INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made and entered
into as of this 22nd day of August, 2000, by and between XXXXXX.XXX, INC., a
Delaware corporation (the "Company") and NET VALUE HOLDINGS, INC., a Delaware
corporation (the "Investor").
RECITALS
A. The Investor has agreed to purchase from the Company, and the
Company has agreed to sell to the Investor, up to 2,208,166 shares of the
Company's Series B Convertible Preferred Stock, par value $0.001 per share (the
"Series B Stock") and up to 1,550,112 shares of the Company's Series C
Convertible Preferred Stock par value $0.001 per share (the "Series C Stock"),
on the terms and conditions set forth in that certain Preferred Stock Purchase
Agreement, of even date herewith, by and between the Company and the Investor
(the "Preferred Stock Agreement"). Capitalized terms used herein but not
otherwise defined shall have the meaning given such terms in the Preferred Stock
Agreement.
B. The Preferred Stock Agreement provides that the Investor shall be
granted certain information, registration rights and rights of first refusal,
all as more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1. Financial Information. The Company covenants and agrees that,
commencing on the date of this Agreement, for so long as the Investor holds any
shares of Series B Stock, Series C Stock and/or shares of Common Stock of the
Company issued upon the conversion of such shares of Series B Stock or Series C
Stock, the Company will:
(a) Annual Reports. Furnish to the Investor, as soon as
practicable and in any event within sixty (60) days after the end of each fiscal
year of the Company, a Balance Sheet as of the end of such fiscal year, a
Statement of Income and a Statement of Cash Flows of the Company for such year,
setting forth in each case in comparative form the figures from the Company's
previous fiscal year (if any), all prepared in accordance with generally
accepted accounting principles and practices and audited by an independent
certified public accountant selected by the Company and acceptable to the
Investor. Draft copies of the annual Balance Sheet, Statement of Income and
Statement of Cash Flows, if any, shall be furnished to the Investor immediately
following their receipt by the Company.
(b) Quarterly Reports. Furnish to the Investor as soon as
practicable, and in any case within thirty-five (35) days of the end of each
1
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly and year-to-date unaudited financial statements, including an
unaudited Balance Sheet, an unaudited Statement of Income and an unaudited
Statement of Cash Flows, together with a management report thereon. Management
reports shall include a budget variance analysis and a discussion and analysis
of the related financial statements.
(c) Monthly Reports. Furnish to the Investor within twenty
(20) days of the end of each calendar month, monthly and year-to-date unaudited
financial statements, including an unaudited Balance Sheet, an unaudited
Statement of Income and an unaudited Statement of Cash Flows, together with an
unaudited management report thereon (including a budget variance analysis and
management's discussion and analysis).
(d) Weekly Reports. Commencing on the date of this Agreement
through the week ending November 3, 2000, furnish to the Investor, within five
(5) days of the end of each calendar week, at a meeting with Investor and/or its
representatives, a report listing the Company's operating results for such week,
including the Company's cash receipts and disbursements, the number of units
sold by the Company, the number of units shipped by the Company and a breakdown
of the components of the revenues which the Company generated during such week,
as well as any other financial, legal or other business information as the
Investor may reasonably request.
(e) Annual Budget. Furnish to the Investor, as soon as
practicable and in any event no later than forty-five (45) days before the close
of each fiscal year of the Company, an annual operating plan and budget,
prepared on a quarterly basis, for the next immediate fiscal year, and on a
basis consistent with prior periods (including, among other items, appropriate
reserves, accruals and provisions for income taxes). The Company shall also
furnish to the Investor, within a reasonable time of its preparation, any
amendments to the annual budget that have been prepared at the discretion of or
for presentation to the Board. Such budget shall include underlying assumptions
and a qualitative description of the Company's plan by the Chief Executive
Officer, Chief Financial Officer, Chief Accounting Officer or Controller in
support of that budget.
(f) Material Events. The Company will notify the Investor, as
soon as possible and in any event within ten (10) days, of (i) the existence and
status of any litigation, pending or threatened, which could, in the event of an
unfavorable outcome, have a material adverse effect upon the financial condition
or results of operations of the Company considered in the aggregate, (ii) any
material change in any material fact or circumstance represented or warranted in
this Agreement and (iii) a default or any event or occurrence which with lapse
of time or notice or both could become a default under the Preferred Stock
Agreement. Such notice shall contain a reasonably detailed statement outlining
such default or event, and the Company's proposed response.
(g) Confidentiality. The Investor agrees to hold all
information received pursuant to this Agreement in confidence, and not to use or
disclose any of such information to any third party, except to the extent such
information may be made publicly available by the Company; provided, however,
2
that the Investor may, in the ordinary course of business, provide the financial
results of the Company to third parties in the same manner such information is
provided by the Investor with respect to its portfolio companies.
(h) Substitute Financials. In the event the Company fails to
provide the reports required by Section 1.1, the Investor may give the Company
notice requesting immediate delivery of such reports. If the Company fails to
deliver such reports within a two-week period after receipt of such notice from
the Investor, then the Investor, shall have the right and authority, at the
Company's sole expense, to request an audit by a nationally recognized
accounting firm of its choice (the expense of which shall not exceed the usual
and customary expenses associated with such an audit), such that the reports are
produced to the satisfaction of the Investor. All fees and costs associated with
such actions by Investor shall be the sole expense of the Company.
(i) Other Information. The Company shall provide such other
financial data and operational information as may reasonably be requested in
writing by the Investor within twenty (20) days after the later of (i) the close
of each calendar month and (ii) the date of the Investor's request. The Company
shall provide to the Investor, promptly upon request, such other information as
the Investor shall reasonably request in order for the preparation of annual,
quarterly and other reports filed by the Investor under the Securities Act of
1933 and the Securities Exchange Act of 1934.
(j) Variance Reports; Certifications. Each of the financial
statements and other reports described in this Section 1.1 shall be accompanied
by a report of the Chief Financial Officer, Chief Accounting Officer or
Controller of the Company explaining any material variances in such financial
statement or report from the Company's operating plan and budget for the quarter
or month covered and stating that such financial statement or report fairly
presents the financial position and financial results of the Company for the
period covered.
(k) Company's Failure to Comply. In the event that the Company
fails to provide any information required by this Section 1.1, it shall
reimburse the Investor for all fees and expenses of attorneys and accountants
incurred in the preparation of such financial statement and management reports
necessary for the Investor to comply with its reporting requirements.
1.2. Inspection Rights. The Company shall permit a designated
representative of the Investor, at the Investor's expense, to visit and inspect
the Company's properties, to examine its books of account, operational records,
and reports and to discuss the business, operations, and financial affairs of
the Company with its respective officers, all at such reasonable times as may be
requested by the Investor. The Company will provide the Investor's
representatives with any additional information, opinions, certifications, and
documents, in addition to those herein mentioned, relating to the operation of
the Company as may be reasonably requested.
1.3. Termination of Certain Rights. The Company's obligations under
Sections 1.1 and 1.2 above will terminate upon (a) the consummation of a
Qualifying IPO (as defined in Article FOURTH, Section D.6(b)(1) and Section
E.6(b)(1) of the Company's Restated Certificate of Incorporation) or (b) a
consolidation or merger of the Company with or into any other corporation in
which the holders of record of the Company's outstanding shares of stock
3
immediately before such consolidation or merger hold (by virtue of securities
issued as consideration in such transaction or otherwise) less than a majority
of the voting power of the surviving corporation of such consolidation or
merger, or the sale of all or substantially all of the assets of the Company (a
"Change of Control Event"). After a Qualifying IPO, the Company shall provide
the Investor with all reports normally provided to its shareholders.
1.4. Rule 144A Information, PORTAL. At all times during which the
Company is neither subject to the reporting requirements of Section 13 or 15(d)
of the Securities Exchange Act of 1934, as amended (the "Exchange Act"), nor
exempt from reporting pursuant to Rule 12g3-2(b) under the Exchange Act, it
shall provide in written form, upon the written request of the Investor, or a
prospective purchaser of securities of the Company from the Investor, all
information required by Rule 144A(d)(4)(i) of the Rules and Regulations
promulgated under the Securities Act (the "144A Information"); the Company
further agrees, upon written request, to cooperate with and assist the Investor
or any member of the National Association of Securities Dealers, Inc. system for
Private Offerings Resales and Trading through Automated Linkages ("PORTAL") in
applying to designate and thereafter maintaining the eligibility of the
Company's securities for trading through PORTAL. With respect to each, the
Company's obligations under this Section 1.4 shall at all times be contingent
upon the Investor's obtaining from a prospective purchaser an agreement to use
its commercially reasonable efforts to safeguard the 144A Information from
disclosure to anyone other than employees of the prospective purchaser who
require access to the 144A Information for the sole purpose of evaluating its
purchase of the Company's securities.
2. REGISTRATION RIGHTS.
2.1. Definitions. For purposes of this Section 2.1:
(a) Registration. The terms "register", "registered", and
"registration" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) Registrable Securities. The term "Registrable Securities"
means: (i) all the shares of Common Stock of the Company issued or issuable upon
the conversion of any shares of Series B Stock issued under the Series B
Agreement or any shares of Series C Stock issued under the Series C Agreement
that are now owned or may hereafter be acquired by the Investor or the
Investor's permitted successors and assigns; and (ii) any shares of Common Stock
of the Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, all such
shares of Common Stock described in clause (i) of this Section 2.1(b), excluding
in all cases, however, any Registrable Securities sold by a person in a
transaction in which rights under this Section 2.1 are not assigned in
accordance with this Agreement or any Registrable Securities sold to the public
or sold pursuant to Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of
shares of "Registrable Securities Then Outstanding" shall mean the number of
shares of Common Stock which are Registrable Securities and are then (i) issued
4
and outstanding or (ii) issuable pursuant to the exercise or conversion of then
outstanding and then exercisable options, warrants or convertible securities.
(d) Holder. The term "Holder" means any person owning of
record Registrable Securities that have not been sold to the public or pursuant
to Rule 144 promulgated under the Securities Act or any assignee of record of
such Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
of this Agreement, a record holder of shares of Series B Stock or shares of
Series C Stock convertible into such Registrable Securities shall be deemed to
be the Holder of such Registrable Securities; provided, further, that the
Company shall in no event be obligated to register shares of Series B Stock or
Series C Stock, and that Holders of Registrable Securities will not be required
to convert their shares of Series B Stock or Series C Stock into Common Stock in
order to exercise the registration rights granted hereunder.
(e) Form S-3. The term "Form S-3" means such form under the
Securities Act as is in effect on the date hereof or any successor registration
form under the Securities 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.
(f) Securities Act. The term "Securities Act" means the
Securities Act of 1933, as amended.
(g) SEC. The term "SEC" or "Commission" means the U.S.
Securities and Exchange Commission.
2.2. Demand Registration.
(a) Request by Holders. If the Company shall receive at any
time after ninety (90) days after the effective date of the Company's initial
public offering of its securities pursuant to a registration filed under the
Securities Act, a written request from the Holders of at least a majority of the
Registrable Securities Then Outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and effect, as soon as
practicable, the registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by written notice given such Holders to the Company within twenty
(20) days after receipt of the Request Notice, subject only to the limitations
of this Section 2.2.
(b) Underwriting. If the Holders initiating the registration
request under this Section 2.2 ("Initiating Holders"), intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
5
to this Section 2.2 and the Company shall include such information in the
written notice referred to in Section 2.2(a). 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 Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company and a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
Section 2.2 to the contrary, if the underwriter(s) advise(s) the Company in
writing that marketing factors require a limitation of the number of securities
to be underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to the
number of Registrable Securities Then Outstanding held by each Holder requesting
registration (including the Initiating Holders); provided, however, that the
number of shares of Registrable Securities to be included in such underwriting
and registration shall not be reduced unless all other securities of the Company
are first entirely excluded from the underwriting and registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is
obligated to effect only one (1) Demand Registration pursuant to this Section
2.2.
(d) Deferral. If the Company shall furnish to Holders
requesting the filing of a registration statement pursuant to this Section 2.2,
a certificate signed by the President or 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 stockholders
for such registration statement to be filed and it is, therefore, essential to
defer the filing of such registration statement, then the Company shall have the
right to defer such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve (12) month period.
(e) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders (excluding underwriters'
discounts and commissions), shall be borne by the Company. Each Holder
participating in a registration pursuant to this Section 2.2 shall bear such
Holder's proportionate share (based on the total number of shares sold in such
registration other than for the account of the Company), of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this Section 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities requested to
be registered; provided however, that if at the time of such withdrawal, the
Holders have learned of a material adverse change in the condition, business, or
prospects of the Company not known to the Holders at the time of their request
for such registration and have withdrawn their request for registration with
reasonable promptness after learning of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to this Section 2.2.
6
2.3. Piggyback Registrations.
(a) Registration Rights. The Company shall notify all Holders
of Registrable Securities in writing at least thirty (30) days prior to filing
any registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company, including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but specifically excluding registration statements relating to: (i) any
registration under Section 2.2 or Section 2.4 of this Agreement; or (ii) any
employee benefit plan, corporate reorganization or acquisition or other
transactions under Rule 145 of the Securities Act of 1933, and will afford each
such Holder an opportunity to include in such registration statement all or any
part of the Registrable Securities then held by such Holder. Each Holder
desiring to include in any such registration statement all or any part of the
Registrable Securities held by such Holder shall, within twenty (20) days after
receipt of the above-described notice from the Company, so notify the Company in
writing, and in such notice shall inform the Company of the number of
Registrable Securities such Holder wishes to include in such registration
statement. If a Holder decides not to include all of its Registrable Securities
in any registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(b) Underwriting. If a registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering,
then the Company shall so advise the Holders of Registrable Securities. In such
event, the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determines in good faith that marketing factors require a limitation
of the number of shares to be underwritten, then the managing underwriter may
exclude shares (including Registrable Securities) from the registration and the
underwriting, and the number of shares that may be included in the registration
and the underwriting shall be allocated, first to the Company, and second to
each of the Holders ("Other Holders") requesting inclusion of their Registrable
Securities in such registration statement on a pro rata basis based on the total
number of Registrable Securities then held by each such Holder; provided,
however, that the right of the underwriters to exclude shares (including
Registrable Securities) from the registration and underwriting as described
above shall be restricted so that (i) the number of Registrable Securities
included in any such registration is not reduced below ten percent (10%) of the
shares included in the registration, except for a registration relating to the
Company's initial public offering from which all Registrable Securities shall be
excluded; and (ii) all shares that are not Registrable Securities and are held
by persons who are employees or directors of the Company (or any subsidiary of
the Company) shall first be excluded from such registration and underwriting
before any Registrable Securities are so excluded. Notwithstanding the
foregoing, the Registrable Securities shall be subject to exclusion on a pari
passu basis with any shares of common stock being registered on such
registration by the holders of the Company's Series A Convertible Preferred
Stock pursuant to the Series A Investor Rights Agreements dated November 22,
1999, December 17, 1999 and December 20, 1999. If any Holder disapproves of the
7
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter, delivered at least ten (10)
business days prior to the effective date of the registration statement. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
excluded and withdrawn from the registration. For any Holder which is a
partnership or corporation, the partners, retired partners and stockholders of
such Holder, 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 "Holder," and any pro rata reduction with respect to such
"Holder" shall be based upon the aggregate amount of shares carrying
registration rights owned by all entities and individuals included in such
"Holder," as defined in this sentence.
(c) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4. Form S-3 Registration. In case the Company shall receive from any
Holder or Holders of at least a majority of all Registrable Securities Then
Outstanding 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, then the
Company will:
(a) Notice. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) Registration. 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 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 twenty (20) 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 2.4:
8
(i) if Form S-3 is not available for such offering by
the Holders;
(ii) 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 of less than $500,000; or
(iii) 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) Expenses. Subject to the foregoing, the Company shall file
a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 2.4, (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees and the reasonable fees and disbursements of one counsel for the selling
Holder or Holders and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations shall not
be deemed to be a demand registration as described in Section 2.2 above.
(e) Number of Form S-3 Registrations. Upon request in
accordance with this Section 2.4, the Company is obligated to effect one (1)
such registration annually pursuant to this Section 2.4.
2.5. Obligations of the Company. Whenever required, upon request in
accordance with this Section 2.5, to effect the registration of any Registrable
Securities under this Agreement, the Company shall, as expeditiously and as
reasonably as 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 up to three (3) years.
(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 Securities Act with respect to the disposition of all
securities covered by such registration statement for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
9
(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(s) 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 Securities 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) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a
"comfort" letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6. Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7. 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 2.
10
2.8. Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities 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 Securities Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the 1934 Act or
any federal or state securities law in connection with the offering covered by
such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 2.8(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 such Holder, partner,
officer, director, underwriter or controlling person of such Holder, including
without limitation, any information furnished by any Holder of the Company
pursuant to Section 2.6 hereof.
(b) By Selling Holders. 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 have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act (collectively "Company Indemnitee"), against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such Company Indemnitee may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
11
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 reimburse any legal or other expenses reasonably
incurred by the Company or any such Company Indemnitee in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this Section 2.8(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; and provided, further,
that the total amounts payable in indemnity by a Holder under this Section
2.8(b) in respect of any Violation shall not exceed the gross proceeds received
by such Holder in the registered offering out of which such Violation arises.
(c) Notice. Promptly after receipt by an indemnified party
under this Section 2.8 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 2.8,
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 shall
have the right to retain its own 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 conflict of 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 2.8, 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 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreement of the Holders is subject to the conditions that, insofar as
it relates to: (i) any Violation made in a prospectus in which the Company is
selling securities; and (ii) any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus is filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of the
Company if a copy of the Final Prospectus was furnished to the Holders and was
not furnished by the Company to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) Contribution. In order to provide for just and equitable
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8, but it is judicially determined (by the entry of a final judgment
12
or decree by a court of competent jurisdiction and the expiration of time to
appeal or the denial of the last right of appeal) that such indemnification may
not be enforced in such case notwithstanding the fact that this Section 2.8
provides for indemnification in such case, or (ii) contribution under the
Securities Act may be required on the part of any such selling Holder or any
such controlling person in circumstances for which indemnification is provided
under this Section 2.8; then, and in each such case, the Company and such Holder
will contribute to the aggregate losses, claims, damages or liabilities to which
they may be subject (after contribution from others) in such proportion so that
such Holder is responsible for the portion represented by the percentage that
the public offering price of its Registrable Securities offered by and sold
under the registration statement bears to the public offering price of all
securities offered by and sold under such registration statement, and the
Company and other selling Holders are responsible for the remaining portion;
provided, however, that, in any such case, (a) no such Holder will be required
to contribute any amount in excess of the public offering price of all such
Registrable Securities offered and sold by such Holder pursuant to such
registration statement; and (b) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and Holders under
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9. "Lock-up" Agreement. Each Holder hereby agrees that it shall not,
to the extent requested by the Company or an underwriter of securities of the
Company, sell or otherwise transfer or dispose of any Registrable Securities or
other shares of stock of the Company then owned by such Holder (other than to
donees or partners of the Holder who agree to be similarly bound) for up to one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act; provided, however,
that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all officers, directors then holding Common Stock and all
holders of more than one percent (1%) of the outstanding capital stock of the
Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10. Rule 144 Reporting. With a view to making available the benefits
of certain rules and regulations of the Commission which may at any time permit
13
the sale of the Registrable Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after the effective date of the first registration statement
filed by the Company for an offering of its securities to the general public),
and of the Securities Act and the 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
2.11. Termination of the Company's Obligations. The Company shall have
no obligations pursuant to Sections 2.2 through 2.4 with respect to: (a) any
request or requests for registration made by any Holder on a date more than five
(5) years after the closing date of a Qualifying IPO; (b) any Registrable
Securities proposed to be sold by a Holder in a registration pursuant to Section
2.2, 2.3 or 2.4 if all such Registrable Securities proposed to be sold by a
Holder may be sold in a three (3) month period without registration under the
Securities Act pursuant to Rule 144 under the Securities Act, or under any
replacement rule promulgated by the SEC permitting the resale of restricted
securities without the necessity of a registration statement; or (c), in
connection with any particular registration undertaken by the Company, any
Holder who fails to provide promptly the Company such information as the Company
may reasonably request at any time to enable the Company to comply with any
applicable law or regulation or to facilitate preparation and filing of said
registration.
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 at least sixty-six and two thirds percent (66 2/3%) of the
Registrable Securities Then Outstanding, 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 2.2 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
14
registration statement being declared effective prior to the earlier of either
of the dates set forth in Section 2.2(a), or within one hundred twenty (120)
days of the effective date of any registration effected pursuant to Section 2.2.
3. PURCHASE RIGHT.
3.1. General. Each Holder and any party to whom such Holder's rights
under this Section 3.1 have been duly assigned in accordance with Section 4.1(b)
(each such Holder or assignee being hereinafter referred to as a "Rights
Holder") shall have the right of first refusal to purchase such Rights Holder's
Pro Rata Share (as defined below), of all (or any part) of any "New Securities"
(as defined in Section 3.2) that the Company may from time to time issue after
the date of this Agreement. A Rights Holder's "Pro Rata Share" for purposes of
this right of first refusal shall mean a fraction, the numerator of which is (a)
the number of Registrable Securities as to which such Rights Holder is the
Holder (or is deemed to be the Holder under Section 2.1(d)), and the denominator
of which is (b) the number of shares of common stock of the Company equal to the
sum of (i) the total number of shares of common stock of the Company then
outstanding plus (ii) the total number of shares of common stock of the Company
into which all then outstanding shares of Series C Stock, Series B Stock and
Series A Convertible Preferred Stock of the Company are then convertible.
3.2. New Securities. "New Securities" shall mean any common stock or
preferred stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such common stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such common stock or preferred Stock; provided, however, that
the term "New Securities" does not include:
(a) up to 1,398,000 shares of the Company's Common Stock (or
options or warrants therefor) issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company, and
including in such number all Warrant Securities (as defined below);
(b) any shares of Series B Stock issued under the Series B
Agreement and any shares of Series C Stock issued under the Series C Agreement,
as such agreements may be amended;
(c) any securities issuable upon conversion of or with respect
to any then outstanding shares of Series B Stock, Series C Stock and Series A
Convertible Preferred Stock of the Company or Common Stock or other securities
issuable upon conversion thereof;
(d) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("Warrant Securities"), and any securities issuable upon
the conversion of any Warrant Securities;
(e) shares of the Company's Common Stock issued in payment of
dividends to the holders the Company's Series A Convertible Preferred Stock;
15
(f) shares of the Company's Common Stock, Series A Convertible
Preferred Stock, Series B Stock or Series C Stock issued in connection with any
stock split or stock dividend or similar event;
(g) securities offered by the Company to the public pursuant
to a registration statement filed under the Securities Act; or
(h) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty-one
percent (51%), or more of the voting power of such other corporation or entity
or fifty-one percent (51%), or more of the equity ownership of such other
entity, provided that, such acquisition was approved by (i) the Investor
Director (as defined below) or (ii) by holders of a majority of the outstanding
shares of Series B Stock or Series C Stock.
3.3. Procedures. In the event that the Company proposes to undertake an
issuance of New Securities, it shall give to each Rights Holder written notice
of its intention to issue New Securities (the "Notice"), describing the type of
New Securities and the price and the general terms upon which the Company
proposes to issue such New Securities. Each Rights Holder shall have ten (10)
days from the date of mailing of any such Notice to agree in writing to purchase
such Rights Holder's Pro Rata Share of such New Securities for the price and
upon the general terms specified in the Notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased (not
to exceed such Rights Holder's Pro Rata Share). If any Rights Holder fails to so
agree in writing within such ten (10) day period to purchase such Rights
Holder's full Pro Rata Share of an offering of New Securities (a "Nonpurchasing
Holder"), then such Nonpurchasing Holder shall forfeit the right hereunder to
purchase that part of his Pro Rata Share of such New Securities that he did not
so agree to purchase and the Company shall promptly give each Rights Holder who
has timely agreed to purchase his full Pro Rata Share of such offering of New
Securities (a "Purchasing Holder") written notice of the failure of any
Nonpurchasing Holder to purchase such Nonpurchasing Rights Holder's full Pro
Rata Share of such offering of New Securities (the "Overallotment Notice"). Each
Purchasing Holder shall have a right of overallotment such that such Purchasing
Holder may agree to purchase a portion of the Nonpurchasing Holders' unpurchased
Pro Rata Shares of such offering on a pro rata basis according to the relative
Pro Rata Shares of the Purchasing Rights Holders, at any time within five (5)
days after receiving the Overallotment Notice.
3.4. Failure to Exercise. To the extent that the Rights Holders fail to
exercise in full the right of first refusal within such ten (10) plus five (5)
day period, then the Company shall have 120 days thereafter to sell the New
Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120 day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this Section 3.4.
16
3.5. Termination. This right of first refusal shall terminate (a) upon
consummation of a Qualifying IPO, or (b) upon a merger, consolidation or sale of
the stock or substantially all of the assets of the Company in which the
shareholders of the Company immediately prior to such transaction do not retain
a majority of voting power in the surviving entity( a "Change of Control
Event").
4. ASSIGNMENT AND AMENDMENT.
4.1. Assignment. Notwithstanding anything herein to the contrary:
(a) Information Rights. The rights of the Investor under
Section 1 hereof may be assigned only to (i) a Related Party (as defined below)
or (ii) a party who acquires from the Investor (or the Investor's permitted
assigns) at least ten percent (10%) of the Series B Stock or Series C Stock or
the equivalent number (on an as-converted basis) of shares of Common Stock of
the Company issued upon the conversion of such shares of Series B Stock or
Series C Stock.
(b) Registration Rights; Purchase Rights. The registration
rights of a Holder under Section 2 hereof and the purchase rights of a Rights
Holder under Section 3 hereof may be assigned only to (i) a party who acquires
at least ten percent (10%), of the Series B Stock or Series C Stock or an
equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion thereof or (ii) a Related Party (as defined below); provided,
however, that no party may be assigned any of rights under Section 4.1 unless
the Company is given written notice by the assigning party at the time of such
assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and provided, further that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this Section 4.1.
4.2. Amendment of Rights. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders holding shares of Series B Stock,
Series C Stock or Conversion Stock representing or convertible into a majority
of all the Investor's Shares (as defined below) as of the date of any proposed
amendment. As used herein, the term "Investor's Shares" shall mean the shares of
Common Stock then issuable upon conversion of all then outstanding shares of
Series B Stock issued under the Series B Agreement, plus the shares of Common
Stock then issuable upon conversion of all then outstanding shares of Series C
Stock issued under the Series C Agreement, plus all then outstanding shares of
Conversion Stock that were issued upon the conversion of any shares of Series B
Stock issued under the Series B Agreement or any shares of Series C Stock issued
under the Series C Agreement. Any amendment or waiver effected in accordance
with this Section 4.2 shall be binding upon the Investor, each Holder, each
permitted successor or assignee of the Investor or Holder and the Company.
4.3. Related Party. As used herein, the term "Related Party" with
respect to any Holder means (i) any person or entity that, directly or
17
indirectly, through one or more intermediaries, has voting control of, or is
under common voting control with, such Holder; or (ii) a trust, corporation,
partnership or other entity, the beneficiaries, stockholders, partners or owners
or persons or entities holding controlling interest of which consist of any
Holder and/or such other persons or entities referred to in the immediately
preceding clause (i); and (iii) any Holders' current partners, stockholders or
members as the case may be.
5. COVENANTS OF THE COMPANY.
5.1. Board of Directors; Meetings.
(a) So long as the Investor or its assignee holds shares of
Series B Stock or Series C Stock, the Company will use its best efforts to cause
promptly the election to its Board of Directors and maintenance in office one
(1) person designated by the Investor (the "Investor Director"). The Company
shall cause the Board of Directors to meet at least once every fiscal quarter.
(b) Special Voting Rights. The Company shall not, without the
approval, by vote or written consent, of the Investor Director:
(i) amend its Certificate of Incorporation in any
manner that would alter or change any of the rights, preferences, privileges or
restrictions of the Series B Stock;
(ii) reclassify any outstanding shares of securities
of the Company into shares having rights, preferences or privileges senior to or
on parity with the Series B Stock or the Series C Stock;
(iii) authorize or issue any additional Series B
Stock or Series C Stock or any other stock having rights or preferences senior
to or on parity with the Series B Stock or Series C Stock or any common stock or
securities convertible into shares of common stock which in the aggregate are
greater than 10% of the issued and outstanding shares of common stock on the
date of issuance calculated on a fully diluted basis;
(iv) merge or consolidate with or into any
corporation;
(v) sell all or substantially all the Company's
assets in a single transaction or series of related transactions;
(vi) liquidate or dissolve;
(vii) declare or pay any dividends (other than
dividends payable solely in shares of Common Stock) on or declare or make any
other distribution (other than Permitted Repurchases), directly or indirectly,
on account of any shares of Common Stock now or hereafter outstanding;
18
(viii) redeem or repurchase any outstanding shares of
the Company's capital stock (other than Permitted Repurchases as defined in
Article FOURTH, Section D.2(h) and Section E.2(h) of the Company's Restated
Certificate of Incorporation);
(ix) pay any bonuses to officers, directors or
employees of the Company not contemplated in an operating budget approved by the
Investor Director;
(x) award stock options, stock appreciation rights or
similar employee benefits or determine vesting schedules, exercise prices or
similar features; provided that the Company shall have the right to issue or
grant such stock options, stock appreciation rights or similar employee benefits
convertible into up to 1,398,000 shares of common stock;
(xi) pledge its assets or guarantee the obligations
of any other individual or entity or at any time become a guarantor or surety of
or pledge its credit on any undertaking of a third party;
(xii) incur indebtedness (other than trade payables)
in excess of $50,000 in the aggregate, including (A) the execution of any
promissory note, loan agreement or other agreement evidencing indebtedness, (B)
drawing upon a line of credit or similar credit facility, or (C) causing a
letter of credit to be issued in the Company's name;
(xiv) amend the Company's Bylaws to alter any rights
of the Investor Director or the holders of the Series B Stock or the Series C
Stock or to increase the size of the Board to more than five (5) directors;
(xv) enter into any agreement with any officer or
director of the Company, any holder of greater than 10% of the issued and
outstanding shares of the Company's common stock or any Related Party; or
(xvi) hire new executive officers of the Company or
modify or extend any compensation arrangement with any executive officers of the
Company.
5.2. Minutes. The Company will deliver to the Investor copies of the
complete minutes of all meetings of the Company's Board of Directors (including
all committees thereof) and stockholders no later than the earlier of: (i)
thirty (30) days after any such meeting; or (ii) the next successive board or
stockholder meeting, as applicable.
5.3. Board Committees. The Investor shall have the right, in its sole
discretion, to appoint the Investor Director to the audit and executive
committees of the Board of Directors, each committee to consist of not more than
four (4) members, if such committees exist.
5.4. Bylaws. The Company shall at all times cause its By-laws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, the holders of at least fifty percent (50%) of the Series B Stock or
19
at least fifty percent (50%) of the Series C Stock then outstanding shall be
entitled to call a special meeting of the Board of Directors or stockholders of
the Company and (b) the number of directors fixed in accordance therewith shall
in no event conflict with any of the terms or provisions of the Series B Stock
as set forth in the Series B Certificate or the Series C Stock as set forth in
the Series C Certificate. The Company shall at all times maintain provisions in
its Bylaws or Certificate of Incorporation indemnifying all directors against
liability and absolving all directors from liability to the Company and its
stockholders to the maximum extent permitted under the laws of the State of
Delaware. To the extent that such coverage is available on commercially
reasonable terms, the Company shall purchase, and at all times maintain,
directors and officers liability insurance with coverage limits customary for
similarly situated companies, but in no event less than $2,000,000 per
occurrence.
5.5. Investor's Expenses. Following the Closing, any reasonable
expenses incurred by the Investor or its representatives on behalf of the
Company, including reasonable expenses associated with attendance at meetings of
the Board of Directors (other than observer expenses if the Investor no longer
has a representative elected to the Board), trade shows or similar meetings or
events, shall be borne by the Company.
5.6. Vesting of Stock Options. Without the consent of the Board of
Directors (including the Investor Director), the Company shall not award stock
options which deviate from the following vesting schedule: all options shall
vest over a four (4) year period. The Company shall not modify the vesting
period of any stock options without the consent of the Investor Director.
5.7. Salary Increases. Without the consent of the Board of Directors
(including the Investor Director) the Company will not increase the base salary
of any officer by more than ten percent (10%) per year.
5.8. Subsidiaries or Joint Ventures. The Company will not, without the
prior approval of the Board of Directors (including the Investor Director),
establish or invest in any subsidiary or joint venture.
5.9. Conduct of Business. The Company will duly observe and conform to
or cause to be observed or conformed to all valid requirements of all
governmental authorities relative to the conduct of the business of the Company
or to its properties or assets, the failure to observe or conform to which would
have a materially adverse effect on the business of the Company, and will
maintain and keep in full force and effect all licenses and permits necessary to
the proper conduct of the business of the Company.
5.10. Preservation of Corporate Existence. The Company shall preserve
and maintain its respective corporate existence, rights, franchises and
privileges in its jurisdiction of incorporation, and will qualify and remain
qualified as a foreign corporation in every jurisdiction in which such
qualification is necessary in view of the business and operations of the Company
or the ownership of their respective properties.
20
5.11. Performance Under Other Documents. The Company will promptly pay
or perform or cause to be performed all payments and obligations required of it
under the terms, agreements and covenants of the Series B Agreement, the Related
Agreements, the Series B Certificate, the Series C Agreement and the Series C
Certificate.
5.12. Performance of Obligations. The Company will promptly perform or
cause to be performed every commitment, undertaking, agreement or covenant of
the Company with any third person whether or not specifically referred to in
this Agreement, the non-performance of which could cause the acceleration of
indebtedness of the Company; provided, however, that (unless and until
foreclosure, sale or similar proceedings have been commenced) the Company shall
have the right in good faith to contest the obligation to perform any such
commitment, undertaking, agreement or covenant.
5.13. Payment of Taxes and Accounts. The Company will pay or cause to
be paid all taxes, assessments, and governmental charges or levies imposed upon
the Company or upon its respective income, profits, or properties before the
same shall become delinquent; provided, however, that (unless and until
foreclosure, sale or similar proceedings have been commended) nothing herein
shall require the Company to pay or cause to be paid any such tax, assessment,
charge, levy or account so long as the validity thereof shall be contested in
good faith by appropriate proceedings and the Company has set aside on its books
and maintained adequate reserves with respect thereto.
5.14. Maintenance of Property. The Company will maintain or cause to be
maintained the real and personal property which is required for the business of
the Company in good repair, working order and condition, and from time to time
will make or cause to be made all repairs, renewals, and replacements that are
necessary and proper.
5.15. Insurance on Properties. The Company will maintain or cause to be
maintained insurance with reputable insurance companies on such of the
properties of the Company in such amounts and against such risks as is deemed
sufficient by the Company's management and as is satisfactory to the Investor.
The Company will furnish to the Investor, upon request, certificates signed by
the President or the Chief Financial Officer of the Company setting forth a list
of all insurance in force on the properties of the Company and containing a
general schedule of property insured, risks insured against and amount of
insurance then in force.
5.16. Authorized Capital Stock. The Company covenants that it shall at
all times reserve and keep available out of its authorized but unissued Common
Stock, solely for the purpose of effecting the exercise of the Series B Stock
and the Series C Stock, such number of shares of Common Stock as shall from time
to time be issuable upon the exercise of all of the Series B Stock and all of
the Series C Stock, as the case may be.
5.17. Taxes and Costs. The Company shall pay all taxes which may be
imposed with respect to the issuance and delivery of shares of Common Stock upon
conversion of the Series B Stock or conversion of the Series C Stock; provided,
however, that the Company shall not be required, in any event, to pay any
transfer or other taxes by reason of issuance of such shares of Common Stock in
21
a name or names other than the name of the holder of the Series B Stock or
Series C Stock surrendered for exchange.
5.18. Proprietary Assets. The Company shall take all steps reasonably
necessary to preserve and protect all of its intellectual property, including
without limitation all patents, copyrights, trade secrets, trademarks,
tradenames, and servicemarks used in its business.
5.19. Liquidation and Dissolution. The Company will take no action to
place the Company or any subsidiary in dissolution, liquidation, or
receivership.
5.20. New Businesses. The Company will not, without the prior approval
of the Board of Directors (including the Investor Director), directly or
indirectly, engage in any business other than the business in which it is
presently engaged.
5.21. Fiscal Year and Accounting Methods. The Company will not change
its fiscal year or method of accounting (other than immaterial changes in
methods), except to the extent necessary to comply with generally accepted
accounting principles.
5.22. Loans, Advances and Investments. The Company will not, without
the prior approval of the Board of Directors (including the Investor Director),
directly or indirectly, make any loan or advance to, or invest in, any person
who is a stockholder, director, or officer (or a relative of any such person) of
the Company, other than advances to employees for travel and other expenses
incurred in the ordinary course of business.
5.23. Pension Reform Act. The Company will not permit (a) the funding
requirements under ERISA with respect to any employee benefit plan established
or maintained by the Company or any subsidiary to be less than the minimum
required by ERISA or the regulations thereunder, or (b) any employee benefit
plan established or maintained by the Company to be subject to involuntary
termination proceedings.
5.24. Restrictive Assignments. The Company will not, without the prior
approval of the Board of Directors (including the Investor Director), enter into
or become obligated under any agreement or contract, including (without
limitation) any loan agreement, promissory note (or other evidence of
indebtedness), mortgage, security agreement, or lease, which either (a)
precludes or prevents the Investor from curing (on behalf of the Company)
defaults, breaches or failures to perform, or (b) by its terms prevents or
restricts the Company from performing its obligations under the Preferred Stock
Agreement.
5.25. Termination. The covenants in this Section 5 shall terminate (a)
upon consummation of a Qualifying IPO, or (b) Change of Control Event.
5.26. Professional Advisors. The Investor shall have the right to
approve (which shall not be unreasonably withheld or delayed) all of the
Company's professional advisors, including but not limited to, the Company's
22
accountants, attorneys, investment bankers and public relations consultants. The
Investor agrees that KPMG LLP is hereby approved to provide any and all
accounting services and Xxxxxxxx Xxxxxxx Xxxxxxxx Xxxxxx & Israel P.C. is hereby
approved to continue providing legal services.
6. GENERAL PROVISIONS.
6.1. Notices. Any notice, request or other communication required or
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
(a) if to the Investor, at: Net Value Holdings, Inc.
0 Xxxx Xxxxxx Xxxxx
Xxxxx 000
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxx X. Xxxxx
Attention: Xxxxxxx X. Xxxxx, Esquire
and
Net Value Holdings, Inc.
0000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxxxxx, XX 00000
Attention: Xxxxxxx Xxxx
with a copy (which shall not constitute notice hereunder) to:
Klehr, Harrison, Xxxxxx, Xxxxxxxxx & Xxxxxx, LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxxx X. Xxxxx, Esquire
(b) if to the Company, at: XxxxXx.xxx, Inc.
Five Clock Xxxxx Xxxxx
Xxxxx 000
Xxxxxxx, XX 00000
Attention: Xxxxxx Xxxxxxxxx, President
23
with a copy (which shall not constitute notice hereunder) to:
Xxxxxxxx Xxxxxxx Xxxxxxxx Xxxxxx & Israel PC
00 Xxxxxxx Xxxxxx, Xxxxx 000
Xxxxxxxxx, XX 00000
Attention: Xxxx X. Xxxxxx
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
6.2. Entire Agreement. This Agreement, together with all the Exhibits
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
6.3. Governing Law; Jurisdiction. This Agreement shall be governed by a
construed exclusively in accordance with the internal laws of the State of
Delaware, excluding that body of law relating to conflict of laws and choice of
law. The parties consent to the exclusive jurisdiction of Delaware in which to
bring a cause of action.
6.4. Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
6.5. Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
6.6. Successors and Assigns. Subject to the provisions of Section 4.1,
the provisions of this Agreement shall inure to the benefit of, and shall be
binding upon, the successors and permitted assigns of the parties hereto.
6.7. Captions. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
6.8. Counterparts. This Agreement may be executed in two counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
6.9. Costs and Attorneys' Fees. In the event that any action, suit or
other proceeding is instituted concerning or arising out of this Agreement or
24
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
6.10. Adjustments for Stock Splits, Etc. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock, Series B
Stock or Series C Stock of the Company of any class or series, then, upon the
occurrence of any subdivision, combination or stock dividend of such class or
series of stock, the specific number of shares so referenced in this Agreement
shall automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.
6.11. Aggregation of Stock. All shares 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.
25
IN WITNESS WHEREOF, the parties hereto have executed this Investor
Rights Agreement as of the date and year first above written.
THE COMPANY:
XXXXXX.XXX, INC.
a Delaware corporation
By: ______________________________
Xxxxxx Xxxxxx, Chief Financial Officer
THE INVESTOR:
NET VALUE HOLDINGS, INC.,
a Delaware corporation
By:___________________________
Xxxxxx X. Xxxxx
Chief Executive Officer
26
