1
EXHIBIT 10.18
RESTORATION HARDWARE, INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (this "Agreement")
is made and entered into as of March 21, 2001 by and among Restoration Hardware,
Inc., a Delaware corporation (the "Company"), and each of the investors listed
on Schedule A attached hereto (each an "Investor" and collectively, the
"Investors").
R E C I T A L S
WHEREAS, the Investors have agreed to purchase, severally and not
jointly, from the Company, and the Company has agreed to sell to the Investors,
shares of the Company's Series A Preferred Stock (the "Series A Preferred
Stock") and shares of the Company's Series B Preferred Stock (the "Series B
Preferred Stock" and together with the Series A Preferred Stock, the "Preferred
Stock") on the terms and conditions set forth in that certain Amended and
Restated Series A and B Preferred Stock Purchase Agreement, of even date
herewith, by and among the Company and the Investors (the "Purchase Agreement");
and
WHEREAS, the Purchase Agreement provides that the Investors shall be
granted certain information rights and registration rights, all as more fully
set forth herein.
A G R E E M E N T
NOW, THEREFORE, in consideration of the foregoing recitals, the mutual
promises hereinafter set forth, and other good and valuable consideration, the
receipt and sufficiency of which are hereby acknowledged, the parties hereto
agree as follows:
1. INFORMATION RIGHTS.
1.1 Information and Inspection Rights. The Company covenants and
agrees that, commencing on the date of this Agreement, for so long as any
Investor holds at least the lesser of (a) ten percent (10%) of the shares of
Preferred Stock (or underlying Common Stock) held by such Investor upon the
consummation of the transactions contemplated by the Purchase Agreement and (b)
Preferred Stock (or underlying Common Stock) having an original purchase price
of $500,000, the Company will deliver to each Investor: (i) its audited annual
financial statements within 90 days after the end of each fiscal year, (ii) its
unaudited quarterly financial statements within 45 days after the end of each
fiscal quarter, (iii) unless such Investor requests otherwise, its monthly
financial statements within 30 days after the end of each month, (iv) unless
such Investor requests otherwise, all additional information provided to the
Company's lenders and other equity holders and (v) upon the written request by
any Investor, such other information as such Investor shall reasonably request.
The Company further covenants and agrees that all financial statements of the
Company shall be prepared in conformance with United States generally accepted
accounting principles ("GAAP"), subject to year end and quarterly adjustments.
The Company further covenants and agrees that,
2
commencing on the date of this Agreement, for so long as any Investor holds a
number of shares of Preferred Stock (or underlying Common Stock) entitling such
Investor to the information rights provided above, such Investor and its
representatives shall have reasonable access to the books, records, personnel,
accountants and properties of the Company. Notwithstanding the foregoing, no
Investor holding shares of Preferred Stock (or underlying Common Stock) having
an original purchase price of less than $100,000 shall have any of the rights of
Investors contained in this Section 1.1.
1.2 Confidentiality. Each Holder or permitted transferee of rights under
this Section 1 acknowledges and agrees that any information obtained pursuant to
this Section 1 which is nonpublic information will be maintained in confidence
by such Holder or transferee and will not be utilized by such Holder or
transferee in connection with purchases or sales of the Company's securities
except in compliance with applicable state and federal securities laws. The
foregoing obligations of confidentiality in this Section 1.2 do not pertain to
the disclosure of information which is available publicly, which is required to
be disclosed by any court or which any party discloses, upon advice of counsel,
in order to comply with applicable law.
2. REGISTRATION RIGHTS.
2.1 Definitions. For purposes of this Section 2:
(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 of 1933, as amended
(the "Securities Act"), and the declaration or ordering of effectiveness of such
registration statement.
(b) Registrable Securities. The term "Registrable Securities"
means: (i) any Common Stock of the Company issued or to be issued pursuant to
conversion of any shares of Series A Preferred Stock issued (A) under the
Purchase Agreement and (B) upon the conversion of any shares of Series B
Preferred Stock, (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, any shares of Series A Preferred Stock
described in clause (i) of this subsection (b) and (iii) the shares of Common
Stock purchased by Xxxx X. Xxxxxxxx in connection with the transactions
contemplated by the Purchase Agreement. Notwithstanding the foregoing,
"Registrable Securities" shall exclude any Registrable Securities sold by a
person in a transaction in which rights under this Section 2 are not assigned in
accordance with this Agreement or any Registrable Securities sold in a public
offering, whether sold pursuant to Rule 144 promulgated under the Securities
Act, in a registered offering or otherwise.
(c) Registrable Securities Then Outstanding. The number of shares
of "Registrable Securities then outstanding" shall mean the number of shares of
Common Stock of the Company that are Registrable Securities and are then issued
and outstanding.
(d) Holder. For purposes of this Section 2, the term "Holder"
means any person owning of record Registrable Securities that have not been sold
to the public or pursuant
2
3
to Rule 144 promulgated under the Securities Act or any permitted assignee of
record of such Registrable Securities to whom rights under this Section 2 have
been duly assigned in accordance with this Agreement or any person holding
Series A Preferred Stock.
(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 (as defined below)
which permits inclusion or incorporation of substantial information by reference
to other documents filed by the Company with the SEC.
(f) 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, at any time
beginning 180 days after the date hereof and at least 180 days after the last
registration pursuant to this Section 2.2 (unless any Registration Securities
were excluded from such registration pursuant to Section 2.2(b)), receive a
written request from (i) the Holders of at least forty-two percent (42%) of the
Registrable Securities then outstanding, provided that the anticipated aggregate
offering price of such Registrable Securities would not be less than $2,000,000,
(ii) Palladin Capital Group, Inc. ("Palladin"); provided that Palladin has not
previously exercised a demand pursuant to this Section 2.2(a)(ii) or (iii)
Reservoir Capital Group, Inc. ("Reservoir"); provided that Reservoir has not
previously exercised a demand pursuant to this Section 2.2(a)(iii), 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 use its best efforts to effect, as soon as practicable, under a registration
statement form requested by the Holders initiating the registration request (the
"Initiating Holders"), the registration under the Securities Act of all
Registrable Securities that Holders request to be registered and included in
such registration by written notice given by 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. No other shares of the Company (other than
Registrable Securities) shall be included in a registration pursuant to this
Section 2.2 without the written consent of the Initiating Holders.
(b) Underwriting. If the 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
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of any
Holder to include his or 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 Initiating Holders (including
a market stand-off agreement
3
4
of up to 180 days if required by such underwriter or underwriters, but excluding
any representations and warranties of the Holders with respect to matters other
than each Holder's title to and ownership of Registrable Securities).
Notwithstanding any other provision of this Section 2.2, 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 in such registration on a pro rata basis based on
the total number of Registrable Securities requested to be included by each such
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 that are not Registrable Securities are
first entirely excluded from the underwriting and registration; provided,
further, that if the Initiating Holder of such registration is either Palladin
or Reservoir, and if more than twenty (20%) of the Registrable Securities
requested by such Initiating Holder to be included in such underwritten offering
may not be included in such underwritten offering due to a limitation on the
number of securities to be underwritten, then in such case, such Initiating
Holder shall not be deemed to have used its exclusive demand registration right
as provided in Section 2.2(c) in connection with such demand registration. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company shall be
obligated to effect only four (4) registrations in the aggregate requested by
the Holders pursuant to Section 2.2(a), one of which may be initiated
exclusively by Palladin and one of which may be initiated exclusively by
Reservoir.
(d) Deferral. Notwithstanding the foregoing, 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, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed, then the Company shall have the right to
defer such filing for a period of not more than ninety (90) 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 360-day period.
(e) Expenses. All expenses incurred in connection with any
registration pursuant to this Section 2.2, including, without limitation, all
federal and Blue Sky registration, filing and qualification fees, printer's and
accounting fees, fees and disbursements of counsel for the Company and
reasonable fees and out of pocket expenses of one counsel for the Holders (but
excluding underwriters' discounts and commissions relating to shares sold by the
Holders), shall be borne by the Company; provided that in no event shall the
Company be required to bear the expense of preparing audited financial
statements other than those associated with the end of the Company's fiscal
year. 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
4
5
amounts payable to underwriter(s) or brokers in connection with such offering by
the Holders. 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 to be registered,
unless the Holders of a majority of the Registrable Securities then outstanding
agree that such registration constitutes the use by the Holders of one (1)
demand registration pursuant to this Section 2.2 (in which case such
registration shall also constitute the use by all Holders of Registrable
Securities of one (l) such demand registration) or the Company elects to include
other shares in such 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 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
such registration shall not constitute the use of a demand registration pursuant
to this Section 2.2.
2.3 Piggyback Registrations.
(a) The Company shall notify all Holders of Registrable
Securities in writing at least twenty (20) days prior to filing any registration
statement under the Securities Act for purposes of effecting a public offering
of securities of the Company (including, without limitation, registration
statements relating to secondary offerings of securities of the Company, but
excluding registration statements relating to any registration under Section 2.2
or Section 2.4 of this Agreement or to any employee benefit plan or a corporate
reorganization on Forms X-0, X-0 or any successor form) 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 fifteen (15) 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 for 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 to include Registrable Securities 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 underwriters selected for such underwriting
(including a market stand-off agreement of up to 180 days if required by such
underwriter or
5
6
underwriters). Notwithstanding any other provision of this Agreement, if the
managing underwriter(s) determine(s) in good faith that marketing factors
require a limitation of the number of shares to be underwritten, then the
managing underwriter(s) may exclude shares 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 requesting inclusion of their Registrable Securities in such
registration statement on a pro rata basis based on the total number of
Registrable Securities requested to be included by each such Holder; provided,
however, that the right of the underwriter(s) to exclude shares (including
Registrable Securities) from the registration and underwriting as described
above shall be restricted so that all shares that are not Registrable Securities
and are held by any other person, including, without limitation, any person who
is an employee, officer or director 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. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written notice to the Company and the underwriter(s), 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 that is a
partnership, the Holder and the partners and retired partners of such Holder,
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons, and for any Holder that
is a corporation, the Holder and all corporations that are affiliates of such
Holder, 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 relating to shares sold by the Holders), including,
without limitation, all federal and Blue Sky registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and reasonable fees and out of pocket expenses of one
counsel for the Holders, shall be borne by the Company; provided that in no
event shall the Company be required to bear the expense of preparing audited
financial statements other than those associated with the end of the Company's
fiscal year.
(d) Not Demand Registration. Registration pursuant to this
Section 2.3 shall not be deemed to be a demand registration as described in
Section 2.2 above. Except as otherwise provided herein, there shall be no limit
on the number of times the Holders may request registration of Registrable
Securities under this Section 2.3.
2.4 Shelf Registration.
(a) Registration. Upon the later of (i) such time as Form S-3 (or
its equivalent) becomes available for use in a registered offering by the
Company and (ii) 30 days following the filing with the SEC of the Company's Form
10-K for fiscal year 2001, the Company will effect registrations on Form S-3 or
its equivalent and any related qualification or
6
7
compliance with respect to all of the Registrable Securities owned by the
Holders as would permit or facilitate the sale and distribution of all of such
Holders' Registrable Securities on a delayed or continuous basis. The Company
shall use its best efforts to cause such registration statement to become
effective as soon as practicable after it is filed and shall use its best
efforts to maintain the continuous effectiveness of such registration statement
(including a prospectus meeting the requirements of the Securities Act) during
the period commencing on the date of its effectiveness and ending on the
earliest to occur of (x) such time as all remaining Holders of Registrable
Securities can sell all of their Registrable Securities under Rule 144 of the
Securities Act within one (1) quarter, (y) the date on which each Principal
Investor (as defined in the Purchase Agreement) has sold 75% of their
Registrable Securities; provided, that if in the immediately prior underwritten
offering any Registrable Securities of such Principal Investor were not sold
because of any cutback by underwriters, then this clause (y) shall only apply
upon the next underwritten offering in which no Registrable Securities have been
cutback and (z) eight years from the date hereof.
(b) Expenses. All expenses incurred in connection with a
registration pursuant to this Section 2.4 (excluding underwriters' and brokers'
discounts and commissions relating to shares sold by the Holders), including,
without limitation, all federal and Blue Sky registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and reasonable fees and out of pocket expenses of one
counsel for the Holders, shall be borne by the Company; provided that in no
event shall the Company be required to bear the expense of preparing audited
financial statements other than those associated with the end of the Company's
fiscal year.
(c) Not Demand Registration. The registration pursuant to this
Section 2.4 shall not be deemed to be a demand registration as described in
Section 2.2 above.
2.5 Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities under this Agreement the Company
shall, as expeditiously as reasonably possible:
(a) Registration Statement. 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, provided,
however, that, except as otherwise provided herein, the Company shall not be
required to keep any such registration statement effective for more than one
hundred and twenty (120) days.
(b) Input of Holders. Provide to any Holder requesting to include
Registrable Securities in such registration statement and their counsel a
reasonable opportunity to review and provide comments with respect to such
registration statement (and any post-effective amendment thereto) prior to such
registration statement becoming effective; provided that with respect to any
information about such Holder, the Company shall be required to correct any
information as requested by such Holder.
(c) Amendments and Supplements. Prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in
7
8
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.
(d) Prospectuses. 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.
(e) Blue Sky. 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.
(f) Underwriting. In the event of any underwritten public
offering, (i) enter into and perform its obligations under an underwriting
agreement with the managing underwriter(s) of such offering in usual and
customary form, including, without limitation, such representations and
warranties to the Holders and the underwriter(s) in form, substance and scope as
are customarily made by issuers to underwriters in primary underwritten
offerings and (ii) enter into such agreements and take all such other reasonable
actions (including making Company personnel reasonably available, at the request
of the managing underwriters, for roadshow presentations) in connection
therewith in order to expedite or facilitate the disposition of such Registrable
Securities.
(g) Notification. Notify each Holder of Registrable Securities
covered by such registration statement the receipt of comments from the SEC, the
effective time of such registration statement and 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. In the event of the existence of an inaccurate or
an incomplete prospectus, the Company shall, as promptly as practicable
thereafter, prepare and file with the SEC a post-effective amendment and a
supplement to the related prospectus so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus will not contain an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading in
light of the circumstances then existing, and the Company shall use its
reasonable best efforts to cause such amendment to be declared effective and
such registration statement and related prospectus to become useable for their
intended purpose(s) as soon as practicable thereafter.
(h) Stop Orders. If at any time the SEC shall issue any stop
order suspending the effectiveness of a registration statement, or any state
securities commission or other regulatory authority shall issue an order
suspending the qualification or exemption from
8
9
qualification of the Registrable Securities under state securities or Blue Sky
laws, notify Holders and use its reasonable best efforts to obtain the
withdrawal or lifting of such order at the earliest possible time.
(i) Listing. Use its reasonable best efforts to cause all
Registrable Securities included in such registration statement to be listed, by
the date of the first sale of Registrable Securities thereunder, on each
securities exchange (including, for this purpose, the Nasdaq National Market) on
which the Common Stock of the Company is then listed or proposed to be listed.
(j) Opinion and Comfort Letter. Furnish, at the request of any
Holder requesting registration of Registrable Securities, on the date that such
Registrable Securities are delivered to the underwriter(s) 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.
(k) Due Diligence. Make available for inspection by any Holder,
any underwriter participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by such Holder or
underwriter, all financial and other records, pertinent corporate documents and
properties of the Company as shall be reasonably necessary to enable them to
exercise their due diligence responsibilities, and cause the Company's officers,
directors and employees to supply all such information reasonably requested in
connection with such registration statement.
(l) Securities Act. Otherwise use its best efforts and take such
other actions as are reasonable and necessary to comply with all applicable
rules and regulations of the SEC.
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 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4 or Section
3(b) of the Certificate of Designation of Series A and Series B Preferred Stock
of the Company:
9
10
(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 determined 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, liabilities
(joint or several) or actions in respect thereof 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 subsection 2.7(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 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. The right to indemnification herein will
not be affected by any investigation conducted with respect to, or any knowledge
acquired (or capable of being acquired) at any time, with respect to any
Violation.
(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, against any losses, claims, damages, liabilities
(joint or several) or actions in respect thereof to which the
10
11
Company or any such director, officer, controlling person, underwriter or other
such Holder, partner or director, officer or controlling person of such other
Holder 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 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. Each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder,
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this subsection 2.7(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; and provided further, that the total amounts payable in indemnity by a
Holder under this Section 2.7(b) in respect of any Violation shall not exceed
the net 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 2.7 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 2.7, 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 shall
have the right to retain its own counsel, with the fees and expenses to be paid
by the indemnifying party, and to control the defense of such action, 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 shall relieve such indemnifying party of liability to the indemnified
party under this Section 2.7 only to the extent the indemnifying party is
actually prejudiced as a result thereof, but the omission so to deliver written
notice to the indemnified party will not relieve it of any liability that it may
have to any indemnified party otherwise than under this Section 2.7. An
indemnifying party shall not, except with the consent of all indemnified
parties, enter into any settlement that does not include as an unconditional
term thereof the giving by the person or persons asserting such claim to all
indemnified parties of an unconditional release from all liability with respect
to such claim or consent to entry of any judgment.
(d) Defect Eliminated in Final Prospectus. The foregoing
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to 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 filed with the SEC pursuant to SEC Rule 424(b) (the "Final
Prospectus"), such indemnity agreement shall not inure to the benefit of any
person if a copy of
11
12
the Final Prospectus was timely furnished to the indemnified party and was not
furnished 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 2.7, but such indemnification is unavailable or insufficient to hold
Holder harmless, 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 2.7,
then, and in each such case, the indemnifying party will contribute to the
aggregate losses, claims, damages or liabilities to which it may be subject
(after contribution from others) in such proportion so that such indemnifying
party is responsible for the portion represented by its relative fault;
provided, however, that, in any such case: (A) no such Holder will be required
to contribute any amount in excess of the net proceeds 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. For the purposes of this Section 2.7(e), relative fault shall
be determined by reference to, among other things, whether the Violation or
alleged Violation relates to information supplied by the indemnifying party or
the indemnified party and the parties' relative intent, knowledge, access to
information and opportunity to correct or prevent such Violation or alleged
Violation.
(f) Survival. The obligations of the Company and Holders under
this Section 2.7 shall survive until the fifth anniversary of the completion of
any offering of Registrable Securities in a registration statement, regardless
of the expiration of any statutes of limitation or extensions of such statutes.
2.8 No Registration Rights to Third Parties. The Company represents and
warrants that, except as otherwise provided in the Restated Investors Rights
Agreement, dated as of May 16, 1997, by and among the Company and the other
parties described therein (the "1997 Registration Rights Agreement"), the
Company has not granted any rights that are inconsistent with the terms and
conditions of this Agreement. The Company further represents and warrants that
the Company's "Public Offering" as such term is defined in the 1997 Registration
Rights Agreement closed on June 24, 1998 and, pursuant to the terms of the 1997
Registration Rights Agreement, the registration rights granted therein shall
terminate on or before June 24, 2002. The Company covenants to the Holders that
it shall take no action to extend such registration rights beyond such
termination date. Except to the extent otherwise may be provided in the 1997
Registration Rights Agreement, or as otherwise provided in this Agreement or in
the Purchase Agreement, without the prior written consent of the Holders of a
majority in interest of the Preferred Stock, the Company covenants and agrees
that it shall not grant, or cause or permit to be created, for the benefit of
any person or entity any registration rights of any kind (whether similar to the
demand, "piggyback" or shelf registration rights or otherwise) relating to
shares of the Company's Preferred Stock or any other voting securities of the
Company, other than rights that are subordinate in rights to the Investors. To
the extent and solely to the extent that parties (or their
12
13
permitted assignees) to the 1997 Registration Rights Agreement continue to
possess registration rights granted by the Company pursuant to the terms of
Section 6 of the 1997 Registration Rights Agreement or any other provision
therein (collectively, the "1997 Holders"), then the Holders under this
Agreement agree and covenant as follows, notwithstanding the terms of any other
provision in this Agreement to the contrary: (a) the Holders shall not exercise,
or participate in any exercise of, any rights granted such Holders (individually
or collectively) pursuant to this Section 2 to make, cause or otherwise
participate in a demand registration which could result in such registration
statement being declared effective within one hundred eighty (180) days of the
effective date of any registration effected pursuant to Section 6.2 of the 1997
Registration Rights Agreement; (b) to the extent that the Holders have any right
or opportunity to participate in any registration statement of the Company, but
only to the extent required by the 1997 Registration Rights Agreement, the
Holders shall only include their Registrable Securities in such registration
statement to the extent that inclusion of such securities will not reduce or
otherwise cause or give rise to a reduction in the amount of securities of the
1997 Holders which are included in such registration statement; and (c) in the
event of any conflict between the terms of the 1997 Registration Rights
Agreement and this Agreement, including without limitation any conflict in the
priority of registration rights granted to the 1997 Holders under Sections 6.2,
6.3, 6.9 or 6.14 of the 1997 Registration Rights Agreement and to the Holders
under Sections 2.2 or 2.3 of this Agreement, then the 1997 Registration Rights
Agreement and this Agreement shall be interpreted in all cases in favor of the
1997 Holders and, to the extent that any terms in the two agreements contradict
in whole or in part, the 1997 Registration Rights Agreement shall control.
2.9 Rule 144. The Company covenants that it will timely file the reports
required to be filed by it under the Securities Act and the 1934 Act and the
rules and regulations adopted by the SEC thereunder (or, if the Company is not
required to file such reports, it will, upon the request of the Holders of a
majority of the Registrable Securities make publicly available other information
so long as necessary to permit sales pursuant to Rule 144 promulgated under the
Securities Act), and it will take such further action as the Holders of a
majority of the Registrable Securities may reasonably request, all to the extent
required from time to time to enable the Holders to sell Registrable Securities
without registration under the Securities Act within the limitation of the
exemptions provided by (a) Rule 144 under the Securities Act, as such rule may
be amended from time to time or (b) any similar rule or regulation hereafter
adopted by the SEC. Upon the request of any Holder of Registrable Securities,
the Company will deliver to such Holder a written statement as to whether it has
complied with such information and requirements.
2.10 Restrictions on Sale of Equity Securities by the Company. To the
extent timely requested by the managing underwriters in an underwritten
offering, the Company agrees not to effect any offer, sale or other distribution
of its equity securities, including a sale pursuant to Regulation D under the
Securities Act, during the thirty-day period prior to, and during the ninety-day
period (or, if requested by the managing underwriters, one hundred and
eighty-day period) beginning with, the effectiveness of a Registration Statement
filed under Section 2.2 or the commencement of sales in an underwritten offering
pursuant to Section 2.4 (except as part of such registration, if permitted, or
pursuant to registration statements relating to any employee benefit plan or a
corporate reorganization on Forms X-0, X-0 or any successor form).
13
14
Notwithstanding the foregoing, the Company shall not be restricted from
offering, selling or otherwise distributing its equity securities for more than
an aggregate of 180 days in any 12-month period.
3. ASSIGNMENT AND AMENDMENT.
3.1 Assignment. Notwithstanding anything herein to the contrary:
(a) Information Rights. The rights of the Holders under Section
1.1 are transferable to any person in connection with the transfer of
Registrable Securities; provided, however, that no party may be assigned any of
the foregoing rights (i) 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, (ii) if any such assignee is deemed to be
a Competitor (as defined below) of the Company and (iii) unless 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 3. For the purposes of this Section 3.1, "Competitor" shall mean
(x) a retail company (including without limitation, a subsidiary or business
unit of a company, which subsidiary or business unit has more than $50,000,000
in revenues), where an aggregate of 25% or more of its revenue (including
revenue of any subsidiary or business unit) is derived from the home furnishings
business, including without limitation, lighting, floor covering, furniture,
hardware and tools, or hard goods business or (y) a manufacturer, supplier or
other vendor that has a material vendor relationship with the Company.
(b) Registration Rights. The registration rights of the Holders
under Section 2 hereof may be assigned to any person in connection with the
transfer of Registrable Securities; provided, however, that no party may be
assigned any of the foregoing rights 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 3.
3.2 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 the Holders of a two-thirds (2/3) of the Registrable
Securities then outstanding (or, in the case of an amendment or waiver of any
provision of Section 2 hereof, only with the written consent of the Company and
the Holders of a two-thirds (2/3) of the Registrable Securities then outstanding
and entitled to the registration rights set forth in Section 2 hereof);
provided, however, that any amendment or waiver shall not discriminate unfairly
against any Holder without his, her or its consent. Any amendment or waiver
effected in accordance with this Section 3.2 shall be binding upon the Holders,
each Holder, each permitted successor or assignee of such Holder and the
Company.
14
15
4. GENERAL PROVISIONS.
4.1. Notices. Except as may be otherwise provided herein, all notices,
requests, waivers and other communications made pursuant to this Agreement shall
be in writing and shall be conclusively deemed to have been duly given (a) when
hand delivered to the other party, (b) when received when sent by facsimile at
the address and number set forth below, (c) three business days after deposit in
the U.S. mail with first class or certified mail receipt requested postage
prepaid and addressed to the other party as set forth below or (d) the next
business day after deposit with a national overnight delivery service, postage
prepaid, with next-business-day delivery guaranteed, provided that the sending
party receives a confirmation of delivery from the delivery service provider,
addressed to the Holders as set forth on Schedule A and to the Company as set
forth below.
To the Company:
Restoration Hardware, Inc.
00 Xxxx Xxxx, Xxxxx X
Xxxxx Xxxxxx, XX 00000
Attn: Xxxx Xxxxxxxx
Fax Number: (000) 000-0000
With copies to:
Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP
Two Embarcadero Place, 0000 Xxxx Xxxx
Xxxx Xxxx, XX 00000
Attn: Xxxxxxx X. Xxxxx, Esq.
Fax Number: (000) 000-0000
Each person making a communication hereunder by facsimile shall
promptly confirm by telephone to the person to whom such communication was
addressed each communication made by it by facsimile pursuant hereto but the
absence of such confirmation shall not affect the validity of any such
communication. A party may change or supplement the addresses given above or on
Schedule A, or designate additional addresses, for purposes of this Section 4.1
by giving the other party written notice of the new address in the manner set
forth above.
4.2 Entire Agreement. This Agreement, together with the Purchase
Agreement and all Schedules and Exhibits hereto and thereto, 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.
4.3 Governing Law. This Agreement shall be governed by and construed
exclusively in accordance with the internal laws of the State of New York as
applied to agreements among
15
16
New York residents entered into and to be performed entirely within New York,
excluding that body of law relating to conflict of laws and choice of law.
4.4 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.
4.5 Third Parties. Except as otherwise specifically provided in Section
2.7, nothing in this Agreement, express or implied, is intended to confer upon
any person, other than the parties hereto and their permitted successors and
assigns, any rights or remedies under or by reason of this Agreement.
4.6 Successors and Assigns. 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.
4.7 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.
4.8 Counterparts. This Agreement may be executed by facsimile in
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
4.9 Adjustments for Stock Splits, Etc. Wherever in this Agreement there
is a reference to a specific number of shares of Preferred Stock of the Company,
then, upon the occurrence of any subdivision, combination or stock dividend of
Preferred 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.
4.10 Specific Performance. The parties hereto agree that irreparable
damage would occur in the event any provision of this Agreement is not performed
in accordance with the terms hereof and that the parties shall be entitled to
specific performance of the terms hereof, in addition to any other remedy at law
or equity, without the necessity of demonstrating the inadequacy of monetary
damages.
4.11 Original Investor Rights Agreement Superseded. Pursuant to Section
3.2 of the Investor Rights Agreement, dated as of March 21, 2001, between the
parties hereto (the "Original Agreement"), the parties hereto hereby amend and
restate the Original Agreement to read in its entirety as set forth in this
Agreement, such that as of the date hereof the Original Agreement is entirely
superseded by this Agreement and the Original Agreement shall be of no further
force or effect; provided, however, that so long as the Company and the Holders
who hold at least two-thirds of the Registrable Securities then outstanding
have executed this Agreement, all other parties to the Original Agreement,
whether or not they have executed this Agreement, shall be deemed to have
executed this Agreement and to have received and accepted both the benefits and
obligations hereunder.
16
17
17
18
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as
of the date and year first above written.
RESTORATION HARDWARE, INC. PALLADIN CAPITAL IX, LLC
By: /s/ Xxxxxx Xxxxx By: /s/ Xxxx X. Xxxxxxxx
--------------------------------- ---------------------------------
------------------------------------ ------------------------------------
Printed Name Printed Name
Executive Vice President Managing Member
------------------------------------ ------------------------------------
Title Title
RESERVOIR CAPITAL PARTNERS, L.P.
By: /s/ Xxxxx X. Xxxx
---------------------------------
------------------------------------
Printed Name
Managing Member
------------------------------------
Title
RESERVOIR CAPITAL ASSOCIATES, L.P.
By: s/ Xxxxx X. Xxxx
---------------------------------
------------------------------------
Printed Name
Managing Member
------------------------------------
Title
RESERVOIR CAPITAL MASTER FUND, L.P.
By: /s/ Xxxxx X. Xxxx
---------------------------------
------------------------------------
Printed Name
Managing Member
------------------------------------
Title
18
19
GLENHILL CAPITAL LP
By: /s/ Xxxxx X. Xxxxxxx
---------------------------------
------------------------------------
Printed Name
Managing Member
------------------------------------
Title
19
20
XXXX XXXXXXXX
----------------------------------
20
21
GB RETAIL FUNDING, LLC
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
21
22
XXXXX XXXXXXX
----------------------------------
22
23
XXXXXXX XXXXXX & CO., INC., FBO, XXXXX XXXXXXX, XXX
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
23
24
BM PARTNERS I
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
24
25
XXXXXX XXXXX XXXXXXXX
----------------------------------
25
26
XXXXXX XXXXXX
----------------------------------
26
27
XXXXXXXX & XXXXXXXX LLP
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
27
28
BUILDING C PARTNERS
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
28
29
TAMARACK INVESTMENTS II, LLC
By:
---------------------------------
------------------------------------
Printed Name
------------------------------------
Title
29
30
XXXXXXX XXXXXXX
----------------------------------
31
