EXHIBIT 4.2.1
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 18th day of November
1999, by and among xxxxxxxxxxxx.xxx, Inc., a Delaware corporation (the
"Company"), and the investors listed on SCHEDULE A hereto, each of which is
herein referred to as an "Investor" and all of whom are collectively referred to
as the "Investors."
RECITALS
WHEREAS, certain Investors are parties to the Stock Purchase Agreement
of even date herewith among the Company, the Founders and the Investors (the
"Series A Agreement"), which provides, that as a condition to the closing of the
sale of the Series A Preferred Stock (the "Series A Preferred Stock") and the
Common Stock (the "Common Stock"), this Agreement must be executed and delivered
by such Investors, the prior holders of the Company's Common Stock (the
"Founders") and the Company. (The Founders and the Investors are referred to
collectively as the "Existing Stockholders").
NOW, THEREFORE, in consideration of the mutual promises and covenants
set forth herein, the parties hereto further agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as
amended.
(b) The term "Form S-1" 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 having substantially similar disclosure requirements.
(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 that 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 1.9 hereof.
(e) The term "Initial Offering" means the Company's first firm
commitment underwritten public offering of its Common Stock under the Act.
(f) The term "1934 Act" means the Securities Exchange Act of
1934, as amended.
(g) 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.
(h) The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock issued
to the Investors and the Common Stock issued to the Investors and (ii) any
Common Stock of the Company issued as (or issuable upon the conversion or
exercise of any warrant, right or other security that is issued as) a dividend
or other distribution with respect to, or in exchange for, or in replacement of,
the shares referenced in clause (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(i) The term "Qualified IPO" means the Company's closing of a
sale of its Common Stock in a firm commitment underwritten public offering
pursuant to a registration statement on Form S-1 (or any successor form) under
the Securities Act of 1933, as amended, the public offering price of which was
not less than $30,000,000 in the aggregate, or any other public offering in
which all outstanding shares of the Company's Preferred Stock convert into
shares of the Company's Common Stock.
(j) The number of shares of "Registrable Securities"
outstanding shall be determined by the number of shares of Common Stock
outstanding that are, and the number of shares of Common Stock issuable pursuant
to then exercisable or convertible securities that are, Registrable Securities.
(k) The term "SEC" shall mean the Securities and Exchange
Commission.
1.2 COMPANY PIGGYBACK REGISTRATION.
(a) If the Company proposes to register (including for this
purpose a registration effected by the Company for stockholders other than the
Holders) any of its stock or other securities under the Act in connection with
the public offering of such securities (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, a
registration relating to a corporate reorganization or other transaction under
Rule 145 of the Act, a registration on any form that does not include
substantially the same information as would be required to be 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 that 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 3.6,
the Company shall, subject to the provisions of Section 1.2(c), use all
reasonable efforts to cause to be registered under the Act all of the
Registrable Securities that each such Holder has requested to be registered.
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(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have
the right to terminate or withdraw any registration initiated by it under this
Section 1.2 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 1.6 hereof.
(c) 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 this Section 1.2 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 enter into an
underwriting agreement in customary form with an underwriter or underwriters
selected by the Company, 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 stockholders 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,
that 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 Holders according to the total amount of securities entitled
to be included therein owned by each selling Holder or in such other proportions
as shall mutually be agreed to by such selling Holders), but in no event shall
(i) the amount of securities of the selling Holders included in the offering be
reduced below thirty percent (30%) 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 Holders may be excluded if the
underwriters make the determination described above and no other stockholder's
securities are included. For purposes of the preceding parenthetical concerning
apportionment, for any selling stockholder that is a Holder of Registrable
Securities and that 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 "selling Holder," and any
pro rata reduction with respect to such "selling Holder" shall be based upon the
aggregate amount of Registrable Securities owned by all such related entities
and individuals.
1.3 DEMAND REGISTRATION. In case the Company shall receive from the
Holders of at least twenty percent (20%) of the Registrable Securities a written
request or requests that the Company effect a registration 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 shall:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) use all reasonable efforts to effect, as soon as
practicable, 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 Holders' Registrable Securities as are specified
in such request, together with all or such portion of the Registrable Securities
of
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any other 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
1.3;
(i) 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;
(ii) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer or Chairman of the Board 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 to be effected at such time, in which event
the Company shall have the right to defer the filing of the registration
statement for a period of not more than one hundred twenty (120) days after
receipt of the request of the Holder or Holders under this Section 13; provided,
however, that the Company shall not utilize this right more than once in any
twelve (12)-month period;
(iii) if the Company has already effected for the
Holders two (2) registrations on Form S-1 and four (4) registrations on Form S-3
pursuant to this Section 1.3; or
(iv) 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.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this Section 1
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 all reasonable 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, if earlier, until the distribution contemplated in the
Registration Statement has been completed;
(b) prepare and fie 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;
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(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;
(d) use all reasonable 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;
(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 or 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; and
(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.
1.5 INFORMATION FROM HOLDER. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section I 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.
1.6 EXPENSES OF REGISTRATION. All expenses other than underwriting
discounts and commissions incurred in connection with registrations, filings or
qualifications pursuant to Sections 1.2 and 1.3, including (without limitation)
all registration, filing 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 shall be borne by the
Company. Notwithstanding the foregoing, the Company shall not be required to pay
for any expenses of any registration proceeding begun pursuant to Section 1.3 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 pro
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rata based upon the number of Registrable Securities that were to be registered
in the withdrawn registration), 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 from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company 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 Section 1.3.
1.7 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners or officers, directors and
stockholders of each Holder, legal counsel and accountants for 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 any state
securities laws, 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 laws or any rule or regulation promulgated under the Act, the
1934 Act or any state securities laws; and the Company will reimburse each such
Holder, 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 subsection 1.7(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 that 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; provided further, however, that the foregoing indemnity
agreement with respect to any preliminary prospectus shall not inure to the
benefit of any Holder or underwriter, or any person controlling such Holder or
underwriter, from whom the person asserting any such losses, claims, damages or
liabilities purchased shares in the offering, if a copy of the prospectus (as
then amended or supplemented if the Company shall have furnished any amendments
or supplements thereto) was not sent or given by or on behalf of such Holder or
underwriter to such person, if required by law so to have been delivered, at or
prior to the written confirmation of the sale of the shares to such person, and
if the prospectus (as so amended or supplemented) would have cured the defect
giving rise to such loss, claim, damage or liability.
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(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, legal counsel and
accountants for the Company, 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 any state securities laws, 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 reimburse any person intended
to be indemnified pursuant to this subsection 1.7(b), for any legal or other
expenses reasonably incurred by such person, 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 subsection
1.7(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 1.7(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.7 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 1.7, 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 that 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
1.7, 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 1.7.
(d) If the indemnification provided for in this Section 1.7 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
herein, 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 with the statements or omissions that
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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.
(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 1.7 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 1, and otherwise.
1.8 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 statement, 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 Initial Offering;
(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 that permits the
selling of any such securities without registration or pursuant to such form.
1.9 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company
to register Registrable Securities pursuant to this Section 1 may be assigned
(but only with all related obligations) by a Holder to a transferee or assignee
of such securities that (i) is a subsidiary, affiliate, parent, partner, limited
partner, retired partner or stockholder of a Holder, (ii) is a Holder's family
member or trust for the benefit of an individual Holder, or (iii) after such
assignment or transfer, holds at least 300,000 shares of Registrable Securities
(subject to
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appropriate adjustment for stock splits, stock dividends, combinations and other
recapitalizations), 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
registration 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 1.11 below;
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.
1.10 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 Registrable Securities, enter into any
agreement with any holder or prospective holder of any securities of the Company
that would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.2 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
such securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.11 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that it
will not, without the prior written consent of the managing underwriter, during
the period commencing on the date of the final prospectus relating to the
Company's initial public offering and ending on the date specified by the
Company and the managing underwriter (such period not to exceed one hundred
eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any
option or contract to purchase, purchase any option or contract to sell, grant
any option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities convertible
into or exercisable or exchangeable for Common Stock (whether such shares or any
such securities are then owned by the Holder or are thereafter acquired), or
(ii) enter into any swap or other arrangement that transfers to another, in
whole or in part, any of the economic consequences of ownership of the Common
Stock, whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common Stock or such other securities, in cash or
otherwise. The foregoing provisions of this Section 1.11 shall apply only to the
Company's initial public offering of equity securities, shall not apply to the
sale of any-shares to an underwriter pursuant to an underwriting agreement, and
shall only be applicable to the Holders if all officers and directors and
greater than two percent (2%) stockholders of the Company enter into similar
agreements. The underwriters in connection with the Company's initial public
offering are intended third party beneficiaries of this Section 1.11 and shall
have the right, power and authority to enforce the provisions hereof as though
they were a party hereto.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
1.12 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled to
exercise any right provided for in this Section 1 after five (5) years following
the consummation of the Initial Offering or, as to any Holder, such earlier time
at which all Registrable Securities held by such
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Holder (and any affiliate of the Holder with whom such Holder must aggregate its
sales under Rule 144) can be sold in any three (3)-month period without
registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to each
Investor that holds at least 300,000 shares (as adjusted for subsequent stock
splits, stock dividends, combinations, recapitalizations and the like) of Series
A Preferred (or Common Stock issuable upon conversion thereof) of the Company:
(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
stockholder's equity as of the end of such year, and a statement of cash flows
for such year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles in the
United States ("GAAP"), and audited and certified by "Big Five" 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, statement of cash flows for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) within thirty (30) days of the end of each month, an
unaudited income statement and statement of cash flows and balance sheet for and
as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event at least 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 balance sheets,
income statements and statements of cash flows for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company 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; and
(f) 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.
2.2 INSPECTION. The Company shall permit each Investor that holders at
least 300,000 shares (as adjusted for subsequent stock splits, stock dividends,
combinations, recapitalizations
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and the like) of Common Stock (either outstanding or issuable upon conversion
Series A Preferred Stock) of the Company, 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.
2.3 TERMINATION OF INFORMATION AND INSPECTION COVENANTS. The covenants
set forth in Sections 2.1 and 2.2 shall terminate as to Investors and be of no
further force or effect when the sale of securities pursuant to a registration
statement filed by the Company under the Act when (i) the Initial Offering is
consummated or (ii) the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall
first occur.
2.4 RIGHT OF FIRST OFFER. Subject to the terms and conditions specified
in this Section 2.4, the Company hereby grants to each Existing Stockholder a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, an Existing
Stockholder includes any general partners and affiliates of an Existing
Stockholder. An Existing Stockholder shall be entitled to apportion t4 e right
of first offer hereby granted it among itself and its partners and affiliates in
such proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or securities
convertible into or exchangeable or exercisable for any shares of, any class of
its capital stock ("Shares"), the Company shall first make an offering of such
Shares to each Existing Stockholder in accordance with the following provisions.
(a) The Company shall deliver a notice in accordance with
Section 4.6 ("Notice") to the Existing Stockholders stating (i) its bona fide
intention to offer such Shares, (ii) the number of such Shares to be offered,
and (iii) the price and terms upon which it proposes to offer such Shares.
(b) By written notification received by the Company, within
twenty (20) calendar days after receipt of the Notice, the Existing Stockholder
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of Common Stock issued and held, or issuable upon conversion of
the Series A Preferred Stock, then held by such Existing Stockholder, bears to
the total number of shares of. Common Stock of the Company then outstanding
(assuming full conversion and exercise of all convertible and exercisable
securities).
(c) If all Shares that the Existing Stockholders are entitled
to obtain pursuant to subsection 2.4(b) are not elected to be obtained as
provided in subsection 2.4(b) hereof, the Company may, during the ninety (90)
day period following the expiration of the period provided in subsection 2.4(b)
hereof, offer the remaining unsubscribed portion of such Shares to any person or
persons at a price not less than, and upon terms no more favorable to the
offeree than those specified in the Notice. If the Company does not enter into
an agreement for the sale of the Shares within such period, or if such agreement
is not consummated within ninety (90) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such
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Shares shall not be offered unless first reoffered to the Existing Stockholders
in accordance herewith.
(d) Subject to the following sentence, the right of first
offer in this Section 2.4 shall not be applicable to (i) the issuance or sale of
shares of Common Stock (or options therefor) to employees, officers, directors
and consultants for the primary purpose of soliciting or retaining their
services; (ii) the issuance of securities pursuant to a Qualified IPO, (iii) the
issuance of securities pursuant to the conversion or exercise of convertible or
exercisable securities, (iv) the issuance of securities in connection with a
bona fide business acquisition of or by the Company, whether by merger,
consolidation, sale of assets, sale or exchange of stock or otherwise or (v) the
issuance of stock, warrants or other securities or rights to persons or entities
with which the Company has business relationships provided such issuances are
for other than primarily equity financing purposes. If the issuance referred to
in the foregoing clauses (iv) or (v) is to an affiliate of the Company, then the
issuance shall be subject to the right of first offer in this Section 2.4 unless
the issuance is approved by a majority of the Board of Directors excluding, for
such determination, any director that is an affiliate of the person or entity to
receive the Issuance. An "affiliate" of, or a person "affiliated" with, a
specified person shall mean a person that directly, or indirectly through one or
more intermediaries, controls or is controlled by, or is under common control
with, the person specified.
(e) The covenants set forth in this Section 2.4 shall
terminate and be of no further force or effect upon the consummation of a
Qualified IPO.
3. COVENANT OF FOUNDERS. Each Founder covenants and agrees that for as long as
he is employed by the Company and for one year thereafter he, she or it shall
not own, operate, manage, control or invest in any entity that engages in or
proposes to engage in the Business (as defined below). Notwithstanding the
foregoing, nothing contained in this Section 3 shall prohibit a Founder from
owning not more than an aggregate of two percent (2%) of any class of stock of
any competing company which is listed on a national securities exchange or
traded in the over-the-counter market but only if the Founder is not involved in
the business of said company. "Business" shall mean a business that derives its
revenues primarily from the sale of diamonds, jewelry, watches and related goods
to consumers through a web site. The Founders hereby acknowledge that in the
event of a breach or threatened breach by any of them of the provisions of this
section 3, the Company would suffer irreparable harm for which there would be no
adequate remedy at law. Accordingly, the Founders agree that in such event, in
addition to any other remedies which the Company may have in law or in equity
for money damages or other relief, the Company shall be entitled to temporary
and/or injunctive relief, without the necessity of proving damages, to enforce
the provisions hereof.
4. MISCELLANEOUS.
4.1 [INTENTIONALLY DELETED].
4.2 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 heirs, personal representatives, successors and
assigns of the parties (including transferees of
12
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.
4.3 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of New York as applied to agreements among New York
residents entered into and to be performed entirely within New York.
4.4 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.
4.5 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.
4.6 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
delivery by confirmed facsimile transmission, upon deposit with a nationally
recognized overnight courier service, 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 of the Series A Agreement, or at such other address as such party
may designate by ten (10) days' advance written notice to the other parties.
4.7 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.
4.8 ENTIRE AGREEMENT: AMENDMENTS AND WAIVERS. This Agreement (including
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof. 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,
the holders of at least fifty-one percent (51%) of the Registrable Securities
[and the holders of at least fifty one percent (51%) of the Common Stock held by
the Founders.] Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any Registrable Securities each
future holder of all such Registrable Securities, all the Founders and their
permit and the Company.
4.9 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.
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4.10 AGGREGATION OF STOCK. All shares of Registrable Securities 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.
[THE REMAINDER OF THIS PAGE INTENTIONALLY LEFT BLANK].
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
COMPANY:
XXXXXXXXXXXX.XXX, INC.
By: /s/ XXXXXX XXXXX
-------------------------------------
Name: Xxxxxx Xxxxx
Title: President
INVESTOR:
LENORTH HOLDINGS S.A.
By: /s/ XXXXX XXXXXXXXXX
-------------------------------------
Name: Xxxxx Xxxxxxxxxx
Title: Attorney in Fact
INVESTOR:
NORTHERN FINANCIAL GROUP LTD.
By: /s/ XXXXX XXXXX
-------------------------------------
Name: Xxxxx Xxxxx
Title: Attorney in Fact
INVESTOR:
LIPTON PARTNERSHIP NO.2
By: /s/ Xxxx Xxxxxx
-------------------------------------
Name: Xxxx Xxxxxx
Title: President
15
INVESTOR:
DATA INVESTMENT LLC
By: /s/ Xxxxxxxx Xxxx
-------------------------------------
Name: Xxxxxxxx Xxxx
Title: President
FOUNDER:
/s/ Xxxxxx Xxxxx
-----------------------------------------
FOUNDER:
/s/ Xxxxxx Xxxxx
-----------------------------------------
16
