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EXHIBIT 10.13
PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
between
PHYSICIAN PARTNERS, INC.
and
FIRST UNION CAPITAL PARTNERS, INC.
Dated as of July 10, 1997
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TABLE OF CONTENTS
Page
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SCHEDULES
1.1 - Stock Option Plans
3.6 - Financial Statements
5.2 - Conflicts
5.5 - Capitalization
5.7 - Non-GAAP Financial Statements
5.8 - Litigation
5.10(a) - Real Property
5.10(b) - Leases
5.11 - Material Contracts
5.13 - Labor Matters
5.14 - Employee Benefit Plans
5.15 - Applicable Law
5.16 - Taxes
5.17 - Intellectual Property
5.18 - Insurance
5.24 - Interested Transactions
EXHIBITS
A - Certificate of Incorporation
B - Certificate of Designation
C - Bylaws
D - Form of Warrant
E - Form of Registration Agreement
F - Amendments to Management Services Agreements
G - Form of Opinion of ▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇
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PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT
THIS PREFERRED STOCK AND WARRANT PURCHASE AGREEMENT (the "Agreement") is
dated as of July 10, 1997 between PHYSICIAN PARTNERS, INC., a Delaware
corporation (the "Company"), and FIRST UNION CAPITAL PARTNERS, INC., a Virginia
corporation (the "Purchaser").
Statement of Purpose
Pursuant to the Reorganization and Merger Agreement (as defined herein),
each of The Corvallis Clinic, P.C., an Oregon professional corporation ("Old
Corvallis"), HealthFirst Medical Group, P.C., an Oregon professional corporation
("Old HealthFirst"), and Medford Clinic, P.C., an Oregon professional
corporation ("Old Medford," together with Old Corvallis and Old HealthFirst, the
"Old PCs"), engaged in the following reorganization and merger transactions: (i)
each respective Old PC formed, as a wholly-owned subsidiary thereof, a
respective Oregon professional corporation (each such respective newly
incorporated professional corporation referred to as "New Corvallis," "New
HealthFirst" and "New Medford," and collectively with any other Person that
enters into a Management Services Agreement (herein defined) with the Company,
referred to herein as the "New PCs"); (ii) each Old PC transferred certain
assets relating to its provider professional services business to its respective
New PC and distributed to its respective shareholders all of the issued and
outstanding shares of its respective New PC; (iii) each Old PC converted from an
Oregon professional corporation to an Oregon business corporation; (iv) each Old
PC entered into a Management Services Agreement (as defined herein) with its
respective New PC; and (v) each of the Old PCs was merged with and into the
Company.
In order to obtain financing to capitalize the Company, refinance
certain of the Company's existing indebtedness, for the payment of fees and
expenses in connection with the transactions contemplated in the Transaction
Documents, to provide for ongoing working capital for capital spending and
acquisition needs and for other purposes in compliance with the regulations of
the United States Small Business Administration, the Company is entering into
this Agreement providing for the issuance by the Company of preferred stock and
warrants to purchase common stock for an aggregate purchase price of
$15,000,000.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
ARTICLE 1
DEFINITIONS
1.1 Definitions. As used in this Agreement, and unless the context
requires a different meaning, the following terms have the meanings indicated:
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"Affiliate" means, with respect to a Person, any other Person (other
than a Subsidiary) which directly or indirectly through one or more
intermediaries, controls, or is controlled by, or is under common control with,
such Person and, if such Person is an individual, any member of the immediate
family (including parents, spouse and children) of such individual, any trust
whose principal beneficiary is such individual or one or more members of such
individual's immediate family and any Person who is controlled by any such
member or trust. The term "control" means (a) the power to vote five percent
(5%) or more of the securities or other equity interests of a Person having
ordinary voting power, or (b) the possession, directly or indirectly, of any
other power to direct or cause the direction of the management and policies of a
Person, whether through ownership of voting securities, by contract or
otherwise; provided, that in no event shall any New PC be deemed an Affiliate of
the Company by reason of the terms of any Management Services Agreement.
"Agreement" means this Preferred Stock and Warrant Purchase Agreement,
as amended or supplemented from time to time.
"Best knowledge" means, with respect to any Person, the actual knowledge
of an executive officer of such Person after reasonable inquiry.
"Bylaws" means the Bylaws of the Company as in effect on the date
hereof, a copy of which is attached hereto as Exhibit C.
"Business Day" means any day other than a Saturday, Sunday or other day
on which commercial banks in Charlotte, North Carolina are authorized or
required by law or executive order to close.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company as in effect on the date hereof, a
copy of which is attached hereto as Exhibit A.
"Certificate of Designation" means the Certificate of Designation of the
Series B Preferred Stock attached hereto as Exhibit B setting forth the powers,
preferences and relative participating, optional or other rights and the
qualifications, limitations and restrictions of shares of the Series B Preferred
Stock.
"Change in Control Plan" means the Company's Change in Control Plan,
together with all agreements entered into thereunder, as in effect on the date
hereof.
"Charter Documents" means, with respect to any Person, the articles of
incorporation, bylaws and any amendments or supplements thereto, or other
equivalent organizational documents, of such Person, each as in effect upon the
date hereof.
"Class A Common Stock" means the Class A Common Stock of the Company,
par value $.01 per share, as described in the Certificate of Incorporation and
any other capital stock into which such Common Stock is reclassified or
reconstituted.
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"Class B Common Stock" means the Class B Common Stock of the Company,
par value $.01 per share, as described in the Certificate of Incorporation and
any other capital stock into which such Common Stock is reclassified or
reconstituted.
"Closing" has the meaning set forth in Section 2.5.
"Closing Date" has the meaning set forth in Section 2.5.
"Closing Date Value Per Share" has the meaning set forth in Section
9.10.
"Code" means the Internal Revenue Code of 1986, as amended, or any
successor statute thereto.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Class A Common Stock and the Class B Common
Stock.
"Company Charter Documents" means the Certificate of Incorporation, the
Bylaws, each as in effect on the date hereof, and the Certificate of
Designation.
"Company Competitor" means (a) any Person that directly provides
management services to medical group practices similar to those services then
provided by the Company and (b) any Person who owns, directly or indirectly, 50%
or more of the outstanding voting securities of any Person described in clause
(a); provided, that no Person shall be a Company Competitor for purposes of this
Agreement solely by reason of its beneficial ownership of securities for
investment purposes (including securities held by a venture firm or other
portfolio investor).
"Company Financial Statements" has the meaning set forth in Section 5.7.
"Confidential Information" has the meaning set forth in Section 12.1.
"Contractual Obligation" means, with respect to a Person, any provision
of any security issued by such Person or any agreement, undertaking, contract,
indenture, mortgage, deed of trust or other instrument to which such Person is a
party or by which it or any of its property is bound.
"Eligible Offering" has the meaning set forth in Section 8.1.
"Employee Benefit Plan" means, with respect to any Person, any employee
benefit plan within the meaning of Section 3(3) of ERISA which (a) is maintained
for employees of the Person or any ERISA Affiliate or (b) has at any time within
the preceding six years been maintained for the employees of the Person or any
current or former ERISA Affiliate.
"Employment Agreements" means (a) the Amended and Restated Employment
Agreement, dated as of September 19, 1996, between the Company and ▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇; (b) the Amended and Restated Employment Agreement, dated as of
September 19, 1996, between the Company and
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▇▇▇ ▇. ▇▇▇▇▇▇; (c) the Employment Agreement, dated as of September 19, 1996,
between the Company and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, M.D.; (d) the Employment
Agreement, dated as of September 19, 1996, between the Company and ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, as amended as of December 31, 1996; (e) the Employment Agreement,
dated as of September 19, 1996, between the Company and ▇▇▇ ▇. ▇▇▇▇; and (f) any
other agreement, contract, arrangement or understanding between the Company and
any of its directors, executives, managers or other employees relating to any
such individual's terms of employment or other engagement by the Company, each
as amended or supplemented from time to time.
"Environmental Laws" means any and all federal, state and local laws,
statutes, ordinances, rules, regulations, permits, licenses, approvals,
interpretations and orders of courts or Governmental Authorities relating to the
protection of human health or the environment, including, but not limited to,
requirements pertaining to the manufacture, processing, distribution, use,
treatment, storage, disposal, transportation, handling, reporting, licensing,
permitting, investigation or remediation of Hazardous Materials. Environmental
Laws include, without limitation, the Comprehensive Environmental Response,
Compensation, and Liability Act (42 U.S.C. Section 9601 et. seq.), the Hazardous
Material Transportation Act (49 U.S.C. Section 331 et. seq.), the Resource
Conservation and Recovery Act (42 U.S.C. Section 6901 et. seq.), the Federal
Water Pollution Control Act (33 U.S.C. Section 1251 et. seq.), the Clean Air Act
(42 U.S.C. Section 7401 et. seq.), the Toxic Substances Control Act (15 U.S.C.
Section 2601 et. seq.), the Safe Drinking Water Act (42 U.S.C. Section 300, et.
seq.), the Environmental Protection Agency's regulations relating to underground
storage tanks (40 C.F.R. Parts 280 and 281), and the rules and regulations
promulgated under each of these statutes, each as amended or supplemented.
"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.
"ERISA Affiliate" means any Person who together with the Company is
treated as a single employer within the meaning of Section 414(b), (c), (m) or
(o) of the Code or Section 4001(b) of ERISA.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"GAAP" means generally accepted United States accounting principles set
forth in the opinions and pronouncements of the Accounting Principles Board of
the American Institute of Certified Public Accountants and statements and
pronouncements of the Financial Accounting Standards Board that are applicable
to the circumstances as of the date of determination.
"Governmental Authority" means the government of any nation, state,
city, locality or other political subdivision of any thereof, any entity
exercising executive, legislative, judicial, regulatory or administrative
functions of or pertaining to government, and any corporation or other entity
owned or controlled, through stock or capital ownership or otherwise, by any of
the foregoing.
"Hazardous Materials" means any substances or materials (a) which are or
become defined as hazardous wastes, hazardous substances, pollutants,
contaminants or toxic substances under any Environmental Law, (b) which are
toxic, explosive, corrosive, flammable, infectious, radioactive,
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carcinogenic, mutagenic or otherwise harmful to human health or the environment
and are or become regulated by any Governmental Authority, (c) the presence of
which require investigation or remediation under any Environmental Law or common
law, (d) the discharge or emission or release of which requires a permit or
license under any Environmental Law or other Governmental Authority, (e) which
are deemed to pose a health or safety hazard to persons or neighboring
properties, (f) which are materials consisting of underground or aboveground
storage tanks, whether empty, filled or partially filled with any substance, or
(g) which contain, without limitation, asbestos, polychlorinated biphenyls, urea
formaldehyde foam insulation, petroleum hydrocarbons, petroleum derived
substances or waste, crude oil, nuclear fuel, natural gas or synthetic gas.
"Indemnified Company Party" has the meaning set forth in Section
11.1(b).
"Indemnified Party" has the meaning set forth in Section 11.1(b).
"Indemnified Purchaser Party" has the meaning set forth in Section
11.1(a).
"Indemnitor" has the meaning set forth in Section 11.1(b).
"Intellectual Property" has the meaning set forth in Section 5.18.
"Leased Property" has the meaning set forth in Section 5.10.
"Leases" has the meaning set forth in Section 5.10.
"Liabilities" has the meaning set forth in Section 5.15.
"Lien" means any lien, mortgage, pledge, security interest, charge or
encumbrance of any kind.
"Management Services Agreements" means (a) the Practice Management
Agreement, dated as of January 31, 1997, between the Company and New Corvallis;
(b) the Practice Management Agreement, dated as of January 31, 1997, between the
Company and New HealthFirst; (c) the Practice Management Agreement, dated as of
January 31, 1997, between the Company and New Medford; and (d) any contract or
agreement entered into with any Person following the date hereof by the Company
or any Subsidiary relating to the provision of medical management services that
generates, or is proposed to generate on a pro forma basis, more than 15% of the
annual consolidated revenues of the Company and its Subsidiaries, each as
amended or supplemented from time to time.
"Material Adverse Effect" means, with respect to any Related Company, a
material adverse effect upon (a) the business, assets, condition (financial or
otherwise), operations or properties of such Related Company or (b) the ability
of such Related Company to perform its material obligations under any of the
Transaction Documents or other Material Contracts to which such Related Company
is a party.
"Material Contracts" has the meaning set forth in Section 5.11.
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"Merger Date Value Per Share" has the meaning set forth in Section 9.10.
"New Corvallis" means The Corvallis Clinic, P.C., an Oregon professional
corporation (formerly known as Physician Partners Corvallis, P.C.).
"New HealthFirst" means HealthFirst Medical Group, P.C., an Oregon
professional corporation (formerly known as Physician Partners HealthFirst,
P.C.).
"New Medford" means Medford Clinic, P.C., an Oregon professional
corporation (formerly known as Physician Partners Medford, P.C.).
"New PCs" has the meaning set forth in the Statement of Purpose.
"New PC Financial Statements" has the meaning set forth in Section 5.7.
"Old Corvallis" means The Corvallis Clinic, P.C., an Oregon professional
corporation, which pursuant to the Reorganization and Merger Agreement was
merged with and into the Company.
"Old HealthFirst" means HealthFirst Medical Group, P.C., an Oregon
professional corporation, which pursuant to the Reorganization and Merger
Agreement was merged with and into the Company.
"Old Medford" means Medford Clinic, P.C., an Oregon professional
corporation, which pursuant to the Reorganization and Merger Agreement was
merged with and into the Company.
"Old PCs" means collectively Old Corvallis, Old HealthFirst and Old
Medford.
"Permitted Transferee" has the meaning set forth in Section 13.3.
"Person" means any individual, firm, corporation, partnership, trust,
limited liability company, incorporated or unincorporated association, joint
venture, joint stock company, Governmental Authority or other entity of any
kind, and shall include any successor (by merger or otherwise) of such entity.
"Purchase Price" has the meaning set forth in Section 2.3.
"Purchased Securities" has the meaning set forth in Section 6.3.
"Preferred Shares" has the meaning set forth in Section 2.1.
"Public Offering" means a public offering of Common Stock pursuant to a
registration statement declared effective under the Securities Act, underwritten
on a firm commitment basis by an investment banking firm with a national
reputation acceptable to the Company.
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"Qualified Public Offering" means a Public Offering resulting in net
proceeds to the Company of at least $25,000,000.
"Real Property" has the meaning set forth in Section 5.10.
"Registration Agreement" means the Registration Rights Agreement dated
as of the date hereof among the Company and the Purchaser, a copy of which is
attached hereto as Exhibit E.
"Related Companies" means collectively (a) the Company (including any
predecessor or any Person merged, directly or indirectly, with or into the
Company), (b) each New PC, (c) each Subsidiary of the Company and (d) each
Subsidiary of a New PC.
"Reorganization and Merger Agreement" means the Amended and Restated
Agreement and Plan of Reorganization and Merger, dated as of September 19, 1996,
as amended on November 4, 1996, November 29, 1996 and December 31, 1996, among
the Company and each Old PC.
"Requirements of Law" means, with respect to a Person, any law, treaty,
rule or regulation or determination of an arbitrator or a court or other
Governmental Authority, in each case applicable to or binding upon such Person
or any of its property or to which such Person or any of its property is subject
or pertaining to any or all of the transactions contemplated or referred to
herein.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Series B Preferred Stock" means the Series B Cumulative Redeemable
Preferred Stock of the Company as described in the Certificate of Designation.
"Stock Option Plans" means (a) each of the stock option plans of the
Company listed on Schedule 1.1 as in effect on the date hereof and any and all
stock options issued pursuant thereto and (b) any other plan, agreement or award
providing for the issuance of options to acquire Common Stock adopted following
the date hereof by the Board of Directors of the Company.
"Subsidiary" means, as to any Person, any corporation, partnership or
other entity of which more than fifty percent (50%) of the outstanding capital
stock or other ownership interests having ordinary voting power to elect a
majority of the board of directors or other managers of such corporation,
partnership or other entity is at the time, directly or indirectly, owned by or
the management of which is otherwise controlled by such Person; provided, that
in no event shall any Person be deemed a Subsidiary of the Company solely by
reason of the terms of any Management Services Agreement. Unless otherwise
qualified, all references to a "Subsidiary" or to "Subsidiaries" in this
Agreement shall refer to a Subsidiary or Subsidiaries of the Company.
"Taxes" has the meaning set forth in Section 5.16.
"Transaction Documents" means collectively, this Agreement, the Warrant,
the Registration Agreement and the Certificate of Designation.
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"Warrant" mean the common stock purchase warrant issued by the Company
to the Purchaser pursuant to this Agreement substantially in the form attached
hereto as Exhibit D.
1.2 Accounting Terms; Financial Statements. All accounting terms used
herein not expressly defined in this Agreement shall have the respective
meanings given to them in accordance with sound accounting practice. The term
"sound accounting practice" shall mean such accounting practice as, in the
opinion of the independent certified public accountants regularly retained by
the Company, conforms at the time to GAAP applied on a consistent basis except
for changes with which such accountants concur.
ARTICLE 2
PURCHASE AND SALE OF PREFERRED STOCK AND WARRANT
2.1 Purchase and Sale of Preferred Stock. Subject to the terms and
conditions hereof, the Company agrees to issue to the Purchaser, and the
Purchaser agrees that it will acquire from the Company, on the Closing Date,
15,000 shares of Series B Preferred Stock (the "Preferred Shares"). The
Preferred Shares shall have the powers, rights and preferences as set forth in
the Certificate of Designation.
2.2 Purchase and Sale of Warrant. Subject to the terms and conditions
hereof, the Company agrees to issue to the Purchaser and the Purchaser agrees
that it will acquire from the Company, on the Closing Date, a Warrant to
purchase 1,799,893 shares of Class B Common Stock, subject to reduction and
adjustment in such number of shares as provided in the Warrant.
2.3 Purchase Price. The aggregate purchase price of the Preferred Shares
and Warrant shall be $15,000,000 (the "Purchase Price").
2.4 Redemption Premium. The Company and the Purchaser acknowledge that
under the regulations of the United States Department of Treasury, the issuance
of the Series B Preferred Stock and the Warrant for an aggregate, combined
purchase price will result in the creation of a "redemption premium" on the
Series B Preferred Stock equal to the value of the Warrant. After taking into
account all relevant factors (including the fact that no public market for the
Common Stock currently exits, the general condition of the financial markets at
this time, the liquidation preferences of senior securities of the Company, the
exercise price for shares of Class B Common Stock issuable upon exercise of the
Warrant, the nature of the rights provided for in the Warrant and all other
matters concerning the transactions contemplated by this Agreement), the Company
and the Purchaser agree that the aggregate redemption premium on the Series B
Preferred Stock (i.e., the aggregate value of the Warrant) is $1,000,000. The
redemption premium will be allocated pro rata among the shares of Series B
Preferred Stock. Neither the Company nor the Purchaser will take any position
for United States federal income tax purposes that is inconsistent with the
provisions of this Section 2.4.
2.5 Closing. Subject to the terms and conditions of this Agreement, the
issuance and purchase of the Preferred Shares and Warrant shall take place at
the closing (the "Closing") to be
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held at the offices of ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ & ▇▇▇▇▇▇▇, L.L.P., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇ at 10:00 a.m.,local
time, on July 10, 1997, or at such other time and place as the Company and the
Purchaser may agree in writing (the "Closing Date"). At the Closing, the Company
shall deliver to the Purchaser the Preferred Shares and Warrant against delivery
to the Company by the Purchaser of the Purchase Price therefor by wire transfer
of immediately available funds, which funds shall not be used to repay any
indebtedness of any Related Company except in accordance with Section 9.10(a).
ARTICLE 3
CONDITIONS TO THE OBLIGATION OF THE PURCHASER TO CLOSE
The obligation of the Purchaser to purchase the Preferred Shares and
Warrant, to pay the Purchase Price therefor at the Closing and to perform any
obligations hereunder shall be subject to the satisfaction of the following
conditions on or before the Closing Date:
3.1 Representations and Warranties. The representations and warranties
of the Company contained in Section 5 hereof shall be true and correct in all
material respects on and as of the Closing Date as if made on and as of such
date.
3.2 Compliance with this Agreement. The Company shall have performed and
complied in all material respects with all of the agreements and conditions set
forth or contemplated herein that are required to be performed or complied with
by the Company on or before the Closing Date.
3.3 Officers' Certificate. The Purchaser shall have received a
certificate dated as of the Closing Date from the chief executive officer and
chief financial officer of the Company in form and substance reasonably
satisfactory to the Purchaser, to the effect that (a) all representations and
warranties of the Company contained in this Agreement are true, correct and
complete in all material respects, (b) the Company is not in violation in any
material respect of any of the covenants contained in this Agreement and (c) all
conditions precedent to the Closing of this Agreement to be performed by the
Company have been duly performed in all material respects.
3.4 Secretary's Certificates.
(a) The Purchaser shall have received a certificate from the Company
dated the Closing Date and signed by the Secretary or an Assistant Secretary of
the Company certifying (i) that the attached copies of the Company Charter
Documents and resolutions of the board of directors of the Company approving
this Agreement and the transactions contemplated hereby, are all true, complete
and correct and remain unamended and in full force and effect, (ii) as to the
incumbency and specimen signature of each officer of the Company executing this
Agreement and any other document delivered in connection herewith on behalf of
the Company and (iii) as to the good standing of the Company and its
Subsidiaries in the applicable states of their incorporation and in each other
state in which the Company or any Subsidiary is transacting business (except for
states in which the failure to qualify or remain in good standing could not
reasonably be expected to have a Material Adverse Effect).
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(b) The Purchaser shall have received a certificate from each New PC
dated the Closing Date and signed by the Secretary or an Assistant Secretary of
such New PC certifying (i) that the attached copies of its Charter Documents are
all true, complete and correct and remain unamended and in full force and effect
and (ii) as to the good standing of such New PC and its Subsidiaries in the
applicable states of their incorporation and in each other state in which such
New PC or any of its Subsidiaries are transacting business (except for states in
which the failure to qualify or remain in good standing could not reasonably be
expected to have a Material Adverse Effect).
3.5 Transaction and Other Requested Documents. The Purchaser shall have
received true, complete and correct copies of (a) the Company Charter Documents,
the Transaction Documents, the Employment Agreements, the Management Services
Agreements, the Change in Control Plan and the Stock Option Plans and (b) such
other documents, opinions, certificates and agreements as the Purchaser may
reasonably request in connection with or relating to the sale of the Preferred
Shares and Warrant and the transactions contemplated hereby, all in form and
substance reasonably satisfactory to the Purchaser.
3.6 Financial Matters.
(a) Financial Statements. The Purchaser shall have received such
financial statements, certificates and other information concerning each Related
Company, as set forth on Schedule 3.6 hereto.
(b) Payment at Closing. There shall have been paid by the Company
to the Purchaser any accrued and unpaid fees due hereunder (including, without
limitation, reasonable legal fees and expenses and all reasonable fees and
expenses of Ernst & Young, L.L.P.), including all taxes, fees and other charges
in connection with the execution, delivery, recording, filing and registration
of any of the Transaction Documents.
3.7 Purchase Permitted by Applicable Laws. The acquisition of and
payment for the Preferred Shares and Warrant to be acquired by the Purchaser
hereunder and the consummation of the transactions contemplated hereby (a) shall
not be prohibited by any Requirements of Law and (b) shall not subject the
Purchaser to any penalty or, in its reasonable judgment, other onerous condition
under or pursuant to any Requirement of Law; and the Purchaser shall have
received such certificates or other evidence as they may reasonably request to
establish compliance with this condition.
3.8 Consents and Approvals. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Company reasonably necessary, desirable, or
required in connection with the execution, delivery or performance by the
Company or enforcement against the Company of this Agreement and the other
Transaction Documents shall have been obtained and be in full force and effect,
and the Purchaser shall have been furnished with appropriate evidence thereof,
and all waiting periods shall have lapsed without extension or the imposition of
any conditions or restrictions.
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3.9 Registration Agreement. The Company shall have duly executed and
delivered the Registration Agreement.
3.10 Certificate of Designation. The Certificate of Designation shall
have been filed and shall have become effective in the manner prescribed by
applicable law.
3.11 Amendments to Management Services Agreements. The Purchaser shall
have received certified copies of amendments to each Management Services
Agreement in the form attached hereto as Exhibit F which shall be in full force
and effect.
3.12 Estoppel Certificate. The Purchaser shall have received from each
New PC an estoppel certificate with respect to the applicable Management
Services Agreement in form and substance reasonably satisfactory to the
Purchaser.
3.13 Extension of Revolving Credit Facility. The Company shall have
extended for a period of not less than 90 days that certain $5.5 million
revolving credit facility evidenced by the Credit Agreement, dated as of
February 1, 1997, between the Company and United States Bank of Oregon and the
Purchaser shall have been furnished with appropriate evidence thereof reasonably
satisfactory to the Purchaser.
3.14 SBA Documents and Information. The Company shall have executed and
delivered to the Purchaser the forms and information required by the rules and
regulations of the United States Small Business Administration, including,
without limitation, a Size Status Declaration on SBA Form 480 and an Assurance
of Compliance on SBA Form 652 and information necessary for the preparation of a
Portfolio Financing Report on SBA Form 1031.
3.15 Disbursement Instructions. The Purchaser shall have received
written instructions from the Company to the Purchaser directing the payment of
any proceeds of the Preferred Shares and Warrant that are to be paid on the
Closing Date.
3.16 No Material Adverse Change. On and prior to the Closing Date, no
event shall have occurred which has had or could reasonably be expected to have
a Material Adverse Effect.
3.17 Opinion of Counsel. The Purchaser shall have received an opinion of
▇▇▇▇▇▇▇▇▇, Will & ▇▇▇▇▇, counsel to the Company, dated the Closing Date,
substantially in the form of Exhibit G.
ARTICLE 4
CONDITIONS TO THE OBLIGATION OF THE COMPANY TO CLOSE
The obligations of the Company to issue and sell the Preferred Shares
and the Warrant and to perform its other obligations hereunder shall be subject
to the satisfaction of the following conditions on or before the Closing Date:
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4.1 Representations and Warranties True. The representations and
warranties of the Purchaser contained in Section 6 hereof shall be true and
correct in all material respects on and as of the Closing Date as if made on and
as of such date.
4.2 Compliance with this Agreement. The Purchaser shall have performed
and complied in all material respects with all of its agreements and conditions
set forth or contemplated herein that are required to be performed or complied
with by such Purchaser on or before the Closing Date.
4.3 Issuance Permitted by Requirements of Laws. The issuance of the
Preferred Shares and the Warrant to be issued by the Company hereunder and the
consummation of the transactions contemplated hereby (a) shall not be prohibited
by any Requirement of Law and (b) shall not subject the Company to any penalty
or, in its reasonable judgment, other onerous condition under or pursuant to any
Requirement of Law.
4.4 Officer's Certificate. The Company shall have received a certificate
dated as of the Closing Date from an executive officer of the Purchaser in form
and substance reasonably satisfactory to the Company to the effect that (a) all
representations and warranties of the Purchaser contained in this Agreement are
true, correct and complete in all material respects, (b) the Purchaser is not in
violation in any material respect of any of the covenants contained in this
Agreement and (c) all conditions precedent to the Closing of this Agreement to
be performed by the Purchaser have been duly performed in all material respects.
4.5 Consents and Approvals. All consents, exemptions, authorizations or
other actions by, or notices to, or filings with, Governmental Authorities and
other Persons in respect of all Requirements of Law and with respect to
Contractual Obligations of the Purchaser reasonably necessary, desirable, or
required in connection with the execution, delivery or performance by the
Purchaser or enforcement against the Purchaser of this Agreement and the other
Transaction Documents shall have been obtained and be in full force and effect,
and the Company shall have been furnished with appropriate evidence thereof, and
all waiting periods shall have lapsed without extension or the imposition of any
conditions or restrictions.
ARTICLE 5
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
The Company hereby represents and warrants to the Purchaser, before and
after giving effect to the transactions contemplated by this Agreement as
follows:
5.1 Corporate Existence and Power. Each Related Company (a) is a
corporation duly organized, validly existing and in good standing under the laws
of its respective jurisdiction of incorporation, (b) has all requisite corporate
power and authority to own and operate its property, to lease the property it
operates as lessee and to conduct the business in which it is currently, or is
currently proposed to be, engaged. The Company has the corporate power and
authority to execute, deliver and perform its obligations under this Agreement
and each of the other Transaction Documents.
15
5.2 Corporate Authorization; No Contravention. The execution, delivery
and performance by the Company of each Transaction Document to which it is or
will be a party and the transactions contemplated thereby, including without
limitation the issuance by the Company of the Preferred Shares and the Warrant
and the reservation of Class B Common Stock to be issued pursuant to the Warrant
thereunder, (a) have been duly authorized by all necessary corporate, and if
required, stockholder action, (b) do not contravene the terms of the Company
Charter Documents or the Charter Documents of any other Related Company and (c)
except as disclosed in Schedule 5.2, will not, in any material respect, violate,
conflict with or result in any breach or contravention of or the creation of any
Lien under, any material Contractual Obligation of any Related Company, or any
Requirement of Law applicable thereto.
5.3 Governmental Authorization; Third Party Consents. No approval,
consent, compliance, exemption, authorization or other action by, or notice to,
or filing with, any Governmental Authority or any other Person in respect of any
Requirement of Law, and no lapse of a waiting period under a Requirement of Law,
is necessary or required in connection with the execution, delivery or
performance by the Company or enforcement against the Company of the Transaction
Documents or the transactions contemplated thereby.
5.4 Binding Effect. The Transaction Documents to which the Company is a
party constitute the legal, valid and binding obligation of the Company
enforceable against the Company in accordance with their respective terms except
as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium or other similar laws affecting the enforcement of
creditors' rights generally and by general principles of equity relating to
enforceability.
5.5 Capitalization. As of the Closing Date, the authorized capital stock
of the Company and its Subsidiaries and the issued and outstanding shares
thereof are as described on Schedule 5.5. As of the Closing Date, all
outstanding shares of capital stock of the Company and its Subsidiaries will be
duly authorized and validly issued, fully paid, nonassessable and free and clear
of any Lien created by the Company or any Subsidiary thereof. Except as
described in Schedule 5.5, (a) no other class of capital stock or other
ownership interests of the Company or its Subsidiaries are authorized or
outstanding, (b) neither the Company nor any Subsidiary has outstanding rights
(either preemptive or other) or options to subscribe for or purchase from the
Company or such Subsidiary, or any warrants or other agreements providing for or
requiring the issuance by the Company or such Subsidiary of, any of its
respective capital stock or any securities convertible into or exchangeable for
its respective capital stock and (c) and neither the Company nor any Subsidiary
has reserved for issuance any shares of its respective capital stock.
5.6 Subsidiaries. (a) The Company does not own, directly or indirectly,
any outstanding capital stock of or other ownership interest in (or securities,
rights or other interests convertible into capital stock or other ownership
interests) any Person and is not a member of a nonprofit corporation or limited
liability company.
(b) The New PCs do not own, directly or indirectly, any
outstanding capital stock of or other ownership interest in (or securities,
rights or other interests convertible into capital
16
stock or other ownership interests) any Person and are not members of a
nonprofit corporation or limited liability company.
5.7 Financial Statements. (a) The Company has previously delivered to
the Purchaser true and complete copies of (i) the audited balance sheets of (A)
the Company as at September 30, 1996, (B) Old Corvallis as at November 30, 1994,
November 30, 1995 and September 30, 1996; (C) Old HealthFirst as at December 31,
1994, December 31, 1995 and September 30, 1996; (D) the Suburban Medical Clinic,
Inc. (a predecessor of Old HealthFirst) as at December 31, 1994 and 1995; and
(E) Old Medford as at December 31, 1994, December 31, 1995 and September 30,
1996 and the related audited statements of income, stockholders equity and cash
flows of the Company and each Old PC (or predecessors thereto) for the fiscal
period ended on each such date; (ii) the unaudited pro forma balance sheet of
the Company as at September 30, 1996 and the related unaudited pro forma
statements of income, stockholders equity and cash flows of the Company for the
fiscal period ended on each such date; (iii) the audited balance sheet of the
Company as of December 31, 1996 and the related audited statements of income,
stockholders' equity and cash flows of the Company for the year ended December
31, 1996; and (iv) the unaudited balance sheet of the Company as at May 31, 1997
and the related unaudited statements of income, stockholders equity and cash
flows of the Company for the five month period ended on such date, in each case
above in clauses (i), (ii), (iii) and (iv) together with related notes thereto
and, if audited, accountant's reports thereon, a complete list of which is set
forth in Schedule 3.6 (referred to herein, collectively, as the "Company
Financial Statements"). Each of the Company Financial Statements presents
fairly, in all material respects, the financial position of the Company (or any
predecessor) as of the date and the results of operations and cash flow of the
Company (or any predecessor) for the period indicated, and except for the
Company Financial Statements set forth on Schedule 5.7, all Company Financial
Statements have been prepared in accordance GAAP. Since December 31, 1996 there
has been no change, event or development of any kind which has had or could
reasonably be expected to have a Material Adverse Effect.
(b) The Company has previously delivered to the Purchaser true and
complete copies of the (i) audited balance sheets of each New PC as at September
30, 1996 and December 31, 1996 and (ii) the unaudited balance sheets of each New
PC as at May 31, 1997 and the related unaudited statements of income of each
such New PC for the fiscal period ended on each such date, in each case together
with related notes thereto and, if audited, accountant's reports thereon, a
complete list of which is set forth in Schedule 3.6 (referred to herein,
collectively, as the "New PC Financial Statements"). Each of the New PC
Financial Statements presents fairly, in all material respects, the financial
position of each New PC as of the date and the results of operations and cash
flow of such New PC for the period indicated. All of the New PC Financial
Statements have been prepared in accordance with GAAP. Since December 31, 1996,
there has been no change, event or development with respect to any New PC of any
kind which has had or could reasonably be expected to have a Material Adverse
Effect (determined with respect to any New PC on a pro forma basis compared to
its corresponding Old PC).
5.8 Litigation. (a) Except as set forth on the Schedule 5.8, there are
no claims, disputes, actions, proceedings or investigations pending or, to the
best of the Company's knowledge, threatened against any Related Company or any
of the assets or properties of any Related Company before any court, arbitrator
or Governmental Authority (i) with respect to any Transaction
17
Document or any transaction contemplated thereby or (ii) which could reasonably
be expected, if adversely determined, to have a Material Adverse Effect.
(b) Except as set forth on the Schedule 5.8, there are no orders, writs,
judgments, injunctions, decrees, determinations or awards to which any Related
Company is subject (i) with respect to any Transaction Document or any
transaction contemplated thereby or (ii) which could reasonably be expected to
have a Material Adverse Effect.
5.9 Licenses and Permits. Each Related Company has all governmental
licenses, permits and authorizations necessary to carry on its business as it is
now being conducted, except for such governmental licenses, permits and
authorizations the absence of which could not reasonably be expected to have a
Material Adverse Effect.
5.10 Properties. (a) Set forth in Schedule 5.10(a) is a complete list of
(i) all real property owned by any Related Company (the "Real Property") and
(ii) the corresponding owner of such Real Property. All such Real Property is
owned by the owner designated in such Schedule 5.10(a) free and clear of all
Liens, except (A) as set forth on such Schedule 5.10(a), (B) liens for Taxes not
yet payable and (C) liens for Taxes and other claims the validity of which any
Related Company is contesting in good faith and the existence of which, in the
aggregate, could not reasonably be expected to have a Material Adverse Effect.
(b) Set forth in Schedule 5.10(b) is a complete list of (i) all
leases and subleases of real or personal property to which each Related Company
is a party (the "Leases"), (ii) the corresponding lessee under such Lease and
(iii) a description of the property subject to such Lease (the "Leased
Property"). All such Leases are valid and no Related Company is, and to the best
of the Company's knowledge no other party to any Lease is, in violation of, or
in default under, any such Lease in any material respect, and no event or
circumstance has occurred which constitutes or, after notice or lapse of time or
both would constitute, a violation or default thereunder in any material respect
on the part of any Related Company or, to the best of the Company's knowledge,
on the part of any other party thereto.
(c) The Real Property, the Leased Property and all other assets
owned, operated and leased by each Related Company are (i) maintained in a state
of repair and operating condition consistent with good business practices, (ii)
to the best of the Company's knowledge, in material compliance with all
applicable laws, regulations and ordinances, including, without limitation,
building and zoning laws and (iii) suitable for the uses intended therefor.
5.11 Material Contracts. (a) Set forth in Schedule 5.11 is a complete
list of all material contracts, agreements and commitments to which each Related
Company is a party or by which any Related Company is bound (referred to herein,
collectively, as the "Material Contracts"), including, without limitation (i)
all material contracts, partnership agreements, joint venture agreements and all
other agreements between any Related Company, on the one hand, and any provider,
hospital, health maintenance organization, other managed care organization or
other third-party provider, on the other hand, relating to the provision of
medical or consulting services, treatments, patient referrals or other similar
activities, (ii) the Leases, (iii) the Intellectual Property (as such term is
defined in Section 5.17(a) hereof), (iv) all material indentures, mortgages,
notes, loan or credit
18
agreements and other agreements and obligations relating to the indebtedness,
borrowing of money or to the direct or indirect guarantee or assumption of
obligations of third parties requiring any Related Company to make, or setting
forth conditions under which such Related Company would be required to make,
aggregate future payments in excess of $50,000 in any fiscal year or $100,000 in
the aggregate, (v) all agreements for capital improvements or acquisitions
involving an amount in excess of $25,000 in any fiscal year or $100,000 in the
aggregate, (vi) all written employment and consulting agreements providing
benefits in any amount for directors and officers or providing for benefits in
excess of $100,000 to any employee or group of employees (whether by plan,
series of agreements or otherwise) of any Related Company, (vii) all agreements
not entered into in the ordinary course of business involving an amount in
excess of $25,000 in any fiscal year or $100,000 in the aggregate, (viii) all
agreements containing a covenant limiting the freedom of any Related Company (or
any provider employee of any Related Company) to compete in any line of business
with any Person or in any geographic area, (ix) all written contracts and
commitments to which any Related Company is a party that require, in accordance
with their respective terms, aggregate future payments by any Related Company in
excess of $50,000 in any fiscal year or $100,000 in the aggregate and that are
not cancelable by providing notice of 60 days or less, (x) all Employment
Agreements, (xi) all Management Services Agreements, (xii) all agreements
entered into under the Stock Option Plans and (xiii) all agreements entered into
under the Change in Control Plan.
(b) Each Material Contract is in full force and effect and constitutes
the legal, valid and binding obligation of any Related Company which is a party
thereto and is enforceable against such Related Company in accordance with its
respective terms except as enforceability may be limited by applicable
bankruptcy, insolvency, reorganization, moratorium or other similar laws
affecting the enforcement of creditors' rights generally and by general
principles of equity relating to enforceability. Each Related Company is not,
nor, to the best of the Company's knowledge, is any other party to any such
Material Contract, in violation of, or default under, any material provision of
any such Material Contract in any material respect, and the consummation of the
transactions contemplated by the Transaction Documents will not constitute in
any material respect, a violation or default thereunder on the part of any
Related Company or, to the best of the Company's knowledge, on the part of any
other party thereto.
5.12 Reorganization and Merger. The Company has delivered to the
Purchaser true, complete and correct copies of the Reorganization and Merger
Agreement together with all amendments and modifications thereto. Such documents
(including the schedules and exhibits thereto) comprise a full and complete copy
of all agreements between the parties thereto with respect to the subject matter
thereof and all transactions related thereto, and there are no agreements or
understandings, oral or written, or side agreements not contained therein that
modify the substance thereof.
5.13 Labor Matters. Except as set forth on Schedule 5.13, no Related
Company is a party to any agreement that provides in the event of termination of
the employment of any of the current officers, directors, employees or agents of
any Related Company, that a Related Company will be liable to any of said
officers, directors, employees or agents for so-called "severance pay" or any
other similar payments or benefits, including, without limitation,
post-employment health care or insurance benefits; as of the date hereof, there
is no slow-down or work stoppage with respect to any Related Company; each
Related Company is and has been in compliance in all material respects
19
with all applicable laws respecting employment and employment practices, terms
and conditions of employment and wages and hours, including, without limitation,
the Immigration Reform Control Act, the Worker Adjustment and Retraining
Notification Act and such laws respecting employment discrimination, equal
opportunity, affirmative action, workers' compensation, occupational safety and
health requirements and unemployment insurance and related matters, and are not
engaged in and have not engaged in any unfair labor practice; to the best
knowledge of the Company, no investigation or review by or before any
Governmental Authority concerning any violations of any such applicable laws is
pending, nor is any such investigation threatened or has any such investigation
occurred during the last three years, and no Governmental Authority has provided
any notice to any Related Company or otherwise asserted an intention to conduct
any such investigation. No Related Company is a party to any collective
bargaining agreement or other labor union contract. Since December 31, 1992,
there has not been any labor strike involving employees of any Related Company.
5.14 Employee Benefit Plans. (a) The Company has delivered or made
available to the Purchaser full and complete copies of all of the Employee
Benefit Plans of each Related Company since January 1, 1995. No Related Company
has established, operated or maintained any Employee Benefit Plan except as
disclosed on Schedule 5.14 since January 1, 1995
(b) No Employee Benefit Plan of any Related Company is a
multi-employer plan (as such term is defined in Section 3(37) of ERISA. To the
best of the Company's knowledge, since December 31, 1992, all of the Employee
Benefit Plans of each Related Company have been maintained, operated and
administered in compliance in all material respects with all Requirements of Law
currently in effect with respect thereto, and each Related Company has performed
all material obligations required to be performed thereby, and is not in any
material respect in default or in violation of, any of its Employee Benefit
Plan. Each Employee Benefit Plan of each Related Company intended to be
qualified under Section 401(m) of the Code has heretofore been determined by the
Internal Revenue Service to be so qualified, and each trust created thereunder
has heretofore been determined by the Internal Revenue Service to be exempt from
tax under the provisions of Section 501(a) of the Code and, to the best
knowledge of the Company, nothing has occurred since the date of such
determination of qualification that would result in the loss of such exemption.
There exists no accumulated funding deficiency, whether or not waived, with
respect to any Employee Benefit Plan of each Related Company. To the best of the
Company's knowledge, there have been no prohibited transactions with respect to
any Employee Benefit Plan of any Related Company that would result in any
material liability or excise tax under ERISA or the Code. No Related Company has
incurred, and does not reasonably expect to incur (i) any material liability to
the Pension Benefit Guaranty Corporation, (ii) any material liability to a
trustee under Section 4049 of ERISA or (iii) any "withdrawal liability" (within
the meaning of Section 4201 of ERISA), in each case with respect to events
occurring on or prior to the Closing Date. Since December 31, 1992, there has
been no change in the financial condition of any of the Employee Benefit Plans
of any Related Company which is a "funded defined benefit plan" (within the
meaning of Section 3(35) of ERISA), other than changes which would not have a
Material Adverse Effect. All benefits, expenses and other amounts due and
payable under any Employee Benefit Plan of any Related Company as of the date
hereof and all contributions, transfers and payments required to be made to any
Employee Benefit Plan of any Related Company as of the date hereof have been
paid or made, or accrued and booked. There are no "leased employees" (within the
meaning of Section 414(n) of
20
the Code) who perform services for any Related Company. There are no actions,
suits or claims pending or, to the best of the Company's knowledge, threatened
with respect to any Employee Benefit Plan of any Related Company other than
routine claims for benefits. To the best of the Company's knowledge, there has
not occurred, nor is there continuing, any transaction or breach of fiduciary
duty under applicable law which could have a Material Adverse Effect or a
material adverse effect on any Employee Benefit Plan of any Related Company.
5.15 Compliance with Applicable Law. Except as set forth on Schedule
5.15, to the best of the Company's knowledge, each Related Company is not, nor
since December 31, 1992 has any Related Company been, engaged in any activity,
nor has any Related Company omitted to take any action, as a result of which
such Related Company is or has been in violation of any Requirement of Law
applicable to such Related Company including, without limitation:
(a) Health Care Laws and Regulations. (i) Each Related Company
has timely filed all reports required to be filed in connection with federal
Medicare and applicable state Medicaid programs and due on or before the date
hereof, and all required reports are true and complete in all material respects;
there are no claims, actions or appeals pending (and no Related Company has
filed anything that would result in any claims, actions or appeals) before any
commission, board or agency with respect to any state or federal Medicare or
Medicaid cost reports or claims filed by such Related Company on or before the
date hereof, or with respect to any disallowances by any intermediary, carrier,
other insurer, commission, board or agency in connection with any audit of any
cost reports that, if adversely determined, would have a Material Adverse
Effect; no validation review or program integrity review related to any Related
Company has been conducted with respect to the Related Company by any
commission, board or agency in connection with federal Medicare or state
Medicaid programs, and no such reviews are scheduled, pending or, to the
Company's knowledge, threatened against or affecting any Related Company; each
Related Company has timely filed all material reports, data and other
information required by any other regulatory agency with authority to regulate
the Related Company or its business in any manner; each Related Company is in
compliance in all material respects with all rules, regulations and requirements
of all health regulatory agencies, except where such noncompliance would not
have a Material Adverse Effect; and the conduct of the business of each Related
Company does not violate 42 U.S.C. Section 1320a-7b (commonly known as the
"Anti-Kickback Statute") or 42 U.S.C. Section 1395nn (commonly known as the
"▇▇▇▇▇ Amendments"), including all amendments thereto to the extent effective on
the date hereof, unless any noncompliance with any of the foregoing provisions
in this clause (i) would not have a Material Adverse Effect.
(ii) Without limiting anything contained in Section 5.15(a)(i)
hereof, none of the Related Companies, its executive officers and directors, or
Persons who provide professional services on behalf of any such Related Company
have:
(A) knowingly and willfully made or caused to be made a
false statement or representation of a material fact in any application for any
benefit or payment;
(B) knowingly and willfully made or caused to be made any
false statement or representation of a material fact for use in determining
rights to any benefit or payment;
21
(C) presented or caused to be presented a claim for
reimbursement under CHAMPUS, Medicare, Medicaid or other state health care
program that is (1) for an item or service that the Person presenting or causing
to be presented knows or should know was not provided as claimed, or (2) for an
item or service and the Person presenting knows or should know that the claim is
false or fraudulent;
(D) failed to disclose knowledge of the occurrence of any
event affecting the initial or continuing right of a claimant to any benefit or
payment on its own behalf or on behalf of another, with intent to fraudulently
secure such benefit or payment; or
(E) knowingly and willfully made or caused to be made or
induced or sought to induce the making of any false statement or representation
(or omitted to state a fact required to be stated therein or necessary to make
the statements contained therein not misleading) of a material fact with respect
to (1) the conditions or operations of a facility in order that the facility may
qualify for CHAMPUS, Medicare, Medicaid or other state health care program
certification, or (2) information required to be provided under Section 1124A of
the Social Security Act (42 U.S.C. Section 1320a-3).
(iii) Without limiting anything contained in Section 5.15(a)(i)
hereof: (A) no Person (other than the Purchaser) will have a direct or indirect
ownership interest (as those terms are defined in 42 C.F.R. Section 1001.1001)
in the Company of 5% or more immediately prior to or following the transactions
contemplated by this Agreement.
(iv) Without limiting anything contained in Section 5.15(a)(i)
hereof, to the best knowledge of the Company, there are no Medicare, Medicaid or
CHAMPUS recoupments or recoupments of any other third-party payor being sought,
threatened, requested or claimed against any Related Company which could
reasonably be expected to have a Material Adverse Effect.
(b) Environmental Matters. (i) Each Related Company is in compliance
with all applicable Environmental Laws in connection with the ownership,
operation and condition of all aspects of its properties and businesses and
otherwise, except for any such noncompliance which would not have a Material
Adverse Effect.
(ii) No Related Company has (A) generated, treated, stored,
disposed of, transported or handled any Hazardous Material or (B) released into
the environment any Hazardous Material, in any case in violation of any
applicable Environmental Law or under circumstances which have subjected, or may
subject, such Related Company to any indemnity or remedial obligation under any
Environmental Law or any contract or agreement with another party which could
reasonably be expected to have a Material Adverse Effect.
(iii) There is and has been no (A) soil, surface water or ground
water contamination affecting any Real Property or Leased Property, (B)
asbestos-containing material installed in any such Real Property or Leased
Property, (C) polychlorinated biphenyls deposited at any such Real Property or
Leased Property or (D) illness, disability, injury or death of any Person
(including, without limitation, any employee or former employee of any Related
Company or any
22
Person employed at any such Real Property or Leased Property subject to any
Lease) in any way arising out of exposure to substances or conditions present at
any such Real Property or Leased Property which, in the case of any of (A)
through (D), would have a Material Adverse Effect.
5.16 Taxes. All material federal, state, county and other tax returns,
reports and declarations of every nature, including, without limitation, income,
employment, payroll, excise, property, sales and use taxes and unemployment
contributions imposed by any federal, state or local Governmental Authority
(referred to herein, collectively, as "Taxes"), required to be filed by or on
behalf of, or with respect to, each Related Company have been duly and timely
filed within the time periods required by law by each Related Company. Copies of
all such returns or reports have been made available to the Purchaser. Except as
set forth on the Schedule 5.16, all such returns or reports (a) are, or will be
at the time of filing thereof in accordance with the tax laws applicable thereto
in all material respects and (b) accurately reflect, or will accurately reflect
at the time of filing thereof, all such Taxes required to be paid by each
Related Company for the periods covered thereby in all material respects. No
extension of time, or request therefor or waiver thereof, has been made or are
presently pending or effective with respect to any such return, report or Taxes.
All Taxes shown to be due and payable on such returns and reports and all
deficiencies, assessments, penalties and interest thereon have been paid. All
required tax estimates, deposits and prepayments for current periods have been
made. There are no tax liens on any of the assets of any Related Company and, to
the best of the Company's knowledge, no basis exists for the imposition of any
such liens. Each Related Company has no dispute with any taxing authority as to
Taxes of any nature. Except as set forth on Schedule 5.16, there is no
unassessed tax deficiency proposed or, to the best of the Company's knowledge,
threatened against any Related Company, and no action, proceeding or audit with
respect to any return or report of any Related Company by any Governmental
Authority is pending or, to the best of the Company's knowledge, threatened by
any Governmental Authority for assessment, reassessment or collection of any
Taxes against any Related Company or its operations.
5.17 Intellectual Property. Set forth in Schedule 5.17 is (i) a full and
complete list of all patents, trademarks, service marks, trade names and
franchises with third parties, all applications therefor and all permits, grants
and licenses and other rights to intellectual property involving each Related
Company that are material to the business of any Related Company (referred to
herein, collectively, as "Intellectual Property") and (ii) the respective
Related Company which owns such Intellectual Property. Each Related Company has
free and unencumbered rights to use all of its respective Intellectual Property,
except for rights the failure of which to possess would not have a Material
Adverse Effect. No Related Company has received notice of any claim challenging
the free and unencumbered right of such Related Company to use its respective
Intellectual Property.
5.18 Insurance. Each Related Company has fire and casualty insurance
policies with extended coverage (subject to deductibles) sufficient to allow it
to replace any of its properties or assets that might be damaged or destroyed.
Each Related Company has business interruption insurance policies with coverage
sufficient to allow the recovery of the full amount of any losses occasioned by
any business interruption. Each Related Company has medical malpractice
insurance sufficient to allow the recovery, by such Related Company and the
Company, of the full amount of any losses or liabilities incurred in connection
with the provision of medical services by such Related Company or any employee
or former employee thereof. The Company has director and
23
officers' liability insurance with sufficient coverage to fully indemnify its
directors and officers for any claims arising from their acts or omissions in
such capacities. Set forth in Schedule 5.18 is a full and complete list of all
insurance policies naming any Related Company as an insured or beneficiary or as
a loss payee or with respect to which the Company or any Subsidiary has paid all
or part of the premium in force as of the date hereof. To the best knowledge of
the Company, all of such policies are in full force and effect, and no such
policy (or any predecessor policy of an Old PC) has been interrupted during the
past two years.
5.19 Corporate Records. Each Related Company has caused to be delivered
to the Purchaser true, accurate and complete copies of (a) its Charter
Documents, as currently in effect, and (b) records of all of its proceedings of
incorporators, stockholders, directors and committees of directors during the
past five years. The books and records of each Related Company have been
maintained in accordance with good business practices.
5.20 Small Business Matters. The Company, together with its "affiliates"
(as that term is defined in Title 13, Code of Federal Regulations,
Section 121.103), is a "small business concern" within the meaning of the Small
Business Investment Act of 1958 and the regulations thereunder, including Title
13, Code of Federal Regulations, Section 121.201. The information regarding the
Company and its affiliates set forth in SBA Form 480, Form 652 and Form 1031
delivered at the Closing is accurate and complete. Copies of such forms shall
have been completed and executed by the Company and delivered to the Purchaser
at the Closing. Neither the Company nor any Subsidiary presently engages in, nor
shall they hereafter engage in, any activities, nor shall the Company or any
Subsidiary use directly or indirectly the proceeds from the sale of the
Preferred Shares and Warrant hereunder for any purpose, for which a "small
business investment company" is prohibited from providing funds by the Small
Business Investment Act of 1958 and the regulations thereunder (including Title
13, Code of Federal Regulations, Section 107.720).
5.21 Private Offering. No form of general solicitation or general
advertising was used by the Company or its representatives in connection with
the offer or sale of the Preferred Shares or Warrant or other securities.
Assuming the accuracy of the representations and warranties of the Purchaser in
Article 6 hereof, no registration of the Preferred Shares or Warrant pursuant to
the provisions of the Securities Act or any state securities or "blue sky" laws
will be required by the offer, sale or issuance of the Preferred Shares, Warrant
or the Class B Common Stock pursuant to this Agreement.
5.22 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby or any other Transaction Document to
which the Company or any Subsidiary is a party, based on any agreement,
arrangement or understanding with the Company or any such Subsidiary or any
action taken by the Company or any such Subsidiary.
5.23 Use of Proceeds. The proceeds from the sale of the Preferred Shares
and the Warrant will be used as set forth in Section 9.9 hereof. No portion of
such proceeds will be used (a) to provide capital to a corporation licensed
under the Small Business Investment Act of 1958, as amended, (b) outside the
United States or (c) for any purpose contrary to the public interest
24
(including but not limited to activities which are in violation of law) or
inconsistent with free competitive enterprises, in each case, within the meaning
of 13 C.F.R. Section 107.720.
5.24 Interested Transactions. Except as set forth in Schedule 5.24, no
Related Company is a party to any contract, agreement, transaction,
understanding or concession with any of the following Persons, or in which any
of the following Persons have any direct or indirect interest (other than as a
shareholder or employee of such Related Company): (a) any shareholder, director
or executive officer of a Related Company; (b) any of the spouse, parents,
siblings and children of any of the Persons described in clause (a); or (c) any
corporation, trust, partnership or other entity in which any of the Persons
described in clauses (a) and (b) have a beneficial interest (other than a
corporation whose shares are publicly traded and in which such Persons own
beneficially in the aggregate no more than 5% of the equity interests).
ARTICLE 6
REPRESENTATIONS AND WARRANTIES OF THE PURCHASER
The Purchaser hereby represents and warrants to the Company, before and
after giving effect to the transactions contemplated by this Agreement, as
follows:
6.1 Authorization; No Contravention. The execution, delivery and
performance by the Purchaser of this Agreement and the Registration Agreement,
and the transactions contemplated thereby, (a) are within the Purchaser's power
and authority and have been duly authorized by all necessary action, (b) do not
contravene the terms of the Purchaser's Charter Documents and (c) will not, in
any material respect, violate, conflict with or result in any breach or
contravention of or the creation of any Lien under, any material Contractual
Obligation of the Purchaser, or any Requirement of Law applicable thereto
directly relating to the Purchaser.
6.2 Binding Effect. This Agreement and the Registration Agreement have
been duly executed and delivered by the Purchaser, and this Agreement and the
Registration Agreement constitute the legal, valid and binding obligations of
the Purchaser enforceable against it in accordance with their respective terms,
except as enforceability may be limited by applicable bankruptcy, insolvency,
reorganization, moratorium, fraudulent conveyance or other similar laws
affecting the enforcement of creditors' rights generally or by general equitable
principles relating to enforceability.
6.3 Purchase for Own Account. The Preferred Shares, the Warrant and the
shares of Class B Common Stock to be issued upon exercise thereof (the
"Purchased Securities") are being or will be acquired for its own account and
with no intention of distributing or reselling such securities or any part
thereof in any transaction that would be in violation of the Securities Act or
the securities laws of any state. The Purchaser understands that the Purchased
Securities have not been registered under the Securities Act and may not be
sold, transferred or otherwise disposed of unless the Purchased Securities are
first registered under the Securities Act or registration is available. The
Purchaser agrees not to make any disposition of any Purchased Securities unless
and until there is an effective registration under the Securities Act and
applicable state securities laws with respect to such Purchased Securities or
the Purchaser shall have provided the Company a written opinion of
25
counsel in form and substance reasonably satisfactory to the Company that an
exemption from such registration is available under the Securities Act and such
state securities law. The Purchaser agrees to the imprinting, so long as
required by law, of a legend on certificates representing its Preferred Shares,
the Warrant or its shares of Class B Common Stock to the following effect:
"THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, OR THE SECURITIES LAWS OF ANY STATE
AND MAY NOT BE SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO AN
EFFECTIVE REGISTRATION STATEMENT UNDER SUCH ACT AND APPLICABLE STATE
SECURITIES LAWS OR PURSUANT TO AN APPLICABLE EXEMPTION FROM THE
REGISTRATION REQUIREMENTS OF SUCH ACT AND SUCH LAWS."
The Purchaser acknowledges that any transfer or other disposition of Purchased
Securities in contravention of this Section 6.3 shall be null and void and the
Company shall not be required (i) to transfer on its books any such Purchased
Securities or (ii) to treat as the owner of such Purchased Securities or
otherwise to accord voting or dividend rights to any purported transferee with
respect thereto.
6.4 Accredited Investor. The Purchaser is an "accredited investor" (as
such term is defined in Rule 501(a) of Regulation D promulgated under the
Securities Act). The Purchaser has received sufficient information about the
Company to reach an informed and knowledgeable decision to acquire the Purchased
Securities. The Purchaser has such knowledge and experience in financial and
business matters as to make it capable of utilizing such information to evaluate
the risks of the prospective investment and to make an informed investment
decision with respect thereto. The Purchaser is able to bear the economic risk
of its investment in the Purchased Securities.
6.5 ERISA. No part of the funds used by the Purchaser to purchase the
Preferred Shares and Warrant hereunder constitutes assets of any "employee
benefit plan" (as defined in Section 3(3) of ERISA) or "plan" (as defined in
Section 4975 of the Code).
6.6 Broker's, Finder's or Similar Fees. There are no brokerage
commissions, finder's fees or similar fees or commissions payable in connection
with the transactions contemplated hereby, or by any other Transaction Document
to which the Purchaser is a party, based on any agreement, arrangement or
understanding with the Purchaser or any action taken by the Purchaser.
6.7 Governmental Authorization; Third Party Consent. Except as
contemplated by the Transaction Documents, no approval, consent, compliance,
exemption, authorization or other action by, or notice to, or filing with, any
Governmental Authority or any other Person in respect of any Requirement of Law,
and no lapse of a waiting period under a Requirement of Law, is necessary or
required in connection with the execution, delivery or performance by the
Purchaser or enforcement against the Purchaser of this Agreement or the
transactions contemplated hereby.
26
ARTICLE 7
FINANCIAL INFORMATION AND NOTICES
Until such time as none of the Preferred Shares is outstanding, the
Company hereby covenants and agrees with the Purchaser as follows:
7.1 Financial Statements and Other Information. The Company shall
deliver to the Purchaser:
(a) Monthly Financials. As soon as available and in any event
within 30 days after the end of each month, the consolidated balance sheet of
the Company and its Subsidiaries as at the end of such month and the related
consolidated statements of income, stockholders' equity and cash flow for such
month and for the period from the beginning of the then current fiscal year to
the end of such month.
(b) Year-End Financials. As soon as available and in any event
within 90 days after the end of each fiscal year, (i) the consolidated balance
sheet of the Company and its Subsidiaries as at the end of such year and the
related consolidated statements of income, stockholders' equity and cash flow
for such fiscal year, and (ii) a report with respect to the financial statements
from a "Big Six" accounting firm selected by the Company, which report shall be
without qualification and shall state that (A) such consolidated financial
statements present fairly the consolidated financial position of the Company and
its Subsidiaries as at the dates indicated and the results of their operations
and cash flow for the periods indicated in conformity with GAAP applied on a
basis consistent with prior years and (B) that the examination by such
accountants in connection with such consolidated financial statements has been
made in accordance with generally accepted auditing standards.
(c) Compliance Certificate. Together with each delivery of
financial statements pursuant to Section 7.1(a) and (b) above, a fully and
properly completed compliance certificate signed by the chief executive officer
or chief financial officer of the Company certifying that the Company and its
Subsidiaries are in compliance with each of the covenants contained in Articles
9 and 10 hereof.
(d) Accountants' Reports. Promptly upon receipt thereof, copies
of all significant reports submitted to the Company or any of its Subsidiaries
by independent public accountants in connection with each annual, interim or
special audit of the financial statements of the Company and its Subsidiaries
made by such accountants, including the comment letter submitted by such
accountants to management in connection with their annual audit.
(e) Management Report. Together with each delivery of financial
statements of the Company and its Subsidiaries pursuant to Section 7.1(a) and
(b) above, a management report: (i) describing the operations and financial
condition of the Company and its Subsidiaries for the month then ended and the
portion of the current fiscal year then elapsed (or for the fiscal year then
ended in the case of year-end financials), (ii) setting forth in comparative
form the corresponding figures for the corresponding periods of the previous
fiscal year and the corresponding figures from
27
the most recent projections for the current fiscal year delivered to the
Purchaser pursuant to Section 7.1(g) and (iii) discussing the reasons for any
significant variations. The information above shall be presented in reasonable
detail and shall be certified by the chief financial officer of the Company to
the effect that such information (including the financial statements of the
Company and its Subsidiaries delivered pursuant to Section 7.1(a) and (b))
fairly presents the results of operations and financial condition of the Company
and its Subsidiaries as at the dates and for the periods indicated, except for
normal year-end audit adjustments.
(f) Annual Budget. As soon as available and in any event no later
than 30 days after the end of each fiscal year of the Company, a business plan
of the Company and its Subsidiaries for the ensuing fiscal year, such plan to
include, on a quarterly basis, the following: a quarterly operating and capital
budget, a projected quarterly income statement, statement of cash flows and
balance sheet and a report containing management's discussion and analysis of
such projections, accompanied by a certificate from the chief financial officer
of the Company to the effect that such projections have been prepared on the
basis of sound financial planning practice and that such chief financial officer
has no reason to believe that such projections are incorrect in any material
respect.
(g) SEC Filings and Press Releases. Promptly upon their becoming
available, copies of: (i) all financial statements, reports, notices and proxy
statements sent or made available by the Company or any of its Subsidiaries to
their securityholders as a class, (ii) all regular and periodic reports and all
registration statements and prospectuses, if any, filed by the Company or any of
its Subsidiaries with any securities exchange, the Commission or any state
securities commission and (iii) all press releases concerning developments in
the business of any such Person.
(h) Other Information. With reasonable promptness, such other
information and data with respect to each Related Company as from time to time
may be reasonably requested by the Purchaser (including any budgets, reports or
other information prepared and delivered, or required to be delivered, to the
Company pursuant to any Management Services Agreement).
(i) Notices. Prompt (but in no event later than 10 days after an
executive officer of the Company obtains knowledge thereof) written notice of:
(i) the commencement of all material proceedings and investigations by or before
any Governmental Authority (including any notice of violation of any material
Requirement of Law) and all actions and proceedings in any court or before any
arbitrator against or involving any Related Company or any of their respective
properties, assets or businesses, in each case involving a claim or liability in
excess of $100,000 and not fully covered by insurance, (ii) any labor
controversy that has resulted in or reasonably likely to result in, a strike or
other work action against any Related Company, (iii) any attachment, judgment,
levy or order exceeding $100,000 that could reasonably be expected to be
assessed against any Related Company, (iv) any material breach of any party
under any Management Services Agreement or any other Material Contract and (v)
any act or condition arising under ERISA that might constitute grounds for the
termination of any Employee Benefit Plan or for the appointment by the
appropriate United States District Court of a trustee to administer such plan,
and (vi) any event which makes any of the representations set forth in Section 5
inaccurate in any material respect.
28
ARTICLE 8
RIGHT OF FIRST REFUSAL
8.1 Eligible Offering. Except as otherwise provided in Section 8.4, the
Company hereby grants to the Purchaser the right, from the Closing Date through
and including the date of the initial Qualified Public Offering, to purchase a
portion (the "Purchaser's Portion") of the equity securities being offered in
any future offering of equity securities of the Company or of any security or
other obligation convertible into or exchangeable for or carrying rights or
options to purchase equity securities of the Company (an "Eligible Offering") on
terms and conditions no less favorable than those available to any other Person
under the Eligible Offering; provided, that the Purchaser's Portion which the
Purchaser may purchase shall equal a number which is the product of (a) the
aggregate number of the equity securities to be offered in the Eligible Offering
times (b) the quotient (calculated before giving effect to the proposed
offering) of (i) the number of shares of Common Stock owned by the Purchaser, on
a fully diluted basis and including any shares of Common Stock issuable upon
exercise of any warrants, options or other rights to acquire shares of Common
Stock owned by the Purchaser and (ii) the total number of shares of Common Stock
of the Company issued and outstanding on a fully diluted basis and including any
shares of Common Stock issuable upon exercise of any warrants, options or other
rights to acquire shares of Common Stock owned by any Person (including the
Purchaser).
8.2 Notice of an Eligible Offering. Before issuing any securities
pursuant to an Eligible Offering, the Company shall give written notice thereof
to the Purchaser. Such notice must specify the security or securities the
Company proposes to issue and the consideration that the Company intends to
receive for such security or securities. For a period of twenty (20) days
following the delivery of such notice, the Purchaser shall be entitled, by
written notice to the Company, to purchase the Purchaser's Portion, determined
in accordance with Section 8.1. If any such election is made by the Purchaser,
the Company shall sell to the Purchaser, and the Purchaser shall purchase from
the Company, for the consideration and on the terms set forth in the Company's
notice of such Eligible Offering, which shall be no less favorable than those
available to any other Person under the Eligible Offering, the number of
securities that the Purchaser has elected to purchase. The Company may sell the
remainder of the securities to be sold in the Eligible Offering pursuant to the
provisions set forth in Section 8.3.
8.3 Sale to Third Parties. If any election by the Purchaser to exercise
the rights pursuant to Section 8.1 is not made with respect to any securities
included in an Eligible Offering within the twenty (20) day period described in
Section 8.2, or if there remain securities to be sold after the sale of
securities to the Purchaser, then the Company may issue such securities to third
persons, but only for a consideration not less than that set forth in the
Company's notice and only within a period of 90 days thereafter.
8.4 Exceptions to Eligible Offering. The Purchaser shall not have any
right of first refusal to purchase any of the following securities issued by the
Company:
29
(a) Securities issued pursuant to the Stock Option Plans; provided, that
the aggregate number of shares of Common Stock available or issued pursuant to
such Stock Option Plans shall not exceed 3,500,000 shares of Common Stock;
(b) Securities issued to the acquiree or to stockholders in connection
with any merger, consolidation or acquisition to which the Company is a party;
or
(c) Securities issued pursuant to a Qualified Public Offering.
ARTICLE 9
AFFIRMATIVE COVENANTS
Until such time as none of the Preferred Shares is outstanding, the
Company shall and shall cause each other Related Company to:
9.1 Preservation of Corporate Existence and Related Matters. Preserve
and maintain its separate existence and all rights, franchises, licenses and
privileges necessary to the conduct of its business; and qualify and remain
qualified as a foreign corporation and authorized to do business in each
jurisdiction in which the character of its properties or the nature of its
business requires such qualification or authorization, except in each case to
the extent that the failure to so preserve and maintain or to remain so
qualified could not reasonably be expected to have a Material Adverse Effect.
9.2 Maintenance of Property. Protect and preserve all properties
necessary and material to its business, including copyrights, patents, trade
names and trademarks; maintain in good working order and condition (ordinary
wear and tear excepted) all buildings, equipment and other tangible real and
personal property necessary and material to its business; and from time to time
make or cause to be made all renewals, replacements and additions to such
property necessary for the conduct of its business so that the business carried
on in connection therewith may be properly and advantageously conducted at all
times, the failure of which could not reasonably be expected to have a Material
Adverse Effect.
9.3 Maintenance of Insurance. Maintain insurance with responsible
insurance companies against such risks and in such amounts as are customarily
maintained by similar businesses, including without limitation property,
business interruption, medical malpractice and director and officers' liability
insurance, or as may be required by any Requirement of Law or any material
Contractual Obligation.
9.4 Payment of Taxes and Governmental Charges. Pay or perform all
material taxes, assessments and other governmental charges that may be levied or
assessed upon it or any of its property (including, without limitation,
withholding, social security, payroll and similar employment related taxes on
the dates such taxes are due) unless any such Person is contesting such taxes,
assessments and other governmental charges in good faith and adequate reserves
are maintained with respect thereto in accordance with GAAP.
30
9.5 Accounting Methods and Financial Records. Maintain a system of
accounting, and keep such books, records and accounts as may be required or as
may be necessary to permit the preparation of financial statements in accordance
with GAAP consistently applied and in compliance with the regulations of any
Governmental Authority having jurisdiction over it or any of its properties.
9.6 Compliance With Laws and Obligations. Observe and remain in material
compliance with all material Requirements of Law and material Contractual
Obligations and maintain in full force and effect all material approvals of
Governmental Authorities, in each case applicable or necessary to the conduct of
its business, including timely filing of all reports required to be filed with
the Commission.
9.7 Environmental Management. In addition to and without limiting the
generality of Section 9.6, (a) in all material respects, comply with, and insure
compliance by all tenants and subtenants, if any, with, all Environmental Laws
and obtain and comply with and maintain, and insure that all tenants and
subtenants obtain and comply with and maintain, any and all material licenses,
approvals, registrations or permits required by Environmental Laws, (b) conduct
and complete all investigations, studies, sampling and testing, and all
remedial, removal and other actions required under Environmental Laws and
promptly comply in all material respects with all lawful orders and directives
of all Governmental Authorities respecting Environmental Laws and Hazardous
Materials, and (c) provide the Purchaser with prompt written notice of any
material investigation or inquiry or notice of violation of any Environmental
Law.
9.8 Visits and Inspections. In addition to and without limiting the
rights of the Purchaser under Section 9.10, permit representatives of the
Purchaser, from time to time, as often as may be reasonably requested, but only
during normal business hours and upon reasonable prior notice, to visit and
inspect its properties; inspect, audit and make extracts from its books, records
and files, including, but not limited to, management letters prepared by
independent accountants; and discuss with its principal officers and its
independent accountants, its business, assets, liabilities, financial condition,
results of operations and business prospects.
9.9 Use of Proceeds. Use the proceeds of the sale of the Preferred
Shares and the Warrant hereunder only (a) to obtain financing to capitalize the
Company and to refinance certain of the Company's existing indebtedness, (b) for
the payment of fees and expenses in connection with the transactions
contemplated by the Transaction Documents, (c) to provide for ongoing working
capital for capital spending and acquisition needs and (d) for other purposes in
compliance with the regulations of the United States Small Business
Administration; provided that the Company shall not use any of the proceeds of
the Purchase Price to repay any indebtedness of any Related Company except in
accordance with Section 9.10(a).
9.10 Certain Post-Closing Obligations. (a) The Company shall (i)
participate in discussions with the Purchaser regarding the refinancing of the
indebtedness of the Company, (ii) adopted a written plan for such refinancing in
form and substance reasonably satisfactory to the Purchaser within 90 days after
the Closing Date and (iii) not use the proceeds of the Purchase Price to repay
any indebtedness of any Related Company without the prior written consent of the
Purchaser. That certain letter from the Purchaser to the Company dated July 7,
1997 shall constitute
31
such written consent for the use of proceeds of the Purchase Price by the
Company to repay certain indebtedness of the Company as specified therein due to
the United States National Bank of Oregon on the conditions set forth in such
letter.
(b) The Company shall participate in discussions with the Purchaser
regarding its hiring of a chief operating officer in manner and substance
reasonably satisfactory to the Purchaser (including the engagement of a national
search firm reasonably satisfactory to the Purchaser to assist in such efforts
within 30 days after the Closing Date).
(c) The Company shall engage an independent third party appraiser
(reasonably acceptable to the Purchaser) to determine within 30 days after the
Closing Date the fair market value of (i) a share of Class A Common Stock as of
February 1, 1997 (the "Merger Date Value Per Share") and (ii) a share of Class B
Common Stock as of the Closing Date (the "Closing Date Value Per Share"). For
purposes of establishing the Closing Date Value Per Share, the Class B Common
Stock shall be assumed to be identical in all respects to the Class A Common
Stock. The Merger Date Value Per Share shall not be set below $6.00 per share
and shall be subject to the prior approval of the Purchaser, which shall not be
unreasonably withheld. The Closing Date Value Per Share shall not be set below
$8.00 per share and shall be subject to the prior approval of the Purchaser,
which shall not be unreasonably withheld. The Company shall set the per share
exercise price for any stock options to acquire Common Stock granted or awarded
under the Stock Option Plans prior to the date hereof (including all such
options designated in Schedule 5.5. hereto) at a price per share no lower than
the Merger Date Value Per Share determined pursuant to this Section 9.10(c). The
Closing Date Value Per Share established pursuant to this Section 9.10(c) shall
become the Closing Date Value Per Share referred to in Section 15 of the
Warrant.
ARTICLE 10
NEGATIVE COVENANTS
Until such time as none of the Preferred Shares is outstanding, the
Company hereby covenants and agrees with the Purchaser as follows:
10.1 Certain Amendments. The Company shall not (a) assign or terminate
any Management Services Agreement, or amend or otherwise modify any Management
Services Agreement so as to (i) shorten the term thereof, (ii) reduce the
management fees and expenses for which any New PC is liable thereunder
(including any reduction in the applicable percentage of revenues or collections
by which such management fees are calculated) or (iii) modify the
non-competition, non-solicitation or confidentiality provisions thereof (except
for any such modification that would increase the protection afforded to the
Company by any such provision); (b) amend or otherwise modify any Employment
Agreement or the Change in Control Plan (or any agreements thereunder) so as to
increase the compensation otherwise payable thereunder; (c) amend the Company
Charter Documents if such amendment would impair any
32
rights of the Purchaser under any Transaction Document or would reasonably be
expected to have a Material Adverse Effect; or (d) terminate, amend or otherwise
modify any Material Contract (or permit any such termination, amendment or
modification) if such termination, amendment or modification would impair any
rights of the Purchaser under any Transaction Document or could reasonably be
expected to have a Material Adverse Effect.
10.2 No Inconsistent Agreements. The Company shall not enter into any
Contractual Obligation, or enter into any amendment or other modification to any
Contractual Obligation, which by its terms restricts or prohibits the ability of
the Company to (a) redeem the Preferred Shares in accordance with the terms of
the Certificate of Designation or (b) take any other action otherwise permitted
pursuant to this Agreement and the Certificate of Designation.
10.3 Certain Transactions. Except as described in the Transaction
Documents and the other Material Contracts, each as in effect on the date
hereof, the Company shall not, and shall not permit any other Related Company
to, (a) make any payment (by way of dividend, distribution, compensation or
otherwise) to any of its employees, directors, stockholders or Affiliates or,
with respect to the Company, any New PC, (b) pay any deferred compensation on an
accelerated basis or (c) enter into any other material transaction with any of
its executive officers, directors, stockholders or Affiliates unless, in the
case of clause (c) hereof, such transaction is in the ordinary course of
business of the Company or such Related Company and upon fair and reasonable
terms that are no less favorable to it than it would obtain in an arm's length
transaction with an unrelated Person.
ARTICLE 11
INDEMNIFICATION
11.1 Indemnification. (a) In addition to all other sums due hereunder or
provided for in this Agreement, the Company agrees to indemnify and hold
harmless the Purchaser and its Affiliates and its officers, directors, agents,
employees, subsidiaries, partners and controlling persons (each, an "Indemnified
Purchaser Party") to the fullest extent permitted by law, from and against any
and all losses, claims, damages, expenses (including reasonable fees,
disbursements and other charges of counsel) or other liabilities (collectively,
"Liabilities") resulting from or arising out of any breach of any representation
or warranty, covenant or agreement of the Company in this Agreement; provided,
that the Company shall not be liable under this Section 11.1(a) to an
Indemnified Purchaser Party: (a) for any amount paid in settlement of claims
without the Company's prior written consent, (b) to the extent that it is
finally judicially determined that such Liabilities resulted from the willful
misconduct or gross negligence of such Indemnified Purchaser Party or (c) to the
extent that it is finally judicially determined that such Liabilities resulted
from the material breach by such Indemnified Purchaser Party of any
representation, warranty, covenant or other agreement of such Indemnified
Purchaser Party contained herein; and provided, further, that if and to the
extent that such indemnification is unenforceable for any reason, the Company
shall make the maximum contribution to the payment and satisfaction of such
Liabilities which shall be permissible under applicable laws.
(b) In addition to all other sums due hereunder or provided for in this
Agreement, the Purchaser agrees to indemnify and hold harmless the Company and
its Affiliates and its officers, directors, agents, employees, subsidiaries,
partners and controlling persons (each, an "Indemnified Company Party" and
together with any Indemnified Purchaser Party, an "Indemnified Party") to the
fullest extent permitted by law, from and against any and all Liabilities
resulting from or arising out
33
of any breach of any representation or warranty, covenant or agreement of the
Purchaser in this Agreement; provided, that the Purchaser shall not be liable
under this Section 11.1(b) to an Indemnified Company Party: (a) for any amount
paid in settlement of claims without the Company's prior written consent, (b) to
the extent that it is finally judicially determined that such Liabilities
resulted from the willful misconduct or gross negligence of such Indemnified
Company Party or (c) to the extent that it is finally judicially determined that
such Liabilities resulted from the material breach by such Indemnified Company
Party of any representation, warranty, covenant or other agreement of such
Indemnified Company Party contained herein; and provided, further, that if and
to the extent that such indemnification is unenforceable for any reason, the
Purchaser shall make the maximum contribution to the payment and satisfaction of
such Liabilities which shall be permissible under applicable laws.
11.2 Notification. Each Indemnified Party under this Article 11 will,
promptly after the receipt of notice of the commencement of any action,
investigation, claim or other proceeding against such Indemnified Party in
respect of which indemnity may be sought from either the Company or the
Purchaser ( either in such capacity, the "Indemnitor") under this Article 11,
notify the Indemnitor in writing of the commencement thereof. The omission of
any Indemnified Party so to notify the Indemnitor of any such action shall not
relieve the Indemnitor from any liability which it may have to such Indemnified
Party (a) other than pursuant to this Article 11 or (b) under this Article 11
unless, and only to the extent that, such omission results in the Indemnitor's
forfeiture of substantive rights or defenses or the Indemnitor is otherwise
irrevocably prejudiced in defending such proceeding. In case any such action,
claim or other proceeding shall be brought against any Indemnified Party and it
shall notify the Indemnitor of the commencement thereof, the Indemnitor shall be
entitled to assume the defense thereof at its own expense, with counsel
satisfactory to such Indemnified Party in its reasonable judgment; provided,
that any Indemnified Party may, at its own expense, retain separate counsel to
participate in such defense. Notwithstanding the foregoing, in any action, claim
or proceeding in which both the Indemnitor, on the one hand, and an Indemnified
Party, on the other hand, is, or is reasonably likely to become, a party, such
Indemnified Party shall have the right to employ separate counsel at the
Indemnitor's expense and to control its own defense of such action, claim or
proceeding if, in the reasonable written opinion of counsel to such Indemnified
Party, a conflict or potential conflict exists between the Indemnitor, on the
one hand, and such Indemnified Party, on the other hand, that would make such
separate representation reasonably necessary and adequate to protect the rights
and interest of such Indemnified Party. The Company and the Purchaser each agree
that they will not, without the prior written consent of the other party hereto,
settle, compromise or consent to the entry of any judgment in any pending or
threatened claim, action or proceeding relating to the matters contemplated
hereby (if any Indemnified Purchaser Party with respect to the Company or any
Indemnified Company Party with respect to the Purchaser is a party thereto or
has been actually threatened to be made a party thereto) unless such settlement,
compromise or consent includes an unconditional release of the Company or
Purchaser and each other applicable Indemnified Party from all liability arising
or that may arise out of such claim, action or proceeding; provided, that such
claim, action or proceeding did not arise out of (i) the willful misconduct or
gross negligence of such Indemnified Party or (ii) the material breach by such
Indemnified Party of any representation, warranty, covenant or other agreement
of such Indemnified Party contained in this Agreement. Neither the Company nor
the Purchaser shall be liable for any settlement of any claim, action or
proceeding effected against an applicable Indemnified Party without its written
consent. The rights accorded to Indemnified Parties hereunder
34
shall be in addition to any rights that any Indemnified Party may have at common
law, by separate agreement or otherwise.
ARTICLE 12
CONFIDENTIAL INFORMATION
12.1 Confidential Information. (a) The Purchaser hereby acknowledges
that the Purchaser has had and may continue to have access to and knowledge of
information of a confidential and proprietary nature relating to each Related
Company, including, without limitation, accounting and financial data (including
information regarding charges for services and products provided by each Related
Company to patients and other pricing and income and revenue information of such
Related Company), computer programs, contractual arrangements, business plans
and budgets relating to strategic planning, marketing programs and service
development activities, all of which have value to such Related Company, as the
case may be, and the disclosure of which to competitors of such Related Company
could result in harm to such Related Company. The information of a confidential
and proprietary nature described in this Section 12.1(a) is referred to in this
Agreement, collectively, as "Confidential Information." Confidential Information
subject to the provisions of this Section 12.1 does not include (i) information
which is or becomes publicly available other than as a result of the Purchaser's
failure to comply with this Section 12.1, (ii) information that is obtained from
a third party unrelated to the Company or any other Related Company which is not
known to the Purchaser to be prohibited from transmitting such information to
the Purchaser on a nonconfidential basis, (iii) information which is in the
Purchaser's possession prior to its receipt from the Company or any other
Related Company or (iv) information which is independently developed by the
Purchaser or any of its Affiliates.
(b) The Purchaser acknowledges and agrees that the Confidential
Information is the property of the Company or one or more of the other Related
Companies and the Purchaser only has access to the Confidential Information as a
result of its proposed investment in the Company. The Purchaser hereby agrees
that, at all times hereafter, the Purchaser will not (i) disclose, reveal or
communicate, without the express written consent of the Company, all or any
portion of the Confidential Information disclosed to the Purchaser, except for
such disclosure as may be required pursuant to court order, Requirements of Law
or as otherwise expressly permitted by the terms of this Agreement or (ii)
otherwise use the Confidential Information to the detriment of the Company or
any of the other Related Companies in a manner prohibited by law. The Purchaser
further agrees to disclose Confidential Information only to (i) its agents,
attorneys, accountants and employees who need to know the Confidential
Information for purposes of evaluating the Purchaser's decision to enter into
this Agreement and the other Transaction Documents and any future decisions
related thereto and (ii) its Affiliates for the purpose of providing or
proposing to provide banking services to the Company, and to use reasonable
efforts to cause its agents, attorneys, accountants, employees and Affiliates
not to disclose the Confidential Information in contravention of this Agreement.
The Purchaser shall take all commercially reasonable action that may be
necessary or appropriate to maintain the confidentiality of the Confidential
Information. In the event the Purchaser is informed or becomes aware that any
material Confidential Information has been disclosed (either intentionally or
unintentionally) in violation of this Section 12.1, the Purchaser shall promptly
report such disclosure to the Company.
35
(c) The Purchaser agrees that, upon termination of all of its rights
under the Transaction Documents and at the written request of the Company, the
Purchaser will promptly deliver to the Company or one or more of the other
Related Companies, as designated by the Company, all originals and copies, in
all forms and mediums, of the Confidential Information and any summaries thereof
then in its possession and will not retain any copies of such Confidential
Information. If the Purchaser is requested or becomes legally compelled to
disclose any Confidential Information, the Purchaser will promptly so notify the
Company in writing so that the Company or one or more other Related Companies
may seek a protective order or take other appropriate action. In the event that
such a protective order or other remedy is not obtained or the Company and any
other Related Company waive in writing compliance with any provision of this
Section 12.1, the Purchaser will use its best efforts to furnish only that
portion of the Confidential Information as is legally required to be so
furnished.
(d) The Purchaser acknowledges and agrees that a breach of any provision
of this Section 12.1 by the Purchaser may result in irreparable harm to the
Company or one or more other Related Companies that cannot be reasonably or
adequately compensated in damages, and, therefore, the Company and the other
Related Companies shall be entitled to seek equitable remedies (including,
without limitation, injunctive relief to prevent a breach and to secure
enforcement thereof), in addition to any other relief or award to which the
Company or any such other Related Company may be entitled.
ARTICLE 13
MISCELLANEOUS
13.1 Survival of Representations and Warranties. All of the
representations and warranties made herein shall survive the execution and
delivery of this Agreement, any investigation by or on behalf of the Purchaser,
acceptance of the Preferred Shares and Warrant and payment therefor, or
termination of this Agreement until the earlier of the second anniversary of the
Closing Date and such time as none of the Preferred Shares is outstanding.
13.2 Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopier, recognized
overnight courier service or personal delivery:
(a) if to the Company:
Physician Partners, Inc.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
36
(b) if to the Purchaser:
First Union Capital Partners, Inc.
One First Union Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
D. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
13.3 Transfer of Preferred Shares. The Preferred Shares may be
transferred, in whole or in part, by any holder thereof to any Person other than
a Company Competitor (any such Person, a "Permitted Transferee") upon ninety
(90) days prior written notice to the Company; provided, that any such Permitted
Transferee acquires, or (if less) all of the then outstanding number of
Preferred Shares held by the transferor, not less than 20% of the then
outstanding number of Preferred Shares; provided further, that in connection
with any such transfer to an Affiliate or successor of the holder, the holder
shall be required to give written notice of such transfer to the Company within
ten (10) days after such transfer.
13.4 Successors and Assigns. This Agreement shall inure to the benefit
of and be binding upon the successors and permitted assigns of the parties
hereto. Subject to applicable securities laws and except as otherwise set forth
in the Transaction Documents, the Purchaser may assign any of its rights under
this Agreement. The Company may not assign any of its rights under this
Agreement without the prior written consent of the Purchaser. Except as provided
in Article 11, no Person other than the parties hereto and their successors and
permitted assigns is intended to be a beneficiary of this Agreement.
13.5 Amendment and Waiver. (a) No failure or delay on the part of the
Company or the Purchaser in exercising any right, power or remedy hereunder
shall operate as a waiver thereof, nor shall any single or partial exercise of
any such right, power or remedy preclude any other or further exercise thereof
or the exercise of any other right, power or remedy. The remedies provided for
herein are cumulative and are not exclusive of any remedies that may be
available to the Company or the Purchaser at law, in equity or otherwise.
(b) Any amendment, supplement or modification of or to any provision of
this Agreement, any waiver of any provision of this Agreement, and any consent
to any departure of the Company from the terms of any provision of this
Agreement, shall be effective (i) only if it is made or given in writing and
signed by the Company and the Purchaser in accordance with Section 13.6, and
(ii) only in the specific instance and for the specific purpose for which made
or given. Except where notice is specifically required by this Agreement, no
notice to or demand on the Company in any case shall entitle the Company to any
other or further notice or demand in similar or other circumstances.
37
13.6 Determinations, Requests or Consents. All determinations, requests,
consents, waivers or amendments to be made by the Purchaser in its opinion or
judgment or with its approval or otherwise pursuant to this Agreement shall be
made upon approval by the holders of at least a majority of the Preferred
Shares.
13.7 Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
13.8 Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
13.9 GOVERNING LAW. THIS AGREEMENT SHALL BE GOVERNED BY AND CONSTRUED IN
ACCORDANCE WITH THE LAWS OF THE STATE OF NORTH CAROLINA, WITHOUT REGARD TO THE
PRINCIPLES OF CONFLICTS OF LAW OF SUCH STATE.
13.10 Jurisdiction. Each party to this Agreement hereby irrevocably
agrees that any legal action or proceeding arising out of or relating to this
Agreement or any agreements or transactions contemplated hereby may be brought
in the courts of the State of North Carolina or of the United States of America
for the Middle District of North Carolina and hereby expressly submits to the
personal jurisdiction and venue of such courts for the purposes thereof and
expressly waives any claim of improper venue and any claim that such courts are
an inconvenient forum. Each party hereby irrevocably consents to the service of
process of any of the aforementioned courts in any such suit, action or
proceeding by the mailing of copies thereof by registered or certified mail,
postage prepaid, to the address set forth in Section 13.2, such service to
become effective 10 days after such mailing.
13.11 Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
13.12 Rules of Construction. Unless the context otherwise requires, "or"
is not exclusive, and references to sections or subsections refer to sections or
subsections of this Agreement. All pronouns and any variations thereof refer to
the masculine, feminine or neuter, singular or plural, as the context may
require.
13.13 Entire Agreement. This Agreement, together with the exhibits and
schedules hereto and the other Transaction Documents, is intended by the parties
as a final expression of their agreement and intended to be a complete and
exclusive statement of the agreement and understanding of the parties hereto in
respect of the subject matter contained herein and therein. There are no
restrictions, promises, warranties or undertakings, other than those set forth
or referred
38
to herein or therein. This Agreement, together with the exhibits and schedules
hereto, and the other Transaction Documents supersede all prior agreements and
understandings between the parties with respect to such subject matter.
13.14 Certain Expenses. The Company agrees to pay or reimburse the
Purchaser for all reasonable out-of-pocket costs and expenses (including,
without limitation, reasonable attorneys' fees and expenses) in connection with
the negotiation, preparation, execution and delivery of this Agreement and any
amendment, modification or waiver of any of the terms of this Agreement or any
of the other Transaction Documents or any consent to any departure by the
Company from the terms of any provision of this Agreement or any of the other
Transaction Documents.
13.15 Publicity. Except as may be required by applicable law, none of
the parties hereto shall issue a public release or announcement or otherwise
make any public disclosure concerning this Agreement or the transactions
contemplated hereby, without prior approval by the other parties hereto (which
approval will not be unreasonably withheld). If any announcement is required by
law to be made by any party hereto, prior to making such announcement such party
will deliver a draft of such announcement to the other parties and shall give
the other parties an opportunity to comment thereon.
13.16 Further Assurances. Each of the parties shall execute such
documents and perform such further acts (including, without limitation,
obtaining any consents, exemptions, authorizations, or other actions by, or
giving any notices to, or making any filings with, any Governmental Authority or
any other Person) as may be reasonably required or desirable to carry out or to
perform the provisions of this Agreement.
IN WITNESS WHEREOF, the parties hereto have caused this Preferred Stock
and Warrant Purchase Agreement to be executed and delivered by their respective
officers hereunto duly authorized as of the date first above written.
PHYSICIAN PARTNERS, INC.
[CORPORATE SEAL]
By:
-------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
FIRST UNION CAPITAL PARTNERS, INC.
[CORPORATE SEAL]
By:
-------------------------------
Name:
Title:
39
THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT MAY BE PURCHASED
HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 OR
UNDER THE SECURITIES LAWS OF ANY STATE. THIS COMMON STOCK PURCHASE
WARRANT HAS BEEN ACQUIRED FOR INVESTMENT PURPOSES AND NOT WITH A VIEW TO
DISTRIBUTION, AND THIS COMMON STOCK PURCHASE WARRANT AND THE SHARES THAT
MAY BE PURCHASED HEREUNDER MAY NOT BE SOLD OR OFFERED FOR SALE IN THE
ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT UNDER THE SECURITIES ACT
OF 1933, AS AMENDED, AND REGISTRATION OR QUALIFICATION UNDER APPLICABLE
STATE SECURITIES LAWS OR A WRITTEN OPINION OF COUNSEL IN FORM AND
SUBSTANCE REASONABLY SATISFACTORY TO THE COMPANY THAT THE PROPOSED
TRANSACTION DOES NOT VIOLATE THE REGISTRATION REQUIREMENTS OF THE
SECURITIES ACT OF 1933, AND APPLICABLE STATE SECURITIES LAWS.
PHYSICIAN PARTNERS, INC.
COMMON STOCK PURCHASE WARRANT
THIS IS TO CERTIFY that FIRST UNION CAPITAL PARTNERS, INC., a Virginia
corporation, and its transferees, successors and assigns (the "Holder"), for
good and valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, is entitled to purchase from PHYSICIAN PARTNERS, INC., a Delaware
corporation (the "Company"), at a price per share equal to $0.01 (the "Exercise
Price"), at any time after the date hereof (the "Commencement Date"), 1,799,893
shares of the fully paid and nonassessable Class B Common Stock, par value $.01
per share ("Class B Common"), of the Company. The 1,799,893 shares of Class B
Common subject to this Warrant are referred to herein as the "Aggregate Number"
and are subject to reduction and adjustment as set forth herein. Capitalized
terms used herein shall have the meanings ascribed to such terms in Section 15
hereof unless otherwise defined herein.
SECTION 1. The Warrant; Transfer and Exchange.
(a) The Warrant. This Common Stock Purchase Warrant (the "Warrant") is
issued under and pursuant to the Purchase Agreement. This Warrant and the rights
and privileges of the Holder hereunder may be exercised by the Holder (subject
to the rights and privileges of the Company) in whole or in part as provided
herein; shall survive any termination of the Purchase Agreement; and, as more
fully set forth in Sections 1(b) and 10 hereof, may be transferred by the Holder
only to any other Person or Persons at any time or from time to time, in whole
or in part, as provided in Section 10 hereof regardless of whether the Holder
retains any or all rights under the Purchase Agreement.
40
(b) Transfer and Exchanges. The Company shall initially record this
Warrant on a register to be maintained by the Company with its other stock books
and, subject to Section 10 hereof, from time to time thereafter shall transfer
this Warrant on such register when surrendered for transfer in accordance with
the terms hereof and properly endorsed, accompanied by appropriate written
instructions, and further accompanied by (i) payment in cash or by check, bank
draft or money order payable to the order of the Company, in United States
currency, of an amount equal to all stamp and other taxes and governmental
charges and fees required to be paid in connection with the transfer thereof and
(ii) an instrument of transfer in the form attached hereto as Exhibit B and made
a part hereof. Upon any such transfer, a new warrant or warrants shall be issued
to the transferee and the Holder (in the event the Warrant is only partially
transferred) and the surrendered warrant shall be canceled. Each such transferee
shall succeed to all of the rights of the Holder under the Purchase Agreement;
provided, that the Holder and such transferee may, simultaneously, also hold
rights under the Purchase Agreement in proportion to their respective interests
in this Warrant. This Warrant may be exchanged at the option of the Holder, when
surrendered at the Principal Office of the Company, for another warrant or other
warrants of like tenor and representing in the aggregate the right to purchase a
like number of shares of Class B Common, subject to adjustment as more fully set
forth herein.
SECTION 2. Reduction in Aggregate Number. If the Company redeems all of
the outstanding Series B Preferred in one or more redemptions (any redemption
resulting in the redemption of all of the outstanding Series B Preferred being
referred to as a "Qualified Redemption") during any of the periods set forth
below, the Aggregate Number of Warrant Shares for which this Warrant may be
exercised shall be reduced to the Aggregate Number of Warrant Shares equal to
(a) the Aggregate Number in effect as of the date of such Qualified Redemption
times (b) the percentage corresponding to the date of such Qualified Redemption
set forth below:
Date of Qualified Redemption Percentage
---------------------------- ----------
Commencement Date to June 30, 1998 38.22%
July 1, 1998 to June 30, 1999 52.38%
July 1, 1999 to June 30, 2000 67.35%
After June 30, 2000 0% (i.e., no reduction)
If the Holder is the owner of any Series B Preferred and makes any Series B
Elective Redemption pursuant to the Certificate of Incorporation prior to June
30, 2000 (and the Company has not then effected a Qualified Redemption), the
Aggregate Number of Warrant Shares shall be reduced as if the Company had
effected a Qualified Redemption on the date of consummation of the Series B
Elective Redemption. In order to accommodate any prospective reduction in the
Aggregate Number as provided in this Section 2, the Holder shall not, prior to
June 30, 2000, exercise this Warrant as to any portion of the Aggregate Number
which may be subject to reduction as provided herein; provided, that this
Warrant may be exercised as to all Warrant Shares covered hereby (subject to any
reduction resulting from any concurrent redemption of the Series B Preferred) at
any time after the fifth (5th) Business Day after the occurrence of any event
with respect to which the Required Holders may exercise their put right pursuant
to Section 11(b) hereof.
41
SECTION 3. Exercise.
(a) Right to Exercise. Subject to Section 2, at any time after the
Commencement Date and on or before the Expiration Date, the Holder, in
accordance with the terms hereof, may exercise this Warrant, in whole at any
time or in part from time to time, by delivering this Warrant to the Company
during normal business hours on any Business Day at the Company's Principal
Office, together with the Notice of Exercise, in the form attached hereto as
Exhibit A and made a part hereof (the "Notice of Exercise"), duly executed, and
payment of the Exercise Price per share for the number of shares to be purchased
(the "Exercise Amount"), as specified in the Notice of Exercise. If the
Expiration Date is not a Business Day, then this Warrant may be exercised on the
next succeeding Business Day.
(b) Payment of Exercise Price. Payment of the Aggregate Exercise Price
(as defined below) shall be made to the Company in cash or other immediately
available funds or as provided in Section 3(c), or a combination thereof. In the
case of payment of all or a portion of the Aggregate Exercise Price pursuant to
Section 3(c), the written direction by the Holder to make a "Cashless Exercise"
shall serve as accompanying payment for that portion of the Aggregate Exercise
Price. The amount to be paid upon exercise (the "Aggregate Exercise Price")
shall equal the product of (i) the Exercise Amount multiplied by (ii) the
Exercise Price.
(c) Cashless Exercise. The Holder shall have the right to pay all or a
portion of the Aggregate Exercise Price by making a "Cashless Exercise" pursuant
to this Section 3(c), in which case the portion of the Aggregate Exercise Price
to be so paid shall be paid by reducing the number of shares of Class B Common
otherwise issuable pursuant to the Notice of Exercise by an amount equal to (i)
the Exercise Price to be so paid divided by (ii) the Fair Market Value Per
Share. The number of shares of Class B Common to be issued to the Holder as a
result of a Cashless Exercise will therefore be as follows:
(Fair Market Value Per
Share-Exercise Price per share)
x Cashless Exercise Amount*
Fair Market Value Per Share
* The Cashless Exercise Amount in the above formula is that portion of the
Exercise Amount (expressed as a number of shares of Class B Common) with
respect to which the Aggregate Exercise Price is being paid by Cashless
Exercise pursuant to this Section 3(c).
(d) Issuance of Shares of Common Stock. Upon receipt by the Company of
this Warrant at its Principal Office in proper form for exercise, and
accompanied by payment of the Exercise Price as aforesaid, the Holder shall be
deemed to be the holder of record of the shares of Class B Common issuable upon
such exercise, notwithstanding that certificates representing such shares of
Class B Common may not then be actually delivered. Upon such surrender of this
Warrant and payment of the Aggregate Exercise Price as aforesaid, the Company
shall issue and cause to be delivered with all reasonable dispatch to, or upon
the written order of, the Holder (and in such name or names as the Holder may
designate) a certificate or certificates for the Exercise Amount, subject to any
reduction as provided in Section 3(c) for a Cashless Exercise.
42
(e) Fractional Shares. The Company shall not be required to deliver
fractions of shares of Class B Common upon exercise of this Warrant. If any
fraction of a share of Class B Common would be deliverable upon an exercise of
this Warrant, the Company may, in lieu of delivering such fraction of a share of
Class B Common, make a cash payment to the Holder in an amount equal to the same
fraction multiplied by the Fair Market Value Per Share determined as of the
Business Day immediately preceding the date of exercise of this Warrant.
(f) Partial Exercise. In the event of a partial exercise of this
Warrant, the Company shall issue to the Holder a Warrant in like form for the
unexercised portion thereof.
SECTION 4. Payment of Taxes. The Company shall pay all stamp taxes
attributable to the initial issuance of shares or other securities issuable upon
the exercise of this Warrant or issuable pursuant to Section 7 hereof, excluding
any tax or taxes which may be payable because of the transfer involved in the
issuance or delivery of any certificates for shares or other securities in a
name other than that of the Holder in respect of which such shares or securities
are issued.
SECTION 5. Replacement Warrant. In case this Warrant is mutilated, lost,
stolen or destroyed, the Company shall issue and deliver in exchange and
substitution for and upon cancellation of the mutilated Warrant, or in lieu of
and in substitution for the Warrant lost, stolen or destroyed, a new Warrant of
like tenor and representing an equivalent right or interest, but only upon
receipt of evidence reasonably satisfactory to the Company of such loss, theft
or destruction of such Warrant and upon receipt of indemnity reasonably
satisfactory to the Company (provided that in the case of the Original Holder,
its own agreement shall be satisfactory).
SECTION 6. Reservation of Common Stock and Other Covenants.
(a) Reservation of Authorized Common Stock. The Company shall at all
times reserve and keep available out of the aggregate of its authorized but
unissued shares, free of preemptive rights, such number of its duly authorized
shares of Common Stock, or other stock or securities deliverable pursuant to
Section 7 hereof, as shall be sufficient to enable the Company at any time to
fulfill all of its obligations under this Warrant.
(b) Affirmative Actions to Permit Exercise and Realization of Benefits.
If any shares of Class B Common reserved or to be reserved for the purpose of
the exercise of this Warrant, or any shares or other securities reserved or to
be reserved for the purpose of issuance pursuant to Section 7 hereof, require
registration with or approval of any governmental authority under any federal or
state law before such shares or other securities may be validly delivered upon
exercise of this Warrant, then the Company covenants that it will, at its sole
expense, use its good faith efforts to attempt to secure such registration or
approval, as the case may be (including but not limited to making necessary
filings in order to secure approvals or expirations of waiting periods required
under the ▇▇▇▇-▇▇▇▇▇-▇▇▇▇▇▇ Antitrust Improvements Act).
(c) Regulatory Requirements and Restrictions. In the event of any
reasonable determination by the Holder that, by reason of any existing or future
federal or state law, statute, rule, regulation, guideline, order, court or
administrative ruling, request or directive (whether or not having the force of
law and whether or not failure to comply therewith would be unlawful)
43
(collectively, a "Regulatory Requirement"), the Holder is effectively restricted
or prohibited from holding this Warrant or the Warrant Shares (including any
shares of capital stock or other securities distributable to the Holder in any
merger, reorganization, readjustment or other reclassification), or otherwise
realize upon or receive the benefits intended under this Warrant, the Company
shall cooperate with the Holder in such action as the Holder may deem reasonably
necessary to permit the Holder to comply with such Regulatory Requirement;
provided, that nothing contained in this Section 6(c) shall be construed to
prohibit any director or officer of the Company from discharging his or her
fiduciary duty to the Company or its shareholders. The costs of taking such
action, whether by the Company, the Holder or otherwise, shall be borne by the
Holder. The Holder shall give written notice to the Company of any such
determination and the action or actions necessary to comply with such Regulatory
Requirement, together with a written opinion of counsel for such Holder to the
effect that the proposed action or actions are necessary to comply with such
Regulatory Requirement, and the Company shall use its good faith efforts to
facilitate the Holder's compliance with such Regulatory Requirement as
expeditiously as possible.
(d) Validly Issued Shares. The Company covenants that all shares of
Common Stock that may be delivered upon exercise of this Warrant (including
those issued pursuant to Section 7 hereof) shall upon delivery by the Company be
duly authorized and validly issued, fully paid and nonassessable, free from all
taxes, liens and charges with respect to the issue or delivery thereof and
otherwise free of all other security interests, encumbrances and claims of any
nature whatsoever.
SECTION 7. Adjustments to Aggregate Number. Under certain conditions,
the Aggregate Number is subject to adjustment as set forth in this Section 7. No
adjustments shall be made under this Section 7 as a result of (a) the issuance
by the Company of the Warrant Shares upon exercise of this Warrant, (b) the
conversion of the Class A Common into the Class B Common as permitted under the
Certificate of Incorporation or (c) the issuance of up to 3,500,000 shares of
Class A Common pursuant to the Stock Option Plans.
(a) Adjustments. The Aggregate Number, after taking into consideration
any prior adjustments pursuant to this Section 7, shall be subject to adjustment
from time to time as follows and, thereafter, as adjusted, shall be deemed to be
the Aggregate Number hereunder.
(i) Stock Dividends, Subdivisions and Combinations. In case at
any time or from time to time the Company shall:
(A) pay or otherwise distribute to the holders of its Common
Stock a dividend, or other distribution of, Common Stock (a "Stock
Dividend"),
(B) subdivide its outstanding shares of Common Stock into a
larger number of shares of Common Stock, including without
limitation by means of a stock split (a "Stock Subdivision"), or
(C) combine its outstanding shares of Common Stock into a
smaller number of shares of Common Stock (a "Stock Combination"),
44
then the Aggregate Number in effect immediately prior thereto shall be (1)
proportionately increased in the case of a Stock Dividend or a Stock Subdivision
and (2) proportionately decreased in the case of a Stock Combination. In the
event the Company shall declare or pay, without consideration, any dividend on
the Common Stock payable in any right to acquire Common Stock for no
consideration, then the Company shall be deemed to have made a Stock Dividend in
an amount of shares equal to the maximum number of shares issuable upon exercise
of such rights to acquire Common Stock.
(ii) Other Distributions. In case at any time or from time to
time the Company shall pay or otherwise distribute to the holders of its Common
Stock any dividend or other distribution (collectively, a "Distribution") of:
(A) cash (other than regular cash dividends declared and paid in
the ordinary course of business of the Company),
(B) any evidences of its indebtedness (other than Convertible
Securities), any shares of its capital stock (other than additional
shares of Common Stock or Convertible Securities) or any other
securities or property of any nature whatsoever (other than cash),
or
(C) any options, warrants or other rights to subscribe for or
purchase any of the following: any evidences of Indebtedness (other
than Convertible Securities), any shares of its capital stock (other
than additional shares of Common Stock or Convertible Securities) or
any other securities or property of any nature whatsoever,
then the Holder shall be entitled to elect by written notice to the Company to
receive (1) immediately and without further payment the cash, evidences of
indebtedness, stock, securities, other property, options, warrants and/or other
rights (or any portion thereof) to which the Holder would have been entitled by
way of such Distribution as if the Holder had exercised this Warrant immediately
prior to the record date with respect to such Distribution or (2) upon the
exercise of this Warrant at any time on or after the taking of a record of the
holders of the Common Stock for the purpose of determining the shareholders
entitled to receive such Distribution, the number of Warrant Shares to be
received upon exercise of this Warrant determined as stated herein and, in
addition and without further payment, the cash, evidences of indebtedness,
stock, securities, other property, options, warrants and/or other rights (or any
portion thereof) to which the Holder would have been entitled by way of such
Distribution and subsequent dividends and distributions through the date of
exercise as if such Holder (x) had exercised this Warrant immediately prior to
the record date with respect to such Distribution and (y) had retained the
Distribution in respect of the Common Stock and all subsequent dividends and
distributions of any nature whatsoever in respect of any stock or securities
paid as dividends and distributions and originating directly or indirectly from
such Common Stock.
A reclassification of the Common Stock into shares of Common Stock and
shares of any other class of stock shall be deemed a Distribution by the Company
to the holders of its Common Stock of such
45
shares of such other class of stock and, if the outstanding shares of Common
Stock shall be changed into a larger or smaller number of shares of Common Stock
as a part of such reclassification, such event shall be deemed a Stock
Subdivision or Stock Combination, as the case may be, of the outstanding shares
of Common Stock within the meaning of Section 7(a)(i) hereof.
(iii) Issuance of Common Stock. If at any time or from time to
time the Company shall (except as hereinafter provided in this Section
7(a)(iii)) issue or sell any additional shares of Common Stock for a
consideration per share which is the lesser of the Closing Date Value Per Share
or the Fair Market Value Per Share (such lesser value, the "Transaction Value
Per Share") then, effective on the date specified below, the Aggregate Number
shall be adjusted by multiplying (A) the Aggregate Number immediately prior
thereto by (B) a fraction, the numerator of which shall be the sum of the number
of shares of Common Stock outstanding immediately prior to the issuance of such
additional shares of Common Stock, the number of shares of Common Stock issuable
upon the conversion or exercise of options, warrants, rights or convertible
securities (whether or not then exercisable), and the number of such additional
shares of Common Stock so issued and the denominator of which shall be the sum
of the number of shares of Common Stock outstanding immediately prior to the
issuance of such additional shares of Common Stock, the number of shares of
Common Stock issuable upon the conversion or exercise of options, warrants,
rights or convertible securities (whether or not then exercisable), and the
number of shares of Common Stock which the aggregate consideration for the total
number of such additional shares of Common Stock so issued would purchase at the
Transaction Value Per Share.
The provisions of this Section 7(a)(iii) shall not apply to any issuance
of additional shares of Common Stock for which an adjustment is otherwise
provided under Section 7(a)(i) hereof. No adjustment of the Aggregate Number
shall be made under this Section 7(a)(iii) upon the issuance of any additional
shares of Common Stock which are issued pursuant to (1) the exercise of this
Warrant in whole or in part, (2) the exercise of other subscription or purchase
rights or (3) the exercise of any conversion or exchange rights in any
Convertible Securities, provided that for purposes of clauses (2) or (3) an
adjustment shall previously have been made upon the issuance of such other
rights or upon the issuance of such Convertible Securities (or upon the issuance
of any warrants or other rights therefor) pursuant to Section 7(a)(iv) or (v)
hereof.
(iv) Warrants and Options. If at any time or from time to time
the Company shall effect a distribution of, or shall in any manner (whether
directly, by assumption in a merger in which the Company is the surviving
corporation and in which the shareholders of the Company immediately prior to
the merger continue to own more than fifty percent (50%) of the Outstanding
Common Stock immediately after the merger and for a period of one hundred eighty
(180) days thereafter, or otherwise) issue or sell any warrants, options or
other rights to subscribe for or purchase (A) any shares of Common Stock or (B)
any Convertible Securities, whether or not the rights to subscribe, purchase,
exchange or convert thereunder are immediately exercisable, and the
consideration per share for which additional shares of Common Stock may at any
time thereafter be issuable pursuant to such warrants, options or other rights
or pursuant to the terms of such Convertible Securities shall be less than the
Transaction Value Per Share (determined on the date specified below), then the
Aggregate Number shall be adjusted as provided in Section 7(a)(iii) hereof on
the basis that (1) the maximum number of additional shares of Common Stock
issuable pursuant to all such warrants, options or other rights or necessary to
effect the conversion or exchange of all such Convertible Securities shall be
deemed to have been issued as of the date of the determination of the
Transaction Value Per Share as hereinafter provided and (2) the aggregate
46
consideration for such maximum number of additional shares of Common Stock shall
be deemed to be the minimum consideration received and receivable by the Company
for the issuance of such additional shares of Common Stock pursuant to the terms
of such warrants, options or other rights or such Convertible Securities. For
purposes of this Section 7(a)(iv), the effective date of such adjustment and the
date as of which the Transaction Value Per Share shall be computed shall be the
earliest of (A) the date on which the Company shall take a record of the holders
of its Common Stock for the purpose of entitling them to receive any such
warrants, options or other rights, (B) the date on which the Company shall enter
into a firm contract or commitment for the issuance of such warrants, options or
other rights and (C) the date of actual issuance of such warrants, options or
other rights.
(v) Convertible Securities. If at any time or from time to time
the Company shall effect a distribution of or shall in any manner (whether
directly, by assumption in a merger in which the Company is the surviving
corporation and in which the shareholders of the Company immediately prior to
the merger continue to own more than fifty percent (50%) of the Outstanding
Common Stock immediately after the merger and for a period of one hundred eighty
(180) days thereafter, or otherwise) issue or sell Convertible Securities,
whether or not the rights to exchange or convert thereunder are immediately
exercisable, and the consideration per share for the additional shares of Common
Stock which may at any time thereafter be issuable pursuant to the terms of such
Convertible Securities shall be less than the Transaction Value Per Share
(determined on the date specified below), then the Aggregate Number shall be
adjusted as provided in Section 7(a)(iii) hereof on the basis that (A) the
maximum number of additional shares of Common Stock necessary to effect the
conversion or exchange of all such Convertible Securities shall be deemed to
have been issued as of the date of the determination of the Transaction Value
Per Share as herein provided and (B) the aggregate consideration for such
maximum number of additional shares of Common Stock shall be deemed to be the
minimum consideration received and receivable by the Company for the issuance of
such additional shares of Common Stock pursuant to the terms of such Convertible
Securities. For purposes of this Section 7(a)(v), the effective date of such
adjustment and the date as of which the Transaction Value Per Share shall be
computed shall be the earliest of (1) the date on which the Company shall take a
record of the holders of its Common Stock for the purpose of entitling them to
receive any such Convertible Securities, (2) the date on which the Company shall
enter into a firm contract or commitment for the issuance of such Convertible
Securities and (3) the date of actual issuance of such Convertible Securities.
No adjustment of the Aggregate Number shall be made under this Section
7(a)(v) upon the issuance of any Convertible Securities which are issued
pursuant to the exercise of any warrants, options or other subscription or
purchase rights if an adjustment shall previously have been made or if no such
adjustment shall have been required upon the issuance of such warrants, options
or other rights pursuant to Section 7(a)(iv) hereof.
(vi) Subsequent Adjustments. If at any time after any adjustment
of the Aggregate Number shall have been made pursuant to Section 7(a)(iv) or (v)
hereof on the basis of the issuance of warrants, options or other rights or the
issuance of Convertible Securities, or after any new adjustments of the
Aggregate Number shall have been made pursuant to this Section 7(a)(vi),
47
(A) such warrants, options or rights or the right of conversion
or exchange in such Convertible Securities shall expire, and a
portion of such warrants, options or rights, or the right of
conversion or exchange in respect of a portion of such Convertible
Securities, as the case may be, shall not have been exercised prior
to such expiration, and/or
(B) in the case of adjustments made pursuant to Section 7(a)(iv)
or (v), the consideration per share for which shares of Common Stock
are issuable pursuant to such warrants, options or rights or the
terms of such Convertible Securities shall be irrevocably increased
solely by virtue of provisions therein contained for an automatic
increase in such consideration per share upon the arrival of a
specified date or the happening of a specified event,
such previous adjustment shall be rescinded and annulled and the additional
shares of Common Stock which were deemed to have been issued by virtue of the
computation made in connection with such adjustment shall no longer be deemed to
have been issued by virtue of such computation. Simultaneously therewith, a
recomputation shall be made of the effect of such warrants, options or rights or
Convertible Securities on the determination of the Aggregate Number, which shall
be made on the basis of:
(1) treating the number of additional shares of Common Stock, if
any, theretofore actually issued or issuable pursuant to the
previous exercise of such warrants, options or rights or such right
of conversion or exchange as having been issued on the date or dates
of such exercise and, in the case of a recomputation of a
calculation originally made pursuant to Section 7(a)(iv) or (v), for
the consideration actually received and receivable therefor, and
(2) in the case of a recomputation of a calculation originally
made pursuant to Section 7(a)(iv) or (v), treating any such
warrants, options or rights or any such Convertible Securities which
then remain outstanding as having been granted or issued immediately
after the time of such irrevocable increase of the consideration per
share for which shares of Common Stock are issuable under such
warrants, options or rights or Convertible Securities;
and, if and to the extent called for by the foregoing provisions of Section
7(a)(vi) on the basis aforesaid, a new adjustment of the Aggregate Number shall
be made, such new adjustment shall supersede the previous adjustment so
rescinded and annulled.
(vii) Miscellaneous. The following provisions shall be applicable
to the making of adjustments of the Aggregate Number provided above in this
Section 7(a):
(A) The sale or other disposition of any issued shares of Common
Stock owned or held by or for the account of the Company or any of
its Subsidiaries shall be deemed an issuance thereof for the
purposes of this Section 7(a).
(B) To the extent that any additional shares of Common Stock or
any Convertible Securities or any warrants, options or other rights
to subscribe for or purchase
48
any additional shares of Common Stock or any Convertible Securities
(1) are issued solely for cash consideration, the consideration
received by the Company therefor shall be deemed to be the amount of
the cash received by the Company therefor, (2) are offered by the
Company for subscription, the consideration received by the Company
shall be deemed to be the subscription price, or (3) are sold to
underwriters or dealers for public offering, the consideration
received by the Company shall be deemed to be the public offering
price, in any such case excluding any amounts paid or receivable for
accrued interest or accrued dividends. To the extent that such
issuance shall be for a consideration other than cash, or partially
for cash and partially for other consideration, then, except as
otherwise expressly provided herein, the amount of such
consideration shall be deemed to be the fair market value of such
consideration (plus, if applicable, the amount of such cash), at the
time of such issuance, determined in the manner set forth in Section
7(d)(i). In case any additional shares of Common Stock or any
Convertible Securities or any warrants, options or other rights to
subscribe for or purchase such additional shares of Common Stock or
Convertible Securities shall be issued in connection with any merger
in which the Company is the survivor and issues any securities, the
amount of consideration therefor shall be deemed to be the fair
market value of such additional shares of Common Stock, Convertible
Securities, warrants, options or other rights, as the case may be,
determined in the manner set forth in Section 7(d)(i).
The consideration for any shares of Common Stock issuable
pursuant to the terms of any Convertible Securities shall be equal
to (x) the consideration received by the Company for issuing any
warrants, options or other rights to subscribe for or purchase such
Convertible Securities, plus (y) the consideration paid or payable
to the Company in respect of the subscription for or purchase of
such Convertible Securities, plus (z) the consideration, if any,
payable to the Company upon the exercise of the right of conversion
or exchange of such Convertible Securities.
In case of the issuance at any time of any additional shares of
Common Stock or Convertible Securities in payment or satisfaction of
any dividends upon any class of stock other than Common Stock, the
Company shall be deemed to have received for such additional shares
of Common Stock or Convertible Securities a consideration equal to
the amount of such dividend so paid or satisfied.
(C) The adjustments required by the preceding paragraphs of this
Section 7(a) shall be made whenever and as often as any specified
event requiring an adjustment shall occur, except that no adjustment
of the Aggregate Number that would otherwise be required shall be
made (except in the case of a Stock Subdivision or Stock
Combination, as provided for in Section 7(a)(i) hereof) unless and
until such adjustment either by itself or with other adjustments not
previously made adds or subtracts at least one one-hundredth (0.01)
of one share to or from the Aggregate Number immediately prior to
the making of such adjustment. Any adjustment representing a change
of less than such minimum amount (except as aforesaid) shall be
carried forward and made as soon as such adjustment, together with
other adjustments required by this Section 7(a) and not previously
made, would result in a minimum adjustment. For the purpose of any
adjustment, any specified event shall be deemed to have occurred at
the close of business on the date of its occurrence.
49
(D) In computing adjustments under this Section 7(a), fractional
interests in Common Stock shall be taken into account to the nearest
one-thousandth (0.001) of a share.
(E) If the Company shall take a record of the holders of its
Common Stock for the purpose of entitling them to receive a dividend
or distribution or subscription or purchase rights and shall,
thereafter and before the distribution to shareholders thereof,
legally abandon its plan to pay or deliver such dividend,
distribution, subscription or purchase rights, then no adjustment
shall be required by reason of the taking of such record and any
such adjustment previously made in respect thereof shall be
rescinded and annulled.
(b) Changes in Common Stock. In case at any time the Company shall
initiate any transaction or be a party to any transaction (including, without
limitation, a merger, consolidation, share exchange, sale, lease or other
disposition of all or substantially all of the Company's assets, liquidation,
recapitalization or reclassification of the Common Stock) in connection with
which the previous Outstanding Common Stock shall be changed into or exchanged
for different securities of the Company or capital stock or other securities of
another corporation or interests in a non-corporate entity or other property
(including cash) or any combination of the foregoing (each such transaction
being herein called a "Transaction"), then, as a condition of the consummation
of the Transaction, lawful, enforceable and adequate provision shall be made so
that the Holder shall be entitled to elect by written notice to the Company to
receive (i) a new warrant in form and substance similar to, and in exchange for,
this Warrant to purchase all or a portion of such securities or other property
or (ii) upon exercise of this Warrant at any time on or after the consummation
of the Transaction, in lieu of the Warrant Shares issuable upon such exercise
prior to such consummation, the securities or other property (including cash) to
which such Holder would have been entitled upon consummation of the Transaction
if such Holder had exercised this Warrant immediately prior thereto (subject to
adjustments from and after the consummation date as nearly equivalent as
possible to the adjustments provided for in this Section 7). The Company will
not effect any Transaction unless the definitive documentation relating to such
Transaction provides for the assumption prior to the consummation thereof, by
each corporation or other entity (other than the Company) which may be required
to deliver any new warrant, securities or other property as provided herein, of
the obligation to deliver to such Holder such new warrant, securities or other
property in accordance with the foregoing provisions. The foregoing provisions
of this Section 7(b) shall similarly apply to successive Transactions.
(c) Other Action Affecting Common Stock. In case at any time or from
time to time the Company shall take any action of the type contemplated in
Section 7(a) or (b) hereof but not expressly provided for by such provisions
(including, without limitation, the granting of stock appreciation rights,
phantom stock rights or other rights, in each case to the extent having equity
features), then, unless in the opinion of the Board of Directors such action
will not have a material adverse effect upon the rights of the Holder (taking
into consideration, if necessary, any prior actions which the Board of Directors
deemed not to materially adversely affect the rights of the Holder), the
Aggregate Number shall be adjusted in such manner and at such time as the Board
of Directors of the Company may in good faith determine to be equitable in the
circumstances.
50
(d) Notices.
(i) Notice of Proposed Actions. In case the Company shall propose
(A) to pay any dividend payable in stock of any class to the holders of its
Common Stock or to make any other distribution to the holders of its Common
Stock, (B) to offer to the holders of its Common Stock rights to subscribe for
or to purchase any Convertible Securities or additional shares of Common Stock
or shares of stock of any class or any other securities, warrants, rights or
options, (C) to effect any reclassification of its Common Stock, (D) to effect
any recapitalization, stock subdivision, stock combination or other capital
reorganization, (E) to effect any consolidation or merger, share exchange, or
sale, lease or other disposition of all or substantially all of its property,
assets or business or (F) to effect the liquidation, dissolution or winding up
of the Company, then in each such case the Company shall give to the Holder
written notice of such proposed action, which shall specify the date on which a
record is to be taken for the purposes of such stock dividend, distribution or
rights, or the date on which such reclassification, reorganization,
consolidation, merger, share exchange, sale, transfer, disposition, liquidation,
dissolution or winding up is to take place and the date of participation therein
by the holders of Common Stock, if any such date is to be fixed, or the date on
which the transfer of Common Stock is to occur, and shall also set forth such
facts with respect thereto as shall be reasonably necessary to indicate the
effect of such action on the Common Stock and on the Aggregate Number after
giving effect to any adjustment which will be required as a result of such
action. Such notice shall be so given in the case of any action covered by
clause (A) or (B) above at least ten (10) days prior to the record date for
determining holders of the Common Stock for purposes of such action and, in the
case of any other such action, at least ten (10) days prior to the earlier of
the date of the taking of such proposed action or the date of participation
therein by the holders of Common Stock.
(ii) Adjustment Notice. Whenever the Aggregate Number is to be
adjusted pursuant to this Section 7, unless otherwise agreed by the Holder, the
Company shall forthwith prepare a certificate which shall set forth, in
reasonable detail, the event requiring the adjustment and the method by which
such adjustment is to be calculated. The certificate shall set forth, if
applicable, a description of the basis on which the Board of Directors
determined, as applicable, the Fair Market Value Per Share, the Closing Date
Value Per Share, the fair market value of any evidences of Indebtedness, shares
of stock, other securities, warrants, other subscription or purchase rights, or
other property or the equitable nature of any adjustment under Section 7(b) or
(c) hereof, the new Aggregate Number and, if applicable, any new securities or
property to which the Holder is entitled. The Company shall promptly cause a
copy of such certificate, signed by the chief financial officer of the Company,
to be delivered to the Holder. In the case of any determination of Fair Market
Value Per Share, such certificate shall be delivered to the Holder within the
time period set forth in the definition of Fair Market Value Per Share and the
Holder may object thereto as provided therein. In the case of any other
determination of fair market value (including the fair market value of any
evidences of indebtedness, shares of stock, other securities, warrants, other
subscription or purchase rights or other property), the Holder may object to the
determination in such certificate by giving written notice within ten (10) days
of the receipt of such certificate and, if the Holder and the Company cannot
agree to the fair market value within ten (10) days of the date of the Holder's
objection, the fair market value shall be determined by a national or regional
investment bank or a national accounting firm mutually selected by the Holder
and the Company, the fees and expenses of which shall be paid fifty percent
(50%) by the Company and fifty percent (50%) by the Holder.
51
The Company shall keep at its Principal Office copies of all such certificates
and cause the same to be available for inspection at said office during normal
business hours by the Holder or any prospective purchaser of the Warrant (in
whole or in part) if so designated by the Holder.
SECTION 8. No Dilution or Impairment. The Company will not, by amendment
of its Certificate of Incorporation or through any reorganization,
recapitalization, transfer of assets, consolidation, merger, share exchange,
dissolution or any other voluntary action, avoid or seek to avoid the observance
or performance of any of the terms of this Warrant, including without limitation
the adjustments required under Section 7 hereof, and will at all times in good
faith assist in the carrying out of all such terms and in taking of all such
action as may be necessary or appropriate to protect the rights of the Holder
against dilution or other impairment. Without limiting the generality of the
foregoing and notwithstanding any other provision of this Warrant to the
contrary (including by way of implication), the Company (a) will not increase
the par value of any shares of Class B Common receivable on the exercise of this
Warrant above the amount payable therefor on such exercise, (b) will take all
such action as may be necessary or appropriate so that the Company may validly
and legally issue fully paid and nonassessable shares of Class B Common on the
exercise of this Warrant, (c) will not effect any stock split, stock
combination, recapitalization or other change affecting any class of Common
Stock unless such change is also made with respect to all other classes of
Common Stock, (d) will not pay any dividend or make any other distribution with
respect to any class of Common Stock unless dividends are paid and distributions
are made at the same rate on all classes of Common Stock (and if any such
dividend is a stock dividend, such dividend shall be declared in shares of the
applicable class to the holders of such class) and (e) will not take any other
action intended to treat, or having the effect of treating, any class of Common
Stock in a manner which impairs, or is otherwise different from, any other class
of Common Stock.
SECTION 9. Board Visitation Rights. For so long as the Original Holder
or any of its Affiliates (the "Original Holder Group") beneficially owns at
least 50% of the Aggregate Number (after any reduction or adjustment as provided
herein), or Warrants exercisable therefor, the Company shall (a) permit two
representatives of the Original Holder Group to attend all meetings of the Board
of Directors of the Company, or any committee thereof, (b) provide copies to
such representatives of all materials furnished to the members of the Board of
Directors or any committee thereof, (c) pay all out-of-pocket expenses incurred
by such representatives in connection with their attendance in person at all
such meetings as long as the Original Holder Group beneficially owns any shares
of Series B Preferred and (d) give each such representative designated by the
Original Holder Group at least five (5) Business Days' advance written notice of
any such meeting. One such representative, for so long as the Original Holder
Group holds a majority of the outstanding shares of Series B Preferred, shall be
the director elected by the holders of the Series B Preferred pursuant to the
terms of the Certificate of Incorporation.
52
SECTION 10. Transfers of the Warrant.
(a) Generally. Subject to the restrictions set forth in Section 1(b) and
this Section 10, the Holder may at any time and from time to time freely
transfer this Warrant and the Warrant Shares in whole or in part. This Warrant
has not been, and the Warrant Shares at the time of their issuance may not be,
registered under the Securities Act of 1933 (the "Securities Act"), and, except
as provided in any separate registration rights agreement, nothing herein
contained shall be deemed to require the Company to so register this Warrant and
the Warrant Shares. This Warrant and the Warrant Shares are issued or issuable
subject to the provisions and conditions contained herein and in the Purchase
Agreement, and every Holder hereof by accepting the same agrees with the Company
to such provisions and conditions, and represents to the Company that this
Warrant has been acquired and the Warrant Shares will be acquired for the
account of the Holder for investment and not with a view to or for sale in
connection with any distribution thereof.
(b) Restrictive Securities Legend. The certificate representing the
shares of Class B Common issued upon the exercise of the Warrant shall bear the
restrictive legend set forth below:
"The shares represented by this certificate have not been registered
under the Securities Act of 1933, or the securities laws of any State
and may not be sold or otherwise disposed of except pursuant to an
effective registration statement under such Act and applicable State
securities laws or pursuant to an applicable exemption from the
registration requirements of such Act and such laws."
(c) Certain Transfer Restrictions. At any time prior to the initial
Public Offering, this Warrant and the Warrant Shares may only be transferred, in
whole or in part, to a Person other than a Company Competitor (any such Person,
a "Permitted Transferee") upon ninety (90) days prior written notice to the
Company; provided, that any such Permitted Transferee acquires aggregate
interests in this Warrant and any Warrant Shares for not less than 20% of the
Aggregate Number (as reduced and adjusted from time to time), or (if less) all
of the Aggregate Number held by the transferor; provided further, that in
connection with any such transfer to an Affiliate or successor of the Holder,
the Holder shall be required to give written notice of such transfer to the
Company within ten (10) days after such transfer.
SECTION 11. Option to Put.
(a) Put Rights. Notwithstanding any other provision of this Warrant, the
Required Holders may elect by giving the Company written notice thereof pursuant
to Section 12(a) hereof, from time to time, at any time after the occurrence of
a "Put Event" (as defined in Section 11(b) hereof) and prior to the Expiration
Date, to sell to the Company (at a price established pursuant to Section 12(b)
hereof) this Warrant, the Warrant Shares or any portion thereof (based on the
Aggregate Number then in effect pursuant to Section 2 hereof) and the Company
shall be required to purchase such Warrant, Warrant Shares or portion thereof
(collectively, the "Warrant Securities") in accordance with the terms hereof and
Section 12 hereof.
(b) Put Events. The right of the Required Holders to require the Company
to purchase the Warrant Securities or any portion thereof under Section 11(a)
hereof shall be exercisable at any
53
time after the fifth (5th) Business Day after the occurrence of any of the
following events or circumstances (each a "Put Event"):
(i) June 30, 2002;
(ii) Any Public Offering;
(iii) Any Change in Control;
(iv) the voluntary sale, conveyance, exchange or transfer to another
Person of all or substantially all of the assets of the Company
or the liquidation, winding up or dissolution of the Company or
any Subsidiary thereof; or
(v) Any Event of Default (as defined in Section 14).
provided, that (A) the Required Holders shall not be entitled to exercise their
rights under Section 11(b)(ii) unless (1) such Public Offering is for the
account of any holder of Common Stock of the Company (in whole or in part) and
(2) the Holders do not participate in such offering on a pro rata basis with all
other holders of Common Stock participating in such offering (unless any such
Holder elects not to so participate) and (B) the Required Holders shall not be
entitled to exercise their rights under Section 11(b)(iii) and (iv) in
connection with, and such rights shall expire upon the consummation of, a
Cash-Out Transaction.
SECTION 12. Manner of Redemption.
(a) Put Notice. The Required Holders shall give notice of exercise (the
"Put Notice") of the option under Section 11 hereof to put the Warrant
Securities to the Company by hand delivery, receipt requested, by nationally
recognized overnight delivery service, or by registered first-class mail,
postage prepaid. Such notice shall be mailed or, in the case of hand delivery or
nationally recognized overnight delivery service, delivered (such date of
mailing or delivery being the Exercise Date") not less than thirty (30) (or in
the case of Section 11(b)(i) not less than forty-five (45)) nor more than sixty
(60) days prior to the date set forth in the notice as the date fixed for
redemption (the "Redemption Date"), to the Company at its Principal Office. All
redemption notices shall set forth the Redemption Date and the Warrant
Securities to be redeemed.
(b) Exercise Notice. Within five (5) Business Days after receipt of a
Put Notice from the Required Holders, the Company shall give written notice of
such exercise (the "Exercise Notice") to each other holder of Warrant Securities
(such other holders being referred to herein collectively as the "Other
Holders"). Each Other Holder will have the right to participate in the
redemption and require the Company to redeem all or any portion of such Other
Holder's Warrant Securities by delivering written notice thereof to the Company
within ten (10) Business Days following receipt of the Exercise Notice. All such
notices delivered by such Other Holders will be deemed to have been delivered as
of the date of the initial Put Notice and taken together will be deemed to be
one exercise of the rights of such Required Holders and Other Holders to put all
or a portion of their Warrant Securities as provided hereunder.
54
(c) Redemption Price. The purchase price (the "Redemption Price") of the
Warrant Securities or any part thereof to be redeemed by the Company hereunder
shall be calculated (for the purposes of a redemption under this Section 12) as
of the Exercise Date (the "Redemption Price Calculation Date") and shall be
equal to (i) in the case of this Warrant, the product of (A) the difference of
(1) the Fair Market Value Per Share minus (2) the Exercise Price per share then
in effect multiplied by (B) that portion of this Warrant (expressed in Warrant
Shares) to be redeemed and (ii) in the case of any Warrant Shares issued upon
exercise of this Warrant, the product of (A) the Fair Market Value Per Share
multiplied by (B) that number of Warrant Shares to be redeemed.
(d) Closing. On the Redemption Date, the holders of the Warrant
Securities to be redeemed shall surrender such Warrant Securities to the Company
at its Principal Office or such other place as may be set forth in the Put
Notice on tender by the Company of the Redemption Price in cash or other
immediately available funds. Payment of the Redemption Price shall only be out
of Legally Available Funds. In the event any appraisal to be conducted in
connection with the determination of Fair Market Value Per Share has not been
completed five (5) Business Days prior to the Redemption Date, the Redemption
Date shall be postponed until five (5) Business Days after the completion of
such appraisal.
(e) Partial Exercise. If any warrant is redeemed only in part, the
Company shall issue a new warrant or warrants for the remaining portion of the
warrant, which warrant shall be registered in the name of and delivered to the
appropriate holder.
(f) No Restrictive Agreements; Legally Available Funds.
(i) Covenant Not to Impair Put Rights. The Company covenants and
agrees that it shall not, without the prior written consent of the Required
Holders, enter into or agree to become subject to any term, condition, provision
or agreement that would materially impair the Company's ability to perform its
obligations under Sections 11 and 12; provided, that the Company may enter an
agreement that provides rights similar to, but no more advantageous than
(including with respect to each event triggering a put right pursuant to Section
11), the rights granted to the Holder in Section 11 hereof so long as such
rights of the Holder rank pari passu with, or senior to, any such similar rights
granted to any other Person. The Company represents to the Holder that the
Company is not subject to or bound by any term that would materially impair the
Company's ability to perform its obligations under this Section 12 as of the
date hereof.
(ii) Remedial Action. Upon receipt of a Put Notice, if the
Company believes that at the time of the Redemption Date, the Company would not
have sufficient Legally Available Funds to perform its obligations under this
Section 12, then the Company shall promptly use all reasonable efforts to cause
such Legally Available Funds to become available in any manner permitted or
contemplated by the General Corporation Law of the State of Delaware, as
amended, or any comparable provision of any succeeding law. If, notwithstanding
the Company's reasonable efforts pursuant hereto, the Company is unable to
fulfill its obligations under this Section 12 because of insufficient Legally
Available Funds, the Company shall give prompt written notice thereof to each
holder of Warrant Securities specifying in reasonable detail the nature thereof
and the extent, if any, to which the Company would be able to fulfill its
obligations under this Section 12.
55
(iii) Holder Options. Upon receipt of notice from the Company as
provided in Section 12(f)(ii), the Required Holders may elect pursuant to
written notice given by the Required Holders to the Company: (A) that each
holder's put rights pursuant to the Put Notice shall remain exercised and the
Redemption Date shall be deferred until any of the first five (5) Business Days
after there are sufficient Legally Available Funds to effect such redemption as
selected by the Required Holders; provided, that, as and to the extent that
there are sufficient Legally Available Funds to effect such redemption, the
Company shall promptly make partial payments of the Redemption Price to the
holders of Warrant Securities to be redeemed, in which case there shall be a
series of redemptions, each of which shall take place not more than five (5)
Business Days after there are sufficient Legally Available Funds to effect such
redemption to an extent that would permit such partial payments of the
Redemption Price in increments of not less than Twenty-Five Thousand Dollars
($25,000) ("Partially Available Funds"); or (B) the exercise of the put rights
pursuant to Section 11(a) shall be rescinded in whole or in part at the option
of the Required Holders (with the result that the Required Holders may require
the Company to redeem the Warrant Securities at any time thereafter until the
later of (1) the Expiration Date or (2) eighteen (18) months after the date the
Required Holders give notice to rescind the exercise of such put rights).
(g) Limit on Grant of Other Put or Redemption Rights. The Company
covenants and agrees that from the date hereof, so long as the Holder holds this
Warrant or any Warrant Shares in respect of which any put rights provided for in
Sections 11 and 12 have not terminated, the Company shall not grant, directly or
indirectly, to any Person or agree to otherwise become obligated in respect of
any rights to require the Company to purchase or redeem securities of the
Company upon the demand of any Person without the prior written consent of the
Required Holders; provided, that the Company may enter into an agreement that
provides rights similar to, but no more advantageous than (including with
respect to each event triggering a put right pursuant to Section 11), the rights
granted to the Holder in Section 11 hereof so long as such rights of the Holder
rank pari passu with, or senior to, any such similar rights granted to any other
Person. The Company represents and warrants that it has not previously entered
into any agreement granting any such rights to any Person.
SECTION 13. Call Option. On and after June 30, 2003, the Company shall
be entitled to purchase from the holders of Warrant Securities, all or any
portion of the Warrant Securities then outstanding at a purchase price equal to
one hundred ten percent (110%) of the then Redemption Price as calculated
pursuant to Section 12(c); provided, that, in connection with any such purchase,
the Company shall be required to give the Holder a written representation and
warranty that the Company has not then entered into, or commenced any
discussions with any other Person in connection with entering into, any letter
of intent or any agreement with respect to any transaction of the type described
in Section 11(b)(ii), (iii) or (iv) at a value per share of Common Stock greater
than the Fair Market Value Per Share as calculated for purposes of establishing
the Redemption Price. Each holder of Warrant Securities shall be required under
this Section 13 to sell its Warrant Securities, in whole or in part, upon the
delivery to such holder by the Company of written notice evidencing the
Company's desire to purchase such Warrant Securities. Each holder of Warrant
Securities shall deliver its Warrant Securities to the Company, properly
assigned or endorsed, at the closing therefor held within ten (10) Business Days
after the Company's notice against payment made in cash or other immediately
available funds.
56
SECTION 14. Events of Default and Remedies.
(a) Events of Default. If any of the following events (an "Event of
Default") shall occur or be continuing for any reason whatsoever (whether such
occurrence shall be voluntary or involuntary or come about or be in effect by
operation of law or otherwise), the Holder shall be entitled to the remedies set
forth in subsection (b) hereof, in addition to any other rights it may have
under Section 11(b) hereof or otherwise or by law:
(i) Warrant. The failure of the Company to keep and fully and
promptly perform and observe in all material respects any of the terms,
covenants or representations contained or referenced herein within
ninety (90) days from the earlier to occur of (A) written notice from
the Holder specifying what failure has occurred, or requesting that a
specified failure be remedied or (B) an executive officer of the Company
becoming aware of such failure; or
(ii) Purchase Agreement. The failure of the Company to keep and fully
and promptly perform and observe in all material respects any of the
terms or covenants contained or referenced in the Purchase Agreement or
failure of any representation or warranty to be true in all material
respects when made or deemed made, in either case, within ninety (90)
days from the earlier to occur of (A) written notice from the Holder
specifying what failure has occurred, or requesting that a specified
failure be remedied or (B) an executive officer of the Company becoming
aware of such failure.
(b) Remedies. On the occurrence of an Event of Default, the Holder may,
at its option, and in addition to all other remedies it may have under Section
11(b) hereof or otherwise or under applicable law, (i) at the Company's expense,
elect to have the Aggregate Number fully and completely recomputed in order to
remove and remedy any prejudice which has been or might have been caused to it
by such Event of Default, including, without limitation, rescinding and
annulling any or all requests for redemption made pursuant to Section 12,
exercises of the Warrant, and waivers or agreements made subsequent to such
Event of Default; and (ii) bring any action for injunctive relief or specific
performance of any term or covenant contained herein or in the Purchase
Agreement, the Company hereby acknowledging that an action for money damages may
not be adequate to protect the interests of the Holder hereunder.
SECTION 15. Definitions. As used herein, in addition to the terms
defined elsewhere herein, the following terms shall have the following meanings.
Capitalized terms not appearing below and not otherwise defined herein shall
have the meaning ascribed to them in the Purchase Agreement.
"Affiliate" means, with respect to a Person, any other Person which
directly or indirectly through one or more intermediaries, controls, or is
controlled by, or is under common control with, such Person and, if such Person
is an individual, any member of the immediate family (including parents, spouse
and children) of such individual, any trust whose principal beneficiary is such
individual or one or more members of such individual's immediate family and any
Person who is controlled by any such member or trust. The term "control" means
(a) the power to vote five percent (5%) or more of the securities or other
equity interests of a Person having ordinary voting
57
power, or (b) the possession, directly or indirectly, of any other power to
direct or cause the direction of the management and policies of a Person,
whether through ownership of voting securities, by contract or otherwise;
provided, that (i) for purposes of Sections 9 and 10(c) hereof, the reference in
clause (a) above to "five percent (5%)" shall be deemed to be "fifty percent
(50%)" and (ii) for purposes of the definition of "Cash-Out Transaction," each
New PC (as defined in the Purchase Agreement without regard to any percentage of
revenues of the Company for which such New PC is responsible) shall be deemed to
be an Affiliate of the Company.
"Business Day" means any day other than a Saturday, Sunday or a day on
which commercial banking institutions in Charlotte, North Carolina are
authorized or required by law or executive order to be closed.
"Cash-Out Transaction" means (a) any Change in Control in which (i) all
of the holders of Common Stock are offered the right to sell or otherwise
transfer all of their shares of Common Stock to a Person or Persons which are
not an Affiliate of the Company (the "Offeror"), (ii) each Holder may elect to
sell or otherwise transfer all of its Warrant Securities for cash or readily
marketable securities in payment for its Warrant Securities, (iii) all of the
holders of Common Stock are offered the same per share consideration and there
is no consideration (other than customary employment arrangements on market
terms) payable to holders of Common Stock other than for their shares of Common
Stock, and (iv) at least eighty percent (80%) of the shares of Common Stock on a
Fully Diluted basis (calculated without regard to the Warrant Securities) are
actually sold or otherwise transferred to the Offeror or (b) any voluntary sale,
conveyance, exchange or transfer to any Person or Persons which are not an
Affiliate of the Company of all or substantially all of the assets of the
Company for cash or readily marketable securities followed promptly (but in any
event within ninety (90) days) thereafter by the liquidation of the Company and
the distribution of the assets of the Company (after payment of all liabilities
and amounts payable to holders of Preferred Stock (as defined in the Certificate
of Incorporation)) to the holders of the Common Stock, pro rata, based on the
shares of Common Stock held by each such holder. No Holder shall be required in
connection with any Cash Out Transaction to incur any liability, contingent or
otherwise, to any transferee of its Warrant Securities for any representations
and warranties concerning the Company or any of its assets or business or for
any amount in excess of the amount received by such Holder in any such
Transaction.
"Certificate of Incorporation" means the Certificate of Incorporation of
the Company, as amended and in effect on the date hereof including the
Certificate of Designation for the Series B Preferred.
"Change in Control" means any event or circumstance upon which any
Person or group (as such term is used for purposes of Section 13 of the Exchange
Act) of Persons, directly or indirectly and in one transaction or a series of
transactions (whether pursuant to share acquisition or exchange, merger,
reorganization, recapitalization or similar transaction), acquires (a) more than
fifty percent (50%) of the voting securities of the Company, determined on a
Fully Diluted basis, or (b) securities or other rights (except to a revocable
proxy for a specific meeting) sufficient to permit such Person or group to elect
a majority of the members of the Board of Directors of the Company.
58
"Class A Common" means the Class A Common Stock, par value $.01 per
share, of the Company as described in the Certificate of Incorporation.
"Class B Common" means the Class B Common Stock, par value $.01 per
share, of the Company as described in the Certificate of Incorporation.
"Closing Date Value Per Share" means $8.00 per share of Common Stock,
subject to any adjustment required under Section 9.10(c) of the Purchase
Agreement, and further subject to equitable adjustment from time to time for any
combinations, consolidations, stock distributions or stock dividends with
respect to shares of the Common Stock.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act or the Exchange
Act.
"Common Stock" means (a) the Class A Common, (b) the Class B Common, (c)
any other class of capital stock hereafter authorized having the right to share
in distributions either of earnings or assets without limit as to amount or
percentage or (d) any other capital stock into which such Common Stock is
reclassified or reconstituted.
"Company Competitor" means (a) any Person that directly provides
management services to medical group practices similar to those services then
provided by the Company and (b) any Person who owns, directly or indirectly, 50%
or more of the outstanding voting securities of any Person described in clause
(a); provided, that no Person shall be a Company Competitor for purposes of this
Warrant solely by reason of its beneficial ownership of securities for
investment purposes (including securities held by a venture firm or other
portfolio investor).
"Convertible Securities" means evidences of Indebtedness, shares of
stock or other securities which are directly or indirectly convertible or
exchangeable, with or without payment of additional consideration in cash or
property, for shares of Common Stock, either immediately or upon the onset of a
specified date or the happening of a specified event.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations of the Commission thereunder.
"Expiration Date" means the earlier of (a) June 30, 2007 or (b) the
fifth anniversary of the Company's initial Qualified Public Offering.
"Fair Market Value Per Share" means as of a particular date (a) the
Market Price Per Share or (b) if the Market Price Per Share is not available,
(i) the fair market value of the Outstanding Common Stock based upon an arm's
length sale of the Company on such date (including its ownership interest in all
Persons) as an entirety, such sale being between a willing buyer and a willing
seller and determined without reference to any discount for minority interest,
restrictions on transfer, disparate voting rights among classes of capital stock
or lack of marketability with respect to capital stock divided by (ii) the
aggregate number of shares of Outstanding Common Stock. If the Market Price Per
Share is not available, the Fair Market Value Per Share shall be determined
59
initially by the Company within ten (10) days of any event for which such
determination is required and such determination (including the basis therefor)
shall be promptly provided to the Holder. Such determination shall be binding on
the Holder unless the Holder objects thereto in writing within ten (10) days of
receipt. In the event the Company and the Holder cannot agree on the Fair Market
Value Per Share within ten (10) days of the date of the Holder's objection, the
Fair Market Value Per Share shall be determined by a disinterested appraiser
(which may be a national or regional investment bank or national accounting
firm) mutually selected by the Company and the Holder, the fees and expenses of
which shall be paid fifty percent (50%) by the Company and fifty percent (50%)
by the Holder. Any selection of a disinterested appraiser shall be made in good
faith within seven (7) days after the end of the last ten (10) day period
referred to above and any determination of Fair Market Value Per Share by a
disinterested appraiser shall be made within thirty (30) days of the date of
selection.
"Fully Diluted" means, with respect to the Common Stock, as of a
particular time the total outstanding shares of Common Stock as of such time,
determined by treating all outstanding options, warrants and other rights for
the purchase or other acquisition of Common Stock as having been exercised and
by treating all outstanding securities of the Company which are convertible into
shares of Common Stock as having been so converted.
"Legally Available Funds" means, with respect to any redemption of the
Warrant Securities hereunder, the amount of funds of the Company legally
available for such redemption as required under Sections 151 and 160 of the
General Corporation Law of the State of Delaware, as amended, or any comparable
provision of any succeeding law.
"Market Price Per Share" means the last reported sales price regular
way, or in case no such reported sale takes place on such day, the average of
the reported closing bid and asked prices regular way, in either case of a share
of Common Stock on the New York Stock Exchange or, if such Common Stock is not
listed or admitted to trading on such exchange, on the principal national
securities exchange on which such Common Stock is listed or admitted to trading
or, if not listed or admitted to trading on any national securities exchange, on
the National Association of Securities Dealers Automated Quotations National
Market System or, if such security is not listed or admitted to trading on any
national securities exchange or quoted on such National Market System, the
average of the closing bid and asked prices in the over-the-counter market as
furnished by any two New York Stock Exchange member firms selected from time to
time by the Company for that purpose.
"Original Holder" means First Union Capital Partners, Inc.
"Outstanding Common Stock" of the Company means, as of the date of
determination, the sum (without duplication) of the following: (a) the number of
shares of Common Stock then outstanding at the date of determination, (b) the
number of shares of Common Stock then issuable upon the exercise of the Warrant
(as such number of shares may be adjusted pursuant to the terms hereof) and (c)
the number of shares of Common Stock then issuable upon the exercise or
conversion of Convertible Securities and any warrants, options or other rights
to subscribe for or purchase Common Stock or Convertible Securities (but
excluding any options and securities not then vested and exercisable for or
convertible into Common Stock).
60
"Person" means any individual, firm, corporation, partnership, limited
liability company, joint venture, association, joint stock company, trust,
unincorporated organization or government or any agency or political subdivision
thereof, or other entity of any kind and includes any successor (by merger or
otherwise) of such entity.
"Principal Office" means the Company's principal office as set forth in
Section 19 hereof or such other principal office of the Company in the United
States of America the address of which first shall have been set forth in a
notice to the Holder.
"Public Offering" means the offering and sale of Common Stock of the
Company pursuant to an effective registration statement under the Securities
Act.
"Purchase Agreement" means the Preferred Stock and Warrant Purchase
Agreement of even date between the Company and the Original Holder, as amended
or supplemented from time to time.
"Qualified Public Offering" means a firm commitment Public Offering
underwritten by a securities firm of nationally recognized standing with net
proceeds to the Company of at least $25,000,000.
"Qualified Redemption" is defined in Section 2.
"Required Holders" means the holders of at least fifty-one percent (51%)
of the Warrant Securities then outstanding determined on a Fully Diluted basis.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations of the Commission thereunder.
"Series B Preferred" means the Series B Cumulative Redeemable Preferred
Stock of the Company as described in the Certificate of Incorporation.
"Stock Option Plans" means (i) the Company's 1996 Employee Stock Option
Plan, (ii) the Company's 1996 Stock Option Plan for Nonemployee Directors and
(iii) the Company's 1996 Stock Option Plan for Nonemployee Providers and (iv)
any other plan, agreement or award adopted following the date hereof by the
Board of Directors of the Company.
"Subsidiary" means, as to a Person, any corporation, partnership or
other entity of which more than 50% of the outstanding capital stock or other
ownership interests having ordinary voting power to elect a majority of the
board of directors or other managers of such corporation, partnership or other
entity is at the time, directly or indirectly, owned by or otherwise controlled
by such Person.
"Warrant Securities" is defined in Section 11(a).
61
"Warrant Shares" means (a) the shares of Class B Common issued or
issuable upon exercise of this Warrant in accordance with its terms and (b) all
other shares of the Company's capital stock issued with respect to such shares
by way of stock dividend, stock split or other reclassification or in connection
with any merger, consolidation, recapitalization or other reorganization
affecting the Company's capital stock.
SECTION 16. Survival of Provisions. Notwithstanding the full exercise by
the Holder of its rights to purchase Class B Common hereunder, the provisions of
this Warrant shall survive such exercise and the Expiration Date until such time
as the rights of the Required Holders to have the Company redeem all Warrant
Securities held by the Holder have expired or been fully exercised.
SECTION 17. Delays, Omissions and Indulgences. It is agreed that no
delay or omission to exercise any right, power or remedy accruing to the Holder
upon any breach or default of the Company under this Warrant shall impair any
such right, power or remedy, nor shall it be construed to be a waiver of any
such breach or default, or any acquiescence therein, or of or in any similar
breach or default thereafter occurring; nor shall any waiver of any single
breach or default be deemed a waiver of any other breach or default theretofore
or thereafter occurring. It is further agreed that any waiver, permit, consent
or approval of any kind or character on the Holder's part of any breach or
default under this Warrant, or any waiver on the Holder's part of any provisions
or conditions of this Warrant must be in writing and that all remedies, either
under this Warrant, or by law or otherwise afforded to the Holder, shall be
cumulative and not alternative.
SECTION 18. Rights of Transferees. The rights granted to the Holder
hereunder of this Warrant shall pass to and inure to the benefit of all
subsequent transferees of all or any portion of the Warrant (provided that the
Holder and any transferee shall hold such rights in proportion to their
respective ownership of the Warrant and Warrant Shares) until extinguished
pursuant to the terms hereof.
SECTION 19. Captions. The titles and captions of the Sections and other
provisions of this Warrant are for convenience of reference only and are not to
be considered in construing this Warrant.
SECTION 20. Notices. All notices, demands and other communications
provided for or permitted hereunder shall be made in writing and shall be by
registered or certified first-class mail, return receipt requested, telecopy,
overnight courier service or personal delivery:
(a) if to the Company:
Physician Partners, Inc.
▇▇▇ ▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
62
(b) if to the Holder:
First Union Capital Partners, Inc.
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
Mr. D. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five Business
Days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged, if telecopied.
SECTION 21. Successors and Assigns. This Warrant shall be binding upon
and inure to the benefit of the parties hereto and their respective successors
and assigns; provided, that the Company shall have no right to assign its
rights, or to delegate its obligations, hereunder without the prior written
consent of the Holder; provided, further, that a merger by operation of law or
otherwise shall not constitute an assignment hereunder.
SECTION 22. Severability. If any one or more of the provisions contained
herein, or the application thereof in any circumstance, is held invalid, illegal
or unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, unless the provisions held
invalid, illegal or unenforceable shall substantially impair the benefits of the
remaining provisions hereof.
SECTION 23. Governing Law. This Warrant is to be construed and enforced
in accordance with and governed by the laws of the State of North Carolina and
without regard to the principles of conflicts of law of such state.
SECTION 24. Entire Agreement. This Warrant and the Purchase Agreement
are intended by the parties as a final expression of their agreement and are
intended to be a complete and exclusive statement of the agreement and
understanding of the parties hereto in respect of the subject matter contained
herein and therein.
SECTION 25. Rules of Construction. Unless the context otherwise requires
"or" is not exclusive, and references to sections or subsections refer to
sections or subsections of this Warrant. All pronouns and any variations thereof
refer to the masculine, feminine or neuter, singular or plural, as the context
may require.
* * *
63
IN WITNESS WHEREOF, the Company has caused this Warrant to be issued and
executed in its corporate name by its duly authorized officers and its corporate
seal to be affixed hereto as of the date below written.
DATED: _____________, 1997 PHYSICIAN PARTNERS, INC.
[CORPORATE SEAL] By:_______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
ATTEST:
By:_________________________________
▇▇▇ ▇. ▇▇▇▇▇▇
Secretary
64
EXHIBIT A
NOTICE OF EXERCISE
To: Physician Partners, Inc.
▇▇▇ ▇.▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
1. The undersigned, pursuant to the provisions of the attached Warrant,
hereby elects to exercise this Warrant with respect to ________ shares (the
"Exercise Shares") of Class B Common Stock (the "Exercise Amount"). Capitalized
terms used but not otherwise defined herein have the meanings ascribed thereto
in the attached Warrant.
2. The undersigned herewith tenders the Warrant and payment for the
Exercise Shares in the following manner (please check type, or types, of payment
and indicate the portion of the Exercise Price to be paid by each type of
payment):
____ Exercise for Cash
____ Cashless Exercise
3. Please issue a certificate or certificates evidencing the Exercise
Shares issuable in respect hereof under the terms of the attached Warrant, as
follows:
(Name of Record Holder/Transferee)
and deliver such certificate or certificates to the following address:
(Address of Record Holder/Transferee)
4. The undersigned hereby confirms that the undersigned understands that
the Exercise Shares have not been registered under the Securities Act of 1933,
as amended (the "Securities Act"), and may not be sold, transferred or otherwise
disposed of unless the Exercise Shares are first registered under the Securities
Act or registration is available. The undersigned hereby agrees that the
undersigned shall make no disposition of any Exercise Shares unless and until
there is an effective registration under the Securities Act and applicable state
securities laws with respect to such Exercise Shares or the undersigned shall
have provided the Company a written opinion of counsel in form and substance
satisfactory to the Company that an exemption from such registration is
available under the Securities Act and such state securities law. The
undersigned acknowledges that any transfer or other disposition of Exercise
Shares in contravention of this paragraph shall be null and void and the Company
shall not be required (a) to transfer on its books any such
65
Exercise Shares or (b) to treat as the owner of such Exercise Shares or
otherwise to accord voting or dividend rights to any purported transferee with
respect thereto.
5. If the Exercise Amount is less than all of the Exercise Shares
purchasable hereunder, please issue a new warrant representing the remaining
balance of such shares, as follows:
(Name of Record Holder/Transferee)
and deliver such warrant to the following address:
(Address of Record Holder/Transferee)
(Signature)
-------------------------------
(Date)
66
EXHIBIT B
FORM OF ASSIGNMENT
(To be executed by the registered holder is such holder
desires to transfer all or a portion of the Warrant)
FOR VALUE RECEIVED, the undersigned hereby sells, assigns and transfers unto
-------------------------------------------------------------------------------
(Please print name and address of transferee)
--------------------------------------------------------------------------------
this Warrant with respect to ____________ Warrant Shares, together with all
right, title and interest therein, and does hereby irrevocably constitute and
appoint ______________________ ____________ Attorney, to transfer the within
Warrant with respect to __________ Warrant Shares on the books of the
within-named Company, with full power of submission. Transferee shall be subject
to all of the terms and conditions set forth in the Common Stock Purchase
Warrant dated ___________, 1997.
Dated:__________________
Signature:
(Signature must conform in all respects to
name of registered holder as specified on
the face of the Warrant)
NOTICE: See legend on front page as to transfer restrictions to which Transferee
shall be subject in all respects.
67
REGISTRATION RIGHTS AGREEMENT
between
PHYSICIAN PARTNERS, INC.
and
FIRST UNION CAPITAL PARTNERS, INC.,
Dated as of July 10, 1997
68
TABLE OF CONTENTS
PAGE NO.
69
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT is dated as of July 10, 1997 (this
"Agreement"), by and between PHYSICIAN PARTNERS, INC., a Delaware corporation
(the "Company") and FIRST UNION CAPITAL PARTNERS, INC., a Virginia corporation
("FUCP").
Statement of Purpose
The Company has entered into a Preferred Stock and Warrant Purchase
Agreement dated as of July 10, 1997 (the "Purchase Agreement") providing for the
purchase of shares of preferred stock and a warrant to purchase common stock
from the Company by FUCP. Upon consummation of the transactions contemplated by
the Purchase Agreement, FUCP will be entitled to exercise the warrant for shares
of common stock of the Company in the manner described therein. In connection
with the transactions contemplated by the Purchase Agreement, the Company has
agreed to provide registration rights with respect to the Registrable Securities
(as hereinafter defined) as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual covenants and agreements
contained herein, and for other good and valuable consideration the receipt and
sufficiency of which are hereby acknowledged, the parties hereto hereby agree as
follows:
SECTION 1. Definitions. For the purposes of this Agreement, in addition
to the terms defined elsewhere in this Agreement, the following terms have the
meanings set forth below:
"Approved Underwriter" shall have the meaning assigned thereto in
Section 3(d) hereof.
"Certificate of Incorporation" means the Amended and Restated
Certificate of Incorporation of the Company as in effect on the date hereof
including the provisions set forth in the Certificate of Designation with
respect to the Series B Preferred Stock.
"Class A Common" means the Class A Common Stock, par value $.01 per
share, of the Company, as described in the Certificate of Incorporation.
"Class B Common" means the Class B Common Stock, par value $.01 per
share, of the Company, as described in the Certificate of Incorporation.
"Commission" means the Securities and Exchange Commission or any similar
agency then having jurisdiction to enforce the Securities Act.
"Common Stock" means the Class A Common, the Class B Common and any
other class of stock designated as Common Stock of the Company in the
Certificate of Incorporation.
"Company Underwriter" shall have the meaning assigned thereto in Section
4 hereof.
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"Demand Registration" means a demand registration requested by FUCP
pursuant to Section 3 hereof.
"Exchange Act" means the Securities Exchange Act of 1934, as amended,
and the rules and regulations promulgated thereunder.
"Holders' Counsel" shall have the meaning assigned thereto in Section
7(a)(i) hereof.
"Inspector" shall have the meaning assigned thereto in Section
7(a)(viii) hereof.
"NASD" means the National Association of Securities Dealers, Inc.
"Person" means any individual, firm, corporation, partnership, trust,
incorporated or unincorporated association, joint venture, joint stock company,
limited liability company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by merger
or otherwise) of such entity.
"Public Offering" means a public offering of the Common Stock after the
date hereof pursuant to a registration statement declared effective under the
Securities Act.
"Records" shall have the meaning assigned hereto in Section 7(a)(viii)
hereof.
"Registrable Securities" means (a) all shares of Common Stock acquired
by FUCP or its successors or assigns pursuant to exercise of the Warrant and (b)
any other common equity securities of the Company issued in exchange for, upon a
reclassification of, or in a distribution with respect to, such Common Stock.
"Registration Expenses" shall have the meaning assigned thereto in
Section 8.
"Securities Act" means the Securities Act of 1933, as amended, and the
rules and regulations promulgated thereunder.
"Warrant" means the common stock purchase warrant issued by the Company
to FUCP pursuant to the Purchase Agreement.
SECTION 2. Securities Subject to this Agreement.
(a) Registrable Securities. For the purposes of this Agreement,
Registrable Securities will cease to be Registrable Securities when (i) a
registration statement covering such Registrable Securities has been declared
effective under the Securities Act by the Commission and such Registrable
Securities have been disposed of pursuant to such effective registration
statement or (ii) the entire amount of Registrable Securities proposed to be
sold in a single sale or in multiple transactions during a six month period are
or, in the written opinion of counsel reasonably satisfactory to the Company,
may be distributed to the public in such single sale or in multiple
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transactions during a six month period pursuant to Rule 144 (or any successor
provision then in force) under the Securities Act.
(b) Holders of Registrable Securities. A Person is deemed to be a holder
of Registrable Securities whenever such Person owns of record Registrable
Securities, or holds an option, warrant or other right to purchase, or a
security currently convertible into, Registrable Securities whether or not such
acquisition or conversion has actually been effected. If the Company receives
conflicting instructions, notices or elections from two or more Persons with
respect to the same Registrable Securities, the Company may act upon the basis
of the instructions, notice or election received from the registered owner of
such Registrable Securities. Registrable Securities issuable upon exercise of an
option, warrant or other right or upon conversion of another security shall be
deemed outstanding for the purposes of this Agreement.
SECTION 3. Demand Registration.
(a) Demand Registration. FUCP may make a written request for
registration of Registrable Securities under the Securities Act, and under the
securities or blue sky laws of any jurisdiction reasonably designated by FUCP,
at any time after the earlier of (i) December 31, 2000 and (ii) six months after
the initial Public Offering by the Company; provided, that (A) subject to
Section 3(c) below, the Company will not be required to effect more than two
registrations at the request of FUCP pursuant to this Section 3(a) and (B) the
Company will not be required to effect such registration within the period
beginning on the filing of a registration statement by the Company covering a
firm commitment underwritten Public Offering of Common Stock to be issued by the
Company and ending on the later of (1) the later of 120 days after the effective
date of such registration statement or, if commenced promptly, the commencement
of a public distribution of Common Stock pursuant to such registration
statement, (2) the expiration of any lock-up period required by the
underwriters, if any, in connection therewith or (3) the abandonment of such
Public Offering; and provided further, that if at the time of a request for
registration, the Board of Directors of the Company determines in good faith, in
the exercise of its fiduciary duty, that it would be detrimental to the Company
to effect such registration at such time, the Company may postpone its
obligation hereunder to effect such registration for a single period not to
exceed six (6) months from the date of such request.
(b) Company Obligation to Register. Each request for a Demand
Registration pursuant to Section 3(a) shall specify the amount of the
Registrable Securities proposed to be sold, the intended method of disposition
thereof and the jurisdictions in which registration is reasonably desired. Upon
a request for a Demand Registration, the Company shall (i) promptly give written
notice of the proposed registration to all other holders of Registrable
Securities and (ii) use all reasonable efforts to effect as quickly as is
reasonably practicable the registration of the Registrable Securities specified
in such request, together with the Registrable Securities of any other holder or
holders joining in such request as are specified in a written request given
within 20 days after receipt of such written notice from the Company. A
registration shall not constitute a Demand Registration until it has become
effective and remains continuously effective for a period of not less than 12
months or such shorter period which will terminate when all Registrable
Securities covered by such
72
Registration Statement (A) have been sold (but not before the expiration of the
90-day period (or applicable shorter period) referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder, if applicable), or (B) may, in the
opinion of counsel reasonably satisfactory to the Company, be distributed to the
public in a single sale pursuant to Rule 144 (or any successor provision then in
force) under the Securities Act. In any registration initiated as a Demand
Registration, the Company shall pay all Registration Expenses in connection
therewith, whether or not such Demand Registration becomes effective; provided,
that all selling expenses relating to Registrable Securities, including, without
limitation, all underwriting discounts, selling commissions and stock transfer
taxes applicable thereto and all fees and disbursements of counsel for any
holder of Registrable Securities other than FUCP, whose fees and disbursements
of counsel shall be borne by the Company as provided in Section 8(c) hereof,
shall be borne by each holder of Registrable Securities pro rata based on the
total number of Registrable Securities included by each holder in the
Registration Statement.
(c) Underwriting Procedures. If FUCP so elects, the offering of such
Registrable Securities pursuant to such Demand Registration shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be the Approved Underwriter
selected in accordance with Section 3(d). In such event, if the Approved
Underwriter advises the Company, which advice shall be confirmed in writing,
that in its opinion marketing considerations require a limitation on the number
of securities to be sold, the Company shall include in such registration only
the number of Registrable Securities which, in the good faith opinion of such
Underwriter, can be sold, then the number of Registrable Securities to be
included in such registration shall be reduced in the following manner:
(i) first, all or a portion of the Registrable Securities
requested to be included by the holders of Registrable Securities
(other than FUCP) and the holders of any other securities
included in any such registration, pro rata, based on the total
number of Registrable Securities or other securities included in
the Registration Statement; and
(ii) second, if necessary, all or a portion of the Registrable
Securities requested to be included by FUCP.
(d) Selection of Underwriters. In connection with requesting a Demand
Registration of Registrable Securities pursuant to Section 3(a), the Company may
select and obtain an investment banking firm of national reputation to act as
the managing underwriter of the offering (the "Approved Underwriter"); provided,
that the Approved Underwriter shall, in any case, be acceptable to FUCP in its
reasonable judgment.
SECTION 4. Piggy-Back Registration. If the Company proposes to file a
registration statement under the Securities Act with respect to an offering by
the Company for its own account, or an offering for the account of any
stockholder of the Company or any group of such stockholders (other than a
registration statement on Form S-4 or S-8 or any successor forms or any other
forms not available for registering Registrable Securities for sale to the
public), then the Company shall
73
give written notice of such proposed filing to each holder of Registrable
Securities at least 30 days before the anticipated filing date, and such notice
shall describe in detail the proposed registration and distribution (including
whether the offering will be underwritten and those jurisdictions where
registration under the securities or blue sky laws is intended) and offer such
holders the opportunity to register the number of Registrable Securities as each
such holder may request. The Company shall use all reasonable efforts, within 10
days of the notice provided for in the preceding sentence, to cause the managing
underwriter or underwriters of a proposed underwritten offering (the "Company
Underwriter") to permit the holders of Registrable Securities who have requested
to participate in the registration for such offering to include such Registrable
Securities in such offering on the same terms and conditions as the securities
of the Company included therein, including execution by such holders of an
underwriting agreement in customary form. Notwithstanding the foregoing, if the
Company Underwriter determines for any reason that it would be advisable to
reduce the number of securities to be sold, then the amount of securities in
excess of the amount to be registered for sale by the Company to be offered for
the account of any holder of Common Stock requesting registration (whether or
not a holder of Registrable Securities) shall be reduced pro rata based on the
total number of securities included by any such holder of Common Stock in such
registration statement, to the extent necessary to reduce the total securities
to be included in the offering to the amount recommended by the Company
Underwriter. The Company shall bear all Registration Expenses in connection with
any registration pursuant to this Section 4; provided, that all selling expenses
relating to Registrable Securities, including, without limitation, all
underwriting discounts, selling commissions and stock transfer taxes applicable
thereto and all fees and disbursements of counsel for any holder of Registrable
Securities, other than FUCP, whose fees and disbursements of counsel shall be
borne by the Company as provided in Section 8(c) hereof, shall be borne by each
holder of Registrable Securities pro rata based on the total number of
Registrable Securities included in the Registration Statement.
SECTION 5. Form S-3 Registration.
(a) Requests for Registration on Form S-3. The Company shall use its
reasonable good faith efforts to qualify to register securities on Form S-3 (or
any successor to such form). After the Company has qualified for the use of Form
S-3 but in any event no earlier than two (2) years after the initial Public
Offering of the Company, in addition to and not in limitation of the rights
contained in the foregoing provisions of this Agreement, any holder of at least
10% of the Registrable Securities shall have the right to request the
registration of any such Registrable Securities on Form S-3; provided, that if
at the time of a request for registration, the Board of Directors of the Company
determines in good faith, in the exercise of its fiduciary duty, that it would
be detrimental to the Company to effect such registration at such time, the
Company may postpone its obligation hereunder to effect such registration for a
single period not to exceed six (6) months from the date of such request. All
such requests shall be in writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended methods of disposition
of such shares by such holder or holders; provided, that the Company shall not
be required to effect a registration pursuant to this Section 5(a) unless (i)
the holders of Registrable Securities requesting registration propose to dispose
of shares of Registrable Securities having an aggregate price to the public
(before deducting underwriting discounts and expenses of sale) of at least
$4,000,000 and (ii)
74
the number of shares to be so registered for all such holders constitute at
least 33 1/3% of the outstanding Registrable Securities at such date. In case
the Company shall receive from a holder of Registrable Securities a written
request that the Company effect a registration on Form S-3 pursuant to this
Section 5(a), the Company shall (i) promptly give written notice of the proposed
registration to all other holders of Registrable Securities and (ii) use its
reasonable good faith efforts to effect as quickly as is reasonably practicable
the registration of the Registrable Securities specified in such request,
together with the Registrable Securities of any other holder or holders joining
in such request as are specified in a written request given within 20 days after
receipt of such written notice from the Company. Registrations effected pursuant
to this Section 5 shall not be counted as a Demand Registration for purposes of
Section 3.
(b) Underwriting Procedures. If the holders of a majority of the
Registrable Securities for which registration is requested pursuant to Section
5(a) so elect, the offering of such Registrable Securities shall be in the form
of a firm commitment underwritten offering and the managing underwriter or
underwriters selected for such offering shall be an Approved Underwriter
selected in the same manner as described in Section 3(d). In such event, if the
Approved Underwriter advises the Company, which advice shall be confirmed in
writing, that in its opinion marketing considerations require a limitation on
the number of securities to be sold, then the amount of securities in excess of
the amount which can be so registered shall be reduced pro rata based on the
total number of Registrable Securities included by each holder of Registrable
Securities requested to be registered pursuant to such registration on Form S-3.
SECTION 6. Holdback Agreements.
(a) Restrictions on Public Sale by Holders. In order to participate in a
registration of a Public Offering effected hereby, to the extent not
inconsistent with applicable law, each holder of Registrable Securities agrees
not to effect any public sale or distribution of any Registrable Securities
being registered or of any securities convertible into or exchangeable or
exercisable for such Registrable Securities, including a sale pursuant to Rule
144 under the Securities Act, during the period beginning on the filing of such
registration statement and ending on the later of (i) the later of 120 days
after the effective date of such registration statement or, if commenced
promptly, the commencement of a public distribution of the Common Stock pursuant
to such registration statement, (ii) the expiration of any lock-up period
required by the underwriters, if any, in connection therewith or (iii) the
abandonment of such Public Offering.
(b) Restrictions on Public Sale by the Company. The Company agrees not
to effect any public sale or distribution of any of its securities, or any
securities convertible into or exchangeable or exercisable for such securities
(except pursuant to registrations on Form S-4 or S-8 or any successor to such
forms or any other forms not available for registering capital stock for sale to
the public) during the period beginning on the filing of any registration
statement to effect a Public Offering in which the holders of Registrable
Securities are participating and ending on the later of (i) the later of 120
days after the effective date of such registration statement or, if commenced
promptly, the commencement of a public distribution of the Common Stock pursuant
to such
75
registration statement, (ii) the expiration of any lock-up period required by
the underwriters, if any, in connection therewith or (iii) the abandonment of
such Public Offering.
SECTION 7. Registration Procedures.
(a) Obligations of the Company. Whenever registration of Registrable
Securities has been requested pursuant to Sections 3, 4 or 5 of this Agreement,
the Company shall use all reasonable efforts to effect the registration and sale
of such Registrable Securities in accordance with the intended method of
distribution thereof as quickly as practicable, and in connection with any such
request, the Company shall, as expeditiously as possible:
(i) prepare and file with the Commission (as promptly as
practicable, but in any event not later than 90 days after receipt of a request
to file a registration statement with respect to Registrable Securities) a
registration statement on any form for which the Company then qualifies or which
counsel for the Company shall deem appropriate and which form shall be available
for the sale of such Registrable Securities in accordance with the intended
method of distribution thereof, and use its reasonable good faith efforts to
cause such registration statement to become effective; provided, that before
filing a registration statement or prospectus or any amendments or supplements
thereto, the Company shall (A) provide counsel selected by the holders of a
majority of the Registrable Securities being registered in such registration
("Holders' Counsel") with an adequate and appropriate opportunity, at such
holders' expense, except for FUCP's pro rata portion of such expense, which
shall be paid by the Company in accordance with Section 8(c) hereof, to
participate in the preparation of such registration statement and each
prospectus included therein (and each amendment or supplement thereto) to be
filed with the Commission, which documents shall be subject to the review of
Holders' Counsel, and (B) notify the Holders' Counsel and each seller of
Registrable Securities of any stop order issued or threatened by the Commission
and take all reasonable action required to prevent the entry of such stop order
or to remove it if entered;
(ii) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective for
a period of not less than 12 months or such shorter period which will terminate
when all Registrable Securities covered by such registration statement have been
sold (but not before the expiration of the 90-day period (or applicable shorter
period) referred to in Section 4(3) of the Securities Act and Rule 174
thereunder, if applicable), and comply with the provisions of the Securities Act
with respect to the disposition of all securities covered by such registration
statement during such period in accordance with the intended methods of
disposition by the sellers thereof set forth in such registration statement;
(iii) as soon as reasonably possible, furnish to each seller of
Registrable Securities, prior to filing a registration statement, copies of such
registration statement as it is proposed to be filed, and thereafter such number
of copies of such registration statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
registration statement (including each preliminary prospectus) and such other
76
documents as each such seller may reasonably request in order to facilitate the
disposition of the Registrable Securities owned by such seller;
(iv) use all reasonable efforts to register or qualify such
Registrable Securities under such other securities or blue sky laws of such
jurisdictions as any seller of Registrable Securities reasonable requests, and
to continue such qualification in effect in such jurisdictions for as long as is
permissible pursuant to the laws of such jurisdictions, or for as long as any
such seller requests or until all of such Registrable Securities are sold,
whichever is shortest, and do any and all other acts and things which may be
reasonably necessary or advisable to enable any such seller to consummate the
disposition in such jurisdictions of the Registrable Securities owned by such
seller; provided, that the Company shall not be obligated to effect, or take any
action to effect, any such registration or qualification in any particular
jurisdiction in which the Company would be required to execute a general consent
to service of process in effecting such registration or qualification unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act or applicable rules or regulations thereunder;
(v) use all reasonable efforts to cause the Registrable
Securities covered by such registration statement to be registered with or
approved by such other governmental agencies or authorities as may be necessary
by virtue of the business and operations of the Company to enable the seller or
sellers of Registrable Securities to consummate the disposition of such
Registrable Securities;
(vi) notify each seller of Registrable Securities at any time
when a prospectus relating thereto is required to be delivered under the
Securities Act, upon discovery that, or upon the happening of any event as a
result of which, the prospectus included in such registration statement contains
an untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made, and the
Company shall promptly prepare a supplement or amendment to such prospectus and
furnish to each seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, after delivery to the
purchasers of such Registrable Securities, such prospectus shall not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein not misleading
in light of the circumstances under which they were made;
(vii) enter into and perform customary agreements (including an
underwriting agreement in customary form with the Approved Underwriter or
Company Underwriter, if any, selected as provided in Sections 3, 4 or 5) and
take such other actions as are reasonably required in order to expedite or
facilitate the disposition of such Registrable Securities;
(viii) make available for inspection by any seller of Registrable
Securities, any managing underwriter participating in any disposition pursuant
to such registration statement, Holders' Counsel and any attorney, accountant or
other agent retained by any such seller or any managing underwriter (each, an
"Inspector" and collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries
77
(collectively, the "Records") as shall be reasonably necessary to enable them to
exercise their due diligence responsibility, and cause the Company's and its
subsidiaries' officers, directors and employees, and the independent public
accountants of the Company, to supply all information reasonably requested by
any such Inspector in connection with such registration statement. Records that
the Company determines, in good faith, to be confidential and which it notifies
the Inspectors are confidential shall not be disclosed by the Inspectors unless
(A) the disclosure of such Records is necessary to avoid or correct a
misstatement or omission in the registration statement or to confirm that no
such misstatement or omission has been made, (B) the release of such Records is
ordered pursuant to a subpoena or other order from a court of competent
jurisdiction, or (C) the information in such Records has been made generally
available to the public or is required to be filed with, or made available as
supplemental information to, the Commission. Each seller of Registrable
Securities agrees that it shall, upon learning that disclosure of such Records
is sought in a court of competent jurisdiction, give notice to the Company and
allow the Company, at the Company's expense, to undertake appropriate action to
prevent disclosure of the Records deemed confidential;
(ix) if such sale is pursuant to an underwritten offering, obtain
a "cold comfort" letter from the Company's independent public accountants in
customary form and covering such matters of the type customarily covered by
"cold comfort" letters as Holders' Counsel or the managing underwriters
reasonably request;
(x) furnish, at the request of any seller of Registrable
Securities on the date such securities are delivered to the underwriters for
sale pursuant to such registration or, if such securities are not being sold
through underwriters, on the date the registration statement with respect to
such securities becomes effective, an opinion, dated such date, of counsel
representing the Company for the purposes of such registration, addressed to the
underwriters, if any, and to the seller making such request, covering such legal
matters with respect to the registration in respect of which such opinion is
being given as such seller or underwriters may reasonably request and are
customarily included in such opinions;
(xi) otherwise use its reasonable good faith efforts to comply
with all applicable rules and regulations of the Commission, and make available
to its security holders, as soon as reasonably practicable but no later than 15
months after the effective date of the registration statement, an earnings
statement covering a period of 12 months beginning after the effective date of
the registration statement, in a manner which satisfies the provisions of
Section 11(a) of the Securities Act;
(xii) cause all such Registrable Securities to be listed on each
securities exchange or approved for quotation on each over-the-counter market on
which similar securities issued by the Company are then listed or quoted;
provided, that the applicable listing requirements are satisfied;
(xiii) keep each seller of Registrable Securities advised in
writing as to the initiation and progress of any registration under Sections 3,
4 or 5 hereunder;
78
(xiv) provide officers' certificates and other customary closing
documents;
(xv) cooperate with each seller of Registrable Securities and
each underwriter participating in the disposition of such Registrable Securities
and their respective counsel in connection with any filings required to be made
with the NASD; and
(xvi) use all reasonable efforts to take all other steps
necessary to effect the registration of the Registrable Securities contemplated
hereby and cooperate with the holders of such Registrable Securities to
facilitate the disposition of such Registrable Securities pursuant thereto.
(b) Seller Information. The Company shall be entitled to require each
seller of Registrable Securities as to which any registration is being effected
to furnish to the Company such information regarding the distribution of such
securities as the Company may from time to time reasonably request.
(c) Notice to Discontinue. Each holder of Registrable Securities agrees
that, upon receipt of any notice from the Company of the happening of any event
of the kind described in Section 7(a) (vi), such holder shall forthwith
discontinue disposition of Registrable Securities pursuant to the registration
statement covering such Registrable Securities until such holder's receipt of
the copies of the supplemented or amended prospectus contemplated by Section
7(a)(vi) and, if so directed by the Company, such holder shall deliver to the
Company all copies, other than permanent file copies then in such holder's
possession, of the prospectus covering such Registrable Securities which is
current at the time of receipt of such notice. If the Company shall give any
such notice, the Company shall extend the period during which such registration
statement shall be maintained effective pursuant to this Agreement (including
without limitation the period referred to in Section 7(a)(ii)) by the number of
days during the period from and including the date of the giving of such notice
pursuant to Section 7(a)(vi) to and including the date when the holder shall
have received the copies of the supplemented or amended prospectus contemplated
by and meeting the requirements of Section 7(a)(vi).
SECTION 8. Registration Expenses.
(a) The Company shall pay all expenses (other than underwriting
discounts and commissions) arising from or incident to the Company's performance
of, or compliance with, its obligations under this Agreement, including without
limitation, (i) Commission, stock exchange and NASD registration and filing
fees, (ii) all fees and expenses incurred in complying with securities or blue
sky laws (including reasonable fees, charges and disbursements of counsel in
connection with blue sky qualifications of the Registrable Securities), (iii)
all printing, engraving, messenger and delivery expenses, and (iv) the fees,
charges and disbursements of counsel to the Company and of its independent
public accountants and any other accounting and legal fees, charges and expenses
incurred by the Company (including without limitation any fees and expenses in
connection with any "cold comfort" letters and any special audits incident to or
required by any registration or qualification) regardless of whether such
registration statement is declared effective.
79
(b) The Company will, in any event, pay its internal expenses
(including, without limitation, all salaries and expenses of its officers and
employees performing legal or accounting duties), the expense of any annual
audit, the fees and expenses incurred in connection with the listing of the
securities to be registered on each securities exchange on which securities of
the same class are then listed or the qualification for trading of the
securities to be registered in each inter-dealer quotation system in which
securities of the same class are then traded, and rating agency fees.
(c) In connection with each registration requested pursuant to Sections
3 or 4 of this Agreement, the Company will reimburse FUCP for the reasonable
fees and disbursements of its counsel incurred in connection with its
participation in such registration notwithstanding the form of registration
statement employed by the Company.
SECTION 9. Indemnification; Contribution.
(a) Indemnification by the Company. The Company agrees to indemnify, to
the extent permitted by law, each holder of Registrable Securities, its
officers, directors, partners, employees and agents and each Person who controls
(within the meaning of the Securities Act or the Exchange Act) such holder from
and against any and all losses, claims, damages, liabilities and expenses
(including reasonable costs of investigation and, subject to Section 9(c)
hereof, reasonable fees, disbursements and other charges of legal counsel)
arising out of or based upon any untrue, or alleged untrue, statement of a
material fact contained in any registration statement, prospectus or preliminary
prospectus (as amended or supplemented if the Company shall have furnished any
amendments or supplements thereto) or arising out of or based upon 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, except
insofar as the same are caused by or contained in any information furnished in
writing to the Company by such holder expressly for use therein. The Company
shall also indemnify any underwriters of the Registrable Securities, their
officers, directors and employees and each Person who controls such underwriters
(within the meaning of the Securities Act and the Exchange Act) to the same
extent as provided above with respect to the indemnification of the holders of
Registrable Securities.
(b) Indemnification by Holders. In connection with any registration
statement in which a holder of Registrable Securities is participating pursuant
to Sections 3, 4 or 5 hereof, each such holder shall furnish to the Company in
writing such information with respect to such holder as the Company may
reasonably request or as may be required by law for use in connection with any
such registration statement or prospectus and each holder agrees to indemnify,
to the extent permitted by law, the Company, any underwriter retained by the
Company and their respective directors, officers, employees and each Person who
controls the Company or such underwriter (within the meaning of the Securities
Act and the Exchange Act) to the same extent as the foregoing indemnity from the
Company to the holders, but only with respect to any such information furnished
in writing by such holder expressly for use in such registration statement.
Notwithstanding the provisions of this Section 9(b), a holder of Registrable
Securities shall not be required to pay any indemnification
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in an amount in excess of the net proceeds received by such holder in the
offering to which such registration statement relates.
(c) Conduct of Indemnification Proceedings. Any Person entitled to
indemnification hereunder (the "Indemnified Party") agrees to give prompt
written notice to the indemnifying party (the "Indemnifying Party") after the
receipt by the Indemnified Party of any written notice of the commencement of
any action, suit, proceeding or investigation or threat thereof made in writing
for which the Indemnified Party intends to claim indemnification or contribution
pursuant to this Agreement; provided, that the failure so to notify the
Indemnifying Party shall not relieve the Indemnifying Party of any liability
that it may have to the Indemnified Party hereunder, unless (and then solely to
the extent that) the Indemnifying Party is materially prejudiced thereby. If
notice of commencement of any such action is given to the Indemnifying Party as
above provided, the Indemnifying Party shall be entitled to participate in and,
to the extent it may wish, jointly with any other Indemnifying Party similarly
notified, to assume the defense of such action at its own expense, with counsel
chosen by it and satisfactory to such Indemnified Party. The Indemnified Party
shall have the right to employ separate legal counsel in any such action and
participate in the defense thereof, but the fees, disbursements and other
charges of such legal counsel (other than reasonable costs of investigation)
shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees
to pay the same, (ii) the Indemnifying Party fails to assume the defense of such
action with legal counsel satisfactory to the Indemnified Party in its
reasonable judgment or (iii) the named parties to any such action (including any
impleaded parties) have been advised by such legal counsel that either (A)
representation of such Indemnified Party and the Indemnifying Party by the same
legal counsel would be inappropriate under applicable standards of professional
conduct or (B) there may be one or more legal defenses available to it which are
different from or additional to those available to the Indemnifying Party. In
either of such cases the Indemnifying Party shall not have the right to assume
the defense of such action on behalf of such Indemnified Party. No Indemnifying
Party shall be liable for any settlement entered into without its written
consent, which consent shall not be unreasonably withheld.
(d) Contribution. If the indemnification provided for in this Section 9
from the Indemnifying Party is unavailable to an Indemnified Party hereunder in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party, shall contribute to the amount paid or payable by such Indemnified Party
as a result of such losses, claims, damages, liabilities or expenses in such
proportion as is appropriate to reflect the relative fault of the Indemnifying
Party and Indemnified Party in connection with the actions which resulted in
such losses, claims, damages, liabilities or expenses, as well as any other
relevant equitable considerations. The relative faults of such Indemnifying
Party and Indemnified Party shall be determined by reference to, among other
things, whether any action in question, including any untrue or alleged untrue
statement of a material fact or omission or alleged omission to state a material
fact, has been made by, or relates to information supplied by, such Indemnifying
Party or Indemnified Party, and the parties' relative intent, knowledge, access
to information and opportunity to correct or prevent such action. The amount
paid or payable by a party as a result of the losses, claims, damages,
liabilities and expenses referred to above shall be deemed to include, subject
to the limitations set forth in Sections 9(a), 9(b) and
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9(c), any fees, charges or expenses (including reasonable fees, disbursements
and other charges of legal counsel) reasonably incurred by such party in
connection with any investigation or proceeding.
The parties hereto agree that it would not be just and equitable if
contribution pursuant to this Section 9(d) were determined by pro rata
allocation or by any other method of allocation which does not take account of
the equitable considerations referred to in the immediately preceding paragraph.
Notwithstanding the provisions of this Section 9(d), a holder of Registrable
Securities shall not be required to contribute any amount in excess of the
amount by which the net proceeds received by such holder in the offering to
which such registration statement relates exceeds the amount of any damages that
such holder has otherwise been required to pay. No person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person.
(e) Survival. The indemnity and contribution covenants contained in this
Section 9 shall remain operative and in full force and effect regardless of (i)
any investigation made by or on behalf of a holder or any person controlling a
holder, (ii) any sale of any Registrable Securities pursuant to this Agreement
and receipt by the holders of the proceeds thereof, or (iii) any termination of
this Agreement for any reason, including after the initial filing of the
registration statement to which these indemnity and contribution covenants
relate.
SECTION 10. Rules 144 and 144A. The Company covenants that it shall use
all reasonable efforts to duly and timely file any reports required to be filed
by it under the Securities Act and the Exchange Act; and that it shall take such
further action as each holder of Registrable Securities may reasonably request
(including providing any information necessary to comply with Rules 144 and 144A
under the Securities Act), all to the extent required from time to time to
enable such holder to sell Registrable Securities without registration under the
Securities Act within the limitation of the exemptions provided by Rule 144 or
Rule 144A under the Securities Act, as such rules may be amended from time to
time, or any similar rules or regulations hereafter adopted by the Commission.
The Company shall, upon the request of any holder of Registrable Securities,
deliver to such holder a written statement as to whether it has complied with
such requirements. Without limiting the foregoing, the Company agrees that:
(a) it will, if required by law, maintain a registration statement
(containing such information and documents as the Commission shall specify) with
respect to the Common Stock under Section 12 of the Exchange Act and will timely
file such information, documents and reports as the Commission may require or
prescribe for companies whose stock has been registered pursuant to said Section
12;
(b) it will, if a registration statement with respect to the Common
Stock under Section 12 is effective, or if required by Section 15(d) of the
Exchange Act, make whatever filings with the Commission or otherwise make
generally available to the public such financial and other information as may be
necessary to enable the holders of Registrable Securities to be permitted to
sell shares of Common Stock pursuant to the provisions of Rule 144 or 144A
promulgated under the Securities Act (or any successor rule or regulation
thereto); and
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(c) it will, at any time when any holder of Registrable Securities
desires to make sales of any Registrable Securities in reliance on Rule 144A
under the Securities Act (or any successor rule or regulation), provide such
holder and any prospective purchaser therefrom with the information required by
Rule 144A and otherwise cooperate with the holder in connection with such sale.
The Company represents and warrants that any registration statement or
any information document or report filed with the Commission in connection with
the foregoing or any information so made public shall not contain any untrue
statement of a material fact or omit to state a material fact required to be
stated therein or necessary in order to make the statements contained therein
not misleading. The Company agrees to indemnify and hold harmless (or to the
extent the same is not enforceable, make contribution to) the seller of
Registrable Securities, its partners, officers, directors, employees and agents
and each broker, dealer or underwriter (within the meaning of the Securities
Act) acting for any such seller in connection with any offering or sale by such
seller of Registrable Securities or any person, firm or corporation controlling
(within the meaning of either Section 15 of the Securities Act or Section 20 of
the Exchange Act) such seller and any such broker, dealer or underwriter from
and against any and all losses, claims, damages, liabilities or expenses (or
actions in respect thereof) arising out of or resulting from any breach of the
foregoing representation or warranty, all on terms and conditions comparable to
those set forth in Section 9 of this Agreement.
SECTION 11. Limitation on Registration Rights of Others. The Company
represents and warrants as of the date hereof that it has not granted to any
Person the right to request or require the Company to register any securities
issued by the Company, except as set forth in this Agreement and in Article IV,
Section 2(A)(6) of the Certificate of Incorporation. The Company covenants and
agrees that, so long as any Person holds any Registrable Securities in respect
of which any registration rights provided for in Section 3 of this Agreement
remain in effect, the Company will not, directly or indirectly, grant to any
Person or agree to or otherwise become obligated in respect of rights of
registration in the nature or substantially in the nature of those set forth in
Section 3 of this Agreement; provided, the Company may enter into an agreement
that provides rights similar to, but no more advantageous or favorable in any
respect than (including any provision with respect to the earliest time for
demand, underwriters cut-back, lock-up period or any other provision), the
rights granted to FUCP in Section 3 hereof so long as such rights of FUCP rank
pari passu with, or senior to, any such rights granted to any other Person.
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SECTION 12. Miscellaneous.
(a) Recapitalizations, Exchanges, Etc. The provisions of this Agreement
shall apply, to the full extent set forth herein with respect to the Registrable
Securities, to any and all shares of capital stock of the Company or any
successor or assign of the Company (whether by merger, consolidation, sale of
assets or otherwise) which may be issued in respect of, in exchange for or in
substitution of, the Registrable Securities and shall be appropriately adjusted
for any stock dividends, splits, reverse splits, combinations, recapitalizations
and the like occurring after the date hereof.
(b) No Inconsistent Agreements. The Company shall not enter into any
agreement with respect to its securities that is inconsistent with the rights
granted to the designated holders of the Registrable Securities in this
Agreement.
(c) Remedies. The holders of the Registrable Securities, in addition to
being entitled to exercise all rights granted by law, including recovery of
damages, shall be entitled to specific performance of their rights under this
Agreement. The Company agrees that monetary damages would not be adequate
compensation for any loss incurred by reason of a breach by it of the provisions
of this Agreement and hereby agrees to waive in any action for specific
performance the defense that a remedy at law would be adequate.
(d) Amendments and Waivers. Except as otherwise provided herein, the
provisions of this Agreement may not be amended, modified or supplemented, and
waivers or consents to departures from the provisions hereof may not be given
unless the Company has obtained the prior written consent of the holders of at
least a majority of the Registrable Securities.
(e) Notices. All notices, demands and other communications provided for
or permitted hereunder shall be made in writing and shall be by registered or
certified first-class mail, return receipt requested, telecopy, recognized
overnight courier service or personal delivery:
(a) if to the Company:
Physician Partners, Inc.
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇, ▇▇▇▇▇▇ ▇▇▇▇▇
Attention: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Telecopy No.: (▇▇▇) ▇▇▇-▇▇▇▇
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(b) if to FUCP:
One First Union Center
▇▇▇ ▇. ▇▇▇▇▇▇▇ ▇▇., ▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇, ▇▇
D. ▇▇▇▇ ▇▇▇▇▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
(c) if to any other holder of Registrable Securities: The most
recent address of such holder shown in the Company's
record of securityholders
All such notices and communications shall be deemed to have been duly
given: when delivered by hand, if personally delivered; when delivered by
courier, if delivered by commercial overnight courier service; five business
days after being deposited in the mail, postage prepaid, if mailed; and when
receipt is acknowledged if telecopied.
(f) Successors and Assigns. This Agreement shall inure to the benefit of
and be binding upon the successors and assigns of each of the parties and the
registration rights and the other obligations of the Company contained in this
Agreement shall with respect to any Registrable Security be automatically
transferred to any subsequent holder of Registrable Securities (excluding any
person who acquires such securities in a transaction with respect to which a
registration statement under the Securities Act is effective at the time or
pursuant to a sale complying with Rule 144 or Rule 144A under the Securities
Act), and may only be transferred in connection with a transfer of Registrable
Securities made in accordance with the terms set forth in the Warrant.
Notwithstanding any transfer of such rights, all of the obligations of the
Company hereunder shall survive any such transfer and shall continue to inure to
the benefit of all transferees.
(g) Counterparts. This Agreement may be executed in any number of
counterparts and by the parties hereto in separate counterparts, each of which
when so executed shall be deemed to be an original and all of which taken
together shall constitute one and the same agreement.
(h) Headings. The headings in this Agreement are for convenience of
reference only and shall not limit or otherwise affect the meaning hereof.
(i) Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of North Carolina, without regard to the
principles of conflicts of law of such state.
(j) Severability. If any one or more of the provisions contained herein,
or the application thereof in any circumstances, is held invalid, illegal or
unenforceable in any respect for any reason, the validity, legality and
enforceability of any such provision in every other respect and of the remaining
provisions hereof shall not be in any way impaired, it being intended that all
of the
85
rights and privileges of the holders of Registrable Securities shall be
enforceable to the fullest extent permitted by law.
(k) Entire Agreement. This Agreement is intended by the parties as a
final expression of their agreement and intended to be a complete and exclusive
statement of the agreement and understanding of the parties hereto in respect of
the subject matter contained herein. There are no restrictions, promises,
warranties or undertakings, other than those set forth or referred to herein.
This Agreement supersedes all prior agreements and understandings between the
parties with respect to such subject matter.
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IN WITNESS WHEREOF, the undersigned have caused this Registration Rights
Agreement to be executed and delivered under seal as of the day and year first
above written.
PHYSICIAN PARTNERS, INC.
[CORPORATE SEAL] By:______________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
President
FIRST UNION CAPITAL PARTNERS, INC.
[CORPORATE SEAL] By:_____________________________
Name:
Title: