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EXHIBIT 10.4
PROBEX CORPORATION
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "AGREEMENT") is made and entered
into as of June 30, 1998 by and among Probex Corporation, a Colorado corporation
(the "COMPANY"), the stockholders signatory hereto, and HSB Engineering Finance
Corporation, a Delaware corporation (the "INVESTOR").
R E C I T A L S
A. The Investor has agreed to loan the Company (the "LOAN") up to the
aggregate amount of one million five hundred thousand dollars ($1,500,000) and
has agreed to acquire from the Company, and the Company has agreed to issue to
the Investor, a Warrant to acquire shares of the Company's Common Stock, no par
value (the "COMMON STOCK"), terms and conditions set forth in that certain
Convertible Loan, Warrant and Security Agreement, dated of even date herewith,
by and between the Company and the Investor (the "LOAN AGREEMENT") and the
Convertible Secured Promissory Note, dated of even date herewith (the "NOTE"),
by the Company.
B. Pursuant to the Loan Agreement, Investor has the right to acquire
additional shares of Common Stock (as defined in the Loan Agreement, the
"CONVERSION SHARES") upon the cancellation of the outstanding principal balance
on the Note and the surrender and cancellation of the Warrant.
C. The Loan Agreement provides that the Investor shall be granted
certain rights, as more fully set forth herein.
D. Capitalized terms not otherwise defined herein shall have the
meanings given such terms in the Loan Agreement.
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INFORMATION RIGHTS.
1.1 Information and Inspection Rights. The Company covenants and agrees
that, commencing on the date of this Agreement, for so long as the Investor
holds the Note, the Warrant or any Conversion Shares, the Company will deliver
to the Investor: (a) audited annual financial statements within 90 days after
the end of each fiscal year, (b) unaudited quarterly financial statements within
45 days of the end of each fiscal quarter; (c) an annual budget for the
following calendar year within 30 days prior to the end of each calendar year;
(d) such other financial statements as are prepared for the Company's internal
use, for the use of the Company's
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Board of Directors (the "BOARD"), or for public filing and (e) upon the written
request by the Investor, such other information as the Investor shall reasonably
request. The Company further covenants and agrees that, commencing on the date
of this Agreement, for so long as the Investor holds the Note, the Warrant or
any Conversion Shares, the Investor shall have standard inspection rights. These
information and inspection rights shall terminate upon consummation of the
Public Offering (as defined in the Loan Agreement) or upon the commencement of
the filing of periodic reports pursuant to the Securities Exchange Act of 1934,
as amended. Following the Public Offering, the Company shall deliver to the
Investor copies of the Company's 10-K's, 10-Q's, 8-K's and Annual Reports to
Shareholders promptly after such documents are filed with the SEC (as defined
below).
2. VOTING AGREEMENT.
2.1 Board Representation. So long as the Investor, together with its
Affiliates (as defined in the Loan Agreement), in the aggregate, holds Common
Stock representing (or has the right at any time in the future to acquire under
the Warrant or the Loan Agreement shares of Common Stock which, together with
any Common Stock owned by Investor, represents) at least 5% of the outstanding
Common Stock of the Company, Investor will be entitled to elect members (the
"REPRESENTATIVE(S)") of the Board and all committees thereof. The number of such
Representatives (the "SEATS") shall be the minimum number as is necessary to
equal or exceed twenty percent (20%) of the total number of voting members of
the Board or committee thereof, as applicable; and, in any event, as least one
Representative shall be elected as a member of the Board and all committees
thereof so long as the Investor is entitled to elect any Representatives as
provided above. The Investor shall nominate at least two nominees for each Seat
at least fourteen (14) days prior to such nominee's election to the Board. For
each Seat, the Company shall designate which of the two nominees shall be
elected. Upon such designation or, if at the end of such fourteen (14) day
period the Company shall have failed to designate a nominee to a Seat, upon the
Investor's designation of one of the two nominees for each Seat, the Company
shall take, or cause to be taken, all actions within its power to cause the
Representative(s) so designated to be elected to the Board, including
recommending to the stockholders of the Company that they vote for the election
to the Board of the individual or individuals designated by the Investor.
Each stockholder signatory hereto shall take all actions necessary to
vote all shares of stock entitled to vote thereon owned or held of record by
such stockholder at any annual or special meeting at which one or more directors
are elected in favor of the election as directors of those individuals
designated as the Representatives of the Investor. Each stockholder signatory
hereto shall take all actions by written consents in lieu of any such meeting
necessary to cause the election as director of those individuals designated as
Representatives of the Investors. Except as otherwise permitted in this Section
2.1, no stockholder signatory hereto shall take any action to remove any
Representative from office as director without Cause. Any Representative may be
removed as director for Cause (as defined below) at any time by the affirmative
vote of the holders of at least a majority of the outstanding shares entitled to
vote thereon. "CAUSE", for purposes of this Article 2 only, shall mean the
commission by a Representative of a felony which in the opinion of the majority
of the directors is injurious to the business reputation of the Company or the
commission by a Representative of an act constituting the reckless disregard of
his duties to the Company, bad faith, gross negligence, willful misconduct or
fraud. The removal of any Representative as director
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for Cause shall not prejudice the right of the Investors who nominated such
Representative to nominate pursuant to this Agreement a substitute director to
fill the vacancy created by such removal. Any Representative previously removed
as a director for Cause shall not be eligible thereafter to serve as a director
of the Company. If a Representative, as a result of death, disability,
resignation, removal (with or without Cause) or otherwise, cannot serve on the
Board, the Investors shall nominate an individual to fill such vacancy. Upon the
nomination of a Representative pursuant to this Section 2.1 to fill such
vacancy, if, under applicable law, such vacancy can be filled by the remaining
directors, then each director shall elect or appoint such Representative to the
Board. If, under applicable law, such vacancy cannot be filled by the remaining
directors, such director shall take all action necessary to convene, as promptly
as practicable, an annual or special meeting of the stockholders at which the
stockholders signatory hereto shall vote all shares entitled to vote thereon
owned or held of record by such stockholder to elect such Representative to the
Board.
The Company acknowledges that the Investor will likely have, from time
to time, information that may be of interest to the Company ("INFORMATION")
regarding a wide variety of matters including, by way of example only, (1)
Investor's technologies, plans and services, and plans and strategies relating
thereto, (2) current and future investments Investor has made, may make, may
consider or may become aware of with respect to other companies and other
technologies, products and services, including, without limitation,
technologies, products and services that may be competitive with the Company's,
and (3) developments with respect to the technologies, products and services,
and plans and strategies relating thereto, of other companies, including,
without limitation, companies that may be competitive with the Company. The
Company recognizes that a portion of such Information may be of interest to the
Company. Such Information may or may not be known by the Representative. The
Company, as a material part of the consideration for this Agreement, agrees that
Investor and its Representative shall have no duty to disclose any Information
to the Company or permit the Company to participate in any projects or
investments based on any Information, or to otherwise take advantage of any
opportunity that may be of interest to the Company if it were aware of such
Information, and hereby waives, to the extent permitted by law, any claim based
on the corporate opportunity doctrine or otherwise that could limit Investor's
ability to pursue opportunities based on such Information or that would require
Investor or Representative to disclose any such Information to the Company or
offer any opportunity relating thereto to the Company.
The Company shall, to the fullest extent permitted under applicable law
and the Company's articles of incorporation and bylaws, indemnify and hold
harmless, all of the directors, including each Representative, against any costs
or expenses (including reasonable attorneys' fees), judgments, fines, losses,
claims, damages and liabilities incurred in connection with, and amounts paid in
settlement of, any claim, action, suit, proceeding or investigation, whether
civil, criminal, administrative or investigative and wherever asserted, brought
or filed, arising out of or pertaining to any acts or omissions or alleged acts
or omissions by them in their capacities as members of the Board or any
committee thereof. The Company shall purchase or maintain in effect, if
available, directors' and officers' liability insurance covering all of the
directors, including the Representatives, on terms reasonably acceptable to the
Representatives, provided that the Company shall not be obligated to pay more
than $10,000 for the initial annual premium.
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INVESTOR RIGHTS AGREEMENT
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2.2. Actions by the Board of Directors.
(a) Each transaction, or series of related transactions, to
which the Company will be a party and which is material to the Company taken as
a whole, shall require the approval of the Board in the manner specified in this
Section 2.2. Except as otherwise provided in Section 2.2(b), all actions of the
Board and committees thereof shall require the affirmative vote of the majority
of the directors present at a duly convened meeting of such Board or committee
thereof at which a quorum is present (or in lieu of a meeting, by the unanimous
written consent of the members of such Board or committee thereof); provided,
however, that in the event there is a vacancy on such Board or committee thereof
and an individual is nominated to fill such vacancy, the first order of business
shall be to fill such vacancy.
(b) Notwithstanding the fact that no vote may be required, or
that a lesser percentage vote may be specified by law, by the articles of
incorporation, the bylaws or otherwise, except as provided in subsection
2.2(b)(vii), so long as the Note remains outstanding, the Company shall not take
any action without the affirmative vote of at least one of the Representative
directors with respect to the below listed transactions (individually, a
"SIGNIFICANT TRANSACTION") provided, however, that, upon discharge and
cancellation of the Note, the Company may undertake a Significant Transaction
with the affirmative vote of a majority of the directors unless a Representative
director and at least one other director, who is not a Representative director
and not an employee or officer (or affiliate, associate, or relative of any such
employees or officers) of the Company, votes against such Significant
Transaction:
(i) any merger or consolidation involving the Company
(other than transactions involving the merger or consolidation
of a subsidiary with or into the Company or with or into a
subsidiary);
(ii) any sale, lease, exchange, transfer or other
disposition, directly or indirectly, any single transaction or
series of related transactions of all or substantially all of
the assets of the Company to or with any person other than
into or with a subsidiary of the Company;
(iii) any increase or reduction of, or change in, the
Company's authorized stock or the creation of any additional
class of capital stock of the Company;
(iv) any material amendment to or modification or
repeal of any provisions of the Company's articles of
incorporation, or the Company's bylaws or this Agreement;
(v) the dissolution of the Company or the adoption of
a plan of liquidation of the Company;
(vi) any action by the Company to commence any suit,
case, proceeding or other action (A) under any existing or
future law of any jurisdiction relating to bankruptcy,
insolvency, reorganization, or relief of debtors or seeking to
have an order for relief entered with respect to the Company
or seeking to adjudicate the Company a bankrupt or insolvent
or seeking reorganization,
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INVESTOR RIGHTS AGREEMENT
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arrangement, adjustment, winding-up, liquidation, dissolution,
composition or other relief with respect to the Company or (B)
seeking appointment of a receiver, trustee, custodian or
other similar official for the Company or making a general
assignment for the benefit of the creditors of the Company;
and
(vii) until the earlier of termination of the Loan
Agreement or repayment, discharge and cancellation of the
Note, the approval of execution of any Material Contract (as
defined below).
(c) Material Contract. A "MATERIAL CONTRACT" shall mean the
following contracts to which the Company is a party: (i) any contract for the
lease of personal property to or from any other party providing for lease
payments in excess of $100,000 per annum; (ii) any contract for the purchase of
supplies, products or other personal property, or for the receipt of services,
the performance of which will result in a loss to the Company that would have a
material adverse effect or involve consideration in excess of $100,000; (iii)
any contract (including any license or sublicense of any intellectual property)
under which it has (a) created, incurred, assumed, or guaranteed any
indebtedness for borrowed money, or any capitalized lease obligation, in excess
of $100,000, except such indebtedness for which the proceeds shall be used to
repay, discharge and cancel the Note, or (b) imposed a lien on any of its
assets, tangible or intangible, which lien secures indebtedness outstanding in
an amount in excess of $100,000 or (c) guaranteed the financial obligation of
another party; (iv) any contract with affiliates of the Company other than
affiliates controlled by the Company; (v) any profit sharing, stock option,
stock purchase, stock appreciation, deferred compensation or other plan or
arrangement for the benefit of its current or former directors, officers and
employees requiring cash expenditures by the Company in excess of $100,000; (vi)
any collective bargaining agreement; (vii) any contract for the employment of
any individual on a full-time, part-time, consulting or other basis providing
annual compensation in excess of $100,000 and any contract with any director or
officer of the Company; (viii) any contract under which it has advanced or
loaned any amount to any of its directors, officers or employees, other than
advances for expenses of the Company incurred in the ordinary course of
business; (ix) any contract (including any license or sublicense of any
intellectual property) under which the consequences of a default or termination
would have a material adverse effect; (x) any contract with a customer for the
provision of the Company's products or services under which the Company has
received in excess of $100,000 during any twelve-month period; (xi) any contract
for the purchase, sale, license or sublicense of intellectual property the
performance of which involves consideration in excess of $100,000 per year;
(xii) any joint venture contract or arrangement involving a sharing of profits
or expenses; (xiii) any contract limiting the freedom of the Company to compete
in any line of business or in any geographic area or with any other party; or
(xiv) any contract the performance of which involves consideration in excess of
$100,000 per year.
3. REGISTRATION RIGHTS.
3.1 Definitions. For purposes of this Section 3:
(a) Registration. The terms "REGISTER," "REGISTERED," and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the
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Securities Act of 1933, as amended, (the "SECURITIES ACT"), and the declaration
or ordering of effectiveness of such registration statement
(b) Registrable Securities. The term "REGISTRABLE SECURITIES"
means: (1) any Common Stock of the Company issued or to be issued (A) under the
Loan Agreement, (B) pursuant to conversion of the Warrant and (C) pursuant to
the Right of Participation or Right of Maintenance (as defined below), (2) any
shares of Common Stock of the Company issued (or issuable upon the conversion or
exercise of any warrant, right or other security) as a dividend or other
distribution with respect to, or in exchange for or in replacement of, any
shares of Common Stock and the other securities described in clause (1) of this
subsection (b) and (3) any other Common Stock of the Company owned or hereafter
acquired by the Investor. Notwithstanding the foregoing, "REGISTRABLE
SECURITIES" shall exclude any Registrable Securities sold by a person in a
transaction in which rights under this Section 3 are not assigned in accordance
with this Agreement or any Registrable Securities sold in a public offering,
whether sold pursuant to Rule 144 promulgated under the Securities Act, or in a
registered offering, or otherwise.
(c) Registrable Securities Then Outstanding. The number of
shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the number of
shares of Common Stock of the Company that are Registrable Securities and are
then issued and outstanding.
(d) Holder. For purposes of this Section 3, the term "HOLDER"
means any person signatory hereto owning of record Registrable Securities that
have not been sold to the public or pursuant to Rule 144 promulgated under the
Securities Act or any permitted assignee of record of such Registrable
Securities to whom rights under this Section 3 have been duly assigned in
accordance with this Agreement.
(e) SEC. The term "SEC" or "COMMISSION" means the U.S.
Securities and Exchange Commission.
3.2. Requested Registration.
(a) Requested Registration. If, after the date hereof, at any
time after the Company's firm commitment underwritten public offering of the
Company's Common Stock pursuant to a registration statement filed with the SEC
(the "PUBLIC OFFERING"), the Company shall receive from any Holder a written
request that the Company effect any registration, qualification or compliance
with respect to all or a part of the Registrable Securities that were issued
pursuant to conversion of the Warrant or issued pursuant to the Initial
Conversion Shares as defined in of the Loan Agreement (the "DEMAND REGISTRABLE
SECURITIES"), the Company will as soon as practicable, use its diligent best
efforts to effect such registration, qualification and compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under the applicable blue sky or other
state securities laws and appropriate compliance with applicable regulations
issued under the Act and any other governmental requirements or regulations) as
may be so requested and as would permit or facilitate the sale and distribution
of all or such portion of the Demand Registrable Securities of such Holder(s) as
are specified in such request. Without limiting the generality of the foregoing,
the Company shall file a registration statement covering the Demand Registrable
Securities so
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INVESTOR RIGHTS AGREEMENT
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requested to be registered as soon as practicable, but in any event within
forty-five (45) days after receipt of the request or requests of the Holders.
(b) Underwriting. If the Holders intend to distribute the
Demand Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company and shall designate the
underwriter or underwriters to be employed in connection therewith (who shall be
selected by the majority in interest of the Holders and who shall be subject to
the Company's right of reasonable approval) as a part of their request made
pursuant to Section 3.2(a). In such event, the right of any Holder to
registration pursuant to this Section 3.2 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Demand Registrable Securities in the underwriting (unless otherwise mutually
agreed by a majority in interest of the Holders and such Holder) to the extent
provided herein. The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by a majority in interest of the Holders.
Notwithstanding any other provision of this Section 3.2, if the underwriter
advises the Holders in writing that marketing factors require a limitation of
the number of shares to be underwritten, the securities of the Company (other
than Demand Registrable Securities) held by officers or directors and by other
shareholders shall be excluded from such registration to the extent so required
by such limitation and if a limitation of the number of shares is still
required, then the Holders shall so advise all Holders of Demand Registrable
Securities that would otherwise be registered and underwritten pursuant hereto,
and the number of shares included in the registration and underwriting shall be
allocated among the Holders of Demand Registrable Securities requesting
registration in proportion, as nearly as practicable, to the total number of
Demand Registrable Securities held by such Holders at the time of filing of the
registration statement and requested to be included in the registration;
provided, however, that in each such case at least twenty-five percent (25%) of
the Demand Registrable Securities requested to be included in such registration
by the Holders shall be so included.
(c) Limitations. Notwithstanding the foregoing provisions of
this Section 3.2, the Holder's right to request registration of Demand
Registrable Securities under this Section 3.2 shall be subject to the following
limitations:
(1) The Company shall not be obligated to take any
action to effect any such registration, qualification or compliance pursuant to
this Section 3.2 after the Company has effected two (2) registrations,
qualifications or compliances pursuant to requests under this Section 3.2. A
registration, qualification or compliance shall not be deemed "effected" for
purpose of this Section 3.2 (i) unless it has become effective and is maintained
effective until all Demand Registrable Securities are sold thereunder, (ii) if,
after it has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC or any other
governmental agency, authority or body for any reason other than a material
misrepresentation or omission by the Holders of Demand Registrable Securities
included therein, or (iii) if the conditions to closing specified in the
purchase or underwriting agreement entered into in connection with such
registration are not satisfied other than by reason of some act or omission by
any of the Holders of Demand Registrable Securities included therein;
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(2) The Company shall not be obligated to effect any
registration hereunder in any particular jurisdiction in which the Company would
be required to qualify to do business in effecting such registration.
(3) The Company shall not be obligated to effect a
registration hereunder during the 180 day period beginning on the effective date
of the Company's Public Offering unless the underwriters managing the Public
Offering otherwise agree.
3.3 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company (including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company), and will afford each such Holder an opportunity to
include in such registration statement all or any part of the Registrable
Securities then held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by
such Holder shall, within twenty (20) days after receipt of the above-described
notice from the Company, so notify the Company in writing, and in such notice
shall inform the Company of the number of Registrable Securities such Holder
wishes to include in such registration statement. If a Holder decides not to
include all of its Registrable Securities in any registration statement
thereafter filed by the Company, such Holder shall nevertheless continue to have
the right to include any Registrable Securities in any subsequent registration
statement or registration statements as may be filed by the Company with respect
to offerings of its securities, all upon the terms and conditions set forth
herein. Except as otherwise provided herein, there shall be no limit on the
number of times the Holders may request registration of Registrable Securities
under this Section 3.3.
(a) Underwriting. If a registration statement under which the
Company gives notice under this Section 3.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 3.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required by such
underwriter or underwriters). Notwithstanding any other provision of this
Agreement, if the managing underwriter(s) determine(s) in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter(s) may exclude up to all Registrable
Shares that are in excess of 15% of the aggregate number of shares to be
included in such offering (including the Registrable Shares) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first to the
Company, and second, to each of the Holders requesting inclusion of their
Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder;
provided, however, that the right of the underwriter(s) to exclude shares
(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that all shares that are not Registrable
Securities and are held by any other person, including, without limitation, any
person who is an
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employee, officer or director of the Company (or any subsidiary of the Company),
shall first be excluded from such registration and underwriting before any
Registrable Securities are so excluded. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter(s), delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder that is a
partnership, the Holder and the partners and retired partners of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons, and for any Holder that
is a corporation, the Holder and all corporations that are affiliates of such
Holder, shall be deemed to be a single "Holder," and any pro rata reduction with
respect to such Holder shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such Holder, as defined in this sentence.
3.4 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement the Company
shall, as expeditiously as reasonably possible:
(a) Registration Statement. Prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use its
best efforts to cause such registration statement to become effective, provided,
however, that the Company shall not be required to keep any such registration
statement effective for more than ninety (90) days.
(b) Amendments and Supplements. Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to
the disposition of all securities covered by such registration statement.
(c) Prospectuses. Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Blue Sky. Use its best efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders, provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) Underwriting. In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting agreement
in usual and customary form, with the managing underwriter(s) of such offering.
Each Holder participating in such underwriting shall also enter into and perform
its obligations under such an agreement.
(f) Notification. Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be
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delivered under the Securities Act of the happening of any event as a result of
which the prospectus included in such registration statement, as then in effect,
includes an untrue statement of a material fact or omits to state a material
fact required to be stated therein or necessary to make the statements therein
not misleading in the light of the circumstances then existing.
(g) Opinion and Comfort Letter. Furnish, at the request of any
Holder requesting registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriter(s) for sale, if such
securities are being sold through underwriters, or, if such securities are not
being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a "comfort" letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
3.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 3.2 or 3.3
that the selling Holders shall furnish to the Company such information regarding
themselves, the Registrable Securities held by them, and the intended method of
disposition of such securities as shall be required to timely effect the
Registration of their Registrable Securities.
3.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 3.2 or 3.3:
(a) By the Company. To the extent permitted by law; the
Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as determined in the Securities Act)
for such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
Liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"):
(i) any untrue statement or alleged untrue statement
of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus
contained therein or any amendments or supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or
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INVESTOR RIGHTS AGREEMENT
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(iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any federal or
state securities law or any rule or regulation promulgated
under the Securities Act, the 1934 Act or any federal or state
securities law in connection with the offering covered by such
registration statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection 3.6(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by such Holder, partner, officer, director, underwriter
or controlling person of such Holder.
(b) By Selling Holders. To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such registration; and each such Holder will reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action:
provided, however, that the indemnity agreement contained in this subsection
3.6(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; and provided,
further, that the total amounts payable in indemnity by a Holder under this
Section 3.6(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 3.6 of notice of the commencement of any action (including
any governmental action), such indemnified party will, if a claim in respect
thereof is to be made against any indemnifying party under this Section 3.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party shall have the right to participate in, and, to
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INVESTOR RIGHTS AGREEMENT
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the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall have the right to retain its own counsel, with the fees and expenses
to be paid by the indemnifying party, if representation of such indemnified
party by the counsel retained by the indemnifying party would be inappropriate
due to actual or potential conflict of interests between such indemnified party
and any other party represented by such counsel in such proceeding. The failure
to deliver written notice to the indemnifying party within a reasonable time of
the commencement of any such action shall relieve such indemnifying party of
liability to the indemnified party under this Section 3.6 to the extent the
indemnifying party is prejudiced as a result thereof, but the omission so to
deliver written notice to the indemnified party will not relieve it of any
liability that it may have to any indemnified party otherwise than under this
Section 3.6.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of any
person if a copy of the Final Prospectus was timely furnished to the indemnified
party and was not furnished to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 3.6 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 3.6 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
3.6; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
that, in any such case: (A) no such Holder will be required to contribute any
amount in excess of the public offering price of all such Registrable Securities
offered and sold by such Holder pursuant to such registration statement; and (B)
no person or entity guilty of fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
this Section 3.5 shall survive until the fifth anniversary of the completion of
any offering of
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INVESTOR RIGHTS AGREEMENT
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Registrable Securities in a registration statement, regardless of the expiration
of any statutes of limitation or extensions of such statutes.
3.7 Expenses. All expenses incurred in connection with a registration
pursuant to Sections 3.2 and 3.3 (excluding underwriters' and brokers' discounts
and commissions relating to shares sold by the Holders and legal fees of counsel
for the Holders), including, without limitation all federal and "blue sky"
registration, filing and qualification fees, printers' and accounting fees, and
fees and disbursements of counsel for the Company, shall be borne by the
Company.
3.8 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to Sections 3.2 or 3.3 with respect to any Registrable
Securities proposed to be sold by a Holder in a registration pursuant to
Sections 3.2 or 3.3 more than seven (7) years after the date of this Agreement,
or, if, in the opinion of counsel to the Company, all such Registrable
Securities proposed to be sold by a Holder may then be sold under Rule 144 in
one transaction without exceeding the volume limitations thereunder.
3.9 No Registration Rights to Third Parties. Without the prior written
consent of the Holders of a majority in interest of the Registrable Securities
then outstanding, the Company covenants and agrees that it shall not grant, or
cause or permit to be created, for the benefit of any person or entity any
registration rights of any kind (whether similar to the registration rights
described in this Article 3, or otherwise) relating to shares of the Company's
Common Stock or any other voting securities of the Company, other than rights
that are on a parity with or subordinate in right to the Investor.
4. RIGHT OF PARTICIPATION.
4.1 General. The Investor and any Affiliate of the Investor to which
rights under this Section 4 have been duly assigned in accordance with Section 9
(the Investor and each such assignee being hereinafter referred to as a
"PARTICIPATION RIGHTS HOLDER") shall have the right of first refusal to purchase
such Participation Rights Holder's Pro Rata Share (as defined below), of all (or
any part) of any New Securities (as defined in Section 4.3) that the Company may
from time to time issue after the date of this Agreement (the "RIGHT OF
PARTICIPATION") only to the extent the Participation Rights Holder has not
exercised its Right of Maintenance as described in Section 5. Each right to
purchase New Securities pursuant to this Section 4 shall be on the same terms
(other than price to the extent provided in Section 5.3 below and as closely as
practicable in the case of employee stock options) as the issuance of New
Securities that gave rise to the Right of Participation. Notwithstanding the
foregoing, the Participation Rights Holder shall not have the Right of
Participation with respect to the issuance of any New Securities to the extent
that (1) the Participation Rights Holder has not acquired (a) Conversion Shares
pursuant to the Loan Agreement, or (b) shares of Common Stock pursuant to the
Warrant and (2) such unacquired Conversion Shares and shares of Common Stock
issuable upon exercise of the Warrant have been adjusted according to their
respective terms. In the event the Participation Rights Holder's Right of
Participation involves employee stock options, the Company and the Participation
Rights Holder shall structure the Right of Participation in such a manner as to
avoid adverse tax consequences to such employees.
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INVESTOR RIGHTS AGREEMENT
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4.2 Pro Rata Share. A Participation Rights Holder's "PRO RATA SHARE"
for purposes of the Right of Participation is the ratio of (a) the number of
shares of Common Stock held by such Participation Rights Holder as of the date
of such Participation Notice (as defined in Section 4.4) plus the total number
of shares of Common Stock that such Participation Rights Holder has the right to
acquire at any time in the future pursuant to the Loan Agreement and the
Warrant, to (b) the difference between (i) the total number of shares of Common
Stock of the Company (and other voting securities of the Company, if any) then
outstanding (immediately prior to the issuance of New Securities giving rise to
the Right of Participation), and (ii) the number of Dilutive Securities (defined
below) issued since the last Notice Date (defined in Section 5.1) excluding any
Maintenance Securities (defined below) issued pursuant to the last Maintenance
Notice (defined in Section 5.6).
4.3 New Securities. "NEW SECURITIES" shall mean any Common Stock or
other voting capital stock of the Company, whether now authorized or not, and
rights, options or warrants to purchase such Common Stock (and any associated
debt securities issued therewith), and securities of any type whatsoever that
are, or may become, convertible or exchangeable into such Common Stock or other
capital stock, provided, however, that the term "New Securities" shall not
include:
(a) any securities other than Common Stock or other voting capital
stock (e.g., warrants or options to purchase Common Stock or
other capital stock) until such securities are vested and
exercisable;
(b) any shares of Common Stock issued under the terms of the Loan
Agreement, as such agreement may be amended, including the
Warrant and the Conversion Shares;
(c) any securities issued in connection with any stock split,
stock dividend or similar event in which all Participation
Rights Holders are entitled to participate on a pro rata
basis; or
(d) any securities issuable upon the exercise, conversion or
exchange of any securities described in (a), (b) or (c) above.
4.4 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities (in a single transaction or a series of related
transactions), it shall give to each Participation Rights Holder written notice
of its intention to issue New Securities (the "PARTICIPATION NOTICE"),
describing the amount and the type of New Securities and the price and the
general terms upon which the Company proposes to issue such New Securities. Each
Participation Rights Holder shall have ten (10) business days from the date of
receipt of any such Participation Notice to agree in writing to purchase such
Participation Rights Holder's Pro Rata Share of such New Securities for the
price and upon the terms and conditions specified in the Participation Notice by
giving written notice to the Company and stating therein the quantity of New
Securities to be purchased (not to exceed such Participation Rights Holder's Pro
Rata Share). If any Participation Rights Holder fails to so agree in writing
within such ten (10) business day period to purchase such Participation Rights
Holder's full Pro Rata Share of an offering of New Securities, then such
Participation Rights Holder shall forfeit the right hereunder
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INVESTOR RIGHTS AGREEMENT
15
to purchase that part of its Pro Rata Share of such New Securities that it did
not so agree to purchase. Such Participation Rights Holder shall purchase the
portion elected by such Participation Rights Holder concurrently with the
closing of the transaction triggering the Right of Participation.
4.5 Failure to Exercise. Upon the expiration of such ten (10) day
period, the Company shall have 120 days thereafter to sell the New Securities
described in the Participation Notice (with respect to which the Participation
Rights Holders' rights of first refusal hereunder were not exercised) at the
same or higher price and upon non-price terms not materially more favorable to
the purchasers thereof than specified in the Participation Notice. In the event
that the Company has not issued and sold such New Securities within such 120 day
period, then the Company shall not thereafter issue or sell any New Securities
without again first offering such New Securities to the Participation Rights
Holders pursuant to this Section 4.
4.6 Termination. The Right of Participation for the Investor and each
other Participation Rights Holder shall terminate upon the earlier of (1) the
first date that the Investor and its Affiliates collectively hold shares of
Common Stock or other voting securities and securities exercisable or
convertible into shares of Common Stock or other voting securities that number
less than one percent (1%) of the total number of outstanding shares of Common
Stock or (2) the date of the first Public Offering after the date hereof.
5. RIGHT OF MAINTENANCE.
5.1 General. The Investor and any Affiliate of the Investor to which
rights under this Section 5 have been duly assigned in accordance with Section 9
(the Investor and each such assignee being hereinafter referred to as a
"MAINTENANCE RIGHTS HOLDER") will, pursuant to the terms and conditions of this
Section 5, have the right to purchase shares of Common Stock or other voting
capital stock ("MAINTENANCE SECURITIES") from the Company at the Purchase Price
(as defined in Section 5.3) following the issuance by the Company of Dilutive
Securities (as defined in Section 5.2) that the Company may from time to time
issue after the date of this Agreement, solely in order to maintain such
Maintenance Rights Holder's Prior Percentage Interest (as defined in Section
5.4) in the Company (the "RIGHT OF MAINTENANCE") only to the extent the
Maintenance Rights Holder has not exercised its Right of Participation as
described in Section 4. Each right to purchase Maintenance Securities pursuant
to this Section 5 shall be on the same terms (other than price to the extent
provided in Section 5.3 below and as closely as practicable in the case of
employee stock options) as the issuance of the Dilutive Securities that gave
rise to the right to purchase such Maintenance Securities. Notwithstanding the
foregoing, the Maintenance Rights Holder shall not have the Right of Maintenance
with respect to the issuance of any Dilutive Securities to the extent that (1)
the Maintenance Rights Holder has not acquired (a) Conversion Shares pursuant to
the Loan Agreement or (b) shares of Common Stock pursuant to the Warrant and (2)
such unacquired Conversion Shares and shares of Common Stock issuable upon
exercise of the Warrant have been adjusted according to their respective terms.
In the event the Maintenance Rights Holder's Right of Maintenance involves
employee stock options, the Company and the Maintenance Rights Holder shall
structure the Right of Maintenance in such a manner as to avoid adverse tax
consequences to such employees.
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INVESTOR RIGHTS AGREEMENT
16
5.2 Dilutive Securities. "DILUTIVE SECURITIES" means any Common
Stock or other voting capital stock of the Company, whether now authorized or
not, and rights, options or warrants to purchase such Common Stock (and any
associated debt securities issued therewith), and securities of any type
whatsoever that are, or may become, convertible or exchangeable into such Common
Stock or other capital stock; provided, however, that the term "Dilutive
Securities" does not include:
(a) any securities other than Common Stock or other
voting capital stock (e.g., warrants or options to
purchase Common Stock or other capital stock) until
such securities are vested and exercisable;
(b) any shares of Common Stock issued under the terms of
the Loan Agreement, as such agreement may be amended,
including the Warrant and the Conversion Shares;
(c) any securities issued in connection with any stock
split, stock dividend or similar event in which all
Maintenance Rights Holders are entitled to
participate on a pro rata basis; or
(d) any securities issuable upon the exercise, conversion
or exchange of any securities described in (a), (b)
or (c) above.
5.3 Purchase Price.
(a) Employee Stock. To the extent that the right to purchase
New Securities or Maintenance Securities arises out of the issuance of New
Securities or Dilutive Securities to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or incentive plans approved by the Board ("EMPLOYEE STOCK"), the per
share "PURCHASE PRICE" of the New Securities or Maintenance Securities shall
equal the average Market Price (as defined below) of such New Securities or
Maintenance Securities over the ten (10) trading days immediately preceding the
date on which the Maintenance Rights Holder or Participation Rights Holder, as
applicable, elects to purchase such New Securities or Maintenance Securities.
(b) Other Dilutive Securities. To the extent that the right to
purchase Maintenance Securities arises out of any issuance of New Securities or
Dilutive Securities other than Employee Stock, the per share "PURCHASE PRICE" of
the New Securities or Maintenance Securities shall equal the weighted average of
the per share prices at which such New Securities or Dilutive Securities were
issued. For purposes hereof, in the event that the issuance of any New
Securities or Dilutive Securities occurs upon the exercise, conversion or
exchange of other securities ("EXCHANGEABLE SECURITIES"), then the per share
price at which such New Securities or Dilutive Securities shall be deemed to
have been issued shall be the sum of (A) the per share amount paid upon such
exercise, conversion or exchange, plus (B) the per share amount
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INVESTOR RIGHTS AGREEMENT
17
previously paid for the Exchangeable Securities (adjusted for any stock splits,
stock dividends or other similar events).
(c) Market Price. For purposes of this Section 5.3, "MARKET
PRICE" means, as to any New Securities or Maintenance Securities on a given day,
the average of the closing prices of such security's sales on all domestic
securities exchanges on which such security may at the time be listed, or, if
there have been no sales on any such exchange on such day, the average of the
highest bid and lowest asked prices on all such exchanges at the end of such
day, or, if on any day such security is not so listed, the average of the
representative bid and asked prices quoted in the NASDAQ National Market as of
4:00 P.M., New York time, on such day, or, if on any day such security is not
quoted in the NASDAQ National Market, the average of the highest bid and lowest
asked prices on such day in the domestic over-the-counter market as reported by
the National Quotation Bureau, Incorporated, or any similar successor
organization. If at any time the Maintenance Securities are not listed on any
domestic securities exchange or quoted in the NASDAQ National Market or the
domestic over-the-counter market ("UNLISTED SECURITIES"), the "Market Price"
shall be the fair value thereof determined jointly by the Company and the
Maintenance Rights Holder or Participation Rights Holder, as applicable.
(d) Consideration Other than Cash. In the event that New
Securities or Dilutive Securities or Exchangeable Securities were issued for
consideration other than cash, the per share amounts paid for such New
Securities or Dilutive Securities or Exchangeable Securities shall be determined
jointly by the Company and the Maintenance Rights Holder or Participation Rights
Holder, as applicable.
(e) Appraiser. If the Company and the Maintenance Rights
Holder or Participation Rights Holder, as applicable, are unable to reach
agreement within a reasonable period of time with respect to (i) the Market
Price of Unlisted Securities, or (ii) the per share amounts paid for New
Securities or Dilutive Securities or Exchangeable Securities issued for
consideration other than cash, such Market Price or per share amounts paid, as
the case may be, shall be determined by an appraiser jointly selected by the
Company and the Maintenance Rights Holder or Participation Rights Holder, as
applicable. The determination of such appraiser shall be final and binding on
the Company and the Maintenance Rights Holder or Participation Rights Holder, as
applicable. The fees and expenses of such appraiser shall be paid for by the
Company.
5.4 Prior Percentage Interest. A Maintenance Rights Holder's "PRIOR
PERCENTAGE INTEREST" for purposes of the Right of Maintenance is the ratio of
(a) the number of shares of Common Stock held by such Maintenance Rights Holder
as of the date of such Maintenance Notice (as defined in Section 5.6) (the
"NOTICE DATE") plus the total number of shares of Common Stock that such
Maintenance Rights Holder has the right to acquire at any time in the future
pursuant to the Loan Agreement and the Warrant to (b) the difference between (i)
the total number of shares of Common Stock of the Company (and other voting
securities of the Company, if any) outstanding on the Notice Date, and (ii) the
total number of Dilutive Securities issued since the later of the date of this
Agreement or the last Notice Date excluding any Maintenance Securities (defined
below) issued pursuant to the last Maintenance Notice.
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INVESTOR RIGHTS AGREEMENT
18
5.5 Maintenance Amount. A Maintenance Rights Holder's "MAINTENANCE
AMOUNT" with respect to any Maintenance Notice shall equal such number of
Maintenance Securities as is obtained by multiplying the number of Dilutive
Securities specified in such Maintenance Notice by such Maintenance Rights
Holder's Prior Percentage Interest, rounded to the nearest whole share.
5.6 Notice of Issuance. Within fifteen (15) business days of each
anniversary of this Agreement, and within fifteen (15) business days of each
issuance of Dilutive Securities which when cumulated with all prior issuances of
Dilutive Securities since the later of (i) the date of this Agreement, or (ii)
the date of the last Notice Date (subsequent to which the Maintenance Rights
Holder has had an opportunity to purchase Maintenance Securities), results in a
two percent (2%) reduction in a Maintenance Rights Holders' Prior Percentage
Interest, the Company shall give to each Maintenance Rights Holder written
notice (the "MAINTENANCE NOTICE") describing the number of Dilutive Securities
issued since such prior Notice Date and the non-price terms upon which the
Company issued such Dilutive Securities, and the Maintenance Amount of
Maintenance Securities that such Maintenance Rights Holder is entitled to
purchase as a result of such issuances.
5.7 Purchase of Maintenance Securities. Each Maintenance Rights Holder
shall have sixty (60) days from the receipt of a Maintenance Notice to elect to
purchase up to such Maintenance Rights Holder's Maintenance Amount of such
Maintenance Securities at the Purchase Price and upon the terms and conditions
specified in the Maintenance Notice. The closing of such purchase shall occur
within ten (10) days after such election to purchase. If any Maintenance Rights
Holder fails to elect to purchase such Maintenance Rights Holder's full
Maintenance Amount of Maintenance Securities within such sixty (60) day period,
then such Maintenance Rights Holder shall forfeit the right hereunder to
purchase that part of its Maintenance Amount that it did not so elect to
purchase.
5.8 Termination. The provisions of Sections 5.1 through 5.7 shall
terminate upon the earlier of (1) the first date that the Investor and its
Affiliates collectively hold shares of Common Stock or other voting securities
and securities exercisable or convertible into shares of Common Stock or other
voting securities that number less than one percent (1%) of the total number of
outstanding shares of Common Stock or (2) the date of the first Public Offering
after the date hereof.
6. PUT OPTION.
6.1. Right to Put the Registrable Securities. If, at any time two (2)
years after the date hereof, Investor desires to sell any or all of the
Registrable Securities then held by Investor and the Common Stock of the Company
is not traded on a securities exchange or the Nasdaq National Market or Actively
Traded over-the-counter (as defined in the Loan Agreement), then such Investor
may notify the Company in writing of the Investor's desire to sell such
Registrable Securities (the "PUT NOTICE") in which event, such Investor shall
have the right to sell (the "PUT RIGHT") such Registrable Securities to the
Company and the Company shall have the obligation to purchase such Registrable
Securities from such Investor at the Put Price (as defined below) as of the date
of receipt of the Put Notice; provided that (1) the Put Right shall be limited
to the number of Registrable Securities equal to the quotient of (x) three times
the highest Outstanding
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INVESTOR RIGHTS AGREEMENT
19
Balance at any time during the Loan (as defined in the Loan Agreement), divided
by (y) the Put Price, and (2) the exercise of such Put Right does not violate
any applicable law or restrict the Company's eligibility to employ "pooling of
interests" accounting with respect to any pending acquisition, disposition or
reorganization transaction involving the Company or any subsidiary of the
Company. In the event that the purchase of such Registrable Securities is
prevented or delayed pursuant to the proviso in the immediately preceding
sentence, the Company shall promptly purchase at the Put Price such Registrable
Securities as soon as practicable after the restrictions with respect to such
purchase under applicable law or "pooling of interests" accounting rules lapse.
6.2 Put Price. For purposes of this Article 6, "PUT PRICE" means, as to
any Registrable Securities on a given day, the fair value thereof determined
jointly by the Company and the Investor. If the Company and the Investor are
unable to reach agreement within a reasonable period of time with respect to the
Put Price, such Put Price, shall be determined by an appraiser jointly selected
by the Company and the Investor. The determination of such appraiser shall be
final and binding on the Company and the Investor. The fees and expenses of such
appraiser shall be paid for by the Company.
6.3 Termination of Put Option. The rights of the Investor under
Sections 6.1 through 6.2 shall terminate on the fifth anniversary of the date
hereof.
7. STOCK TRANSFER RESTRICTIONS FOR KEY SHAREHOLDERS.
7.1 Key Shareholders. "KEY SHAREHOLDERS" shall mean the employees
listed on Schedule 7.1 to this Agreement.
7.2 Stock Transfer Restrictions. The Company shall not permit any Key
Shareholders to sell, transfer or otherwise dispose of any shares of Common
Stock in excess of the number of shares of Common Stock set forth on Schedule
7.1 to this Agreement for a period of two years after the date hereof without
the prior approval of the Investor other than transfers to trusts, custodial
accounts, or limited partnerships solely controlled by such Key Shareholder or
directly to immediate family members, which for purposes of this agreement shall
mean parents, siblings, children or spouse of such Shareholder, provided that
all beneficiaries or limited partners of such trusts, custodial accounts, or
limited partnerships consist of such Key Shareholder and/or immediate family
members of such Key Shareholder and that any such direct transfer to an
immediate family member shall include an irrevocable proxy allowing the Key
Shareholder the right to vote the transferred stock for the term provided for in
this Section. The Company shall use its best efforts to obtain from each Key
Shareholder a stock transfer agreement in the form attached hereto as Exhibit A.
The Company shall place a legend to such effect on the certificates of the
shares held by the Key Shareholders except for the certificates of the shares
set forth on Schedule 7.1 to this Agreement.
7.3 Stop Transfer Instructions. The Company shall issue stop transfer
instructions to its transfer agent prohibiting the transfer of shares of Common
Stock owned by such Key Employees except in accordance with the provisions of
this Agreement.
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INVESTOR RIGHTS AGREEMENT
20
8. TAG-ALONG SALE RIGHTS.
8.1 Notice of Intended Disposition. In the event a Key Shareholder of
the Company desires to accept a bona fide third party offer for the transfer of
any or all of the Common Stock held by such shareholder (the shares subject to
such offer to be hereafter called the "TARGET SHARES"), the shareholder shall
promptly deliver to the Company and the Investor written notice of the intended
disposition ("DISPOSITION NOTICE") and the basic terms and conditions thereof,
including the identity of the proposed purchaser and the consideration involved.
8.2 Grant of Tag-Along Sale Rights Involving a Key Shareholder. If a
Key Shareholder proposes to enter into a transaction regarding the disposition
of Common Stock, the Investor shall have the right, exercisable upon written
notice to the Key Shareholder within fourteen (14) days after receipt of the Key
Shareholder's Disposition Notice, to participate in such sale of the Target
Shares on the same terms and conditions as those set forth in the Disposition
Notice. To the extent the Investor exercise such right of participation, the
number of shares of Target Shares that the Key Shareholder may sell in the
transaction shall be correspondingly reduced. The right of participation of the
Investor shall be subject to the terms and conditions set forth in this Section.
(a) For purposes of this Section 8.2, the Investor shall be
deemed to own the number of shares of Common Stock that the Investor
actually holds plus the number of shares of Common Stock that the
Investor has the right to acquire at any time in the future under the
Warrant or the Loan Agreement.
(b) The Investor may sell all or any part of a number of
shares of Common Stock of the Company equal to the product obtained by
multiplying (i) the aggregate number of shares of Common Stock covered
by the purchase offer by (ii) a fraction, the numerator of which is the
number of shares of Common Stock of the Company at the time owned by
the Investor and the denominator of which is the combined number of
shares of Common Stock of the Company at the time owned by the Key
Shareholder and the Investor.
(c) The Investor may effect its participation in the sale by
delivering to the Key Shareholder for transfer to the purchase offer or
one or more certificates, properly endorsed for transfer, which
represent the number of shares of Common Stock that it elects to sell
pursuant to this Section 8.2.
8.3 Payment of Proceeds. The stock certificates that the Investor
delivers to the shareholder pursuant to Section 8.2 shall be transferred by the
shareholder to the purchase offer or in consummation of the sale of the Common
Stock pursuant to the terms and conditions specified in the Disposition Notice
to the Investor, and the shareholder shall promptly thereafter remit to the
Investor that portion of the sale proceeds to which the Investor are entitled by
reason of their participation in such sale.
8.4 Non-exercise. The exercise or non-exercise of the rights of the
Investor hereunder to participate in one or more sales of Common Stock made by
any shareholder shall
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INVESTOR RIGHTS AGREEMENT
21
not adversely affect their rights to participate in subsequent Common Stock
sales by any shareholder.
9. ASSIGNMENT AND AMENDMENT.
9.1 Assignment. Notwithstanding anything herein to the contrary, the
rights of the Investor may be assigned to any transferee of shares of Common
Stock held by the Investor as well as shares of Common Stock that the Investor
has the right to acquire at any time in the future pursuant to the Loan
Agreement and the Warrant, except that the rights of Investor pursuant to
Section 2.2 may only be assigned to an Affiliate of the Investor.
9.2 Amendment of Rights. Any provision of this Agreement may be amended
and the observance thereof may be waived (either generally or in a particular
instance and either retroactively or prospectively), only with the written
consent of the Company and Investor (or, in the case of an amendment or waiver
of any provision of Section 3 hereof, only with the written consent of the
Company and the Holders of a majority of the Registrable Securities then
outstanding and entitled to the registration rights set forth in Section 3
hereof. Any amendment or waiver effected in accordance with this Section 9.2
shall be binding upon the Investor, each Holder, each permitted successor or
assignee of such Investor or Holder and the Company.
9.3. Legended Stock. All shares of common stock held as of the date
hereof by all signatories hereto shall be legended to reflect the rights and
obligations granted herein.
10. CONFIDENTIALITY.
10.1 Protection of Confidential Information. Confidential or
proprietary information disclosed by either party under this Agreement, as well
as the terms of this Agreement and Investor's investment in the Company (subject
to Section 10.2 below), shall be considered confidential information (the
"CONFIDENTIAL INFORMATION") and shall not be disclosed by the Company or
Investor to any third party. The Company or Investor shall immediately notify
the other party of any information that comes to its attention which might
indicate that there has been a loss of confidentiality with respect to the
Confidential Information. In the event that the Company or Investor is requested
or becomes legally compelled (by statute or regulation or by oral questions,
interrogatories, request for information or documents, subpoena, criminal or
civil investigative demand or similar process, including without limitation, in
connection with any public or private offering of the Company's capital stock)
to disclose any of the Confidential Information, such party (the "DISCLOSING
PARTY") shall provide the other party (the "NON-DISCLOSING PARTY") with prompt
written notice of that fact so that the other party may seek (with the
cooperation and reasonable efforts of the Disclosing Party) a protective order,
confidential treatment or other appropriate remedy. In such event, the
Disclosing Party shall furnish only that portion of the Confidential Information
which is legally required and shall exercise reasonable efforts to obtain
reliable assurance that confidential treatment will be accorded the Confidential
Information to the extent reasonably requested by the Non-Disclosing Party. The
provisions of this Section 10.1 shall be in addition to, and not in substitution
for, the provisions of any separate nondisclosure agreement executed by the
parties hereto with respect to the transaction contemplated hereby.
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INVESTOR RIGHTS AGREEMENT
22
10.2 Disclosure of Terms; Press Releases. Notwithstanding the
provisions of Section 10.1 above, from and after the Effective Date, the Company
may disclose the existence and terms of this Agreement and Investor's investment
in the Company solely to the Company's investors, investment bankers, lenders,
accountants, legal counsel, business partners, and bona fide prospective
investors, employees, lenders and business partners, in each case only where
such persons or entities have agreed not to disclose such information to any
third party. The Company shall not issue any press release or make any other
announcement to the general public or in any professional or trade publication
regarding Investor, this Agreement or any of the terms hereof without the prior
consent of Investor, which consent may be withheld at the sole discretion of
Investor. Notwithstanding the foregoing, Investor may disclose its investment in
the Company and the terms thereof to third parties or to the public at its
discretion, and the Company shall have the right to disclose to third parties
any such information disclosed by Investor in a press release or other public
announcement. If the Company or Investor determines that any disclosure not
otherwise authorized by this Agreement is required by law or regulation, then
the provisions of Section 10.1 regarding disclosure of Confidential Information
by a Disclosing Party shall govern.
11. GENERAL PROVISIONS.
11.1. Notices. Except as may be otherwise provided herein, all
notices, requests, waivers and other communications made pursuant to this
Agreement shall be in writing and shall be conclusively deemed to have been duly
given (a) when hand delivered to the other party; (b) when received when sent by
facsimile at the address and number set forth below, provided that the sending
party receives written confirmation of receipt; (c) three business days after
deposit in the U.S. mail with first class or certified mail receipt requested
postage prepaid and addressed to the other party as set forth below; or (d) the
next business day after deposit with a national overnight delivery service,
postage prepaid, addressed to the parties as set forth below with
next-business-day delivery guaranteed, provided that the sending party receives
a confirmation of delivery from the delivery service provider.
To Investor:
HSB Engineering Finance Corporation
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇ ▇▇▇▇▇▇▇, Vice President
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
With copies to:
▇▇▇▇▇▇, ▇▇▇▇ & ▇▇▇▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
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INVESTOR RIGHTS AGREEMENT
23
To the Company:
Probex Corporation
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇, Chief Executive Officer
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
with copies to:
Jenkens & ▇▇▇▇▇▇▇▇▇, P.C.
▇▇▇▇ ▇▇▇▇ ▇▇▇., ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇-▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, Esq.
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Tel: (▇▇▇) ▇▇▇-▇▇▇▇
Each person making a communication hereunder by facsimile
shall promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above, or
designate additional addresses, for purposes of this Section 11.1 by giving the
other party written notice of the new address in the manner set forth above.
11.2 Entire Agreement. This Agreement, together with the Loan
Agreement, the Other Transaction Documents (as defined in the Loan Agreement),
and all the Exhibits and Schedules, constitute and contain the entire agreement
and understanding of the parties with respect to the subject matter hereof and
supersedes any and all prior negotiations, correspondence, agreements,
understandings, duties or obligations between the parties respecting the subject
matter hereof.
11.3 Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of Connecticut as
applied to agreements entered into and to be performed entirely within
Connecticut, excluding that body of law relating to conflict of laws and choice
of law.
11.4 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
11.5 Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
permitted successors and assigns, any rights or remedies under or by reason of
this Agreement.
11.6 Successors and Assigns. Subject to the provisions of Section 9.1,
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
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INVESTOR RIGHTS AGREEMENT
24
11.7 Captions. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
11.8 Counterparts. This Agreement may be executed in counterparts, each
of which shall be deemed an original, but all of which together shall constitute
one and the same instrument.
11.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock of the
Company, then, upon the occurrence of any subdivision, combination or stock
dividend of Common Stock, the specific number of shares so referenced in this
Agreement shall automatically be proportionally adjusted to reflect the affect
on the outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
11.10 Sections. References to a "section" when used without further
attribution shall refer to the particular sections of this Agreement.
11.11 Binding Effect. Notwithstanding the provisions above, this
Agreement shall not be binding upon either party until the Company successfully
conducts an Acceptance Test (as defined in the Loan Agreement) on crankcase used
oil, in which event this Agreement shall be deemed to have been effective and
binding as of the date hereof.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
PROBEX CORPORATION, HSB ENGINEERING FINANCE CORPORATION,
A COLORADO CORPORATION A DELAWARE CORPORATION
By: By:
------------------------------- ----------------------------------
Name: Name:
----------------------------- --------------------------------
Title: Title:
---------------------------- -------------------------------
By:
-------------------------------
Name:
-----------------------------
Title:
----------------------------
SHAREHOLDERS
By:
-------------------------------
Name:
-----------------------------
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INVESTOR RIGHTS AGREEMENT