming
the conversion, exchange or exercise of all securities held by such
Stockholder convertible into or exchangeable or exercisable for Common
Stock at the close of business on the date of the mailing of the Sale
Notice to the Stockholders) and (B) the denominator of which shall be the
number of shares of Common Stock (assuming the conversion, exchange or
exercise of all outstanding securities of the Company convertible into or
exchangeable or exercisable for Common Stock at the close of business on
the date of the mailing of the Sale Notice to the Stockholders) held by all
Stockholders who have elected to exercise the right to purchase Option
Shares granted hereby, rounded to the nearest whole share. If any
Stockholder should elect not to purchase his entire pro rata portion, the
Seller shall give written notice of such failure to the Stockholders that
did elect to purchase their pro rata portion within five (5) calendar days
from the date on which the Stockholders' right to elect to purchase the
Option Shares expires. The Stockholders who did so elect then shall have
the right on a pro rata basis, exercisable upon notice to the Seller within
ten (10) calendar days from the date of receipt by such Stockholders of the
notice referred to in the prior sentence, to purchase the remainder of the
Option Shares.
(iii) If the Stockholders in the aggregate do not elect to
purchase all of the Option Shares, the Company may purchase any of the
remaining Option Shares for the Option Purchase Price. Any Option Shares
not purchased by the Stockholders or the Company may be transferred to a
third party provided that such transferee agrees in writing to be bound by
and comply with the terms and conditions of this Agreement.
c. Price. The purchase price for any Shares to be purchased
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pursuant to this Section 2.11 (the "Option Purchase Price") shall be equal to
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the fair market value of the Company as of the last day of the Company's fiscal
quarter immediately preceding the date of the Option Event, as determined in
good
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faith by the Board of Directors of the Company within thirty (30) calendar
days of receipt by the Company of the Option Notice, divided by the number of
shares of Common Stock of the Company issued and outstanding as of such date.
d. Price Disagreements. If the Company, the Seller and any
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Stockholder exercising its rights under Section 2.11(b) (a "Purchasing
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Stockholder") are not able to agree on the fair market value of the Company
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within thirty (30) calendar days following the date on which the Company
notifies the Seller and any Purchasing Stockholder of the determination of the
Option Purchase Price by the Board of Directors of the Company pursuant to
paragraph (c) above, the Company and the Purchasing Stockholders shall
collectively appoint one independent appraiser and the Seller shall appoint one
independent appraiser within thirty (30) calendar days. If the two appraisers
are unable to agree on the value of the Shares within thirty (30) calendar days
of their appointment, they shall appoint a third independent appraiser within
ten (10) calendar days. The decision in writing of any two of the three
appraisers so appointed shall be binding on the Stockholders, the Company and
the Seller. The Company and the Seller shall each pay one half of the fees and
expenses of each appraiser.
ARTICLE 3
RIGHT OF FIRST REFUSAL FOR NEW ISSUANCES
3.1 Grant of Right of First Refusal by Company. The Company hereby
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grants to each Stockholder the right of first refusal to purchase a pro rata
share of New Securities (as defined in Section 32) which the Company may, from
time to time, propose to sell and issue. Such Holder's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock owned by such Holder immediately prior to the issuance of New
Securities (assuming the conversion, exchange or exercise of all securities of
the Company held by such Holder convertible into or exchangeable or exercisable
for Common Stock) to the total number of shares of Common Stock outstanding
immediately prior to the issuance of New Securities (assuming the conversion,
exchange or exercise of all outstanding securities of the Company convertible
into or exchangeable or exercisable for Common Stock). This right of first
refusal shall be subject to the provisions of this Article 3.
3.2 Definition of New Securities. "New Securities" means any capital
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stock of the Company, 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 the
following securities: (a) securities, including rights, options and warrants to
acquire such securities, issued pursuant to the acquisition of another business
entity or business segment of any such entity by the Company by merger, purchase
of
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substantially all the assets, purchase of shares or other reorganization whereby
the Company will own more than 50% of the voting power of such business entity
or business segment of any such entity; (b) securities, including rights,
options and warrants to acquire such securities, issued to employees,
consultants, officers or directors of the Company pursuant to any stock option,
stock purchase, stock bonus or other employee benefit plan, agreement or
arrangement approved by the Board of Directors and by FFC; (c) securities,
including rights, options and warrants to acquire such securities, issued in a
public offering pursuant to a registration under the Securities Act; and (d)
securities issued in connection with any stock split, stock dividend or
recapitalization of the Company.
3.3 Company Notice of Proposed Issuance. In the event the Company
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proposes to undertake an issuance of New Securities, it shall give each
Stockholder 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 Stockholder shall have thirty (30) calendar
days after any such notice is received to agree to purchase such person's pro
rata share (or any part thereof) 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. Each
Stockholder may provide in its notice that, if one or more Stockholders do not
fully exercise their rights of first refusal, it will purchase such New
Securities as are not subject to such exercise (or a specified quantity of such
New Securities). All such Stockholders specifying their desire to purchase New
Securities exceeding their pro rata share shall, to the extent allocation is
required, share pro rata.
3.4 Company's Sale Right. In the event the Stockholders fail to
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exercise fully the right of first refusal within said thirty (30) calendar day
period, the Company shall have (120) calendar days thereafter to sell the New
Securities in respect of which the right of first refusal option set forth in
this Article 3 was not exercised, at a price and upon terms no more favorable to
the purchasers thereof than specified in the Company's notice pursuant to
Section 33. In the event the Company has not sold the New Securities within the
time limits specified in the preceding sentence, the Company shall not
thereafter issue or sell any New Securities, without first again offering such
securities to the Stockholders provided in Section 33.
3.5 Right Not Assignable. The right of first refusal set forth in
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this Article 3 may not be assigned or transferred without the prior written
consent of each Stockholder, except that such right is assignable without such
consent by each Stockholder to its respective Affiliates and Immediate Family.
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ARTICLE 4
REGISTRATION RIGHTS
4.1 Certain Definitions.
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"Holder" or "Holders" means any person or persons who holds
Registrable Securities and any assignee of Registrable Securities to whom the
registration rights conferred by this Agreement have been transferred in
compliance with Section 48.
"Initiating Holders" means the Holder or Holders who have requested
registration of their Registrable Securities under Section 43.
"Other Stockholders" means persons other than Holders who, by virtue
of agreements with the Company, are entitled to include their securities in
certain registrations hereunder.
"Registrable Securities" means the shares of Common Stock owned by the
Stockholders as of the date hereof, as specified on the signature page hereto,
and any other shares of Common Stock purchased by the Stockholders in the future
or issued as a dividend or other distribution with respect to or in exchange for
or in replacement of such shares or issued in respect of or pursuant to any
stock split, reverse stock split, combination, recapitalization,
reclassification, merger or consolidation; provided, however, that Registrable
Securities shall not include any shares of Common Stock that have previously
been registered or that have been sold to the public or that have been sold in a
private transaction in which the transferor's registration rights under this
Agreement are not assigned pursuant to Section 4.8.
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 the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" means 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.
"Selling Expenses" means all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities and all fees and
disbursements of counsel for any Holder (if not Company counsel).
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4.2 Company Registration.
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a. If the Company shall determine to register any of its
securities either for its own account or the account of a Holder or Other
Stockholder exercising its registration rights (other than a registration
relating solely to an employee stock option, stock purchase or savings plan, a
registration relating to a transaction under Rule 145 of the Securities Act, the
Company will give to each Holder prompt written notice thereof. Each Holder
shall be given fifteen (15) calendar days after receipt of such notice to
request in writing to the Company that some or all of such person's Registrable
Securities be included in such registration statement. The Company shall use its
best efforts to cause to be registered, subject to Sections 42(b) and 42(c), all
the Registrable Securities that each such Holder has timely requested to be
registered to the extent necessary to permit their sale or other disposition in
accordance with the methods of disposition specified by the Holder in such
request; provided, however, that if the Company registration is in connection
with the Initial Public Offering, each Holder may sell its Registrable
Securities, allocated on a pro rata basis among the Holders, only as part of the
over-allotment option, if any, purchased by the underwriters.
b. 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
42(a). In such event, the right of any Holder to registration pursuant to this
Section 42 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein. All Holders proposing to distribute
their securities through such underwriting shall (together with the Company and
the other holders of securities through such underwriting) enter into an
underwriting agreement in customary form with the representative of the
underwriter or underwriters selected by the Company.
c. Notwithstanding any other provision of this Section 42, if
the representative of the underwriters advises the Company in writing that
marketing factors require a limitation on the number of shares to be registered
or 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 persons 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 4.10. If any person
does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company or the underwriter. Any
Registrable Securities or other
12
securities excluded shall also 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 pursuant to this Section 42(c), then
the Company shall offer to all persons 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 the persons requesting additional
inclusion in accordance with Section 410.
d. The Company shall have the right to terminate or withdraw any
registration initiated by it under this Section 42 prior to the effectiveness of
such registration whether or not any Holder has elected to include securities in
such registration.
4.3 Requested Registration.
----------------------
a. If the Company shall receive from the Initiating Holders at
any time not earlier than the later of (i) twenty four (24) months after the
Initial Public Offering and (ii) December 31, 1999, a written request that the
Company effect any registration with respect to all or a part of the Registrable
Securities, and only in the event that the aggregate offering price (net of
underwriting discounts and expenses related to the issuance) of the Registrable
Securities proposed to be registered equals or exceeds $10,000,000, the Company
will within ten (10) calendar days of the receipt thereof, give written notice
of the proposed registration to all other Holders. Each such Holder shall have
the right, by giving written notice to the Company within ten (10) calendar days
after receipt of the Company's notice, to elect to include some or all of such
Holder's Registrable Securities in such registration statement. Such notice of
election shall set forth the number of such Holder's Registrable Securities
requested to be included in such registration statement. The Company shall,
subject to the limitations set forth in Section 43(b), file as soon as
practicable a registration statement covering all Registrable Securities which
the Holders have timely requested to be registered.
b. The Company shall not be obligated to effect, or take any
action to effect, any such registration pursuant to this Section 43:
(i) 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;
(ii) during the period starting with the date sixty (60)
calendar days prior to the Company's good faith
13
estimate of the date of filing of, and ending on a date one hundred and
twenty (120) calendar days after the effective date of, a registration
statement; provided the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become
effective; and
(iii) more than twice with respect to any Initiating Holder.
c. If (i) in the good faith judgment of the Board of Directors
of the Company such registration would adversely affect 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
President of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would adversely affect 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 for the period during which such
disclosure would adversely affect the Company, provided that, except as provided
in Section 43(b)(ii) above, the Company may not defer the filing for a period of
more than one hundred and twenty (120) calendar days after the 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 (12) month
period. The registration statement filed pursuant to the request of the
Initiating Holders may, subject to the provisions of Sections 43(b) and 410,
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.
d. If the Initiating Holders intend to distribute their
Registrable Securities covered by their request by means of an underwritten
public offering, they shall so advise the Company as a part of their request to
the Company and the Company shall include such information in the written notice
referred to in Section 43(a). In such event, the right of any Holder to include
such Holder's Registrable Securities in such registration shall be conditioned
upon such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting (unless otherwise mutually
agreed by the Initiating Holders) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall,
together with the Company, enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company.
e. Notwithstanding any other provision of this Section 43, if
the Initiating Holders intend to distribute the Registrable Securities covered
by their request by means of an
14
underwritten public offering and 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 or registered, the number
of shares to be included in the underwriting or registration shall be allocated
as set forth in Section 410. 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 or the underwriter. Any Registrable Securities or other securities
excluded shall also 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 pursuant to this Section 43(e), 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 410.
4.4 Expenses of Registration. All Registration Expenses incurred in
------------------------
connection with any registration, qualification or compliance pursuant to
Sections 42 and 43 shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 43, if the registration request is
subsequently withdrawn at any time at the request of the Holders of a majority
of the Registrable Securities to be registered (in which case all participating
Holders shall bear such expenses ratably on the basis of the number of shares of
Registrable Securities requested to be registered), unless such withdrawal is
based upon material adverse information relating to the Company that is
different from the information known to the Holders requesting registration at
the time of their request for registration under Section 43.
All Selling Expenses relating to securities so registered shall be
borne by the Holders of such securities ratably on the basis of the number of
shares of Registrable Securities so registered on their behalf, provided that if
the Holders are represented by separate counsel each Holder shall bear the fees
and expenses of its own counsel.
4.5 Registration Procedures. In the case of each registration,
-----------------------
qualification or compliance effected by the Company pursuant to this Article 4,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will, as expeditiously as reasonably
possible:
a. Prepare and file with the Securities and Exchange Commission
(the "SEC") a registration statement with
---
15
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective.
b. Prepare and file with the SEC 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. Keep such registration, qualification or compliance effective
for a period of one hundred and twenty (120) calendar days or until the Holder
or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs.
d. Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
e. 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 of
the Registrable Securities covered by such registration statement, 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.
f. In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
g. Furnish, at the request of any Holder registering Registrable
Securities pursuant to this Agreement, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration pursuant to this Agreement, if such securities are being sold
through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the outside
counsel of recognized standing (or reasonably acceptable to the Holder)
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, if any, and to the Holders requesting
registration of Registrable Securities 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
16
underwriters, if any, and to the Holders requesting registration of Registrable
Securities.
h. As promptly as practicable after becoming aware of such
event, notify each Holder of the happening of any event of which the Company has
knowledge, as a result of which the prospectus included in the 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, in light of the circumstances under which they were
made, not misleading, and use its best efforts promptly to prepare a supplement
or amendment to the registration statement to correct such untrue statement or
omission, and deliver a number of copies of such supplement or amendment to each
Holder as such Holder may reasonably request.
i. Provide Holders with written notice of the date that a
registration statement registering the resale of the Registrable Securities is
declared effective by the SEC.
j. Provide Holders and their representatives the opportunity to
conduct a reasonable due diligence inquiry of the Company's pertinent financial
and other records and make available its officers, directors and employees for
questions regarding such information as it relates to information contained in
the registration statement.
k. Provide Holders and their representatives the opportunity to
review the registration statement and all amendments thereto a reasonable period
of time prior to their filing with the SEC and refrain from filing any document
in a form to which Holders reasonably object.
4.6 Conditions to Participation.
---------------------------
a. It shall be a condition precedent to the obligations of the
Company pursuant to this Article 4 that the persons selling Registrable
Securities shall furnish to the Company such information regarding themselves,
the Registrable Securities held by them, and the intended method of disposition
of such securities as shall be required to effect the registration of the
Registrable Securities.
b. No Holder may participate in any underwritten registration
hereunder unless such Holder (i) agrees to sell such Holder's securities on the
basis provided in any underwriting arrangements approved by the Holders entitled
to approve such arrangements and (ii) completes and executes all questionnaires,
powers of attorney, indemnities, underwriting agreements and other documents
required under the terms of such underwriting arrangements.
17
4.7 Indemnification.
---------------
a. The Company will indemnify each Holder, each of its officers
and directors 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 4,
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 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 blue sky law or any rule or regulation
thereunder applicable to the Company and relating to any action or inaction
required of the Company in connection with any such registration, qualification,
or compliance, and will reimburse each such Holder, each of its officers and
directors and each person controlling such Holder, 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 arises 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 47 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. The
indemnity provided for herein shall remain in full force and effect regardless
of any investigation made by or on behalf of such Holder or controlling person
and shall survive transfer of such securities by such Holder.
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 and stockholders 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 stockholders, and each person controlling such Holder
or Other Stockholder, against all 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 such registration statement, prospectus, offering circular, or
other document, or
18
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, stockholders, 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 furnished to the Company by 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. The indemnity provided for herein shall survive transfer of such
securities held by said Holder.
c. Each party entitled to indemnification under this Section 47
(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
unreasonably be 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 Section 47, to the extent such
failure is not prejudicial. 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.
4.8 Transfer or Assignment of Registration Rights. The rights to
---------------------------------------------
cause the Company to register securities granted to each Holder by the Company
under this Article 4 and related rights may be transferred or assigned by a
Holder (a) only to an Affiliate or Immediate Family member of the Holder or (b)
with the prior written consent of each Stockholder; provided, however, that in
each case registration rights may be transferred only if the
19
Holder transfers to any transferee of such rights Registrable Securities
representing not less than 15% of the Company's outstanding Common Stock
(assuming the conversion, exchange or exercise of all outstanding securities of
the Company convertible into or exchangeable or exercisable for Common Stock) as
of the date of such transfer. Each Stockholder shall give prompt notice of any
transfer of registration rights to the Company.
4.9 "Market Stand-Off" Agreement. If requested by the Company or an
----------------------------
underwriter of Common Stock or other securities of the Company, each Holder
shall agree not to 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 and twenty (120) calendar day period
following the effective date of a registration statement of the Company filed
under the Securities Act. The Company may impose stop-transfer instructions with
respect to the shares subject to the foregoing restriction until the end of said
one hundred and twenty (120) calendar day period.
4.10 Allocation of Registration Opportunities. In any circumstance in
----------------------------------------
which all of the Registrable Securities and other shares of Common Stock of the
Company with registration rights requested to be included in a registration on
behalf of the Holders or Other Stockholders cannot be so included as a result of
limitations of the aggregate number of shares of Registrable Securities and
other securities that may be so included, the number of shares of Registrable
Securities and other securities that may be so included shall be allocated among
the Holders and Other Stockholders requesting inclusion of shares pro rata on
the basis of the number of shares of Registrable Securities and other securities
that would be held by such Holders and Other Stockholders (assuming the
conversion, exchange or exercise of all securities of the Company held by such
Holders and Other Stockholders convertible into or exchangeable or exercisable
for Common Stock); provided, however, that (a) the number of shares of
Registrable Securities to be registered by Initiating Holders, if any, shall not
be reduced until the number of other Shares to be registered in such
registration and shares to be registered by the Company in such registration
shall have been reduced to zero and (b), so that such allocation shall not
operate to reduce the aggregate number of Registrable Securities and other
securities to be included in such registration, if any Holder or Other
Stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and other securities allocated to it pursuant to the
above-described procedure, the remaining portion of its allocation shall be
reallocated among those requesting Holders and Other Stockholders whose
allocations did not satisfy their requests pro rata on the basis of the number
of shares of Registrable Securities and other securities which would be held by
such Holders and Other Stockholders (assuming the conversion, exchange or
exercise of all securities of the Company held by such Holders and Other
Stockholders convertible into or exchangeable or exercisable for Common Stock),
and this procedure
20
shall be repeated until all of the shares of Registrable Securities and other
securities which may be included in the registration on behalf of the Holders
and Other Stockholders have been so allocated.
4.11 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 4.
4.12 Limitation on Subsequent Registration Rights. The Company shall
--------------------------------------------
not, without the prior written consent of each Stockholder, enter into any
agreement that would allow any holder of securities of the Company to include
such securities in any registration of securities of the Company with the SEC
unless, under the terms of any such agreement, such holder may include such
securities in any such registration only to the extent that the inclusion of its
securities will not reduce the amount of Registrable Securities which are
includable pursuant to this Agreement.
4.13 Termination of Registration Rights. The right of any Holder to
----------------------------------
request registration or inclusion in any registration pursuant to this Article 4
shall terminate on the earlier of (a) the fifth anniversary date of the closing
of the Initial Public Offering and (b) the date when all shares of Registrable
Securities held by such Holder may immediately be sold under Rule 144 under the
Securities Act, or any successor provision, during any ninety (90) calendar day
period.
21
ARTICLE 5
CERTAIN VOTING AND APPROVAL RIGHTS
5.1 Voting. The Stockholders shall take all actions necessary
------
(including, without limitation, voting such number of shares of the voting stock
of the Company now owned or hereafter acquired or controlled by them, calling
special meetings of stockholders and executing and delivering written consents)
and use their best efforts as stockholders or directors of the Company to enable
FFC to nominate and elect that number of directors which represents the FFC
Percentage of the aggregate number of members of the Board of Directors, rounded
to the nearest whole number, but in no event less than one (1) director. The
"FFC Percentage" on any date shall equal the percentage that results from
--------------
dividing the number of Shares of Common Stock and Shares convertible into Common
Stock then owned by FFC by the number of shares of Common Stock of the Company
then outstanding, assuming in each case the conversion, exchange or exercise of
all outstanding securities of the Company convertible into or exchangeable or
exercisable for Common Stock at the close of business on any such date. The
Company shall nominate for election to the Board of Directors of the Company the
person or persons designated by FFC pursuant to this Section 5.1 and shall take
all other actions necessary to cause such designee(s) to be elected to the Board
of Directors of the Company. Each of the Stockholders hereby grants to FFC an
irrevocable proxy to vote all Shares presently or at any future time owned
beneficially or of record by such Stockholder which the Stockholder is entitled
to vote, and to represent and otherwise act as such Stockholder could act, in
the same manner and with the same effect as if such Stockholder were personally
present at any meeting of the Stockholders or pursuant to any written consent in
lieu of a meeting or otherwise, solely for the purpose of electing the FFC
designee(s) to the Board of Directors of the Company. Such proxy may not be used
for any other purpose and the Stockholder retains all other voting rights with
respect to any Shares owned by it.
Notwithstanding the foregoing, following an Initial Public Offering,
the number of directors that FFC shall be entitled to nominate and elect
pursuant to this Section 5.1 shall be limited to one (1) and this Section 5.1
shall remain in effect only for so long as (a) FFC continues to own not less
than fifteen percent (15%) of the issued and outstanding Common Stock of the
Company (assuming the conversion, exchange or exercise of all outstanding
securities of the Company convertible into or exchangeable or exercisable for
Common Stock) and (b) FFC continues to be the lender to the Company under the
Warehouse Credit Agreement dated as of January 8, 1997 by and between FFC and
the Company (as successor to ▇▇▇▇▇▇▇▇ Capital Partners, L.P.), as amended from
time to time.
5.2 FFC Approval Right. The Company shall not effect any of the
------------------
following actions without the prior written consent of FFC:
22
a. Dissolution or liquidation of the Company prior to December
31, 1998.
b. The issuance of any additional equity interests in the
Company.
c. Any change to the Certificate of Incorporation of the
Company that would materially impair the distributions, liquidation and other
rights, powers, preferences, privileges, immunities or other interests of FFC.
d. Engaging the Company in any activities or transactions other
than in furtherance of the specific business of the Company of exploiting
current and long term income and/or capital gain opportunities in structuring
and implementing debt and equity financings to franchisees or franchisors of the
Eligible Concepts, and conducting such other activities as may be necessary or
incidental to or desirable in connection with the foregoing.
e. Merging, consolidating or exchanging the assets of the
Company with any other person or entity.
f. Filing any bankruptcy petition (or any similar petition) on
behalf of the Company, making a general assignment for the benefit of creditors,
filing an answer admitting the material allegations of or consenting to or
defaulting in filing an answer to any petition for relief filed against the
Company in any bankruptcy or similar proceeding.
g. Originating or purchasing loans to franchisees of any
concepts other than those concepts specified on Exhibit A hereto (the "Eligible
--------
Concepts"), provided that Exhibit A may be amended from time to time with the
--------
consent of each Stockholder.
5.3 Other Approval Requirements. The Company shall not, without the
---------------------------
prior written consent of each Stockholder, (a) declare or pay any dividends to
any stockholders or (b) issue any securities in connection with the acquisition
of another business entity or business segment of any such entity by the Company
by merger, purchase of substantially all the assets, purchase of shares or other
reorganization whereby the Company will own more than 50% of the voting power of
such business entity or business segment of any such entity.
23
ARTICLE 6
ADDITIONAL COVENANTS
6.1 Financial Information. The Company shall furnish to each
---------------------
Stockholder, so long as such Stockholder owns at least ten percent (10%) of the
issued and outstanding Common Stock of the Company, the following:
a. not later than thirty (30) calendar days after the end of
each calendar quarter, a quarterly report which shall include an unaudited
balance sheet, income statement and statement of cash flows for the quarterly
period then ended; and
b. not later than one hundred twenty (120) calendar days after
the close of the Company's fiscal year, a report containing (i) a balance sheet
of the Company as of the end of the fiscal year, (ii) an income statement for
the fiscal year, (iii) a statement of cash flows for the fiscal year and (iv) a
statement of stockholders' equity as of the end of the fiscal year, prepared in
accordance with GAAP, consistently applied, and accompanied by the report
thereon of the nationally recognized independent accountants engaged by the
Company.
6.2 Inspection Rights. The Company shall permit each Stockholder, so
-----------------
long as such Stockholder owns at least ten percent (10%) of the issued and
outstanding Common Stock of the Company, at such Stockholder's expense, upon
reasonable notice and during normal business hours, to visit and inspect any of
its properties and offices, to examine its books of account and to discuss the
affairs, finances and accounts of the Company with, and to be advised as to the
same by, its officers, auditors and accountants; provided that the Company shall
not be obligated pursuant to this Section 6.2 to provide access to any
information which it reasonably considers to be a trade secret or similar
confidential information if it reasonably believes that providing such
information would place the Company at a competitive disadvantage.
6.3 Opportunities.
-------------
a. For purposes of this Section 6.3, the term "Enterprise Loan"
---------------
shall mean a loan that is underwritten primarily on the basis of the enterprise
value of a business operated by a franchisee or franchisor of an Eligible
Concept, rather than on the basis of the value of any fee or leasehold interest
in real property securing such loan and occupied by a franchisee or franchisor
of an Eligible Concept or any other criteria.
Each of Elder, Brazy and TAG (the "Principals") agree that all lending
----------
opportunities for Enterprise Loans in the Eligible Concepts to which he or it
has access shall be brought to the Company for so long as the Company is
operationally and financially capable of exploiting the opportunities. The Board
of Directors shall exercise its judgment in good faith as to whether any such
opportunity may be exploited by the Company.
24
In the event that any of the Principals brings to the Company any
loans that are not Enterprise Loans in the Eligible Concepts, such loans must be
approved by FFC on a case-by-case basis until an underwriting manual, a
processing manual and appropriate related documentation, if any, have been
approved by each of the Stockholders. If FFC does not approve any such loan upon
the terms proposed by the Principal, or such other terms as are mutually agreed
to by the Principal, FFC and the Company, within ten (10) business days after
receiving notice thereof from the Principal, the Principal or any Affiliate
thereof may pursue such loan independently of the Company.
In addition, each of the Principals agrees that it will present to FFC
all lending opportunities to which such Principal has access for loans in the
Eligible Concepts that are not Enterprise Loans. If FFC does not agree to
participate in any such lending opportunity upon the terms proposed by the
Principal, or such other terms as are mutually agreed to by the Principal and
FFC, within ten (10) business days after receiving notice thereof from the
Principal, the Principal or any Affiliate thereof may pursue such lending
opportunity independently of FFC.
b. Each Principal will bring any concepts identified in the
following industry groups to FFC for approval as Eligible Concepts for
Enterprise Loans: quick service restaurants, family dining and casual dining
restaurants, quick service restaurants co-branded with major gasoline company
franchises, video retailing and automotive after-market retailing. If FFC does
not approve the addition of any such concept as an Eligible Concept upon the
terms proposed by the Principal, or such other terms as are mutually agreed to
by the Principal, the Company and FFC, within ten (10) business days after
receiving notice thereof from the Principal, the Principal or any Affiliate
thereof may pursue opportunities in such concept independently of the Company.
c. Subject to Sections 6.3(a) and 6.3(b), the Principals and
their officers, directors, shareholders, partners, agents, employees and
Affiliates shall have the right to engage in any business, investment, or
activity, and neither the Company nor any Stockholder shall have any rights or
claims as a result of such activities. Subject to Sections 6.3(a) and 6.3(b),
each Principal shall have no duty or obligation whatsoever to offer, share, or
offer to share investment opportunities with the Company. The Stockholders
hereby waive any and all rights and claims which they may otherwise have against
any Principal and their officers, directors, shareholders, partners, agents,
employees and Affiliates as a result of any of such activities.
d. Subject to Sections 6.3(a) and 6.3(b), no Stockholder shall
be required to refer investment opportunities to the Company, to account for any
benefits from transactions in any way connected with the Company or its business
nor shall any
25
Stockholder be under any obligation to refrain from, or disclose, dealings
between the Company (and/or its Affiliates) and such Stockholder or its
Affiliates; provided, however, that FFC agrees and acknowledges that the Company
shall be (i) the exclusive Affiliate of ▇▇▇▇ Industries, Inc. to provide
financing proceeds to the Eligible Concepts (other than quick service restaurant
concepts co-branded with major gasoline company franchise concepts that include
convenience stores) until June 30, 1997 and (ii) the primary, but not exclusive,
Affiliate of ▇▇▇▇ Industries, Inc. to provide financing proceeds to the Eligible
Concepts (other than quick service restaurant concepts co-branded with major
gasoline company franchise concepts that include convenience stores) thereafter
until the earlier of the termination of the warehouse credit line provided to
the Company by FFC or the sale by FFC of all of its Shares to an entity
unaffiliated with ▇▇▇▇ Industries, Inc. If FFC or any Affiliate thereof were to
learn of an Eligible Concept financing opportunity prior to June 30, 1997, FFC
or its Affiliate shall present such opportunity to the Company. If the Company
does not elect to proceed with such opportunity within ten (10) business days
after receiving notice thereof from FFC, FFC or its Affiliate shall be permitted
to pursue such opportunity independently of the Company. The Stockholders hereby
waive any and all rights and claims which they may otherwise have against FFC
and its officers, directors, shareholders, partners, agents, employees and
Affiliates as a result of any of such activities. The Stockholders acknowledge
that FFC and its Affiliates intend to enter into other similar businesses in the
franchise industry, particularly related to the convenience store and retail gas
outlet businesses, independently of FFC's interest in the Company.
e. The obligations of the Principals specified in Sections
6.3(a) and 6.3(b) shall terminate, with respect to TAG and Elder, at such time
as Elder is no longer an officer or director of the Company and, with respect to
Brazy, at such time as Brazy is no longer an officer or director of the Company.
ARTICLE 7
NO SOLICITATION
7.1 By FFC. As long as FFC has an equity interest in the Company and
------
for a period of one year thereafter, FFC shall not solicit for hire any of the
employees, officers or directors of the Company.
7.2 By Elder. As long as Elder has an equity interest in the Company
--------
and for a period of one year thereafter, Elder shall not solicit for hire any of
the employees, officers or directors of the Company or ▇▇▇▇ Industries, Inc.
7.3 By Brazy. As long as Brazy has an equity interest in the Company
--------
and for a period of one year thereafter, Brazy shall not solicit for hire any of
the employees, officers or directors of the Company or ▇▇▇▇ Industries, Inc.
26
7.4 Definition of Solicitation. For purposes of this Article 7 the
--------------------------
term "solicitation" shall not include solicitation by advertising in a newspaper
or periodical of general circulation.
ARTICLE 8
MISCELLANEOUS
8.1 Retirement of Debt. The Company may retire all or a portion of
------------------
the outstanding debt under the Subordinated Debt Credit Agreement dated January
8, 1997, as amended from time to time, between the Company and FFC with the
proceeds of any public offering of Shares if the Board of Directors determines
that it is in the best economic interest of the Company to retire such debt.
8.2 Termination. This Agreement, other than the provisions of
-----------
Article 4, Section 5.1, Article 7 and Article 8, shall terminate upon the
Initial Public Offering, and shall terminate with respect to each Stockholder at
such time as that Stockholder shall no longer be the owner of any Shares.
8.3 Notices. Whenever notice is required to be given by any party
-------
hereunder, such notice shall be deemed sufficient only if in writing and
personally delivered to or mailed first class mail by certified or registered
mail, return receipt requested, to the party or parties to be notified at the
address set forth in this Agreement or to such other addresses as the respective
parties hereto shall from time to time designate by ten (10) calendar days'
advance notice to the others in writing. Any notice so given shall be deemed to
have been received upon actual receipt.
8.4 Successors and Assigns. This Agreement and the rights and
----------------------
obligations of the parties hereunder shall be binding upon and shall inure to
the benefit of each Stockholder and such stockholder's respective successors,
heirs, executors, administrators, permitted assigns and legal representatives,
and to the Company and its successors and assigns.
8.5 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original but all of which
together shall constitute one and the same instrument.
8.6 Severability. In case any one or more of the provisions or parts
------------
of a provision contained in this Agreement shall for any reason be held to be
invalid, illegal or unenforceable in any respect in any jurisdiction, such
invalidity, illegality or unenforceability shall not affect any other provision
or part of a provision of this Agreement or with respect to any other
jurisdiction, but this Agreement shall be reformed and construed in any such
jurisdiction as if such invalid or
27
illegal or unenforceable provision or part of a provision had never been
contained herein and such provision or part reformed so that it would be valid,
legal and enforceable to the maximum extent permitted in such jurisdiction.
8.7 Amendment. Any provision of this Agreement may be amended or
---------
waived only by a written instrument signed by each Stockholder and the Company.
8.8 Construction. This Agreement and all documents contemplated
------------
hereby, and all remedies in connection therewith and all questions or
transactions relating thereto, shall be construed in accordance with and
governed by the laws of the state of Delaware. This Agreement shall be
interpreted according to its fair meaning and not strictly for or against any
party.
8.9 Attorney's Fees. In the event that any dispute among the parties
---------------
to this Agreement should result in litigation, the prevailing party shall be
entitled to recover all fees, costs and expenses of enforcing any right under or
with respect to this Agreement, including without limitation, such reasonable
fees and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
8.10 Entire Agreement. This Agreement constitutes the full and
----------------
entire understanding and agreement among or between the parties with regard to
the subjects hereof, and supersedes any prior or contemporaneous understandings,
representations, warranties or agreements related thereto (oral or written).
8.11 Arbitration or Mediation. Subject to Section 7.12, all parties
------------------------
hereto shall subject any controversy, claim or dispute arising out of or
relating to the offer or sale of Shares, this Agreement, or the operation of the
Company, either during the existence of the Company or afterwards, among the
Company, the Stockholders, their assigns, their Affiliates, their officers,
directors, attorneys, or agents to non-binding arbitration or mediation in San
Francisco, California prior to commencing litigation with respect to any such
controversy, claim or dispute. Any such arbitration or mediation shall be
conducted by a single arbitrator or mediator selected by the mutual agreement of
the parties. Such arbitrator or mediator shall establish the rules and
procedures for the arbitration or mediation. If such dispute, claim or
controversy is not resolved within ninety (90) days following the selection of
the arbitrator or mediator, the parties shall be entitled to seek any other
remedy to which they may be entitled. All applicable statutes of limitation and
defenses based on the passage of time shall be stayed while the procedures
specified in this Section 811 are continuing.
8.12 Remedies. Each party hereto acknowledges that in the event of
--------
any breach of this Agreement by such party, the other parties hereto (a) would
be irreparably and immediately harmed by such breach, (b) could not be made
whole by monetary damages, and
28
(c) shall be entitled to temporary and permanent injunctions (or their
functional equivalents) to prevent any such breach and/or to compel specific
performance with this Agreement, in addition to all other remedies to which such
parties may be entitled at law or in equity. The remedies of each party hereto
under this Agreement shall be cumulative of each other and of the remedies
available at law or in equity. Any party's full or partial exercise of any such
remedy shall not preclude any subsequent exercise by such party of the same or
any other remedy.
8.13 Confidentiality Restrictions:
----------------------------
a. Restrictions on Disclosure and Use of Proprietary
-------------------------------------------------
Information. Each Stockholder, on its own behalf and on behalf of all of its
------------
Affiliates (each, a "recipient" as the context requires), hereby agrees that
during the period of time such entity or any Affiliate is a Stockholder of the
Company and for a period of three (3) years thereafter, it shall (i) not
disclose any Proprietary Information of the Company (as defined below), (ii)
hold and maintain the Proprietary Information in strictest confidence, and (iii)
not use the Proprietary Information in any way other than for the benefit of the
Company.
b. Definition of Proprietary Information. "Proprietary
------------------------------------- -----------
Information" is hereby defined to include all financial, technical, commercial
-----------
or other proprietary and confidential information or material relating to the
Company, its Affiliates and any predecessors in interest to the Company. By way
of example, Proprietary Information includes, but is not limited to, any and all
information of the following or similar nature, whether or not reduced to
writing:
Client lists, client characteristics, agreements, marketing
knowledge, pricing information, marketing plans and
business plans, strategies, forecasts, financial
information, budgets, software, projections, procedures,
routines, processes, formulas, trade secrets, innovations,
inventions, discoveries, improvements, research or
development and test results, specifications, data, know-
how, formats, plans, specifications, and any other
information or procedures that are treated as or designated
secret or confidential by the Company.
c. Exclusions from Definition. Proprietary Information does
--------------------------
not include information that: (i) was in the recipient's possession prior to its
being furnished to the recipient by the Company, its Affiliates or any
predecessors in interest of the Company, provided the source of that information
was not known by the recipient to be bound by a confidentiality agreement with
or other contractual, legal or fiduciary obligation of confidentiality to
Company, its Affiliates or any predecessors
29
in interest to the Company; (ii) is now, or hereafter becomes, through no act or
failure to act on the part of the recipient, generally known to the public;
(iii) is rightfully obtained by the recipient from a third party who, to the
best knowledge of the recipient, has the right to make such disclosure, without
breach of any obligation to the Company, its Affiliates or any predecessor in
interest to the Company; or (iv) is independently developed by or for the
recipient without use of or reference to the Proprietary Information.
d. Permitted Disclosures. The recipient of Proprietary
---------------------
Information may disclose the Proprietary Information to the recipient's
employees, officers, directors, agents, consultants, partners, representatives
and Affiliates (each, a "representative") with a bona fide need to know such
Proprietary Information and who are not engaged in activities considered
competitive with those of the Company, but only if such representatives are
advised of the confidential nature of such Proprietary Information and agree to
be bound by the terms of this Agreement for the purposes of protecting the
confidentiality of such Proprietary Information. The recipient may also disclose
the Proprietary Information if required by law, regulation or legal process,
provided that the recipient shall provide prompt written notice to the Company
of any such request and the opportunity to contest any such request. For
purposes of this Section 8.13, the relationship between FFC and/or its
Affiliates with Enterprise Mortgage Acceptance Company, LLC ("EMAC") shall be
considered an activity that is competitive with those of the Company, and no
Proprietary Information shall be disclosed to EMAC's representatives, other than
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ who, by his execution of this Agreement, agrees not to use
such Proprietary Information other than for the benefit of the Company.
e. Irreparable Harm. The Stockholders understand and
----------------
acknowledge that any disclosure or misappropriation of any of the Proprietary
Information in violation of this Agreement may cause the Company irreparable
harm, the amount of which may be difficult to ascertain, and therefore agrees
that the Company shall have the right to apply to a court of competent
jurisdiction for specific performance and/or an order restraining and enjoining
any such further disclosure or breach and for such other relief as the Company
shall deem appropriate. Such right of the Company is to be in addition to the
remedies otherwise available to the Company at law or in equity. Recipient
expressly waives the defense that a remedy in damages will be adequate and any
requirement in an action for specific performance or injunction for the posting
of a bond by the Company.
f. Franchise Finance Corp. Notwithstanding any of the
----------------------
foregoing, the Stockholders agree that FFC may use and disclose Proprietary
Information as necessary to enforce its rights as a lender to the Company.
30
IN WITNESS WHEREOF, the parties hereto have hereunto set their hands
-- ------- -------
the day and year first above written.
▇▇▇▇▇▇▇▇ CAPITAL INCORPORATED,
a Delaware corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
___________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
Title: President
_______________________________
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
AGREED TO by the following Stockholders and their spouses, each of
whom herewith certifies that such stockholder owns the number of shares of
Common Stock of the Company following such stockholder's name.
THE ATHERTON GROUP INCORPORATED,
a California corporation
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
___________________________________
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇
_________________________________
Title: President
_______________________________
Number of Shares of
Common Stock held: 200
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
FRANCHISE FINANCE CORP.,
a Delaware corporation
By: /s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
___________________________________
Name: ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Title: President
Number of Shares of
Common Stock held: 8,131
Address: ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
31
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇
________________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇
Number of Shares of
Common Stock held: 8,950
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Spouse:
/s/ ▇▇▇▇▇▇▇ ▇ ▇▇▇▇▇
________________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇, ▇▇.
Number of Shares of
Common Stock held: 5,950
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Spouse:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
________________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
32
