AMENDED AND RESTATED
STOCKHOLDERS' AGREEMENT
by and among
Nicholas Anderson
Anthony Caputo
Philip Elkus
Stephen Shulman
Performance Control, LLC
Summit Energy Ventures, LLC
and
Power Efficiency Corporation
Dated: June 14, 2002
STOCKHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
1. CORPORATE GOVERNANCE.................................................2
1.1. Board of Directors............................................2
1.2. Initial Officers of the Company...............................5
1.3. Certain Actions Requiring Majority Stockholder Approval.......5
2. TRANSFERS OF SHARES..................................................6
2.1. Certain Restrictions..........................................6
2.2. Right of First Refusal........................................7
2.3 "Co-Sale" Rights..............................................8
2.4. "Tag Along" Rights............................................9
2.5 Rights Regarding Subsequent Private Equity Financings........10
2.6. Legends; Shares Subject to this Agreement....................11
3. REPRESENTATIONS AND COVENANTS.......................................12
3.1 Representation of Stockholders...............................12
3.2 Summit Warrant...............................................12
4. MISCELLANEOUS.......................................................12
4.1. Legends on Stock Certificates................................12
4.2. Term.........................................................13
4.3. Injunctive Relief............................................13
4.4. Notices......................................................13
4.5. Successors and Assigns.......................................15
4.6. Company Information..........................................15
4.7. Governing Law................................................17
4.8. Headings.....................................................17
4.9. Entire Agreement; Amendment..................................17
4.10. No Waiver....................................................17
4.11. Undertaking..................................................17
4.12. Counterparts.................................................17
ii
STOCKHOLDERS' AGREEMENT
AGREEMENT dated as of June 14, 2002 by and among Nicholas
Anderson, residing at 1536 208th Street, Bayside, NY 11360 ("Nicholas"), Anthony
Caputo, residing at 1155 Colonial Way, Bridgewater, NJ 08807("Anthony"), Philip
Elkus, residing at 2488 Orchard Lake Road, Farmington Hills, MI 48334
("Philip"), Stephen Shulman, residing at 5807 Fox Hollow Court, Ann Arbor, MI
48105 ("Stephen"), Performance Control, LLC, a Michigan limited liability
company having an address at c/o Seyburn, Kahn, Ginn, Bess & Serlin 2000 Town
Center Suite 1500, South Field, MI 48075 ("Percon"), Summit Energy Ventures,
LLC, a Delaware limited liability company with offices at 423 Second Avenue,
Ext. S, Metropole Building, Suite 31, Seattle, WA 98104 ("Summit"), and Power
Efficiency Corporation, a Delaware corporation [with temporary offices at 4220
Varsity Drive, Suite E, Ann Arbor, MI 48108] (the "Company"). Nicholas and
Anthony are sometimes collectively referred to herein as (the "Founders"), and
Philip, Stephen and Percon are sometimes collectively referred to herein as (the
"Percon Group"). Each of the parties hereto (other than the Company) and any
other person who shall hereafter become a party to or agree to be bound by the
terms of this agreement (the "Agreement") is sometimes referred to as a
"Stockholder" and all of such parties are sometimes referred to as the
"Stockholders."
W I T N E S S E T H:
WHEREAS, the Company and Percon are parties to an Asset Agreement dated
as of August 7, 2000 (the "Asset Agreement");
WHEREAS, in connection with and in consideration of the Asset
Agreement, the Company, the Founders and Percon entered into a Stockholders'
Agreement dated as of August 7, 2000 (the "Prior Stockholders' Agreement");
WHEREAS, the Company and Summit are parties to a Series A Convertible
Preferred Stock Purchase Agreement of even date herewith (the "Stock Purchase
Agreement");
WHEREAS, immediately prior to the closing of the Stock Purchase
Agreement there were 6,573,120 shares of the Company's common stock, $0.001 par
value per share ("Common Stock") outstanding and no shares of the Company's
preferred stock, $0.001 par value per share ("Preferred Stock" and, together
with the Common Stock, "Company Stock") outstanding;
WHEREAS, the Company has filed a Certificate of Designation of Series A
Convertible Preferred Stock with the Secretary of State of the state of Delaware
(the "Certificate of Designation") to designate two new series of preferred
stock (the "Series A-1 Convertible Preferred Stock" and the "Series A-2
Convertible Preferred Stock") each with voting rights as set forth in the
Certificate of Designation;
WHEREAS, the execution and delivery of this Agreement is a condition to
the closing of the Stock Purchase Agreement;
WHEREAS, pursuant to the Stock Purchase Agreement, Summit will be
issued shares of Series A-1 Convertible Preferred Stock ;
WHEREAS, as of the closing of the Stock Purchase Agreement, the
holdings of Company Stock by the Stockholders (the shares of Common Stock and
Series A-1 Convertible Preferred Stock are collectively referred to herein as
the "Shares") will be as set forth in Exhibit A hereto.
WHEREAS, pursuant to the Stock Purchase Agreement, the Company will
issue to Summit a warrant to purchase the number of shares of Common or
Preferred Stock which would enable them to acquire a fifty-one percent (51%)
interest in the Company (the "Warrant") pursuant to the terms and conditions set
forth in the Warrant.
WHEREAS, the parties hereto deem it in their best interests and in the
best interests of the Company to provide consistent and uniform management for
the Company and to regulate certain of their rights in connection with their
interests in the Company, and desire to enter into this Agreement in order to
effectuate those purposes;
WHEREAS, the parties hereto also desire to restrict under certain
circumstances the sale, assignment, transfer, encumbrance or other disposition
of the Shares, including issued and outstanding Shares as well as Company Stock
which may be issued hereafter, or which may become issuable pursuant to the
exercise of options or warrants hereafter granted and to provide for certain
rights and obligations with respect thereto as hereinafter provided; and
WHEREAS, this Agreement amends and restates, in its entirety, the Prior
Stockholders' Agreement.
NOW, THEREFORE, in consideration of the premises and of the covenants,
terms and conditions herein contained, the parties hereto mutually agree as
follows:
1. CORPORATE GOVERNANCE
1.1. Board of Directors.
(a) Number of Directors. The Company shall be governed by a
Board of Directors consisting of eight (8) members. The number of members may
not be increased or decreased except as provided in Section 1.3.
(b) Nomination and Election of Directors. The following
procedures shall govern the nomination and election of directors of the Company:
(i) For so long as the Founders shall beneficially own at
least 90% of the Shares held by them on the date hereof as referenced
Exhibit A, they shall be entitled to nominate and have elected three
(3) directors acceptable to them in their sole discretion (the
"Founders Directors");
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(ii) For so long as it shall beneficially own at least 90% of
the Shares held by it on the date hereof as referenced in Exhibit A,
Percon shall be entitled to nominate and have elected two (2) directors
(the "Percon Directors");
(iii) For so long as it shall beneficially own at least 90% of
the Shares held by it on the date hereof as referenced in Exhibit A,
Summit shall be entitled to nominate and have elected three (3)
directors (the "Summit Directors") and;
(iv) At least one of the Summit Directors, one of the Percon
Directors and one of the Founders Directors must have generally
acceptable knowledge and experience in the types of financial and
operating issues that are likely to face the Company and also satisfy
the definition of "independent director" as defined in NASDAQ Stock
Market Rule 4200(a)(14) of the NASD Manual.
(c) Initial Board of Directors. The initial Board of Directors
of the Company shall consist of the following eight members:
--------------------------------- -----------------------------
Name of Director Type of Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Nicholas Anderson Founders Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Scott Straka Founders Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Stephen Shulman Percon Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Leonard Bellezza Percon Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
Raymond J. Skiptunis Founders Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
TBD Summit Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
TBD Summit Director
--------------------------------- -----------------------------
--------------------------------- -----------------------------
TBD Summit Director
--------------------------------- -----------------------------
(d) Removal of Directors. Except as otherwise provided in this Section
1.1(d), each holder of Shares agrees not to take any action or to cause the
Company to take any action to remove, with or without cause, any director of the
Company. Notwithstanding the foregoing, Percon shall at all times have the right
to recommend the removal, with or without cause, of any of the Percon Directors;
the Founders and the Founders Directors shall have the right to recommend the
removal, with or without cause, of any Founders Director; and Summit and the
Summit Directors shall at all times have the right to recommend the removal,
with or without cause, of any Summit Director. If the removal of any director is
recommended as provided in the immediately preceding sentence, then the
Stockholders shall immediately cause a special meeting of stockholders to be
held, or shall act by written consent without a meeting, for the purpose of
removing such director, and each Stockholder agrees to vote all its Shares, or
to execute a written consent in respect of all such Shares, for the removal of
such director.
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(e) Vacancies. At any time a vacancy exists on the Board of Directors,
the remaining directors (if any) representing the Stockholder whose Board seat
is vacant shall have the right to designate and elect the person to fill such
vacancy. If no directors representing the Stockholder remain as a result of such
vacancy, the Stockholder shall have the right to designate and elect the person
to fill such vacancy. To the extent required by law, (i) all directors on the
Board and (ii) all holders of Shares, shall vote in favor of electing such
designated director to fill the vacancy and all such persons shall take the
necessary actions to amend the by-laws to reflect the provisions of this
Agreement.
(f) Covenant to Vote. Each of the Stockholders agrees to vote, in
person or by proxy, all of the Shares beneficially owned by such Stockholder, at
any annual or special meeting of stockholders of the Company called for the
purpose of voting on the election of directors or by consensual action of
stockholders without a meeting with respect to the election of directors, in
favor of the election of the director(s) nominated by Percon, the Founders and
Summit, as the case may be, in accordance with Section 1.1(b) hereof. Each
Stockholder shall vote the Shares owned by such Stockholder and shall take all
other actions necessary to ensure that the Company's Articles of Incorporation
and By-Laws do not at any time conflict with the provisions of this Agreement.
(g) Quorum. No action shall be taken at any meeting of the Board of
Directors of the Company, except for the adjournment of such meeting, unless at
least five (5) Directors shall be present. For purposes of a quorum, any
director may be present at any meeting in person, by means of telephone or
similar communications equipment by means of which each person participating in
the meeting can hear and speak to each other or, to the extent permitted under
applicable law, by proxy or by nominee director. No action shall be taken at any
meeting of stockholders of the Company unless a majority of the Shares
beneficially owned by the Founders, the Percon Group, and Summit are represented
at the meeting, in person or by proxy.
(h) Committees of the Board. The Board shall appoint such committees,
including an audit committee and a compensation committee, as shall be
permissible under Section 141 of the General Corporation Law of the State of
Delaware and as the Board shall deem reasonable and necessary. A majority of the
members of the audit committee, and at least half of the members of the
compensation committee must consist of Independent Directors (as defined in Rule
4200(a)(14) of the NASD Regulations). If the Board has or creates an executive
committee, the Committee shall be comprised of at least one Percon Director, one
Summit Director and one Founders Director.
(i) Special Meetings of Directors. Special meetings of the Board may be
called by the President of the Company and shall be called by the President of
the Company or the Secretary of the Company upon the written request of any
director.
(j) Board of Directors and Officers of Subsidiaries. The composition of
the board of directors and officers of each subsidiary of the Company shall
require the approval of the Percon Directors, the Founders Directors and the
Summit Directors.
(k) CEO Board Position. For so long as Stephen Shulman shall remain the
Company's CEO, Percon shall nominate Stephen Shulman to fill one (1) of the
director positions that Percon is entitled to nominate. If Stephen Shulman
ceases to be the Company's CEO, the Stockholders agree to increase the number of
Company directors from eight (8) to nine (9) members and to elect the new CEO to
the newly created board position.
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1.2. Initial Officers of the Company. Each of the Stockholders agrees
to cause the Board of Directors of the Company initially to appoint the
following persons as officers of the Company in the following positions:
-------------------------------- -------------------------------
Office Name
-------------------------------- -------------------------------
-------------------------------- -------------------------------
President Stephen Shulman
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Chief Executive Officer Stephen Shulman
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Chief Technology Officer Nicholas Anderson
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Chief Financial Officer Raymond J. Skiptunis
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Treasurer/Controller/Secretary Arthur N. Smith
-------------------------------- -------------------------------
-------------------------------- -------------------------------
Assistant Secretary Gerard S. DiFiore
-------------------------------- -------------------------------
If any of such officers are unable to serve, or cease for any reason to be an
officer of the Company, their successors shall be appointed by the Board of
Directors of the Company. The parties hereto agree that the Company should enter
into employment agreements with each officer mentioned above to assure the
Company of such officer's services for a fixed period of time.
1.3. Certain Actions Requiring Majority Stockholder. For so long as the Percon
Group, the Founders and Summit shall collectively own shares constituting at
least 40% of the Common Stock then outstanding (including the Series A-1
Convertible Preferred Stock on an as converted basis) without either (A) the
majority of the Founders Directors, the Summit Directors and the Percon
Directors including an affirmative vote of at least one of the Percon Directors
and one of the Summit Directors, or (B) the prior affirmative vote of at least
75% of the Shares then beneficially owned by the Founders, the Percon Group and
Summit taken collectively (either of (A) or (B) being referred to as a "Majority
Vote"), the Company shall not, and the Percon Directors, the Founders Directors
and the Summit Directors shall use their respective best efforts to preclude the
Company, directly or indirectly (including through any Subsidiaries (as
hereinafter defined) of the Company) from taking the following actions:
(a) amend or modify on behalf of the Company the terms, provisions or
conditions of this Agreement or extend the term of this Agreement; or
(b) alter the size of the Board of Directors except in connection with
a financing that yields a total enterprise value of the Company which is not
less than $8,000,000.
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2. TRANSFERS OF SHARES
2.1. Certain Restrictions.
(a) Notwithstanding anything to the contrary set forth herein, no
Stockholder or Transferee (as hereinafter defined in Section 2.5) shall directly
or indirectly sell, assign, pledge, encumber, hypothecate or otherwise dispose
of including any disposition by way of a statutory merger or consolidation
involving a Stockholder that is not a natural person (collectively a "Transfer")
any Shares at any time, unless any such Transfer shall have been effected in
accordance with the terms of this Agreement.
(b) No Stockholder shall Transfer any Shares at any time if such action
would constitute a violation of any federal or state securities or blue sky laws
or a breach of the conditions to any exemption from registration of Shares under
any such laws or a breach of any undertaking or agreement of such Stockholder
entered into pursuant to such laws or in connection with obtaining an exemption
thereunder. Summit agrees that any Shares to be received pursuant to the Stock
Purchase Agreement shall bear appropriate legends restricting the sale or other
transfer of such stock in accordance with applicable federal or state securities
or blue sky laws, as set forth in Section 4.1 hereof.
(c) Except as otherwise provided in this Agreement, no Stockholder
shall grant any proxy or enter into or agree to be bound by any voting trust
with respect to any Shares nor shall any Stockholder enter into any stockholder
agreements or arrangements of any kind with any person with respect to any
Shares inconsistent with the provisions of this Agreement (whether or not such
agreements and arrangements are with other Stockholders or holders of Shares who
are not parties to this Agreement), including agreements or arrangements with
respect to the acquisition, disposition or voting (if applicable) of any Shares,
nor shall any Stockholder act, for any reason, as a member of a group or in
concert with any other persons in connection with the acquisition, disposition
or voting (if applicable) of any Shares in any manner which is inconsistent with
this Agreement.
(d) None of the restrictions contained in this Agreement with respect
to Transfers of Shares, including without limitation the Right of First Refusal
(Section 2.2) and Tag-Along Rights (Section 2.4), shall apply to Transfers of
Shares to (i) any Affiliate of a Stockholder (an "Affiliate Transferee"); (ii)
to limited partners or other investors in Summit; or (iii) to Northwest Power
Management, the general partner of Summit or other funds affiliated with
Northwest Power Management; or (iv) to Steven Strasser or other funds affiliated
with or managed by Steven Strasser or (v) to members of a Stockholder's
immediate family or his lineal descendants (a "Family Transferee"). Any such
Affiliate Transferee or Family Transferee shall be considered a "Permitted
Transferee" for purposes of this Agreement. Only in the event such Affiliate
Transferee or Family Transferee shall become an Affiliate of the Company as a
result of any permitted transfer hereunder, such Affiliate Transferee or Family
Transferee shall agree in writing to be bound by the terms of this Agreement.
For the purposes of this Agreement, an Affiliate shall have the same meaning as
such term is defined in Rule 12b-2 under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"))
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(e) During the term of this Agreement Summit may not transfer the
Warrant to any person other than (i) any Affiliate of Summit; (ii) to limited
partners or other investors in Summit; or (iii) to Northwest Power Management,
the general partner of Summit or other funds affiliated with Northwest Power
Management; or (iv) to Steven Strasser or other funds affiliated with or managed
by Steven Strasser
2.2. Right of First Refusal.
(a) If at any time any Stockholder desires to
Transfer any Shares (a "Selling Stockholder") now or hereafter beneficially
owned by it to any other person (other than (i) pursuant to a registered public
offering under the Securities Act; (ii) a public resale under Securities Act
Rule 144 effected in accordance with Section 2.2(d) hereof; or (iii) a Transfer
of Shares to an Affiliate Transferee or a Family Transferee) such Selling
Stockholder shall before effecting such Transfer first give each other
Stockholder a written notice (a "Seller's Notice") stating the Selling
Stockholder's desire to make such Transfer, the identity of the party to whom
such Shares are proposed to be transferred (the "ROFR Transferee"), the number
of Shares proposed to be transferred (the "Offered Shares"), the cash price (the
"Offer Price") agreed upon between the Selling Stockholder and the ROFR
Transferee at which the Stockholder proposes to sell the Offered Shares (it
being understood and agreed that the Selling Stockholder may not Transfer, sell
or otherwise dispose of Shares except for cash) and any other material terms
proposed for the sale of such Offered Shares.
(b) Upon receipt of the Seller's Notice, a
Stockholder shall have an option for a period of 10 days from the Stockholder's
receipt of the Seller's Notice from the Selling Stockholder to elect to purchase
his, her or its respective pro rata share of the Offered Shares at the Offer
Price and subject to the same material terms and conditions as described in the
Seller's Notice. Each Stockholder may exercise such purchase option and,
thereby, purchase all or any portion of his, her or its pro rata share of the
Offered Shares, by notifying the Selling Stockholder and the Company in writing
(the "Buyer's Notice"), before expiration of the 10 day period as to the number
of such shares which he, she or it wishes to purchase. Each Stockholder's pro
rata share of the Offered Shares shall be a fraction of the Offered Shares, the
numerator of which shall be: 1) the number of shares of Common Stock issuable
upon conversion of the Series A-1 Convertible Preferred Stock held by such
Stockholder, plus 2) the number of shares of Common Stock held by such
Stockholder on the date of the Seller's Notice, and the denominator of which
shall be: 1) the number of shares of Common Stock issuable upon conversion of
the Series A-1 Convertible Preferred Stock held by all Stockholders, plus 2) the
number of shares of Common Stock held by all Stockholders on the date of the
Seller's Notice. Each Stockholder shall have a right of reallotment such that,
if any other Stockholder fails to exercise the right to purchase its full pro
rata share of the Offered Shares, the other participating Stockholders may
exercise an additional right to purchase, on a pro rata basis, the Offered
Shares not previously purchased. Each Stockholder shall be entitled to apportion
Offered Shares to be purchased among its partners and affiliates, provided that
such Stockholder notifies the Selling Stockholder of such allocation. If a
Stockholder gives the Selling Stockholder notice that it desires to purchase its
pro rata share of the Offered Shares and, as the case may be, its reallotment,
then payment for the Offered Shares shall be by check or wire transfer, against
delivery of the Offered Shares to be purchased at a place agreed upon between
the parties and at the time of the scheduled closing therefore, which shall be
no later than 45 days after the Selling Stockholder's receipt of the Buyer's
Notice, unless the Seller's Notice contemplated a later closing with the ROFRT
Transferee(s).
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(c) If the applicable Seller's Notice shall
be duly given, and if any Stockholders shall not have exercised their option to
purchase (or for their designee to purchase) the Offered Shares at the Offer
Price within 10 days of the date Selling Stockholder gave the Seller's Notice,
then, subject to the other provisions of this Agreement, the Selling Stockholder
shall be free for a period of 90 days from the 10th day following the date of
the last Seller's Notice to sell the Offered Shares not purchased by the
Stockholders' exercise of the options described in this Section 2.2 at a price
not less than 90% of the Offer Price and on terms and conditions not materially
more favorable to the transferee, taken as a whole, than those set forth in the
Seller's Notice. In any such sale the Transferee must agree to become a party to
and be bound by the terms of this Agreement.
(d) All other provisions of this Section 2.2
notwithstanding, any Stockholder intending to make a public resale of Shares
pursuant to Securities Act Rule 144, following satisfaction of the holding
period and other requirements thereof, may do so provided:
(i) Seller's Notices are provided to the Stockholders as
in Section 2.2(a);
(ii) the Stockholder's options are not exercised within 10
days;
(iii) the sale occurs within 100 days after the date on
which the first Seller's Notice was received.
(e) If the Offered Shares are not sold by the
Selling Stockholder pursuant to Section 2.2(c) or 2.2(d) above, upon the
expiration of the 90 day period contemplated by Section 2.2(c) and Section
2.2(d), the Offered Shares shall again become subject to the right of first
refusal provisions of this Section 2.2.
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2.3 "Co-Sale" Rights.
(a) If any of the Founders or Percon intend to
seek to sell or otherwise transfer all or a portion of their Shares to any other
person or persons (other than a Permitted Transferee) and the other Stockholders
have not fully exercised their right to purchase pursuant to Section 2.2 herein,
the Founders or Percon (as applicable) shall first deliver to Summit a written
notice (the "Co-Sale Notice") advising Summit of their intention to sell their
Shares and specifying the terms and conditions on which the Founders or Percon
(as applicable) propose to sell such Shares. Summit shall have the right,
exercisable upon written notice to the Founders within 10 days following the
receipt of the Co-Sale Notice, to participate in the sale of the Shares by any
Founder or Percon (as applicable). To the extent that Summit exercises such
right of participation the number of Shares which the Founder or Percon (as
applicable) may sell pursuant to the Co-Sale Notice shall be correspondingly
reduced. Summit may sell all or any part of that number of Shares that is not in
excess of the product obtained by multiplying (i) the number of Shares
identified in the Co-Sale Notice by (ii) a fraction, the numerator of which is
the number of Shares at the time owned by Summit and the denominator of which is
the total of the number of Shares outstanding. For the purpose of making such
computation, Summit shall be deemed to own the number of Shares which are
issuable upon conversion of the Series A-1 Convertible Preferred Stock held by
Summit. If within 10 days of receiving the Co-Sale Notice Summit does not send
notice to the Founders or Percon (as applicable) pursuant to this Section
2.3(a), then the Founders or Percon (as applicable) who sent the Co-Sale Notice
shall be free to sell the number of Shares identified in the Co-Sale Notice, but
only within 90 days following the expiration of the 10 day notice period,
provided such sale is made on terms and conditions no more favorable to the
Founder than the terms and conditions specified in the Co-Sale Notice. (b)
Summit's right to participate in any sale or transfer by a Founder or Percon (as
applicable) shall not pertain or apply to (a) any transfer to such Founder's or
Percon's spouse, siblings, ancestors or descendents or to any partnership, trust
or entity the sole owners of which are the Founder or Percon (as applicable) or
his spouse, siblings, ancestors or descendents (b) any sale of Shares to the
Company pursuant to the exercise by the Company of any rights of repurchase of
stock under any restricted stock purchase agreement, or (any transfer or
transfers that, in the aggregate, involve no more than ten per cent (10%) of the
Shares held by the Founder or Percon (as applicable) provided that the
transferring Founder or Percon (as applicable) shall inform Summit of such
transfer prior to effecting it and if such sale is not made on the open market,
the transferee agrees to be bound by the terms of this Agreement.
2.4. "Tag Along" Rights.
(a) If Summit intends to seek to sell or otherwise
transfer a Control Portion (as hereinafter defined) of their Shares to any other
person or persons (other than a Permitted Transferee) Summit shall first deliver
to the Percon Group and the Founders a written notice (the "Summit Tag Along
Notice") advising the Percon Group and the Founders of Summit intention to sell
a Control Portion of their Shares and specifying the price at which Summit
proposes to sell such Shares and any other material terms proposed for the sale.
Within 10 days after the date of the Summit Tag Along Notice, the Percon Group
and the Founders must each deliver to Summit a written notice (the "Percon Group
Tag Along Notice" and the "Founders Tag Along Notice," respectively) indicating
whether the Percon Group or the Founders, as applicable, shall require Summit to
have any of the Percon Group's or the Founders' Shares included in the proposed
sale in the same proportion as Summit propose to sell or transfer. The Percon
Group's and the Founders' determination to participate in such sale, as
evidenced by the Percon Group Tag Along Notice and the Founders Tag Along
Notice, shall be final and irrevocable, provided such sale is made on terms and
conditions no more favorable to Summit than the terms and conditions specified
in the Summit Tag Along Notice. The Percon Group's or the Founders determination
not to participate in such sale, as evidenced by the Percon Group Tag Along
Notice, the Founders Tag Along Notice, and/or either party's failure to timely
deliver such notices, shall be final and irrevocable and the Percon Group and/or
the Founders shall be deemed to have waived any right to participate in any such
sale.
9
(b) For purposes of this Section 2.4, a "Control
Portion" of the Summit Shares shall mean that number of Shares which, when
effectively transferred to another person (other than an Affiliate of Summit)
shall result in such person beneficially owning on a fully diluted basis a
greater number of Shares than any other Stockholder and its Affiliates.
2.5 Rights Regarding Subsequent Private Equity Financings.
(a) Right to Purchase. The Company shall, prior to
any issuance by the Company of its securities to third parties for cash in a
private transaction, other than debt securities with no equity feature, offer to
each Stockholder by written notice the right, for a period of fifteen (15) days,
to purchase such Stockholder's pro rata share of such securities proposed to be
issued for cash to a third party or parties (the "Offered Securities") at an
amount equal to the price for which such Offered Securities are to be issued;
provided, however, that the preemptive rights pursuant to this Section 2.5 shall
not apply to securities issued in any of following (each an "Exempted
Transaction"):
(i) pursuant to a split, subdivision or recapitalization
of the outstanding shares of Common Stock;
(ii) as a dividend;
(iii) upon conversion of any of the Preferred Stock;
(iv) upon exercise of the Warrant;
(v) upon exercise or conversion of any debenture,
warrant, option or other convertible security
outstanding on the date of the Closing of the Stock
Purchase Agreement;
(vi) the issuance of the Reserved Option Shares as such
term is defined in the Certificate of Designation; or
(vii) in a Qualified Public Offering or other public
offering of securities by the Company.
10
(b) Notice, Limitations. The Company's written
notice to the Stockholders shall describe the securities proposed to be issued
by the Company and specify the number, price and payment terms. Each Stockholder
may accept the Company's offer as to the full number of securities offered to it
("Allocable Share") or any lesser number, by written notice thereof given by it
to the Company prior to the expiration of the aforesaid fifteen (15) day period,
in which event the Company shall promptly sell and such holder shall buy, upon
the terms specified, the number of securities agreed to be purchased by such
holder. The Company shall be free at any time prior to ninety (90) days after
date of its notice of offer to the Stockholders, to offer and sell, to any such
third party or parties the Offered Securities not agreed by the Stockholders to
be purchased by them, at a price and on payment terms no less favorable to the
Company than those specified in such notice of offer to the Stockholders.
However, if such third party sale or sales are not consummated within such
ninety (90) days period, the Company shall not sell such Offered Securities as
shall not have been purchased within such period without again complying with
this Section 2.5. The right of purchase granted pursuant to this Section 2.5
shall expire immediately prior to (and shall not apply to) the sale of Common
Stock pursuant to the Qualified Public Offering. If any Stockholder and its
Affiliates fails to agree to purchase its full pro rata share of the Offered
Securities, the Company shall promptly so notify each other Stockholder and each
other Stockholder shall have the right to purchase such remaining Offered
Securities (on a pro rata basis), by notice to the Company given within seven
(7) days after receipt of such notice from the Company.
(c) Pro Rata Share. For purposes of determining a
pro rata share under this Agreement, such pro rata share shall be the ratio of
the number of shares of Common Stock held by each Stockholder to the number of
shares of Common Stock then held by all stockholders. For this purpose all
amounts shall be calculated by (i) treating all shares of Preferred Stock then
held by any Stockholder as converted on the date of any notice under this
Section 2.5 into the largest whole number of shares of Common Stock into which
such shares are then convertible and (ii) treating all other securities
exercisable for or exchangeable into Common Stock as outstanding on the date of
any such notice.
(d) Allocation Among Affiliates. If any Stockholder
has any Affiliates which hold Common Stock or who also hold Preferred Stock,
such persons may allocate among themselves, in such manner as they may
determine, their respective rights to purchase Offered Securities under this
Section 2.5.
2.6. Legends; Shares Subject to this Agreement. Unless otherwise
expressly provided herein, no Stockholder shall Transfer any Shares to any
person (regardless of the manner in which such Stockholder initially acquired
such Shares) nor shall the Company issue, sell or otherwise transfer any Shares
to any person (all persons acquiring Shares from a Stockholder or from the
Company, regardless of the method of transfer, shall be referred to collectively
as "Transferees" and individually as a "Transferee") unless (i) such Shares bear
legends as provided in Section 4.1 and (ii) such Transferee shall have executed
and delivered to the Company, as a condition precedent to any acquisition of
such Shares, an instrument in form and substance reasonably satisfactory to the
Company confirming that such Transferee agrees to become a party to this
Agreement and takes such Shares subject to all the terms and conditions of this
Agreement; provided that the provisions of this Section 2.6 shall not apply in
respect of a sale of Shares included in a registered public offering under the
Securities Act and the rules and regulations promulgated thereunder. The Company
shall not transfer upon their books any Shares to any person except in
accordance with this Agreement.
11
3. REPRESENTATIONS AND COVENANTS
3.1 Representation of Stockholders. Each Stockholder hereby represents
that such Stockholder owns, beneficially and of record, free and clear of any
liens or encumbrances (or in the case of Summit, will own upon the closing of
the transactions contemplated by the Stock Purchase Agreement), the number of
Shares set forth beside such Stockholder's name on Exhibit A hereto. Further,
each Stockholder represents that such Stockholder has full power and authority
to enter into and to perform this Agreement in accordance with its terms and
except for the Prior Stockholders' Agreement (if applicable), such Shareholder
is not bound by any proxy or any voting agreement with respect to any Shares.
3.2 Summit Warrant. The Founders and the Percon Group hereby represent
that they have reviewed the terms and conditions set forth in the Warrant and
hereby consent to the issuance of the Warrant to Summit pursuant to the Stock
Purchase Agreement. Further, the Founders and the Percon Group agree to perform
all acts and execute all documents, consents and instruments that may be
necessary or convenient to enable Summit to exercise the Warrant pursuant to its
terms.
4. MISCELLANEOUS
4.1. Legends on Stock Certificates. A copy of this Agreement shall be
filed with the Secretary of the Company and kept with the records of the
Company. Each of the Stockholders hereby agrees that each outstanding
certificate representing Shares subject to this Agreement shall bear legends
reading substantially as follows:
(a) THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR
ANY STATE SECURITIES OR BLUE SKY LAWS, AND MAY NOT BE
TRANSFERRED, SOLD OR OTHERWISE DISPOSED OF EXCEPT PURSUANT TO
AN EFFECTIVE REGISTRATION STATEMENT OR PURSUANT TO AN
EXEMPTION FROM REGISTRATION, UNDER THE SECURITIES ACT AND SUCH
STATE SECURITIES OR BLUE SKY LAWS.
(b) THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO
RESTRICTIONS ON TRANSFER, AND CERTAIN VOTING RESTRICTIONS, ON
THE TERMS AND CONDITIONS SET FORTH IN AN STOCKHOLDERS'
AGREEMENT DATED AS OF JUNE ___, 2002, A COPY OF WHICH MAY BE
OBTAINED FROM THE COMPANY OR FROM THE HOLDER OF THIS
CERTIFICATE. NO TRANSFER OF SUCH SHARES WILL BE MADE ON THE
BOOKS OF THE COMPANY UNLESS ACCOMPANIED BY EVIDENCE OF
COMPLIANCE WITH THE TERMS OF SUCH AGREEMENT.
(c) THE HOLDER OF THIS CERTIFICATE AGREES FOR SUCH PERIOD AS
THE COMPANY'S INVESTMENT BANKER SHALL REASONABLY REQUEST AND
TO THE EXTENT ALSO AGREED TO BY THE FOUNDERS (AS SUCH TERM IS
DEFINED IN THE SHAREHOLDERS AGREEMENT), NOT TO DIRECTLY OR
INDIRECTLY OFFER, SELL (INCLUDING BY EFFECTING ANY SHORT
SALE), CONTRACT TO SELL, HYPOTHECATE, PLEDGE, GRANT ANY OPTION
FOR THE SALE OF, ACQUIRE ANY OPTION TO DISPOSE OF, TRANSFER OR
12
OTHERWISE DISPOSE OF ANY COMMON STOCK, WITHOUT OBTAINING THE
PRIOR WRITTEN CONSENT OF SUCH INVESTMENT BANKER, WHICH CONSENT
MAY BE WITHHELD OR GRANTED IN SUCH INVESTMENT BANKER'S SOLE
DISCRETION.
Such certificate shall bear any additional legend required by the Asset
Agreement or required for compliance with state securities or blue sky laws.
4.2. Term. This Agreement shall terminate on the date of the first to
occur of the following events: (i) the closing of a Qualified Public Offering
(as defined in the Company's Certificate of Designation); (ii) Bankruptcy,
receivership, or dissolution of the Company; (iii) the voluntary agreement of
all the parties who are then bound by the terms hereof; (iv) the acquisition of
all the Shares by one of the Stockholders; (v) the full and complete exercise of
all the rights under the Warrant by Summit (or its assignee) pursuant to its
terms; or (vi) five years from the date of this Agreement.
4.3. Injunctive Relief. It is hereby agreed and acknowledged that it
will be impossible to measure in money the damages that would be suffered if the
parties fail to comply with any of the obligations herein imposed on them and
that in the event of any such failure, an aggrieved person will be irreparably
damaged and will not have an adequate remedy at law. Any such person shall,
therefore, be entitled to injunctive relief, including specific performance, to
enforce such obligations, and if any action should be brought in equity to
enforce any of the provisions of this Agreement, none of the parties hereto
shall raise the defense that there is an adequate remedy at law.
4.4. Notices. All notices, statements, instructions or other documents
required to be given hereunder, shall be in writing and shall be given either by
hand delivery, by overnight delivery service, by facsimile transmission or by
mailing the same in a sealed envelope, first-class mail, postage prepaid and
either certified or registered, return receipt requested, addressed as follows:
if to the Percon Group, to: Performance Control, LLC
c/o Seyburn, Kahn, Ginn, Bess and Serlin
Attn: Bruce Seyburn
2000 Town Center
Suite 1500
Southfield, MI 48075
with a copy to their counsel: Seyburn, Kahn, Ginn, Bess and Serlin
2000 Town Center
Suite 1500
Southfield, MI 48075
13
if to the Founders, to: to the addresses in the recitals of
the Agreement
if to the Company: Power Efficiency Corporation
4220 Varsity Drive, Suite E
Ann Arbor, MI 48108
with a copy to their counsel: Gerard S. DiFiore, Esq.
Reed Smith LLP
One Riverfront Plaza, First Floor
Newark, NJ 07102
if to Summit Energy Ventures, LLC: Summit Energy Ventures, LLC
423 Second Avenue, Ext. S
Metropole Building, Suite 31
Seattle, WA 98104
with a copy to their counsel: Milbank, Tweed, Hadley & McCloy, LLP
630 Hansen Way
Second Floor
Palo Alto, CA 94304
and to the other parties at their addresses reflected in the stock records of
the Company. Each Stockholder, by written notice given to the Company in
accordance with this Section 4.4 may change the address to which notices,
statements, instruction or other documents are to be sent to such Stockholder.
All notices, statements, instructions and other documents hereunder that are (i)
mailed shall be deemed to have been given on the date of mailing, (ii) sent by
hand delivery or by facsimile transmission shall be deemed to have been given
when received, or (iii) sent by overnight delivery service shall be deemed to
have been given one business day after sent. Whenever pursuant to this Agreement
any notice is required to be given by any Stockholder to any other Stockholder
or Stockholders, such Stockholder may request from the Company a list of
addresses of all Stockholders of the Company, which list shall be promptly
furnished to such Stockholder.
14
4.5. Successors and Assigns. This Agreement shall be binding upon and
shall inure to the benefit of the parties, and their respective successors and
permitted assigns. If any Transferee of any Stockholder shall acquire any
Shares, or any right to acquire Shares, in any manner, whether by operation of
law or otherwise, such Shares shall be held subject to all of the terms of this
Agreement, and by taking and holding such Shares such person shall be
conclusively deemed to have agreed to be bound by and to perform all of the
terms and provisions of this Agreement. Subject to this Section 4.5, the
Stockholders may assign their rights hereunder to any person to whom they sell
or otherwise transfer Shares (including Common Stock issued upon the conversion
of Series A-1 Convertible Preferred Stock)
4.6. Company Information. The Company agrees to deliver to each
Stockholder, without charge, so long as such Stockholder owns any Shares:
(a) Within 45 days after the end of each 0quarterly
fiscal period (except the last) in each fiscal year of the Company, a
consolidated balance sheet of the Company and their consolidated Subsidiaries as
of the end of such quarter, and consolidated statements of income and cash flow
of the Company and their consolidated Subsidiaries for such quarter and the
portion of the fiscal year ending with such quarter, setting forth in each case
in comparative form the figures for the corresponding periods a year earlier and
the figures set forth in the Company's budget for such periods and accompanied
by a narrative description of such financial statements in reasonable detail
prepared by the chief accounting or financial officer of the Company.
(b) Within 90 days after the end of each fiscal year
of the Company, a consolidated balance sheet of the Company and their
consolidated Subsidiaries as of the end of such fiscal year, and consolidated
statements of income, and cash flows for such fiscal year, in each case prepared
in accordance with generally accepted accounting principles, setting forth in
each case in comparative form the figures for the previous fiscal year and the
figures set forth in the Company's budget for such fiscal year.
(c) Promptly after receipt of a request therefor,
any information required by or necessary for a Stockholder to comply with local,
state or federal regulatory or tax filing requirements.
(d) Permit representatives of the Founders,
the Percon Group and Summit at reasonable times upon prior reasonable notice to
visit and inspect such financial records and the premises of the Company at
reasonable times on reasonable notice and to make copies of such records as such
representatives deem necessary, other than documents subject to the
attorney-client privilege or the attorney work product privilege, and to discuss
the business, operations, assets, properties and financial and other conditions
of the Company with officers and employees of the Company and with their
independent accountants.
(e) With reasonable promptness, such other data and
information as from time to time may be reasonably requested.
15
4.7. Governing Law. Regardless of the place of execution, this
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, applicable to contracts made and to be performed entirely
within such state.
4.8. Headings. All headings are inserted herein for convenience only
and do not form a part of this Agreement.
4.9. Entire Agreement; Amendment. This Agreement and the other
agreements referenced herein contain the entire agreement among the parties
hereto with respect to the transactions contemplated herein and supersede all
prior written agreements and negotiations and oral understandings, if any, and
this Agreement may not be amended, supplemented or discharged except by an
instrument in writing signed by all the Stockholders. Concurrently with such
amendment or modification of this Agreement or as soon thereafter as is
practicable the Certificate of Incorporation and By-Laws of the Company shall be
amended by necessary corporate action. In the event that any Stockholder, or the
Company shall be required, as a result of the enactment, amendment or
modification, subsequent to the date hereof, of any applicable law or
regulations, or by the order of any governmental authority, to take any action
which is inconsistent with or which would constitute a violation or breach of
any terms of this Agreement, then the Stockholders, and the Company shall use
their best efforts to negotiate an appropriate amendment or modification of, or
waiver of compliance with, such terms.
4.10. No Waiver. No failure to exercise and no delay in exercising any
right, power or privilege of a party hereunder shall operate as a waiver nor a
consent to the modification of the terms hereof unless given by that party in
writing.
4.11. Undertaking. The Founders and the Company hereby agree that
before completing any extraordinary corporate transaction involving the Company,
the Founders and the Company will consider, and will consult with Percon Group
and Summit with respect to, methods to minimize or eliminate any adverse income
tax consequences to Percon Group and Summit that could arise as a result of such
extraordinary corporate transaction, and the Founders and the Company will take
such actions as they deem necessary or appropriate to minimize or eliminate any
such adverse income tax consequences to Percon Group and Summit, so long as in
the opinion of counsel to the Founders and the Company such actions will not
have any adverse consequence or effect on the Founders or the Company.
4.12. 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. Fax copy signatures shall
be given the same effect as original signatures.
[rest of page left blank intentionally - next page is signature page]
16
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement to be duly executed on the date first written above.
PERFORMANCE CONTROL, LLC POWER EFFICIENCY CORPORATION
By: /s/ Philip Elkus By: /s/ Stephen Shulman
------------------------------------- ---------------------------------
Philip Elkus, Managing Member Stephen Shulman, President
SUMMIT ENERGY VENTURES, LLC
By: Northwest Power Management, manager
By: /s/ Steven Strasser
--------------------------------
Steven Strasser, President
/s/ Anthony Caputo /s/ Nicholas Anderson
- ---------------------------------------- ------------------------------------
Anthony Caputo, Individually Nicholas Anderson, Individually
1155 Colonial Way 1536 208th Street
Bridgewater, NJ 08807 Bayside, NY 08807
/s/ Philip Elkus /s/ Stephen Shulman
- --------------------------------------- ------------------------------------
Philip Elkus, Individually Stephen Shulman, Individually
2488 Orchard Lake Road 5807 Fox Hollow Court
Farmington Hill, MI 48334 Ann Arbor, MI 48105
17
EXHIBIT A
- ------------------- ------------------- ----------------------------------
Stockholder Name Number of Shares Number of Shares of Series A-1
of Common Stock Convertible Preferred Stock
- ------------------- ------------------- ----------------------------------
Nicholas Anderson 1,379,833 -0-
- ------------------- ------------------- ----------------------------------
Anthony Caputo 1,361,085 -0-
- ------------------- ------------------- ----------------------------------
Philip Elkus [22,500] -0-
- ------------------- ------------------- ----------------------------------
Percon LLC [1,004,853] -0-
- ------------------- ------------------- ----------------------------------
Stephen Shulman [64,843] -0-
- ------------------- ------------------- ----------------------------------
Summit -0- 2,346,233*[this equates to
4,692,466 votes]
- ------------------- ------------------- ----------------------------------
18