UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
Form 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934
Date of Report (Date of earliest event reported):
March 6, 1997
Gum Tech International, Inc.
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(Exact name of registrant as specified in it charter)
Utah 0-27646 87-0482806
(State or other jurisdiction (Commission (I.R.S. Employer
of incorporation) File Number) Identification Number)
4205 North Seventh Avenue
Suite 300
Phoenix, AZ 85013-3080
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(Address of principal executive offices)
Registrant's telephone number, including area code (602) 277-0606
Not applicable
(Former name or former address, if changed since last report)
<PAGE>
ITEM 5. Other Events
On March 6, 1997, the Company completed the sale of an aggregate of
$2,530,000.00 convertible debentures. The debentures bear interest at 11% per
annum and are due and payable on January 1, 2002. The debentures are convertible
into shares of the Company's common stock at $4.75 per share. The common stock
issueable under the debentures carries certain registration rights on or after
July 31, 1997. However, any shares issueable upon conversion of the debentures
are subject to a lock-up agreement with the Company through January 31, 1998.
The proceeds of the sale of the convertible debentures will be used for working
capital and other corporate purposes.
ITEM 7. Financial Statements and Exhibits
(c) Exhibits:
10.20 Form of Convertible Note dated February 20, 1997.
10.21 Registration Rights Agreement
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
GUM TECH INTERNATIONAL, INC.
(Registrant)
By: /s/ Jeffrey L. Bouchy
---------------------------------------
Jeffrey L. Bouchy
Chief Financial Officer
Dated: March 6, 1997
SECURITIES AND EXCHANGE COMMISSION
EXHIBITS
TO
FORM 8-K
<PAGE>
GUM TECH INTERNATIONAL, INC.
SUBORDINATED CONVERTIBLE NOTE
TO PURCHASE COMMON STOCK
THE SECURITIES REPRESENTED BY THIS INSTRUMENT OR ISSUABLE HEREUNDER HAVE NOT
BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR QUALIFIED UNDER
APPLICABLE STATE SECURITIES LAWS AND HAVE BEEN TAKEN FOR INVESTMENT PURPOSES
ONLY AND NOT WITH A VIEW TO OR FOR SALE IN CONNECTION WITH ANY DISTRIBUTION
THEREOF. THE SECURITIES MAY NOT BE SOLD OR OTHERWISE TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION AND QUALIFICATION WITHOUT AN OPINION OF COUNSEL FOR THE
HOLDER, ACCEPTABLE TO COUNSEL FOR THE COMPANY, THAT SUCH REGISTRATION AND
QUALIFICATION ARE NOT REQUIRED.
Series A- Phoenix, Arizona
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U.S. $ February 20, 1997
----------------
GUM TECH INTERNATIONAL, INC., a Delaware corporation (the "Company"), the
principal office of which is located at 4205 North Seventh Avenue, Phoenix,
Arizona 85013, for value received, hereby promises to pay to ............., or
registered assigns, the sum of ................ and 00/100 U.S. Dollars (U.S.
$............), or such lesser amount as shall then equal the outstanding
principal amount hereof on the terms and conditions set forth hereinafter.
Interest shall accrue on this Note at the rate of eleven percent (11%) per
annum. The principal hereof and accrued interest hereon, shall be paid, due and
payable as set forth in Section 2.a (below). Payment for all amounts due
hereunder shall be made by mail to the registered address of the Holder. This
Note is one of a Series issued in connection with the transactions described in
that certain Subscription Agreement dated for reference purposes only as of
January 31, 1997 between the Company and the Holder (the "Subscription
Agreement"). The Holder of this Note is subject to certain restrictions set
forth in the Subscription Agreement and shall be entitled to certain rights and
privileges set forth in the Subscription Agreement.
The following is a statement of the rights of the Holder of this Note and
the conditions to which this Note is subject, and to which the Holder hereof, by
the acceptance of this Note, agrees:
1. Definitions. As used in this Note, the following terms, unless the
context otherwise requires, have the following meanings:
a. "Company" includes any corporation which shall succeed to or assume
the obligations of the Company under this Note.
b. "Holder," when the context refers to a holder of this Note, shall
mean any person who shall at the time be the registered holder of this Note on
the register maintained by the Company.
2. Principal and Interest Payments.
a. Interest Rate/Initial Quarterly Payments. Until all outstanding
principal and accrued interest on this Note shall have been paid in full,
interest shall accrue and be payable on the outstanding principal balance of
this Note in arrears quarterly following the date of this Note commencing on
June 1, 1997, and on each September 1, January 1, April 1 and June 1 thereafter
(each the "Interest Payment Date"), at the lower of (i) the rate of eleven
percent (11%) per annum accruing from the date of this Note; and (ii)
applicable usury interest limits (collectively, the "Interest Rate"). If
<PAGE>
applicable usury interest limits for any interest payment are below the rate of
eleven percent (11%) per annum, the Company shall, on or before the record date
for such payment, deliver an Officer's Certificate to each Holder, certifying
the amount of the interest rate for such interest payment based on the
applicable usury limits. Interest on this Note shall accrue from the date hereof
on the outstanding principal balance, as such principal may decline from time to
time as contemplated, until such principal is paid in full. Interest shall be
calculated based on actual days elapsed. Any interest past due for more than
five (5) calendar days after the applicable Interest Payment Date shall likewise
bear interest at the rate of eleven percent (11 %) per annum from such Interest
Payment Date until paid in full.
b. Amortized Payments of Principal and Interest. The Company shall pay
Holder twenty-four (24) equal installments of principal, which payments in the
aggregate shall equal the original principal balance hereunder, plus accrued
interest thereon, commencing on January 1, 2000, and monthly thereafter on the
first (1 st) day of each calendar month thereafter until all principal and
accrued interest are paid in full (each a "Principal Payment Date").
3. Prepayment. The Company may prepay any portion or all of the principal
balance and/or interest under this Note any time after the six (6) month
anniversary of the date of this Note upon thirty (30) calendar days' prior
written notice to the Holder. Any prepayment of this Note will be credited first
against accrued interest and then against principal.
4. Conversion.
a. Holder's Conversion Rights. So long as any principal remains
outstanding hereunder, Holder may, at its option by written notice to the
Company in the form of the Conversion Election Form appended to this Note (the
"Conversion Election Form") at any time (the "Conversion Period"), convert all
or any portion of the principal and accrued interest outstanding hereunder into
Common Stock of the Company (the "Note Shares") at the "Conversion Price" of
$4.75 per share (as adjusted pursuant to Section 7 (below)).
b. General Conversion Terms. The Company shall not be obligated to
issue certificates evidencing the shares of the Common Stock issuable upon
conversion of this Note unless this Note is delivered to the Company, together
with a properly executed Conversion Election Form; provided, however, that this
Note need not be delivered for conversion if the Holder notifies the Company
that such Note has been lost, stolen or destroyed and executes an agreement
satisfactory to the Company to indemnify the Company from any loss incurred by
it in connection with such Note. The Company shall, as soon as practicable after
such delivery to it of the Note or such indemnification agreement and Conversion
Election Form, issue and deliver to such Holder of such Note a certificate or
certificates for the Note Shares to which the Holder shall be entitled
accompanied by any appropriate restrictive legends on transfer, a check payable
to the Holder in the amount of any cash amounts payable as the result of a
conversion into fractional shares of Common Stock, as the case may be, and a new
Note upon the same terms as this Note for any remaining principal in the case of
a conversion of only a portion of this Note. The Note Shares issued upon
conversion will bear legends which are substantially the same as the securities
legends appearing on the face of this Note. In addition, the shares issued upon
conversion will bear a legend which is substantially the same as the Lock-Up
Legend appearing on the face of this Note if conversion occurs prior to the
expiration date of the Lock-Up Period set forth in Section 8 of this Note;
thereafter shares issued upon conversion will be issued without the "Lock-Up
Legend." Such conversion shall be deemed to have been made immediately prior to
the close of business on the date of receipt by the Company of the Holder's
Conversion Election Form and this Note (or indemnification agreement if required
by the Company). The person or persons entitled to receive Common Stock issuable
upon such conversion shall be treated for all purposes as the record Holder or
Holders of such Common Stock on such date.
339\GUM-TECH\Note
2
<PAGE>
5. Note Confers No Rights of Shareholder. The Holder shall not have any
rights as a shareholder of the Company with regard to the shares issuable
hereunder prior to actual conversion hereunder.
6. Reservation of Shares. The Company agrees at all times during the
Conversion Period to have authorized and reserved, for the exclusive purpose of
issuance and delivery upon conversion of this Note, a sufficient number of
shares of its Common Stock to provide for the conversion of the rights
represented hereby.
7. Adjustments.
a. Re-Classification of Capital Stock. If the Company at any time
during the Conversion Period shall, by subdivision, combination or
re-classification of securities, change any of the Company's Common Stock to
which purchase rights under this Note exist into the same or a different number
of securities of any class or classes, this Note shall thereafter entitle the
Holder to acquire such number and kind of securities as would have been issuable
as a result of such change with respect to the shares hereunder immediately
prior to such subdivision, combination, or reclassification. If shares of the
Company's Common Stock are subdivided into a greater number of shares of Common
Stock, the Conversion Price for the shares hereunder upon conversion of this
Note shall be proportionately reduced and the number of such shares shall be
proportionately increased; and conversely, if shares of the Company's Common
Stock are combined into a smaller number of Common Stock shares, the Conversion
Price shall be proportionately increased, and the number of shares hereunder
shall be proportionately decreased.
b. Reorganization or Merger. In the case of any merger of the Company
with or into another corporation (other than a merger with another corporation
in which the Company is a continuing corporation, and which does not result in
any reclassification or change of outstanding securities issuable upon exercise
of this Note) such successor corporation shall execute a new Note (in form and
substance satisfactory to Holder), providing that Holder shall have the right to
convert such new Note on the original terms of this Note and, upon such
conversion, to receive, in lieu of each share of Common Stock theretofore
issuable upon conversion of this Note, the kind and amount of shares of stock,
other securities, money and property receivable upon such merger by a holder of
one (1) share of Common Stock.
8. Lock-Up. From the date hereof through January 31, 1998, (the "Lock-Up
Period"), the Investor agrees not to sell, make any short sale of, loan, grant
any option for the purchase of, or otherwise dispose of the Note Shares without
the prior written consent of the Company. The Company may impose stop-transfer
instructions with respect to the Note Shares subject to the foregoing
restrictions until the end of said Lock-Up Period. On, or before, the expiration
date of the Lock-Up Period, the Company will give its stock transfer agent a
standing order authorizing the stock transfer agent to issue, after such
expiration date, free of the Lock-Up Legend, the Note Shares issuable upon
conversion of this Note.
9. Default/Acceleration.
a. Events Of Default. Without notice, except as expressly provided
herein, the following will be deemed to be events of default:
(i) Covenants. There is any breach of any material covenant,
warranty, representation or other term or condition of this Note, including but
not limited to the payment of interest or principal, or the Subscription
Agreement at any time which is not cured within the time periods provided, if
any; or
339\GUM-TECH\Note
3
<PAGE>
(ii) Receivership. The entry of a decree or order of a court
having jurisdiction in the matter for the appointment of a receiver and such
decree or order has continued in force undischarged or unstayed for a period of
thirty (30) days; or
(iii) Bankruptcy. The Company institutes proceedings to be
adjudged a voluntary bankrupt, or consents to the filing of bankruptcy
proceedings against it, or files a petition or answer or consent seeking
reorganization under the National Bankruptcy Act or any other similar or
applicable federal or state law, or consents to the filing of any such petition,
or consents to the appointment of a receiver, liquidator, or trustee in
bankruptcy, or makes a general assignment for the benefit of creditors, or
admits in writing its inability to pay its debts generally as they become due;
or
(iv) Attachment. Any judgment, writ, or warrant of attachment or
of any similar process in an amount in excess of Twenty-Five Thousand Dollars
($25,000) is entered or filed against the Company or against any of its property
or assets and remains unpaid, unvacated, unbonded, or unstayed for a period of
sixty (60) days; or
(v) Debt Default. The Company defaults under any other debt
obligation note in excess of $25,000.
b. Acceleration Of Maturity. If any one or more of the foregoing
events of default occurs, then all principal of and all accrued interest on all
Series A Notes then outstanding shall become immediately due and payable without
further notice or demand; provided, however, that at any time after an event of
default such event of default with respect to this Note may be waived by the
Holder by written notice to the Company.
c. Payment On Acceleration. Upon any such acceleration of the maturity
of this Note, the Company will immediately pay to the Holder the entire
principal balance unpaid on this Note, together with accrued interest thereon to
the date of such payment.
d. Failure To Pay. If the Company fails to make payment to the Holder
as provided in the preceding Subsection 9.c., the Holder will be entitled and
empowered to take such measures as may be appropriate to enforce the Company's
obligations under the Note, by judicial proceedings or otherwise.
10. Assignment. Subject to any restrictions on transfer described elsewhere
herein or the Subscription Agreement, the rights and obligations of the Company
and the Holder of this Note shall be binding upon and benefit the successors,
assigns, heirs, administrators and transferees of the parties hereto.
11. Waiver and Amendment. Any provision of this Note may be amended, waived
or modified upon the approval of the Company and the Holders of fifty percent
(50%) or more of the outstanding principal amount of all then outstanding Series
A Notes; provided, however, that any amendment to the Principal Payment Dates,
Interest Rate, Conversion Price, Section 9 or Section 11, shall require the
approval of Holders of seventy-five percent (75%) or more of the outstanding
principal amount of all then outstanding Series A Notes; and further provided,
however, that any such amendments shall apply to all Series A Notes.
12. Transfer of this Note or Securities Issuable on Conversion Hereof. With
respect to any offer, sale or other disposition of this Note or any underlying
securities, the Holder will give written notice to the Company prior thereto,
describing briefly the manner thereof, together with a written opinion of such
Holder's counsel, to the effect that such offer, sale or other distribution may
be
339\GUM-TECH\NOTE2
4
<PAGE>
effected without registration or qualification (under any applicable federal or
state law then in effect). Promptly upon receiving such written notice and
reasonably satisfactory opinion, if so requested, the Company, as promptly as
practicable, shall notify such Holder that such Holder may sell or otherwise
dispose of this Note or the underlying securities, as the case may be, all in
accordance with the terms of the written notice delivered to the Company. If a
determination has been made pursuant to this Section 12 that the opinion of
counsel for the Holder is not reasonably satisfactory to the Company, the
Company shall so notify the Holder promptly after such determination has been
made. Each Note or underlying securities thus transferred shall bear the same
legends appearing on the face of this Note immediately prior to such transfer.
The Company may issue stop transfer instructions to its transfer agent in
connection with such restrictions.
13. Loss, Theft, Destruction or Mutilation of Note. Upon receipt by the
Company of evidence reasonably satisfactory to it of the loss, theft,
destruction or mutilation of this Note or a stock certificate issued pursuant to
conversion of this Note, and in the case of loss, theft or destruction, of an
indemnity agreement reasonably satisfactory to it, and upon reimbursement to the
Company of all reasonable expenses incidental thereto, and upon surrender and
cancellation of this Note or such stock certificate, if mutilated, the Company
will make and deliver a new Note or stock certificate of like tenor and dated as
of such cancellation, in lieu of this Note or such stock certificate.
14. Notices. Any notice required or permitted under this Note shall be
given in writing and shall be deemed effectively given upon personal delivery to
the party to be notified by hand or professional courier service or for mailings
from and to any address in North America (Canada, United States and Mexico) five
(5) days after receipt, by registered or certified mail, postage prepaid at the
address of the party to be notified as set forth for such party in the
Subscription Agreement, or at such other address as such party may designate by
ten (10) days' advance written notice to the other parties.
15. Governing Law. This Agreement shall be governed by, and construed in
accordance with, the laws of the State of California, applicable to contracts
between California residents entered into and to be performed entirely within
the State of California. Venue for all disputes hereunder shall be San
Francisco, California.
16. Attorneys' Fees. If any action at law or in equity is necessary to
enforce or interpret the terms of this Note between the Company and the Holder
of the Note, the prevailing party shall be entitled to reasonable attorneys'
fees, costs and disbursements in addition to any other relief to which such
party may be entitled.
17. Heading; References. All headings used herein are used for convenience
only and shall not be used to construe or interpret this Note.
IN WITNESS WHEREOF, the Company has caused this Note to be issued as of the
date first set forth above.
GUM TECH INTERNATIONAL, INC.
By:
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Jeff Bouchy, Chief Financial Officer
339\GUM-TECH\NOTE2
5
<PAGE>
ASSIGNMENT FORM
To assign this Note, fill in the form below:
(1) or (We) assign and transfer this Note to:
- --------------------------------------------------------------------------------
(Insert Assignee's Social Security or Tax l.D. Number)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
(Print or Type Assignee's Name, Address and Zip Code)
and irrevocably appoint the Company's Transfer Agent to transfer this Note on
the books of the Company. The Transfer Agent may substitute another to act for
it/him/her.
Dated :
--------------------------
*Signature:
----------------------------
(Sign exactly as your name
appears on the first page
of this Note.)
It is understood and agreed that the Company may request in writing such
assurances and representations as may be reasonably requested pursuant to
Section 14 of this Note.
339\GUM-TECH\NOTE2
6
<PAGE>
NOTICE OF CONVERSION
To: GUM TECH INTERNATIONAL, INC.
(1) The undersigned hereby elects to convert $.............. in principal
amount of the attached Note for ............. shares of Common Stock of Gum Tech
International, Inc., pursuant to the terms of the attached Note.
(2) In converting this Note, the undersigned hereby confirms and
acknowledges that the shares of Common Stock are being acquired solely for the
account of the undersigned and not as a nominee for any other party, for
investment, and that the undersigned will not offer, sell or otherwise dispose
of any such shares of Common Stock except under circumstances that will not
result in a violation of the Securities Act of 1933, as amended (the "Securities
Act"), including, but not limited to, any state securities laws.
(3) Please issue a certificate representing said shares of Common Stock in
the name of the undersigned.
(4) Please issue a new Note for the non-converted portion of the attached
Note in the name of the undersigned.
--------------------------------------
(Name)
- -------------------------- --------------------------------------
(Date) (Signature)*
(Sign exactly as your name appears on
the first page of this Note.)
If the Company at any time during the Conversion Period shall, by subdivision,
combination or re-classification of securities, change any of the Company's
Common Stock to which purchase rights under this Debenture exist into the same
or different number of securities of any class or classes, this Debenture shall
thereafter entitle the Holder to acquire such number and kind of securities as
would have been issuable as a result of such change with respect to the shares
hereunder immediately prior to such subdivision, combination, or
reclassification. If shares of the Company's Common Stock are subdivided into a
greater number of shares of Common Stock, the conversion price for the shares
hereunder upon exercise of this Debenture shall be proportionately reduced and
such shares shall be proportionately increased; and conversely, if shares of the
Company's Common Stock are combined into a smaller number of Common Stock
shares, the price shall be proportionately increased, and the Common Stock
shares hereunder shall be proportionately decreased.
339\GUM-TECH\NOTE2
7
GUM TECH INTERNATIONAL, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (this "Agreement") is made effective as
of January 31, 1997, by and between GUM TECH INTERNATIONAL, INC., a Utah
corporation (the "Corporation"), and the persons set forth on the signature
pages attached hereto or on counterpart signature pages (individually, a
"Holder" and collectively, the "Holders").
RECITAL
-------
The Holders are parties to Subordinated Convertible Note Purchase
Agreements dated as of even date herewith by and between the Corporation and the
Holders (the "Purchase Agreements") pursuant to which the Corporation is
obligated to enter into this Agreement. Any "C"apitalized terms not defined
herein shall have the meanings established in the Purchase Agreements.
AGREEMENT
---------
NOW, THEREFORE, in consideration of the mutual agreements, covenants,
representations and warranties contained in this Agreement, the parties hereto
hereby agree as follows:
1. Definitions.
a. "Closing Date" means January 31, 1997.
b. "Commission" means the Securities and Exchange Commission or any
other Federal agency at the time administering the "Securities Act."
c. "Commissioner" means the California Commissioner of Corporations.
d. "Common Stock" means any and all (i) common stock of the
Corporation issued or issuable upon conversion of the Series A Notes; (b) any
common stock of the Corporation issued as a dividend or other distribution with
respect to or in replacement of the Series A Notes Common Stock and (c) any
common stock issued in any combination or subdivision of the Series A Notes
Common Stock; provided that in determining the amount of Common Stock held by
any Person, the sum of (a), (b) and (c) shall be used. Any reference to "common
stock" without initial capital letters shall mean all other shares of the
Corporation's common stock or other equity securities convertible into shares of
such "common stock."
e. "Exchange Act" means the Securities Exchange Act of 1934, 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.
f. "Initiating Holders" any holder or holders of no less than fifty
percent (50%) of the then outstanding Registrable Securities.
g. "Person" means any individual, corporation, trust, partnership,
association, or other entity.
h. "Registrable Securities" means the Common Stock.
i. "Register," "registered," and "registration," mean a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of the effectiveness of such
registration statement.
j. "Securities Act" means 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.
k. "Seller" means a holder of Registrable Securities selling such
shares.
<PAGE>
l. "Series A Notes Common Stock" means the shares of common stock of the
Corporation issued to the Purchasers upon conversion of the Series A Notes.
2. Registration Rights
2.1 Form S-3.
(a) Obligation to Register. At any time on, or after, July 31, 1997,
the Initiating Holders of Registrable Securities shall have the right to request
a registration on Form S-3 (such request shall be in writing and shall state the
number of shares of Registrable Securities to be disposed of and the intended
method of disposition of such shares by such Person or Persons).
(b) Notice. The Corporation shall give written notice to all holders
of Registrable Securities of the receipt of a request for registration pursuant
to this Section 2.1 and shall permit such other holders to participate in the
registration upon their request therefor, so long as such request is given
within twenty (20) days after receipt of such notice from the Corporation.
Subject to the foregoing, the Corporation will use its best efforts to effect
promptly the registration of all shares of Registrable Securities on Form S-3 to
the extent requested by the holders thereof for purposes of disposition.
2.2 Registration Procedures. Whenever the Corporation is required by
Section 2.1 to effect the registration of the Registrable Securities under the
Securities Act, the Corporation will, as expeditiously as possible:
(a) prepare and file with the Commission a registration statement with
respect to such securities and use its best commercial efforts to cause such
registration statement to become and remain effective for the period provided in
this Agreement;
(b) prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
therewith as may be necessary to keep such registration statement effective and
to comply with the provisions of the Securities Act with respect to the sale or
other disposition of all securities covered by such registration statement
whenever the seller or sellers of such securities shall desire to sell or
otherwise dispose of the same, but only to the extent provided in this
Agreement;
(c) furnish to each seller such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents, as such seller may reasonably request
in order to facilitate the public sale or other disposition of the securities
owned by such seller;
(d) use reasonable efforts to register or qualify the securities
covered by such registration statement under such other securities or state blue
sky laws of such jurisdictions as each seller shall reasonably request,
including doing any and all other reasonable acts and things which the
Corporation deems reasonably necessary under such securities or blue sky laws to
enable such seller to consummate the public sale or other disposition in such
jurisdictions of the securities owned by such seller, except that the
Corporation shall not for any such purpose be required to qualify to do business
as a foreign corporation in any jurisdiction wherein it is not so qualified or
does not intend to be so qualified prior to the effective date of the applicable
registration statement;
(e) before filing the registration statement or prospectus or
amendments or supplements thereto, furnish to one counsel selected by a majority
of the voting interests of the holders of Registrable Securities copies of such
documents proposed to be filed which shall be subject to the reasonable approval
of such counsel;
(f) furnish to each prospective seller a signed counter-part,
addressed to the prospective seller, of (i) an opinion of counsel for the
Corporation, dated the effective date of the registration statement, and (ii) a
"comfort" letter signed by the independent public
339\GUM-TECH\REGISTER
- 2 -
<PAGE>
accountants who have certified the Corporation's financial statements included
in the registration statement, covering substantially the same matters with
respect to the registration statement (and the prospectus included therein) and
(in the case of the accountants' letter) with respect to events subsequent to
the date of the financial statements, as are customarily covered (at the time of
such registration) in opinions of the Corporation's counsel and in accountants'
letters delivered to the underwriters in underwritten public offerings of
securities. Notwithstanding any other provision of this Section 2, the
Corporation shall not in any event be required to maintain the effectiveness of
any such registration statement for a period in excess of 1 80 days.
2.3 Registration Expenses. As used herein, "Registration Expenses" shall
mean all expenses incurred by the Corporation in complying with Section 2.1,
including, without limitation, all registration and filing fees; printing
expenses; fees and disbursements of counsel for the Corporation; reasonable fees
and disbursements of one counsel for all the selling shareholders of the
Registrable Securities (which shall not exceed Five Thousand Dollars ($5,000));
blue sky fees and expenses; and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Corporation who shall be paid in any event by the Corporation);
and "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sales of Registrable Securities thereunder. The
Corporation will pay the described Registration Expenses in connection with the
registration pursuant to Section 2.1. All Selling Expense$ in connection with
the registration pursuant to Section 2.1 shall be borne by the Corporation and
the selling shareholders pro rata in proportion to the securities covered
thereby being sold by them.
2.4 Indemnification.
(a) Indemnification by the Corporation. In the event of any
registration of any of the Corporation's securities under the Securities Act
pursuant to Section 2.1, the Corporation shall indemnify and hold harmless each
of the following parties as described in this Agreement: (i) the seller of such
securities; (ii) each underwriter (as defined in the Securities Act) who makes
an underwriting agreement with the Corporation or Holders pursuant to the
foregoing terms of this Agreement; (iii) each other Person who is a partner or
affiliate or agent of such seller and who participates in the offering of such
securities; and (iv) each other Person, if any, who controls (within the meaning
of the Securities Act) such seller, underwriter or participating Person against
any losses, claims, damages or liabilities (collectively the "liability"), joint
or several, to which such seller, underwriter, participating Person or
controlling Person may become subject under the Securities Act or any other
statute or at common law, if such liability (or action in respect thereof)
arises out of or is based upon (i) any alleged untrue statement of any material
fact contained in any registration statement under which such securities were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereto, or (ii)
any alleged omission to state therein a material fact required to be stated
therein or necessary to make the statements therein not misleading. Except as
otherwise provided in paragraph (d) of this Section 2.4, the Corporation shall
reimburse each such seller, underwriter, participating Person or such
controlling Person in connection with defending any such liability.
Notwithstanding anything to the contrary herein, however, the Corporation shall
not be liable to any seller, underwriter, participating Person, or controlling
Person in any such case if any such liability arises out of or is based upon any
alleged untrue statement or alleged omission made in such registration
statement, preliminary or final prospectus, or amendment or supplement thereto
(i) in reliance upon and in conformity with information furnished to the
Corporation by such Person specifically for use in such registration statement,
preliminary or final prospectus or amendment or supplement thereto, or (ii)
based on the authority of an "expert" within the meaning of that term as defined
in the Securities Act (but only if the Corporation had no reasonable ground to
believe, and did not believe, that the statements
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made on the authority of such expert were untrue or that there was an omission
to state a material fact. The Corporation shall not be required to indemnify any
Person against any liability arising from (i) any untrue or misleading statement
or omission contained in any preliminary prospectus if such deficiency is
corrected in the final prospectus or (ii) for any liability which arises out of
the failure of any Person to deliver a prospectus as required by the Securities
Act. The indemnity provided for in this Section 2.4(a) shall remain in full
force and effect for the period of limitations imposed under California law,
regardless of any investigation made by or on behalf of such seller,
underwriter, participating Person or controlling Person and shall survive
transfer of such securities by such seller.
(b) Indemnification by Holders of Registrable Securities. Each holder
of any Registrable Securities shall, by acceptance thereof, indemnify and hold
harmless each other holder of any Registrable Securities, the Corporation, its
directors and officers, each above described underwriter who contracts with the
Corporation or its agents and each other Person, if any, who controls the
Corporation or such underwriter, against any liability, joint or several, to
which any such other holder, the Corporation, underwriter or any such director
or officer of any such Person may become subject under the Securities Act or any
other statute or at common law, if such liability (or actions in respect
thereof) arises out of or is based upon (i) the disposition by such holder of
such Registrable Securities in violation of the provisions of this Section 2.4,
(ii) any alleged untrue statement of any material fact contained in any
registration statement under which securities were registered under the
Securities Act at the request of such holder, any preliminary prospectus or
final prospectus contained therein, or any amendment or supplement thereto, or
(iii) any alleged omission to state therein a material fact required to be
stated therein or necessary to make statement(s) therein not misleading.
Notwithstanding any other provision of this Section 2.4(b), the indemnification
rights set forth in this Section 2.4(b) shall be given in the case of clause
(ii) or (iii) only if such alleged untrue statement or alleged omission in such
registration statement, preliminary or final prospectus, amendment or supplement
thereto was made (1) in reliance upon and in conformity with information
furnished to the Corporation by such holder expressly stated for use therein,
and (2) not based on the authority of an expert as to when the holder had no
reasonable ground to believe, and did not believe, that (A) the statements made
on the authority of such expert were untrue or (B) there was an omission to
state a material fact. Such holder shall reimburse the Corporation, such
underwriter or such director, officer, other Person or other holder for any
reasonable legal fees incurred in investigating or defending any such liability;
provided, however, that no holder of Registrable Securities shall be required to
indemnify any Person against any liability arising from any untrue or misleading
statement or omission contained in any preliminary prospectus if such deficiency
was corrected in the final prospectus or for any liability which arises out of
the failure of any Person to deliver a prospectus as required by the Securities
Act; and provided further, that the obligations of such holder of Registrable
Securities for the indemnity hereunder shall be limited to an amount equal to
the net proceeds received by such holder of Registrable Securities upon
disposition thereof, and shall not extend to any settlement of claims related
thereto without the express written consent of such holder of Registrable
Securities, which consent shall not be unreasonably withheld.
(c) Further Indemnity. Indemnification similar to that specified in
paragraphs (a) and (b) of this Section 2.4 shall be given by the Corporation and
each holder of any Registrable Securities (with such modifications as may be
appropriate) with respect to any required registration or other qualification of
the Common Stock under any federal or state law or regulation of governmental
authority other than the Securities Act.
(d) Procedures: Rights to Separate Counsel. Each party entitled to
indemnification under this Section 2.4 (the "Indemnified Party") shall give
notice to the party required to provide indemnification (the "Indemnifying
Party") promptly after such Indemnified Party has received written notice of any
claim as to which indemnity may be sought, and shall
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tender the defense of any such claim or any litigation resulting therefrom to
the Indemnifying Party, provided that counsel for the Indemnifying Party who is
conducting the defense of such claim or litigation shall be approved by the
Indemnified Party (whose approval shall not be unreasonably withheld). The
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2.4 unless
such failure to give notice shall materially affect the Indemnifying Party in
the defense of any such claim or any such litigation. The Indemnified Party
shall also have the right to employ separate counsel in any such action and to
participate separately in the defense thereof, but in such circumstance the fees
and expenses of such counsel shall be paid by the Indemnified Party and not at
the expense of the indemnifying Party. However, if the indemnifying Party fails
to assume the defense of any properly tendered claims, then the fees and
expenses of such separate counsel shall be borne by the Indemnifying Party.
Except with the consent of any Indemnified Party, no Indemnifying Party, in the
defense of any such claim or litigation, shall 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 a
release from all liability in respect of such claim or litigation.
2.5 Compliance With Rule 144. With a view to making available the benefits
of certain rules and regulations of the Commission that may permit the sale of
the Registrable Securities to the public without registration, the Corporation
agrees to use its best efforts to:
(a) Make and keep public information regarding the Corporation
available as those terms are understood and defined in Rule 144 under the
Securities Act, at all times;
(b) File with the Commission in a timely manner all reports and other
documents required of the Corporation under the Securities Act and the Exchange
Act at any time after it has become subject to such reporting requirements;
(c) So long as a Holder owns more than ten percent (10%) of any
Registrable Securities, furnish to the Holder forthwith upon written request a
written statement by the Corporation as to its compliance with the reporting
requirements of Rule 144, and of the Securities Act and the Exchange Act, a copy
of the most recent annual or quarterly report of the Corporation, and such other
reports and documents so filed as a Holder may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Holder to sell any
such securities without registration.
2.6 Consent to be Bound. Each subsequent holder of Registrable Securities
obtaining rights under Section 2.8 must consent in writing to be bound by the
terms and conditions of this Agreement in order to acquire the rights granted
pursuant to this Agreement.
2.7 Amendments. The provisions of this Agreement may be amended, and the
Corporation may take any action herein prohibited or omit to perform any act
herein required to be performed by it only if the Corporation has obtained the
written consent of the holders of 51% or more of the Registrable Securities, but
any such amendment or consent shall be binding upon any Person who has not
signed such amendment.
2.8 Assignability of Registration Rights. Subject to Section 2.6 hereof,
the registration rights set forth in this Agreement are-assignable to any
assignee as to Registrable Securities conveyed in accordance herewith who
acquires no less than (a) five percent (5%) of the Corporation's then
outstanding Registrable Securities or (b) at least fifty percent (50%) of the
Registrable Securities originally held by such assignor. Notwithstanding the
foregoing, the registration rights set forth in this Agreement may be
transferred to any general or limited partner of a Holder or any other
affiliated party of such Holder who is a successor in interest to a Holder
regardless of the percentage of Registrable Securities so transferred.
2.9 Rights Which May Not Be Granted to Subsequent Investors. The
Corporation shall not grant registration rights or enter into any "registration
rights agreement" or similar agreement with any Person after the Closing Date
unless such agreement provides that the holder of such securities may not
participate in any registration requested pursuant to this
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Agreement without the consent of holders of a majority of the Registrable
Securities and such registration rights are neither superior to nor in conflict
with any rights conferred under this Agreement.
2.10 Information by Holder. The holder or holders of Registrable Securities
included in any registration shall furnish to the Corporation such information
regarding such holder or holders, the Registrable Securities held by them, and
the distribution proposed by such holder or holders, as the Corporation may
reasonably request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Article.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise expressly provided
herein, all covenants and agreements contained in this Agreement by or on behalf
of any of the parties hereto shall bind and inure to the benefit of the
respective successors and assigns of the parties hereto, whether so expressed or
not.
3.2 Severability. Each provision of this Agreement shall be
interpreted in such manner as to be effective and valid under applicable law,
but if any provision of this Agreement is held to be prohibited by or invalid
under applicable law, such provision shall be ineffective only to the extent of
such prohibition or invalidity, without invalidating the remainder of this
Agreement.
3.3 Counterparts. This Agreement may be executed in two or more
counterparts, any one of which need not contain the signatures of more than one
party, but all of which counterparts when taken together, shall constitute one
and the same Agreement.
3.4 Descriptive Headings. The descriptive headings of this Agreement
are inserted for convenience only and do not constitute a part of this
Agreement.
3.5 Notices. All notices, demands, consents or other communications
required or permitted hereunder shall be in writing and shall be deemed to have
been given when personally delivered or five (5) business days after deposit in
the U.S. Mail (excluding Saturday and Sunday and any legally recognized Federal
holiday) if sent by first class certified mail, return receipt requested or the
next business day if sent by facsimile (receipt acknowledged), Express Mail,
Federal Express or similar service, addressed to the each party's address as set
forth in the Purchase Agreements, or to such address as any Investor shall
advise the other parties by notice sent in accordance with this Section 3.5 if
any named Person shall desire to change such address.
3.6 Governing Law. The validity, meaning and effect of this Agreement
shall be determined in accordance with the laws of Arizona, applicable to
contracts made and to be performed entirely within the State of Arizona.
3.7 Litigation Costs. Subject to Section 2.4, if any legal action or
any arbitration or other proceeding is brought for the enforcement of this
Agreement, or because of a dispute, breach or default in connection with any of
the provisions of this Agreement, the successful or prevailing party or parties
shall be entitled to recover reasonable attorneys' fees and other costs incurred
in that action or proceeding, in addition to any other relief to which it or
they may be entitled.
3.8 Specific Performance. Each party's obligation under this Agreement
is unique. If any party should default in its obligations under this Agreement,
the parties each acknowledge that it may be extremely impracticable to measure
the resulting damages; accordingly, the non-defaulting party, in addition to any
other available rights or remedies, may sue in equity for specific performance,
and upon satisfactory proof thereof, it may be entitled to obtain such specific
performance.
3.9 Final Agreement. This Agreement constitutes the entire agreement
between the parties pertaining to the subject matter hereof and supersedes,
merges, renders void and terminates all prior and contemporaneous agreements,
understandings, nego-tiations and discussions, whether oral or written, with
respect thereto.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the day and year first above written.
"CORPORATION"
GUM TECH INTERNATIONAL, INC.
By: /S/ JEFFREY L. BOUCHY
--------------------------------
Jeffrey L. Bouchy, Chief Financial
Officer
----------------------------------
(Print Name and Title)
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