Document:

Exhibit 10.9

 

STOCK
PURCHASE AGREEMENT

 

AGREEMENT FOR THE PURCHASE OF
SHARES REPRESENTING THE CAPITAL STOCK OF GRUPO AEROPORTUARIO DEL CENTRO NORTE,
S.A. DE C.V. (HEREINAFTER THE "HOLDING COMPANY”), EXECUTED ON JUNE 14,
2000, BY AND BETWEEN THE FEDERAL GOVERNMENT OF THE UNITED MEXICAN STATES,
THROUGH THE MINISTRY OF COMMUNICATIONS AND TRANSPORTATION, HEREIN REPRESENTED
BY MR. AARON DYCHTER POLTOLAREK, (HEREINAFTER, THE “FEDERAL GOVERNMENT” AND
“SCT”, RESPECTIVELY), AND OPERADORA MEXICANA DE AEROPUERTOS, S.A. DE C.V.,
HEREIN REPRESENTED BY MR. RUBEN LOPEZ BARRERA, (HEREINAFTER, THE “STRATEGIC
PARTNER”) WITH THE APPEARANCE OF CONSTRUCGTORAS ICA, S.A. DE C.V., HEREIN
REPRESENTED BY MR. LUIS F. ZARATE ROCHA, AEROPORTS DE PARIS, HEREIN REPRESENTED
BY MR. JEAN-MARIE CHEVELLIER AND VINCI, S.A., HEREIN REPREENTED BY MR. RENAUD
DE MATHAREL (THE “PARTNERS OF THE STRATEGIC PARTNER”) AS JOINT AND SEVERAL
OBLIGORS OF THE OBLIGATIONS OF THE STRATEGIC PARTNER SET FORTH IN SECTIONS 2.4,
2.5, 2.6, 2.7, 3. AND 6. OF THIS AGREEMENT, AND ALSO WITH THE PARTICIPATION OF
THE TREASURY OF THE FEDERATION, HEREIN REPRESENTED BY MR. MAURICIO BASILA LAGO
(HEREINAFTER, THE “TREASURY”) FOR PURPOSES OF ARTICLE 11, SECTIONS I AND XLIII
IN CONNECTION WITH ARTICLE 105 OF THE INTERNAL REGULATIONS OF THE MINISTRY OF
FINANCE AND PUBLIC CREDIT, PURSUANT TO THE FOLLOWING DEFINITIONS, , RECITALS,
REPRESENTATIONS AND CLAUSES.

 

DEFINITIONS

 

The terms defined in the Participation Agreement executed on this date
by and between the Federal Government, the companies that constitute the
Airport Group, the Strategic Partner and the Partners of the Strategic Partner,
among other parties, shall have the same meaning in this Agreement, except as
otherwise defined in this Agreement. Likewise, the terms defined below shall
have the meanings ascribed to them:

 

	
  Shares in Trust

  	
   

  	
  Such shares that the
  Federal Government shall transfer on this date to Nafin and which shall be
  kept by the latter in the trust referred to in Representation I.4 of this
  Agreement.

  
	
   

  	
   

  	
   

  
	
  Optional Shares

  	
   

  	
  Has the meaning
  mentioned in Recital VII of this Agreement.

  
	
   

  	
   

  	
   

  
	
  Agreement

  	
   

  	
  This Stock Purchase
  Agreement.

  
	
   

  	
   

  	
   

  
	
  Participation Agreement

  	
   

  	
  The Participation
  Agreement and the exhibits thereto, by virtue of which the rights and
  obligations of both the Strategic Partner and the Federal Government, Nafin,
  the Trustee and the Holding Company, for the transfer of the Shares Package
  and the proper operation of the Assigned Airports, have been set forth.

  

 

 

	
  Financial Statements

  	
   

  	
  The audited financial
  statements to December 31, 1999, that include income statement, balance
  sheet, cash flow statement and statement of changes in financial position, as
  well as the notes to the same, individually for the Holding Company as well
  as for each of its subsidiaries in addition to the consolidated financial
  statements for the Holding Company. The Financial Statements are attached to
  this Agreement as Exhibit “1”.

  
	
   

  	
   

  	
   

  
	
  Shares Package

  	
   

  	
  Has the meaning
  mentioned in Recital VII of this Agreement.

  
	
   

  	
   

  	
   

  
	
  Five-Year Waiting Period

  	
   

  	
  Has the meaning set
  forth in Section 6.1.1 of this Agreement.

  
	
   

  	
   

  	
   

  
	
  Seven-Year Waiting
  Period

  	
   

  	
  Has the meaning set
  forth in Section 6.1.2 of this Agreement.

  
	
   

  	
   

  	
   

  
	
  Three-Year Waiting
  Period

  	
   

  	
  Has the meaning set
  forth in Section 6.1.1 of this Agreement.

  
	
   

  	
   

  	
   

  
	
  Treasury

  	
   

  	
  The Treasury of the
  Federation.

  

 

RECITALS

 

I.              On April 7, 1995 by
Presidential resolution published in the Official Gazette of the Federation,
the Interministerial Divestiture Commission was created.

 

II.            By several resolutions
of the Interministerial Divestiture Commission, passed at its meetings held on
August 20 and 25, 1997, October 1st, 1997 and February 17, 1999, it
was resolved to initiate the process of opening to investment in the Mexican
airport system.

 

III.           By resolution published
in the Official Gazette of the Federation on February 2, 1996, the Committee
for the Restructuring of the Mexican Airport System was created, which purpose
is to define the strategy to be followed on general and specific aspects in the
different stages of the process of restructuring to be carried out by SCT, in
the terms of the Airports Law and other applicable provisions, as well as to
make recommendations and proposals.

 

IV.           On February 9, 1998,
the General Guidelines for the Opening to Investment in the Mexican Airport
System were published in the Official Gazette of the Federation.

 

V.            The Holding Company
was incorporated on May 28, 1998, by means of public deed number 44,355, dated
May 28, 1998, issued by Mr. Emiliano Zubiría Maqueo, Notary Public number 25
for the Federal District, recorded with the Public Registry of Commerce for the
Federal District on June 25, 1998, under mercantile folio number 238749.

 

VI.           The Holding Company
holds 100% (one hundred percent) (less one share owned by the Federal Government)
of the capital stock of the Service Company and the Concession Companies, and
each of the latter has a Concession for 50 (fifty) years granted by the Federal
Government of the United Mexican States to carry out the administration,
operation, exploitation and/or construction of the Assigned Airports 

 

2

 

corresponding to each of them, as well as to use, and benefit from, the
public domain real property necessary for the operation of their respective
Assigned Airports.

 

VII.          On December 17, 1999,
the Public Call for the acquisition of shares representing 15% (fifteen
percent) of the capital stock of the Holding Company (the “Shares Package”),
plus one option to acquire shares of the Holding Company representing up to 3%
(three percent) of its capital stock (the “Optional Shares”), was published in
the Official Gazette of the Federation.

 

VIII.        The shareholders obtained
their registration as participants in the Bidding Process by means of official
document number GTA00-A108, dated March 27, 2000, issued by the Technical
Secretary of the Committee for the Restructuring of the Mexican Airport System,
and in such capacity tendered their offer to acquire the Share Participation.

 

IX.           On December 14, 1998, the
fixed minimum capital of the Holding Company was increased in the amount of
Ps.77,653,104.00 (Seventy Seven Million Six Hundred Fifty Three Thousand One
Hundred Four Mexican Pesos) through the capitalization of liabilities in the
amount of Ps.77,653,099.70 (Seventy Seven Million Six Hundred Fifty Three
Thousand Ninety Nine 70/100 Mexican Pesos) for the benefit of the Federal
Government, as well as through the cash contribution that the Federal
Government will make, and as a result the Holding Company issued 77,653,104
(Seventy Seven Million Six Hundred Fifty Three Thousand One Hundred Four)
Shares completely paid to the benefit of the Federal Government. Likewise, on
August 31, 1999, the fixed minimum capital of the Holding Company was increased
in the amount of Ps.11,194,347.00 (Eleven Million One Hundred Ninety Four
Thousand Three Hundred Forty Seven Mexican Pesos) by means of the
capitalization of liabilities in the amount of Ps.11,194,344.91 (Eleven Million
One Hundred Ninety Four Thousand Three Hundred Forty Four 91/100 Mexican Pesos)
to the benefit of the Federal Government, as well as through the cash
contribution the Federal Government will make, and as a result the Holding
Company issued 11,194,347 (Eleven Million One Hundred Ninety Four Thousand Three
Hundred Forty Seven) Shares completely paid to the benefit of the Federal
Government.

 

On the
other hand, on June 2, 2000, the Holding Company entered into an Assumption of
Liabilities Agreement with each of the Concession Companies by which the Holding
Company assumed, on behalf of and in the name of each Concession Company, their
liabilities deriving from the exploitation of the of the Concessions whose
total amounts to Ps.3,962,404,890.00 (Three Billion Nine Hundred Sixty Two
Million Four Hundred Four Thousand Eight Hundred Ninety Mexican Pesos). Said
liabilities were capitalized for the benefit of the Federal Government on June
5, 2000. Additionally, the General Extraordinary Shareholders' Meeting of the
Holding Company held on that same date approved the capitalization of the
retained earnings account, as well as the updating of the capital stock
referred in Note 10 of the Financial Statements. Derived from the
capitalizations approved by shareholders of the Holding Company, the capital
stock was increased in the amount of Ps.4,230'430,439.00 (Four Thousand Two
Thousand and Thirty Million, Four Hundred and Thirty Thousand Four Hundred and
Thirty-Nine Mexican Pesos) issuing 5,670'523,069 (5 Thousand Six Hundred and
Seventy Million, Five Hundred and Twenty-Three Thousand and Sixty-Nine) fully
paid-up Shares in favor of the Federal Government.

 

X.            The bid tendered by the Partners of the
Strategic Partner was successful and the Partners were so notified by the
Committee for the Restructuring of the Mexican Airport System on May 31, 2000.

 

XI.           Pursuant to the provisions of the Public
Call and as provided for in the bid of the Strategic Partner, the Strategic
Partner executed on this date a Participation Agreement, by virtue of which the
rights and obligations of both the Strategic Partner and of the Federal
Government and the Holding Company, for the due operation of the Assigned
Airports, have been set forth. Under such Participation Agreement, the
Strategic Partner undertook to execute this Agreement, as well as the rest of
the Operation Documents.

 

3

 

REPRESENTATIONS

 

I.              The Federal Government represents,
through SCT:

 

I.1            That it is the legitimate owner of 15%
(fifteen percent) of the shares representing the capital stock of the Holding
Company (the “Shares”), same which are common, registered, without par value,
and fully paid-in, and that the full capital stock of the Holding Company is
allocated as follows:

 

	
  Shareholder

  	
   

  	
  Class I

  	
   

  	
  Series

  	
   

  	
  Percentage

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nacional
  Financiera, S.N.C., Trust Department

  	
   

  	
  4,896,314,942

  	
   

  	
  “A”

  	
   

  	
  85.00

  	
  %

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Federal
  Government

  	
   

  	
  864,055,578

  	
   

  	
  “BB”

  	
   

  	
  15.00

  	
  %

  
	
   

  	
   

  	
  5,760,370,520

  	
   

  	
   

  	
   

  	
  100.00

  	
  %

  

 

I.2            That the Shares are free from any lien or
limitation of ownership.

 

I.3            That on this date, the Holding Company
shall issue the Optional Shares, same which it shall keep in its treasury until
the option for their subscription and payment is exercised in terms of the
Option Agreement.

 

I.4            That on this date it transferred to
Nafin, in its capacity as trustee, Shares of the Holding Company representing
85% (eighty-five percent) of its capital stock, except for one share which
Nafin obtained directly from ASA (the “Shares in Trust”), which shall be kept
in the trust set up for that purpose with Nacional Financiera, S.N.C., trust
department, with the purpose of promoting the securities market, as well as to
maintain the exercise of the voting rights thereof at the shareholders meetings
of the Holding Company.

 

I.5            That the Shares are deposited with the
Treasury as provided for in Article 76 and 77 of the Law of the Treasury
Service of the Federation and, except as otherwise provided in paragraph I.3
above, there are no purchase options outstanding, rights of share appreciation,
option certificates, convertible securities or other rights convertible into,
or having their value based on, common shares of the Holding Company, and there
are no agreements related to the issuance, sale or transfer of any instrument
of the money market or any other type of securities of the Holding Company.

 

I.6            That the Financial Statements reflect the
financial condition of the Holding Company, the Service Company and the
Concession Companies as of December 31, 1999, in the manner set forth in the
notes submitted therewith, and between the date of such Financial Statements
and the date of execution hereof, no subsequent event has occurred, and no
cause is known, that may result in an event substantially affecting or which
might adversely affect the financial or operating condition of the Airport
Group.

 

I.7            Its representative, in his capacity as
Subsecretary of Transportation, has sufficient authorities to execute this
Agreement pursuant to Article 6, Section IX, of the Internal Regulations of
SCT.

 

II.            The Strategic Partner represents, through
its representative, that:

 

II.1          It is a mercantile company duly
incorporated in accordance with the laws of the United Mexican States, as
evidenced in public deed number 79,502, dated June 9, 2000 granted by Mr.
Armando Gálvez 

 

4

 

Pérez
Aragón, Notary Public number 102 for the Federal District, pending to be
recorded with the Public Registry of Commerce for the Federal District and has
sufficient authority under its corporate by-laws to enter into this Agreement.

 

II.2          Its representative, Mr. Rubén López
Barrera, has sufficient authority to execute this Agreement, as evidenced in
the public deed referred to in paragraph II.1 above, and that said authority
has not been modified or revoked in any form.

 

II.3          Pursuant to the bid tendered in the
Bidding Process, which was successful, the Partners of the Strategic Partner
undertook to cause the Strategic Partner to execute the Participation Agreement
and the Transaction Documents, which include this Agreement, and it agrees to
become bound under the terms and conditions set forth herein.

 

II.4          It is fully aware of the fact that the
Holding Company is a newly created and is recorded with the Federal Taxpayers
Registry, and that it is a majority shareholder of the Service Company and of
the Concession Companies.

 

II.5          It is fully aware of the scope and terms
of the documents and transactions concerning the Airport Group, pursuant to the
representation contained in its technical proposal, and especially of the
Concessions granted to the Concession Companies and the considerations set
forth therein, and of the by-laws and Financial Statements of the companies
conforming the Airport Group.

 

II.6          It reviewed all the information that was
delivered to it in the data room in connection with the Bidding Process for the
Share Participation, as well as all the information that was provided through
prospectus, answers to questions raised by the participants of such Bidding
Process, and included in the “white book”; that it held interviews with the
financial agent and several officers of SCT and ASA; and that it visited the
facilities of the Assigned Airports.

 

II.7          The Strategic Partner acts in its own
name and on its own behalf, as the Partners of the Strategic Partner stated in
the proposal submitted in the Bidding Process, which was successful, and that
the Strategic Partner does not act on behalf of, or in substitution for, or in
any other manner for, third parties.

 

III.           The Treasury represents, through its
representative, that:

 

III.1         The Ministry of Finance and Public Credit
is a body of the Federal Public Administration pursuant to the provisions of
Articles 26 and 31 of the Organic Federal Public Administration Law.

 

III.2         It is an administrative unit of the
Ministry of Finance and Public Credit, with authority to execute this Agreement
pursuant to the provisions of the Internal Regulations of the Ministry of
Finance and Public Credit.

 

III.3         Its legal representative executes this
Agreement in his capacity as Deputy General Director of Portfolio and
Non-monetary Assets Administration on behalf of the Federal Treasurer, pursuant
to Article 11, 91-B and 105 of the Internal Regulations of the Ministry of
Finance and Public Credit.

 

Based on the above Representations, the parties to
this Agreement agree to grant the following

 

5

 

CLAUSES

 

1.             Purpose.

 

1.1           The purpose of this Agreement is the sale
by the Federal Government through SCT of the Shares Package in favor of the
Strategic Partner, which shares are fully subscribed and paid-in and free from
any lien or limitation of ownership, subject to the conditions stated
hereinbelow.

 

2.             Acquisition
of the Shares Package by the Strategic Partner.

 

2.1           On this date, the Strategic Partner shall
acquire from the Federal Government, which shall endorse in ownership and
transfer the following stock certificate that constitutes 25% (twenty-five
percent) of the Shares Package, once the payment of the price referred to in Section
2.4 below has been made:

 

	
  Share

  Certificates

  	
   

  	
  Number of Shares

  	
   

  	
  Series

  	
   

  	
  Class

  	
   

  	
  Percentage of

  capital stock

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  5

  	
   

  	
  216,013,895

  	
   

  	
  “BB”

  	
   

  	
  I

  	
   

  	
  3.75

  	
  %

  

 

2.2           Once the Strategic Partner has paid the
balance of the price pursuant to Section 2.5 below, the Federal
Government shall endorse in ownership and transfer in favor of the Strategic
Partner the following stock certificates that constitute the 75% (seventy-five
percent) of the Shares Package:

 

	
  Share

  Certificates

  	
   

  	
  Number of Shares

  	
   

  	
  Series

  	
   

  	
  Class

  	
   

  	
  Percentage of

  capital stock

  	
   

  
	
  6

  	
   

  	
  648,041,683

  	
   

  	
  “BB”

  	
   

  	
  I

  	
   

  	
  11.25

  	
  %

  

 

2.3           Price. The price for the purchase and sale referred to in
this Section 2 is the total amount of Ps.864,055,578.00 (Eight Hundred
Sixty Four Million Fifty Five Thousand Five Hundred and Seventy Eight Mexican
Pesos), that is, the amount of Ps.1.00 (One 00/100 Mexican Pesos) per share,
from which Ps.0.75 (Seventy Five Cents Mexican Pesos) represent the book value
per share and Ps.0.25 (Twenty Five Cents Mexican Pesos) represent the premium
that the Strategic Partner will pay to the Federal Government for the business.
The price for the purchase and sale shall be paid in the manner set forth in Sections
2.4, 2.5 and 2.6 below.

 

2.4           Payment. On this date, not later than at 12:00 o’clock noon,
Mexico City time, the Strategic Partner has paid a first installment equivalent
to 25% (twenty-five percent) of the price of the Shares Package set forth in Section
2.1 above, that is, the amount of Ps.216,013,895.00 (Two Hundred Sixteen
Million Thirteen Thousand Eight Hundred Ninety Five Mexican Pesos), through
electronic transfer by SPEUA of immediately available funds to account number
65-50003551-5, Branch 35, Locality 001 and bank code 014, that the Treasury
keeps with Banco Santander Mexicano, S.A., Institución de Banca Múltiple or any
other institution that it chooses for this purpose 48 (forty-eight) hours
beforehand. As a consequence, on the date hereof the Treasury delivers to the
Strategic Partner receipt for the price of purchase and sale of the Shares that
represent 25% (twenty-five percent) of the Shares Package.

 

2.5           The unpaid balance of the price, that is,
the amount of Ps.684,041,683.00 (Six Hundred Eighty Four Million Forty One
Thousand Six Hundred Eighty Three Mexican Pesos), plus the interest referred to
in Section 2.6 below, shall be paid by the Strategic Partner directly to
the Treasury, whether in Mexican currency or its equivalent in U.S. Dollars,
not later than at 12:00 o’clock noon, Mexico City time, on September 14, 2000,
through electronic transfer by SPEUA of immediately available funds to the
account 

 

6

 

indicated
for that purpose in Section 2.4 above or to any other account that the
Treasury chooses 48 (forty-eight) hours beforehand.

 

2.6           During the period elapsed between the
date of execution of this Agreement and the date on which the payment of the
outstanding balance of the price is made pursuant to Section 2.5 above,
the Strategic Partner shall pay to the Federal Government gross interest on the
unpaid amount at a rate equivalent to the daily arithmetic average of the 28
day interbank equilibrium interest rate (“TIIE”) published by Banco de México
in the Official Gazette of the Federation, in the absence thereof, of the interest
rate that replaces it. For purposes of calculation of such interest, the year
shall be deemed to made up of 360 (three hundred and sixty) days. In the event
that the Strategic Partner chooses to pay the unpaid balance of the price in
Dollars, the interest earned in accordance with this Section will be converted
to Dollars, at the exchange rate that Banco de México publishes in the Official
Gazette of the Federation and that is applicable on the 5 (fifth) banking
business day before the date on which said payment is made.

 

2.7           In accordance with
that which is set forth in numeral 9.6.1 of the Public Call, the Partners of
the Strategic Partner declare, under oath, that they act in their own name and
on their own behalf and that the source and structure of the resources and
financing with which the Strategic Partner shall cover the price indicated in
Section 2.3 above, and which was indicated in the winning economic proposal of
the Bidding Process by means of a written document, a copy of which is attached
to this Agreement as Exhibit 2, has not undergone any modification.
Additionally, the Strategic Partner and the Partners of the Strategic Partner
accept that in the event that after the date hereof it is found that the
declarations made in this Section are false, a penalty of Ps.100,000,000.00
(One Hundred Million Pesos 00/100), in the form indicated by the Federal
Government, will be assessed for the damages suffered by the Federal
Government.

 

3.             Default
on Payment.

 

3.1           The Strategic Partner and the Federal
Government agree that if the unpaid balance of the price of the Shares of the
Holding Company being transferred by virtue of this Agreement is not fully
paid, or is not paid on the date set forth in Section 2.5 above, such
fact shall be considered as a cause of rescission of this Agreement and of all
of the Transaction Documents, with liability for the Strategic Partner,
pursuant to the provisions of paragraph 9.3 of the Public Call, applying in
such case the contractual penalty set forth in such therein, subject to the
provisions of Section 9.3 of this Agreement.

 

3.2           In the event that the Strategic Partner
incurs in the event of default provided for in this Section, the Federal
Government may demand from the Strategic Partner the specific performance of
this Agreement, as well as the payment of default interest, as from the date of
payment and until the effective date of payment, at a rate equal to 2 (two)
times the interest rate equivalent to the daily arithmetic average of the 28
day interbank equilibrium interest rate (TIIE) published by Banco de México in
the Official Gazette of the Federation or, in the absence thereof, of the
interest rate that replaces it. For purposes of calculation of such default
interest, the year shall be deemed to be made up of 360 (three hundred and
sixty) days.

 

4.             Advance
payment.

 

4.1           The Strategic Partner may pay in advance
the unpaid balance of the price of the Shares, in whole or in part, provided
SCT is notified thereof at least 5 (five) business days prior to the date of
payment.

 

4.2           In no event may the advance payment of
the unpaid balance of the price of the Shares result in the reduction thereof,
nor shall any sanction be applied due to such advance payment.

 

7

 

5.             Trust
Agreement.

 

5.1           On this date, the Strategic Partner shall
execute, as trustor and first beneficiary, a Trust Agreement with Banco
Nacional de Comercio Exterior, S.N.C., Trust Department, as Trustee, and the
Holding Company, as second beneficiary, to which the Strategic Partner hereby
irrevocably binds itself to contribute all the Shares Package, once the price
therefor has been paid and it receives the shares certificates representing
them pursuant to the provisions of Section 7. below. The Shares Package
must be kept in the trust constituted for that purpose at least during the
terms set forth in Section 2.4 of the Participation Agreement and Section
6. of this Agreement, and the Trustee must vote the Shares Package at the
shareholders meetings of the Holding Company pursuant to the instructions given
by the Strategic Partner, provided that such Shares of the Shares Package held
in excess of 10% (ten percent) of the capital stock of the Holding Company
shall be voted by the Trustee always in the same manner as the majority of
shares of the capital stock of the Holding Company are voted.

 

6.             Obligation
not to sell.

 

6.1           Pursuant to the provisions of the Public
Call:

 

6.1.1        The Key Partners must jointly hold a minimum
participation of 51% (fifty-one percent) in the Strategic Partner during the
term of the Participation Agreement (the “Fifteen-Year Waiting Period”),
provided that the Mexican Partner must keep a minimum participation of 25.5%
(twenty-five point five percent) in the capital stock of the Strategic Partner
during such Fifteen-Year Waiting Period and any additional participation shall
be considered as participation of an Investing Partner subject to the
Three-Year or Five-Year Waiting Periods set forth hereinbelow. 

 

In turn,
the Investing Partners must keep their participation in the Strategic Partner
during a term of 3 (three) years as from the first public offer of Shares of
the Holding Company carried out in the terms of Section 3.3 of the
Participation Agreement (the “Three-Year Waiting Period”) or during a term of 5
(five) years as from the date of execution of this Agreement (the “Five-Year
Waiting Period”), whichever occurs first. Upon the expiration of the Fifteen
and Three-Year or Five-Year Waiting Periods, as applicable, the Partners of the
Strategic Partner may dispose of or otherwise transfer, without restrictions,
their participation in the Strategic Partner.

 

6.1.2        The Strategic Partner must keep 51% (fifty-one
percent) of its Share Participation in the Holding Company ,acquired under this
Agreement, for a term of 7 (seven) years as from the date of execution of this
Agreement (the “Seven-Year Waiting Period”) and 49% (forty-nine percent) of its
Share Participation during the Three-Year Waiting Period or Five-Year Waiting
Period, as the case may be, provided that upon the expiration of the Seven-Year
Waiting Period, the Strategic Partner may annually transfer up to one eight of
such 51% (fifty-one percent) of its Share Participation in the Holding Company
to third parties, and upon the expiration of the Three-Year Waiting Period or
the Five-Year Waiting Period, as the case may be, the Strategic Partner may
dispose of or otherwise transfer, without restriction, the Shares that it holds
in the Holding Company in excess of such 51% (fifty-one percent) of Share
Participation.

 

6.1.3        Exceptions. The obligations of the Key Partners, the Investing
Partners and the Strategic Partner to keep a minimum participation under Sections
6.1.1 and 6.1.2 above shall not be applicable whenever (i) the participations
referred to in such Sections are transferred in favor of a Related Person that
is not an individual, complying with the requirements set forth in the Public
Call and the Form, and such circumstance is notified 15 (fifteen) business days
in advance to the Ministry, evidencing compliance with the above mentioned
requirements; or (ii) the participations referred to in Section 6.1.1
are transferred by the Key Partners or the Investing Partners in favor 

 

8

 

of any
third party with the prior written consent of the Ministry, evidencing that
such third party complies with the requirements set forth in the Public Call
and form of qualification delivered to the participants in the Bidding Process,
as the case may be, and in the event that Nafin keeps a participation of less
than 51% (fifty-one percent) of the capital stock of the Holding Company, in
addition to evidencing the requirements mentioned above and obtaining an
authorization from the Ministry, the favorable vote of at least 51% (fifty-one
percent) of the capital stock of the Holding Company, shall be required. In any
event, prior to the transfer of the above mentioned participation, the acquirer
must bind himself with respect to each of the parties to the Transaction
Documents, to comply with the obligations set forth therein.

 

7.             Delivery
of stock certificates.

 

7.1           The Federal Government shall deliver
directly to the Trustee on this date, on behalf of the Strategic Partner, the
stock certificates representing the paid-in portion of the Shares Package
referred to in Section 2.1 above. Likewise, once the unpaid balance of
the price has been paid pursuant to Section 2.5 above, the Federal
Government shall deliver to the Trustee, on behalf of the Strategic Partner,
the remaining stock certificates referred to in Section 2.2 above. Such
stock certificates must be duly endorsed in ownership by the Federal Government
in favor of the Strategic Partner, and in ownership by the Strategic Partner in
favor of the Trustee.

 

8.             Registry.

 

8.1           The parties agree to instruct the Holding
Company so that the Stock Ledger of the Holding Company expressly states which
Shares have been paid to the Federal Government by the Strategic Partner, as
well as the fact that failure to comply with the obligation of payment of the
unpaid balance of the price may result in the termination of this Agreement.

 

9.             Default.

 

9.1           In the event that the Strategic Partner
fails to make the payments to which it binds itself under Sections 2.4 and 2.5
of this Agreement, or contravenes the provisions of Section 6. above,
the Federal Government may terminate this Agreement without need of previous
judicial declaration, with liability for the Strategic Partner under the
provisions of paragraph 9.3 of the Public Call, applying in such case the
contractual penalty set forth in such paragraph, subject to the provisions of Section
9.3 of this Agreement.

 

9.2           Likewise, in the event that the Strategic
Partner incurs in the event of default provided for in this Section, the
Federal Government may then demand from the Strategic Partner the specific
performance of this Agreement, and the payment of default interest as from the
date on which the payment of the price was due pursuant to Section 2.
above, until the effective date of payment, at a rate equal to 2 (two) times
the interest rate equivalent to the daily arithmetic average of the 28 day
interbank equilibrium interest rate (TIIE) published by Banco de México in the
Official Gazette of the Federation or, in the absence thereof, of the interest
rate that replaces it. For purposes of calculation of such default interest,
the year shall be deemed to be made up of 360 (three hundred and sixty) days.

 

9.3           The parties hereby agree that in the
event of rescission, the Federal Government shall directly apply the amount of
the payment of the price of the Shares Package to the payment of the
contractual penalty agreed under Section 9.1 above, and therefore, in
terms of Article 2311 of the Civil Code for the Federal District in Common
Matters, and for all the Republic in Federal Matters, the amount corresponding
to the payment of the price of the Shares Package shall be deemed as virtually
reimbursed, with the Strategic Partner or the Trustee, as the case may be,
being bound to return to the Federal Government any stock certificates which
may have been delivered, on the business day following the date 

 

9

 

on
which it is notified in writing of the rescission of this Agreement. The
Strategic Partner hereby binds itself to return any Shares comprising the
Shares Package free from any lien and limitation of ownership.

 

9.4           The provisions of this Section 9.
are without prejudice of any other provisions contained in the Participation
Agreement or in the Transaction Documents.

 

10.          Reimbursement
of Liabilities.

 

10.1         The parties hereby agree that the price
of the Shares subject matter of this stock purchase agreement shall not be
adjusted for any cause; however, in the event that (i) any liabilities arise in
the Holding Company, the Service Company, or any of the Concession Companies,
which are not totally or partially recorded in the Financial Statements, and
which liabilities result from transactions made prior to December 31, 1999 or
(ii) derive from liabilities after December 31, 1999 and prior to the execution
of this Agreement or derive from acts or facts other than in the ordinary
course of business of the Airport Group, such unrecorded liabilities shall be
setoff with any liabilities which may have been totally or partially paid, and
which payment has not been recorded in such Financial Statements, as well as
with such recorded but non-existent liabilities. The Federal Government shall
reimburse the balance of such liabilities in favor of the corresponding Company
of the Airport Group.

 

For
purposes of this Section, it shall be considered as liabilities to be
reimbursed, any liability that exceeds from 25% (twenty-five percent) of the
amount of the last budget included in Exhibit “3” of the following works
made by the respective Concession Companies: (1) Agreement number
32-09-MYK01-10 “Extension and Remodelation of Terminal” in the Monterrey
airport, (2) agreement number 010-09-CLK-10 “Extension and Remodelation of
Terminal” in the Culiacán airport, (3) agreement number 010-00-CJK-30
“Rehabilitation of Runway 03-21 (2nd Stage) in Ciudad Juárez
airport, (4) agreement number 304-08-OK01-10 “Extension and Remodelation of
Terminal” in the Zihuatanejo airport, and (5) agreement number 008-00ACK01-10
“Rehabilitation of Runway 10-28 and Additional Works” in the Acapulco airport. In
the event the Federal Government only reimburses the Airport Group, 80% (eighty
percent) of the amount that exceeds the 25% (twenty-five percent) of the above mentioned
costs in excess.

 

For
purposes of this section, only the liabilities, which claim, have been
submitted in terms of Section 11. of this Agreement shall be considered.

 

10.2         In case of lack of registration of such
liabilities, the parties to this Agreement shall appoint an internationally
recognized auditing firm, which must be independent of any of the parties, in
order to determine the existence of such liabilities and if these liabilities
result in a reimbursement in favor of the corresponding Company of the Airport
Group of the amounts necessary to pay the same. For the purposes of this
paragraph, only such liabilities, which claim, have been submitted in the terms
of Section 11. hereof shall be considered. Any fees, costs and expenses
incurred by the auditing firm shall be paid equally by the Federal Government
and the Strategic Partner. Likewise, the opinion of the auditing firm shall be
definitive, and shall bind the parties in its terms and shall not be subject to
any remedy. The foregoing constitutes an arbitration commitment in the terms of
Article 1423 of the Code of Commerce, the parties submitting themselves to such
statute for anything not expressly provided for in this Section.

 

10.3         For purposes of the reimbursement to the
corresponding Company of the Airport Group in terms of Section 10.2
above, the existing assets (including, without limitation, work capital
(difference between current assets and current liabilities) that exceeds from
the work capital provided for in the Financial Statements) of the Holding
Company, the Service Company or the Concession Companies, which were not
recorded in the Financial Statements, shall be taken into consideration in
order to setoff the total assets with the total liabilities and obtain, as the
case may be, the net difference in favor of the corresponding Company of the
Airport Group.

 

10

 

10.4         The Federal Government shall pay the
amount, which may result in favor of the Airport Group, provided that the total
claims exceed Ps.5,000,000.00 (Five Million Mexican Pesos) in a term not to
exceed 60 (sixty) calendar days as from the date of delivery of the stock
certificates representing the Shares Package and as provided for in Sections
11. and 12. below. The parties agree that should there be an unpaid balance
in favor of the Federal Government, the setoff may be made up to the amount of
the lesser debt.

 

10.5         Any unrecorded liabilities derived from
fiscal, environmental or labor obligations are exempted from the term set forth
in Section 10.4, in which case, the term to file the claim shall be that
set forth by the legal provisions in force on the date of execution of this
Agreement, in connection with the extinction or expiration of the right or
action on which the claim is based.

 

10.6         For purposes of the reimbursement to the
Airport Group, the financial cost which may be accrued shall be calculated at a
rate equal to 2 (two) times the interest rate equivalent to the daily
arithmetic average of the 28 (twenty-eight) day interbank equilibrium interest
rate (“TIIE”) that, during the period counted as from the date of payment of
the claims under Section 10.5 above and the payment in cash, is
published by Banco de México in the Official Gazette of the Federation or, in
the absence thereof, the applicable interest rate that replaces it during the
corresponding period.

 

11.          Claim
of Liabilities.

 

11.1         The parties agree that the payment of
claims derived from liabilities not recorded in the Financial Statements that
involves claims from third parties or payment before the submission of the
respective claim notice, shall only be applicable whenever:

 

11.1.1      Within the period granted to solicit the payment of
claims referred to in Section  12.1 below, the Federal Government,
through the SCT, is notified in writing by Purchaser or the Holding Company,
within no later than the 5 (five) calendar days after the date on which the
existence of the liability or any claim arising therefrom was notified, whether
judicially or extra-judicially, so that the Federal Government may take any
actions or assume any defenses, that it deems appropriate, as the case may be.

 

11.1.2      In the event that the Federal Government solicits
payment as provided above, the Holding Company or the corresponding Concession
Company must judicially or extra-judicially defend the respective claims,
submitting itself to the indications of the Federal Government.

 

11.1.3      If so requested by the Federal Government through the
Ministry, the Strategic Partner or, as the case may be, the Holding Company or
the corresponding Concession Company, shall furnish to the Federal Government
or its representative, provided that it is promptly requested, any available
information and elements so that in the event that the Federal Government
decides to defend the corresponding claims, it has the necessary means
therefor. In such case, the Holding Company shall be bound to grant any powers
of attorney as may be required in favor of the persons that the Federal
Government determines, provided that failure to grant such powers shall result
in the inapplicability of the corresponding reimbursement.

 

11.1.4      The liability or claim derived therefrom is not a
direct consequence of a negligent or deceitful action imputable to the
Strategic Partner.

 

11.2         Whenever the claims referred to in the
above paragraphs 11.1.1 to 11.1.4 derive from any acts for which, in terms of
this Agreement, the Federal Government may be responsible, all expenses and
costs of defense incurred by the Holding Company or any of the companies that
form the Airport Group, shall be reimbursed by the Federal Government, provided
that the same are reasonable, are duly evidenced, and 

 

11

 

are
directly related to the claims mentioned in the above paragraphs. The amounts
corresponding to the items referred to in this paragraph shall be reimbursed to
the Holding Company by the Federal Government within a term of 45 (forty-five)
calendar days as from the date on which the same may be determined.

 

12.          Term
for Claims.

 

12.1         Except as provided for in Section 10.5
above, the Strategic Partner shall have a term of 60 (sixty) calendar days from
the date of the delivery of all the certificates representing the Shares
Package, to request the payment of claims in the terms of Sections 10. and
11 above.

 

12.2         Without prejudice to the obligation
contained in Section 11.1.1 above, the request of payment of claims for
unrecorded liabilities or the failure to deliver assets to the Concession Companies
under the Assets Purchase and Sale Agreement, shall be made in a single
document.

 

13.          Purchase
Audit.

 

13.1         The Strategic Partner may carry out, at
its expense, a purchase audit for the purpose of determining the existence of
any unrecorded liabilities referred to in Section 10. above. Such audit,
as the case may be, may start on the business day following the date of
execution of this Agreement and may in no event exceed 60 (sixty) calendar days
as from the date of delivery of the certificates representing the Shares
Package.

 

13.2         Upon completion of the audit, the auditor
shall issue a certificate of which it shall deliver a copy to each of the
parties, provided that its opinion shall not bind the Federal Government in any
manner whatsoever.

 

13.3         Whenever as a result of the audit there
are any unrecorded assets reflected in the Financial Statements, the Federal
Government shall act upon the terms of the provisions of Section 10.3.

 

14.          Indemnification
for the Case of Dispossession

 

14.1         The Federal Government agrees to
indemnify the Strategic Partner should the Strategic Partner be dispossessed of
the title to the Shares Package.

 

15.          Possibility
of Acquisition of the Optional Shares.

 

15.1         Under the provisions of the Public Call,
in addition to its holding of the Shares Package, the Strategic Partner may
participate in the capital stock of the Holding Company through the exercise of
an option to acquire any Series “B” Shares that represent up to 3% (three
percent) of the capital stock of the Holding Company, but in no event may the
Strategic Partner participate in more than 20% (twenty percent) of such capital
stock, unless it acquires the Additional Shares, in which case, it may
participate temporarily with up to 56% (fifty-six percent) of the capital stock
of the Holding Company. In the event that as a result of the acquisition of
Optional Shares or Additional Shares the Strategic Partner or any of the
Partners of the Strategic Partner or their Related Persons fails to comply with
the provisions of Article 29 of the Airports Law and its regulations, the
Strategic Partner shall not exercise the option to purchase Optional Shares or
acquire the Additional Shares.

 

Additionally,
the Shares owned by the Strategic Partner must be kept in the Trust set up by
virtue of the Trust Agreement, and such Shares that the Strategic Partner holds
in excess of such 10% (ten percent) of the capital stock of the Holding
Company, must be voted in the same sense as the majority of the Shares at the
shareholders meetings are voted.

 

12

 

15.2         The acquisition of the Optional Shares by
the Strategic Partner shall be subject to the provisions of the Option
Agreement.

 

16.          Resolution
of Controversies.

 

16.1         For the interpretation of this Agreement
and for the resolution of any controversy arising therefrom, the parties
expressly and irrevocably submit to the jurisdiction of the competent federal
courts in the Federal District, therefore waiving any jurisdiction that may
correspond to them by reason of their present or future domiciles.

 

17.          Miscellaneous.

 

17.1         Notices. Any notice to be delivered by one party to the other
under this Agreement shall be in writing and sent to the other party by
certified mail, return receipt requested, fax, courier or personal service, and
shall be considered as served whenever actually received by the addressee. All
such notices shall be sent to the following domiciles of the parties:

 

To the
Strategic Partner:

 

Operadora
Mexicana de Aeropuertos, S.A. de C.V.

Viaducto
Miguel Alemán No. 81

Col.
Escandón

11800
México, D.F.

 

Attention:
Ing. Rubén López Barrera

 

 

To the
Federal Government:

 

Secretaría de
Comunicaciones y Transportes

Av. Xola y Universidad

Col. Narvarte

México,
D.F.

 

Attention:
Legal Department

 

The parties may modify their domiciles by notice sent
to the other party in the form provided for in this Section.

 

17.2         Amendments. No amendment to this Agreement shall be effective
unless agreed upon in writing by each of the parties.

 

17.3         Headings. The headings of the sections of this Agreement are
only for reference purposes and shall not limit or otherwise affect the meaning
of any provision of this Agreement.

 

17.4         Severability. In the event that one or more of the
provisions included in this Agreement, or the application thereof in any
circumstance is declared invalid, illegal or unenforceable by any competent
authority in any respect or for any reason, the validity, legality and
enforceability of any such provisions in any other respect, and of the
remaining provisions of this Agreement shall not be limited or affected in any
manner whatsoever. Additionally, the parties to this Agreement agree to use
their best efforts to replace such invalid, illegal or unenforceable provision
with a valid, legal and enforceable provision, 

 

13

 

which
shall seek to fulfill, to the greatest extent possible, with the economic,
business and other purposes of the invalid or unenforceable provision.

 

17.5         Successors, Assignees, etc. Except as otherwise provided for in
this Agreement, the parties shall not transfer or assign the rights and
obligations under this Agreement without prior written consent from the Federal
Government.

 

17.6         Applicable Law. This Agreement shall be ruled and
performed pursuant to the laws of Mexico for federal matters and of the Federal
District for local matters.

 

17.7         Applicable Currency. Except as otherwise expressly provided
for in this Agreement, any reference to any amount of money shall be deemed a
reference to the lawful currency of Mexico, that is, Mexican pesos.

 

17.8         Counterparts. This Agreement shall be executed in 8
(eight) counterparts, each of them, whenever so executed, shall be considered
as an original, but all of which shall constitute one and the same instrument.

 

17.9         Full Agreement. Except as otherwise specifically
provided, this instrument supersedes all prior agreements between the parties
in connection with the purpose of this instrument, and it is the intention of
the parties that it be the final expression and the complete and exclusive
statement of their agreement with respect to the subject matter of this
Agreement.

 

This Agreement is signed at 12:30 P.M. on the date
first above written, with the agreement of all the parties thereto, in Mexico
City, Federal District.

 

	
  FEDERAL GOVERNMENT, THROUGH THE

  	
   

  	
  OPERADORA MEXICANA DE

  
	
  MINISTRY OF COMUNICATIONS AND

  	
   

  	
  AEROPUERTOS, S.A. DE C.V.

  
	
  TRANSPORTATION

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   /s/ Aaron Dychter Poltolarek

  	
   

  	
   

  	
  /s/ Rubén López Barrera

  	
   

  
	
  By: Aaron Dychter Poltolarek

  	
   

  	
  By: Rubén López Barrera

  
	
  Title: Subsecretary of Transport

  	
   

  	
  Title: Legal Representative

  
	
   

  	
   

  	
   

  
	
  CONSTRUCTORAS ICA, S.A. DE C.V., JOINT

  	
   

  	
  AÉROPORTS DE PARIS, JOINT OBLIGOR

  
	
  OBLIGOR (under the terms of this Agreement)

  	
   

  	
  (under the terms of this Agreement)

  
	
   

  	
   

  	
   

  
	
  /s/ Luis F.
  Zárate Rocha

  	
   

  	
   

  	
  /s/ Jean-Marie Chevallier

  	
   

  
	
  By: Luis F. Zárate Rocha

  	
   

  	
  By: Jean-Marie Chevallier

  
	
  Title: Legal Representative

  	
   

  	
  Title: Legal Representative

  
						

 

14

 

	
  VINCI, S.A., JOINT OBLIGOR (under the terms of 

  	
   

  	
  TREASURY OF THE FEDERATIONVINCI,

  
	
  this Agreement)

  	
   

  	
  S.A., JOINT OBLIGOR (under the terms of

  
	
   

  	
   

  	
  this Agreement)

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  /s/ Mauricio Basila Lago

  	
   

  
	
  /s/ Renaud de Matharel

  	
   

  	
   

  	
  By: Mauricio Basila Lago

  
	
  By: Renaud de Matharel

  Title: Legal Representative

  	
   

  	
  Title: Deputy General Director of Portfolio and

  Non-Monetary Assets Administration

  Executes this agreement on behalf of the H.

  Treasurer of the Federation as provided by

  Article 105m fourth paragraph, with respect to

  sections 11 and 91-B of the Internal

  Regulations of the Ministry of Finance and

  Public Credit

  
					

 

15

 

EXHIBIT
“1”

 

FINANCIAL
STATEMENTS

 

 

EXHIBIT
“2”

 

WRITTEN DOCUMENT
THAT THE PARTNERS OF THE STRATEGIC PARTNER

PRESENTED AS PART OF THEIR ECONOMIC PROPOSAL IN THE TERMS OF THE

PENULTIMATE PARAGRAPH OF SECTION 6.6 OF THE PUBLIC CALL

 

 

EXHIBIT
“3”

 

LAST BUDGET OF THE
WORKS REFERRED TO IN SECTION 10.1 OF THE AGREEMENTExhibit 4.3

 

INVESTORS’ RIGHTS AGREEMENT

 

This Investors’ Rights Agreement (this “Agreement”) is made as of the
2nd day of December 1997, by and between OMP Acquisition Corporation, a
California corporation (the “Company”), Mandarin Partners LLC (“Mandarin”) and
Zein and Samar Obagi Family Trust (“Obagi”). Mandarin and Obagi are referred to
collectively as the “Investors”.

 

RECITALS

 

WHEREAS, the Company and the Investors are parties to certain stock
purchase agreements of even date herewith (collectively, the “Purchase
Agreements”);

 

WHEREAS, in order to induce the Company to enter into the Purchase
Agreements and to induce the Investors to invest funds in the Company pursuant
to the Purchase Agreements, the Investors and the Company hereby agree that
this Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock issued or issuable to the Investors and certain
other matters as set forth herein;

 

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

 

1.             Definitions.
For purposes of this Agreement:

 

(a)           The term “Act” means the Securities Act of
1933, as amended.

 

(b)           The term “Co-Sale Stock” means any shares of
the Company’s capital stock now owned or subsequently acquired by any Investor.

 

(c)           The term “Form S-3” means such form under the
Act as in effect on the date hereof or any registration form under the Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company with
the SEC.

 

(d)           The term “Holder” means any person owning or
having the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 8.2 hereof.

 

(e)           The term “1934 Act” shall mean the Securities
Exchange Act of 1934, as amended.

 

(f)            The term “register”, “registered,” and
“registration” refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and the
declaration or ordering of effectiveness of such registration statement or
document.

 

 

(g)           The
term “Registrable Securities” means (i) any common stock (“Common Stock”) of
the Company held or hereafter acquired by a Holder and (ii) any capital stock
held or hereafter acquired by a Holder which capital stock is convertible into
Common Stock, excluding in all cases, however, any Registrable Securities sold
by a person in a transaction in which his rights under Section 2 are not
assigned.

 

(h)           The number of shares of “Registrable
Securities then outstanding” shall be determined by the number of shares of
Common Stock then outstanding which are Registrable Securities.

 

(i)            The term “SEC” shall mean the Securities and
Exchange Commission.

 

2.             Registration Rights. The Company covenants and agrees as follows:

 

2.1           Request for Registration.

 

(a)           If the Company shall receive at any time at
least three (3) months after the effective date of the first registration
statement for a public offering of securities of the Company (other than a
registration statement relating either to the sale of securities to employees
of the Company pursuant to a stock option, stock purchase or similar plan or a
SEC Rule 145 transaction), a
written request from the Holders of a majority of the Registrable Securities
then outstanding that the Company file a registration statement under the Act
covering the registration of at least fifty percent (50%) of the Registrable
Securities then outstanding (or a lesser percent if the anticipated aggregate
offering price, net of underwriting discounts and commissions, would exceed
$7,500,000), then the Company shall:

 

(i)            within ten (10) days of the receipt thereof,
give written notice of such request to all Holders; and

 

(ii)           effect as soon as practicable, and in any
event within sixty (60) days of
the receipt of such request, the registration under the Act of all Registrable
Securities which the Holders request to be registered, subject to the
limitations of subsection 2.1(b), within twenty (20) days of the mailing of
such notice by the Company in accordance with Section 5.7.

 

(b)           If the Holders initiating the registration
request hereunder (“Initiating Holders”) intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to subsection
2.1(a) and the Company shall include such information in the written notice
referred to in subsection 2.l(a). The underwriter will be selected by the
Company and shall be reasonably acceptable to a majority in interest of the
Initiating Holders. In such event, the right of any Holder to include its
Registrable Securities in such registration shall be conditioned upon such
Holder’s participation in such underwriting and the inclusion of such Holder’s
Registrable Securities in the underwriting (unless otherwise mutually agreed by
a majority in interest of the

 

2

 

Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall (together with the
Company as provided in subsection 2.3(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 2.1, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities
of the Company owned by each Holder; provided, however, that the number of
shares of Registrable Securities to be included in such underwriting shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.

 

(c)           Notwithstanding the
foregoing, if the Company shall furnish to Holders requesting a registration
statement pursuant to this Section 2.1, a certificate signed by the Chief
Executive Officer of the Company stating that in the good faith judgment of the
Board of Directors of the Company, it would be seriously detrimental to the
Company and its shareholders for such registration statement to be filed and it
is therefore essential to defer the filing of such registration statement, the
Company shall have the right to defer taking action with respect to such filing
for a period of not more than 120 days after receipt of the request of the
Initiating Holders.

 

(d)           In addition, the
Company shall not be obligated to effect, or to take any action to effect, any
registration pursuant to this Section 2.1:

 

(i)            After the Company has
effected two (2) registrations pursuant to this Section 2.1 and such
registrations have been declared or ordered effective;

 

(ii)           During the period
starting with the date sixty (60) days prior to the Company’s good faith
estimate of the date of filing of, and ending on a date one hundred eighty
(180) days after the effective date of, a registration subject to Section 2.2
hereof; provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or

 

(iii)          If the Initiating
Holders propose to dispose of shares of Registrable Securities that may be
immediately registered on Form S-3 pursuant to a request made pursuant to
Section 2.11 below.

 

2.2           Company Registration.
If (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
shareholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be

 

3

 

included in a
registration statement covering the sale of the Registrable Securities, or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with
Section 8.7, the Company shall, subject to the provisions of Section 2.7, cause
to be registered under the Act all of the Registrable Securities that each such
Holder has requested to be registered.

 

2.3           Obligations of the
Company. Whenever required under this Section 2 to effect the registration
of any Registrable Securities, the Company shall, as expeditiously as
reasonably possible:

 

(a)           Prepare and file with
the SEC a registration statement with respect to such Registrable Securities
and use its best efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective
for a period of up to one hundred twenty (120) days or until the distribution
contemplated in the Registration Statement has been completed; provided,
however, that (i) such 120-day period shall be extended for a period of time
equal to the period the Holder refrains from selling any securities included in
such registration at the request of an underwriter of Common Stock (or other
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 120-day period shall be extended, if
necessary, to keep the registration statement effective until all such Registrable
Securities are sold, provided that Rule 415, or any successor rule under the
Act, permits an offering on a continuous or delayed basis, and provided further
that applicable rules under the Act governing the obligation to file a
post-effective amendment permit, in lieu of filing a post-effective amendment
which (I) includes any prospectus required by Section 10(a)(3) of the Act or
(II) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934
Act in the registration statement.

 

(b)           Prepare and file with
the SEC such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement.

 

(c)           Furnish to the Holders
such numbers of copies of a prospectus, including a preliminary prospectus, in
conformity with the requirements of the Act, and such other documents as they
may reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

 

4

 

(d)           Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions.

 

(e)           In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement.

 

(f)            Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.

 

(g)           Cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed.

 

(h)           Provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration.

 

2.4           Furnish Information.

 

(a)           It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 2 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such
securities as shall be required to effect the registration of such Holder’s
Registrable Securities.

 

(b)           The Company shall have no obligation with
respect to any registration requested pursuant to Section 2.1 or Section 2.11
if, due to the operation of subsection 2.4(a), the number of shares or the
anticipated aggregate offering price of the Registrable Securities to be included
in the registration does not equal or exceed the number of shares or the
anticipated aggregate offering price required to originally trigger the
Company’s obligation to initiate such registration as specified in subsection
2.1(a) or subsection 2.11(b)(2), whichever is applicable.

 

2.5           Expenses of Demand Registration. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Section 2.1, including (without limitation) all
registration, filing and qualification fees, printers’ and accounting fees,
fees and disbursements of counsel for the Company

 

5

 

(including fees
and disbursements of counsel for the Company in its capacity as counsel to the
selling Holders hereunder; if Company counsel does not make itself available
for this purpose, the Company will pay the reasonable fees and disbursements of
one counsel for the selling Holders) shall be borne by the Company; provided,
however, that the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to Section 2.1 if the registration
request is subsequently withdrawn at the request of the Holders of a majority
of the Registrable Securities to be registered (in which case all Participating
Holders shall bear such expenses), unless the Holders of a majority of the
Registrable Securities agree to forfeit their right to one demand registration
pursuant to Section 2.1.

 

2.6           Expenses of Company
Registration. The Company shall bear and pay all expenses incurred in
connection with any registration, filing or qualification of Registrable
Securities with respect to the registrations pursuant to Section 2.2 for each
Holder (which right may be assigned as provided in Section 8.2), including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto and the fees and
disbursements of counsel for the Company in its capacity as counsel to the
selling Holders hereunder; if Company counsel does not make itself available
for this purpose, the Company will pay the reasonable fees and disbursements of
one counsel for the selling Holders selected by them, but excluding
underwriting discounts and commissions relating to Registrable Securities.

 

2.7           Underwriting
Requirements. In connection with any offering involving an underwriting of
shares of the Company’s capital stock, the Company shall not be required under
Section 2.2 to include any of the Holders’ securities in such underwriting
unless they accept the terms of the underwriting as agreed upon between the
Company and the underwriters selected by it (or by other persons entitled to
select the underwriters), and then only in such quantity as the underwriters
determine in their sole discretion will not jeopardize the success of the
offering by the Company. If the total amount of securities, including
Registrable Securities, requested by shareholders to be included in such
offering exceeds the amount of securities sold other than by the Company that
the underwriters determine in their sole discretion is compatible with the
success of the offering, then the Company shall be required to include in the
offering only that number of such securities, including Registrable Securities,
which the underwriters determine in their sole discretion will not jeopardize
the success of the offering (the securities so included to be apportioned pro
rata among the selling shareholders according to the total amount of securities
entitled to be included therein owned by each selling shareholder or in such
other proportions as shall mutually be agreed to by such selling shareholders)
but in no event shall (i) the amount of securities of the selling shareholders
included in the offering be reduced below twenty percent (20%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company’s securities in which case the selling
shareholders may be excluded if the underwriters make the determination
described above and no other shareholder’s securities are included or (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 2.1 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such Holder,

 

6

 

or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing persons shall be deemed to be a single “selling
shareholder”, and any pro-rata reduction with respect to such “selling
shareholder” shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
“selling shareholder”, as defined in this sentence.

 

2.8           Delay of Registration. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.

 

2.9           Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 2:

 

(a)           To the extent permitted
by law, the Company will indemnify and hold harmless each Holder, any
underwriter (as defined in the Act) for such Holder and each person, if any,
who controls such Holder or underwriter within the meaning of the Act or the
1934 Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities (or actions in respect
thereof) arise out of or are based upon any of the following statements,
omissions or violations (collectively a “Violation”); (i) any untrue statement
or alleged untrue statement of a material fact contained in such registration
statement, including any preliminary prospectus or final prospectus contained
therein or any amendments or supplements thereto, (ii) the omission or alleged
omission to state therein a material fact required to be stated therein, or
necessary to make the statements therein not misleading, or (iii) any violation
or alleged violation by the Company of the Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Act, the 1934
Act or any state securities law; and the Company will pay to each such Holder,
underwriter or controlling person, as incurred, any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 2.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or
action if such settlement is effected without the consent of the Company (which
consent shall not be unreasonably withheld), nor shall the Company be liable in
any such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter or
controlling person.

 

(b)           To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the
registration statement, each person, if any, who controls the Company within
the meaning of the Act, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such underwriter
or other Holder, against any losses, claims, damages, or liabilities (joint or
several) to which any of the foregoing persons may become subject, under the
Act, the 1934 Act or other federal or state law, insofar as such losses,
claims, damages, or

 

7

 

liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, as incurred, any legal or other expenses reasonably incurred
by any person intended to be indemnified pursuant to this subsection 2.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this subsection 2.9(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this subsection
2.9(b) exceed the gross proceeds from the offering received by such Holder.

 

(c)           Promptly after receipt
by an indemnified party under this Section 2.9 of notice of the commencement of
any action (including any governmental action), such indemnified party will, if
a claim in respect thereof is to be made against any indemnifying party under
this Section 2.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party (together with all other indemnified parties which
may be represented without conflict by one counsel) shall have the right to
retain one separate counsel, with the fees and expenses to be paid by the
indemnifying party, if representation of such indemnified party by the counsel
retained by the indemnifying party would be inappropriate due to actual or
potential differing interests between such indemnified party and any other
party represented by such counsel in such proceeding. The failure to deliver
written notice to the indemnifying party within a reasonable time of the
commencement of any such action, if prejudicial to its ability to defend such
action, shall relieve such indemnifying party of any liability to the
indemnified party under this Section 2.9, but the omission so to deliver
written notice to the indemnifying party will not relieve it of any liability
that it may have to any indemnified party otherwise than under this Section
2.9.

 

(d)           If the indemnification provided for in this
Section 2.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or
expense in such proportion as is appropriate to reflect the relative fault of
the indemnifying party on the one hand and of the indemnified party on the
other in connection will the statements or omissions that resulted in such
loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of
the indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
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.

 

8

 

(e)           Notwithstanding the
foregoing, to the extent that the provisions on indemnification and
contribution contained in the underwriting agreement entered into in connection
with the underwritten public offering are in conflict with the foregoing
provisions, the provisions in the underwriting agreement shall control.

 

(f)            The obligations of the
Company and Holders under this Section 2.9 shall
survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.

 

2.10         Reports Under
Securities Exchange Act of 1934. With a view to making available to the
Holders the benefits of Rule 144 promulgated under the Act and any other rule
or regulation of the SEC that may at any time permit a Holder to sell
securities of the Company to the public without registration or pursuant to a
registration on Form S-3, the Company agrees to:

 

(a)           make and keep public
information available, as those terms are understood and defined in SEC Rule
144, at all times after ninety (90) days after the effective date of the first
registration statement filed by the Company for the offering of its securities
to the general public;

 

(b)           file with the SEC in a
timely manner all reports and other documents required of the Company under the
Act and the 1934 Act; and

 

(c)           furnish to any Holder,
so long as the Holder owns any Registrable Securities, forthwith upon request
(i) a written statement by the Company that it has complied with the reporting
requirements of SEC Rule 144 (at any time after ninety (90) days after the
effective date of the first registration statement filed by the Company), the
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of
the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other information
as may be reasonably requested in availing any Holder of any rule or regulation
of the SEC which permits the selling of any such securities without
registration or pursuant to such form.

 

2.11         Form S-3 Registration.
In case the Company shall receive from any Holder or Holders a written request
or requests that the Company effect a registration on Form S-3 and any related
qualification or compliance with respect to all or a part of the Registrable
Securities owned by such Holder or Holders, the Company will:

 

(a)           promptly give written
notice of the proposed registration, and any related qualification or
compliance, to all other Holders; and

 

(b)           as soon as practicable,
effect such registration and all such qualifications and compliances as may be
so requested and as would permit or facilitate the sale and distribution of all
or such portion of such Holder’s or Holders’ Registrable Securities as are

 

9

 

specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within fifteen (15) days after receipt of such written notice
from the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
section 2.11: (1) if Form S-3 is not available for such offering by the
Holders; (2) if the Holders, together with the holders of any other securities
of the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public (net of any underwriters’ discounts or commissions) of less than
$1,000,000; (3) If the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental to
the Company and its shareholders for such Form S-3 Registration to be effected
at such time, in which event the Company shall have the right to defer the
filing of the Form S-3 registration statement for a period of not more than
sixty (60) days after receipt of the request of the Holder or Holders under
this Section 2.11; (4) if the
Company has, within the twelve (12) month period preceding the date of such
request, already effected one registration on Form S-3 for the Holders pursuant
to this Section 2.11; or (5) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.

 

(c)           Subject to the
foregoing, the Company shall file a registration statement covering the
Registrable Securities and other securities so requested to be registered as
soon as practicable after receipt of the request or requests of the Holders.
All expenses incurred in connection with a registration requested pursuant to
Section 2.11, including (without limitation) all registration, filing,
qualification, printer’s and accounting fees and the reasonable fees and
disbursements of counsel for the selling Holder or Holders and counsel for the
Company, but excluding any underwriters’ discounts or commissions associated
with Registrable Securities, shall be borne pro rata by the Holder or Holders
participating in the Form S-3 Registration. Registrations effected pursuant to
this Section 2.11 shall not be counted as demands for registration or
registrations effected pursuant to Sections 2.1 or 2.2, respectively.

 

2.12         Limitations on
Subsequent Registration Rights. From and after the date of this Agreement,
the Company shall not, without the prior written consent of the Holders of a
majority of the outstanding Registrable Securities, enter into any agreement
with any holder or prospective holder of any securities of the Company which
would allow such holder or prospective holder (a) to include such securities in
any registration filed under Section 2.1 hereof, unless under the terms of such
agreement, such holder or prospective holder may include such securities in any
such registration only to the extent that the inclusion of his securities will
not reduce the amount of the Registrable Securities of the Holders which is
included or (b) to make a demand registration which could result in such
registration statement being declared effective prior to the earlier of either
of the dates set forth in subsection 2.1(a) or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section
2.1.

 

10

 

2.13         “Market Stand-Off”
Agreement. Each Investor hereby agrees that, during the period of duration
specified by the Company and an underwriter of common stock or other securities
of the Company, following the effective date of a registration statement of the
Company filed under the Act, it shall not, to the extent requested by the
Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase or otherwise transfer or dispose of (other than to donees
who agree to be similarly bound) any securities of the Company held by it at
any time during such period except common stock included in such registration;
provided, however, that:

 

(a)           such agreement shall be
applicable only to the first two such registration statements of the Company
which covers common stock (or other securities) to be sold on its behalf to the
public in an underwritten offering;

 

(b)           all officers and
directors of the Company and all other persons with registration rights
(whether or not pursuant to this Agreement) enter into similar agreements; and

 

(c)           such market stand-off
time period shall not exceed one hundred eighty (180) days.

 

In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.

 

Notwithstanding the foregoing, the obligations described in this
Section 2.13 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-14 or Form S-15 or similar forms which may be promulgated
in the future.

 

2.14         Termination of Registration
Rights.

 

(a)           No Holder shall be
entitled to exercise any right provided for in this Section 1 after three (3)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the initial firm commitment underwritten offering of its securities to the
general public.

 

(b)           In addition, the right
of any Holder to request registration or inclusion in any registration pursuant
to Section 2.2 shall terminate on the closing of the first Company-initiated
registered public offering of Common Stock of the Company if all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, or on
such date after the closing of the first Company-initiated registered public
offering of Common Stock of the Company as all shares of Registrable Securities
held or entitled to be held upon conversion by such Holder may

 

11

 

immediately be
sold under Rule 144 during any 90-day period; provided, however, that the
provisions of this Section 2.14(b) shall not apply to any Holder who owns more
than two percent (2%) of the Company’s outstanding stock until such time as
such Holder owns less than two percent (2%) of the outstanding stock of the
Company.

 

3.             Covenants of the
Company.

 

3.1           Delivery of
Financial Statements. The Company shall deliver to each Investor:

 

(a)           as soon as practicable,
but in any event within ninety (90) days after the end of each fiscal year of
the Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder’s equity as of the end of such year, and a
cash flow statement for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles (“gaap”), and audited and certified by independent public
accountants of nationally recognized standing selected by the Company;

 

(b)           as soon as practicable,
but in any event within forty-five (45) days after the end of each of the first
three (3) quarters of each fiscal year of the Company, an unaudited income
statement, a cash flow statement for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;

 

(c)           as soon as practicable,
but in any event thirty (30) days prior to the end of each fiscal year, a
budget and business plan for the next fiscal year, prepared on a monthly basis,
including income statements, balance sheets, and cash flow statements for such
months and, as soon as prepared, any other budgets or revised budgets prepared
by the Company;

 

(d)           with respect to the
financial statements called for in subsection (b) of this Section 3.1, an instrument
executed by the Chief Financial Officer or President of the Company and
certifying that such financials were prepared in accordance with gaap
consistently applied with prior practice for earlier periods (with the
exception of footnotes that may be required by gaap) and fairly present the
financial condition of the Company and its results of operation for the period
specified, subject to year-end audit adjustment;

 

(e)           such other information
relating to the financial condition, business, prospects or corporate affairs
of the Company as the Investor or any assignee of the Investor may from time to
time request, provided, however, that the Company shall not be obligated under
this subsection (e) or any other subsection of Section 3.1 to provide information
which it deems in good faith to be a trade secret or similar confidential
information.

 

12

 

3.2           Inspection. The
Company shall permit each Investor, at such Investor’s expense, to visit and
inspect the Company’s properties, to examine its books of account and records
and to discuss the Company’s affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 3.2
to provide access to any information which it reasonably considers to be a
trade secret or similar confidential information.

 

4.             Co-Sale Rights.

 

4.1           Sales by Mandarin.

 

(a)           If Mandarin proposes to
sell or transfer any shares of Co-Sale Stock in one or more related
transactions, then Mandarin shall promptly give written notice (the “Notice”)
to the Company and Obagi at least twenty (20) days prior to the closing of such
sale or transfer. The Notice shall describe in reasonable detail the proposed
sale or transfer including, without limitation, the class, series and number of
shares of Co-Sale Stock to be sold or transferred, the nature of such sale or
transfer, the consideration to be paid, and the name and address of each
prospective purchaser or transferee. In the event that the sale or transfer is
being made pursuant to the provisions or Sections 4.1 or 4.2 hereof, the Notice
shall state under which Section of this Agreement the sale or transfer is being
made.

 

(b)           Obagi shall have the right, exercisable upon
written notice to Mandarin within fifteen (15) days after receipt of the
Notice, to participate in such sale of Co-Sale Stock on the same terms and
conditions; provided, that Obagi owns shares of the same class or classes as
the Co-Sale Stock identified in the Notice. The parties acknowledge that the
Series A Preferred Stock and the Series B Preferred of the Company are of the
same class of stock and are to be treated as such for the purposes of this
Section 4.

 

(c)           Obagi may sell all or any part of that number
or shares of Co-Sale Stock, of the same class and/or series as that identified
in the Notice, equal to the product obtained by multiplying (i) the aggregate
number of shares of Co-Sale Stock covered by the Notice by (ii) a fraction the
numerator of which is the number of shares of Co-Sale Stock of the same class
and/or series identified in the Notice owned by Obagi at the time of the sale
or transfer and the denominator of which is the total number of shares of
Co-Sale Stock of the same class and/or series identified in the Notice owned by
Mandarin and Obagi at the time of the sale or transfer.

 

(d)           Obagi shall effect its participation in the
sale by promptly delivering to Mandarin for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent the type and number of shares of Co-Sale Stock which Obagi elects to
sell.

 

(e)           The stock certificate or certificates that
Obagi delivers to Mandarin pursuant to Section 4.l(d) shall be transferred to
the prospective purchaser in consummation of the sale of the Co-Sale Stock
pursuant to the terms and conditions specified in the Notice, and Mandarin
shall concurrently therewith remit to Obagi that portion of the sale proceeds
to which

 

13

 

Obagi is entitled by reason of its participation in such sale. To the
extent that any prospective purchaser or purchasers prohibits such assignment
or otherwise refuses to purchase shares or other securities from Obagi,
Mandarin shall not sell to such prospective purchaser or purchasers any Co-Sale
Stock unless and until, simultaneously with such sale, Mandarin shall purchase
such shares from Obagi for the same consideration and on the same terms and
conditions as the proposed transfer described in the Notice.

 

(f)            The exercise or non-exercise of the rights of
Obagi to participate in one or more sales of Co-Sale Stock made by Mandarin
shall not adversely affect Obagi’s rights to participate in subsequent sales of
Co-Sale Stock subject to Section 4.l (a).

 

(g)           If Obagi does not elect to participate in the
sale of the Co-Sale Stock subject to the Notice, Mandarin may, not later than
ninety (90) days following delivery to the Company and Obagi of the Notice,
conclude a transfer of not less than all of the Co-Sale Stock covered by the
Notice on terms and conditions not more favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions more
favorable than those described in the Notice, as well as any subsequent
proposed transfer of any of the Co-Sale Stock by Mandarin, shall again be
subject to the co-sale rights of Obagi and shall require compliance by Mandarin
with the procedures described in this Section 4.1.

 

4.2           Exempt Transfers.

 

(a)           Notwithstanding the foregoing, the co-sale
rights of Obagi shall not apply to (i) any pledge of Co-Sale Stock made
pursuant to a bona fide loan transaction that creates a mere security interest,
(ii) any bona fide gift or charitable donation or (iii) any distribution to the
members of Mandarin; provided that (A) Mandarin shall inform Obagi of such
pledge, transfer, gift, donation or distribution prior to effecting it and (B)
the pledgee, transferee, donee or distributee shall furnish Obagi with a
written agreement to be bound by and comply with all provisions of Section 4 of
this Agreement. Such transferred Co-Sale Stock shall remain “Co-Sale Stock”
hereunder, and such pledgee, transferee or donee shall be treated as “Mandarin”
for purposes of this Agreement.

 

(b)           Notwithstanding the foregoing, the provisions
of Section 4 shall not apply to the sale of any Co-Sale Stock (i) to the public
pursuant to a registration statement filed with, and declared effective by, the
Securities and Exchange Commission under the Act or (ii) to the Company.

 

4.3           Prohibited Transfers.

 

(a)           In the event Mandarin should sell any Co-Sale
Stock in contravention of the co-sale rights of Obagi under this Agreement (a
“Prohibited Transfer”), Obagi in addition to such other remedies as may be
available at law, in equity or hereunder, shall have the put option provided
below, and Mandarin shall be bound by the applicable provisions of such option.

 

14

 

(b)           In the event of a
Prohibited Transfer, Obagi shall have the right to sell to Mandarin the type
and number of shares of Co-Sale Stock equal to the number of shares Obagi would
have been entitled to transfer to the purchaser under Section 4.1 hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:

 

(i)            The price per share at
which the shares are to be sold to Mandarin shall be equal to the price per
share paid by the purchaser to Mandarin in the Prohibited Transfer.

 

(ii)           Within thirty (30) days
after the later of the dates on which the Obagi (A) received notice of the
Prohibited Transfer or (B) otherwise become aware of the Prohibited Transfer,
Obagi shall, if exercising the option created hereby, deliver to Mandarin the
certificate or certificates representing shares to be sold, each certificate to
be properly endorsed for transfer.

 

(iii)          Mandarin shall, upon
receipt of the certificate or certificates for the shares to be sold by Obagi,
pursuant to this Section 4.3, pay the aggregate purchase price therefor, in
cash or by other means acceptable to Obagi.

 

(iv)          Notwithstanding the
foregoing, any attempt by Mandarin to transfer Co-Sale Stock in violation of
Section 4 hereof shall be void and the Company agrees it will not effect such a
transfer nor will it treat any alleged transferee as the holder of such shares
without the written consent of Obagi.

 

5.             Participation in
Certain Transactions.

 

5.1           Approved Sale.
If, at any time prior to the termination of this Agreement, the Company’s Board
of Directors (acting in accordance with its fiduciary duties) and the holders
of a majority of the Co-Sale Stock shall approve a sale of a majority of the
stock or substantially all of the assets of the Company (each, an “Approved
Sale”), then subject to Section 5.2 below: (i) Obagi shall consent to and raise
no objection against the Approved Sale; (ii) if the Approved Sale is structured
in whole or in part as a merger or consolidation, or a sale of all or
substantially all assets, Obagi shall waive any dissenter’s rights, appraisal
rights or similar rights in connection with such merger, consolidation or asset
sale; (iii) if the Approved Sale is structured in whole or part as a sale of
securities, Obagi agrees to sell its respective securities on the terms and
conditions approved by the Company’s shareholders in connection with the
consummation of the Approved Sale, including the execution of such agreements
and such instruments and other actions reasonably necessary to provide the
representations, warranties, indemnities, covenants, conditions, escrow
agreements and other provisions and agreements relating to such Approved Sale,
and effectuate the allocation and distribution of the aggregate consideration
upon the Approved Sale.

 

15

 

5.2           Conditions to
Obagi’s Obligations. The obligations of Obagi with respect to an Approved
Sale are subject to the satisfaction of the following conditions: (i) if any
holder of a class and series of stock held by Obagi is given an option as to
the form and amount of consideration to be received, Obagi will be given the
same option; and (ii) Obagi’s maximum indemnification liability pursuant to the
Approved Sale shall not exceed the amount of proceeds received by Obagi from
such Approved Sale.

 

5.3           Approved Sale
Expenses. Obagi shall bear its pro-rata share (based upon the number of
shares sold) of the reasonable out-of-pocket costs of an sale of Co-Sale Stock
pursuant to an Approved Sale to the extent such costs are incurred for the
benefit of all holders of Co-Sale Stock and are not otherwise paid by the
Company or the acquiring party.

 

6.             Restrictions on
Transfer.

 

6.1           Obagi shall be prohibited
from selling or otherwise transferring any shares of Registrable Securities or
Co-Sale Stock issued or issuable to it or from selling or otherwise
transferring any right to acquire such securities to any party other than
Mandarin at any time prior to the earlier of (i) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Act covering the offer and sale of the Company’s Common
Stock at an aggregate offering price of not less than $7,500,000, (ii) the
closing of the Company’s sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or
consolidation resulting in the exchange of the outstanding shares of the
Company’s capital stock for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary or (iii) the tenth
anniversary of the date of this Agreement (provided that in the case of clause
(iii) hereof, after such tenth anniversary Obagi may sell or otherwise transfer
such Registered Securities or Co-Sale Stock only in compliance with Section 6.2
below).

 

6.2           If an event specified
in clause (i) or (ii) of Section 6.1 shall have not yet occurred as of the
tenth anniversary of the date of this Agreement and Obagi desires to sell or
otherwise transfer any such Registrable Securities or Co-Sale Stock (the
“Target Stock”) at any time after such tenth anniversary, then Obagi shall
promptly deliver to the Company and Mandarin written notice of the intended
disposition and the terms and conditions thereof, including the identity of any
proposed purchaser and the price per share of the securities to be so disposed
(the “Offer Notice”). Thereafter, the Company and Mandarin or either of them
may elect to purchase any or all of the Target Stock on the terms and
conditions set forth in the Offer Notice, such purchase to occur within twenty
(20) business days after receipt by the Company and Mandarin of the Offer
Notice (the “Wait Period”). The Company and Mandarin shall each negotiate in
good faith in determining any allocation between them of the Target Stock
offered in the Offer Notice. If the Company and Mandarin or either of them have
not purchased all such Target Stock prior to expiration of the Wait Period, the
Company’s and Mandarin’s right to purchase any Target Stock not so purchased by
them shall lapse, expire and be of no further effect. Any Target Stock not
purchased by the Company or by Mandarin which is thereafter transferred by
Obagi to a third party shall be subject to the provisions of Sections 5 and 6,
and

 

16

 

such transferee
shall, as a condition precedent to such transfer, agree to be bound by the
provisions of Sections 5 and 6 and shall be treated as “Obagi” for the purposes
of Sections 5 and 6.

 

7.             Repurchase
Obligations.

 

7.1           In the event Zein
Obagi, M.D.’s employment with the Company is terminated under that certain
Employment Agreement of even date herewith by and between Zein Obagi, M.D. and
the Company (the “Employment Agreement”) on any ground articulated in Sections
6(b)(i) (but only if such employment is terminated due to Zein Obagi, M.D.’s
failure to devote at least 20 hours per week of his business time and attention
to the business of OMP as an employee thereof), 6(b)(ii), 6(b)(iii), 6(b)(iv)
or 6(b)(vi) of such Employment Agreement, then the Company may, in its sole
discretion, elect to repurchase any shares of Common Stock held by Obagi at the
then fair market value per share of such stock if the Company also repurchases
any and all Series B Preferred Stock of the Company held by Obagi at a price
per share equal to the original price per share paid by Obagi for such shares
plus an amount equal to any accrued and unpaid dividends associated with each
such share, and in such event Obagi agrees to so sell such Common Stock and
Series B Preferred Stock to the Company. The amount to be paid by the Company
for each share of Common Stock and Series B Preferred Stock shall be adjusted
to give effect to any stock splits, reverse stock splits or recapitalizations
effecting such shares.

 

7.2           The fair market value
of Obagi’s Common Stock for the purposes of Section 7.1 shall be determined as
follows: each of Obagi and the Company shall promptly pick a third party
independent appraisal firm of national recognition and each such appraisal firm
shall promptly value the Common Stock to be so repurchased. If the aggregate
valuations of such stock by such two appraisal firms are within ten percent (10%)
of each other, the value of such stock shall be the average of such appraisal
valuations. If such valuations are not within ten percent (10%) of each other,
then such two appraisal firms shall promptly choose a third appraisal firm of
national recognition and such third appraisal firm shall promptly determine the
aggregate valuation of such stock, such valuation to be binding on the parties.
The Company shall bear the costs of such appraisals.

 

8.             Miscellaneous.

 

8.1           Legend. In
addition to any legends required by applicable federal and state securities
laws, certificates representing Registrable Securities and/or Co-Sale Stock
shall be endorsed with the following legend:

 

“THE SECURITIES
REPRESENTED BY THIS CERTIFICATE AND THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER
OF THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN INVESTORS’ RIGHTS AGREEMENT BY AND BETWEEN THE
SHAREHOLDER, THE COMPANY AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION.
COPIES OF

 

17

 

SUCH AGREEMENT MAY
BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE CORPORATION.”

 

Mandarin agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in this Section 8.1 to enforce the provisions of this
Agreement and the Company agrees to promptly do so. The legend shall be removed
upon termination of this Agreement.

 

8.2           Assignment of Rights.
The rights provided by this Agreement may be assigned (but only with all
related obligations) by a Holder or Investor to a transferee or assignee of all
or part of such Investor’s or Holder’s Registrable Securities and/or Co-Sale
Stock, provided; (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound
by and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 2.13 above; and (c) such assignment shall
be effective only if immediately following such transfer the further
disposition of such securities by the transferee or assignee is restricted
under the Act. For the purposes of determining the number of shares of
Registrable Securities and/or Co-Sale Stock held by a transferee or assignee,
the holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities and/or Co-Sale Stock by gift, will or intestate succession) shall be
aggregated together and with the partnership; provided that all assignees and
transferees who would not qualify individually for assignment of rights
pursuant to this Agreement shall have a single attorney-in-fact for the purpose
of exercising any rights, receiving notices or taking any action under this
Agreement.

 

8.3           Successors and
Assigns. Except as otherwise provided herein, the terms and conditions of
this Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.

 

8.4           Term. The
provisions set forth in Sections 3 through 6 of this Agreement shall terminate upon the earlier of (i) the
closing of a firm commitment underwritten public offering pursuant to an
effective registration statement under the Act covering the offer and sale of
the Company’s Common Stock at an aggregate offering price of not less than
$7,500,000 and (ii) the closing of the Company’s sale of all or substantially
all of its assets or the acquisition of the Company by another entity by means
of merger or consolidation resulting in the exchange of the outstanding shares
of the Company’s capital stock for securities or consideration issued, or
caused to be issued, by the acquiring entity or its subsidiary. The provisions
set forth in Section 2 of this Agreement shall terminate in the manner set
forth in Section 2.14 above.

 

18

 

8.5           Governing law.
This Agreement shall be governed by and construed under the laws of the State
of California as applied to agreements among California residents entered into
and to be performed entirely within California.

 

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

 

8.7           Titles and Subtitles.
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.

 

8.8           Notices. Unless
otherwise provided, any notice required or permitted under this Agreement shall
be given in writing and shall be deemed effectively given upon personal delivery
to the party to be notified or upon deposit with the United States Post Office,
by registered or certified mail, postage prepaid and addressed to the party to
be notified at the address indicated for such party on the signature page
hereof, or at such other address as such party may designate by ten (10) days’
advance written notice to the other parties.

 

8.9           Expenses. If any
action at law or in equity is necessary to enforce or interpret the terms of
this Agreement, the prevailing party shall be entitled to reasonable attorneys’
fees, costs and necessary disbursements in addition to any other relief to
which such party may be entitled.

 

8.10         Amendments and Waivers.
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of a majority of the Registrable Securities then
outstanding. Any amendment or waiver effected in accordance with this Section
shall be binding upon each holder of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company.

 

8.11         Severability. If
one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.

 

19

 

8.12         Aggregation of Stock.
All shares of Registrable Securities and Co-Sale Stock held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.

 

8.13         Entire Agreement;
Amendment; Waiver. This Agreement (including the Exhibits hereto, if any)
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof.

 

20

 

IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.

 

 

	
   

  	
  THE COMPANY:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  OMP
  ACQUISITION CORPORATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Ian G. Walker

  
	
   

  	
   

  	
  Ian G. Walker, Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Polar Vision

  625 Alaska Avenue

  Torrance, California 90503

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  MANDARIN
  PARTNERS LLC

  
	
   

  	
   

  
	
   

  	
  By
  its Manager:   Mandarin Management 

  Partners, Inc.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Peter P. Tong

  	
   

  
	
   

  	
   

  
	
   

  	
  Name:

  	
  Peter P. Tong

  	
   

  
	
   

  	
   

  
	
   

  	
  Its:

  	
  President

  	
   

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Polar Vision

  	
   

  
	
   

  	
   

  	
  625 Alaska Avenue,
  Torrance, CA 90503

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  ZEIN
  AND SAMAR OBAGI FAMILY TRUST

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Zein Obagi

  	
   

  
	
   

  	
   

  	
  Zein
  Obagi, Trustee

  
	
   

  	
   

  
	
   

  	
  Address:

  	
  c/o Zein Obagi, M.D.

  9033 Wilshire Boulevard

  Beverly Hills, California 90211

  
						

 

21

DEC 11 2000

FIRST AMENDMENT TO

INVESTORS’ RIGHTS AGREEMENT

THIS
FIRST AMENDMENT TO INVESTORS’ RIGHTS AGREEMENT (this “Agreement”)
is entered into as of November 15, 2000, by and between Obagi Medical Products,
Inc., a California corporation (the “Company”) (formerly known as OMP
Acquisition Corporation), Mandarin Partners LLC (“Mandarin”) and the
Zein and Samar Obagi Family Trust (the “Obagi Trust”) (collectively
referred to as the “Parties”).

RECITALS

WHEREAS,
the Parties entered into an Investors’ Rights Agreement, dated December 2, 1997
(the “Investors’ Rights Agreement”); and

WHEREAS
the Parties desire to amend the Investors’ Rights Agreement
to increase to three (3) from two (2) the number of registrations (as that term
is defined in the Investors’ Right Agreement) filed in compliance with the
Securities Act of 1933 after which the Company shall not be obligated to take
any action to effect any further registrations; and

WHEREAS
the Parties desire to amend the Investors’ Rights Agreement to provide that no
Holder (as that term is defined in the Investors’ Rights Agreement) shall be
held jointly and severally liable with any other Holder for any indemnification
arising under Section 2.9(b) of the Investors’ Rights Agreement; and

WHEREAS
the Parties desire to amend the Investors’ Rights Agreement to provide that a
selling Holder’s indemnification obligation under Section 2.9(d) of the
Investors’ Rights Agreement shall not exceed the amount of gross proceeds from
the offering received by such selling Holder; and

WHEREAS
the Parties desire to amend the Investors’ Rights Agreement to provide that the
Company shall pay all expenses incurred in connection with a registration
requested pursuant to Section 2.11 of the Investors’ Rights Agreement as
further described below, but excluding any underwriter’s discounts or
commissions associated with Registrable Securities (as that term is defined in
Investors’ Rights Agreement); and

WHEREAS
the Parties desire to amend Section 2.14(a) of the Investors’
Rights Agreement to increase to five (5) the number of years after which no
Holder shall be entitled to exercise any right provided under Section 2 of the
Investors’ Rights Agreement following the consummation of the sale of
securities pursuant to a registration statement filed by the Company under the
Act, and to delete the words “Section 1” and replace such words with “Section
2” to accurately reflect the intent of the parties.

NOW,
THEREFORE, in consideration of the mutual premises and
promises herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

 

AGREEMENT

1. Section 2.1(d)(i) of
the Investors’ Rights Agreement is hereby amended by deleting all of said
Section 2. l(d)(i) and replacing it with the following:

“(i)
After the Company has effected three (3) registrations pursuant to this Section
2.1 and such registrations have been declared or ordered effective;”.

2. Section 2.9(b) of the
Investors’ Rights Agreement is hereby amended by deleting all of said Section
2.9(b) and replacing it with the following:

“(b)
To the extent permitted by law, each selling Holder will indemnify and hold
harmless the Company, each of its directors, each of its officers who has
signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder
selling securities in such registration statement and any controlling person of
any such underwriter or other Holder, against any losses, claims, damages, or
liabilities (joint or several) to which any of the foregoing persons may become
subject, under the Act, the 1934 Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereto)
arise out of or are based upon any Violation, in each case to the extent (and
only to the extent) that such Violation occurs in reliance upon and in
conformity with written information furnished by such Holder expressly for use
in connection with such
registration; and each such Holder will pay, as incurred, any legal or other
expenses reasonably incurred by any person intended to be indemnified pursuant
to this subsection 2.9(b), in connection with investigation or defending any
such loss, claim, damage, liability, or action; provided, however, that the
indemnity agreement contained in this subsection 2.9(b) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; provided, that, in no event shall any
indemnity under this subsection 2.9(b) exceed the gross proceeds from the
offering received by such Holder. In no event shall a selling Holder be jointly
and severally liable with any other selling Holder for any indemnification
arising under this Section 2.9(b).”

3. Section 2.9(d) of the
Investors’ Rights Agreement is hereby amended by deleting all of said Section
2.9(d) and replacing it with the following:

“(d)
If the indemnification provided for in this Section 2.9 is held by a court of
competent jurisdiction to be unavailable to an indemnified party with respect
to any loss, liability, claim, damage, or expense referred to therein, then the
indemnifying party, in lieu of indemnifying such indemnified party hereunder,
shall contribute to the amount paid or payable by such indemnified party as a
result of such loss, liability, claim, damage, or expense in such proportion as
is appropriate to reflect the relative fault of the indemnifying party on the
one hand

 

2

 

and of the indemnified
party on the other in connection with the statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other
relevant equitable considerations. The relative fault of the indemnifying party
and of the indemnified party shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of a material fact or
the 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. Notwithstanding any provision to the contrary in
this Section 2.9(d), in the event that the indemnifying party is a selling
Holder, in no event shall the selling Holder’s obligation to contribute any
amounts hereunder exceed the amount of gross proceeds from the offering
received by such Holder.”

4. Section 2.11(c) of the
Investors’ Rights Agreement is hereby amended by deleting all of said Section
2.11(c) and replacing it with the following:

“(c)
Subject to the foregoing, the Company shall file a registration statement
covering the Registrable Securities and other securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Holders. All expenses incurred in connection with a registration requested
pursuant to Section 2.11, including (without limitation) all registration,
filing, qualification, printer’s and accounting fees and the reasonable fees
and disbursements of one counsel for the selling Holder or Holders if Company
counsel does not make itself available for this purpose, and counsel for the
Company, but excluding any underwriter’s discounts or commissions associated
with Registrable Securities, shall be borne and paid for by the Company.
Registrations effected pursuant to this Section 2.11 shall not be counted as
demands for registration or registrations effected pursuant to Sections 2.1 or
2.2, respectively.”

5. Section 2.14(a) of the
Investors’ Rights Agreement is hereby amended by deleting all of said Section
2.14(a) and replacing it with the following:

“(a)
No Holder shall be entitled to exercise any right provided for in this Section
2 after five (5) years following the consummation of the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the initial firm commitment underwritten offering of its
securities to the general public.”

6. Effect of Amendment.
All terms and provisions of the Investors’ Rights Agreement shall continue in
full force and effect except as expressly modified in this Agreement. Each
reference in the Investors’ Rights Agreement to “this Agreement,” “hereunder,”
“hereof,” or words of like import, and each reference to the Investors’ Rights
Agreement in any and all instruments or documents provided for in the
Investors’ Rights Agreement or delivered or to be delivered thereunder or in
connection therewith, shall, except where the context otherwise requires, be
deemed a reference to the Investors’ Rights Agreement as amended hereby.

 

3

 

7. No Third-Party Beneficiaries. Nothing expressed or
implied in this Agreement is intended to confer upon any person, other than the
parties hereto, or their respective successors or permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this
Agreement.

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

9. Choice of Law; Headings. This Agreement shall be
governed by and construed in accordance with the internal laws of the State of
California (regardless of such state’s conflict of laws principles), and without
reference to any rules of construction regarding the party responsible for the
drafting hereof. Headings in this Agreement are for the purposes of reference
only and shall not limit or otherwise affect any of the terms hereof.

10. Successors and Assigns. This Agreement shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

[Signature Page Follows]

 

4

 

IN WITNESS
WHEREOF, the parties have executed this Agreement on the day and year first above written.

 

	
   

  	
   

  	
  OBAGI MEDICAL PRODUCTS, INC.

  
	
  

  	
   

  	
  By: 

  	
  

  /s/ Phillip J. Rose

  
	
   

  	
   

  	
   

  	
  Phillip J. Rose

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  President

  

 

	
   

  	
   

  	
  SHAREHOLDERS:

  
	
   

  	
   

  	
  

  MANDARIN PARTNERS LLC

  
	
  

  	
   

  	
  By: 

  	
  /s/ Peter P. Tong

  
	
   

  	
   

  	
   

  	
  Peter P. Tong

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Manager

  

 

	
   

  	
   

  	
  ZEIN AND SAMAR OBAGI 

  FAMILY TRUST

  
	
  

  	
   

  	
  By: 

  	
  

  /s/ Dr. Zein Obagi

  
	
   

  	
   

  	
   

  	
  Dr. Zein Obagi

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  Its:

  	
  Trustee

  

 

 

5

 

SECOND AMENDMENT
TO

INVESTORS’ RIGHTS AGREEMENT

THIS
SECOND AMENDMENT TO INVESTORS’ RIGHTS AGREEMENT (this “Amendment”)
is entered into as of January    , 2001, by and among OMP, Inc.,
a Delaware corporation (the “Company”) (successor to Obagi Medical
Products, Inc. which was formerly known as OMP Acquisition Corporation),
Mandarin Partners LLC (“Mandarin”), and the Zein and Samar Obagi Family
Trust (“Obagi”) (collectively referred to as the “Parties”).

RECITALS

WHEREAS,
the Parties entered into an Investors’ Rights Agreement, dated as of December
2, 1997, as amended as of November 15, 2000 (the “Investors’ Rights
Agreement”); and

WHEREAS,
Mandarin has made a distribution of the Company’s capital stock owned by it to
its beneficial owners; Stonington Capital Appreciation 1994 Fund, L.P. (“Stonington”),
Peter P. Tong, Tong Family Limited Partnership, Ian G. Walker and Noel Urben
(collectively, the “Mandarin Investors”); and

WHEREAS,
the Company, Mandarin and Obagi desire to amend the Investors’ Rights Agreement
to eliminate all rights of Mandarin under the Investors’ Rights Agreement,
release Mandarin from its obligations under the Investors’ Rights Agreement and
allow each of the Mandarin Investors to join the Investors’ Rights Agreement as
if it or he was an original party thereto.

NOW,
THEREFORE, in consideration of the mutual premises and
promises herein contained and other good and valuable consideration, the
receipt and sufficiency of which is hereby acknowledged, the parties hereto
agree as follows:

AGREEMENT

1.         Transfer of Mandarin’s Interest. Effective upon the
execution and delivery of this Amendment by the Parties and the Mandarin
Investors, Mandarin shall assign and transfer, and the Mandarin Investors agree
to assume, all of Mandarin’s rights and obligations under the Investors’ Rights
Agreement. Without limiting the generality of the foregoing, each of the
members of the Mandarin Investors shall be a “Holder” (as defined in the
Investors’ Rights Agreement) and agrees to be bound by and subject to the terms
and conditions of the Investors’ Rights Agreement, including, without
limitation, the provisions of Section 2.3 of the Investors’ Rights Agreement.
Effective upon the execution and delivery of this Amendment by the Mandarin
Investors, Mandarin shall be released from all rights and obligations it has
under the Investors’ Rights Agreement.

 

2.         Amendments to the Investors’ Rights
Agreement.

(a)       Definitions. Section 1 of the
Investors’ Rights Agreement is hereby amended by adding the following
definitions in the appropriate alphabetical order:

“The
term “Co-Sale Investors” shall mean, collectively, Obagi and each of the
Mandarin Individual Investors.

The
term “Mandarin Investors” shall mean, collectively, Stonington, Peter P. Tong,
Tong Family Limited Partnership, Ian G. Walker and Noel Urben.

The
term “Mandarin Individual Investors” shall mean, collectively, Peter P. Tong,
Tong Family Limited Partnership, Ian G. Walker and Noel Urben.

The
term “Stonington” shall mean Stonington Capital Appreciation 1994 Fund, L.P.”

(b) Co-Sale Rights.
Section 4 of the Investors’ Rights Agreement is hereby amended by deleting such
Section in its entirety and replacing it with the following:

“4.       Co-Sale Rights.

4.1       Sales by Stonington.

(a)       If Stonington proposes to sell or
transfer any shares of Co-Sale Stock in one or more related transactions, then
Stonington shall promptly give written notice (the “Notice”) to the Company and
each of the Co-Sale Investors at least twenty (20) days prior to the closing of
such sale or transfer. The Notice shall describe in reasonable detail the
proposed sale or transfer including, without limitation, the class, series and
number of shares of Co-Sale Stock to be sold or transferred, the nature of such
sale or transfer, the consideration to be paid, and the name and address of
each prospective purchaser or transferee. In the event that the sale or
transfer is being made pursuant to the provisions or Sections 4.1 or 4.2
hereof, the Notice shall state under which section of this Agreement the sale
or transfer is being made.

(b)       Each of the Co-Sale Investors shall have
the right, exercisable upon written notice to Stonington within fifteen (15)
days after receipt of the Notice, to participate in such sale of Co-Sale Stock
on the same terms and conditions; provided, that such Co-Sale Investor owns
shares of the same class or classes as the Co-Sale Stock identified in the Notice.

(c)       Each of the Co-Sale Investors may sell
all or any part of that number of shares of Co-Sale Stock, of the same class
and/or series as that identified in the Notice, equal to the product obtained
by multiplying (i) the aggregate number of shares of Co-Sale Stock covered by
the Notice by (ii) a fraction the numerator of which is the number of shares of
Co-Sale Stock of the same class and/or series identified in the Notice owned

 

2

 

by such Co-Sale Investor
at the time of the sale or transfer and the denominator of which is the total
number of shares of Co-Sale Stock of the same class and/or series identified in
the Notice owned by Stonington and all Co-Sale Investors at the time of the
sale or transfer.

(d)       Each of the Co-Sale Investors shall
effect its participation in the sale by promptly delivering to Stonington for
transfer to the prospective purchaser one or more certificates, properly
endorsed for transfer, which represent the type and number of shares of Co-Sale
Stock which such Co-Sale Investor elects to sell.

(e)       The stock certificate or certificates
that any Co-Sale Investor delivers to Stonington pursuant to Section 4.1(d)
shall be transferred to the prospective purchaser in consummation of the sale
of the Co-Sale Stock pursuant to the terms and conditions specified in the
Notice, and Stonington shall concurrently therewith remit to such Co-Sale
Investor that portion of the sale proceeds to which such Co-Sale Investor is
entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from any Co-Sale Investor,
Stonington shall not sell to such prospective purchaser or purchasers any
Co-Sale Stock unless and until, simultaneously with such sale, Stonington shall
purchase such shares from such Co-Sale Investor for the same consideration and
on the same terms and conditions as the proposed transfer described in the
Notice.

(f)        The exercise or non-exercise of the
rights of each Co-Sale Investor to participate in one or more sales of Co-Sale
Stock made by Stonington shall not adversely affect any Co-Sale Investor’s
rights to participate in subsequent sales of Co-Sale Stock subject to Section
4.1 (a).

(g)       If any of the Co-Sale Investors does not
elect to participate in the sale of the Co-Sale Stock subject to the Notice,
Stonington may, not later than ninety (90) days following delivery to the
Company and the Co-Sale Investors of the Notice, conclude a transfer of not
less than all of the Co-Sale Stock covered by the Notice on terms and
conditions not more favorable to the transferor than those described in the
Notice. Any proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer of any of
the Co-Sale Stock by Stonington, shall again be subject to the co-sale rights
of each of the Co-Sale Investors and shall require compliance by Stonington with
the procedures described in this Section 4.1.

4.2       Exempt Transfers.

(a)       Notwithstanding the foregoing, the
co-sale rights of the Co-Sale Investors shall not apply to (i) any pledge of
Co-Sale Stock made pursuant to a bona fide loan transaction that creates a mere
security interest, (ii) any bona fide gift or charitable donation or (iii) any
distribution to the partners of Stonington; provided that (A) Stonington shall
inform each of the Co-Sale Investors of such pledge, transfer, gift,

 

3

 

donation or distribution
prior to effecting it and (B) the pledgee, transferee, donee or distributee
shall furnish each of the Co-Sale Investors with a written agreement to be
bound by and comply with all provisions of Section 4 of this Agreement. Such
transferred Co-Sale Stock shall remain “Co-Sale Stock” hereunder, and such
pledgee, transferee or donee shall be treated as “Stonington” for purposes of
this Agreement.

(b)       Notwithstanding the foregoing, the
provisions of Section 4 shall not apply to the sale of any Co-Sale Stock (i) to
the public pursuant to a registration statement filed with, and declared
effective by, the Securities and Exchange Commission under the Act or (ii) to
the Company,”

(c)       Restrictions on Transfer. Section
6 of the Investors’ Rights Agreement is hereby amended by deleting such Section
in its entirety and replacing it with the following:

“6.       Restrictions On Transfer.

6.1       Obagi shall be prohibited from selling or
otherwise transferring any shares of Registrable Securities or Co-Sale Stock
issued or issuable to it or from selling or otherwise transferring any right to
acquire such securities to any party other than the Mandarin Investors at any
time prior to the earlier of (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the Act
covering the offer and sale of the Company’s Common Stock at an aggregate
offering price of not less than $7,500,000, (ii) the closing of the Company’s
sale of all or substantially all of its assets or the acquisition of the
Company by another entity by means of merger or consolidation resulting in the
exchange of the outstanding shares of the Company’s capital stock for
securities or consideration issued, or caused to be issued, by the acquiring
entity or its subsidiary or (iii) the tenth anniversary of the date of this
Agreement (provided that in the case of clause (iii) hereof, after such tenth
anniversary Obagi may sell or otherwise transfer such Registered Securities or
Co-Sale Stock only in compliance with Section 6.2 below).

6.2       If an event specified in clause (i) or
(ii) of Section 6.1 shall have not yet occurred as of the tenth anniversary of
the date of this Agreement and Obagi desires to sell or otherwise transfer any
such Registrable Securities or Co-Sale Stock (the “Target Stock”) at any time
after such tenth anniversary, then Obagi shall promptly deliver to the Company
and each of the Mandarin Investors written notice of the intended disposition
and the terms and conditions thereof, including the identity of any proposed
purchaser and the price per share of the securities to be so disposed (the
“Offer Notice”). Thereafter, the Company and the Mandarin Investors or any of
them may elect to purchase any or all of the Target Stock on the terms and
conditions set forth in the Offer Notice, such purchase to occur within twenty
(20) business days after receipt by the Company and the Mandarin Investors of
the Offer Notice (the “Wait Period”). The Company and the Mandarin Investors
shall each negotiate in good faith in determining any allocation between them
of the Target Stock offered in the Offer Notice. If the Company and the
Mandarin Investors or any of them have not purchased all such Target Stock
prior to expiration of the Wait Period, the Company’s and the Mandarin
Investors’ right to

 

4

 

purchase any Target Stock
not so purchased by them shall lapse, expire and be of no further effect. Any
Target Stock not purchased by the Company or by the Mandarin Investors which is
thereafter transferred by Obagi to a third party shall be subject to the
provisions of Sections 5 and 6, and 16 such transferee shall, as a condition
precedent to such transfer, agree to be bound by the provisions of Sections 5 and 6 and shall be treated as “Obagi” for
the purposes of Sections 5 and 6.”

3.         Effect of Amendment. All terms and provisions of the
Investors’ Rights Agreement shall continue in full force and effect except as
expressly modified in this Amendment. Each reference in the Investors’ Rights
Agreement to “this Agreement,” “hereunder,” “hereof,” or words of like import,
and each reference to the Investors’ Rights Agreement in any and all
instruments or documents provided for in the Investors’ Rights Agreement or
delivered or to be delivered thereunder or in connection therewith, shall,
except where the context otherwise requires, be deemed a reference to the
Investors’ Rights Agreement as amended hereby.

4.         No Third-Party Beneficiaries. Nothing expressed or
implied in this Amendment is intended to confer upon any person, other than the
parties hereto, or their respective successors or permitted assigns, any
rights, remedies, obligations or liabilities under or by reason of this Amendment.

5.         Counterparts. This Amendment may be executed in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.

6.         Choice of Law; Headings. This Amendment shall be
governed by and construed in accordance with the internal laws of the State of
California (regardless of such state’s conflict of laws principles), and
without reference to any rules of construction regarding the party responsible
for the drafting hereof. Headings in this Amendment are for the purposes of
reference only and shall not limit or otherwise affect any of the terms hereof.

7.         Successors and Assigns. This Amendment shall be
binding upon and inure to the benefit of the parties hereto and their
respective successors and permitted assigns.

[Signature Pages Follow]

 

5

 

IN WITNESS
WHEREOF, the parties have executed this Amendment on the day and year first
above written.

 

	
   

  	
   

  	
  OBAGI MEDICAL PRODUCTS, INC.

  
	
  

  	
   

  	
  By: 

  	
  

  /s/ Phillip J. Rose

  
	
   

  	
   

  	
   

  	
  Phillip J. Rose, President

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  SHAREHOLDERS:

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  MANDARIN PARTNERS LLC

  
	
  

  	
   

  	
  By: 

  	
  

  /s/ Peter P. Tong

  
	
   

  	
   

  	
   

  	
  Peter P. Tong, Manager

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
  ZEIN AND SAMAR OBAGI FAMILY TRUST

  
	
   

  	
   

  	
  By: 

  	
  

  /s / Dr. Zein
  Obagi

  
	
   

  	
   

  	
   

  	
  Dr. Zein Obagi, Trustee

  

 

6

 

 

	
   

  	
   

  	
  NEW
  SHAREHOLDERS:

  
	
   

  	
   

  	
  STONINGTON CAPITAL APPRECIATION

  1994 FUND, L.P.

  
	
   

  	
   

  	
  By:

  	
  Stonington Partners, L.P., its general partner

  

 

	
   

  	
   

  	
   

  	
  By:

  	
  Stonington Partners, Inc.,

  its general partner

  

 

	
  

  	
   

  	
  By: 

  	
  

  /s/ Brad Hoecker

  
	
   

  	
   

  	
  Name: 

  	
  Brad Hoecker

  
	
   

  	
   

  	
  Title: 

  	
  Partner

  
	
   

  	
   

  	
  767 Fifth Avenue

  New York, New York 10153

  
	
  

  	
   

  	
  

  /s/ Peter P. Tong

  
	
  

  	
   

  	
  Peter P. Tong

  685 Spring Street

  PMB 210

  Friday Harbor, Washington 98250

  
	
   

  	
   

  	
  TONG FAMILY LIMITED
  PARTNERSHIP

  

 

	
   

  	
   

  	
  By:

  	
  

  /s/ Peter P. Tong

  
	
   

  	
   

  	
   

  	
  Peter P. Tong, Trustee

  685 Spring Street

  PMB 210

  Friday Harbor, Washington 98250

  

 

	
  

  	
   

  	
  

  /s/ Ian G. Walker

  
	
  

  	
   

  	
  Ian G. Walker

  c/o 310 Golden Shore

  Long Beach, California 90802

  
	
  

  	
   

  	
  

  
	
  

  	
   

  	
  Noel Urben

  86 Doubling Road

  Greenwich, CT 06830

  

 

7

 

 

	
   

  	
   

  	
  NEW
  SHAREHOLDERS:

  
	
   

  	
   

  	
  STONINGTON CAPITAL APPRECIATION

  1994 FUND, L.P.

  

 

	
   

  	
   

  	
  By:

  	
  Stonington Partners, L.P., its general partner

  
	
   

  	
   

  	
   

  	
  By:

  	
  Stonington Partners, Inc.,

  its general partner

  

 

	
  

  	
   

  	
  By: 

  	
  

  
	
   

  	
   

  	
  Name: 

  	
   

  
	
   

  	
   

  	
  Title: 

  	
   

  
	
   

  	
   

  	
  767 Fifth Avenue

  New York, New York 10153

  
	
  

  	
   

  	
  

  
	
  

  	
   

  	
  Peter P. Tong

  685 Spring Street

  PMB 210

  Friday Harbor, Washington 98250

  
	
   

  	
   

  	
  TONG FAMILY LIMITED
  PARTNERSHIP

  

 

	
   

  	
   

  	
  By:

  	
  

  
	
   

  	
   

  	
   

  	
  Peter P. Tong, Trustee

  685 Spring Street

  PMB 210

  Friday Harbor, Washington 98250

  

 

	
  

  	
   

  	
  

  /s/ Ian G. Walker

  
	
  

  	
   

  	
  Ian G. Walker

  c/o 310 Golden Shore

  Long Beach, California 90802

  
	
  

  	
   

  	
  

  /s/ Noel Urben

  
	
  

  	
   

  	
  Noel Urben

  86 Doubling Road

  Greenwich, CT 06830

  

 

7

Source: [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}, [{"source": "alea-institute/alea-institute/kl3m-data-edgar-agreements/train-00113-of-00352.parquet"}]]