EXHIBIT D STOCK PURCHASE AND LOAN OPTION AGREEMENT INVESTOR RIGHTS AND STOCKHOLDER AGREEMENT
EXHIBIT
10.5
EXHIBIT
D
STOCK
PURCHASE AND LOAN OPTION AGREEMENT
This
Investor Rights and Stockholder Agreement (together with the Exhibits hereto,
the “Agreement”),
dated
as of May 30, 2005, is entered into among MR3 Systems, Inc., a Delaware
corporation (the “Company”),
the
persons listed on Exhibit
A-1
attached
hereto (collectively, the “Management
Shareholders”),
and
MRD Holdings Inc., a corporation organized and existing under the laws of
the
State of Delaware (the “Investor”).
RECITALS
The
execution and delivery of this Agreement by the parties is a condition to
the
Closing of the transactions contemplated by that certain Stock Purchase and
Loan
Option Agreement of even date herewith (the “Purchase
Agreement”).
The
Investor and the Company desire that the transactions contemplated by the
Purchase Agreement be consummated and, in connection therewith, are entering
into this Agreement.
ACCORDINGLY,
in consideration of the foregoing premises and the covenants, agreements,
representations and warranties of the parties contained herein, and for other
good and valuable consideration, the receipt and sufficiency of which are
hereby
acknowledged, the parties, intending to be legally bound, hereby agree as
follows:
Section
1
Registration
Rights
1.1 Certain
Definitions.
(a) A
used in
this Agreement, the following terms will have the following respective
meanings:
“Affiliate”
means,
with respect to any Person, (i) a director or officer of such Person, (ii)
a
spouse, parent, sibling or descendant of such Person (or a spouse, parent,
sibling or descendant of any director or officer of such Person), and (iii)
any
other Person that, directly or indirectly, through one or more intermediaries,
controls, is controlled by, or is under common control with, such Person.
“Commission”
means
the Securities and Exchange Commission or any other federal agency at the
time
administering the Securities Act.
“Common
Stock”
means
the Common Stock, $.01 par value, of the Company.
“Exchange
Act”
means
the Securities Exchange Act of 1934, as amended, and the rules and regulations
promulgated thereunder.
“Holder”
means
(i) the Investor who executes this Agreement, and (ii) any
assignee
under Section 1.10
who
holds outstanding Registrable Securities.
“Initiating
Holder”
means a
Holder holding Registrable Securities who requests registration.
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PURCHASE AND LOAN OPTION AGREEMENT
“Person”
shall
be construed broadly and shall include, without limitation, an individual,
a
partnership, an investment fund, a limited liability company, a corporation,
an
association, a joint stock company, a trust, a joint venture, an unincorporated
organization and a governmental entity or any department, agency or political
subdivision thereof.
The
terms
“register”, “registered” and “registration” will 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.
“Registrable
Securities”
means
(i) the Common Stock issuable or issued upon conversion of the Series B
Preferred Stock issued under the Securities Purchase Agreement, (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any convertible promissory note, warrant, right, or other security
issued to Investor under the Purchase Agreement, (iii) any share of Common
Stock
issued or issuable at any time upon exercise of the Warrant(s), issued pursuant
to the Purchase Agreement (the “Warrants”)
or
(iv) shares of Common Stock issued in respect of shares referred to
in the
preceding clause (i), and (v) upon any stock split, stock dividend,
recapitalization, or similar event; provided,
however,
that
Registrable Securities will not include any (w) Registrable Securities
sold
by a Holder in a transaction in which such Holder’s rights under this
Section 1
are not
assigned, (x) shares of Common Stock that are included in and sold
pursuant
to an effective registration statement, (y) shares of Common Stock
which
have previously been sold to the public, or (z) securities which would
otherwise be Registrable Securities held by a Holder who is then permitted
to
sell all of such securities within any three-month period pursuant to
Rule 144.
“Registration
Expenses”
means
all expenses incurred in connection with a registration under Section 1.2,
1.3 or 1.5,
including, without limitation, all registration, qualification and filing
fees,
printing expenses, escrow fees, fees and disbursements of counsel for the
Company, reasonable fees and expenses of one special counsel to the Holder
(not
to exceed $25,000) including Registrable Securities in such registration
and
blue sky fees and expenses, but will not include Selling Expenses.
“Restricted
Securities”
means
the securities of the Company required to bear or bearing the legend set
forth
in Section 6.2.
“Rule
144”
means
Rule 144 or any successor rule as promulgated by the Commission under
the
Securities Act.
“Securities”
means
the Securities issued and sold by the Company to the Investor pursuant to
the
Purchase Agreement, including, without limitation, any shares of Common Stock
issued upon exercise of the Warrant (as defined in the Purchase
Agreement).
“Securities
Act”
means
the Securities Act of 1933, as amended, and the rules and regulations
promulgated thereunder.
“Selling
Expenses”
will
include, with respect to any firm commitment, underwritten registration,
all
underwriting discounts and selling commissions incurred in connection with
the
sale of Registrable Securities in such registration.
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PURCHASE AND LOAN OPTION AGREEMENT
(b) The
following additional capitalized terms, as used in this Agreement, have the
meanings given to them in the following sections or other locations of this
Agreement:
|
Term
|
Section
or Other Location
|
|
Agreement
|
First
Paragraph
|
|
Company
|
First
Paragraph
|
|
Disposition
Notice
|
5.1(a)
|
|
Management
Shareholders
|
First
Paragraph
|
|
Indemnified
Party
|
1.8(c)
|
|
Indemnifying
Party
|
1.8(c)
|
|
Other
Shareholders
|
1.2(c)
|
|
Piggyback
Registration Rights
|
1.3(a)(ii)
|
|
Prohibited
Transfer
|
5.5
|
|
Purchase
Agreement
|
Recitals
|
|
Investor
|
First
Paragraph
|
|
Right
of Co-Sale
|
5.2
|
|
Right
of First Refusal
|
5.1
|
|
Target
Shares
|
5.1
|
|
Transferring
Management Shareholder
|
5.1
|
|
Underwriter
|
1.2(c)
|
1.2 Requested
Registration.
(a) Request
for Registration.
If the
Company receives from an Initiating Holder at any time not earlier than sixty
(60) days from the date of this Agreement, a written request that the Company
effect a registration having aggregate proceeds which (after deduction for
underwriter’s discounts and expenses related to the issuance) exceed $7,500,000,
the Company will:
(i) promptly
give written notice of the proposed registration to Holder; and
(ii) as
soon
as practicable, use its reasonable best efforts to effect such registration
as
may be so requested and as would 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 joining in such request as are specified in a written request delivered
to the Company within twenty (20) days after receipt of such written notice
from
the Company pursuant to clause (i) above; provided,
however,
that
the Company will not be obligated to effect more than two registrations under
this Section
1.2.
The
registration statement filed pursuant to the request of the Initiating Holder,
may, subject to the provisions of Sections 1.2(c)
and 1.3,
include
other securities of the Company which are held by officers or directors of
the
Company or which are held by persons who, by virtue of agreements with the
Company, are entitled to include their securities in any such registration.
In
addition, the Company will have the right to include any of its securities
in
any such registration.
(b) Underwriting.
The
right
of any Holder to registration pursuant to this Section
1.2
will be
conditioned upon such Holder’s participation in the related underwriting and the
inclusion of such Holder’s Registrable Securities in the underwriting to the
extent provided herein. A Holder may elect to include in such underwriting
all
or a part of the Registrable Securities held by such Holder.
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PURCHASE AND LOAN OPTION AGREEMENT
(c) Procedures
and Cutback.
If
holders of securities of the Company (other than Holder) who are entitled
by
contract with the Company to have securities included in such a registration
(such other shareholders being collectively referred to as the “Other
Shareholders”)
request such inclusion, the Initiating Holder will, on behalf of all Holders,
offer to include the securities of such Other Shareholders in the underwriting
and may condition such offer on their acceptance of the further applicable
provisions of this Agreement. All Holders proposing to distribute their
securities through such underwriting will (together with the Company and
Other
Shareholders proposing to distribute their securities through such underwriting)
enter into an underwriting agreement in customary form with the representative
of the underwriter or underwriters (the “Underwriter”)
selected for such underwriting by the Company, acting in its reasonable
discretion, and approved by the Initiating Holder. Notwithstanding any other
provision of this Section
1.2,
if the
Underwriter, in its sole discretion, determines that marketing factors require
a
limitation on the number of shares to be underwritten, the Underwriter may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting.
The
Company will so advise all such Other Shareholders requesting registration,
and
the number of shares of securities that are entitled to be included in the
registration and underwriting will be allocated in the following order of
priority: first, to the Initiating Holder and any other Holders; second,
to
Other Shareholders as nearly as practicable, to the respective amounts of
securities which they had requested to be included in such registration at
the
time of filing the registration statement, and third, to the Company with
respect to any securities which it desires to sell for its own account. If
any
Holder or Other Shareholder disapproves of the terms of any such underwriting,
it may elect to withdraw therefrom by written notice to the Company and the
Underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting will be withdrawn from such registration.
1.3 Company
Registration.
(a) If
the
Company determines at any time, and from time to time, to register any of
its
securities for its own account or for the account of any other person (other
than a registration under Section
1.2
or
1.5,
a
registration relating solely to employee benefit plans or a registration
relating solely to a transaction covered by Rule 145 promulgated under the
Securities Act or a registration on any registration form which does not
permit
secondary sales or does not include substantially the same information as
would
be required to be included in a registration statement covering the sale
of
Registrable Securities), the Company will:
(i) promptly
give to Holder written notice thereof; and
(ii) include
in such registration (and any related qualification under blue sky laws or
other
compliance), and in any underwriting involved therein, all of the Registrable
Securities specified in a written request or requests made by Holder within
twenty (20) days after receipt of the written notice from the Company described
in clause (i) above (“Piggyback
Registration Rights”),
except as set forth in Section
1.3(b)
below.
Such written request may specify all or a part of Holder’s Registrable
Securities.
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PURCHASE AND LOAN OPTION AGREEMENT
(b) Underwriting.
If the
registration of which the Company gives notice is for a registered public
offering involving an underwriting, the Company will so advise Holder as
a part
of the written notice given pursuant to Section
1.3(a)(i).
In such
event the right of Holder to registration pursuant to Section
1.3
will be
conditioned upon Holder’s participation in such underwriting and the inclusion
of Holder’s Registrable Securities in the underwriting to the extent provided
herein. The Holder (together with the Company and the Other Shareholders
distributing their securities through such underwriting) shall enter into
an
underwriting agreement in customary form with the Underwriter selected for
underwriting by the Company. Notwithstanding any other provision of this
Section
1.3,
if the
Underwriter in its sole discretion determines that marketing factors require
a
limitation on the number of shares to be underwritten, the Underwriter may
(subject to the allocation priority set forth below) limit the number of
Registrable Securities to be included in the registration and underwriting.
The
Company will so advise Holder and Other Shareholders requesting registration,
and the number of shares of securities that are entitled to be included in
the
registration and underwriting will be allocated in the following order or
priority: first, to the Company with respect to securities to be sold for
its
own account; second, to the Holder; and third to Other Shareholders proposing
to
distribute their securities through such underwriting (pro rata among them
on
the basis of the number of securities requested to be included in such
registration by such Other Shareholders); provided,
however,
that in
no event will the Registrable Securities requested to be included by the
Holder
be reduced to a number that is less than 10% of the total number of securities
to be included in such registration and underwriting by persons (including
the
Company) distributing shares through such underwriting. If Holder or Other
Shareholders disapprove of the terms of any such underwriting, it may elect
to
withdraw therefrom by written notice to the Company and the Underwriter.
Any
Registrable Securities or other securities excluded or withdrawn from such
underwriting will be withdrawn from such registration.
1.4 Rights
of Holder.
From
and after the date of this Agreement, the Company shall not grant any other
registration rights superior to, pari passu
with, or
which conflict in any way with those granted to the Investor without the
consent
of the Investor.
1.5 Registration
on Form S-3.
(a) After
the
Company has qualified as a registrant whose securities may be sold pursuant
to
Form S-3 (or any similar successor form), it will forthwith notify Holder
that
the Company so qualifies. After the Company has qualified for the use of
Form
S-3, the Holder will have the right to request one registration on Form S-3
during any nine-month period (such requests will be in writing and will state
the number of Registrable Securities to be disposed of and the intended method
of disposition of such Registrable Securities by Holder); provided,
however,
that
the Company will not be required to effect a registration pursuant to this
Section 1.5
(i)
unless
the Holder proposes to dispose of Registrable Securities having an aggregate
public offering price (before deduction of underwriting discounts and sales
commissions) of at least $1,000,000 or (ii) within six months following the
effective date of any registration statement (other than a registration
statement with respect to an employee stock plan or a registration of securities
in a Rule 145 transaction).
(b) The
Company will give notice to Holder of the receipt of a request for registration
pursuant to this Section 1.5
and will
provide a reasonable opportunity for Holder to participate in the registration.
Subject to the foregoing, the Company will use commercially reasonable efforts
to effect promptly the registration of all shares of Registrable Securities
on
Form S-3 to the extent requested by Holder for purposes of disposition.
The
Company and Other Shareholders will have the right to participate in such
registration in the manner provided in Section 1.2,
except
that in the event the Underwriter determines that market factors require
a
limitation on the number of shares to be underwritten, then shares will be
excluded from such registration and underwriting pursuant to the allocation
method (and subject to any limitations) described in Section 1.2(c).
Any
registration pursuant to this Section 1.5 will not be counted as a
registration pursuant to Section 1.2(a).
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1.6 Expenses
of Registration.
All
Registration Expenses incurred in connection with any registration hereunder
will be borne by the Company. All Selling Expenses incurred in connection
with
any registration hereunder will be borne by the holders of the securities
to be
registered and sold pro rata on the basis of the number of their shares so
registered and sold. The Company will not be required to pay any Registration
Expenses if, as a result of the withdrawal of a request for registration
the
Initiating Holder (if such registration is requested pursuant to Section
1.2(a)
above),
or the requesting Holder (if such registration is requested pursuant to
Section
1.5(a)
above),
the registration statement does not become effective; provided,
however,
that if
at the time of such withdrawal, the Initiating Holder has learned of a material
adverse change in the condition, business, or prospects of the Company from
that
known to such Holder at the time of its request and has withdrawn the request,
in writing, within ten (10) days following disclosure by the Company
of
such material adverse change, then the Holder will not be required to pay
any of
such expense and such registration will not be considered a registration
for
purposes of Section
1.2(a)
or
1.5(a).
If the
Company is not required to pay any Registration Expenses as a result of such
a
withdrawal, then the Holder and Other Shareholders requesting registration
will
bear such Registration Expenses pro rata on the basis of the number of their
shares so included in the registration request, and such registration will
not
be considered a registration for purposes of Section 1.2(a)
or
1.5(a).
1.7 Additional
Registration Procedures.
In the
case of each registration, qualification or compliance effected by the Company
pursuant to this Section 1,
the
Company will keep 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:
(a) Use
its
reasonable 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 may be reasonably requested by the Holder; provided,
however,
that
the Company will 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;
(b) Keep
such
registration effective until the earliest to occur of the following:
(i) all Registrable Securities registered pursuant to Section
1.2,
1.3
or
1.5,
as the
case may be, have been sold; (ii) the Holder of the Registrable Securities
registered thereunder agrees to terminate the registration; (iii) the
registration rights of Holder terminates under Section
1.2,
1.3
or
1.5,
as the
case may be; (iv) ninety (90) days have elapsed since the date the
registration was declared or ordered effective or (v) the Registrable Securities
registered thereunder can be sold pursuant to Rule 144.
(c) Furnish
to the Holder such numbers of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and
such
other documents as they may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by them;
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(d) Notify
Holder 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 in the light of the circumstances then existing;
(e) Furnish,
at the request of Holder, 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) a copy of 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, if any, and (ii) a copy of
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, if any;
(f) Cause
all
such Registrable Securities registered hereunder to be listed on each securities
exchange on which similar securities issued by the Company are then listed;
and
(g) Provide
a
transfer agent and registrar for all Registrable Securities registered pursuant
hereto and a CUSIP number for all such Registrable Securities, in each case
not
later than the effective date of such registration.
1.8 Indemnification.
(a) To
the
extent permitted by law, the Company will indemnify Holder, each of such
Holder’s officers, directors, members and partners 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 Agreement, against all expenses, claims, losses, damages
and
liabilities (or actions in respect thereof) to which they may become subject
under the Securities Act, the Exchange Act or other federal or state securities
laws, including, without limitation, any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained
in
any registration statement or prospectus, or any amendment or supplement
thereto, incident to any such registration, or any such document, offering
circular or other document incident to 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, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of any rule or regulation promulgated under
the
Securities Act, the Exchange Act or other federal or state securities laws
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 Holder and each officer, director, member, partner and
person
controlling such Holder for any legal and any other expenses reasonably
incurred, within thirty (30) days after a request for reimbursement has
been
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received
by the Company, in connection with investigating, defending or settling any
such
claim, loss, damage, liability or action; provided,
however,
that
the Company will not be liable to Holder under this Section 1.8(a)
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 or alleged
untrue
statement or omission, made in reliance upon and in conformity with written
information furnished to the Company by Holder or its authorized agents
specifically for purposes of inclusion in such registration statement or
prospectus; and provided further,
however,
that
the indemnity agreement contained in this Section 1.8(a)
will 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 will not be unreasonably withheld.
(b) To
the
extent permitted by law, Holder will, if Registrable Securities held by such
Holder are included in the securities as to which a registration, qualification
or compliance is being effected pursuant to this Agreement, indemnify the
Company, each of its directors and officers and each Underwriter, if any,
of the
Company’s securities covered by a registration statement or prospectus relating
to such registration, qualification or compliance, each person who controls
the
Company or such other person within the meaning of Section 15
of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) to which any of the foregoing persons may become subject
under the Securities Act, the Exchange Act or other federal or state securities
laws, including, without limitation, any of the foregoing incurred in settlement
of any litigation, commenced or threatened, arising out of or based on any
untrue statement of a material fact contained in any such registration statement
or prospectus, and any amendment or supplement thereto, incident to any such
registration, or any such document, offering circular or other document incident
to such qualification or compliance, or any omission to state therein a material
fact necessary to make the statements therein not misleading, and will reimburse
the Company, such directors, officers, legal counsel, accountants, Underwriters
or control persons for any legal or any other expenses reasonably incurred,
within thirty (30) days after a request for reimbursement has been received
by
the indemnifying Holder, in connection with investigating, defending or settling
any such claim, loss, damage, liability or action, in each case to the extent,
but only to the extent, that such untrue statement or 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 or its authorized agent specifically for purposes
of
inclusion in such registration statement, prospectus, offering circular or
other
document; provided,
however,
that
the indemnity agreement contained in this Section 1.8(b)
will 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 Holder
from
which indemnification is sought pursuant to this Section 0
in
respect of such loss, claim, damage, liability or action, which consent will
not
be unreasonably withheld; and provided further,
however,
that
Holder’s liability for indemnification hereunder will be limited to the amount
of net proceeds, if any, received by Holder from the sale of securities
described in the first sentence of this Section
1.8(b).
(c) Each
party entitled to indemnification under this Section 1.8
(the
“Indemnified
Party”)
will
give notice to the party required to provide indemnification (the “Indemnifying
Party”)
promptly after such Indemnified Party has actual knowledge of any claim,
loss,
damages or liability (or action in respect thereof) as to which indemnity
may be
sought and will permit the Indemnifying Party to assume the defense of any
such
claim, loss, damages or liability (or action in respect thereof); provided,
however,
that
counsel for the Indemnifying Party, who will conduct the defense of such
claim,
loss, damages or liability (or action in respect thereof), will be subject
to
approval by the
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Indemnified
Party (whose approval will not be unreasonably withheld), and the Indemnified
Party may participate in such defense at such party’s expense, including any
legal fees incurred; and provided further,
however,
that
the failure of any Indemnified Party to give notice as provided herein will
not
relieve the Indemnifying Party of its obligations under this Agreement, except
to the extent, but only to the extent, that the Indemnifying Party’s ability to
defend against such claim or litigation is impaired as a result of such failure
to give notice. No Indemnifying Party, in the defense of any such claim,
loss,
damages or liability (or action in respect thereof), will, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof
the
giving by the claimant or plaintiff to such Indemnified Party of a release
from
all liability in respect to such claim or litigation. Each Indemnified Party
will furnish such information regarding itself or the claim, loss, damages
or
liability (or action in respect thereof) in question as an Indemnifying Party
may reasonably request in writing and as is reasonably required in connection
with defense of the same.
(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, will 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 will be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission or alleged omission to state a material fact relates to information
supplied by the Indemnifying Party or by the Indemnified Party and the parties’
relative intent, knowledge, access to information, and opportunity to correct
or
prevent such statement or omission.
(e) Notwithstanding
the foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with an underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement will
control.
(f) The
obligations of the Company and Holder under this Section 1.7
will
survive the completion of any offering of Registrable Securities in a
registration statement under Sections 1.2,
1.3
and
1.5,
and
otherwise.
(g) Information
by Holder.
The
Holder holding securities included in any registration will furnish to the
Company such information regarding such Holder as the Company may reasonably
request in writing and as will be reasonably required in connection with
any
registration, qualification or compliance referred to in this
Agreement.
1.9 Rule 144
Reporting.
With a
view to making available the benefits of certain rules and regulations of
the
Commission which may permit the sale of the Restricted Securities to the
public
without registration, the Company agrees to:
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(a) Make
and
keep public information available, as those terms are understood and defined
in
Rule 144 under the Securities Act;
(b) Use
commercially reasonable efforts to 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 at any time after it has become subject to such reporting
requirements; and
(c) So
long
as Investor owns any Restricted Securities, furnish to the Investor forthwith
upon request a written statement by the Company as to its compliance with
the
reporting requirements of Rule 144 (at any time from and after ninety
(90)
days following the effective date of the first registration statement filed
by
the Company for an offering of its securities to the general public), and
of the
Securities Act and the Exchange Act (at any time after it has become subject
to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents so filed as Investor
may reasonably request in availing itself of any rule or regulation of the
Commission allowing a Investor to sell any such securities without
registration.
1.10 Transfer
or Assignment of Registration Rights.
The
right to cause the Company to register Registrable Securities granted to
a
Holder by the Company under Sections 1.2,
1.3
and
1.5
may be
transferred or assigned by such Holder to (i) a transferee or assignee
who
after such transfer or assignment is the record owner of at least 10% of
the
transferor’s shares of Common Stock (assuming such transferee’s or assignee’s
conversion, exercise or exchange into or for shares of Common Stock of all
securities which by their terms are directly or indirectly convertible,
exercisable or exchangeable into or for shares of Common Stock), (ii) to
any constituent partner or member of a Holder that is a private investment
company, and (iii) a subsidiary, parent, affiliate, member, retired member
or
successor trustee of Holder, provided in each instance that in transfers
or
assignments made pursuant to Section
1.10(i)
herein,
(x) the Company is given written notice by such Holder not less than
ten
(10) business days prior to the date of such transfer or assignment, stating
the
name and address of such transferee or assignee and identifying the securities
with respect to which such registration rights are being transferred or
assigned; and (y) the transferee or assignee of such rights assumes
in
writing the obligations of such Holder under this Agreement and provided
further
that, in the case of transfers or assignments pursuant to clause (ii), that
all
such partners or members have agreed with the Company in writing to act through
a single representative.
1.11 Limitations
on Registration Obligations.
The
Company will not be obligated to effect, or to take any action to effect,
any
registration, qualification or compliance pursuant to Section 1.2,
1.3
or
1.5:
(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) If
the
Company furnishes to Holder following a request for registration a certificate
signed by the President of the Company stating that, in the good faith judgment
of the Board it would be seriously detrimental to the Company and its
shareholders for such registration statement to be filed on or before the
time
filing would be required and it is therefore essential to defer the filing
of
such registration statement, the Company will have the right to defer such
filing for a period of not more than one hundred eighty (180) days after
receipt
of the request of the Initiating Holder (it being understood that the Company
will not have any obligation to take any action to register Registrable
Securities for which the Company receives notice pursuant to Sections 1.2(a)
or
1.5
during
such one hundred eighty (180) day period); provided,
however,
that
the Company may not exercise this right more than once in any 12-month
period;
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(c) Except
as
set forth in Section 1.3,
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 hundred
eighty
(180) days after the effective date of, a Company-initiated registration
(other
than a registration with respect to an employee benefit plan or a registration
relating solely to a transaction covered by Rule 145 promulgated under the
Act);
(d) Within
one hundred eighty (180) days after the Company has effected a registration
(other than a registration with respect to an employee stock plan or a
registration of securities in a Rule 145 transaction); or
(e) With
respect to Holder at and following such time as all of such Holder’s Registrable
Securities may be sold within a three-month period pursuant to
Rule 144.
Section
2
Covenants
2.1 Affirmative
Covenants.
(a) From
and
after the Second Closing Date, the Company and the Management Shareholders,
as
applicable, will take each of the following actions:
(i) Upon
the
exercise of the Warrant, the Company shall promptly issue Common Stock to
the
holder of the Warrant in accordance with the terms of the Warrant, and shall
promptly issue a new Warrant to the Holder in the same form as the form of
the
Warrant being exercised.
(ii) The
Company shall promptly notify Investor of any contemplated change in, or
additions to, the positions held by the Management Shareholders and their
successors.
(iii) On
or
before sixty (60) days before the end of each fiscal year, an Annual Budget
shall be submitted to the Board of Directors by the Management Shareholders
for
approval by the Board of Directors.
(iv) On
or
before sixty (60) days before the end of each fiscal year, a business plan
(“Business
Plan”)
for
the Company shall be submitted by the Management Shareholders to the Board
of
Directors for approval of the Board of Directors. The Business Plan shall
include a description of management’s intentions with regard to anticipated
significant business developments or objectives of the Company, and shall
include, but not be limited to, the following information: (i) business strategy
and targets; (ii) product and service strategy and targets; (iii) pricing
policy; (iv) personnel policy and hiring plans; (v) investment strategy;
(vi) financing requirements for working capital, investment and expansion;
(vii) revenue and profit targets; (viii) a marketing plan; and (ix) technical
development plan.
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(b) From
and
after the Initial Closing Date and until the Second Closing Date:
(i) at
any
time any notice, report, inquiry, answer, response or other communication
or
document relating to any aspect of the Company’s business is received by the
Company from any governmental or regulatory authority or agency which relates
to
any adverse determination and/or investigational proceeding, the Company
shall
promptly send a copy thereof to Investor. At the time the Company receives
notice of, or becomes aware that, any material suit, action, proceeding or
investigation has been filed, instituted or threatened against the Company,
the
Company promptly shall notify Investor concerning all material details thereof
and will keep Investor reasonably informed with respect to the
matter.
(ii) The
Company shall disclose to Investor all written offers or proposals of whatever
kind which it receives from any person concerning the possible sale, merger
or
other acquisition of the Company, or the businesses, or any portion or assets
of
the Company, or any joint venture. Promptly after any officer or director
of the
Company becomes aware of any such written offer or proposal made to any of
its
shareholders, the Company shall advise Investor of the offer or
proposal.
(iii) The
Company shall, within ten (10) business days of its discovery of any default
under this Agreement or the Purchase Agreement, including any default under
any
other agreement executed in connection with this Agreement or the Purchase
Agreement, or under any other loan or lease pursuant to which the Company
is
obligated to any third party, furnish Investor with a copy of any notification
of default (in the case such notification is received with respect to
obligations owing to third parties) and a written explanation of the
circumstances involved.
(iv) The
Company and the Investor will jointly determine the best strategy for protecting
the Company’s intellectual property and complete the filing of the necessary
applications and documentation in the various jurisdictions approved by both
the
Company and the Investor. In
2.2 Attendance
at Board Meeting.
For so
long as Investor owns any of the Securities, Investor will be entitled to
notice
of, have the right to attend, and receive copies of all materials distributed
to
members of the Company’s Board of Directors in connection with any and meetings
of the Company’s Board of Directors or any committee thereof.
2.3 Visitation
Rights.
Investor and its designated representatives, at their expense, shall have
the
right to visit the Company’s facilities and premises and to speak with, question
and interview any employee, director, executive, associate or affiliate of
the
Company, at such reasonable times as may be requested by such Investor and
their
designated representatives, following oral or written notification to the
Company.
2.4 Negative
Covenants.
From and
after the Second Closing Date, the Company will not take, and the Management
Shareholders will cause the Company not to take, any of the following actions
without the prior written consent of the Investor:
(a) Purchase
or otherwise acquire, redeem or retire any capital stock of the
Company;
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(b) Except
as
approved in the Budget, make or have outstanding any loans or advances to,
or
investments in (through the acquisition of securities or stock or otherwise),
any other person, firm, corporation or other entity, except advances in the
ordinary course of business;
(c) Except
as
approved in the Budget, purchase or otherwise acquire the stock, shares or
other
securities, or the assets or business of any person or other entity; sell
all or
substantially all of the Company’s assets; liquidate, dissolve, merge,
consolidate, reorganize, recapitalize, or otherwise alter its legal status
or
commence any proceedings therefor, or sell, lease, transfer or dispose of,
in
any way, any personal or real property of the Company having a value in excess
of $5,000, except for assets sold or leased in the ordinary and normal course
of
the Company’s business; discount or sell accounts receivable, or assign or
transfer any substantial part of the intangible business rights necessary
for
the continuance of the business of the Company as now conducted or proposed
to
be conducted; enter into an agreement to sell or exchange or otherwise
facilitate a sale or exchange of the Company’s stock to a third party; or
organize or acquire any entity that is a subsidiary unless such subsidiary
is
wholly owned by the Company;
(d) Increase
or decrease the number of its authorized shares, or vary or alter the terms,
par
value or rights of shares of any class or type of stock; except with respect
to
options, conversions or warrant exercises described in Schedule
3.4
to the
Purchase Agreement, or issue or agree to issue any stock or other securities
of
the Company, or issue any options, warrants or other rights to acquire such
stock or other equity securities of the Company or securities convertible
into
stock or other equity securities of the Company; or create any new class
of
stock of the Company; or adopt, implement or alter any stock option plan
for
directors, employees or consultants;
(e) Enter
into any agreement that would restrict the Company’s right to perform under the
Purchase Agreement or any of the Transaction Documents;
(f) Amend
or
change the Company’s Certificate of Incorporation or Bylaws, including by way of
merger, or violate or breach any of the provisions of the Certificate of
Incorporation or Bylaws of the Company;
(g) Significantly
change the nature of the Company’s business as conducted before the Initial
Closing, or engage in any type of business not reasonably related to the
business of the Company as presently conducted or contemplated to be
conducted;
(h) Enter
into any transaction with a related party;
(i) Adopt
a
Budget not approved by the Investor Director(s) (as hereinafter
defined);
(j) Make
any
capital expenditure not in Company’s Budget or make any single item of capital
expenditure exceeding $5,000 on any one occasion and/or capital expenditure
exceeding $10,000 in any one month;
(k) Except
as
approved in the Budget, do any of the following:
(i) create,
assume, issue or incur indebtedness, excluding ordinary trade payables, and
debt
greater than $25,000;
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(ii) create
any financial obligations in excess of $25,000 in the aggregate in any
consecutive 12 month period which are not reported as liabilities or obligations
to pay to their full extent on the balance sheet of the financial statements
of
the Company, whether such obligations be leases, lease-purchases, non-recourse
financing, or any other means or methods commonly referred to as “off balance
sheet financing”;
(iii) extend,
endorse, or guarantee, or become a surety, accommodation party, or are
responsible for, any indebtedness or other obligation of any other person
in
excess of $25,000 in any single transaction, except for guarantees and
endorsements made in connection with the deposit of items for
collection;
(iv) incur,
create, enter into, or assume a commitment to enter into or make any payment
under any lease, contract, arrangement or other commitment (oral or written)
if
immediately therefor, the aggregate of all such payments to be made in any
consecutive 12 month period would exceed $100,000, unless the lease, contract,
arrangement or other commitment is terminable at will by the Company upon
not
more than thirty (30) days’ advance notice; or
(v) except
for an obligation permitted pursuant to the Budget, incur, create, enter
into,
or assume a commitment which restricts, conditions, prohibits or otherwise
adversely affects the Company’s ability to declare or pay dividends, or make
other distributions in cash, property or stock, with respect to its capital
stock.;
2.5 Termination
of Negative Covenants.
The
Company’s obligations under Section 2.4
will
terminate upon the termination of Restrictions under Section 3.3
hereof.
Section
3
3.1 Board
Representation.
(a) At
the
Initial Closing, the two current members of the Company’s Board of Directors,
▇▇. ▇▇▇▇▇▇▇ ▇. ▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, agree to appoint and elect the nominee
of the Investor (“Investor
Director”)
to
fill the current vacancy on the Company’s Board of Directors.
(b) After
the
Second Closing, the Board of Directors shall amend the Company’s Bylaws to
increase the size of the Company’s Board of Directors to five (5) directors. The
Investor shall have the right to nominate and the sitting directors agree
to
elect 2 more members of the Company’s Board of Directors (also the “Investor
Directors”).
In
the case of a vacancy in an Investor Directorship, the Investor may elect
a
successor to hold office for the unexpired term of the Investor Director
whose
place shall be vacant. Investor Directors may be removed, with or without
cause,
only by the Investor.
(c) If
any
Default or Event of Default, as defined in the Purchase Agreement, occurs
after
the Second Closing, and is continuing, Investor and the Management Shareholders
shall cause the directors who are not Investor Directors to be removed from
the
Company’s Board of Directors, and the Investor and the Management Shareholders
agree to elect the replacement directors (“Replacement
Directors”)
nominated by Investor. When the Default or Event of Default is cured to the
Investor’s satisfaction, Investor and the Management Shareholders shall cause
the Replacement Directors to be removed and be replaced by directors nominated
by the shareholders of the Company.
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(d) Any
vacancy in the office of a non-Investor Director shall be filled by the
remaining non-Investor Director then in office, or, if none, upon nomination
by
the CEO of the Company, and such successor shall hold office for the unexpired
term of the non-Investor Director whose seat became vacant, or until his
or her
earlier death, resignation or removal.
3.2 Extraordinary
Transactions. The following matters involving the determination of “fair market
value” require the approval of the majority of the Board of Directors, subject
to validation from independent auditors as defined below while the remaining
matters listed will require the two-thirds approval of the Board of Directors
(should the two-thirds calculation result in a fractional number of directors
the required number of directors shall be the next higher integer number
of
directors):
(a) Sell
for
less than fair market value all or substantially all of the assets of the
Company, or any substantial portion of the intangible business rights necessary
for the continuance of the business of the Company as now conducted or proposed
to be conducted;
(b) Liquidate,
dissolve and/or wind up the Company on terms less than fair market
value;
(c) Merge
the
Company (and/or a subsidiary of the Company) with or into any other entity
that
is an Affiliate of the Investor on terms less than fair market
value;
(d) Authorize
or effect any consolidation, reorganization, recapitalization, dividend,
stock
dividend, stock split, reverse stock split, tender offer, repurchase or going
private transaction or other change in the corporate structure or capitalization
of the Company;
(e) Increase
or decrease the number of directors of the Company;
(f) Except
as
provided in Section
3.1(c),
remove
or replace either of the two existing non-Investor Directors and Managing
Shareholders, ▇▇▇▇▇▇▇ ▇. ▇▇▇ and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇, with or without cause,
from
the Board of Directors of the Company, and the Investor agrees to vote all
of
its voting stock in the Company for the election of each such non-Investor
Director at any meeting of the stockholders of the Company called to elect
Directors
3.3 Voting.
With
respect to any proposal concerning the election of a director, the Investor
and
the Management Shareholders agree to vote all shares of the Company’s capital
stock at the time beneficially owned by them or over which they have voting
control at any regular or special meeting of stockholders of the Company,
or, in
lieu of any such meeting, to give their written consent, (i) to elect only
a
nominee, or nominees, for the Board of Directors who is, or are, nominated
or to
be elected in accordance with this Section 3 and (ii) to effect or enforce
any
rights with respect to removal of a director or directors set forth in this
Section 3. The voting agreements contained herein are coupled with an interest
and may not be revoked during the term of this Agreement except as otherwise
specifically set forth to the contrary herein. The provisions of this Agreement
shall be binding upon the successors in interest of the Investor and the
Management Shareholders to any of the shares at any time beneficially owned
by
them or over which they have at any time had voting control. The Company
shall
not
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permit
the transfer of any shares subject to this Agreement on its books or issue
a new
certificate representing those shares unless and until the person to whom
those
shares are to be transferred has executed a written agreement, satisfactory
in
form and substance to the Company, pursuant to which the transferee becomes
a
party to this Agreement and agrees to be bound by all provisions of this
Section
3 as if it were a Investor or Founder hereunder. The Management Shareholders
agree to execute a Voting Agreement in the form of Exhibit
D
to
effect the provisions of this Section 3. Each certificate representing the
Investor’s or any Founder’s Company capital stock shall be endorsed by the
Company with a legend as follows:
“THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING AGREEMENT
AND AN
INVESTOR RIGHTS AND STOCKHOLDERS AGREEMENT BY AND AMONG THE REGISTERED OWNER
OF
THIS CERTIFICATE AND THE COMPANY, COPIES OF WHICH ARE AVAILABLE FOR INSPECTION
AT THE OFFICES OF THE COMPANY, AND BY ACCEPTING ANY INTEREST IN THE SHARES
THE
PARTY ACCEPTING THE INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME
BOUND
BY ALL THE PROVISIONS OF THE VOTING AGREEMENT AND THE INVESTOR RIGHTS AND
STOCKHOLDERS AGREEMENT.”
Section
4
Right
of Participation as to Sales by the Company
4.1 The
Right.
Prior
to any sale or issuance by the Company of any Equity Securities (as defined
in
Section 4.6),
it
will give Investor the right to purchase its pro rata share (or any part
thereof) of all such Equity Securities on the same terms as the Company is
willing to sell such Equity Securities to potential investors. Investor’s pro
rata share of the Equity Securities will be a fraction calculated by dividing
(i) the number of shares of Common Stock issued or issuable upon conversion
of all outstanding Equity Securities held by such Investor as of the date
of
issuance of the Equity Securities (determined immediately prior thereto)
by
(ii) the total number of shares of Common Stock issued or issuable
upon
conversion or exercise of all outstanding Equity Securities as of such date.
For
purposes of this Section 4.1,
the
stock of the Company will be arithmetically adjusted for subdivisions,
combinations, stock dividends, recapitalizations and the like.
4.2 Notice.
Prior
to any sale or issuance by the Company of any Equity Securities, the Company
will notify Investor, in writing, of the Company’s intention to sell and issue
such Equity Securities, setting forth the general terms under which it proposes
to make such sale. Investor will have twenty (20) days after delivery of
such
notice to notify the Company in writing that Investor elects to purchase
all or
a portion of the Equity Securities so offered to Investor. If Investor elects
to
exercise its right of participation granted under this Section 4,
Company
will use its commercially reasonable efforts to effectuate the purchase of
and
sale of Equity Securities within twenty (20) days of the date of such
notice.
4.3 Failure
to Notify.
If,
within twenty (20) days after the Company gives its aforesaid notice to
Investor, Investor does not notify the Company that it desires to purchase
all
or a portion of the Equity Securities offered to such Investor in such notice
upon the terms and conditions set forth in such notice, then the Company
may,
during a period of one hundred twenty (120) days following the end of such
twenty (20) day period, sell and issue such Equity Securities at a price
and
upon terms and conditions no more favorable in any material respect to such
investors as those set forth in the notice to the Investor. In the event
that
the Company has not sold such Equity Securities to such investors within
such
one hundred twenty (120) day period, the Company will not thereafter issue
or
sell such Equity Securities without first offering such securities to the
Investor in the manner provided above.
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4.4 Payment.
If
Investor gives the Company notice that it desires to purchase up to all of
its
portion of the Equity Securities offered by the Company, then payment for
such
Equity Securities will be by check or wire transfer, against delivery of
the
securities at the executive offices of the Company at the time of the scheduled
closing therefor.
4.5 Limitations.
(a) The
right
of participation contained in this Section 4 will not apply to the
issuance
by the Company on or after the date hereof of the following Equity
Securities:
(i) shares
of
Common Stock, or options or warrants therefor, issued or granted to officers,
directors, employees and independent contractors of the Company pursuant
to the
Company’s Stock Option Plan, approved by the Board and in effect on the date
hereof;
(ii) shares
of
Common Stock issuable upon conversion of any Series A Preferred Stock of
the
Company;
(iii) shares
of
Common Stock or Series A Preferred Stock issued in connection with any stock
split, stock dividend, combination, recapitalization or other similar pro
rata
transaction by the Company affecting its current shareholders and that does
not
involve the acquisition by any third party of any securities of the
Company;
(iv) securities
issued or issuable pursuant to the exercise, conversion or exchange of stock
options, convertible notes, warrants and other Equity Securities outstanding
on
the date hereof;
(v) Equity
Securities issued by the Company in connection with an acquisition of the
stock
or other securities of another entity or in connection with the acquisition
of
the assets of another entity by merger or otherwise approved by the Board
of
Directors;
(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; or
(vii) Securities
issued in connection with corporate partnership transactions on terms approved
by the Board of Directors.
4.6 Equity
Securities.
For
purposes of this Agreement, the term “Equity Securities” means any securities
having voting rights in the election of the Board or any securities evidencing
an ownership interest in the Company, or any securities convertible into
or
exercisable or exchangeable for any shares of the foregoing, or any agreement
to
issue any of the foregoing.
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4.7 Transfers.
Subject
to Section 5
and the
other restrictions on the transfer of Equity Securities set forth in this
Agreement, the rights granted pursuant to this Section 4
may be
assigned by Investor or its transferee upon sale or transfer (other than
a sale
to the public) of 10% or more of the transferor’s shares or shares of Common
Stock issuable upon conversion thereof (as adjusted for subdivisions,
combinations, stock dividends, recapitalizations and the like.).
4.8 Termination.
Except
as otherwise provided herein, the right of participation contained in this
Section 4
will
terminate upon shareholder approval of any merger, reorganization or
consolidation of the Company with any other corporation in which more than
50%
of the voting control of the Company is transferred to a third party or third
parties; provided,
however,
that,
if such merger, reorganization or consolidation is not consummated, such
right
of participation will be deemed restored and reinstated to full force and
effect.
Section
5
Sales
by the Management Shareholders
5.1 Right
of First Refusal.
In the
event a Management Shareholder holding shares of Common Stock desires to
accept
a bona fide third-party offer for the sale of any or all of the Common Stock
(the shares subject to such offer being the “Target
Shares”)
owned
by such Management Shareholder, such Management Shareholder (a “Transferring
Management Shareholder”)
will
give Investor the right to purchase its pro rata share (or any part thereof)
of
all such Target Shares on the same terms offered to the Transferring Management
Shareholder (the “Right
of First Refusal”).
Investor’s pro rata share of such Target Shares will be a fraction calculated by
dividing (i) the number of shares of Common Stock issued or issuable
upon
conversion of all outstanding Equity Securities held by Investor as of such
date
by (ii) the total number of shares of Common Stock issued and outstanding
and shares of Common Stock issuable upon conversion or exercise of all
outstanding Equity Securities as of such date. “Equity Securities” means any
securities having voting rights in the election of the Board or any securities
evidencing an ownership interest in the Company, or any securities convertible
into or exercisable or exchangeable for any shares of the foregoing, or any
agreement to issue any of the foregoing.
(a) Notice.
Prior
to any sale by a Transferring Management Shareholder of any Target Shares,
the
Transferring Management Shareholder will give notice (a “Disposition
Notice”)
to
Investor of the Transferring Management Shareholder’s intention to sell such
Target Shares, setting forth the general terms, including, without limitation,
the number of Target Shares to be sold or transferred and the consideration
to
be paid, under which it proposes to make such transfer, including the identity
of the offeror (the “Offeror”).
(b) Exercise
of Right by the Investors.
Investor will, for a period of twenty (20) days from the date of the Disposition
Notice, have the right to purchase Investor’s pro rata share of the Target
Shares, upon the terms and conditions specified in the Disposition Notice.
To
the extent that Investor exercises such right of participation in accordance
with the terms and conditions set forth herein, the number of Target Shares
that
the Management Shareholder may sell in the transaction shall be correspondingly
reduced.
(c) Payment.
If
Investor gives the Transferring Management Shareholder valid and timely notice
that it desires to purchase up to all of its portion of the Target Shares
offered by the Transferring Management Shareholder, then payment for such
Target
Shares will be by check delivered to the Transferring Management Shareholder.
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PURCHASE AND LOAN OPTION AGREEMENT
5.2 Right
of Co-Sale.
In the
event that a Management Shareholder holding shares of Common Stock desires
to
accept such a bona fide third-party offer for the sale of any or all of the
Target Shares owned by such Management Shareholder, then Investor, in lieu
of
exercising its Right of First Refusal set forth in Section
4,
may
elect to exercise its right of co-sale as set forth below (the “Right
of Co-Sale”)
for a
period of twenty (20) days from the date of the Disposition Notice. To the
extent Investor exercises such Right of Co-Sale in accordance with the terms
and
conditions set forth below, the number of shares of Common Stock the
Transferring Management Shareholder may sell will be correspondingly reduced.
The Right of Co-Sale of Investor will be subject to the following terms and
conditions:
(a) Investor
may sell all or any part of that number of shares of Common Stock of the
Company
equal to the product obtained by multiplying (i) the aggregate number
of
shares of Common Stock covered by the Disposition Notice by (ii) a
fraction, the numerator of which is the sum of all shares of Common Stock
held
by Investor plus that number of shares of Common Stock that are issuable
upon
conversion or exercise of all outstanding Equity Securities then held by
Investor, and the denominator of which is the total number of shares of Common
Stock issued and outstanding plus the total number of shares of Common Stock
issuable upon conversion or exercise of all outstanding Equity Securities
as of
such date.
(b) Investor
may effect its individual participation in the sale by delivering to the
Transferring Management Shareholder for transfer to the Offeror one or more
certificates, properly endorsed for transfer, which represent either one
or any
combination of the following:
(i) the
number of shares of Common Stock that it elects to sell pursuant to this
Section 5.2;
or
(ii) that
number of Equity Securities that it has elected to sell pursuant to this
Section
5.2;
provided,
however,
that if
the Offeror objects to the delivery of Equity Securities in lieu of Common
Stock, the Investor shall convert or exercise such Equity Securities and
deliver
Common Stock as provided in clause (i) above.
(c) Payment
of Proceeds.
The
certificates that Investor delivers to such Transferring Management Shareholder
will be transferred by the Transferring Management Shareholder to the Offeror
in
consummation of the sale of the Target Shares pursuant to the terms and
conditions specified in the Disposition Notice to the Investor, and such
Transferring Management Shareholder will promptly thereafter remit to each
Investor that portion of the sale proceeds to which such Investor is entitled
by
reason of its participation in such sale.
5.3 Failure
to Notify.
If,
within twenty (20) days after the Transferring Management Shareholder gives
the
Disposition Notice to Investor, Investor does not notify the Transferring
Management Shareholder that it desires to exercise its Right of First Refusal
or
Right of Co-Sale, then the Transferring Management Shareholder may, during
a
period of one hundred twenty (120) days following the end of such
twenty
(20) day period, sell the Target Shares at a price and upon terms and conditions
no more favorable in any material respect to such Offeror as set forth in
the
notice to the Investor. In the event that the Transferring Management
Shareholder has not sold such Target Shares
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EXHIBIT
D
STOCK
PURCHASE AND LOAN OPTION AGREEMENT
to
the
Offeror within such one hundred twenty (120) day period, the Transferring
Management Shareholder will not thereafter sell such Target Shares without
first
offering to sell such securities to the Investor pursuant to this Section
5.
An
Offeror that is not an affiliate of the Transferring Management Shareholder
will
acquire the shares free and clear of subsequent rights of first refusal and
co-sale under this Section
5.
An
Offeror that is an affiliate of the Transferring Management Shareholder will
acquire the shares subject to the rights of first refusal and co-sale under
this
Section
5.
In the
event the Transferring Management Shareholder does not notify the Investor
or
consummate the sale or disposition of the shares within the one hundred twenty
(120) day period, the Company’s and the Investor’s first refusal rights and
participation rights will continue to be applicable to any subsequent
disposition of the shares by Transferring Management Shareholder until such
right lapses in accordance with Section
5.6
herein.
5.4 Permitted
Transactions.
Notwithstanding the foregoing, the Rights of First Refusal and Co-Sale will
not
apply to:
(a) transactions
by a Management Shareholder involving the sale or transfer of in aggregate
fewer
than ten percent (10%) of such Management Shareholders shares of Common Stock
in
a calendar year; or
(b) any
transfer to the ancestors, descendants, siblings or spouse of a Transferring
Management Shareholder or to trusts for the benefit of such persons or to
estate-planning vehicles for the Transferring Management Shareholder;
provided,
however,
that
the transferee will furnish the Investor and the Company with a written
agreement to be bound by and comply with all provisions of this Section
5.
Such
transferee will be treated as a “Transferring Management Shareholder” for the
purposes of this Section
5.
5.5 Prohibited
Transfers.
In
the
event a Transferring Management Shareholder should sell any Equity Securities
in
contravention of the Right of Co-Sale (a “Prohibited
Transfer”),
the
Investor, in addition to such other remedies as may be available at law,
in
equity or hereunder, will have the put option provided below, and such
Transferring Management Shareholder will be bound by the applicable provisions
of such option.
(a) In
the
event of a Prohibited Transfer, Investor will have the right to sell to such
Transferring Management Shareholder the type and number of shares of Equity
Securities of the Company equal to the number of shares Investor would have
been
entitled to transfer to the third-party transferee(s) under Section
5.2
had the
Prohibited Transfer been effected pursuant to and in compliance with the
terms
hereof. Such sale will be made on the following terms and
conditions:
(i) The
price
per share at which the shares are to be sold to such Transferring Management
Shareholder will be equal to the price per share paid by the third-party
transferee(s) to such Transferring Management Shareholder in the Prohibited
Transfer. Such Transferring Management Shareholder will also reimburse Investor
for any and all fees and expense, including legal fees and expenses, incurred
pursuant to the exercise or the attempted exercise of the Investor’s rights
under Section
5.
(ii) Within
ninety (90) days after the later of the dates on which the Investor
(A) received notice of the Prohibited Transfer or (B) otherwise became
aware of the Prohibited Transfer, Investor will, if exercising the option
created hereby, deliver to such Management Shareholder the certificate or
certificates representing shares to be sold, each certificate to be properly
endorsed for transfer.
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PURCHASE AND LOAN OPTION AGREEMENT
(iii) Such
Transferring Management Shareholder will, upon receipt of the certificate
or
certificates for the shares to be sold by Investor, pursuant to this
Section
5.5,
pay the
aggregate purchase price therefor and the amount of reimbursable fees and
expenses, as specified in Section
5.5(a)(i),
in cash
or by other means acceptable to the Investor.
(iv) Notwithstanding
the foregoing, any attempt by a Transferring Management Shareholder to transfer
Equity Securities in violation of Section
5
will be
void and the Company agrees it will not effect such a transfer nor will it
treat
any alleged transferee(s) as the holder of such shares without the written
consent of a majority in interest of Investors.
5.6 Termination.
The
Rights of First Refusal and Co-Sale contained in this Section
5
will
terminate upon shareholder approval of any merger, reorganization or
consolidation of the Company with any other corporation in which more than
50%
of the voting control of the Company is transferred to a third party or third
parties; provided,
however,
that,
if such merger, reorganization or consolidation is not consummated, such
Rights
of First Refusal and Co-Sale will be deemed restored and reinstated to full
force and effect.
5.7 Legends.
(a) Each
certificate representing Common Stock owned by a Management Shareholder will
be
endorsed with the following legend:
THE
SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO CERTAIN RIGHTS OF FIRST
REFUSAL AND CO-SALE PURSUANT TO AN INVESTOR RIGHTS AND STOCKHOLDER AGREEMENT
DATED _________________, 2005, BETWEEN THE REGISTERED HOLDER, OR SUCH HOLDER’S
PREDECESSOR IN INTEREST, THE ISSUER AND CERTAIN HOLDERS OF COMMON STOCK AND/OR
PREFERRED STOCK OF THE ISSUER, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL
OFFICE OF THE ISSUER.
(b) This
legend will be removed upon termination of these Rights of First Refusal
and
Co-Sale in accordance with the provisions of Section
5.6.
Section
6
Restrictions
on Transferability; Additional Covenant of the Company
6.1 Restrictions.
The
Restricted Securities will not be transferred except upon the conditions
specified in this Agreement (including, without limitation, the conditions
specified in any legend stamped or otherwise imprinted on any certificate
representing such Restricted Securities). Each Holder of Restricted Securities
will cause any proposed transferee of Restricted Securities held by that
Holder
to agree to take and hold those securities subject to the provisions and
upon
the conditions specified in this Agreement.
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PURCHASE AND LOAN OPTION AGREEMENT
6.2 Restrictive
Legend.
Each
certificate representing Shares will (unless otherwise permitted by this
Agreement and applicable law or unless the securities evidenced by such
certificate will have been registered under the Securities Act) be stamped
or
otherwise imprinted with a legend substantially in the following form (in
addition to any legend required under applicable state securities
laws):
THE
SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN ACQUIRED FOR INVESTMENT
AND
HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, (THE
“SECURITIES ACT”) OR ANY STATE SECURITIES LAWS. SUCH SHARES MAY NOT BE SOLD OR
OFFERED FOR SALE IN THE ABSENCE OF SUCH REGISTRATION OR AN OPINION OF COUNSEL
SATISFACTORY TO THE ISSUER AND ITS COUNSEL THAT SUCH REGISTRATION IS NOT
REQUIRED UNDER THE SECURITIES ACT.
Upon
request of a Holder of such a certificate, the Company will remove the foregoing
legend from the certificate or issue to such Holder a new certificate therefor
free of any transfer legend, if, with such request, the Company will have
received either the opinion referred to in Section
6.3(i)
or the
“no-action” letter referred to in Section
6.3(ii)
to the
effect that any transfer by such Holder of the securities evidenced by such
certificate will not violate the Securities Act and applicable state securities
laws, unless any such transfer legend may be removed pursuant to
Rule 144(k), in which case no such opinion or “no-action” letter will be
required.
6.3 Notice
of Proposed Transfers.
The
Holder of each certificate representing Restricted Securities by acceptance
thereof agrees to comply in all respects with the provisions of this
Section
6.3.
Prior
to any proposed transfer of any Restricted Securities (other than under
circumstances described in Sections 1.2,
1.3
and
1.5),
the
Holder thereof will give written notice to the Company of such Holder’s
intention to effect such transfer. Each such notice will describe the manner
and
circumstances of the proposed transfer in sufficient detail, and will be
accompanied (except in transactions in compliance with Rule 144(k)
promulgated under the Securities Act or for a transfer to a holder’s spouse,
ancestors, descendants or a trust for any of their benefit, or in transactions
involving the distribution without consideration of Restricted Securities
by a
Holder to any of its partners or retired partners or to the estate of any
of its
partners or retired partners) by either: (i) a written opinion of
legal
counsel to the Holder who will be reasonably satisfactory to the Company,
addressed to the Company and reasonably satisfactory in form and substance
to
the Company’s counsel, to the effect that the proposed transfer of the
Restricted Securities may be effected without registration under the Securities
Act or (ii) a “no-action” letter from the Commission to the effect that the
distribution of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the Holder of such Restricted Securities will be entitled
to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by such Holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided will bear the restrictive
legend set forth in Section
6.2.
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D
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PURCHASE AND LOAN OPTION
AGREEMENT
Section
7
Miscellaneous
7.1 Governing
Law.
This
Agreement will be governed by and construed in accordance with the laws of
the
State of California as such laws are applied to agreements entered into and
to
be performed entirely within California by California residents. The parties
hereto agree to submit to the jurisdiction of the federal and state courts
of
the State of California with respect to the breach or interpretation of this
Agreement or the enforcement of any and all rights, duties, liabilities,
obligations, powers, and other relations between the parties arising under
this
Agreement.
7.2 Aggregation
of Stock.
All of
the Shares held or acquired by affiliated entities or persons will be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.
7.3 Successors
and Assigns.
Except
as otherwise expressly provided herein, the provisions hereof will inure
to the
benefit of, and be binding upon, the successors, assigns, heirs, executors
and
administrators of the parties hereto.
7.4 Notices,
Etc.
All
notices and other communications required or permitted hereunder will be
in
writing and will be mailed by first-class mail, postage prepaid, or delivered
either by hand or by nationally recognized overnight delivery service addressed
(a) if to Investor, as indicated on the signature pages hereto, or
at such
other address as Investor will have furnished to the Company in writing,
(b) if to a Management Shareholder, as indicated on the signature
pages
hereto, or at such other address as such Management Shareholder shall have
furnished to the Company in writing, or (c) if to the Company, at
its
address set forth at the end of this agreement or at such other address as
the
Company will have furnished to the Investor in writing. Each such notice
or
other communication will for all purposes of this Agreement be treated as
effective or having been given when delivered if delivered by hand or by
overnight delivery service, or, if sent by mail, at the earlier of its receipt
or seventy-two hours after the same has been deposited in a regularly maintained
receptacle for the deposit of the United States mail, first-class postage
prepaid, addressed and mailed as aforesaid; provided, however, that United
States mail shall not be used to effectuate the delivery of any such notice
to
addresses outside the United States.
7.5 Entire
Agreement; Amendment and Waiver.
This
Agreement (including all attached exhibits) and the other documents delivered
pursuant hereto constitute the full and entire understanding and agreement
between the parties with regard to the subjects hereof and thereof. This
Agreement and any term hereof may be amended, waived, discharged or terminated
by a written instrument signed by the Company and Investor. Any amendment
so
effected will be binding upon the Company and all other persons having any
rights hereunder. No delay or omission to exercise any right, power or remedy
accruing to a party upon any breach or default of another party under this
Agreement will impair any such right, power or remedy, nor will it be construed
to be a waiver of any such breach or default, or any acquiescence therein,
or of
any similar breach or default thereafter occurring; nor will any waiver of
any
single breach or default be deemed a waiver of any other breach or default
theretofore or thereafter occurring.
7.6 Gender.
The use
of the neuter gender herein will be deemed to include the masculine and the
feminine gender, if the context so requires.
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7.7 Validity;
Enforceability.
In case
any provision of this Agreement is declared invalid or unenforceable, the
validity, legality and enforceability of the remaining provisions will not
in
any way be affected or impaired thereby.
7.8 Counterparts.
This
Agreement may be executed in any number of counterparts, each of which will
be
an original, but all of which together will constitute one
instrument.
IN
WITNESS WHEREOF, the parties have executed this Investor Rights and Stockholder
Agreement as of the date first above written.
|
MR3
SYSTEMS, INC., a Delaware corporation
/s/
▇▇▇▇▇▇▇ ▇. ▇▇▇
(Signature)
▇▇▇▇▇▇▇
▇. ▇▇▇
(Printed
Name)
Chief
Executive Officer
(Title,
if signing on behalf of entity)
|
MRD
HOLDINGS INC., A Delaware corporation
/s/
▇▇▇▇▇▇▇ ▇. ▇. ▇▇▇▇
(Signature)
▇▇▇▇▇▇▇
▇. ▇. ▇▇▇▇
(Printed
Name)
Managing
Director
(Title,
if signing on behalf of entity)
|
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EXHIBIT
A-1
SCHEDULE
OF MANAGEMENT SHAREHOLDERS
| Name of Management Shareholder | Number of Shares |
EXHIBIT
D
STOCK
PURCHASE AND LOAN OPTION
AGREEMENT
MR3
Systems, Inc.
EXHIBIT
D
STOCK
PURCHASE AND LOAN OPTION
AGREEMENT
|
Registration
Rights
|
1 |
|
Section
2
|
Covenants
|
11 |
|
Section
3
|
Board
Representation and Voting
|
14 |
|
Section
4
|
Right
of Participation as to Sales by the Company
|
16 |
|
Section
5
|
Sales
by the Management Shareholders
|
18 |
|
Section
6
|
Restrictions
on Transferability; Additional Covenant of the
Company
|
21 |
|
Section
7
|
Miscellaneous
|
23 |