Exhibit 4.3


 


INVESTOR RIGHTS AGREEMENT


 


INVESTOR RIGHTS AGREEMENT,
dated as of December 21, 2004 (this “Agreement”), among Otelco Inc., a
Delaware corporation (the “Company”), Seaport Capital Partners II, L.P.,
a Delaware limited partnership (“Seaport Capital”), Seaport Investments,
LLC, a Delaware limited liability company (“Seaport Investments”, and
together with Seaport Capital, “Seaport”), CEA Capital Partners USA,
L.P., a Delaware limited partnership (“CEA Capital”), CEA Capital
Partners USA CI, L.P., a Delaware limited partnership (“CEA Capital CI”,
and together with CEA Capital, “CEA”), BancBoston Ventures Inc., a Massachusetts
corporation (“BancBoston”), Mid-Missouri Parent LLC, a Delaware limited
liability company (“Mid-Missouri Parent”), Michael D. Weaver, Sean
Reilly, Kevin Reilly and Sternberg Consulting Inc., a Louisiana corporation (“Sternberg
Consulting”).


 


BACKGROUND


 


WHEREAS, Seaport,
CEA, BancBoston, Mid-Missouri Parent, Michael D. Weaver, Sean Reilly, Kevin
Reilly and Sternberg Consulting (collectively, the “Holders”) are the
beneficial holders of 544,671shares of Class B Common Stock of the Company, par
value $0.01 per share (“Class B Common Stock”);


 


WHEREAS, the Company
and certain selling stockholders of the Company have effected an initial public
offering of Income Deposit Securities (“IDSs”), each IDS representing
one share of the Company’s Class A Common Stock, par value $0.01 per share (“Class
A Common Stock”) and $64,942,500 aggregate principal amount of 13% senior
subordinated notes due 2019 of the Company (“Subordinated Notes”)
pursuant to an effective registration statement under the Securities Act (as
defined herein) in the United States and pursuant to a long form prospectus or
any amendment or supplement thereto, in the English language, in Canada; and


 


WHEREAS, the Company
has agreed to provide certain exchange rights to the Holders with respect to
their shares of Class B Common Stock and certain registration rights with
respect to any IDSs they hold upon the terms and subject to the conditions set
forth herein.


 


NOW THEREFORE, in
consideration of the mutual covenants contained herein and other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties to this Agreement hereby agree as follows:


 


ARTICLE I


 


DEFINITIONS


 


1.1           Definitions.  As used in this Agreement, the following
terms shall have the following respective meanings:


 


“Additional Notes” shall have the meaning specified in the
Indenture.


 


“Adjusted EBITDA” shall have the meaning specified in the
Indenture.


 





















 


“Agreement” shall have the meaning specified in the introductory
paragraph hereto.


 


“BancBoston” shall have the meaning specified in the
introductory paragraph hereto.


 


“Board” shall mean the board of directors of the Company.


 


“Canadian Prospectus” shall mean a prospectus (including a short
form prospectus) prepared in accordance with applicable Canadian Securities
Laws for the purposes of qualifying securities for distribution or distribution
to the public, as the case may be, in any province or territory of Canada.


 


“Canadian Securities Law” shall mean the statutes and
regulations applicable to the trading of securities in any province or
territory of Canada including applicable rules, policy statements and blanket
rulings and orders promulgated by Canadian securities regulatory authorities.


 


“CEA” shall have the meaning specified in the introductory
paragraph hereto.


 


“CEA Capital” shall have the meaning specified in the
introductory paragraph hereto.


 


“CEA Capital CI” shall have the meaning specified in the
introductory paragraph hereto.


 


“Class A Common Stock” shall have the meaning specified in the
Recitals hereto.


 


“Class B Common Stock” shall have the meaning specified in the
Recitals hereto.


 


“Common Stock”
means the Class A Common Stock and the Class B Common Stock of the Company and
any securities issued or distributed in respect thereof, or in substitution
therefor, in connection with any stock split, dividend, spin-off or
combination, or any reclassification, recapitalization, merger, consolidation,
exchange or other similar reorganization or business combination.


 


“Common Stock Equivalents” means any stock, warrants, rights,
calls, options, debt or other securities exchangeable or exercisable for or
convertible into Common Stock.


 


“Company” shall have the meaning specified in the introductory
paragraph hereto.


 


“Company Offering” shall have the meaning specified in Section
3.6 hereto.


 


“Consolidated Net Income” shall have the meaning specified in
the Indenture.


 


“Delay Notice” shall have the meaning specified in Section
3.6(b) hereto.


 


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“Exchange Act” shall mean the Securities Exchange Act of 1934,
as amended, as then in effect.


 


“Exchange Shelf Registration”  shall have the meaning specified in Section 2.4
hereto.


 


“Exchange Transaction” 
shall have the meaning specified in Section 2.1 hereto.


 


“Governmental Entity” shall mean any court, department, body,
board, bureau, administrative agency or commission or other governmental
authority or instrumentality, whether in the United States or, if applicable,
Canada.


 


“Guarantee” shall have the meaning specified in the Indenture.


 


“Guarantor” shall have the meaning specified in the Indenture.


 


“Holder Exchange”  shall
have the meaning specified in Section 2.1 hereto.


 


“Holders” shall have the meaning specified in the Recitals
hereto.


 


“IDSs” shall have the meaning specified in the Recitals hereto.


 


“Indenture” shall mean the Indenture, dated as of December 21, 2004,
among the Company, certain of its subsidiaries, as guarantors, and Wells Fargo
Bank, National Association, as trustee, relating to the Subordinated Notes, as
it may be amended, supplemented, restated or otherwise modified from time to
time.


 


“Information Delay Notice” shall have the meaning specified in
Section 3.6(b) hereto.


 


“Inspectors” shall have the meaning specified in Section 6.1(l)
hereto.


 


“Majority Holders” shall mean the Holders of a majority of the
voting power of all such securities (including IDSs) held by such Holders; provided
that all such securities shall be treated as having the voting rights of any
underlying securities.


 


“Majority Sellers” means a majority (based on  the number of Registrable Securities owned)
of the Holders eligible to sell pursuant to this Agreement.


 


“Mid-Missouri Parent” shall have the meaning specified in the
introductory paragraph hereto.


 


“NASD” shall mean the National Association of Securities
Dealers, Inc.


 


“Net Income” shall have the meaning specified in the Indenture.


 


“Person” means an individual, corporation, limited liability
company, association, partnership, group (as defined in Section 13(d)(3) of the
Exchange Act), trust, joint venture,


 


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business trust or unincorporated organization, Governmental Entity or
any other entity of any nature whatsoever.


 


“Pro Forma Adjusted EBITDA” means the Adjusted EBITDA of the
Company for the test period plus the Adjusted EBITDA of any Person that becomes
a Restricted Subsidiary of the Company to the extent that the Company’s
Consolidated Net Income does not include the Net Income of such Person less the
Adjusted EBITDA of any Restricted Subsidiary sold, conveyed, transferred or
otherwise disposed of by the Company to the extent that the Company’s
Consolidated Net Income includes the Net Income of such Restricted Subsidiary.


 


“register,” “registered” and “registration” refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act and the effectiveness of such registration
statement.  In addition, unless
inconsistent with the context: (i) the term “registration” and any
references to the act of registering include the qualification under Canadian
Securities Laws of a Canadian Prospectus in respect of a distribution or
distribution to the public, as the case may be, of securities; (ii) the
term “registered” as applied to any securities includes a distribution
or distribution to the public, as the case may be, of securities so qualified;
(iii) the term “registration statement” includes a Canadian
Prospectus; (iv) and reference to a registration statement having become
effective, or similar references, shall include a Canadian Prospectus for which
a final receipt has been obtained from the relevant Canadian securities
regulatory authorities; and (v) the provisions of this Agreement shall be
applied, mutatis mutandis, to
any proposed distribution of securities hereunder in any province or territory
of Canada or to which the prospectus requirements under any of the Canadian
Securities Laws shall otherwise apply.


 


“Registrable Securities” shall mean IDSs, Class A Common Stock
and Subordinated Notes now or hereafter owned by the Holders or any Transferee
thereof.  As to any particular
Registrable Securities, once issued, such Registrable Securities shall cease to
be Registrable Securities when (i) a registration statement with respect
to the sale by the applicable Holder of such securities has become effective
under the Securities Act or, if applicable, when a prospectus has been
receipted under the applicable Canadian Securities Laws, and such securities
have been disposed of in accordance with such registration statement or
prospectus, as the case may be, (ii) such securities have been distributed
to the public pursuant to Rule 144 (or any successor provision) under the
Securities Act or equivalent provisions under Canadian Securities Laws, as
applicable, (iii) such securities have been otherwise transferred, new
certificates for such securities not bearing a legend restricting further
transfer have been delivered by the Company and subsequent disposition of such
securities does not require registration or qualification of such securities
under the Securities Act, applicable Canadian Securities Laws or any state
securities or blue sky law then in force, or (iv) such securities have
ceased to be outstanding.


 


“Registration Expenses” shall mean all expenses incident to the
Company’s performance of or compliance with this Agreement, including all SEC,
stock exchange or quotation system, NASD, Canadian securities regulatory
authorities and Canadian stock exchange registration and filing fees and
expenses, fees and expenses of compliance with securities or blue sky laws
(including reasonable fees and disbursements of counsel for any underwriters in
connection with blue sky qualifications of the Registrable Securities), rating


 


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agency fees, printing expenses, messenger, telephone and delivery expenses,
the fees and expenses incurred in connection with the listing of the securities
to be registered on any securities exchange or quotation system, fees and
disbursements of counsel for the Company and all independent certified public
accountants (including the expenses of any annual audit, special audit and “cold
comfort” letters required by or incident to such performance and compliance),
the fees and disbursements of underwriters (including all fees and expenses of
any “qualified independent underwriter” required by the rules of the NASD)
customarily paid by issuers or sellers of securities, the expenses customarily
borne by the issuers of securities in a “road show” presentation to potential
investors, the reasonable fees and disbursements of one legal counsel for the
selling Holders in each registration (as selected by the Majority Sellers), the
reasonable fees and expenses of any special experts retained by the Company in
connection with such registration, and fees and expenses of other persons retained
by the Company (but not including any underwriting discounts or commissions
(which shall be paid or borne by the selling Holder) or transfer taxes, if any,
attributable to the sale of Registrable Securities) and other reasonable
out-of-pocket expenses of the Holders.


 


“Requesting Party” shall have the meaning specified in Section
3.1 hereto.


 


“Restricted Subsidiary” shall have the meaning specified in the
Indenture.


 


“Seaport” shall have the meaning specified in the introductory
paragraph hereto.


 


“Seaport Capital” shall have the meaning specified in the
introductory paragraph hereto.


 


“Seaport Investments” shall have the meaning specified in the
introductory paragraph hereto.


 


“SEC” shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act or the
Exchange Act.


 


“Securities Act” shall mean the Securities Act of 1933, as
amended, then in effect.


 


“Separation Exchange” shall have the meaning specified in
Section 2.1 hereto.


 


“Shelf Registration” shall have the meaning specified in Section
3.4 hereto.


 


“Sternberg Consulting” shall have the meaning specified in the
introductory paragraph hereto.


 


“Subordinated Note Guarantees” shall have the meaning specified
in the Indenture.


 


“Subordinated Notes” shall have the meaning specified in the
Recitals hereto.


 


“Subsidiary Guarantors” shall have the meaning specified in the
Indenture.


 


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“Threshold Level” means $30,150,000 plus the Adjusted EBITDA of any
Person that becomes a Restricted Subsidiary of the Company less the Adjusted
EBITDA of any Restricted Subsidiary sold, conveyed, transferred or otherwise
disposed of by the Company, in each case for the four full fiscal quarters
preceding the date of acquisition or disposition.


 


“Transaction Delay Notice” shall have the meaning specified in
Section 3.6(a) hereto.


 


“Transferee” means any Person to whom any Holder or any
Transferee thereof transfers Registrable Securities, including any Person who
purchases shares of Class B Common Stock from the Holders and receives IDSs
from the Company in exchange for the Class B Common Stock purchased from the
Holders.


 


“Transfer Exchange”  shall
have the meaning specified in Section 2.1 hereto.


 


“Trustee” shall have the meaning specified in the Indenture.


 


ARTICLE II


 


EXCHANGE RIGHT


 


2.1           Exchange Right.  The parties to this Agreement hereby agree
that, except as set forth below, shares of the Class B Common Stock shall not
be (A) exchangeable for IDSs or (B) transferred, sold, assigned, pledged,
hypothecated or otherwise disposed of except (1) transfers as a gift or gifts
to such Holder’s spouse, lineal descendant, father, mother, brother or sister (“immediate
family”) or to a trust the beneficiary of which is exclusively the Holder
and/or a member or members of his or her immediate family, provided that
the donee thereof agrees in writing to be bound by the terms of this Agreement
or (2) distributions to such Holder’s shareholders, partners or members, provided
that such shareholders, partners or members agree in writing to be bound by the
terms of this Agreement.  Any Holder may:


 


(i)            exchange
shares of Class B Common Stock for IDSs on and after                    ,
2006, with the initial exchange rate being one IDS for each share of Class B
Common Stock (such exchange rate being subject to customary adjustment for
adjustments specified in the definition of “Common Stock” set forth above) (a “Holder
Exchange”);


 


(ii)           in
connection with a sale of shares of Class B Common Stock on and after December
30, 2006, cause the shares of Class B Common Stock proposed to be sold to be
exchanged for IDSs, with the initial exchange rate being one IDS for each share
of Class B Common Stock (such exchange rate being subject to customary adjustment
for adjustments specified in the definition of “Common Stock” set forth above)
(a “Transfer Exchange”); and/or


 


(iii)          effective
immediately prior to any automatic separation of the IDSs, exchange shares of
Class B Common Stock for Class A Common Stock of the Company and Subordinated
Notes, with the initial exchange rate being one share of Class A Common Stock
and a Subordinated Note in the principal amount of $7.50 for each


 


6





















 


share of Class B Common Stock (such exchange rate subject to customary
adjustment for adjustments specified in the definition of “Common Stock” set
forth above); provided, however, that if the Subordinated Notes
are not outstanding at the time of any such exchange, the Class B Common Stock
that would otherwise be exchanged for Class A Common Stock and Subordinated
Notes shall instead be exchanged for 1.9740 shares of Class A Common Stock
(such exchange rate subject to customary adjustment for adjustments specified
in the definition of “Common Stock” set forth above). (a “Separation
Exchange” and together with a Holder Exchange and a Transfer Exchange, an “Exchange
Transaction”).


 


2.2           Exchange Conditions.  (a)   The parties hereto agree that,
prior to any Exchange Transaction, the following conditions must be met:


 


(i)            such
Exchange Transaction shall comply with applicable laws, including, without
limitation, securities laws, laws relating to the redemption of common stock
and laws relating to the issuance of debt;


 


(ii)           such
Exchange Transaction shall occur pursuant to an effective registration
statement in the United States and, if necessary, a receipted prospectus for
all the provinces (other than the province of Quebec) or territories of Canada;


 


(iii)          such
Exchange Transaction will not conflict with or cause a default under the
Company’s Certificate of Incorporation or any material financing agreement of
the Company or any of its subsidiaries;


 


(iv)          such
Exchange Transaction shall not cause a mandatory suspension of dividends or deferral
of interest under any material financing agreement of the Company or any of its
subsidiaries as of the measurement date immediately following the proposed
Exchange Transaction;


 


(v)           only
if the shares of Class B Common Stock are to be exchanged for IDSs, the Company
delivers to the Trustee prior to or simultaneously with such Exchange
Transaction an opinion of tax counsel to the effect that the Subordinated Notes
underlying the IDSs for which the Class B Common Stock is exchanged should be
treated as debt for U.S. federal income tax purposes; provided, however,
that this condition need only be met to the extent required by the Indenture in
connection with an issuance of Additional Notes;


 


(vi)          only
if the shares of Class B Common Stock are to be exchanged for IDSs, the Company
delivers to the Trustee prior to or simultaneously with such Exchange
Transaction an opinion of counsel, subject to exceptions and assumptions
customary for such opinions, to the effect that the Subordinated Notes
underlying the IDSs for which the Class B Common Stock is exchanged and the
related Guarantees constitute valid and binding obligations of the Company and
the respective Guarantors and are enforceable against the Company and the
respective Guarantors in accordance with their terms; provided, however,
that this condition need only be met to the extent required by the Indenture in
connection with an issuance of Additional Notes; and


 


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(vii)         only
if the shares of Class B Common Stock are to be exchanged for IDSs, if an
issuance of Subordinated Notes underlying the IDSs for which the Class B Common
Stock is exchanged in an Exchange Transaction would trigger the automatic
exchange provisions of the Indenture, the Company delivers to the Trustee prior
to or simultaneously with such issuance a certificate from its principal
financial officer to the effect that on the date the Subordinated Notes
underlying the IDSs for which the Class B Common Stock is exchanged are issued,
after giving pro forma effect to the issuance of such Subordinated Notes and
the related Subordinated Note Guarantees, the Company and each of the Subsidiary
Guarantors are solvent; provided, however, that this condition
need only be met to the extent required by the Indenture in connection with an
issuance of Additional Notes.


 


(b) In addition to the foregoing, the parties
hereto agree that the following additional conditions must be met prior to any
Holder Exchange or Transfer Exchange:


 


(i)            the
Company shall have generated Pro Forma Adjusted EBITDA (as certified by the
Chief Financial Officer of the Company) equal to or greater than the Threshold
Level over the most recent four consecutive fiscal quarters immediately prior
to such Holder Exchange or Transfer Exchange, as applicable (the “test
period”); provided, however, that the condition contained in
this subsection (i) shall only be applicable to Holder Exchanges or Transfer
Exchanges occurring on or prior to December 30, 2009;


 


(ii)           no
event of default or deferral of interest shall have occurred and be continuing
under the Indenture; and


 


(iii)          the
Holder shall have given the Company at least 30 but not more than 60 days
advance notice of its desire to effect such Holder Exchange or Transfer
Exchange (as applicable); provided that such minimum advance notice
period may be increased from time to time to the extent necessary, in the
determination of the Board, to comply with the rules, regulations and
protocols, as then in effect, of the SEC, the principal stock exchange on which
the relevant securities of the Company are then listed or admitted to trading,
the Depository Trust Company, or the transfer agent with respect to such
securities.


 


2.3           Adjustment in the
Event of OID Upon Sale or Exchange. 
Notwithstanding anything to the contrary in this Agreement, if the
Exchange Transaction would result in the issuance of IDSs that include
Subordinated Notes that are issued with “original issue discount” for U.S.
income tax purposes, holders of Subordinated Notes outstanding prior to such
Exchange Transaction and holders of Class B Common Stock exchanging shares of
Class B Common Stock will automatically exchange among themselves a portion of
the Subordinated Notes they each hold so that immediately following such automatic
exchange, each holder will own a pro rata portion of the new Subordinated Notes
and the old Subordinated Notes, as more fully set forth in, and subject to the
terms and provisions of, the Indenture.


 


2.4           Exchange Shelf
Registration.  The Company shall file
with the SEC a registration statement for an offering to be made on a
continuous basis pursuant to Rule 415


 


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under the Securities Act covering the securities issuable by the
Company in all Exchange Transactions (an “Exchange Shelf Registration”).  The Exchange Shelf Registration shall be on
Form S-3 under the Securities Act or another appropriate form permitting
registration of such securities.  The
Company shall use its commercially reasonable efforts to cause the Exchange
Shelf Registration to be declared effective by the SEC no later than December
30, 2006, and to keep the Exchange Shelf Registration continuously effective,
supplemented and amended so that the Exchange Shelf Registration will be available
for an Exchange Transaction until the earliest of (i) the date all shares of
Class B Common Stock have been exchanged in an Exchange Transaction and (ii) December
30, 2008.  The Company shall pay all
Registration Expenses in connection with the Exchange Shelf Registration.


 


ARTICLE III


 


DEMAND REGISTRATION


 


3.1           Request for
Registration.  After compliance with
the procedures set forth herein, upon the written request of any Holder (the “Requesting
Party”), at any time after December 30, 2006 (and subject to the procedures
of this paragraph), requesting that the Company effect the registration under
the Securities Act and/or applicable Canadian Securities Laws of all or part of
the Registrable Securities and specifying the intended method of disposition
thereof, the Company will use its commercially reasonable efforts to effect the
registration under the Securities Act and, if requested, applicable Canadian
Securities Laws of such Registrable Securities (which registration shall also
include any Registrable Securities requested by the other Holders to be
included in such registration request made by the Requesting Party).  Upon receiving the request from the
Requesting Party, the Company shall give written notice to the Holders of
Registrable Securities of the intent to register Registrable Securities under
the Securities Act and, if applicable, the Canadian Securities Laws and such
Holder’s right to participate in such registration at least 30 days prior to
the anticipated filing date of the registration pursuant to this Article
III.  Upon the written request of any
Holder made within 15 days after the receipt of the Company’s notice (which
request shall specify the number of Registrable Securities intended to be
disposed of by such Holder), the Company shall use its commercially reasonable
efforts to effect the proposed registration under the Securities Act and, if
applicable, Canadian Securities Laws of all Registrable Securities which the
Company has been so requested to register by such Holders to the extent
requisite to permit the disposition of the Registrable Securities so to be
registered.  If a registration pursuant
to this Section 3.1 involves an underwritten public offering, any such Holder
may elect, in writing no less than five business days prior to the effective
date of the registration statement filed in connection with such registration,
not to register such securities in connection with such registration.  The Company will pay all Registration
Expenses in connection with each registration of Registrable Securities
requested pursuant to this Article III.


 


Notwithstanding the foregoing, in no event shall the Company have any
obligation to effect a registration under this Section 3.1 unless the amount of
the Registrable Securities requested to be included in such offering would
result in initial aggregate proceeds (determined at the time of the time of the
initial filing of the registration statement relating thereto) of at least
$3,000,000; provided, however, that if the Holders have
at least one demand registration right remaining, the Holders may make a demand
registration pursuant to this


 


9





















 


Section 3.1 if such demand registration is for the remaining shares of
Registrable Securities of such Holders, even if such offering would result in
initial aggregate proceeds (determined at the time of the time of the initial
filing of the registration statement relating thereto) less than $3,000,000.


 


Notwithstanding anything in this Article III to the contrary, in no
event will the Holders collectively be entitled to more than three
registrations pursuant to this Section 3.1, except that the following shall not
constitute a registration for this purpose: a registration so requested (i) that
is not deemed to have been effected pursuant to Section 3.3 or (ii) where the
number of Registrable Securities included by the Holders in such registration
and sold pursuant thereto is less than 75% of the number of shares of
Registrable Securities sought to be included by the Holders in such
registration.


 


3.2           Effective
Registration Statement.  A
registration requested pursuant to this Article III shall not be deemed to have
been effected:


 


(i)            unless
a registration statement with respect thereto has become effective and remained
effective in compliance with the provisions of the Securities Act and, if
applicable, Canadian Securities Laws for at least six months with respect to
the disposition of all Registrable Securities covered by such registration
statement or, if earlier, until such time as all of such Registrable Securities
have been disposed of in accordance with the intended methods of disposition
thereof set forth in such registration statement, other than primarily as a
result of acts or omissions of any participating Holder or any authorized agent
thereof;


 


(ii)           if
after it has become effective, such registration is interfered with by any stop
order, injunction or other order or requirement of the SEC, the applicable
Canadian securities regulatory authorities or other Governmental Entity for any
reason not attributable to any participating Holder or any authorized agent
thereof and has not thereafter become effective; or


 


(iii)          if
the conditions to closing specified in the underwriting agreement, if any,
entered into in connection with such registration are not satisfied or waived.


 


3.3           Shelf Registration.  If the Company has used and is then permitted
to use registration statements pursuant to Rule 415 under the Securities Act
and, if applicable, pursuant to an equivalent provision under Canadian
Securities Laws, including National instrument 44-102, as applicable (the “Shelf
Registration”) for the sale of IDSs or Common Stock, the Majority Sellers
shall be permitted to request that any registration under this Article III be
made under a Shelf Registration.  The
Company shall use its commercially reasonable efforts to keep such Shelf
Registration continuously effective for the period beginning on the date on
which the Shelf Registration is declared effective and ending on the first date
that there are no Registrable Securities covered by such registration.  During the period during which the Shelf
Registration is effective, the Company shall supplement or make amendments to
the Shelf Registration, if required by the Securities Act or Canadian
Securities Laws or if reasonably requested by the Majority Sellers or an
underwriter of Registrable Securities, including to reflect any specific plan


 


10





















 


of distribution or method of sale, and shall use its commercially
reasonable efforts to have such supplements and amendments declared effective,
if required, as soon as practicable after filing.


 


3.4           Priority in
Requested Registrations.  If a
requested registration pursuant to this Article III involves an underwritten
offering and the managing underwriter (in consultation with the underwriter
appointed by the Majority Sellers pursuant to Section 3.7 below) advises the
Company and the Holders in writing that, in its opinion, the number of
securities requested to be included in such registration by all Holders, the
Company and other holders (including securities of the Company which are not
Registrable Securities and which the holder thereof has the right to include in
any such registration) exceeds the largest number of securities which can be
sold without reasonably expecting to have an adverse effect on such offering,
including the price at which such securities can be sold, the number of such
securities to be included in such registration shall be reduced to such extent,
and the Company shall include in such registration such maximum number of
securities as follows: (a) first, all the Registrable Securities requested
to be included in such registration by the Holders, (b) second, to the
extent that the number of Registrable Securities which the Holders have
requested to be included in such registration is less than the number of
securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, all the securities which
the Company proposes to sell for its own account and (c) third, to the
extent that the number of securities which the Holders have requested to be
included in such registration and the number of securities which the Company
proposes to sell for its own account is, in the aggregate, less than the number
of securities which the Company has been advised can be sold in such offering
without having the adverse effect referred to above, the number of securities
requested to be included in such registration by all other holders thereof
which number shall be limited to such extent, and, subject to any rights of
such other holders, shall be allocated pro rata among all such holders on the
basis of the relative number of such securities then held by each such holder; provided
that any such amount thereby allocated to any such holder that exceeds such
holder’s request shall be reallocated among the remaining requesting holders in
like manner.  If any Holder advises the
managing underwriter of any underwritten offering that the Registrable
Securities and other securities covered by the registration statement cannot be
sold in such offering within a price range acceptable to such Holder, then such
Holder shall have the right to exclude all or any portion of its Registrable
Securities from registration.


 


3.5           Postponements in
Requested Registrations. 
(a) If, upon receipt of a registration request pursuant to Section
3.1, the Company is advised in writing by a nationally recognized investment
banking firm in the United States or Canada selected by the Company that, in
such firm’s opinion, a registration by the Company at the time and on the terms
requested would adversely affect any public offering of securities of the
Company (other than in connection with employee benefit and similar plans) (a “Company
Offering”) with respect to which the Company has commenced preparations for
a registration prior to the receipt of a registration request pursuant to
Section 3.1 and the Company furnishes the Holders with a certificate signed by
the Chief Executive Officer or Chief Financial Officer of the Company to such
effect (the “Transaction Delay Notice”) promptly after such request, the
Company shall not be required to effect a registration pursuant to Section 3.1
until the earliest of (i) 30 days after the completion of such Company
Offering, (ii) promptly after the abandonment of such Company Offering or
(iii) 90 days after the date of the Transaction Delay Notice; provided that in any event the
Company shall not be required to effect any registration prior to the
termination,


 


11





















 


waiver or reduction of any “blackout period” required by the
underwriters to be applicable to the Holders in connection with any Company
Offering; provided further
that in no event shall the Company delay such registration for more than 180
days.


 


(b)           If upon receipt of a
registration request pursuant to Section 3.1 or while a registration request
pursuant to Section 3.1 is pending, the Company determines in its good faith
judgment that the filing of a registration statement or any amendment thereto
would require disclosure of material information which the Company has a bona
fide business purpose for preserving as confidential and the Company provides
the Holders written notice (the “Information Delay Notice” and, together
with the Transaction Delay Notice, the “Delay Notice”) thereof promptly
after the Company makes such determination, which shall be made promptly after
the receipt of any request, the Company shall not be required to comply with
its obligations under Section 3.1 until the earlier of (i) the date upon
which such material information is disclosed to the public or ceases to be
material or (ii) 30 days after the Holders’ receipt of such Information
Delay Notice.


 


(c)           Notwithstanding the
foregoing provisions of this Section 3.5, the Company shall be entitled to
serve only one Delay Notice (A) within any period of 180 consecutive days
or (B) with respect to any two consecutive registrations requested
pursuant to Section 3.1.


 


3.6           Expenses.  The Company will pay all Registration
Expenses in connection with the registrations requested pursuant to Section
3.1.


 


3.7           Selection of
Underwriters.  If in any requested registration
pursuant to this Article III the Majority Sellers request that such
registration shall be in the form of an underwritten offering, such offering
shall be an underwritten offering and the Company, in consultation with the
Majority Sellers, shall have the right to select any investment banker and
manager or co-managers to administer the offering.  The Company and all participating Holders
shall enter into an underwriting agreement in customary form with the underwriter
or underwriters selected for such underwriting, as well as all other documents
customary in similar offerings, including underwriting agreements, custody
agreements, powers of attorney, and indemnification agreements.


 


12





















 


ARTICLE IV


 


INCIDENTAL REGISTRATION


 


4.1           Right to Include
Registrable Securities.  If the
Company proposes to register any of its IDSs or Common Stock under the
Securities Act (other than: (i) a registration in connection with an
employee stock option or other benefit plan; (ii) a registration on Form S-4 or
any successor or similar form; (iii) an Exchange Shelf Registration; or
(iv) a similar registration under Canadian Securities Laws) and applicable
Canadian Securities Laws (or under the Securities Act or applicable Canadian
Securities Laws if the offering will not be registered under both the
Securities Act and applicable Canadian Securities Laws), whether or not for
sale for its own account (and including any registration pursuant to a request
or demand registration right of any other person), at any time, then the
Company will each such time, subject to the provisions of Section 4.2 hereof,
give written notice to the Holders of its intention to do so and of the Holders’
rights under this Article IV, at least 30 days prior to the anticipated filing
date of the registration statement relating to such registration.  Such notice shall offer the Holders the
opportunity to include in such registration statement such number of Registrable
Securities as each Holder may request. 
Upon the written request of any Holder made within 15 days after the
receipt of the Company’s notice (which request shall specify the number of
Registrable Securities intended to be disposed of by such Holder), the Company
shall use its commercially reasonable efforts to effect the proposed
registration under the Securities Act and, if applicable, Canadian Securities
Laws of all Registrable Securities which the Company has been so requested to
register by such Holder to the extent requisite to permit the disposition of
the Registrable Securities so to be registered; provided that (i) if such registration involves an
underwritten offering, any such Holder must sell its Registrable Securities to
the underwriters selected by the Company on the same terms and conditions as
apply to the Company (except that indemnification obligations of any such
Holder shall be limited to those obligations set forth in Article VII
hereof) and (ii) if, at any time after giving written notice of its
intention to register any securities pursuant to this Section 4.1 and prior to
the effective date of the registration statement filed in connection with such
registration, the Company shall determine for any reason not to register such
securities, the Company shall give written notice to each such Holder and,
thereupon, shall be relieved of its obligation to register any Registrable
Securities in connection with such registration.  If a registration pursuant to this Section
4.1 involves an underwritten public offering, any such Holder may elect, in
writing no less than five business days prior to the effective date of the
registration statement filed in connection with such registration, not to
register such securities in connection with such registration.  No registration effected under this Article
IV shall relieve the Company of its obligations to effect registrations upon
request under Article III hereof.  The
Company will pay all Registration Expenses in connection with each registration
of Registrable Securities requested pursuant to this Article IV.


 


4.2           Priority in
Incidental Registrations.  If a
registration pursuant to this Article IV involves an underwritten offering and
the managing underwriter advises the Company in writing that, in its opinion,
the number of securities (including IDSs and all Registrable Securities) which
the Company, the Holders and any other persons intend to include in such
registration exceeds the largest number of securities which can be sold without
reasonably expecting to have an adverse effect on such offering, including the
price at which such securities can be sold, the number of such securities to be
included in such registration shall be reduced to


 


13





















 


such extent, and the Company will include in such registration such
maximum number of securities as follows: first, all the securities the Company
proposes to sell for its own account pursuant to Section 4.1 in such
registration and second, to the extent that the number of securities which the
Company proposes to sell for its own account pursuant to Section 4.1 hereof is
less than the number of securities which the Company has been advised can be
sold in such offering without having the adverse effect referred to above, the
aggregate of the number of Registrable Securities requested to be included in
such registration by the Holders and the number of any other such securities
requested to be included in such registration by other holders shall be limited
to such extent, and shall be allocated pro rata among the Holders and all such
holders on the basis of the relative number of such securities then held by
each Holder and each such holder; provided
that any such amount thereby allocated to each Holder or any such other holder
that exceeds such Holder’s or such holder’s request, respectively, shall be
reallocated among the Holders and the remaining requesting holders in like
manner, as applicable.


 


ARTICLE V


 


HOLDBACK AGREEMENTS


 


5.1           Restrictions on
Public Sale by the Company and Others. 
If any registration of Registrable Securities shall be made in
connection with an underwritten public offering, the Company agrees
(i) not to effect any public sale or distribution of any IDSs, Common
Stock, Common Stock Equivalents, or other securities or of any security convertible
into or exchangeable or exercisable for any IDSs, Common Stock, Common Stock
Equivalents, or other securities of the Company (other than in connection with
an employee stock option or other benefit plan) during the 30 days prior to,
and during the 90-day period beginning on, the closing date of the sale of the
Registrable Securities pursuant to an effective registration statement (except
as part of such registration) and (ii) that any agreement entered into on or
after the date of this Agreement pursuant to which the Company issues or agrees
to issue any privately placed IDSs, Common Stock, Common Stock Equivalents, or
other securities shall contain a provision under which holders of such
securities agree not to effect any public sale or distribution of any such
securities during the period referred to in the foregoing clause (i), including
any sale pursuant to Rule 144 under the Securities Act and the equivalent
provisions under Canadian Securities Laws, including OSC Rule 45-501 (except as
part of such registration, if permitted).


 


ARTICLE VI


 


REGISTRATION PROCEDURES


 


6.1           Registration
Procedures.  If and whenever the
Company is required to use its commercially reasonable efforts to effect or
cause the registration of any Registrable Securities under the Securities Act
and, if applicable, Canadian Securities Laws as provided in this Agreement,
other than an Exchange Shelf Registration, the Company will, as expeditiously
as possible:


 


(a)           use its commercially
reasonable efforts to prepare and file with the SEC and, if applicable,
Canadian securities regulatory authorities within 90 days (or, for registration


 


14





















 


on a Form S-3 or any similar short-form registration statement, 60
days), after receipt of a request for registration with respect to such
Registrable Securities, a registration statement or prospectus on any form for
which the Company then qualifies or which counsel for the Company shall deem
appropriate, and which form shall be available for the sale of the Registrable
Securities in accordance with the intended methods of distribution thereof, and
use its commercially reasonable efforts to cause such registration statement to
become and remain effective as promptly as practicable, subject to the Majority
Holders’ right to defer the Company’s request for the acceleration of
effectiveness of any such registration statement as may be necessary to
accommodate the anticipated timetable for such offering; provided that before filing with
the SEC and, if applicable, Canadian securities regulatory authorities a
registration statement or prospectus or any amendments or supplements thereto,
the Company will (i) furnish to the selling Holders copies of the form of
prospectus (including the preliminary prospectus) proposed to be filed and
furnish to counsel for the selling Holders copies of all such documents
proposed to be filed, which documents will be subject to the review of such
counsel and shall not be filed without the approval of such counsel (which approval
shall not be unreasonably withheld) and (ii) notify the selling Holders of
any stop order issued or threatened by the SEC and/or applicable Canadian
securities regulatory authorities and take all reasonable actions required to
prevent the entry of such stop order or to remove it if entered;


 


(b)           subject to Section 3.3
in the case of a Shelf Registration, prepare and file with the SEC and, if
applicable, Canadian securities regulatory authorities such amendments and
supplements to such registration statement and the prospectus (including each
preliminary prospectus) used in connection therewith as may be necessary to
keep such registration statement effective for a period of not less than 180
days or such shorter period which will terminate when all Registrable
Securities covered by such registration statement have been sold (but not
before the expiration of the 90-day period referred to in Section 4(3) of the
Securities Act and Rule 174 thereunder and the equivalent provision under
Canadian Securities Laws), and comply with the provisions of the Securities Act
and the Canadian Securities Laws applicable to it with respect to the
disposition of all securities covered by such registration statement during
such period in accordance with the intended methods of disposition by the
sellers thereof set forth in such registration statement;


 


(c)           promptly furnish to
each Holder and each underwriter, if any, of Registrable Securities covered by
such registration statement such number of copies of such registration
statement, each amendment and supplement thereto (in each case including all
exhibits thereto), the prospectus included in such registration statement
(including each preliminary prospectus), in conformity with the requirements of
the Securities Act and, if applicable, Canadian Securities Laws, copies of any
correspondence with the SEC and/or the applicable Canadian securities
regulatory authorities or their staff relating to the registration statement
and such other documents as any Holder or underwriter may reasonably request in
order to facilitate the disposition of the Registrable Securities by such
Holder;


 


(d)           use its commercially
reasonable efforts to register or qualify such Registrable Securities under
such other securities or blue sky laws of such jurisdictions as any Holder or
each underwriter, if any, reasonably requests and do any and all other acts and
things which may be reasonably necessary or advisable to enable such Holder and
each underwriter, if any, to consummate the disposition in such jurisdictions
of the Registrable Securities; provided


 


15





















 


that the Company will not be required to (i) qualify generally to
do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any
such jurisdiction or (iii) consent to general service of process in any
such jurisdiction;


 


(e)           use its commercially
reasonable efforts to cause the Registrable Securities covered by such registration
statement to be registered with or approved by such other Governmental Entities
as may be necessary by virtue of the business and operations of the Company to
enable the selling Holders to consummate the disposition of such Registrable
Securities;


 


(f)            immediately notify the
selling Holders at any time when a prospectus relating thereto is required to
be delivered under the Securities Act and/or Canadian Securities Laws of the
happening of any event which comes to the Company’s attention if as a result of
such event the prospectus included in such registration statement contains an
untrue statement of a material fact or omits to state any material fact
required to be stated therein or necessary to make the statements therein, in
light of the circumstances under which they were made, not misleading and the
Company will promptly prepare and furnish to the selling Holders a supplement
or amendment to such prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state any material fact required
to be stated therein or necessary to make the statements therein, in light of
the circumstances under which they were made, not misleading;


 


(g)           use its commercially
reasonable efforts to prevent the issuance of and obtain the withdrawal of any
stop order suspending the effectiveness of a registration statement relating to
the Registrable Securities or of any order preventing or suspending the use of
any preliminary or final prospectus at the earliest practicable moment;


 


(h)           if requested by the
managing underwriter or underwriters or any selling Holder, immediately
incorporate in a prospectus supplement or post-effective amendment such
information as the managing underwriters and each applicable selling Holder
agree and reasonably request should be included therein relating to the plan of
distribution with respect to such Registrable Securities, including information
with respect to the number of Registrable Securities being sold to such
underwriters, the purchase price being paid therefor by such underwriters and
with respect to any other terms of the underwritten (or best efforts
underwritten) offering of the Registrable Securities to be sold in such
offering; and make all required filings of such prospectus supplement or
post-effective amendment as soon as notified of the matters to be incorporated
in such prospectus supplement or post-effective amendment;


 


(i)            cooperate with the
selling Holders and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold and not bearing any restrictive legends; and enable such Registrable
Securities to be in such denominations and registered in such names as the
managing underwriters may request at least three business days prior to any
sale of the Registrable Securities to the underwriters;


 


(j)            use its commercially
reasonable efforts to cause all such Registrable Securities to be listed on
each securities exchange or quotation system on which the same


 


16





















 


securities issued by the Company are then listed, and enter into such
customary agreements including a listing application and indemnification
agreement in customary form if the applicable listing requirements are
satisfied, and to provide a transfer agent and registrar for such Registrable
Securities covered by such registration statement no later than the effective
date of such registration statement;


 


(k)           enter into such
customary agreements (including an underwriting agreement in customary form)
and take all such other actions as the Majority Sellers or the underwriters, if
any, reasonably request in order to expedite or facilitate the disposition of
such Registrable Securities, including customary indemnification and making
appropriate members of senior management of the Company available (subject to
consulting with them in advance as to schedule) for customary participation in “road
show” presentations to potential investors;


 


(l)            make available for
inspection by the Holders, any underwriter participating in any disposition
pursuant to such registration statement, and any attorney, accountant or other
agent retained by any Holder or underwriter (collectively, the “Inspectors”),
all financial and other records, pertinent corporate documents and properties
of the Company and its subsidiaries, if any, as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause the
Company’s and its subsidiaries’ officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any such
Inspector in connection with such registration statement;


 


(m)          in an underwritten
offering, use its commercially reasonable efforts to obtain (i) an opinion
or opinions of counsel to the Company and (ii) a “cold comfort” letter or
letters from the Company’s independent public accountants in customary form and
covering such matters of the type customarily covered by opinions and “cold
comfort” letters (provided that the term “customarily” as applied to any
Registrable Securities shall be deemed to include, without limitation, letters
and opinions delivered to the Company in the IPO) as the underwriter reasonably
requests;


 


(n)           otherwise use its
commercially reasonable efforts to comply with all applicable rules and
regulations of the SEC and, if applicable, Canadian securities regulatory
authorities, and make available to its security holders, within the required
time periods, an earning statement covering the required periods, which earning
statement shall satisfy the provisions of Section 11(a) of the Securities Act
and Rule 158 thereunder or any successor provisions thereto and, if applicable,
the equivalent provisions under Canadian Securities Laws;


 


(o)           promptly prior to the
filing of any document which is to be incorporated by reference into the
registration statement or the prospectus (after the initial filing of the registration
statement) and, if applicable, the Canadian Prospectus (including each
preliminary prospectus), provide copies of such document to counsel to the
selling Holders and to the managing underwriters, if any, make the Company’s
representatives available for discussion of such document and make such changes
in such document prior to the filing thereof as counsel for the selling Holders
may reasonably request;


 


(p)           promptly notify the
selling Holders, counsel for the selling Holders, and the managing underwriter
or agent and provide them with copies of such relevant documents,


 


17





















 


(i) when the registration statement, or any post-effective
amendment to the registration statement, shall have become effective, or any
supplement to the prospectus or any amendment to the prospectus shall have been
filed, (ii) of the receipt of any comments from the SEC or applicable
Canadian securities regulatory authorities, (iii) of any request of the
SEC or applicable Canadian securities regulatory authorities to amend the
registration statement or amend or supplement the prospectus or for additional
information, and (iv) of the issuance by the SEC or applicable Canadian
securities regulatory authorities of any stop order suspending the
effectiveness of the registration statement or of any order preventing or
suspending the use of any prospectus, or of the suspension of the qualification
of the registration statement for offering or sale in any jurisdiction, or of
the institution or threatening of any proceedings for any of such purposes; and


 


(q)           cooperate with the
selling Holders and each underwriter or agent participating in the disposition
of such Registrable Securities and their respective counsel in connection with
any filings required to be made with any securities exchange and/or the NASD.


 


It shall be a condition precedent to the obligation of the Company to
take any action pursuant to this Agreement in respect of the securities which
are to be registered at the request of any Holder that such Holder shall
furnish to the Company such information regarding the securities held by such
Holder and the intended method of disposition thereof as the Company shall
reasonably request in connection with such registration.


 


Each Holder agrees that, upon receipt of any notice from the Company of
the happening of any event of the kind described in clause (f) of Section
6.1 hereof, such Holder will forthwith discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Holder receives the copies of the prospectus supplement
or amendment contemplated by clause (f) of Section 6.1 hereof, and, if so
directed by the Company, such Holder will deliver to the Company (at the
Company’s expense) all copies, other than permanent file copies, then in such
Holder’s possession, of the prospectus covering such Registrable Securities
current at the time of receipt of such notice. In the event the Company shall
give any such notice, the period mentioned in clause (b) of Section 6.1
hereof shall be extended by the greater of (i) three months or
(ii) the number of days during the period from and including the date of
the giving of such notice pursuant to clause (f) of Section 6.1 hereof to
and including the date when such Holder shall have received the copies of the
prospectus supplement or amendment contemplated by clause (f) of Section
6.1 hereof.


 


ARTICLE VII


 


INDEMNIFICATION


 


7.1           Indemnification by
the Company.  In the event of any
registration of any Registrable Securities under the Securities Act and, if
applicable, Canadian Securities Laws pursuant to Article III or IV hereof, the
Company will, and it hereby does, indemnify and hold harmless, to the full
extent permitted by law, each selling Holder, their directors and officers,
employees, stockholders, general partners, limited partners, members, advisory
directors and managing directors (and directors, officers, stockholders,
general partners, limited partners, members, advisory directors, managing
directors and controlling persons thereof), each other


 


18





















 


person who participates as an
underwriter in the offering or sale of such securities and each other person,
if any, who controls, is controlled by or is under common control with any such
Holder or any such underwriter within the meaning of the Securities Act and, if
applicable, Canadian Securities Laws, against any and all losses, claims,
damages or liabilities, joint or several, and expenses (including any amounts
paid in any settlement effected with the Company’s consent) to which such
Holder, any such director, or officer, employee, stockholder, general or
limited partner, member, or advisory or managing director or any such underwriter
or controlling person may become subject under the Securities Act and, if
applicable, Canadian Securities Laws, state securities or blue sky laws, common
law or otherwise, insofar as such losses, claims, damages or liabilities (or
actions or proceedings in respect thereof) or expenses arise out of or are
based upon (i) any untrue statement or alleged untrue statement of any
material fact contained, on the effective date thereof, in any registration
statement under which such Registrable Securities were registered under the
Securities Act and, if applicable, Canadian Securities Laws, any prospectus
(including each preliminary prospectus) contained therein, or any amendment or
supplement thereto or (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein not misleading (in the case of a prospectus (including each
preliminary prospectus), in light of the circumstances under which they are
made), and the Company will reimburse each such Holder and each such director,
officer, employee, general partner, limited partner, advisory director,
managing director or underwriter and controlling person for any legal or any
other expenses reasonably incurred by them as such expenses are incurred in
connection with investigating or defending such loss, claim, liability, action
or proceeding; provided
that the Company shall not be liable in any such case to the extent that any
such loss, claim, damage, liability (or action or proceeding in respect
thereof) or expense arises out of or is based upon any untrue statement or
alleged untrue statement or omission or alleged omission made in such
registration statement or amendment or supplement thereto or in any such
prospectus (including each preliminary prospectus) in reliance upon and in
conformity with written information furnished to the Company through an
instrument duly executed by such Holder or such director, officer, employee,
general or limited partner, managing director or underwriter specifically
stating that it is for use in the preparation thereof; provided,  further,
that the Company shall not be required to indemnify any such person if such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the final
prospectus or any amendment or supplement thereto and the final prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and any such loss, liability, claim, damage or expense suffered or
incurred by such indemnified person resulted from any action, claim or suit by
any person who purchased Registrable Securities which are the subject thereof
from such indemnified person and it is established in the related proceeding
that such indemnified person failed to deliver or provide a copy of the final
prospectus (as amended or supplemented) to such person with or prior to the confirmation
of the sale of such Registrable Securities sold to such person if required by
applicable law, unless such failure to deliver or provide a copy of the final
prospectus (as amended or supplemented) was a result of noncompliance by the
Company with this Agreement or as a result of the failure of the Company to
provide such final prospectus.  Such
indemnity shall remain in full force and effect regardless of any investigation
made by or on behalf of each Holder or any such director, officer, employee, general
partner, limited partner, managing


 


19





















 


director, underwriter or
controlling person and shall survive the transfer of such securities by any
Holder.


 


7.2           Indemnification by
Holders and Underwriters.  The
Company may require, as a condition to including Registrable Securities in any
registration statement filed in accordance with Article III or IV hereof, that
the Company will have received an undertaking reasonably satisfactory to it
from any selling Holder or any underwriter to indemnify and hold harmless (in
the same manner and to the same extent as set forth in Section 7.1) the
Company and its directors, officers, employees, controlling persons and all
other prospective sellers and their respective directors, officers, general and
limited partners, managing directors, and their respective controlling persons,
against any and all losses, claims, damages or liabilities, joint or several,
and expenses (including any amounts paid in any settlement effected with the
consent of the applicable Holder and underwriter) to which the Company and its
directors, officers, employees, controlling persons or any other prospective
sellers and their respective directors, officers, general and limited partners,
managing directors, and their respective controlling persons may become subject
under the Securities Act and, if applicable, Canadian Securities Laws, state
securities or blue sky laws, common law or otherwise, insofar as such losses,
claims, damages or liabilities (or actions or proceedings in respect thereof)
or expenses arise out of or are based upon (i) any untrue statement or
alleged untrue statement of any material fact contained, on the effective date
thereof, in any registration statement under which such Registrable Securities
were registered under the Securities Act or applicable Canadian Securities
Laws, any prospectus (including each preliminary prospectus) contained therein,
or any amendment or supplement thereto or (ii) any omission or alleged omission
to state therein a material fact required to be stated therein or necessary to
make the statements therein not misleading (in the case of a prospectus
(including each preliminary prospectus), in light of the circumstances under
which they are made), and the applicable Holder and underwriter will reimburse
the Company and its directors, officers, employees, controlling persons and all
other prospective sellers and their respective directors, officers, general and
limited partners, managing directors, and their respective controlling persons
for any legal or any other expenses reasonably incurred by them as such
expenses are incurred in connection with investigating or defending such loss,
claim, liability, action or proceeding; provided that any Holder and any
underwriter shall only be liable in any such case if any such loss, claim,
damage, liability (or action or proceeding in respect thereof) or expense
arises out of or is based upon any untrue statement or alleged untrue statement
or omission or alleged omission made in such registration statement or
amendment or supplement thereto or in any such prospectus (including each
preliminary prospectus) in reliance upon and in conformity with written
information furnished to the Company through an instrument duly executed by
such Holder or any such underwriter specifically stating that it is for use in
the preparation thereof; provided,
further, that such
Holder or underwriter shall not be required to indemnify the Company if such
untrue statement or omission or alleged untrue statement or omission was
contained or made in any preliminary prospectus and corrected in the final
prospectus or any amendment or supplement thereto and the final prospectus does
not contain any other untrue statement or omission or alleged untrue statement
or omission of a material fact that was the subject matter of the related
proceeding and is covered by such Holder’s or underwriter’s obligation under
this Section 7.2 and any such loss, liability, claim, damage or expense
suffered or incurred by the Company resulted from any action, claim or suit by
any person who purchased Registrable Securities or other securities of the
Company which are the subject thereof from the Holder or the Company or another
holder and it is established in


 


20





















 


the related proceeding that a
copy of the final prospectus (as amended or supplemented) was delivered or
provided to such person with or prior to the confirmation of the sale of such
Registrable Securities sold to such Person if required by applicable law.  Such indemnity shall remain in full force and
effect regardless of any investigation made by or on behalf of the Company or
any such director, officer, employee or controlling person or other indemnified
person.  No Holder shall be liable under
any indemnity provided pursuant to this Article VII for any amounts exceeding
the product of the purchase price per Registrable Security and the number of
Registrable Securities being sold pursuant to such registration statement or
prospectus by such Holder.


 


7.3           Notices of Claims,
Etc.  Promptly after receipt by an
indemnified party hereunder of written notice of the commencement of any action
or proceeding with respect to which a claim for indemnification may be made pursuant
to this Article VII, such indemnified party shall, if a claim in respect
thereof is to be made against an indemnifying party, promptly give written
notice to the latter of the commencement of such action; provided that the failure of any
indemnified party to give notice as provided herein shall not relieve the
indemnifying party of its obligations under the preceding Sections of this
Article VII, except to the extent that the indemnifying party is actually
materially prejudiced by such failure to give notice.  In case any such action is brought against an
indemnified party, unless in such indemnified party’s reasonable judgment a
conflict of interest between such indemnified and indemnifying parties may
exist in respect of such claim, the indemnifying party will be entitled to
participate in and, jointly with any other indemnifying party similarly
notified, to assume the defense thereof, to the extent that it may wish, with
counsel reasonably satisfactory to such indemnified party, and after notice from
the indemnifying party to such indemnified party of its election so to assume
the defense thereof, the indemnifying party will not be liable to such
indemnified party for any legal or other expenses subsequently incurred by the
latter in connection with the defense thereof, unless in such indemnified party’s
reasonable judgment a conflict of interest between such indemnified and
indemnifying parties arises in respect of such claim after the assumption of
the defense thereof or a court of competent jurisdiction determines that the
indemnifying party is not vigorously defending such action or proceeding.  An indemnifying party will not be subject to
any liability for any settlement made without its consent (which consent shall
not be unreasonably withheld).  No
indemnifying party will consent to entry of any judgment or enter into any
settlement of any pending or threatened proceeding which (i) does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to all indemnified parties of a release from all liability in respect
to such claim or litigation, (ii) involves the imposition of equitable
remedies or the imposition of any non-financial obligations on such indemnified
party or (iii) otherwise adversely affects such indemnified party, other
than as a result of the imposition of financial obligations for which such
indemnified party will be indemnified hereunder.  Notwithstanding anything to the contrary
contained herein, an indemnifying party will not be obligated to pay the fees
and expenses of more than one counsel (together with local counsel) for all
parties indemnified by such indemnifying party with respect to such claim,
unless in the reasonable judgment of any indemnified party a conflict of
interest may exist between such indemnified party and any other of such
indemnified parties with respect to such claim, in which event the indemnifying
party shall be obligated to pay the fees and expenses of such additional
counsel or counsels (together with the fees of local counsel).


 


21





















 


7.4           Contribution.  If the indemnification provided for in this
Article VII is unavailable to an indemnified party under Section 7.1 or Section
7.2 hereof (other than by reason of exceptions provided in those Sections) in
respect of any losses, claims, damages, liabilities or expenses referred to
therein, then each applicable indemnifying party, in lieu of indemnifying such
indemnified party, shall contribute to the amount paid or payable by such indemnified
party as a result of such losses, claims, damages, liabilities or expenses in
such proportion as is appropriate to reflect the relative benefits received by
the indemnifying party on the one hand and the indemnified party on the other,
and the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
which resulted in such losses, claims, damages, liabilities or expenses, as
well as any other relevant equitable considerations.  The relative fault of the indemnifying party,
on the one hand, and of the indemnified party, on the other hand, shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to
state a material fact relates to information supplied by the indemnifying party
or by the indemnified party and the parties’ relative intent, knowledge, access
to information and opportunity to correct or prevent such statement or
omission.  The amount paid or payable by
a party as a result of the losses, claims, damages, liabilities and expenses
referred to above shall be deemed to include, subject to the limitations set
forth in Section 7.1 or Section 7.2, any legal or other fees or expenses
reasonably incurred by such party in connection with investigating or defending
any action or claim.


 


The Company and the Holders agree that it would not be just and
equitable if contribution pursuant to this Section 7.4 were determined by pro
rata allocation or by any other method of allocation which does not take
account of the equitable considerations referred to in the immediately
preceding paragraph.  Notwithstanding the
provisions of this Section 7.4, no Holder shall be required to contribute any
amount in excess of the amount by which the total price at which the
Registrable Securities sold by such Holder and distributed to the public were
offered to the public exceeds the amount of any damages which such Holder has
otherwise been required to pay by reason of such untrue or alleged untrue
statement or omission or alleged omission. 
No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who was not guilty of such fraudulent misrepresentation.


 


7.5           Other
Indemnification.  Indemnification
similar to that specified in Section 7.1 and Section 7.2 (with appropriate
modifications) shall be given by the Company and each Holder with respect to
any required registration or other qualification of securities under any law or
with any Governmental Entity other than as required by the Securities Act or
applicable Canadian Securities Laws.


 


7.6           Non-Exclusivity.  The obligations of the parties under this
Article VII shall be in addition to any liability which any party may otherwise
have to any other party.


 


7.7           Indemnification
Payments.  The indemnification and
contribution required by Sections 7.1, 7.2 and 7.4 shall be made by periodic
payments of the amount thereof during the course of the investigation or
defense, as and when bills are received or any expense, loss, damage or
liability is incurred.


 


22





















 


ARTICLE VIII


 


MISCELLANEOUS


 


8.1           Remedies.  The Company and each Holder acknowledge and
agree that in the event of any breach of this Agreement by any of them, the
Holders and the Company would be irreparably harmed and could not be made whole
by monetary damages.  Each party
accordingly agrees to waive the defense in any action for specific performance
that a remedy at law would be adequate and that the parties, in addition to any
other remedy to which they may be entitled at law or in equity, shall be
entitled to compel specific performance of this Agreement.


 


8.2           Agreements;
Restrictive Legends.  A copy of this
Agreement shall be filed with the secretary of the Company and kept with the
records of the Company.  Each certificate
representing Class B Common Stock or Registrable Securities subject to this
Agreement shall bear the following legend on the face thereof (in addition to
any legend required by state securities or “blue sky” laws):


 


“THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR UNDER THE
SECURITIES LAWS OF ANY STATE AND ARE SUBJECT TO AN INVESTOR RIGHTS
AGREEMENT.  A COPY OF THE INVESTOR RIGHTS
AGREEMENT IS AVAILABLE FOR INSPECTION AT THE COMPANY’S PRINCIPAL OFFICES.  NO TRANSFER, SALE, ASSIGNMENT, PLEDGE,
HYPOTHECATION OR OTHER DISPOSITION OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE MAY BE MADE EXCEPT IN ACCORDANCE WITH THE PROVISIONS OF THE
INVESTOR RIGHTS AGREEMENT.  THE HOLDER OF
THIS CERTIFICATE AGREES TO BE BOUND BY ALL OF THE PROVISIONS OF SUCH INVESTOR
RIGHTS AGREEMENT.”


 


The Company agrees to promptly remove (or cause to be removed) the
legend set forth above and to take such further action to remove any
restrictions on the Registrable Securities in connection with a transfer that
is pursuant to a registration statement effective under the Securities Act and,
if applicable, a receipted prospectus under applicable Canadian securities
laws, or exempt from such registration or filing both in the United States and,
if applicable, Canada.


 


8.3           Notices.  Any notice, request, instruction or other
document to be given hereunder by any party hereto to another party hereto
shall be in writing, shall be delivered personally or sent by certified or
registered mail, postage prepaid, return receipt requested, or by Federal Express
or other delivery service, to the address of the party set forth below or to
such other address as the party to whom notice is to be given may provide in a
written notice to the Company, a copy of which written notice shall be
maintained on file with the Secretary of the Company.


 


23





















 


(a)           If to the Company, to:


 


Otelco Inc.

505 Third Avenue East

Oneonta, Alabama 35121

Phone:  (205) 625-3574

Facsimile:  (205) 625-3523


 


with a copy (which shall not constitute notice) to:


 


(b)           O’Melveny
& Myers LLP

7 Time Square 

New York, NY  10036

Attention:  Adam Weinstein, Esq.

Facsimile:  (212) 326-2061


 


(c)           If to Seaport, to:


 


c/o Seaport Capital

199 Water Street

20th Floor

New York, NY 10038

Attention:  Steve McCall

Phone:  (212) 847-8900

Facsimile:  (212) 425-1420


 


with a copy (which shall not constitute notice) to:


 


O’Melveny & Myers LLP

Times Square Tower

7 Times Square

New York, New York  10036 

Attention:  Adam Weinstein, Esq.

Facsimile:  (212) 326-2061


 


(d)           If to CEA, to:


 


c/o Seaport Capital

199 Water Street

20th Floor

New York, NY 10038

Attention:  Steve McCall

Phone:  (212) 847-8900

Facsimile:  (212) 425-1420


 


(e)           If to BancBoston, to:


 


BancBoston Ventures Inc.

175 Federal Street

Mailstop MA DE 10210A


 


24





















 


Boston, MA  02110

Phone: (617) 434-5146

Facsimile: (617) 434-1153


 


(f)            If to Sternberg, to:


 


Hans Sternberg

c/o Starmount Life Ins. Co.

The Starmount Building

7800 Office Park Blvd.

Baton Rouge, LA 70809

Phone: (225) 924-4267

Facsimile: (225) 926-6292


 


(g)           If to any individual
Holder, to the address of such individual Holder set forth on the signature
page hereto.


 


Any notice, request, instruction or document shall be deemed to have
been received on the date of delivery thereof.


 


8.4           Applicable Law.  This Agreement shall be governed by, and
interpreted in accordance with, the laws of the State of New York.


 


8.5           Jurisdiction.  The courts of the State of New York in New
York County and the United States District Court for the Southern District of
New York shall have jurisdiction over the parties with respect to any dispute
or controversy between them arising under or in connection with this agreement
and, by execution and delivery of this Agreement, each of the parties to this
Agreement submits to the non-exclusive jurisdiction of those courts, including
but not limited to the in personam and
subject matter jurisdiction of those courts, waives any objections to such
jurisdiction on the grounds of venue or forum non conveniens,
the absence of in personam or subject matter
jurisdiction and any similar grounds, consents to service of process by mail
(in accordance with Section 8.3) or any other manner permitted by law, and
irrevocably agrees to be bound by any judgment rendered thereby in connection
with this Agreement.


 


8.6           MUTUAL WAIVER OF
JURY TRIAL.  THE PARTIES HERETO WAIVE
ALL RIGHT TO TRIAL BY JURY IN ANY ACTION, SUIT OR PROCEEDING BROUGHT TO ENFORCE
OR DEFEND ANY RIGHTS OR REMEDIES UNDER THIS AGREEMENT.


 


8.7           Severability.  The invalidity, illegality or
unenforceability of one or more of the provisions of this Agreement in any
jurisdiction shall not affect the validity, legality or enforceability of the
remainder of this Agreement in such jurisdiction or the validity, legality or
enforceability of this Agreement, including any such provision, in any other
jurisdiction, it being intended that all rights and obligations of the parties
hereunder shall be enforceable to the fullest extent permitted by law.


 


25





















 


8.8           Other Agreements.  Nothing contained in this Agreement shall be
deemed to be a waiver of, or release from, any obligations any party hereto may
have under, or any restrictions on the transfer of Registrable Securities or
other securities of the Company imposed by, any other agreement.


 


8.9           Successors; Assigns;
Transferees.  The provisions of this
Agreement shall be binding upon and accrue to the benefit of the parties hereto
and their respective heirs, personal representatives, successors and permitted
assigns.  In addition, and whether or not
any express assignment shall have been made, the provisions of this Agreement
which are for the benefit of the Holders shall also be for the benefit of and
enforceable by any Transferee or subsequent holder of Registrable Securities,
subject to the provisions contained herein; provided that the Company is given written notice at the
time or within 30 days of said transfer, stating the name and address of the
Transferee and identifying the securities with respect to which the rights
under this Agreement are being transferred; and provided, further,
that the Transferee or assignee of such rights assumes in writing the
obligations of such Holder under this Agreement (in which case such Holder
shall be released from such obligations). 
Each Holder shall have the exclusive option to determine which rights
and obligations shall be assigned to any Transferee.


 


8.10         Information to be
Furnished by the Holders.  Each
Holder shall furnish to the Company such information as the Company may
reasonably request and as shall be required in connection with the registration
and related proceedings referred to herein.


 


8.11         Amendments, Waivers.  This Agreement may not be amended, modified
or supplemented and no waivers of or consents to departures from the provisions
hereof may be given unless consented to in writing by the Company and the
Majority Holders; provided, however, that any amendment,
modification, supplement or waiver of or to this Agreement that treats any
Holder differently than any other Holder shall require the consent of the
Majority Holders of each group of similarly treated Holders.


 


8.12         Counterparts.  This Agreement may be executed in one or more
counterparts, each of which shall be deemed an original but all of which shall
constitute one and the same Agreement.


 


8.13         Limited Liability.  Notwithstanding any other provision of this
Agreement neither the stockholders, members, general partners, limited
partners, advisory directors or managing directors, or any directors or
officers of any stockholders, members, general partners, limited partners,
advisory directors or managing directors, nor any future stockholders, members,
general partners, limited partners, advisory directors or managing directors,
if any, of any Holder shall have any personal liability for performance of any
obligation of such Holder under this Agreement.


 


8.14         Adjustments Affecting
Registrable Securities.  The Company
will not take any action, or permit any change to occur, with respect to the
Registrable Securities which would (i) adversely affect the ability of any
Holder to include such Registrable Securities in a registration undertaken
pursuant to this Agreement or (ii) adversely affect the marketability of
such Registrable Securities in any such registration.


 


26





















 


8.15         Rule 144.  If the Company is subject to the requirements
of Section 13, 14 or 15(d) of the Exchange Act, the Company covenants that it
will file with the SEC and, if applicable, Canadian securities regulatory
authorities in a timely manner any reports required to be filed by it under the
Securities Act, the Exchange Act and Canadian Securities Laws (or, if the
Company is not required to file such reports, it will, upon the request of any
Holder, make publicly available such information) and it will take such further
action as any Holder may reasonably request, so as to enable such Holder to
sell Registrable Securities without registration under the Securities Act
within the limitation of the exemptions provided by (i) Rule 144 under the
Securities Act, as such Rule may be amended from time to time, (ii) any
similar rule or regulation hereafter adopted by the SEC or (iii) an
equivalent prospectus exemption under Canadian Securities Laws, including OSC
Rule 45-501.  Upon the request of any
Holder, the Company will deliver to such Holder a written statement as to
whether it has complied with such requirements.


 


8.16         Other Registration
Rights.  (a) The Company
covenants that it will not grant any right of registration under the Securities
Act or applicable Canadian Securities Laws relating to any of its IDSs, shares
of Common Stock, Subordinated Notes, Common Stock Equivalents, or other
securities to any person unless the Holders shall be entitled to have included
in any registration effected (i) pursuant to Article III hereof, all
Registrable Securities requested by it to be so included prior to the inclusion
of any securities requested to be registered by the persons entitled to any
such other registration rights pursuant to any provision providing incidental
registration rights comparable to those contained in Article IV hereof and
(ii) pursuant to Article IV hereof, pro rata with the inclusion of any
securities requested to be registered by the persons entitled to any such other
registration rights pursuant to any provision providing incidental registration
rights comparable to those contained in Article IV hereof.


 


(a)           If the Company at any
time grants to any other holders of IDSs, Common Stock, Subordinated Notes,
Common Stock Equivalents, or other securities of the Company any rights to
request the Company to effect the registration (whether requested or
incidental) under the Securities Act or applicable Canadian Securities Laws of
any such securities on any terms more favorable to such holders than the terms
set forth in this Agreement, the terms of this Agreement shall, at the request
of the Majority Holders, be deemed amended or supplemented to the extent
necessary to provide the Holders such more favorable rights and benefits.


 


(b)           The Company covenants
that it will not enter into, or cause or permit any of its subsidiaries to
enter into, any agreement which conflicts with or limits or prohibits the exercise
of the rights granted to the Holders in this Agreement.


 


8.17         Limitation on Separate
Registration of Common Stock. 
Notwithstanding anything in this Agreement to the contrary, nothing
herein shall require the Company to separately register the Common Stock (not
in the form of IDSs) at any time that the Common Stock is not then actively
traded on the New York Stock Exchange, American Stock Exchange, Toronto Stock
Exchange or any other national securities exchange, or Nasdaq.


 


8.18         Headings.  The headings and captions contained herein
are for convenience of reference only and shall not control or affect the
meaning or construction of any provision hereof.


 


27





















 


8.19         Currency.  All references herein to “$” or “dollars”
refer to United States currency.  Any
determination herein as to price shall be made in (or converted into) U.S.
dollars.


 


28





















 


IN WITNESS WHEREOF,
each of the parties hereto have duly executed this Agreement as of the date and
time first above written.


 


	
   

  	
  OTELCO
  INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
    /s/ Michael D. Weaver

  	
   

  
	
   

  	
   

  	
   Name: Michael D. Weaver

  
	
   

  	
   

  	
   Title: Chief Executive Officer

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CEA
  CAPITAL PARTNERS USA, L.P.

  
	
   

  	
   

  
	
   

  	
  By: Seaport Associates,
  LLC

  its authorized representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen McCall

  	
   

  
	
   

  	
   

  	
  Name:
  Stephen McCall

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
  CEA
  CAPITAL PARTNERS USA CI, L.P.

  
	
   

  	
   

  
	
   

  	
  By: Seaport Associates,
  LLC

  its authorized representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen McCall

  	
   

  
	
   

  	
   

  	
  Name:
  Stephen McCall

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
  SEAPORT
  CAPITAL PARTNERS II, L.P.

  
	
   

  	
   

  
	
   

  	
  By: CEA Investment
  Partners II, LLC,

  its General Partner

  
	
   

  	
   

  
	
   

  	
  By: Seaport Associates,
  LLC

  its Member and authorized representative

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen McCall

  	
   

  
	
   

  	
   

  	
  Name:
  Stephen McCall

  
	
   

  	
   

  	
  Title:
  Vice President

  
	
   

  	
   

  
	
   

  	
  SEAPORT
  INVESTMENTS, LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/
  Stephen McCall

  	
   

  
	
   

  	
   

  	
  Name:
  Stephen McCall

  
	
   

  	
   

  	
  Title:
  Vice President

  



 


29





















 


	
   

  	
  BANCBOSTON VENTURES INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lars A. Swanson

  	
   

  
	
   

  	
   

  	
  Name: Lars A. Swanson

  
	
   

  	
   

  	
  Title: Director

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MID-MISSOURI PARENT LLC

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Denise M. Day

  	
   

  
	
   

  	
   

  	
  Name: Denise M. Day

  
	
   

  	
   

  	
  Title: Co-President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Michael D. Weaver

  	
   

  
	
   

  	
  Michael D. Weaver

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Sean Reilly

  	
   

  
	
   

  	
  Sean Reilly

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Kevin Reilly

  	
   

  
	
   

  	
  Kevin Reilly

  
	
   

  	
  Address for Notices:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  STERNBERG CONSULTING INC.

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ H. J. Sternberg

  	
   

  
	
   

  	
   

  	
  Name: H. J. Sternberg

  
	
   

  	
   

  	
  Title: CEO

  



 


30