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EXHIBIT 4.3
ENCORE ACQUISITION PARTNERS, INC.
STOCKHOLDERS' AGREEMENT
DATED AS OF AUGUST 18, 1998
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TABLE OF CONTENTS
Page
ARTICLE I
DEFINITIONS AND RELATED MATTERS 1
Section 1.1 Definitions 1
Section 1.2 Related Definitional Matter 5
Section 1.3 Capital Stock Subject to Agreement 5
ARTICLE II
STOCKHOLDERS, CAPITAL STRUCTURE,
OTHER STOCKHOLDER MATTERS 5
Section 2.1 Stockholders 5
Section 2.2 Preemptive Rights for Equity Securities Issued by the Company 5
Section 2.3 Initial Public Offering 7
ARTICLE III
RESTRICTIONS ON DISPOSITIONS OF CAPITAL STOCK 8
Section 3.1 Restrictions on Dispositions 8
Section 3.2 Permitted Transfers 9
Section 3.3 Notice of Right of First Refusal 9
Section 3.4 Primary Right of First Refusal by the Company 9
Section 3.5 Secondary Right of First Refusal by Other Stockholders) 10
Section 3.6 Purchase Price 10
Section 3.7 Compliance Required 10
Section 3.8 Certain Rights of Inclusion 11
Section 3.9 Drag-Along Rights 11
Section 3.10 Endorsement of Stock Certificates 13
Section 3.11 Specific Performance 13
ARTICLE IV
COMPANY REPURCHASE RIGHTS 13
Section 4.1 Vesting of Management Stock 13
Section 4.2 Repurchase Option 14
Section 4.3 Class B Common Stock 16
Section 4.4 Buyback of Certain Shares of Common Stock 16
ARTICLE V
SPECIAL MANAGEMENT/GOVERNANCE PROVISIONS 18
Section 5.1 Certificate of Incorporation; No Conflict With Agreement 18
Section 5.2 Board of Directors 19
Section 5.3 Removal 19
Section 5.4 Vacancies 20
Section 5.5 Covenant to Vote 20
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Section 5.6 Designation of Proxy 20
Section 5.7 Management Compensation 20
Section 5.8 Financial Reports 20
Section 5.9 Non-Management Options 21
Section 5.10 Investor Stockholder Rights 21
Section 5.11 Voting Rights 22
Section 5.12 Regulatory Matters 23
ARTICLE VI
MISCELLANEOUS 23
Section 6.1 Manner of Giving Notice 23
Section 6.2 Waiver of Notice 23
Section 6.3 Counterpart Signatures 24
Section 6.4 Severability 24
Section 6.5 Joinder of Spouses 24
Section 6.6 Entire Agreement; Amendments 24
Section 6.7 Governing Law and Venue 24
Section 6.8 Consent to Jurisdiction 25
Section 6.9 Binding Effect 25
Section 6.10 Future Actions 25
Section 6.11 Headings; Exhibits 25
Section 6.12 Termination 25
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STOCKHOLDERS' AGREEMENT
THIS STOCKHOLDERS' AGREEMENT (the "Agreement") is made and entered into
this 18th day of August, 1998, between Encore Acquisition Partners, Inc., a
Delaware corporation (the "Company"), and the stockholders of the Company whose
names appear on the signature page hereto (collectively, the "Stockholders").
WITNESSETH:
WHEREAS, the Company is incorporated under the laws of the State of
Delaware with an authorized capitalization of (i) 375,000 shares of common
stock, par value $0.01 per share (the "Common Stock"), consisting of 75,000
shares of Class A Common Stock (the "Class A Common Stock") and 300,000 shares
of Class B Common Stock (the "Class B Common Stock") and (i) 1,000 shares of
Preferred Stock (the "Preferred Stock"); and
WHEREAS, each Stockholder is the owner of the number of shares of such
issued and outstanding Common Stock of the Company set forth opposite its name
on Exhibit A which shall be amended from time to time to reflect the shares
owned by the Stockholders, their Permitted Transferees and additional
stockholders hereunder; and
WHEREAS, each of the Stockholders has entered into the Stock Purchase
Agreement by and among the Company and the Stockholders (the "Stock Purchase
Agreement") and has executed a Subscription Agreement with the Company of even
date herewith (collectively, the "Subscription Agreements"), pursuant to which
such Stockholder has subscribed (pursuant to the Stock Purchase Agreement, the
Subscription Agreements and the Bylaws) to purchase shares of Common Stock from
the Company; and
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to set forth their respective rights and
obligations in connection with their investment in the Company; and
WHEREAS, the parties hereto also desire to restrict the sale,
assignment, transfer, encumbrance or other disposition of the shares of the
Common Stock of the Company, as well as shares of capital stock that may be
issued hereafter, and to provide for certain rights and obligations in respect
thereto as hereinafter provided;
NOW, THEREFORE, for and in consideration of the mutual agreements and
understandings set forth herein, the parties hereby agree as follows:
ARTICLE I
DEFINITIONS AND RELATED MATTERS
SECTION 1.1 DEFINITIONS. When used in this Agreement, the following
terms shall have the respective meanings set forth below:
"AFFILIATE" shall mean, when used with respect to a specified Person,
any Person which (a) directly or indirectly controls, is controlled by or is
under common control with such specified Person, (b) is an officer, director,
general partner, trustee or manager of such Person, or of a Person described in
clause (a) of this sentence or (c) is a Relative of such specified Person or of
an individual described in clauses (a) or (b) of this sentence. As used in this
definition, the term "control" means possession, directly or indirectly (through
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one or more intermediaries), of the power to direct or cause the direction of
management and policies of a Person through an ownership of 80% or more of the
outstanding voting interests of such Person, or through the power to appoint,
elect or direct the vote of, a majority of the members of the governing body of
such Person whether by contract, voting trust or other agreement. "Relative"
shall mean, with respect to any individual, (i) such individual's spouse, (ii)
any direct descendent, parent, grandparent, great grandparent or sibling (in
each case, whether by blood or adoption) of such individual or such individual's
spouse, and (iii) any spouse of a person described in clause (ii) of this
sentence.
"BYLAWS" shall mean the Company's bylaws, certified by the secretary of
the Company, a copy of which is attached hereto as Exhibit B.
"CAUSE" shall mean discharge by the Company on the following grounds:
(i) An employee's or director's conviction or plea of nolo
contendere in a court of law of any crime or offense, which conviction
or plea of nolo contendere makes him unfit for continuing employment,
prevents him from effective management of the Company or materially
adversely affects the reputation or business activities of the Company.
(ii) Willful misconduct which materially adversely affects the
reputation or business activities of the Company and which continues
after written notice thereof from the Board of Directors of the Company
to such employee or director stating with specificity the alleged
dishonesty or misconduct and, if requested by the employee within 10
days thereafter, such employee is afforded a reasonable opportunity to
be heard before the Board of Directors of the Company.
(iii) Substance abuse, including abuse of alcohol or use of
illegal narcotics, and other drugs or substances, for which such
employee or director fails to undertake and maintain treatment after 15
days after requested by the Company.
(iv) Misappropriation of funds or other material acts of
dishonesty involving the Company.
(v) Any employee's continuing material failure or refusal to
perform his duties or to carry out in all material respects the lawful
directives of the Board of Directors of the Company; provided that
discharge pursuant to this subparagraph (v) shall constitute discharge
for cause only if such employee has first received written notice from
the Board of Directors of the Company stating with specificity the
nature of such failure or refusal and, if requested by such employee
within 10 days thereafter, such employee is afforded a reasonable
opportunity to be heard before the Board of Directors of the Company.
"CERTIFICATE OF INCORPORATION" shall mean the Company's Amended and
Restated Certificate of Incorporation, a copy of which is attached hereto as
Exhibit C, as may be amended from time to time.
"CLASS A COMMON STOCK" shall have the meaning set forth in the
preamble.
"CLASS B COMMON STOCK" shall have the meaning set forth in the
preamble.
"COMMON STOCK" shall mean the Class A Common Stock and the Class B
Common Stock.
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"DEFAULTING STOCKHOLDER" shall have the meaning set forth in Section
4.2(a) of the Stock Purchase Agreement, and such Stockholder shall be a
Defaulting Stockholder for the purpose of such Capital Call and for all
subsequent Capital Calls.
"DISABILITY" shall mean the total and permanent disability (whether
physical or mental) of any Management Stockholder as determined by the Board of
Directors, in good faith, 120 days from the commencement of such disability.
"DISPOSITION" shall mean any sale, assignment, hypothecation, gift,
inter vivos transfer, pledge, mortgage or other encumbrance, or any other
disposition of capital stock of the Company whatsoever, whether voluntary or
involuntary; provided, however, that a Disposition shall not include a
Participation.
"EQUIVALENT PRICE" shall mean in the case (a) where a share of Class A
Common Stock is being transferred, then the Equivalent Price for a share of
Class B Common Stock shall be the price of such share of Class A Common Stock
plus the amount of the then-outstanding Liquidation Preference (as such term is
defined in the Certificate of Incorporation) of such share of Class B Common
Stock and (b) where a share of Class B Common Stock is being transferred, then
the Equivalent Price for a share of Class A Common Stock shall be the price of
such share of Class B Common Stock less the amount of the then-outstanding
Liquidation Preference of such share of Class B Common Stock.
"INITIAL PUBLIC OFFERING" shall mean the first registered public
offering of equity securities of the Company effected by the Company or one or
more Stockholders pursuant to a registration statement that has been declared
effective under the Securities Act.
"INVESTOR STOCKHOLDERS" shall mean the Stockholders designated as such
on Exhibit A.
"MANAGEMENT STOCK OWNERSHIP PLAN" shall mean that certain Management
Stock Ownership Plan adopted by the Company on even date herewith pursuant to
which the Management Stockholders will have the right to purchase shares of
Common Stock.
"MANAGEMENT STOCKHOLDERS" shall mean the Stockholders designated as
such on Exhibit A.
"NON-PARTICIPATING STOCKHOLDER" shall have the meaning set forth in
Section 4.1 of the Stock Purchase Agreement, and such Stockholder shall be a
Non-Participating Stockholder for the purpose of such Capital Call and for all
subsequent Capital Calls.
"ORIGINAL COST" means, (i) with respect to a particular share of Class
A Common Stock, at any particular date, the amount originally paid to the
Company to purchase such share plus any capital contributions allocable to such
share pursuant to Article III of the Stock Purchase Agreement and (ii) with
respect to a particular share of Class B Common Stock, at any particular date,
the Unreturned Original Cost thereof plus the Unpaid Yield therein (as such
terms are defined in the Certificate of Incorporation).
"PARTICIPATION" means a method, contract, arrangement or device
permitted in Section 3.1(e)(ii) of the Stock Purchase Agreement by which a
Stockholder retains nominal ownership and voting control of certain shares of
Common Stock owned by such Stockholder, but a Person other than such Stockholder
funds any or all Capital Calls made pursuant to Article III of the Stock
Purchase Agreement on such shares of Common Stock.
"PERMITTED TRANSFEREE" with respect to a transferor Stockholder means
(i) the spouse of the transferor Stockholder, (ii) a trust, or family
partnership, the sole beneficiary of which is the transferor Stockholder, the
spouse of or, any Person related by blood or adoption to, the transferor
Stockholder, (iii) the
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partners or stockholders of an Investor Stockholder, and in the case of an
Investor Stockholder that is an Affiliate of a state or national banking
institution (including Chase Venture Capital Associates, L.P. and First Union
Capital Partners, Inc.), any Affiliate described in clause (a) of the definition
thereof; provided that a Permitted Transferee under this clause (iii) may not
compete with the Company directly or indirectly or engage in any aspect of the
oil and gas industry other than providing financing to or investing in
businesses within such industry or (iv) any other transferee where such transfer
was made in compliance with this Agreement; provided, however, that any such
transfer does not conflict with or constitute a violation of state or federal
securities laws.
"PERSON" shall mean an individual, partnership, limited partnership,
limited liability company, foreign limited liability company, trust, estate,
corporation, custodian, trustee-executor, administrator, nominee or entity in a
representative capacity.
"PERSONAL REPRESENTATIVE" shall mean the executor, administrator,
guardian, or other personal representative of any natural person who has become
deceased or subject to Disability, or any successor or assignee thereof whether
by operation of law or otherwise.
"PROPORTIONATE PERCENTAGE" means, with respect to a Stockholder, a
fraction (expressed as a percentage) the numerator of which is the number of
Shares held by such Stockholder and the denominator of which is (i) in a
situation where the Proportionate Percentage is being calculated with respect to
all Stockholders, the total number of Shares held by all Stockholders at the
time in question and (ii) in a situation where the Proportionate Percentage is
being calculated with respect to a particular group of Stockholders, the total
number of Shares held by the members of such group.
"REQUISITE STOCKHOLDERS" shall mean (a) if I. ▇▇▇ ▇▇▇▇▇▇▇ is chief
executive officer of the Company, then I. ▇▇▇ ▇▇▇▇▇▇▇ and the Investor
Stockholders holding 75% of the Class B Common Stock held by all Investor
Stockholders (other than Non-Participating Stockholders and Defaulting
Stockholders), or (b) in the event I. ▇▇▇ ▇▇▇▇▇▇▇ is not chief executive officer
of the Company, then 66% of all of the Shares of Common Stock held by all
Stockholders (other than Non-Participating Stockholders and Defaulting
Stockholders); provided however, that any vote requiring the Requisite
Stockholders' approval which adversely affects the rights of any Stockholder
(including a Non-Participating Stockholder or Defaulting Stockholder), in its
capacity as Stockholder, without adversely affecting the rights of all
Stockholders of the same class (i.e., Management Stockholders or Investor
Stockholders), in their capacities as Stockholders of such class, shall not be
effective as to such Stockholder without its written consent.
"SALE OF THE COMPANY" means sale of (i) all or substantially all the
capital stock of the Company or (ii) all or substantially all of the assets of
the Company, determined on a consolidated basis, in each case to a Person or
group of Persons who are not Affiliates (as such term is defined in the Bylaws
rather than in this Agreement) of any Investor Stockholder, whether by way of
merger, share exchange, consolidation, sale of stock or assets, or otherwise.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended from
time to time and any successor statute thereto.
"SHARES" means shares of Class A Common Stock and Class B Common Stock.
"UNVESTED SHARES" means shares of Management Stock that are not Vested
Shares.
"VALUATION METHOD" shall mean that (i) cash shall be valued at the
amount of such cash; (ii) notes shall be valued at the fair market value of such
notes (giving due regard to the interest rate on such notes, the maturity date
of such notes and whether such notes are secured or subordinated) with any
disputes as to the
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valuation of such notes to be settled by the managing underwriter of the Initial
Public Offering; (iii) common stock (whether voting or non-voting) shall be
valued at the price at which Class A Common Stock or common stock issued in
exchange for Class A Common Stock or Class B Common Stock shall be sold to the
public in the Initial Public Offering (or the mid-point of the proposed price
range if the Stockholders are not legally permitted to establish such value at
or after the pricing of the Initial Public Offering or if establishing such
value at or after the pricing of the Initial Public Offering would have adverse
liquidity, sale timing or other consequences (as reasonably determined by the
Investor Stockholders based upon the written opinion of counsel) under the
Securities Act or the Securities Exchange Act of 1934 on any of the Investor
Stockholders), and (iv) other securities of the Company shall be valued by
agreement among the Company and the Requisite Stockholders, and any disputes as
to such securities' value shall be settled by the managing underwriter of the
Initial Public Offering after the opportunity for the Company and the Requisite
Stockholders to present information to such underwriter as to the value of such
securities; provided, however, that if the managing underwriter is an Affiliate
of any Stockholder, any such disputes shall be settled only by the agreement of
the Requisite Stockholders.
"VESTED SHARES" means shares of Management Stock that have become
vested pursuant to Section 4.1.
SECTION 1.2 RELATED DEFINITIONAL MATTERS. As used in this Agreement,
pronouns in masculine, feminine and neuter genders shall be construed to include
any other gender, and words in the singular form shall be construed to include
the plural and vice versa, unless the context clearly otherwise requires. As
used in this Agreement, the term "including" shall be construed to be expansive
rather than limiting in nature and to mean "including, without limitation,"
except where the context clearly otherwise requires.
SECTION 1.3 CAPITAL STOCK SUBJECT TO AGREEMENT. This Agreement shall
extend and apply to all shares of capital stock now owned by each of the
Stockholders and to all shares of capital stock as may hereafter be acquired by
any of the Stockholders, whether such shares constitute the separate property or
community property of any of the individual Stockholders, and regardless of the
capacity in which title to such shares is held or taken. This Agreement shall
also apply to all shares of capital stock to which the spouse of any Stockholder
is entitled by virtue of any community property or any other laws.
ARTICLE II
STOCKHOLDERS, CAPITAL STRUCTURE,
OTHER STOCKHOLDER MATTERS
SECTION 2.1 STOCKHOLDERS. The Stockholders of the Company and the
number of shares of capital stock held by each are set forth in Exhibit A as
such exhibit may be amended and updated from time to time.
SECTION 2.2 PREEMPTIVE RIGHTS FOR EQUITY SECURITIES ISSUED BY THE
COMPANY.
(a) Except in the case of Excluded Securities (as hereinafter defined),
the Company shall not, and shall cause its subsidiaries not to, issue, sell or
exchange, agree to issue, sell or exchange, or reserve or set aside for
issuance, sale or exchange any of its equity securities (including without
limitation any Shares or rights to acquire such Shares, whether or not
immediately exercisable and whether evidenced by an option, warrant, convertible
security or other instrument or agreement) (collectively, "Stock"), unless in
each case the Company shall have first offered or caused such subsidiary to
offer (the "Preemptive Offer") to sell such Stock to the Stockholders (the
"Offered Securities") by delivery to such Stockholders of written notice of such
offer stating the Company or subsidiary, as the case may be, proposes to sell
such Offered Securities, the number or amount of the Offered Securities proposed
to be sold, the proposed purchase price therefor and
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any other terms and conditions of such offer. The Preemptive Offer shall by its
terms remain open and irrevocable for a period of 20 days from the date it is
delivered by such Company (the "Preemptive Offer Period").
(b) Each Stockholder shall have the option, exercisable at any time
during the Preemptive Offer Period by delivering written notice to the Company
(a "Preemptive Offer Acceptance Notice"), to subscribe for (i) the number or
amount of such Offered Securities up to its Proportionate Percentage of the
total number or amount of Offered Securities proposed to be issued and (ii) up
to its Proportionate Percentage of the Offered Securities not subscribed for by
other Stockholders as specified in its Preemptive Offer Acceptance Notice;
provided, however, that in the event that the Company makes a Preemptive Offer
in connection with a Capital Call (as such term is defined in the Stock Purchase
Agreement) that will cause the termination of the Takedown Period when such
Capital Call is funded, the Proportionate Percentage of any Non-Participating
Stockholder or Defaulting Stockholder for purposes of this Section 2.2 shall be
calculated as if such Stockholder sold the requisite Shares as required under
Section 4.4 prior to the making of the Preemptive Offer. Any Offered Securities
not subscribed for by a Stockholder shall be deemed to be re-offered to and
accepted by the Stockholders exercising their options specified in clause (ii)
of the immediately preceding sentence with respect to the lesser of (A) the
amount specified in their respective Preemptive Offer Acceptance Notices and (B)
an amount equal to their respective Proportionate Percentages with respect to
such deemed offer. Such deemed offer and acceptance procedures described in the
immediately preceding sentence shall be deemed to be repeated until either (x)
all of the Offered Securities are accepted by the Stockholders or (y) no
Stockholder desires to subscribe for more Offered Securities. The Company shall
notify each Stockholder within five days following the expiration of the
Preemptive Offer Period of the number or amount of Offered Securities which such
Stockholder has subscribed to purchase.
(c) If Preemptive Offer Acceptance Notices are not given by the
Stockholders for all the Offered Securities, the Company shall have 180 days
from the expiration of the Preemptive Offer Period to sell all or any part of
such Offered Securities as to which Preemptive Offer Acceptances Notices have
not been given by the Stockholders (the "Refused Securities") to any other
Persons, but only upon terms and conditions in all material respects, including
price, which are no more favorable, in the aggregate, to such other Persons or
less favorable to the Company than those set forth in the Preemptive Offer. Upon
the closing, which shall include full payment to the Company, of the sale to
such other Persons of all the Refused Securities, the Stockholders shall
purchase from the Company, and the Company shall sell to the Stockholders, the
Offered Securities with respect to which Preemptive Offer Acceptance Notices
were delivered by the Stockholders, at the terms specified in the Preemptive
Offer. In each case, any Offered Securities not purchased by the Stockholders or
any other Persons in accordance with this Section 2.2 may not be sold or
otherwise disposed of until they are again offered to the Stockholders under the
procedures specified in this Section 2.2.
(d) The rights of the Stockholders under this Section 2.2 shall not
apply to the following Securities (the "Excluded Securities"):
(i) Stock issued to officers, employees or directors of, or
consultants to, the Company or its subsidiaries pursuant to the terms
of any stock option or similar stock incentive plan adopted by the
Board of Directors of the Company (including the 1998 Stock Option Plan
and the Management Stock Ownership Plan);
(ii) Stock issued as consideration as an "equity kicker" in
connection with any debt financing;
(iii) Stock issued as consideration to the sellers in
connection with an acquisition by the Company;
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(iv) Stock issued upon the exercise or conversion of any Stock
issued in compliance with this Section 2.2 or in accordance with
Section 2.3 hereof;
(v) Stock issued in an Initial Public Offering;
(vi) Stock issued as a stock dividend or upon any stock split
or other pro-rata subdivision or combination of the Stock; and
(vii) Stock issued to any Person that is not a Stockholder or
an Affiliate (as such term is defined in the Bylaws rather than in this
Agreement) of any Stockholder, so long as the Requisite Stockholders
have approved the waiver of the pre-emptive rights with respect to such
issuance.
SECTION 2.3 INITIAL PUBLIC OFFERING.
(a) In the event that the requisite number of Investor Nominees or
Investor Stockholders approve an Initial Public Offering, the Stockholders will
take all necessary or desirable actions in connection with the consummation of
the Initial Public Offering. Prior to the consummation of the Initial Public
Offering, the Board of Directors, with the assistance of the managing
underwriters of the Initial Public Offering, shall (i) determine in their
reasonable opinion the fair value of the Company (on an enterprise basis) and in
doing so shall take into account such factors as they consider fair and
reasonable in the circumstances, and (ii) following such determination of the
fair value of the Company, calculate the amount that would be paid to each class
of capital stock if an amount equal to the aforementioned fair value of the
Company was distributed on the anticipated closing date of the Initial Public
Offering by the Company in complete liquidation pursuant to the rights and
preferences set forth in the Certificate of Incorporation as in effect at the
time (giving effect to applicable orders of priority and the provisions of the
various agreements relating to stock or options of the Company).
(b) After the determinations in (i) and (ii) of Section 2.3(a) have
been made and written notice thereof has been delivered to the Stockholders, the
Company and the Investor Stockholders shall negotiate, in good faith, the
consideration to be provided to holders of Class B Common Stock to redeem all
the issued and outstanding shares of Class B Common Stock, as a condition to,
and prior to the consummation of, the Initial Public Offering, with respect to
the anticipated aggregate Unreturned Original Cost and Unpaid Yield (as such
terms are defined in the Certificate of Incorporation) upon the outstanding
shares of Class B Common Stock on the anticipated closing date of the Initial
Public Offering. Such consideration shall have a fair value equal to the
aggregate Unreturned Original Cost and Unpaid Yield. The form of repayment may
be comprised of a combination of cash, not to exceed the amount of cash the
Company is contractually permitted to pay at the time in question, notes, other
securities of the Company, voting or non-voting common stock or a combination of
the foregoing; such consideration to be (i) reasonably acceptable to the
Requisite Stockholders, (ii) determined and implemented in a tax-efficient
manner by the Investor Stockholders, and (iii) valued in accordance with the
Valuation Method or on such other basis as is approved by the Requisite
Stockholders. In addition to such consideration, holders of Class B Common Stock
shall also be entitled to receive one share of Class A Common Stock for each
share of Class B Common Stock owned, as such number shall be equitably adjusted
to reflect stock splits, dividends, reclassifications, combinations or similar
adjustments to the capital structure of the Company.
(c) Each Stockholder will, prior to the consummation of the Initial
Public Offering, vote for a redemption, recapitalization or exchange of the
Class B Common Stock to implement the foregoing provisions of this Section 2.3.
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ARTICLE III
RESTRICTIONS ON DISPOSITIONS OF CAPITAL STOCK
SECTION 3.1 RESTRICTIONS ON DISPOSITIONS.
(a) No Stockholder, any spouse of any Stockholder, any Personal
Representative of any Stockholder, or any legal representative, agent or
assignee of any Stockholder, as the case may be, shall make any Disposition of
any shares of capital stock, or any right or interest therein, except as
provided in this Article III. The parties agree that the restrictions contained
in this Agreement are fair and reasonable and in the best interests of the
Company and the Stockholders.
(b) Anything in this Agreement to the contrary notwithstanding, no
Disposition of capital stock otherwise permitted or required by this Agreement
shall be made unless such Disposition is in compliance with federal and state
securities laws, including without limitation the Securities Act and the rules
and regulations thereunder. If any such Disposition is made pursuant to an
exemption from such laws, rules and regulations, such Disposition shall be made
only upon the Stockholder first having delivered to the Company a favorable
written opinion of counsel, reasonably satisfactory in form and substance to the
Company, to the effect that the proposed sale or transfer is exempt from
registration under the Securities Act and any applicable state securities laws;
provided, however, that no such opinion of counsel shall be required for (A) a
transfer by a Stockholder to a Permitted Transferee if, in each case, the
Permitted Transferee agrees in writing to be subject to the terms and conditions
hereof to the same extent as if such Permitted Transferee were an original
Stockholder hereunder, or (B) a sale duly made in compliance with Rule 144
promulgated under the Securities Act, or any successor or analogous rule to Rule
144, or if the Stockholder would be permitted to transfer the securities
pursuant to paragraph (k) of Rule 144 (it being agreed that the Company shall
have the right to receive evidence satisfactory to it regarding compliance with
such Rule or any successor or analogous rule prior to the registration of any
such transfer).
(c) Anything in this Agreement to the contrary notwithstanding, unless
otherwise agreed to in writing by the Company and each of the Stockholders, no
Disposition of capital stock otherwise permitted or required by this Agreement
shall be effective unless and until any transferee who is not already a party to
this Agreement (and such transferee's spouse, if applicable) shall execute and
deliver to the Company an Addendum Agreement in the form attached hereto as
Exhibit D in which such transferee (and such transferee's spouse, if applicable)
agrees to be bound by this Agreement and to observe and comply with this
Agreement and with all obligations and restrictions imposed on Stockholders
hereby; each person to whom a Disposition of capital stock is permitted by this
Agreement who receives a Disposition of capital stock during the period when
this Agreement is in effect, and who agrees in writing to be bound by the
provisions hereof, shall thereafter become a "Stockholder" for all purposes of
this Agreement. Such transferee shall become a Management Stockholder if the
transferor was a Management Stockholder or an Investor Stockholder if the
transferor was an Investor Stockholder; provided, however, that each transferee
who receives a Disposition of capital stock that is an Affiliate of (i) an
Investor Stockholder, shall become an Investor Stockholder for all purposes of
this Agreement and (ii) a Management Stockholder or spouse thereof, shall become
a Management Stockholder for all purposes of this Agreement.
(d) Dispositions of capital stock may only be made in strict compliance
with all applicable terms of this Agreement, and any purported Disposition of
capital stock that does not so comply with all applicable provisions of this
Agreement shall be null and void and of no force or effect, and the Company
shall not recognize or be bound by any such purported Disposition and shall not
effect any such purported Disposition on the stock transfer books of the
Company.
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(e) All Shares held by the Company, as treasury stock or otherwise, or
any subsidiary thereof shall not be deemed outstanding for any purpose under
this Agreement or the Bylaws of the Company.
(f) Prior to the consummation of an Initial Public Offering, all newly
issued shares of capital stock of the Company (including newly issued Shares or
equity securities issued pursuant to Stock Equivalents) shall only be issued to
Persons who become party to this Agreement; provided however, that each
transferee who (i) is an employee or consultant of the Company shall become a
Management Stockholder for all purposes of this Agreement, and (ii) is not an
employee or consultant of the Company shall have such designation, if any, as
shall be determined by the Requisite Stockholders.
SECTION 3.2 PERMITTED TRANSFERS.
(a) Subject to the provisions of Section 3.1, a Stockholder or his
Personal Representative may at any time or times transfer any or all of his or
its shares of capital stock to any person who is a Permitted Transferee (other
than pursuant to clause (iv) of such definition) with respect to the transferor
Stockholder.
(b) A transfer or disposition of any kind or character otherwise
prohibited by this Agreement may be permitted if approved by the Requisite
Stockholders. Notwithstanding anything to the contrary contained in this Section
3.2(b), a transfer or disposition otherwise permitted under Sections 3.3 through
3.6 hereof shall not be prohibited by this Section 3.2.
SECTION 3.3 NOTICE OF RIGHT OF FIRST REFUSAL. In the event that a
Stockholder receives a bona fide offer (a "Third Party Offer") for the purchase
of all or a part of his or its capital stock (or any rights or interests
therein) that such Stockholder desires to accept, such Stockholder (the "Offeror
Stockholder") agrees to give written notice of such Third Party Offer (the
"Notice of Right of First Refusal") to the Secretary of the Company and to the
other Stockholders (the "Other Stockholders"); provided, however, that no
Management Stockholder or such Management Stockholder's Permitted Transferee may
attempt to make a transfer or Disposition of Shares of capital stock pursuant to
this Section 3.3 at any time on or before the earlier of (i) the fifth
anniversary of the date of this Agreement, (ii) an Initial Public Offering or
(iii) a Change of Control. The notice must set forth the name of the proposed
transferee (the "Third Party"), the number and class of shares to be transferred
(the "Offered Stock"), the price per share (the "Offer Price"), all details of
the payment terms and all other terms and conditions of the proposed transfer. A
Third Party Offer may not contain provisions related to any property other than
the capital stock of the Offeror Stockholder, and the Offer Price shall be
expressed only in terms of cash or credit terms contained in the proposed
transfer. The Offeror Stockholder shall deliver such Notice of Right of First
Refusal to the parties noted above immediately upon receiving such Third Party
Offer, but in any event not less than thirty (30) days prior to the date of the
proposed transfer.
The last date that the Notice of Right of First Refusal is received by
the Other Stockholders shall constitute the "First Refusal Notice Date." The
Company shall be obligated to promptly determine the First Refusal Notice Date
following its receipt of a Notice of Right of First Refusal, and such date shall
be promptly communicated in writing by the Company to all Stockholders within
five (5) days of the determination of such date. For purposes of this Section
3.3, a "Third Party Offer" to purchase part or all of a Stockholder's Common
Stock shall mean a written offer to purchase such capital stock.
SECTION 3.4 PRIMARY RIGHT OF FIRST REFUSAL BY THE COMPANY. The Company
shall have the sole and exclusive option to acquire all or any portion of the
Offered Stock in accordance with the provisions of the Notice of Right of First
Refusal for a period often (10) days from the First Refusal Notice Date. The
Company may exercise such option by giving written notice of exercise to the
Offeror Stockholder and to all Other Stockholders prior to the termination of
its exclusive option period. Such notice of exercise shall refer
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to the Notice of Right of First Refusal and shall set forth the number of shares
of capital stock to be acquired by the Company.
SECTION 3.5 SECONDARY RIGHT OF FIRST REFUSAL BY OTHER STOCKHOLDERS.
(a) In the event the Company elects to purchase less than all of the
Offered Stock, the Other Stockholders shall have the exclusive option from the
eleventh day to the thirtieth day following the First Refusal Notice Date to
acquire the Offered Stock not purchased by the Company in accordance with the
procedure described in this Article III. The Other Stockholders may, by
agreement, allocate among themselves the right to acquire such part of the
Offered Stock that will not be acquired by the Company or the Other Management
Stockholders, if appropriate.
(b) In the absence of such an agreement between the Other Stockholders,
each Other Stockholder will be entitled to give written notice to the Offeror
Stockholder, to the Company and to the Other Stockholders, from the eleventh day
to the twentieth day following the First Refusal Notice Date, of such Other
Stockholder's election ("Election Notice") to acquire all or any part of its
Proportionate Percentage of the Offered Stock that is not being acquired by the
subject Company or the Other Management Stockholders, as appropriate.
(c) Any Offered Stock not subscribed for pursuant to Section 3.5(b) by
the Other Stockholders shall be deemed to be re-offered to and accepted by the
Other Stockholders exercising their rights to purchase Offered Stock with
respect to the lesser of (A) the amount specified in their respective Election
Notices and (B) an amount equal to their respective Proportionate Percentages
with respect to such deemed offer. Such deemed offer and acceptance procedures
described in the immediately preceding sentence shall be deemed to be repeated
until either (x) all of the Offered Stock is accepted by the Other Stockholders
or (y) no Other Stockholder desires to subscribe for more Offered Stock. The
Company shall notify each Other Stockholder within five days following the
expiration of the period described in Section 3.5(b) of the number or amount of
Offered Stock which such Stockholder has subscribed to purchase and shall set a
reasonable place and time from the date thereof for the closing of the purchase
and sale of the Offered Stock.
(d) If the Company and the Other Stockholders do not purchase all of
the Offered Stock, the Offered Stock (or any remaining portion thereof) may be
sold by the Offeror Stockholder at any time within ninety (90) days after the
date of the Third Party Offer, subject to the provisions of Sections 3.1 and 3.8
hereof. Any such sale shall not be at less than the price or upon terms and
conditions more favorable to the purchaser than those specified in the Third
Party Offer. In the event the Third Party Offeror will only purchase all of the
Offered Stock, the Offeror Stockholder may rescind the Election Notices of the
Company and the Other Stockholders, if such Election Notices are, in the
aggregate, for less than all of the Offered Stock.
SECTION 3.6 PURCHASE PRICE. The total purchase price (the "Purchase
Price") for all the capital stock to be purchased pursuant to Section 3.3 will
be the total purchase price for the proposed transfer, and upon the same terms
and conditions, as set forth in the Third Party Offer.
SECTION 3.7 COMPLIANCE REQUIRED. Any Disposition described in Sections
3.3 through 3.6 hereof of a Stockholder's capital stock without complying with
the giving of a Notice of Right of First Refusal and the Right of First Refusal
provisions of this Article III shall be void, and the Company shall issue a
Notice of Right of First Refusal upon discovery of such transfer, a copy of
which shall be sent to the person or entity making such transfer, his or its
transferee, the Company and all Stockholders. The duty of the Company to see to
the issuance of such Notice of Right of First Refusal shall not be considered to
be elective, but shall be mandatory. Upon the giving of the Notice of Right of
First Refusal, the time periods for the exercise of the options specified in
Sections 3.4 and 3.5 shall commence running. If a Notice of Right of
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First Refusal had already been given to the Company, but the Company is required
to issue a new Notice of Right of First Refusal under this Section, the prior
Notice of Right of First Refusal shall have no effect and the time periods under
the Notice of Right of First Refusal issued by the Company shall apply.
SECTION 3.8 CERTAIN RIGHTS OF INCLUSION.
(a) No Stockholder shall, individually or collectively, in any
transaction, sell or otherwise dispose of Shares held by such Stockholder to a
third party, other than to a Permitted Transferee, unless the terms and
conditions of the Third Party Offer include an offer, at the Equivalent Price
and on the same terms as the offer to the selling Stockholders, to each of the
other Stockholders (the "Offerees"), to include at the option of each Offeree,
in the sale or other disposition to the Third Party, a number of Shares owned by
each Offeree determined in accordance with this Section 3.8.
(b) The Stockholder that receives the Third Party Offer (the "Selling
Stockholder") shall cause the Third Party Offer to be reduced in writing (which
writing shall include an offer to purchase or otherwise acquire Shares from the
Offerees as required by this Section 3.8) and shall send written notice of the
Third Party Offer together with a copy of the Third Party Offer (the "Inclusion
Notice") to each of the Offerees in the manner specified in Section 6.1 hereof.
(c) Each Offeree shall have the right (an "Inclusion Right"),
exercisable by delivery of notice to the Selling Stockholder at any time within
twenty (20) calendar days after delivery of the Inclusion Notice, to sell
pursuant to the Third Party Offer a number of such Offeree's shares of capital
stock equal to his or its Proportionate Percentage of the selling Stockholder
and Offerees exercising their Inclusion Rights.
SECTION 3.9 DRAG-ALONG RIGHTS.
(a) If at any time a majority of the Investor Nominees, or holders of
75% of shares of Class B Common Stock owned by the Investor Stockholders acting
pursuant to Section 5.11 hereof, approves a Sale of the Company (an "Approved
Sale"), all Stockholders shall consent to and raise no objections against the
Approved Sale, and if the Approved Sale is structured as (A) a merger, share
exchange or consolidation of the Company, or a sale of all or substantially all
of the assets of the Company, each Stockholder shall waive any dissenters
rights, appraisal rights or similar rights in connection with such merger,
consolidation or asset sale, or (B) a sale of all the capital stock of the
Company, the Stockholders shall agree to sell all their shares of capital stock
of the Company which are the subject of the Approved Sale, on the terms and
conditions of such Approved Sale. The Stockholders shall take all necessary and
desirable actions in connection with the consummation of the Approved Sale,
including obtaining Board of Directors' consent to the Approved Sale and the
execution of such agreements and such instruments and other actions reasonably
necessary to (1) provide customary representations, warranties, indemnities, and
escrow arrangements relating to such Approved Sale and (2) effectuate the
allocation and distribution of the aggregate consideration upon the Approved
Sale as set forth in Section 3.9(c) below. The Stockholders shall be permitted
to sell their shares of capital stock pursuant to an Approved Sale without
complying with any other provisions of Article III of this Agreement.
(b) The Investor Stockholders that have initiated an Approved Sale
pursuant to Section 3.9(a) (whether directly or through the action of their
respective Investor Nominees), shall represent and warrant to the other
Stockholders that no direct or indirect collateral benefit or supplemental
consideration (whether or not in the nature of a tangible or intangible asset,
money, property, security or other tangible benefits or opportunities) has been
or is to be paid by such prospective purchaser or any other person, in
connection with the Approved Sale and that such Approved Sale is not made as
part of or in connection with any other transaction pursuant to which the
Investor Stockholders that have initiated the Approved Sale will receive any
additional benefit or consideration. The foregoing provision shall not be deemed
to prohibit a sale of the
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Company to any Person merely because such Person has, is currently having or
intends to have a business relationship with one or more Stockholders.
(c) The obligations of the Stockholders pursuant to this Section 3.9
are subject to the satisfaction of the following conditions:
(i) upon the consummation of the Approved Sale, each
Stockholder shall receive the same proportion of the aggregate
consideration from such Approved Sale that such holder would have
received if such aggregate consideration had been distributed by the
Company in complete liquidation pursuant to the rights and preferences
set forth in the Certificate of Incorporation of the Company as in
effect immediately prior to such Approved Sale (giving effect to
applicable orders of priority);
(ii) if any Stockholders of a class are given an option as to
the form and amount of consideration to be received, all Stockholders
will be given the same option;
(iii) all holders of options, warrants or similar rights to
acquire capital stock of the Company ("Stock Equivalents") that are
then currently exercisable will be given an opportunity to exercise
such rights prior to the consummation of the Approved Sale (but only to
the extent such Stock Equivalents are then vested or would be vested on
an accelerated basis pursuant to the terms of their issuance) and
participate in such sale as Stockholders;
(iv) no Stockholder shall be obligated to make any
out-of-pocket expenditure prior to the consummation of the Approved
Sale (excluding modest expenditures for postage, copies, etc.) and no
Stockholder shall be obligated to pay any portion (or shall be entitled
to be reimbursed by the Company for that portion paid) that is more
than its pro rata share (based upon the amount of consideration
received) of reasonable expenses incurred in connection with a
consummated Approved Sale; to the extent such costs are incurred for
the benefit of all Stockholders, and are not otherwise paid by the
Company or the acquiring party (costs incurred by or on behalf of a
Stockholder for its sole benefit will not be considered costs of the
transaction hereunder), provided that a Stockholder's liability for
such expenses shall be capped at the total purchase price received by
such Stockholder for its shares of capital stock, plus Stock
Equivalents; and
(v) no Stockholder shall be required to provide any
representations, warranties or indemnities in connection with the
Approved Sale, other than those required to be made pursuant to Section
3.9(b) to other Stockholders and those representations, warranties and
indemnities concerning each Stockholder's valid ownership of shares of
capital stock and Stock Equivalents, free of all liens and encumbrances
(other than those arising under applicable securities laws), and each
Stockholder's authority, power, and right to enter into and consummate
such purchase or merger agreement without violating any other
agreement.
(d) If the Company and any of the Stockholders or their
representatives, enter into any negotiation or transaction for which Rule 506
under the Securities Act (or any similar rule then in effect) may be available
with respect to such negotiation or transaction (including a merger,
consolidation or other reorganization), each Stockholder who is not an
accredited investor (as such term is defined in Rule 501 under the Securities
Act) will, at the request of the Company or the Investor Stockholders, appoint a
purchaser representative (as such term is defined in Rule 501 under the
Securities Act) reasonably acceptable to the Company or such Stockholders.
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SECTION 3.10 ENDORSEMENT OF STOCK CERTIFICATES.
(a) Conformed copies of this Agreement shall be filed with the
Secretary of the Company and kept with the records at its principal office. An
officer of the Company shall endorse each certificate representing the shares of
capital stock of the Company heretofore or hereafter issued by the Company to
the Stockholders by causing to be placed on the face thereof the following:
TRANSFER IS SUBJECT TO RESTRICTIVE STOCK LEGENDS ON BACK
and by causing to be placed on the back thereof the legend in substantially the
following form:
THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS OF A STOCKHOLDERS' AGREEMENT DATED AS OF AUGUST 18, 1998, BY AND
AMONG THE COMPANY AND CERTAIN OTHER PERSONS, WHICH AGREEMENT CONTAINS,
AMONG OTHER PROVISIONS, RESTRICTIONS ON THE TRANSFER, SALE OR OTHER
DISPOSITION OF THE SHARES OF STOCK REPRESENTED BY THIS CERTIFICATE. A
COPY OF SUCH STOCKHOLDERS' AGREEMENT HAS BEEN FILED, AND IS AVAILABLE
FOR REVIEW BY THE RECORD HOLDER OF THIS CERTIFICATE, AT THE PRINCIPAL
OFFICE OF THE COMPANY.
(b) In addition to the legend required under Section 3.11 (a) above,
each Stockholder agrees that each certificate representing the shares of capital
stock of the Company heretofore or hereafter issued by the Company shall also
bear such other legends as required pursuant to the Subscription Agreements.
SECTION 3.11 SPECIFIC PERFORMANCE. Each of the parties to this
Agreement acknowledges that it shall be impossible to measure in money the
damage to the Company or the Stockholder(s), if any of them or any transferee or
any legal representative of any party hereto fails to comply with any of the
restrictions or obligations imposed by this Article III, that every such
restriction and obligation is material, and that in the event of any such
failure, the Company or the Stockholder(s) shall not have an adequate remedy at
law or in damages. Therefore, each party hereto consents to the issuance of an
injunction or the enforcement of other equitable remedies against him at the
suit of en aggrieved party without the posting of any bond or other security, to
compel specific performance of all of the terms of this Article III and to
prevent any disposition of shares of capital stock in contravention of any terms
of this Article III, and waives any defenses thereto, including, without
limitation, the defenses of: (i) failure of consideration; (ii) breach of any
other provision of this Agreement; and (iii) availability of relief in damages.
ARTICLE IV
COMPANY REPURCHASE RIGHTS
SECTION 4.1 VESTING OF MANAGEMENT STOCK.
(a) Except as otherwise provided in Section 4.1 (b) and Section 4.1(c),
each Management Stockholder's shares of Class A Common Stock ("Management
Stock") will become vested in accordance with the following schedule, if, as of
each such date, the Management Stockholder is still employed by either the
Company or any of its subsidiaries:
Date of this Agreement 25%
First Anniversary Date of this Agreement 40%
Second Anniversary Date of this Agreement 55%
Third Anniversary Date of this Agreement 70%
Fourth Anniversary Date of this Agreement 85%
Fifth Anniversary Date of this Agreement 100%
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Notwithstanding the immediately preceding vesting schedule, in the event that
(i) the Company shall employ an additional person to whom the Company shall
issue shares of Class A Common Stock and (ii) the Board of Directors shall
designate such person as a Management Stockholder for inclusion on Exhibit A,
the vesting schedule set forth in the immediately preceding sentence shall
commence on the date of such person's employment with the Company rather than
the date of this Agreement.
(b) If the Management Stockholder ceases to be employed by the Company
or any of its subsidiaries on any date other than an anniversary date, the
cumulative percentage of Management Stock to become vested will be determined on
a pro rata basis according to the number of months elapsed since the prior
anniversary date or the date of this Agreement (should such termination occur
prior to the first anniversary date).
(c) Upon the occurrence of (i) a Sale of the Company, (ii) the closing
of an Initial Public Offering (iii) any merger, consolidation or
recapitalization pursuant to which the holders of Shares prior to such
transaction cease to hold a majority of Shares after such transaction, or (iv)
the dissolution and/or liquidation of the Company, then all shares of Management
Stock which have not yet become vested shall become vested at the time of such
event if the Management Stockholder is still employed by either the Company or
any of its subsidiaries at the time of such event.
SECTION 4.2 REPURCHASE OPTION.
(a) Subject to the remaining provisions of this Section 4.2, all or any
portion of the Management Stock, whether Vested Shares or Unvested Shares
(whether held by the Management Stockholder or one or more of the Management
Stockholder's Permitted Transferees) are subject to repurchase by the Company
(the "Available Shares") in the event such Management Stockholder ceases to be
employed by the Company and its subsidiaries within five years of the date
hereof or the commencement of employment, as the case may be, by reason of
termination with or without Cause, or voluntary resignation, as follows:
(i) If the Management Stockholder ceases to be employed by the
Company or any of its subsidiaries by reason of death or disability, no
shares of Management Stock, whether Vested or Unvested, owned by such
Management Stockholder shall be subject to repurchase pursuant to this
Section 4.2(a).
(ii) If the Management Stockholder ceases to be employed by
the Company or any of its subsidiaries by reason of termination without
Cause or by voluntary resignation, his Unvested Shares shall be subject
to repurchase and the purchase price for each Unvested Share of
Management Stock subject to repurchase pursuant to this Section 4.2
shall be the Management Stockholder's Original Cost for such share.
(iii) If the Management Stockholder ceases to be employed by
the Company or any of its subsidiaries by reason of termination with
Cause, his Unvested Shares and Vested Shares shall be subject to
repurchase and the purchase price for each Unvested Share and Vested
Share of Management Stock subject to repurchase pursuant to this
Section 4.2 shall be the Management Stockholder's Original Cost for
such share.
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(b) The Company may elect to purchase all or any portion of the
Available Shares pursuant to the preceding subsections of this Section 4.2 by
delivering written notice (the "Repurchase Notice") to the holder or holders of
Available Shares. The Repurchase Notice will set forth the number of Available
Shares to be acquired from the Management Stockholder or his Permitted
Transferee, as the case may be, the aggregate consideration to be paid for such
shares and the time and place for the closing of the transaction. The number of
Available Shares to be repurchased by the Company shall first be satisfied to
the extent possible from the Available Shares held by the Management Stockholder
at the time of delivery of the Repurchase Notice. If the number of Available
Shares then held by the Management Stockholder is less than the number of
Available Shares that the Company has elected to purchase, the Company shall
purchase the remaining Available Shares (by class) elected to be purchased from
the Permitted Transferees of such Management Stockholder under this Agreement
pro rata, in each case according to the number of Available Shares (by class)
held by such Permitted Transferees at the time of delivery of such Repurchase
Notice (determined as nearly as practicable to the nearest whole share). All
such Available Shares repurchased by the Company will become available for
repurchase by members of management pursuant to the Management Stock Ownership
Plan.
(c) If, for any reason the Company shall be prohibited from purchasing
all of the Available Shares pursuant to Section 4.2, all Management Stockholders
(other than the Management Stockholder (and his Permitted Transferees) whose
shares have become Available Shares) and Investor Stockholders shall agree to
form a trust, escrow or similar device that is subject to the control of the
chief executive officer of the Company (a "Trust") that shall be funded by all
such Stockholders on a pro rata basis (based upon the number of shares of
capital stock held) with an amount sufficient to purchase all such unpurchased
Available Shares; provided, however, that compliance with this Section 4.2(c)
may be waived by the affirmative vote of the Requisite Stockholders. All such
Available Shares repurchased by the Trust will be held for the benefit of
members of management pursuant to the Management Stock Ownership Plan at
Original Cost; provided, however, that Shares held by the Trust shall not be
deemed outstanding for purposes of this Agreement or Capital Calls under the
Stock Purchase Agreement. As soon as practicable after the Company has
determined that it will not purchase all of the Available Shares, but in any
event within 10 days after the delivery of the Repurchase Notice, the Company
shall give written notice (the "Option Notice") to all Stockholders and the
Trust setting forth the number of remaining Available Shares and the aggregate
purchase price for such shares. Such Trust will purchase all the remaining
Available Shares by delivering written notice (the "Election Notice") to the
Company within 30 days after receipt of the Option Notice from the Company. As
soon as practicable, and in any event within 15 days after receipt of the
Election Notice, the Company shall notify each holder of Management Stock as to
the number of Available Shares being purchased from such holder by the Trust
(the "Supplemental Repurchase Notice"). Any such Available Shares that are not
purchased by the Company or the Trust may be repurchased by Management
Stockholders pursuant to this Section 4.2 but such shares shall be subject to
repurchase (at the cost paid by such Management Stockholder plus the amount of
any Capital Calls made thereon, if actually paid by such Management Stockholder)
by the Company to hold as shares available for purchase by members of management
pursuant to the Management Stock Ownership Plan.
(d) The closing of the purchase of Available Shares pursuant to this
Section 4.2 shall take place on the date designated by the Company in the
Repurchase Notice or Supplemental Repurchase Notice, which date shall not be
more than 60 days nor less than five days after the delivery of the later of the
Repurchase Notice or the Supplemental Repurchase Notice. The Company, the Trust
and/or the Management Stockholders will pay for Available Shares to be purchased
pursuant to this Section 4.2 by delivery of, in the case of the Trust or the
Management Stockholders, a check or wire transfer of funds and, in the case of
the Company, (i) a check or wire transfer of funds, (ii) in the event the
Company is prohibited by the Company's Certificate of Incorporation, Bylaws, or
applicable statutory or contractual provisions, a subordinated note or notes
payable on commercially reasonable terms, or (iii) both (i) and (ii) in the
aggregate amount of the
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purchase price for such shares. Any notes issued by the Company pursuant to this
Section 4.2(d) shall be subject to any restrictive covenants (including
limitations or restrictions on the payment of interest) to which the Company is
subject at the time of such purchase. The purchasers of any Available Shares
hereunder will be entitled to require all of the signatures of each seller of
such Available Shares to be notarized and to receive representations and
warranties from each such seller regarding (A) such seller's power, authority
and legal capacity to enter into such sale and to transfer valid right, title
and interest in such Available Shares, (B) such seller's ownership of such
Available Shares and the absence of any liens, pledges, and other encumbrances
on such Available Shares, and (C) the absence of any violation, default, or
acceleration of any agreement or instrument pursuant to which such seller or the
assets of such seller are bound as the result of such sale.
(e) The right of the Company, the Trust and the Management Stockholders
to repurchase Available Shares pursuant to this Section 4.2 shall terminate upon
the first to occur of (i) the 180th calendar day following the date on which
such Available Shares first became subject to repurchase pursuant to this
Section 4.2, (ii) the consummation of a Sale of the Company or (iii) the
consummation of a Initial Public Offering.
(f) In the event that Available Shares are repurchased pursuant to this
Section 4.2, the holders of such Available Shares will take all steps necessary
and desirable to obtain all required third-party, governmental and regulatory
consents and approvals and take all other actions necessary and desirable to
facilitate consummation of such repurchase(s) in a timely manner.
SECTION 4.3 CLASS B COMMON STOCK. The Company shall have no repurchase
rights or obligations under Section 4.1 and 4.2 hereof with respect to the Class
B Common Stock owned by any Management Stockholder.
SECTION 4.4 BUYBACK OF CERTAIN SHARES OF COMMON STOCK.
(a) (i) Upon the occurrence of an event (and its related Capital Call,
as such term is defined in the Stock Purchase Agreement) described in Section
4.1 or Section 4.2 of the Stock Purchase Agreement (either, an "Event"), the
Company, at the time of Capital Call precipitating the Event and at the time of
each Capital Call subsequent to the Event (during which the Defaulting
Stockholder and the Non-Participating Stockholder are ineligible to participate
pursuant to Section 4.3 of the Stock Purchase Agreement and the Defaulting
Stockholder is not forced to participate pursuant to Section 4.2(b) of the Stock
Purchase Agreement), shall have the right to repurchase, at Original Cost, that
number of shares of Class B Common Stock owned by such Defaulting Stockholder or
Non-Participating Stockholder (as such terms are defined in the Stock Purchase
Agreement), or his Permitted Transferees, as the case may be, equal to the
Buyback Amount plus the Penalty Amount (as such terms are defined below). Any
shares of Common Stock available for repurchase under this Section 4.4(a) shall
be referred to herein as "Eligible Shares." Upon the occurrence of an Event,
such Non-Participating Stockholder or Defaulting Stockholder, as the case may
be, hereby agrees to deliver the maximum number of Shares that the Company may
become entitled to repurchase from such Stockholder during the remainder of the
Takedown Period (as calculated pursuant to this Section 4.4(a) and assuming that
all of the Total Commitments were actually funded) to a custodial account,
escrow account or similar device (the "Account") formed by the Company on terms
and conditions reasonably agreed upon by the Non-Participating Stockholder or
the Defaulting Stockholder, as the case may be, for the purpose of holding such
Shares that may become subject to repurchase pursuant to this Section 4.4;
provided, however, that no delivery to the Account shall be required if such
Stockholder delivers a written opinion of counsel reasonably acceptable to the
Company to the effect that such delivery would cause a change in ownership of
such shares prior to the date the Company actually becomes eligible to (and
actually does) repurchase such Shares. Such maximum number of shares shall be
delivered to the Account within five business days' following such Stockholder's
receipt of notice (and such Stockholder's reasonable agreement
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with the calculations set forth therein) from the Company as to the calculation
as to the maximum number of Shares that the Company may become entitled to
repurchase pursuant to this Section 4.4. Any Shares not repurchased by the
Company pursuant to this Section 4.4 at the end of the Takedown Period shall be
released from the Account and returned to the Non-Participating Stockholder or
Defaulting Stockholder.
(ii) The "Buyback Amount" shall equal that number of shares of
Class B Common Stock equal to X(Y/(Y+Z)) where "X" shall equal the number of
shares of Class B Common Stock owned by such Defaulting Stockholder or
Non-Participating Stockholder, as the case may be) immediately prior to the
capital call that is the subject of such default or non-participation; "Y" shall
equal the dollar amount of such Stockholder's portion of the most recent Capital
Call made pursuant to Section 3.1 of the Stock Purchase Agreement that the
Defaulting Stockholder failed to fund or Non-Participating Stockholder declined
to fund (or such Defaulting Stockholder or Non-Participating Stockholder was
ineligible to fund, as the case may be); and "Z" shall equal the sum of (i) the
aggregate purchase price paid and capital contributions made by such Defaulting
Stockholder or Non-Participating Stockholder pursuant to Section 2.1 and Section
3.1 of the Stock Purchase Agreement and (ii) the aggregate amount of all Capital
Calls that such Defaulting Stockholder or Non-Participating Stockholder was
ineligible to fund prior to the current Capital Call, if any.
(iii) The "Penalty Amount" shall equal that number of shares of
Class B Common Stock equal to the Buyback Amount multiplied by P; where "P"
shall equal the percentage detailed in the table below after determining the
quotient of (AB); where "A" shall equal the aggregate amount of the Capital Call
with respect to all Stockholders precipitating the Event (or in which the
Defaulting Stockholder or Non-Participating Stockholder was ineligible to
participate) and "B" shall equal the aggregate purchase price and capital
contributions pursuant to Sections 2.1 and 3.1 of the Stock Purchase Agreement
made to the Class B Common Stock by all Stockholders prior the Event:
If the quotient of AB is: then "P" shall equal
less than 25% 10%
25% or greater, but less than 60% 8%
60% or greater, but less than 95% 6%
95% or greater, but less than 150% 5%
150% or greater 2%
(b) The Company may elect to purchase all or any portion of the
Eligible Shares by delivering written notice (the "Eligibility Notice") to the
holder or holders of Eligible Shares. The Eligibility Notice will set forth the
number of Eligible Shares to be acquired from each holder, the aggregate
consideration to be paid for such shares and the time and place for the closing
of the transaction.
(c) If, for any reason the Company shall be prohibited from purchasing
all of the Eligible Shares pursuant to this Section 4.4, all Stockholders (other
than the Stockholder whose Common Stock has become Eligible Shares) shall be
entitled to purchase such unpurchased Eligible Shares in accordance with their
Proportionate Percentages; provided, however, that compliance with this Section
4.4 (c) may be waived by the affirmative vote of the Requisite Stockholders. As
soon as practicable after the Company has determined that it will not purchase
all of the Eligible Shares, but in any event within 10 days after the delivery
of the Eligibility Notice, the Company shall give written notice (the "Further
Eligibility Notice") to such other Stockholders setting forth the number of
remaining Eligible Shares and the aggregate purchase price for such shares. Such
other Stockholders may elect to purchase any or all of the remaining Eligible
Shares by delivering written notice (the "Eligibility Election Notice") to the
Company within 30 days after receipt of the Further Eligibility Notice from the
Company. As soon as practicable, and in any event within 15 days after receipt
of the Eligibility Notice, the Company shall notify each holder of Common Stock
as to the number of Eligible Shares being purchased from such holder by such
other Stockholders (the "Supplemental Eligibility Notice").
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(d) The closing of the purchase of Eligible Shares pursuant to this
Section 4.4 shall take place on the date designated by the Company in the
Eligibility Notice or Supplemental Eligibility Notice, which date shall not be
more than 60 days nor less than five days after the delivery of the later of the
Eligibility Notice or Supplemental Eligibility Notice. The Company and/or the
electing Stockholders will pay for Eligible Shares to be purchased pursuant to
this Section 4.4 by delivery of, in the case of the Stockholders, a check or
wire transfer of funds and, in the case of the Company, (i) a check or wire
transfer of funds, (ii) a subordinated note or notes bearing interest at a rate
of 7% per annum and otherwise payable on or prior to an Initial Public Offering
or Sale of the Company, or (iii) both (i) and (ii) as the Company may, in its
sole discretion, determine in the aggregate amount of the purchase price for
such Eligible Shares. Any notes issued by the Company pursuant to this Section
4.4(d) shall be subject to any restrictive covenants (including limitations or
restrictions on the payment of interest) to which to Company is subject at the
time of such purchase. The purchasers of any Eligible Shares hereunder will be
entitled to require all of the signatures of each seller of such Eligible Shares
to be notarized and to receive representations and warranties from each such
seller regarding (A) such seller's power, authority and legal capacity to enter
into such sale and to transfer valid right, title and interest in such Eligible
Shares, (B) such seller's ownership of such Eligible Shares and the absence of
any liens, pledges and other encumbrances on such Eligible Shares, and (C) the
absence of any violation, default or acceleration of any agreement or instrument
pursuant to which such seller or the assets of such seller are bound as the
result of such sale.
(e) The right of the Company and the Stockholders to repurchase
Eligible Shares pursuant to this Section 4.4 shall terminate upon the first to
occur of (i) the 91st calendar day following the date on which such Eligible
Shares first became subject to repurchase pursuant to this Section 4.4, (ii) the
consummation of a Sale of the Company or (iii) the consummation of an Initial
Public Offering.
(f) In the event that Eligible Shares are repurchased from a
Stockholder pursuant to this Section 4.4, such Stockholder will take all steps
necessary and desirable to obtain all required third-party, governmental and
regulatory consents and approvals and take all other actions necessary and
desirable to facilitate consummation of such repurchase(s) in a timely manner.
(g) In the event that any Eligible Shares are purchased from a
Stockholder pursuant to this Section 4.4, such repurchased Eligible Shares may
be resold by the Company, at any time and from time to time, and Stock
Equivalents with respect to such Eligible Shares (whether before or after the
repurchase of such Eligible Shares by the Company) may also be sold by the
Company. Such repurchased Eligible Shares or Stock Equivalents shall be sold in
amounts, at prices, at times and pursuant to agreements (including without
limitation agreements containing obligations to contribute capital to the
Company) that the Board of Directors shall approve in its sole discretion;
provided, however, that any price for such Eligible Share shall be at least 90%
of amounts paid or payable with respect to such Eligible Shares pursuant to the
Stock Purchase Agreement. The provisions of this Agreement, including without
limitation the provisions of Section 2.2, shall apply to all sales of
repurchased Eligible Shares and related Stock Equivalents hereunder.
ARTICLE V
SPECIAL MANAGEMENT/GOVERNANCE PROVISIONS
SECTION 5.1 CERTIFICATE OF INCORPORATION: NO CONFLICT WITH AGREEMENT.
Attached hereto as Exhibits B and C are copies of the Certificate of
Incorporation and Bylaws, respectively, of the Company which are in effect as of
the date hereof. Each Stockholder shall vote his shares of capital stock, and
shall take all the actions necessary, to ensure that the Certificate of
Incorporation and Bylaws of the Company do not, from time to time, conflict with
the provisions of this Agreement.
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SECTION 5.2 BOARD OF DIRECTORS.
(a) From and after the date hereof, subject to Section 5.11, the
Stockholders and their assigns shall vote their shares of capital stock, at any
regular or special meeting of stockholders called for the purpose of filling
positions on the Board of Directors of the Company, or in any written consent
executed in lieu of such meeting of stockholders and shall take all the actions
necessary, to ensure the election to the Board of Directors of the Company of
six individuals: (i) two of which shall be designated from among the officers of
the Company (other than the chief executive officer) by the Management
Stockholders holding a majority of the Shares held by all Management
Stockholder, and one of which shall be the chief executive officer of the
Company (the "Management Nominees"), (ii) one of which shall be designated by
Chase Venture Capital Associates, L.P. (the "Chase Nominee"), (iii) one of which
shall be designated by Warburg, ▇▇▇▇▇▇ Equity Partners, L.P. (the "Warburg
Nominee") and (iv) one of which shall be designated by Natural Gas Partners V,
L.P. (the "NGP Nominee," and together with the Chase Nominee and the Warburg
Nominee, the "Investor Nominees"); provided, however, that if I. ▇▇▇ ▇▇▇▇▇▇▇ is
not chief executive officer of the Company, then the Board of Directors shall be
reduced to five members and the number of Management Nominees pursuant to clause
(i) shall be reduced to two. Notwithstanding anything to the contrary contained
in this Section 5.3, each of the Investor Nominees shall be reasonably
acceptable to the Management Stockholders.
(b) Each Investor Nominee shall have the right to designate an
alternate director (each, an "Alternate Director") and the right to bring one
observer who may be an Alternate Director (each, an "Observer Director") and any
other person approved by the chief executive officer of the Company to each
meeting of the Board of Directors; provided, however that First Union Capital
Partners, Inc. shall have the right to send one Observer Director. Each
Alternate Director and each Observer Director shall be employees of the Investor
Stockholder whose Investor Nominee appointed such Alternate Director and/or
Observer Director; provided that First Union Capital Partners, Inc.'s Observer
Director shall be an employee of First Union Capital Partners, Inc.
(c) Members of the Board of Directors, Alternate Directors and Observer
Directors will not be paid any fee for serving on the Board of Directors but
will be entitled to reimbursement for reasonable out-of-pocket expenses in
attending meetings of the Board of Directors.
SECTION 5.3 REMOVAL.
(a) If a director designated and elected pursuant to Section 5.2, (i)
has been designated by one of the Investor Stockholders pursuant to Section 5.2
and, during such director's term as director, the holders of a majority of the
capital stock held by such Investor Stockholder requests that such director be
removed (with or without Cause) by written notice to the Management Stockholders
or (ii) has been designated by the Management Stockholders pursuant to Section
5.2 and, during such director's term as director, holders of a majority of the
capital stock held by the Management Stockholders request that such director be
removed (with or without Cause) by written notice to the Investor Stockholders,
then such director may be removed, with or without Cause, upon the affirmative
vote of holders of a majority of the outstanding shares of capital stock, and
each Stockholder hereby agrees to vote all shares of capital stock owned or held
of record to effect such removal or consent in writing to effect such removal
upon such request.
(b) Subject to Sections 5.10 and 5.11, no director shall be removed
without Cause except as provided in Section 5.3(a) hereof and any director shall
be removed for Cause if the holders of a majority of the outstanding shares of
capital stock consent in writing to such removal. Each Management Stockholder
that is a member of the Board of Directors agrees to resign as a member of the
Board of Directors upon the termination of employment (for any reason) with the
Company.
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SECTION 5.4 VACANCIES. In the event that a vacancy is created on the
Board of Directors at any time by the death, disability, retirement, resignation
or removal (with or without Cause) of a director, each Stockholder will cause
the directors designated by it to vote for the individual designated to fill
such vacancy by whichever of the Stockholders designated (pursuant to Section
5.2 hereof) the director whose death, disability, retirement, resignation or
removal (with or without Cause) resulted in such vacancy on the Board (in the
manner set forth in Section 5.2); provided, however, that such other individual
so designated may not previously have been a director of the Company who is
removed for Cause from the Board of Directors.
SECTION 5.5 COVENANT TO VOTE. Each Stockholder hereby agrees to take
all actions necessary to call, or cause the Company and the appropriate officers
and directors of the Company to call, a special or annual meeting of the
stockholders of the Company and to vote all shares of the capital stock owned or
held of record by such Stockholder at any such annual or special meeting in
favor of, or take all actions by written consent in lieu of any such meeting
necessary to cause, the election as members of the Board of Directors of those
individuals so designated in accordance with, and otherwise to effect the intent
of Article V. In addition, each Stockholder agrees to vote the shares of capital
stock owned by such Stockholder upon any other matter arising under this
Agreement submitted to a vote of the Stockholders in a manner that will
implement the terms of this Agreement.
SECTION 5.6 DESIGNATION OF PROXY. In order to effectuate the provisions
of this Article IV and in addition to and not in lieu of Sections 5.2 through
5.5 hereof, each of the Management Stockholders hereby grants to I. ▇▇▇ ▇▇▇▇▇▇▇
a proxy to vote at any meeting of Stockholders or take any action by written
consent in lieu of such meeting with respect to, all of the Shares owned or held
of record by such Management Stockholders solely for (i) the election of
directors designated in accordance with Section 5.2 hereof, and (ii) the
election of a director to fill any vacancy on the Board of Directors in
accordance with Section 5.4 hereof. Such proxy to vote is coupled with an
interest and is therefore irrevocable.
SECTION 5.7 MANAGEMENT COMPENSATION.
(a) During the term of each Management Stockholder's employment with
the Company, the Company shall pay to such Management Stockholders an annual
base salary of $190,000, except for I. ▇▇▇ ▇▇▇▇▇▇▇, who shall receive an annual
base salary of $300,000, subject in each case to increase at the discretion of
the Board of Directors. Each Management Stockholder's base salary is to be
payable in installments in accordance with the payroll policies of the Company
in effect from time to time.
(b) In addition to the base salary payable to each of the Management
Stockholders, the Company may pay bonuses in an aggregate amount up to $200,000
per year, allocated among the Management Stockholders and certain other key
employees, as determined by the Board of Directors.
(c) The Management Stockholders shall be entitled to such other
benefits in accordance with the policies, practices and procedures of the
Company from time to time in effect, including medical and dental insurance
coverage, commensurate with each Management Stockholder's position.
(d) All Management Stockholders are "at-will" employees and nothing
herein or in any of the documents executed in connection herewith shall be
construed to the contrary.
SECTION 5.8 FINANCIAL REPORTS.
(a) Within 20 days after the end of each fiscal month, the Company
shall furnish to each Stockholder with a Total Commitment (as such term is
defined in the Stock Purchase Agreement) in excess of $5,000,000 a report
estimating oil and gas production for such month, which report is used by the
Company for internal control purposes.
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(b) Within 45 days after the end of each fiscal quarter, the Company
shall furnish to each Stockholder an unaudited balance sheet as of the end of
such quarter and an unaudited related income statement, statement of
stockholders equity and statement of cash flows for such quarter including any
footnotes thereto (if any) prepared in accordance with generally accepted
accounting principles, consistently applied.
(c) Within 90 days after the end of each fiscal year, the Company shall
furnish to each Stockholder an audited balance sheet as of the end of such
fiscal year and the related income statement, statement of stockholders equity
and statement of cash flows for such fiscal year prepared in accordance with
generally accepted accounting principles, consistently applied and as reviewed
by (and together with the report of their review of) the Company's auditors who
shall be selected from among the nationally recognized accounting firms.
(d) Within 45 days after the Company closes an acquisition of producing
or non-producing properties in excess of $5.0 million (an "Acquisition"), the
Company shall furnish to each Stockholder an investment summary describing the
nature and size of such Acquisition and the reasons therefor.
(e) Within 90 days after the end of each fiscal year, the Company shall
furnish to each Stockholder a reserve report prepared by a reservoir engineer
acceptable to the Board of Directors.
(f) Within 30 days before the end of each fiscal year, the Company
shall furnish to each Stockholder an annual budget.
(g) Within 30 days after the occurrence of any material event, the
Company shall furnish notice of such event to each Stockholder together with a
summary describing the nature of the event and its impact on the Company.
(h) The Company shall furnish such other information to the
Stockholders as such Stockholders or their advisors may reasonably request.
(i) Notwithstanding anything to the contrary contained in Section 6.12,
the obligations of the Company to furnish financial information pursuant to this
Section 5.8 shall cease upon the closing of an Initial Public Offering by the
Company except that with respect to any Investor Stockholder the Company's
obligations under this Section 5.8 shall terminate only when such Investor
Stockholder and its Affiliates own less than 5% of the outstanding securities of
the Company.
SECTION 5.9 NON-MANAGEMENT OPTIONS. Shares representing 1.0% of the
outstanding Common Stock on the Closing Date on a fully-diluted basis shall be
reserved for issuance in the form of employee stock options to non-management
employees of the Company ("Non-Management Options"), the form and terms of which
shall be subject to Board approval.
SECTION 5.10 INVESTOR STOCKHOLDER RIGHTS.
(a) By request of more than 75% of the shares of Class B Common Stock
held by the Investor Stockholders, the Company shall cause (i) the removal of
any or all of the Management Nominees and/or employees, (ii) the Sale of the
Company or (iii) an Initial Public Offering.
(b) In the event a Management Stockholder is removed as a director or
an employee of the Company pursuant to Section 5.10(a) for any reason other than
Cause, the Management Stockholder's termination shall be treated as a Change of
Control for purposes of Article IV. In the event a Management
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Stockholder is removed as a director or an employee of the Company pursuant to
Section 5.10(a) for Cause, the Management Stockholder's termination shall be
treated as a termination for Cause for purposes of Article IV.
(c) Each Stockholder hereby covenants and agrees that it shall vote its
Shares to enforce compliance with Section 5.10(a), including without limitation,
voting to remove any director who fails to comply with a request properly made
under Section 5.10(a).
(d) Each Investor Stockholder hereby covenants and agrees that it shall
give the chief executive officer of the Company at least five business days
written notice prior to the taking of any action by written consent, including
without limitation, any action permitted under Section 5.10(a) hereof, and
furthermore shall give the chief executive officer the opportunity to meet with
the Investor Stockholders to discuss any such action proposed to be taken by
written consent prior to the execution thereof.
SECTION 5.11 VOTING RIGHTS.
(a) In the event an Investor Stockholder fails to pay any portion of a
Capital Call, such Investor Stockholder shall forfeit the right to (i) vote as a
stockholder, except to the extent prohibited by law or expressly provided
herein, (ii) fund any future Capital Calls and (iii) appoint a nominee to the
Board of Directors pursuant to Section 5.2. In the event an empty Board of
Directors seat is created pursuant to this Section 5.11, such seat shall be
filled by the nominee of the Investor Stockholder with the largest Total
Commitment in the Company (such calculation to include any Total Commitment of
such Stockholder's Affiliates) that does not have a nominee on the Board of
Directors provided that such Total Commitment is at least $20,000,000; if no
such Investor Stockholder exists, then the Board of Directors shall be reduced
to four members, two of which shall be Management Nominees (one being the chief
executive officer and the other being an officer of the Company) and two of
which shall be Investor Nominees.
(b) In the event a Management Stockholder fails to pay any portion of a
Capital Call, such Management Stockholder shall forfeit the right to (i) vote as
a stockholder, except to the extent prohibited by law or expressly provided
herein, (ii) to serve as a member of, and shall be removed from, the Board of
Directors and (iii) fund any future Capital Calls. Any unfunded Capital Call
commitment of a defaulting Management Stockholder may be reallocated to other
Management Stockholders in the manner determined by the holders of a majority of
the Shares held by all Management Stockholders.
(c) Upon the occurrence of an Event, each Non-Participating Stockholder
or Defaulting Stockholder, as the case may be, hereby agrees to grant to the
chief executive officer of the Company a proxy (such proxy to be coupled with an
interest and therefore irrevocable) to vote such Shares owned by such
Non-Participating Stockholder or Defaulting Stockholder, as the case may be;
provided, however, that such proxy will not be in effect for any votes that (i)
are required by law to be voted by such Non-Participating Stockholder or
Defaulting Stockholder, as the case may be, (ii) are expressly required in the
Bylaws, Stock Purchase Agreement or this Agreement to be voted by such
Non-Participating Stockholder or Defaulting Stockholder, as the case may be, and
(iii) for any vote pertaining to any amendment, modification, or waiver that
would adversely affect the rights of such Non-Participating Stockholder or
Defaulting Stockholder, as the case may be, in its capacity as a Stockholder,
without similarly affecting the rights of all Stockholders of the same class, in
their capacity as Stockholders of such class. The chief executive officer will,
pursuant to such proxy, vote such Shares owned by such Non-Participating
Stockholder or Defaulting Stockholder, as the case may be, in the same manner
(i.e., in favor, abstain or against) and in the same proportion as all votes
cast by the other Stockholders.
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SECTION 5.12. REGULATORY MATTERS.
(a) COOPERATION OF OTHER STOCKHOLDERS. Each Stockholder agrees to
cooperate with the Company in all commercially reasonable respects in complying
with the terms and provisions of the letter agreements between the Company and
each of First Union Capital Partners, Inc. and Chase Venture Capital Associates,
L.P., copies of which are attached hereto as EXHIBIT E, regarding small business
matters (each, a "Small Business Sideletter"), including without limitation,
voting to approve amending the Company's Certificate of Incorporation, the
Company's Bylaws or this Agreement in a manner reasonably acceptable to the
Stockholders and the Investor or any Regulated Holder (as defined in the Small
Business Sideletters) entitled to make such request pursuant to the Small
Business Sideletter in order to remedy a Regulatory Problem (as defined in the
Small Business Sideletters). Anything contained in this Section 5.12 to the
contrary notwithstanding, no Stockholder shall be required under this Section
5.12 to take any action that would adversely affect in any material respect such
Stockholder's rights under this Agreement or as a stockholder of the Company.
(b) COVENANT NOT TO AMEND. The Company and each Stockholder agree not
to amend or waive the voting or other provisions of the Company's Certificate of
Incorporation, the Company's Bylaws or this Agreement if such amendment or
waiver would cause any Regulated Holder to have a Regulatory Problem (as defined
in the Small Business Sideletters). Any Investor Stockholder agrees to notify
the Company as to whether or not it would have a Regulatory Problem promptly
after the Investor Stockholder has notice of such amendment or waiver.
ARTICLE VI
MISCELLANEOUS
SECTION 6.1 MANNER OF GIVING NOTICE. All notices required to be given
hereunder shall be in writing and shall be deemed to be duly given if personally
delivered, telecopied and confirmed, or mailed by certified mail, return receipt
requested, or overnight delivery service with proof of receipt maintained, at
the following address (or any other address that any such party may designate by
written notice to the other parties):
Encore Acquisition Partners, Inc.
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
If to any Stockholder, at his address as set forth on Exhibit A of this
Agreement.
Any such notice shall, if delivered personally, be deemed received upon
delivery; shall, if delivered by telecopy, be deemed received on the first
business day following confirmation; shall, if delivered by overnight delivery
service, be deemed received the first business day after being sect; and shall,
if delivered by mail, be deemed received upon the earlier of actual receipt
thereof or five business days after the date of deposit in the United States
mail.
SECTION 6.2 WAIVER OF NOTICE. Whenever any notice is required to be
given to any Stockholder or director of the Company under the provisions of this
Agreement, a waiver thereof in writing signed by the person or persons entitled
to such notice, whether before or after the time stated therein, shall be deemed
equivalent to the giving of such notice. Attendance of a director at a meeting
of the Board of Directors shall constitute a waiver of notice of such meeting,
except where a director attends a meeting for the express purpose of objecting
to the transaction of any business on the ground that the meeting is not
lawfully called or convened.
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SECTION 6.3 COUNTERPART SIGNATURES. This Agreement may be executed in
any number of counterparts, all of which together shall constitute a single
instrument. It shall not be necessary that any counterpart be signed by each of
the Stockholders so long as each counterpart shall be signed by one or more of
the Stockholders and so long as the other Stockholder shall sign at least one
counterpart which shall be delivered to the Company.
SECTION 6.4 SEVERABILITY. If any provision of this Agreement is held to
be illegal, invalid or unenforceable under present or future laws effective
during the tern of this Agreement, such provision shall be fully severable; this
Agreement shall be construed and enforced as if such illegal, invalid, or
unenforceable provision had never comprised a part of this Agreement; and the
remaining provisions of this Agreement shall remain in full force and effect and
shall not be affected by the illegal, invalid or unenforceable provision or by
its severance from this Agreement. Furthermore, in lieu of each such illegal,
invalid or unenforceable provision, there shall be added automatically as a part
of this Agreement a provision as similar in terms to such illegal, invalid or
unenforceable provision as may be possible and be legal, valid and enforceable.
SECTION 6.5 JOINDER OF SPOUSES. The spouses of all married Stockholders
have joined in the execution of this Agreement in order to evidence their
agreement and consent to be bound by the terms and conditions hereof as to their
interest, whether as community property or otherwise, if any, in the shares of
Common Stock owned by their respective spouses.
SECTION 6.6 ENTIRE AGREEMENT; AMENDMENTS.
(a) This Agreement supersedes all prior agreements among the parties
with respect to the subject matter hereof. The provisions of this Agreement may
only be amended, waived or terminated with the prior written consent of the
Requisite Holders; provided, however, that (A) any such amendment, modification,
or waiver that would adversely affect the rights hereunder of any Stockholder,
in its capacity as a Stockholder, without similarly affecting the rights
hereunder of all Stockholders of the same class, in their capacities as
Stockholders of such class or that would affect a Stockholder's right to place
an individual on the Board of Directors pursuant to Section 5.2 or exercise its
preemptive rights pursuant to Section 2.2, shall not be effective as to such
Stockholder without its prior written consent, (B) Exhibit A to this Agreement
shall be deemed to be automatically amended from time to time to reflect
issuances and transfers of Shares made in compliance with this Agreement, the
Subscription Agreements and the Stock Purchase Agreement without requiring the
consent of any party, and the Company will, from time to time, distribute to the
Stockholders a revised Exhibit A to reflect any such changes and (C) any
amendment to Section 5.12 shall not be effective as to First Union Capital
Partners, Inc. or Chase Venture Capital Associates, L.P. without such
Stockholders' prior written consent.
(b) No waiver of any provision hereof by any party shall be deemed a
waiver by any other party nor shall any such waiver by any party be deemed a
continuing waiver of any matter by such party.
(c) No amendment, modification, supplement, discharge or waiver hereof
or hereunder shall require the consent of any person not a party to this
Agreement.
SECTION 6.7 GOVERNING LAW AND VENUE. This Agreement shall be governed
and construed in accordance with the laws of the State of Delaware, without
regard to the conflicts of law principles of such state.
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SECTION 6.8 CONSENT TO JURISDICTION.
(a) The parties hereto hereby irrevocably submit to the exclusive
jurisdiction of the courts of the State of Delaware and the federal courts of
the United States of America located in Delaware, and appropriate appellate
courts therefrom, over any dispute arising out of or relating to this Agreement
or any of the transactions contemplated hereby, and each party hereby
irrevocably agrees that all claims in respect of such dispute or proceeding may
be heard and determined in such courts. The parties hereby irrevocably waive, to
the fullest extent permitted by applicable law, any objection which they may now
or hereafter have to the laying of venue of any dispute arising out of or
relating to this Agreement or any of the transactions contemplated hereby
brought in such court or any defense of inconvenient forum for the maintenance
of such dispute. Each of the parties hereto agrees that a judgment in any such
dispute may be enforced in other jurisdictions by suit on the judgment or in any
other manner provided bylaw. This consent to jurisdiction is being given solely
for purposes of this Agreement and is not intended to, and shall not, confer
consent to jurisdiction with respect to any other dispute in which a party to
this Agreement may become involved.
(b) Each of the parties hereto hereby consents to process being served
by any party to this Agreement in any suit, action, or proceeding of the nature
specified in subsection (a) above by the mailing of a copy thereof in the manner
specified by the provisions of Section 6.1.
(c) EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES ALL RIGHT TO
TRIAL BY JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM ARISING OUT OF OR
RELATING TO THIS AGREEMENT.
SECTION 6.9 BINDING EFFECT. This Agreement shall be binding upon and
shall inure to the benefit of the Company and each Stockholder and his
respective heirs, permitted successors, permitted assigns, permitted
distributees and legal representatives, and by their signatures hereto, the
Company and each Stockholder intends to and does hereby become bound. Nothing
expressed or mentioned in this Agreement is intended or shall be construed to
give any person other than the parties hereto and their respective permitted
successors and assigns any legal or equitable right, remedy or claim under, in
or in respect of this Agreement or any provision herein contained.
SECTION 6.10 FUTURE ACTIONS. The Company and the Stockholders shall
execute and deliver all such future instruments and take such other and further
action as may be reasonably necessary or appropriate to carry out the provisions
of this Agreement and the intention of the parties as expressed herein,
including if necessary any action required to authorize and direct the officers
and directors of the Company to amend the Company's Certificate of Incorporation
so that this Agreement is enforceable under the laws of the State of Delaware.
SECTION 6.11 HEADINGS; EXHIBITS. All article and Section headings
herein are for convenience of reference only and are not part of this Agreement,
and no construction or inference shall be derived therefrom. The Exhibits
attached hereto and referred to herein are a part of this Agreement as if fully
set forth herein. All references to Sections and Exhibits shall be deemed
references to such parts of this Agreement, unless the context shall otherwise
require.
SECTION 6.12 TERMINATION OF THIS AGREEMENT. Except as provided herein,
this Agreement shall immediately and automatically terminate, without any
further action by any party, upon any of the following: (i) the prior written
consent of (A) the Company, (B) Investor Stockholders holding 90% of all Shares
held by Investor Stockholders, other than Non-Participating Stockholders and
Defaulting Stockholders and (C) Management Stockholders holding 75% of all
Shares held by Management Stockholders, other than Non-Participating
Stockholders and Defaulting Stockholders, (ii) the dissolution, bankruptcy,
receivership or insolvency of the Company or (iii) upon the closing of an
Initial Public Offering (provided that Sections 3.1(b) and 5.8(i) shall survive
an Initial Public Offering).
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IN WITNESS WHEREOF, the parties hereto have executed and delivered this
Agreement as of the day, month and year first above written.
ENCORE ACQUISITION PARTNERS, INC.
By: /s/ I. ▇▇▇ ▇▇▇▇▇▇▇
-------------------------------------
I. ▇▇▇ ▇▇▇▇▇▇▇
President
INVESTOR STOCKHOLDERS:
CHASE VENTURE CAPITAL ASSOCIATES, L.P.
By: Chase Capital Partners,
its general partner
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Title: General Partner
WARBURG, ▇▇▇▇▇▇ EQUITY PARTNERS, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Managing Director
NATURAL GAS PARTNERS V, L.P.
By: G.F.W. Energy V, L.P.,
its general partner
By: GFW V, L.L.C.,
its general partner
By: /s/
------------------------------------
Name:
Title:
FIRST UNION CAPITAL PARTNERS, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
------------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
Title: Sr. Vice President
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SPOUSE: MANAGEMENT STOCKHOLDERS:
/s/ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ /s/ I. ▇▇▇ ▇▇▇▇▇▇▇
---------------------------- -----------------------------------
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇ ▇. ▇▇▇▇▇▇▇
---------------------------- -----------------------------------
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III
---------------------------- -----------------------------------
/s/ ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------- -----------------------------------
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇▇
---------------------------- -----------------------------------
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EXHIBIT A
LIST OF STOCKHOLDERS AND SHARE OWNERSHIP
Percentage of Percentage of
Shares of Class A Total Class A Shares of Class Total Class B
Stockholder Common Stock Shares B Common Shares
(Name and Address) Owned Outstanding Stock Owned Outstanding
----------------- ----------------- --------------- --------------- ---------------
Investor Stockholders:
Chase Venture Capital -- -- 100,000 33.910%
Associates, L.P.
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇
Warburg, ▇▇▇▇▇▇ Equity Partners, L.P. -- -- 140,000 47.474%
▇▇▇ ▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇ ▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Natural Gas Partners V, L.P. -- -- 30,000 10.173%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
First Union Capital Partners, Inc. -- -- 20,000 6.782%
One First Union Center
▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
I. ▇▇▇ ▇▇▇▇▇▇▇ -- -- 1,921.91 0.652%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Management Stockholders:
I. ▇▇▇ ▇▇▇▇▇▇▇ 38,091.34 51.667% 1,539.04 0.522%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇ ▇. ▇▇▇▇▇▇▇ 8,847.02 12.000% 357.46 0.121%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇, III 4,915.01 6.667% 198.59 0.067%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ 6,143.76 8.333% 248.23 0.084%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇ 6.143.74 8.333% 248.23 0.084%
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇
▇▇▇▇ ▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇▇
Unallocated Pursuant to Management 9,584.27 13.000% 387.24 0.131
Stock Ownership Plan(1)
--------------- ---------------
Total 73,725.14 294,900.70
----------
(1) These shares are authorized to be issued pursuant to the Management
Stock Ownership Plan, but as of the date hereof have not been issued.
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EXHIBIT B
BYLAWS
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EXHIBIT C
CERTIFICATE
OF INCORPORATION, AS AMENDED
30
34
EXHIBIT D
FORM OF ADDENDUM AGREEMENT
This Addendum Agreement is made this ___ day of ______________, 19__,
by and between ________________________________ (the "New Stockholder") and
________________, the New Stockholder's spouse, and Encore Acquisition Partners,
Inc., a Delaware corporation (the "Company"), pursuant to a certain
Stockholders' Agreement dated as of June ___, 1998 (the "Agreement"), among the
Company and all of its Stockholders.
WITNESSETH:
WHEREAS, the Company and the Stockholders and their respective spouses
entered into the Agreement to impose certain restrictions and obligations upon
themselves, and to provide certain rights, with respect to the shares of Common
Stock, par value $________ per share, of the Company; and
WHEREAS, the New Stockholder desires to become a stockholder of the
Company; and
WHEREAS, the Company and the Stockholders have required in the
Agreement that all persons to whom shares of the Company's Common Stock subject
to the Agreement are transferred and any other person acquiring shares of the
Company's Common Stock must enter into an Addendum Agreement binding the New
Stockholder and the New Stockholder's spouse to the Agreement to the same extent
as if they were original parties thereto and imposing the same restrictions and
obligations on the New Stockholder, the New Stockholder's spouse and the shares
of Common Stock to be acquired by the new Stockholder as are imposed upon the
Stockholders under the Agreement;
NOW, THEREFORE, in consideration of the mutual promises of the parties
and as a condition of the purchase of the Common Stock of the Company, the New
Stockholder and the New Stockholder's spouse acknowledge that they have received
and read the Agreement and that the New Stockholder and the New Stockholder's
spouse shall be bound by, and shall have the benefit of, all of the terms and
conditions set out in the Agreement to the same extent as if they were original
parties to the Agreement. This Addendum Agreement shall not be attached to and
become a part of the Agreement.
The New Stockholder shall become a [Management or Investor]
Stockholder.
[The spouse of the New Stockholder joins in the execution of this
Agreement for the purpose set forth in Section 6.5 hereof.]
[Amend Section 4.1 if necessary to reflect appropriate schedule for new
Management Stockholder]
-------------------------------- --------------------------------
New Stockholder New Stockholder's Spouse
Address:
--------------------------------
--------------------------------
AGREED TO on behalf of the Stockholders of the Company pursuant to
Section 3.1 of the Agreement.
-------------------------------
By:
--------------------------------
---------------------, President
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EXHIBIT E
SMALL BUSINESS SIDELETTER
32