OMPI » Topics » Obligations under investor's rights agreement

This excerpt taken from the OMPI DEF 14A filed Apr 29, 2008.

Obligations under investor's rights agreement

        In April 2002, we entered into an Investor's Rights Agreement with our former chairman and chief executive officer, Austin T. McNamara. Subsequently, trusts established by Mr. McNamara, the McNamara Family Irrevocable Trust dated December 17, 2004 and the McNamara Family Trust dated December 27, 2004 (the "Trusts"), became the owners of 1.88 million shares of the Company's common stock owned by Mr. McNamara and parties to the Investor's Rights Agreement. Mr. McNamara resigned as a member of our Board of Directors and as an employee in May 2006 and died in December 2006. The Investor's Rights Agreement contained a repurchase obligation under which we were required to repurchase the shares of the Company held by the Trusts upon the exercise of a repurchase right. Subsequent to Mr. McNamara's resignation, the Trusts exercised this repurchase right. Pursuant to procedures set forth in the Investor's Rights Agreement three valuation firms were retained to prepare valuations of the stock held by the Trusts and the total purchase price was to have been $28.2 million.

        Any obligation we would have to repurchase the trusts' shares was to have been subordinated to our Credit Agreement with Merrill Lynch Capital dated January 28, 2005, as amended, or the Credit Agreement, while the Credit Agreement is in place. The Investor's Rights Agreement contains subordination provisions and the trusts signed an additional subordination agreement in connection with the Credit Agreement pursuant to which they agreed to be subordinated to the loans under the Credit Agreement. On May 18, 2006, the Trusts' exercised the repurchase right contained in the Investor's Rights Agreement to require us to repurchase the shares owned by the Trusts. On November 17, 2006 we tendered promissory notes in the aggregate principal amount of $28.2 million, along with a cash payment of $1.5 million as a partial prepayment of the notes, to the Trusts in order to close on our repurchase of the shares held by the Trusts pursuant to the terms of the Investor's Rights Agreement. The Trusts refused to accept our tender of these payments and refused to tender their shares and close on the repurchase of the shares they hold. As a result, we believe the Trusts were in material breach of their obligations under the Investor's Rights Agreement. Based upon this material breach by the Trusts, as well as for other reasons, we believe we were no longer obligated to repurchase the shares held by the Trusts pursuant to the Investor's Rights Agreement and the right of the Trusts to require us to repurchase the shares had expired and could no longer be enforced against us.

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        The Trusts had taken the position that they did not breach their obligations under the Investor's Rights Agreement and that instead we had breached our obligation to repurchase the Trusts' shares under the Investor's Rights Agreement.

        On May 29, 2007, the Company entered into a Settlement and Consent Agreement and Mutual Release (the "Agreement") with the estate of Austin T. McNamara, the Trusts, Lucy B. McNamara, individually and as trustee of the Trusts and as executor of the estate of Austin T. McNamara, and LVG.

        Pursuant to the Agreement, the Company and the McNamara Parties have released each other from all claims they may have against each other, except for claims related to potential taxes and related charges, should they arise, with respect to the past exercise of certain stock options by the Trusts. No payments were made by the parties to each other in connection with the settlement of the claims.

        The settlement includes the release of claims by the McNamara Parties, as described above, that the Company was obligated to purchase the 1.88 million shares of the Company's common stock then owned by the Trusts and all claims related to Mr. McNamara's employment with the Company and the termination of his employment. In connection with the release, the Company has written off a net receivable of approximately $143 for a claimed compensation overpayment to a McNamara Party.

        The McNamara Parties also sold all of their ownership in the Company's stock to an institutional investor in a privately negotiated transaction. As a condition to that transaction, the purchaser of the shares signed the lock-up agreement executed by other Company stockholders in connection with the Company's initial public offering. This lock-up agreement expired on June 12, 2007.

This excerpt taken from the OMPI DEF 14A filed Apr 30, 2007.

Obligations under investor’s rights agreement

In April 2002, we entered into an Investor’s Rights Agreement with our former Chairman and Chief Executive Officer, Mr. McNamara. Subsequently, trusts established by Mr. McNamara became the owners of 1.88 million shares of the Company’s common stock owned by Mr. McNamara and parties to the Investor’s Rights Agreement. Mr. McNamara resigned as a member of our board of directors and as an employee in May 2006 and died in December 2006. The Investor’s Rights Agreement contained a repurchase obligation under which we were required to repurchase the shares of the Company held by the trusts upon the exercise of a repurchase right. Subsequent to Mr. McNamara’s resignation, the trusts exercised this repurchase right. Pursuant to procedures set forth in the Investor’s Rights Agreement three valuation firms were retained to prepare valuations of the stock held by the trusts and the total purchase price was to have been $28.2 million.

Any obligation we would have to repurchase the trusts’ shares was to have been subordinated to our Credit Agreement, which restricts payments on such liability to a maximum of $1.5 million in any fiscal year, not to exceed $5.0 million while the Credit Agreement is in place. The Investor’s Rights Agreement contains subordination provisions and the trusts signed an additional subordination agreement in connection with the Credit Agreement pursuant to which they agreed to be subordinated to the loans under the Credit Agreement. On November 17, 2006 we tendered promissory notes in the aggregate principal amount of $28.2 million, along with a cash payment of $1.5 million as a partial prepayment of the notes, to the trusts in order to close on our repurchase of the shares held by the trusts pursuant to the terms of the Investor’s Rights Agreement. The trusts refused to accept our tender of these payments and refused to tender their shares and close on the repurchase of the shares they hold. As a result, we believe the trusts are in material breach of their obligations under the Investor’s Rights Agreement. Based upon this material breach by the trusts, as well as for other reasons, we believe we are no longer obligated to repurchase the shares held by the trusts pursuant to the Investor’s Rights Agreement and the right of the trusts to require us to repurchase the shares has expired and can no longer be enforced against us.

The trusts have taken the position that they did not breach their obligations under the Investor’s Rights Agreement and that instead we have breached our obligation to repurchase the trusts’ shares under the Investor’s Rights Agreement. While we believe the trusts’ claims to be without merit, there can be no assurance we would prevail if the trusts were to seek to enforce their claims through litigation. To our knowledge, as of April 27, 2007 the trusts had not commenced litigation against us.

On May 18, 2006, the trusts’ exercised the repurchase right contained in the Investor’s Rights Agreement to require the Company to repurchase the shares owned by the trusts. Subsequently, we reported a liability of approximately $28.2 for the estimated amount we would be required to pay to fulfill the repurchase obligation. As discussed above, on November 17, 2006, the trusts refused to accept the consideration tendered by us to satisfy the repurchase obligation and in doing so, we believe breached the terms of the Investor’s Rights Agreement and nullified any obligation we had to repurchase the trusts’ shares. As a result of this breach, and for other reasons, we reversed the liability we previously reported to reflect our conclusion that the shares held by the trusts are no longer subject to repurchase by us pursuant to the Investor’s Rights Agreement and the right of the trusts to require the us to repurchase the shares pursuant to the Investor’s Rights Agreement has expired.

Also as discussed above, the trusts have taken the position that they did not breach their obligations under the Investor’s Rights Agreement and that instead, we have breached our obligation to repurchase the trusts’ shares. However, no related claims had been asserted against us as of April 27, 2007. As such, there is not a potential liability that would be probable or estimable, and therefore, the Company did not report a liability for these unasserted claims as of December 31, 2006.

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