Exhibit 4.2(B)
FAFCO, INC.
SUBORDINATED NOTE AND WARRANT PURCHASE AGREEMENT
This Agreement is made as of __________, ______, between FAFCO, Inc., a
California corporation (the "COMPANY"), and the persons and entities (the
"PURCHASERS") listed on the Schedule of Purchasers attached hereto as Exhibit A
(the "SCHEDULE OF PURCHASERS").
SECTION 1
SALE OF CONVERTIBLE NOTES AND STOCK WARRANTS
1.1. The Notes. The Company has authorized the issuance and sale to the
Purchasers of subordinated promissory notes with an aggregate principal amount
of up to $500,000. Each Purchaser severally agrees, on the terms of and subject
to the conditions specified in this Agreement, to lend to the Company the sum
set forth in Column 2 of Exhibit A hereto opposite such Purchaser's name
("PURCHASER LOAN") at the Closing (as defined below). Each Purchaser Loan shall
be evidenced by a promissory note (individually a "NOTE" and collectively the
"NOTES"), dated as of the date of Closing, in the form of Exhibit B.
1.2. The Warrants. In connection with the Purchaser Loans, the Company
agrees to issue to each Purchaser at the Closing a stock purchase warrant in the
form of Exhibit C (individually a "WARRANT" and collectively the "WARRANTS")
exercisable initially for the number of shares of Common Stock ("COMMON STOCK")
set forth in Column 3 of Exhibit A opposite such Purchaser's name. The
securities issued or issuable upon exercise of the Warrants are referred to as
the "WARRANT COMMON." In the event that all or any of portion of the principal
amount of any Note is outstanding on the date of any one-year anniversary of the
date of issuance of such Note (an "ANNIVERSARY DATE"), the Company further
agrees to issue to the Purchaser holding such Note on such Anniversary Date an
additional Warrant exercisable for 1,000 shares of Common Stock for each $10,000
in principal which remains unpaid as of such Anniversary Date. Such additional
Warrants will be in the same form as the Warrants issued at the Closing.
SECTION 2
CLOSING DATE; DELIVERY
2.1. Closing Date. The closing of the purchase and sale of the Notes and
Warrants hereunder (the "CLOSING") shall be held at 11:00 a.m. on ________,
_____ or on such later date or dates as the Company and the Purchasers may agree
to (the date of such Closing being referred to as the "CLOSING DATE"). The place
of the Closing shall be at the offices of Wilson Sonsini Goodrich & Rosati,
P.C., 650 Page Mill Road, Palo Alto, California 94304-1050, or such other place
as the Purchasers and the Company may mutually agree. The date of any closing of
the transactions contemplated by this Agreement is sometimes also referred to
herein as the "Closing Date."
2.2. Delivery. At Closing, (i) each Purchaser will make payment to the
Company of the amount of the Purchaser Loan, if any, by wire transfer of
immediately available funds and (ii) the Company and the Purchasers will each
execute and deliver the other documents and instruments required to be executed
and delivered on the Closing Date. Promptly following the Closing, the Company
will deliver to each Purchaser the Note and Warrant issuable to such Purchaser
pursuant hereto.
2.3. Subsequent Closings. Any Notes and Warrants not sold on the Closing
may be sold at additional closings to be held at times and places to be agreed
upon by the Company and a majority-in-interest of the Purchasers purchasing at
each such closing (a "Subsequent Closing"), but no later than June 30, 2002. At
each Subsequent Closing, the Company shall deliver to each Purchaser
participating in such Subsequent Closing the Note and Warrant which such
Purchaser is purchasing against payment of the consideration therefor, specified
in Section 1 hereof. The Company and each such Purchaser shall execute and
deliver signature pages to this Agreement.
SECTION 3
REPRESENTATIONS AND WARRANTIES OF THE COMPANY
Subject to and except as set forth in the Schedule of Exceptions attached
as Exhibit D hereto (the "SCHEDULE OF EXCEPTIONS"), the Company hereby
represents and warrants to the PURCHASERS as of the date hereof as follows:
3.1. Organization and Standing; Articles and By-Laws. The Company is a
corporation duly organized and existing under, and by virtue of, the laws of the
State of California and is in good standing under such laws. The Company has
requisite corporate power to own and operate its properties and assets, and to
carry on its business as presently conducted. The Company is qualified to do
business as a foreign corporation in each jurisdiction where such qualification
is required, except jurisdictions where the failure to be so qualified would not
materially adversely affect the business or financial condition of the Company.
3.2. Corporate Power. The Company will have at the Closing Date all
requisite legal and corporate power to execute and deliver this Agreement, to
sell and issue the Notes and Warrants hereunder, to issue the Warrant Common
upon exercise of the Warrants and to carry out and perform its obligations under
the terms of this Agreement.
3.3. Financial Statements and Other Information. The Company has
delivered to each Purchaser the following:
(a) Annual Report on Form 10-K for the year ended December 31,
2000, as filed with the Securities and Exchange Commission (the "COMMISSION" of
the "SEC") pursuant to Section 13 of the Securities Exchange Act of 1934, as
amended (the "EXCHANGE ACT"), together with the index to exhibits thereto;
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(b) Definitive Proxy Statement dated May 30, 2001 for the Annual
Meeting of Shareholders held on June 28, 2001, as filed with the Commission
pursuant to Section 14 of the Exchange Act and Regulation 14A promulgated
thereunder;
(c) 2000 Annual Report to Shareholders, as filed with the
Commission pursuant to Section 14 of the Exchange Act and Rule 14a-3(c)
promulgated thereunder;
(d) A confidential copy of the Company's preliminary unaudited
draft balance sheet as of November 30, 2001, and of the Company's preliminary
unaudited draft statement of operations for the two months ended November 30,
2001. These unaudited financial results as of November 30, 2001 are not
necessarily indicative of the Company's fiscal results for the quarter ending
December 31, 2001.
(e) Quarterly Reports on Form 10-Q for the quarters ended March
31, 2001, June 30, 2001 and September 30, 2001, as filed with the Commission
pursuant to Section 13 of the Exchange Act, together with the indices to
exhibits thereto; and
(f) Term Sheet including a brief description of the Notes and
Warrants.
3.4. Authorization. All corporate action on the part of the Company, its
directors and shareholders necessary for the authorization, execution, delivery
and performance of this Agreement by the Company, the authorization, sale,
issuance and delivery of the Notes and the Warrants (and the Common Stock
issuable upon exercise of the Warrants) and the performance of the Company's
obligations hereunder has been taken or will be taken prior to the Closing. This
Agreement, when executed and delivered by the Company, shall constitute a valid
and binding obligation of the Company enforceable in accordance with its terms,
subject to laws of general application relating to bankruptcy, insolvency and
the relief of debtors and rules of law governing specific performance,
injunctive relief or other equitable remedies. The Notes and the Warrants, when
issued in compliance with the provisions of this Agreement, will be validly
issued and will be free of any liens and encumbrances, and the Warrant Common
has been duly and validly reserved and, when issued in compliance with the
provisions of this Agreement, will be validly issued and will be fully paid and
nonassessable, and will be free of any liens or encumbrances; provided, however,
that the Notes and the Warrants (and the Warrant Common) may be subject to
restrictions on transfer under state and/or federal securities laws and as set
forth herein.
3.5 Compliance with Other Instruments. The Company is not in violation
of any term of its Articles of Incorporation or Bylaws, as amended, or in
violation of any material agreement, instrument, judgment or decree or, to the
best of its knowledge, any order, statute, rule or regulation applicable to the
Company. The execution, delivery and performance of this Agreement and the
consummation of the transactions contemplated herein will not result in any such
violation or be in conflict with or constitute a default under any such
provision or agreement, and will not accelerate the performance provided by the
terms of any material agreement or instrument to which the Company is a party,
or constitute a default thereunder, or an event which, with the lapse of time or
action by a third party, could result in a default thereof, or result in the
creation of any lien, charge or encumbrance upon any assets or properties of the
Company, which breach, default, lien, charge or
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encumbrance, singularly or in the aggregate, would materially and adversely
affect the business or property of the Company.
3.6. Litigation. There are no actions, suits, proceedings or
investigations pending against the Company or its properties before any court or
governmental agency (nor, to the best of the Company's knowledge, is there any
basis therefor or threat thereof), which, either in any case or in the
aggregate, might result in any material adverse change in the business or
financial condition of the Company or any of its properties or assets, or in any
material impairment of the right or ability of the Company to carry on its
business as now conducted or as proposed to be conducted, or in any material
liability on the part of the Company, and none which questions the validity of
this Agreement or any action taken or to be taken in connection herewith.
SECTION 4
PURCHASER REPRESENTATIONS
Each Purchaser hereby represents and warrants to the Company as follows:
4.1. Investment Representation.
(a) The Purchaser understands and confirms that this Agreement is
made with the Purchasers in reliance upon each Purchaser's representation to the
Company that the Notes and Warrants to be received are to be acquired for
investment and not with a view to the sale or distribution of any part thereof,
and that it has no present intention of selling, granting participation in or
otherwise distributing the same, but subject nevertheless to any requirement of
law that the disposition of its property shall at all times be within its
control. By executing this Agreement, such Purchaser further represents that it
does not have any contract, undertaking, agreement or arrangement with any
person to sell, transfer or grant participations to such person or to any third
person, with respect to the Notes, the Warrants, or the Warrant Common.
(b) The Purchaser understands that the Notes, the Warrants and the
Warrant Common are not registered under the Securities Act of 1933, as amended
(the "Act") on the basis that the sale provided for in this Agreement and the
issuance of securities is exempt pursuant to Section 4(2) of the Act and
Regulation D promulgated thereunder, and that the Company's reliance on such
exemption is predicated on the Purchasers' representations set forth herein.
(c) The Purchaser agrees that it will not make a disposition of the Notes or
Warrants purchased hereunder (or the Warrant Common) except in compliance with
Section 6 hereof.
(d) The Purchaser represents that it is able to fend for itself in
the transactions contemplated by this Agreement, has such knowledge and
experience in financial and business matters as to be capable of evaluating the
merits and risks of its investment, has the ability to bear the economic risks
of its investment, and has had all questions which it has asked answered by the
Company.
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(e) The Purchaser represents and warrants that, at a reasonable time
prior to the Closing Date, it has been given the opportunity to ask questions
and receive answers concerning the terms and conditions of this offering, to
obtain any additional information which the Company possesses or can acquire
without unreasonable effort or expense that is necessary to verify the accuracy
of the information furnished pursuant to Section 3.3 hereof, and to discuss the
Company and its plans, operations and financial condition with its officers and
that it has heretofore received all such information as it deems necessary and
appropriate to enable it to evaluate the financial risk inherent in making an
investment in the securities of the corporation. It further represents and
warrants that it has received satisfactory and complete information concerning
the business and financial condition of the Company in response to all inquiries
in respect thereof.
(f) The Purchaser understands that the Notes, Warrants and Warrant
Common have not been registered under the Act in reliance upon a specific
exemption therefrom, which exemption depends upon, among other things, the bona
fide nature of its investment intent as expressed herein. In this connection,
the Purchaser understands that, in view of the Securities and Exchange
Commission (the "SEC"), the statutory basis for such exemption may be
unavailable if its representation was predicated solely upon a present intention
to hold these securities for the minimum capital gains period specified under
tax statutes, for a deferred sale, for or until an increase or decrease in the
market price of the Securities, or for a period of one year or any other fixed
period in the future.
(g) The Purchaser further understands that the Notes, Warrants and
Warrant Common must be held indefinitely unless subsequently registered under
the Act or unless an exemption from registration is otherwise available (such as
Rule 144 under the Act). Moreover, the Purchaser understands that, except as set
forth in Section 6 hereof, the Company is under no obligation to register the
Notes, Warrants or Warrant Common. In addition, the Purchaser understands that
the certificates evidencing the Notes, Warrants, and Warrant Common may be
imprinted with a legend which prohibits the transfer of such securities unless
they are registered or such registration is not required in the opinion of
counsel for the Company.
(h) The Purchaser is familiar with the provisions of Rule 144,
promulgated under the Act, which, in substance, permits limited public resale of
"restricted securities" acquired, directly or indirectly, from the issuer
thereof (or from an affiliate of such issuer), in a non-public offering subject
to the satisfaction of certain conditions, including among other things: (1) The
availability of certain public information about the Company; (2) the resale
occurring not less than one year after the party has purchased, and made full
payment for, within the meaning of Rule 144, the securities to be sold; and, in
the case of an affiliate, or of a non-affiliate who has held the securities less
than two years, (3) the sale being made through a broker in an unsolicited
"broker transaction" or in transactions directly with a market maker, as said
term is defined under the Exchange Act and the amount of securities being sold
during any three month period not exceeding the specified limitations stated
therein, if applicable. There can be no assurances that the requirements of Rule
144 will be met, or that the Notes, Warrants or Warrant Common will ever be
saleable.
(i) The Purchaser further understands that at the time the Purchaser
wishes to sell the Notes, Warrants or Warrant Common there may be no public
market upon which to make such a sale, and that, even if such a public market
then exists, the Company may not be satisfying the
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current public information requirements of Rule 144, and that, in such event,
the Purchaser would be precluded from selling such securities under Rule 144
even if the one-year minimum holding period had been satisfied.
(j) The Purchaser further understands that in the event all of the
applicable requirements of Rule 144 are not satisfied, registration under the
Act, compliance with Regulation A, compliance with some other registration
exemption or the notification to the Company of the proposed disposition by it
and the furnishing to the Company of (i) detailed information regarding the
disposition, and (ii) and opinion of its counsel to the effect that such
disposition will not require registration (the Purchaser understands such
counsel's opinion must be acceptable to counsel for the Company) will be
required and that, notwithstanding the fact that Rule 144 is not exclusive, the
Staff of the SEC has expressed its opinion that persons proposing to sell
private placement securities other than in a registered offering and otherwise
than pursuant to Rule 144 will have a substantial burden of proof in
establishing that an exemption from registration is available for such offers or
sales, and that such persons and their respective brokers who participate in
such transactions do so at their own risk.
4.2. Accredited Investor. The Purchaser represents and warrants that one
or more of the following criteria are applicable to such Purchaser:
(a) The Purchaser is a director or executive officer of the Company;
(b) The Purchaser is a natural person who has an individual net
worth or joint net worth with the Purchaser's spouse exceeding $1,000,000 at the
time of purchase;
(c) The Purchaser is a natural person who had an individual income
in excess of $200,000 in each of the two most recent years or joint income with
that Purchaser's spouse in excess of $300,000 in each of those years and who
reasonably expects to reach the same level of income in the current year;
(d) The Purchaser is either (i) a bank as defined in Section 3(a)(2)
of the Act, or any savings and loan association or other institution as defined
in Section 3(a)(5)(A) of the Act, whether acting in its individual capacity or
fiduciary capacity, (ii) a broker or dealer registered pursuant to Section 15 of
the Exchange Act, (iii) an insurance company as defined in Section 2(13) of the
Act, (iv) an investment company registered under the Investment Company Act of
1940 or a business development company as defined in Section 2(a)(48) of such
Act, (v) a Small Business Investment Company licensed by the U.S. Small Business
Administration under Section 301(c) or (d) of the Small Business Investment Act
of 1958, (vi) a plan established and maintained by a state or its political
subdivisions, or any agency or instrumentality of a state or its political
subdivisions, for the benefit of its employees, which plan has total assets of
$5,000,000, or (vii) an employee benefit plan within the meaning of the Employee
Retirement Income Security Act of 1974, if the investment decision is made by a
plan fiduciary, as defined in Section 3(21) of such act, which plan fiduciary is
either a bank, savings and loan association, insurance company or registered
investment adviser, or which employee benefit plan has total assets in excess of
$5,000,000 or, if a self-directed plan, with investment decisions made solely by
persons that are accredited investors;
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(e) The Purchaser is a private business development company as
defined in Section 202(a)(22) of the Investment Advisers Act of 1940;
(f) Any organization described in Section 501(c)(3) of the Internal
Revenue Code, corporation, Massachusetts or similar business trust, or
partnership, not formed for the specific purpose of acquiring the securities
offered, with total assets of $5,000,000;
(g) The Purchaser is a not-for-profit organization or other entity
exempt from income tax under Section 501(c)(3) of the Internal Revenue Code, not
formed with the specific purpose of acquiring the securities offered hereunder,
with total assets in excess of $5,000,000; or
(h) The Purchaser is a trust, with total assets in excess of
$5,000,000, not formed for the specific purpose of acquiring the securities
offered hereunder, whose purchase is directed by a person who has such
experience in business and financial matters as to enable such person to
evaluate the merits and risks of acquiring the securities offered hereunder,
(i) The Purchaser is an entity in which all of the equity owners
meet the qualifications set forth in (a), (b), (c), (d), (e), (f), (g) or (h)
above.
As used in this Section 4.2, the term "net worth" means the excess
of total assets over total liabilities. In computing net worth for purposes of
paragraph (b) above, the principal residence of the Purchaser must be valued at
cost (including cost of improvements), or at a recently appraised value
established by an institutional lender making a secured loan, in either case net
of encumbrances.
SECTION 5
CONDITIONS TO CLOSING
The Purchasers' and the Company's obligations to purchase and to sell
and issue, respectively, the Notes and Warrants at the Closing are subject to
the fulfillment on or prior to the Closing Date of the following conditions:
5.1. Representations and Warranties of Company Correct. The
representations and warranties made by the Company in Section 3 hereof shall be
true and correct when made, and shall be true and correct on the Closing Date
with the same force and effect as if they had been made on and as of said date.
5.2. Representations of Purchasers Correct. The representations made by
the Purchasers in Section 4 hereof shall be true and correct when made, and
shall be true and correct on the Closing Date with the same force and effect as
if they had been made on and as of said date.
5.3. Covenants and Laws. All covenants, agreements and conditions
contained in this Agreement to be performed by the Company on or prior to the
Closing Date shall have been performed or complied with in all respects and the
purchase and sale of the Notes and Warrants
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pursuant to the terms of this Agreement shall not violate any law or regulation
to which any of the Purchasers or the Company is subject.
SECTION 6
RESTRICTIONS ON TRANSFERABILITY OF SECURITIES;
COMPLIANCE WITH SECURITIES ACT
6.1. Certain Definitions. As used in this Section, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission
or any other federal agency at the time administering the Act.
"Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Restricted Securities" shall mean the Notes, the Warrants and
the Warrant Common required to bear the legend set forth in Section 6.3 hereof.
"Registrable Securities" means (i) the Warrant Common, and
(ii) any Common Stock issued in respect of such shares upon any stock split,
stock dividend, recapitalization or similar event, which shares, in each of the
foregoing instances, have not been sold to the public pursuant to Rule 144 under
the Act or otherwise.
The terms "register", "registered" and "registration" refer to
a registration effected by preparing and filing a registration statement in
compliance with the Act, and the declaration or ordering of the effectiveness of
such registration statement.
"Registration Expenses" shall mean all expenses incurred by
the Company in complying with Section 6.5 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration.
"Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale and any expenses incurred by a Holder
for its own benefit including all fees and disbursements of counsel to the
Holders participating in the offering (including the allocable portion of the
fees and disbursements of counsel to the Company, if such counsel is also
serving as counsel to the selling shareholders), except those expenses included
in the definition of Registration Expenses.
"Holder" shall mean any Purchaser or any permitted transferee
or assignee of such Purchaser pursuant to Section 6.10 who continues to hold of
record Warrants or Registrable Securities as of the applicable date.
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6.2. Restrictions on Transferability. The Notes, the Warrants and the
Warrant Common shall not be transferable except upon the conditions specified in
this Section, which conditions are intended to insure compliance with the
provisions of the Act. Each Purchaser will cause any proposed transferee of the
Notes, the Warrants or the Warrant Common held by a Purchaser to agree to take
and hold such Notes, Warrants or Warrant Common subject to the provisions and
upon the conditions specified in this Section.
6.3. Restrictive Legend. Each certificate representing (i) the Notes, (ii)
the Warrants, (iii) shares of Warrant Common, and (iv) any other securities
issued in respect of the Notes, the Warrants or the Warrant Common upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event, shall (unless otherwise permitted by the provisions of Section 6.4 below)
be stamped or otherwise imprinted with a legend in substantially the following
form (in addition to any legend required under applicable state securities
laws):
THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF
1933. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED OR HYPOTHECATED
IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO
OR AN OPINION OF COUNSEL, REASONABLY SATISFACTORY TO THE COMPANY, THAT
SUCH REGISTRATION IS NOT REQUIRED UNDER THE SECURITIES ACT OF 1933.
6.4. Notice of Proposed Transfers. Each holder of a certificate
representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 6.4. Prior to any proposed transfer
of any Restricted Securities (other than under circumstances described in
Section 6.5 hereof), the holder thereof shall give written notice to the Company
of such holder's intention to effect such transfer. Each such notice shall
describe the manner and circumstances of the proposed transfer in sufficient
detail, and, if requested by the Company, shall be accompanied (except in
transactions in compliance with Rule 144) by an unqualified written opinion of
legal counsel, which opinion shall be addressed to the Company and reasonably
satisfactory in form and substance to the Company's counsel, to the effect that
the proposed transfer of the Restricted Securities may be effected without
registration under the Act. The holder of such Restricted Securities shall be
entitled to transfer such Restricted Securities in accordance with the terms of
such legal opinion (if reasonably acceptable as above provided) and the terms of
the notice delivered by the holder to the Company. Each certificate evidencing
the Restricted Securities transferred as above provided shall bear the
appropriate restrictive legend set forth in Section 6.3 above, except that such
certificate shall not bear such restrictive legend if transferred in compliance
with Rule 144 or if the opinion of counsel referred to above is to the further
effect that such legend is not required in order to establish compliance with
any provisions of the Act.
6.5. Piggy-Back Registration Rights.
(a) Notice of Registration. Whenever the Company proposes to
register any of its Common Stock under the Act for a public offering for cash,
whether as a primary or secondary offering (or pursuant to the registration
rights granted to other holders of securities of the Company),
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other than a registration relating to employee benefit plans or in connection
with a Rule 145 transaction or equivalent, the Company will:
(i) give to each Holder at the address indicated on the books
of the transfer agent written notice of the intent to so register its
securities; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests delivered to the Company or its legal counsel by any Holder or
Holders within 15 days after the date of mailing of such written notice by the
Company, except as set forth in subparagraphs (b) and (c) below.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to subparagraph (a)(i) of this Section. In such event the right of any
Holder to registration pursuant to this Section shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company or by holders exercising demand registration rights, as the case may be.
Notwithstanding any other provisions of this Section, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten, the underwriter may exclude some or all Registrable
Securities from such registration and underwriting. The Company shall so advise
all Holders, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders requesting inclusion in such proportion, as nearly as practicable, as
the respective amounts of Registrable Securities entitled to inclusion in such
registration held by such Holders at the time of filing the registration
statement bear to the aggregate amount of such securities held by all such
Holders. To the extent that other persons holding the Company's securities may
possess registration rights with respect to such securities (whether heretofore
or hereafter granted), the total number of shares to be sold by selling
shareholders under a registration statement, if less than the total amount
requested to be sold by such persons, shall be allocated on a pro rata basis
according to the total number of shares held by such persons which are entitled
to registration rights with respect to such offering, subject to the prior
rights set forth in subsection (c) hereof. If any Holder disapproves of the
terms of any such underwriting, he may elect to withdraw therefrom at any time
prior to filing of the registration statement by written notice to the Company
and the underwriter. Any Registrable Securities excluded or withdrawn from such
underwriting shall not be included in such registration.
(c) Prior Rights. Certain holders (the "Prior Holders") of the
Company's Common Stock may continue to have registration rights granted pursuant
to a Stock Purchase Agreement dated as of April 14, 1977 (the "Prior
Agreement"). In the event that a registration is effected pursuant to the Prior
Holders' demand rights set forth in Section 6.5 of the Prior Agreement,
securities held by the Holders and others desiring to sell securities in the
registration may only be included to the extent that the amount of securities
being registered for the account of the Prior
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Holders will not be diminished. In the event of a registration which is not
initiated by a demand of the Prior Holders but with respect to which such Prior
Holders have piggyback rights under Section 6.6 of the Prior Agreement, the
securities to be sold by the Prior Holders may not be reduced to less than
33-1/3% of the total amount of securities being registered. The Company has also
granted registration rights similar to those provided herein to certain
investors pursuant to a Subordinated Note and Warrant Purchase Agreement dated
March 1996.
6.6. Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to this
Section shall be borne by the Company; and all Selling Expenses shall be borne
by the Holders of the securities so registered for whose account such expenses
were incurred.
6.7. Registration Procedures. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Section,
the Company will advise each participating Holder as to the filing of the
registration statement with the Commission and the effective date thereof. The
Company shall also advise each participating Holder, concurrently with the
notice of effectiveness, of the jurisdictions in which the securities being
registered have been qualified for sale to the public. In connection with each
registration other than in connection with a firm commitment underwritten public
offering, at its expense, the Company will:
(a) Keep such registration, qualification or compliance effective
for a period of 90 days after effectiveness with the Commission or until the
Holder or Holders have completed the distribution described in the registration
statement relating thereto, whichever first occurs; and
(b) Furnish such number of prospectuses and other documents incident
thereto as a Holder from time to time may reasonably request.
6.8. Indemnification.
(a) The Company will indemnify each participating Holder, each of
its officers and directors and partners, and each person controlling such
Holder, with respect to which registration, qualification or compliance has been
effected pursuant to this Section 6, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other document (including any related
registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation by the
Company of any rule or regulation promulgated under the Act applicable to the
Company and relating to action or inaction required of the Company in connection
with any such registration, qualification or compliance, and will reimburse each
such Holder, each of its partners, officers and directors, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, provided that the Company will not be liable in any such
case to the extent that any such claim, loss, damage, liability or action arises
out of or is based on any untrue statement or omission
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based upon written information furnished to the Company by an instrument duly
executed by such Holder or underwriter.
(b) Each Holder will, if Registrable Securities held by such Holder
are included in the securities as to which such registration, qualification or
compliance is being effected, indemnify the Company, each of its directors and
officers, each legal counsel and independent accountant of the Company, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of the Act, and each other such Holder, each of its partners, officers
and directors and each person controlling such Holder, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
partners, directors, officers, persons, underwriters or control persons for any
legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder; provided, however, that the obligations of such
Holders hereunder shall be limited to an amount equal to the proceeds to each
such Holder from the sale of Registrable Securities as contemplated herein.
(c) Each party entitled to indemnification under this Section (the
"Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for such Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section. No Indemnifying Party, in the defense of any
such claim or litigation, shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which does
not include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in respect
to such claim or litigation.
(d) Notwithstanding the foregoing, if the Registrable Securities are
to be distributed by means of an underwritten public offering, to the extent
that the provisions on indemnification and contribution contained in the
underwriting agreement entered into in connection with such underwriting are in
conflict with the foregoing provisions, the provisions in the underwriting
agreement shall be controlling.
6.9. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders
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and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 6.
6.10. Transfer of Piggy-Back Registration Rights. The rights to cause the
Company to register a Purchaser's Registrable Securities granted hereunder by
the Company, may be assigned to a transferee or assignee of 25,000 or more
shares of Warrant Common (as adjusted to reflect stock splits, stock dividends
and similar events) provided that the Company is given advance written notice by
such Purchaser of said transfer and of the intent to transfer such Purchaser's
registration rights together with such securities, stating the name and address
of said transferee or assignee and identifying the Registrable Securities with
respect to which such registration rights are being assigned, and provided,
further, that no transferee or assignee of any of such Restricted Securities
shall be entitled to the registration rights provided in this Section if such
transferee or assignee would be permitted to sell all of the Restricted
Securities so transferred or assigned to him within one three-month period
pursuant to Rule 144 promulgated under the Act.
6.11. "Market Stand-off" Agreement. Any Holder of Registrable Securities
being registered under this Section 6 agrees, if requested by the Company or an
underwriter of such registered public offering, not to sell or otherwise
transfer or dispose of any Common Stock (or other securities) of the Company
held by such Holder during a period of up to 180 days following the effective
date of the registration statement of the Company filed under the Act, provided
that all executive officers and directors of the Company enter into similar
agreements. Such agreement shall be in writing in the form satisfactory to the
Company and such underwriter, and may be included in the underwriting agreement.
The Company may impose stop-transfer instructions with respect to the securities
subject to the foregoing restriction until the end of the required stand-off
period.
6.12. Termination of Registration Rights. The rights granted under this
Section shall terminate as to any Purchaser or permissible transferee or
assignee of such rights if such person would be permitted to sell all of the
Restricted Securities held by such person within one three-month period pursuant
to Rule 144 promulgated under the Act.
SECTION 7
MISCELLANEOUS
7.1. Agreement Is Entire Contract. This Agreement, the Exhibits hereto and
the other documents delivered pursuant hereto constitute the entire contract
between the parties hereto and no party shall be liable or bound to the other in
any manner by any warranties, representations or covenants except as
specifically set forth herein. The terms and conditions of this Agreement shall
inure to the benefit of and be binding upon the respective successors and
assigns of the parties hereto. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
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7.2. Amendment by Agreement. Any provision of this Agreement may be
amended or waived by a written instrument signed by the Company and by a
majority in interest of the holders of the Warrants (on an as-if-exercised
basis) and the Warrant Common.
7.3. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered, sent by facsimile or mailed by registered or
certified mail, postage prepaid, or by recognized overnight courier or personal
delivery at the respective addresses or facsimile phone number of the parties as
set forth below. Any party hereto may by notice so given change its address for
future notice hereunder. Notice shall conclusively be deemed to have been given
when received.
If to a Purchaser: At the address set forth in the
Schedule of Purchasers
If to Company: FAFCO, Inc.
435 Otterson Drive
Chico, CA 95928
Attention: Alex N. Watt, Executive
Vice President
With a copy to: Ann Yvonne Walker, Esq.
Wilson, Sonsini, Goodrich & Rosati, P.C.
650 Page Mill Road
Palo Alto, CA 94304
Each of the above addressees may change its address for purposes of this
paragraph by giving to the other addressee notice of such new address in
conformance with this paragraph.
7.4. Agent's Fees.
(a) The Company hereby agrees to indemnify and to hold each
Purchaser harmless of and from any liability for commission or compensation in
the nature of an agent's fee to any broker or other person or firm (and the
costs and expenses of defending against such liability or asserted liability)
for which the Company, or any of its employees or representatives, is
responsible.
(b) Each Purchaser (i) represents and warrants that no finders or
brokers have been retained in connection with the transactions contemplated by
this Agreement, and (ii) hereby agrees to indemnify and to hold the Company and
the Purchasers (other than himself) harmless of and from any liability for any
commission or compensation in the nature of an agent's fee to any broker or
other person or firm (and the costs and expenses of defending against such
liability or asserted liability) for which such Purchaser, or any of his
employees or representatives, are responsible.
7.5. Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, such provision shall be severed from this
Agreement as if such provision were not included and the balance of this
Agreement shall be enforceable in accordance with its terms.
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7.6. Expenses. The Company and each Purchaser shall bear its own expenses
and legal fees incurred on its behalf with respect to this Agreement and the
transactions contemplated hereby.
7.7. California Corporate Securities Law. THE SALE OF THE SECURITIES WHICH
ARE THE SUBJECT OF THIS AGREEMENT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER
OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES
OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO
SUCH QUALIFICATION, OR EXEMPTION THEREFROM, IS UNLAWFUL. THE RIGHTS OF ALL
PARTIES TO THIS AGREEMENT ARE EXPRESSLY CONDITIONED UPON SUCH QUALIFICATION, OR
EXEMPTION THEREFROM, BEING OBTAINED.
7.8. Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California.
7.9. Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date first above written.
FAFCO, INC. PURCHASERS:
By:
-------------------------------- ---------------------------------
Title:
-------------------------------
EXHIBIT A
SCHEDULE OF PURCHASERS
NAME AND ADDRESS OF PURCHASER LOAN AMOUNT WARRANT SHARES
----------------------------- ----------- --------------
Leo Helzel $ 100,000
5550 Redwood Ave.
Oakland, CA 94619
Freeman & Diana Ford $ 100,000
172 Toyon Road
Atherton, CA 94027
Murray Stoltz $ 50,000
21 Hemlock Road
Bronxville, NY 10708
Richard O. Rhodes $ 50,000
4440 18th Street
San Francisco, CA 94114
Wally Niemasik, Jr. $ 50,000
6 Fennwood Drive
Atherton, CA 94027