EXHIBIT 4.3
EXECUTION VERSION
SERIES A INVESTOR RIGHTS AGREEMENT
THIS SERIES A INVESTOR RIGHTS AGREEMENT (this "Agreement") dated as of
August 29, 2003, is entered into by and among Kona Grill, Inc., a Delaware
corporation having a principal place of business at 0000 Xxxx Xxxxxxxxxx Xxxxx
Xxxx, Xxxxx 000, Xxxxxxxxxx, Xxxxxxx 00000 (the "Company"), and the Series A
Stockholders named in the attached Exhibit A and having an address as set forth
therein (each an "Investor" and collectively the "Investors"), as amended from
time to time to add such other person(s) who may hereafter become a party to
this Agreement.
Recitals
A. Concurrently herewith the Company is issuing and selling to the
Investors an aggregate of 4,166,666 shares (the "Preferred Shares") of its
Convertible Preferred Stock, $0.01 par value per share (the "Convertible
Preferred Stock"), pursuant to the terms and conditions of that certain Series A
Convertible Preferred Stock Purchase Agreement, dated as of August 29, 2003.
B. The Company and the Investors desire to enter into an agreement
granting the Investors certain registration rights, information rights and other
rights in connection with their ownership of shares of the Company's Preferred
Shares (and the Conversion Shares into which such Preferred Shares are
convertible).
Agreement
NOW, THEREFORE, in consideration of the promises and mutual agreements set
forth herein and for other good and valuable consideration, the receipt and
sufficiency of which are hereby acknowledged, the parties agree as follows:
SECTION 1.
DEFINITIONS; REGISTRATION RIGHTS
1.1 Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" shall mean the common stock, $0.01 par value, of the
Company.
"Conversion Shares" shall mean shares of Common Stock issued or issuable
upon conversion of the Preferred Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as amended,
or any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Excluded Stock" shall mean (i) the Reserved Employee Shares, (ii)
securities issuable as a stock dividend or upon any subdivision of shares of
Common Stock, provided that the securities issued pursuant to such stock
dividend or subdivision are limited to additional shares of Common Stock, (iii)
securities issuable pursuant to a Qualified Public Offering, (iv) debt
securities with no equity feature, (v) securities issued in connection with
equipment or debt financing or leases (including securities issued in
consideration of guarantees of such financing or leases) which are approved by
the Series A Investor Directors, (vi) the Conversion Shares, and (vii) if
expressly approved by the Company's Board of Directors, securities issued to
vendors, customers or co-venturers or other persons in similar commercial or
corporate partnering situations.
"Series A Investor Directors(s)" shall have the meaning given to that term
in the Stockholders' Agreement entered into contemporaneously herewith.
"Investor Transferee" shall have the meaning set forth in Section 4.1
hereof.
"Qualified Public Offering" shall mean a firm commitment underwritten
public offering of the Company's Common Stock underwritten by a nationally
recognized full-service investment bank pursuant to which the aggregate gross
proceeds received by the Company are at least $25,000,000 at a price per share
of not less than $7.00 (following appropriate adjustment in the event of any
stock dividends, stock split, combination or other similar recapitalization
affecting such shares).
"Register," "registered" and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, as defined below, and the declaration or ordering of the
effectiveness of such registration statement.
"Registrable Securities" shall mean (i) the Conversion Shares, and (ii)
shares of Common Stock issued or issuable with respect to the Conversion Shares
upon an adjustment for stock splits, stock dividends and similar events.
Notwithstanding the foregoing, Registrable Securities shall not include shares
of Common Stock issued or issuable upon conversion of the Series A Convertible
Preferred Stock which have been (i) registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them, (ii) publicly sold
pursuant to Rule 144 under the Securities Act, (iii) eligible for sale under
Rule 144(k) under the Securities Act, or (iv) sold in a private transaction in
which the transferor's rights under this Agreement are not assigned.
"Reserved Employee Shares" shall mean shares of Common Stock (or options
to purchase such shares of Common Stock) issued or issuable at not less than
fair market value to officers, employees or directors of, or consultants to, the
Company pursuant to any stock purchase or option plan or other employee stock
bonus arrangement as approved by the Company's Board of Directors.
"Securities Act" shall mean the Securities Act of 1933, as amended, or any
similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Stockholders' Agreement" shall mean the Stockholders' Agreement, dated
the date hereof, among the Company and the Investors.
1.2 Required Registration.
(a) Six (6) months following the date of a Qualified Public
Offering, the holders of Preferred Shares (including the Common Stock issuable
upon conversion thereof) constituting at least fifty percent (50%) of the
Registrable Securities then owned beneficially or of record by Investors and
Investor Transferees (as hereinafter defined) may request the Company to
register under the Securities Act all or any portion of the shares of
Registrable Securities held by such requesting holder or holders for sale in the
manner specified in such notice; provided, however, that the Company may, by
notice to the requesting holders, delay such requested registration if the
Company's Board of Directors determines in good faith that such registration at
the time requested would have a material adverse effect upon the Company;
provided, further, however, that the Company's ability to delay such
registration shall be limited to durations of no longer than ninety (90) days
and the Company shall not delay more than once during any twelve (12) month
period.
The Company shall not be obligated pursuant to this Section 1.2 to
effectuate more than: (i) one (1) registration before a Qualified Public
Offering for the benefit of the holders set forth in Section 1.2(a) above; or
(ii) one (1) registration after a Qualified Public Offering for the benefit of
the holders set forth in Section 1.2(a) above. In addition, the aggregate
offering price of the Registrable Securities to be sold pursuant to
2
each such registration shall be at least $5,000,000. Notwithstanding anything to
the contrary contained herein, no request may be made under this Section 1.2:
(i) within one hundred eighty (180) days after the effective
date of a registration statement filed by the Company covering a firm commitment
underwritten public offering of securities of the Company under the Securities
Act, or
(ii) during the period starting with the date sixty (60) days
prior to the Company's estimated date of filing of, and ending on the date six
(6) months immediately following the effective date of any registration
statement pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective and
that the Company's estimate of the date of filing such registration statement is
made in good faith.
(b) Following receipt of any notice pursuant to Section 1.2(a), the
Company shall promptly notify all Investors and Investor Transferees from whom
such notice has not been received and, as soon thereafter as practicable, shall
use its reasonable efforts to register under the Securities Act, for public sale
in accordance with the method of disposition specified in such notice from
requesting holders, the number of shares of Registrable Securities specified in
such notice (and in all notices received by the Company from other holders
within twenty (20) days after the giving of such notice by the Company). If such
method of disposition shall be an underwritten public offering, the Company
shall designate the managing underwriter of such offering, following
consultation and subject to the approval of the Investors and Investor
Transferees from whom notice has been received, which approval shall not be
unreasonably withheld or delayed. All sellers must participate in the
underwriting. The Company's registration obligation hereunder shall be deemed
satisfied only when a registration statement or statements covering all shares
of Registrable Securities specified in notices received as aforesaid, for sale
in accordance with the method of disposition specified by the requesting
holders, shall have become effective and, if such method of disposition is a
firm commitment underwritten public offering, all such shares shall have been
sold pursuant thereto.
(c) The Company shall be entitled to include in any registration
statement referred to in this Section 1.2, for sale in accordance with the
method of disposition specified by the requesting holders, shares of Common
Stock to be sold by the Company for its own account and for the account of other
selling stockholders, except as and to the extent that, in the reasonable
opinion of the managing underwriter (if such method of disposition shall be an
underwritten public offering), such inclusion would materially adversely affect
the marketing of the Registrable Securities to be sold. Except for registration
statements on Form X-0, X-0 or any successor thereto, the Company will not file
with the Commission any other registration statement with respect to its Common
Stock, whether for its own account or that of other stockholders, from the date
of receipt of a notice from requesting holders pursuant to this Section 1.2
until the completion of the lesser of (i) the period of distribution of the
shares of Registrable Securities registered thereby or (ii) 180 days from the
effective date of the registration statement, unless the Registrable Securities
shall be entitled to be included therein in accordance with Section 1.3 below.
(d) The Company will use commercially reasonable efforts to maintain
the effectiveness of any form used to register the shares pursuant to this
Section 1.2 for up to one hundred eighty (180) days or such earlier time as all
of the Registrable Securities have been sold.
1.3 Registration on Form S-3. If at any time the holders of at least
twenty percent (20%) of the Registrable Securities then owned beneficially or of
record by Investors and Investor Transferees request that the Company file a
registration statement on Form S-3 or any successor thereto for a public
offering of all or any portion of the shares of Registrable Securities held by
such requesting holder or holders, the reasonably anticipated gross aggregate
price to the public of which would exceed $2,000,000, and the Company is a
registrant entitled to use Form S-3 or any successor thereto to register such
shares, then the Company shall use all reasonable efforts to register under the
Securities Act on Form S-3 or any successor
3
thereto, for public sale in accordance with the method of disposition specified
in such notice, the number of shares of Registrable Securities specified in such
notice; provided, however, that the Company may, by notice to the requesting
holders, delay such requested registration, if the Company's Board of Directors
determines in good faith that such registration at the time requested would have
a material adverse effect upon the Company; provided, further, however, that the
Company's ability to delay such registration shall be limited to durations of no
longer than ninety (90) days and the Company shall not delay more than once
during any twelve (12) month period. Whenever the Company is required by this
Section 1.4 to use all reasonable efforts to effect the registration of
Registrable Securities, each of the procedures and requirements of Section 1.2
(including but not limited to the requirement that the Company notify all
holders of Registrable Securities from whom notice has not been received and
provide them with the opportunity to participate in the offering) shall apply to
such registration. The Company will use its commercially reasonable efforts to
maintain the effectiveness of any registration statement on Form S-3 for a
period of up to one (1) year.
1.4 Registration Procedures. If and whenever the Company is required by
the provisions of Sections 1.2 and 1.3 to use all reasonable efforts to effect
the registration of any shares of Registrable Securities under the Securities
Act, the Company will, at its cost and expense (including, without limitation,
payment of the costs and expenses described in Section 1.7), as expeditiously as
reasonably practicable:
(a) prepare and file with the Commission a registration statement
(which, in the case of an underwritten public offering pursuant to Section 1.2,
shall be on Form S-1 or other form of general applicability satisfactory to the
managing underwriter selected as therein provided) with respect to such
securities and use all reasonable efforts to cause such registration statement
to become and remain effective for the period of the distribution contemplated
thereby (determined as hereinafter provided);
(b) prepare and file as expeditiously as reasonably practicable and
in any event within 90 days with the Commission such amendments and supplements
to such registration statement and the prospectus used in connection therewith
as may be necessary to keep such registration statement effective for the period
specified in Section 1.6(a) above and comply with the provisions of the
Securities Act with respect to the disposition of all Registrable Securities
covered by such registration statement in accordance with the sellers' intended
method of disposition set forth in such registration statement for such period;
(c) furnish to each seller of Registrable Securities and to each
underwriter such number of copies of the registration statement and the
prospectus included therein (including each preliminary prospectus) as such
persons reasonably may request in order to facilitate the public sale or other
disposition of the Registrable Securities covered by such registration
statement;
(d) use all reasonable efforts to register or qualify the
Registrable Securities covered by such registration statement under the
securities or "blue sky" laws of such jurisdictions as the sellers of
Registrable Securities or, in the case of an underwritten public offering, the
managing underwriter reasonably shall request, provided, however, that the
Company shall not for any such purpose be required to qualify generally to
transact business as a foreign corporation in any jurisdiction where it is not
so qualified or to consent to general service of process in any such
jurisdiction;
(e) use all reasonable efforts to list the Registrable Securities
covered by such registration statement with Nasdaq or any securities exchange on
which the Common Stock of the Company is then listed, or Nasdaq or such
securities exchange as shall be selected by the Company, or, if the Company
fails to make an application to so list within thirty (30) days of a request for
the same by the Investors in connection with a Qualified Public Offering, the
Investors may determine the place of listing, subject to qualification by the
Company to list its shares thereon;
(f) immediately notify each seller of Registrable Securities and
each underwriter under such registration statement, at any time when a
prospectus relating thereto is required to be delivered under the Securities
Act, of the happening of any event of which the Company has knowledge as a
result of which the prospectus contained in such registration statement, as then
in effect, includes an untrue statement of a
4
material fact or omits 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. The sellers of Registrable Securities agree upon
receipt of such notice forthwith to cease making offers and sales of Registrable
Securities pursuant to such registration statement or deliveries of the
prospectus contained therein for any purpose until the Company has prepared and
furnished such amendment or supplement to the prospectus as may be necessary so
that, as thereafter delivered to purchasers of such Registrable Securities, such
prospectus shall not include 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;
(g) notify each seller of Registrable Securities under such
registration statement of (i) the effectiveness of such registration statement,
(ii) the filing of any post-effective amendments to such registration statement,
or (iii) the filing of a supplement to such registration statement;
(h) if the distribution is an underwritten offering, at the request
of any seller of Registrable Securities, use all reasonable efforts to furnish
on the date that Registrable Securities is delivered to the underwriters for
sale pursuant to such registration: (i) an opinion (dated such date) of counsel
representing the Company for the purposes of such registration, addressed to the
sellers and the underwriters, and in customary form; and (ii) a letter (dated
such date) from the independent public accountants retained by the Company,
addressed to the sellers and the underwriters and covering such matters with
respect to such registration as such underwriters reasonably may request; and
(i) make available for inspection upon reasonable notice during the
Company's regular business hours by each seller of Registrable Shares, any
underwriter participating in any distribution pursuant to such registration
statement, and any attorney, accountant or other agent retained by such seller
or underwriter, all material financial and other records, pertinent corporate
documents and properties of the Company, and cause the Company's officers and
directors to supply all information reasonably requested by any such seller,
underwriter, attorney, accountant or agent in connection with such registration
statement.
For purposes of Sections 1.6(a), 1.6(b) and 1.2(c), the period of
distribution of Registrable Securities in a firm commitment underwritten public
offering shall be deemed to extend until each underwriter has completed the
distribution of all securities purchased by it, and the period of distribution
of Registrable Securities in any other registration shall be deemed to extend
until the earlier of (i) the sale of all Registrable Securities covered thereby
or (ii) one hundred eighty (180) days after the effective date thereof, with
reasonable extensions to be granted for suspensions thereof.
In connection with each registration pursuant to Sections 1.2 and 1.3
covering an underwritten public offering, the Company and each seller agree to
enter into a written agreement with the managing underwriter selected in the
manner herein provided in such form and containing such provisions as are
customary in the securities business for such an arrangement between such
underwriter and companies of the Company's size and investment stature.
1.5 Expenses. All expenses incurred by the Company in complying with
Sections 1.2 and 1.3, including, without limitation, all registration and filing
fees, printing expenses, fees and disbursements of counsel and independent
public accountants for the Company, fees and expenses (including counsel fees)
incurred in connection with complying with state securities or "blue sky" laws,
transfer taxes, fees of transfer agents and registrars, and the fees and
disbursements of one counsel for the sellers of Registrable Securities but
excluding any Selling Expenses, are called "Registration Expenses." All
underwriting discounts and selling commissions applicable to the sale of
Registrable Securities and the fees of more than one counsel are called "Selling
Expenses."
The Company will pay all Registration Expenses in connection with each
registration statement under Sections 1.2 and 1.3. The Company shall not,
however, be required to pay for the Registration Expenses of any registration
proceeding begun pursuant to Section 1.2, the request for which is subsequently
withdrawn by the requesting holders of Registrable Securities, in which event
the Registration
5
Expenses shall be borne by the requesting holders of the Registrable Securities
in proportion to the number of shares for which registration was requested. All
Selling Expenses in connection with each registration statement under Sections
1.2 and 1.3 shall be borne by the participating sellers in proportion to the
number of shares sold by each, or by such participating sellers other than the
Company (except to the extent the Company shall be a seller) as they may agree.
1.6 Information by Holder. The holder or holders of Registrable Securities
included in any registration shall furnish to the Company such information
regarding such holder or holders of Registrable Securities, the Registrable
Securities held by them and the distribution proposed by such holder or holders
of Registrable Securities as the Company may reasonably request in writing and
as shall be required in connection with any registration (including any
amendment to a registration statement or prospectus), qualification or
compliance.
1.7 Lock-Up Agreements. Each holder of Registrable Securities shall agree
to be bound by such lock-up agreements (not to exceed a period of one hundred
eighty (180) days following the date of the prospectus relating to any such
underwriting) as the managing underwriter of any such registration shall specify
as a requirement to any such underwriting, provided that the entry of such
holder of Registrable Securities into such agreements shall be conditioned upon
all principal stockholders (i.e., all stockholders who could reasonably be
expected to be considered by the applicable underwriters to be affiliates of the
Company) and executive officers and directors of the Company also agreeing to
execute such lock-up agreements.
1.8 Indemnification and Contribution.
(a) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Sections 1.2 or 1.3, the Company
will indemnify and hold harmless each seller of such Registrable Securities
thereunder, each underwriter of such Registrable Securities thereunder and each
other person, if any, who controls such seller or underwriter within the meaning
of Section 15 of the Securities Act, from and against any losses, claims,
damages or liabilities, joint or several, to which such seller, underwriter or
controlling person may become subject under the Securities Act or under any
other statute or at common law or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of any material fact
contained in any registration statement under which such Registrable Securities
were registered under the Securities Act, any preliminary prospectus or final
prospectus contained therein, or any amendment or supplement thereof, or arise
out of or are based upon 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 any violations of applicable law relating to such
registration, and will pay the legal fees and other expenses of each such
seller, each such underwriter and each such controlling person incurred by them
in connection with investigating or defending any action, whether or not
resulting in any liability, insofar as such loss, claim, damage, liability or
action results from the foregoing; provided, however, that the Company will not
be liable to a seller, underwriter or controlling person in any such case if and
to the extent that any such loss, claim, damage or liability arises out of or is
based upon an untrue statement or alleged untrue statement or omission or
alleged omission so made in reliance upon and in conformity with information
furnished in writing by any such seller, any such underwriter or any such
controlling person specifically for use in such registration statement or
prospectus; and, provided, further, however, that the Company will not be liable
to a holder in any such case to the extent that any such loss, claim, damage,
liability or action arises out of or is based upon an untrue or alleged untrue
statement or omission or an alleged omission made in any preliminary prospectus
or final prospectus if (1) such holder failed to send or deliver a copy of the
final prospectus or prospectus supplement with or prior to the delivery of
written confirmation of the sale of the Registrable Securities, and (2) the
final prospectus or prospectus supplement would have corrected such untrue
statement or omission.
(b) In the event of a registration of any of the Registrable
Securities under the Securities Act pursuant to Sections 1.2 or 1.3, each seller
of such Registrable Securities thereunder, severally and not jointly, will
indemnify and hold harmless the Company, each person, if any, who controls
6
the Company within the meaning of the Securities Act, each officer of the
Company who signs the registration statement, each director of the Company, each
underwriter and each person who controls any underwriter within the meaning of
the Securities Act, against all losses, claims, damages or liabilities, joint or
several, to which the Company or such officer, director, underwriter or
controlling person may become subject under the Securities Act or otherwise,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereof) arise out of or are based upon any untrue statement or alleged untrue
statement of any material fact contained in the registration statement under
which such Registrable Securities were registered under the Securities Act, any
preliminary prospectus or final prospectus contained therein, or any amendment
or supplement thereof, or arise out of or are based upon 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, and will pay the legal
fees and other expenses of the Company and each such officer, director,
underwriter and controlling person incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that such seller will be liable hereunder in any such case if
and only to the extent that any such loss, claim, damage or liability arises out
of or is based upon an untrue statement or alleged untrue statement or omission
or alleged omission made in reliance upon and in conformity with information
furnished in writing to the Company by such seller specifically for use in such
registration statement or prospectus; and provided, further, however, that the
liability of each seller hereunder shall be limited to the amount of net
proceeds received by such seller in connection with such registration.
(c) Promptly after receipt by an indemnified party hereunder of
notice of the commencement of any action, such indemnified party shall, if a
claim in respect thereof is to be made against the indemnifying party hereunder,
notify the indemnifying party in writing thereof, but the omission so to notify
the indemnifying party shall not relieve it from any liability that it may have
to such indemnified party under this Section 1.10 except and only to the extent
the indemnifying party is prejudiced by such omission. In case any such action
shall be brought against any indemnified party and it shall notify the
indemnifying party of the commencement thereof, the indemnifying party shall be
entitled to participate in and, to the extent it shall wish, to assume and
undertake the defense thereof with counsel satisfactory to such indemnified
party, and, after notice from the indemnifying party to such indemnified party
of its election so to assume and undertake the defense thereof, the indemnifying
party shall not be liable to such indemnified party under this Section 1.10 for
any legal expenses subsequently incurred by such indemnified party in connection
with the defense thereof; provided, however, that, if the defendants in any such
action include both the indemnified party and the indemnifying party and the
indemnified party shall have reasonably concluded (based on the advice of
counsel) that there may be reasonable defenses available to it which are
different from or additional to those available to the indemnifying party or if
the interests of the indemnified party reasonably may be deemed to conflict with
the interests of the indemnifying party, the indemnified party shall have the
right to select a separate counsel and to assume such legal defenses and
otherwise to participate in the defense of such action, with the expenses and
fees of such separate counsel and other expenses related to such participation
to be reimbursed by the indemnifying party as incurred, it being understood,
however, that the indemnifying party shall not, in connection with any one such
action or separate but substantially similar or related actions in the same
jurisdiction arising out of the same general allegations or circumstances, be
liable for the fees and expenses of more than one separate firm of attorneys
(together with appropriate local counsel as required by the local rules of such
jurisdiction) at any time for all such indemnified parties.
(d) 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 of
Registrable Securities exercising rights under this Agreement, or any
controlling person of any such holder, makes a claim for indemnification
pursuant to this Section 1.10 but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this Section 1.10 provides for indemnification in such case, or (ii)
contribution under the Securities Act may be required on the part of any such
selling holder or any such controlling person in circumstances for which
indemnification is provided under this Section 1.10; then, and in each such
case, the Company and each such holder will contribute to the aggregate losses,
claims, damages or liabilities to which they may be subject (after contribution
from
7
others) in such proportion as may be reasonable taking into account such matters
as (i) their relative fault as to the matters giving rise to such losses,
claims, damages or liabilities and (ii) their relative ability or opportunity to
have avoided such losses, claims, damages or liabilities; provided, however,
that, in any such case, 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.
(e) No indemnifying party shall, without the prior written consent
of the indemnified party, effect any settlement of any pending or threatened
action, suit or proceeding in respect of which any indemnified party is or could
have been a party and indemnity could have been sought hereunder by such
indemnified party, unless such settlement includes an unconditional release of
such indemnified party from all liability on claims that are the subject matter
of such action, suit or proceeding.
(f) 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.
1.9 Changes in Common Stock or Preferred Shares. If, and as often as,
there is any change in the Common Stock or the Preferred Shares by way of a
stock split, stock dividend, combination or reclassification, or through a
merger, consolidation, reorganization or recapitalization, or by any other
means, appropriate adjustment shall be made in the provisions hereof so that the
rights and privileges granted hereby shall continue with respect to the Common
Stock or the Preferred Shares as so changed.
1.10 Rule 144 Reporting and Rule 144A Information. With a view to making
available the benefits of certain rules and regulations of the Commission that
may at any time permit the resale of the Registrable Shares without
registration, the Company will:
(a) at all times after ninety (90) days after the first registration
statement covering a public offering of securities of the Company under the
Securities Act shall have become effective or following registration under
Section 12 of the Exchange Act, use its best efforts to:
(i) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act;
(ii) file with the Commission in a timely manner all reports
and other documents required of the Company under the Securities Act and the
Exchange Act; and
(iii) furnish to each holder of Registrable Securities,
forthwith upon request, (a) a written statement by the Company as to its
compliance with the reporting requirements of such Rule 144 and of the
Securities Act and the Exchange Act, (b) a copy of the most recent annual or
quarterly report of the Company, and (c) such other reports and documents so
filed by the Company as such holder may reasonably request in availing itself of
any rule or regulation of the Commission allowing such holder to sell any
Registrable Securities without registration; and
(b) at any time, at the request of any holder of Preferred Shares or
shares of Registrable Securities, make available to such holder and to any
prospective transferee of such Preferred Shares or shares of Registrable
Securities the information concerning the Company described in Rule 144A(d)(4)
under the Securities Act.
1.11 Damages. The Company recognizes and agrees that the holders of
Registrable Securities will suffer irreparable harm and will not have an
adequate remedy at law if the Company fails to comply with any provision of this
Section 1, and the Company expressly agrees that, in the event of such failure,
the holders of Registrable Securities or any other person entitled to the
benefits of this Section 1 shall be
8
entitled to seek specific performance of any and all provisions hereof and may
seek to enjoin the Company from continuing to commit any further breach of this
Section 1.
SECTION 2.
INFORMATION RIGHTS; INSPECTION RIGHTS
2.1 Information Rights. As long as any Investor or any Investor Transferee
owns at least 50% of the outstanding Preferred Shares, each such Investor or
Investor Transferee shall be entitled to receive, and the Company shall mail to
any such Investor or Investor Transferee, at the times specified, the following
reports:
(a) as soon as available, and in any event within thirty (30) days
after the end of each month, a balance sheet for the Company as of the end of
such month and the related statements of income, stockholder's equity and
cashflows for the year to date, prepared in accordance with generally accepted
accounting principles and certified by the Chief Financial Officer of the
Company as true, correct and complete;
(b) as soon as available and in any event within ninety (90) days
after the end of each fiscal year of the Company, a balance sheet of the Company
as of the end of such fiscal year and the related statements of income,
stockholders' equity and cash flows for the fiscal year then ended, prepared in
accordance with generally accepted accounting principles and audited by a firm
of independent public accountants of national recognition selected by the Board
of Directors of the Company and reasonably acceptable to the Investors;
(c) no later than thirty (30) days prior to the start of each fiscal
year, the Company's annual operating plan, including, without limitation,
consolidated capital and operating expense budgets, cash flow projections and
income and loss projections for the Company in respect of such fiscal year, all
itemized in reasonable detail and prepared on a monthly basis, and, promptly
after preparation, any revisions to any of the foregoing;
(d) promptly following receipt by the Company, each audit response
letter, accountant's management letter and other written report submitted to the
Company by its independent public accountants in connection with an annual or
interim audit of the books of the Company or any of its subsidiaries;
(e) promptly after the commencement thereof, notice of all actions,
suits, claims, proceedings, investigations and inquiries that are likely to
materially adversely affect the Company or any of its subsidiaries;
(f) promptly upon sending, making available or mailing the same, all
press releases, reports and financial statements that the Company sends or makes
available to its stockholders; and
(g) promptly, from time to time, such other material information
regarding the business, prospects, financial condition, operations, property or
affairs of the Company and its subsidiaries as such Investor reasonably may
request.
2.2 Inspection Rights. As long as any Investor owns at least 50% of the
outstanding Preferred Shares, the Company shall permit such Investor (and such
persons as it may designate subject to the Company's reasonable approval and the
execution of a confidentiality agreement acceptable to the Company), at such
Investor's expense, to visit and inspect, during normal business hours and
without disruption to the Company's business, any of the properties of the
Company, examine its books (and take copies and extracts therefrom), discuss the
affairs, finances and accounts of the Company with its officers and employees,
and consult with and advise the management of the Company as to its affairs,
finances and accounts, all at reasonable times and upon reasonable notice. Each
Investor agrees that it and its designees will keep confidential and will not
disclose, divulge or use (other than for purposes of monitoring its investment
in the Company) any confidential, proprietary or secret information which such
Investor may
9
obtain from the Company pursuant to financial statements, reports and other
materials submitted by the Company to such Investor pursuant to this Agreement,
or pursuant to inspection rights granted hereunder, unless such information is
known to the public through no fault of any Investor or its designees or
representatives; provided, however, an Investor may disclose such information
(i) to its attorneys, accountants and other professionals to the extent
necessary to obtain their services in connection with its investment in the
Company, (ii) to any prospective permitted transferee of the Series A Preferred
Stock, so long as the prospective transferee agrees to be bound by the
provisions of this Section 2.2, (iii) to any general partner or affiliate of
such Investor, so long as such general partner or affiliate agrees to be bound
by the provisions of this Section 2.2, and (iv) to any other Investor.
2.3 Termination of Information and Inspection Rights. The obligations of
the Company to furnish financial information to the Investors pursuant to
Sections 2.1 and 2.2 shall terminate upon the earlier to occur of (i) the
completion of a Qualified Public Offering, or (ii) such time as the Company
otherwise becomes subject to the reporting requirements of the Exchange Act.
SECTION 3.
RIGHT TO PURCHASE NEW SECURITIES
3.1 Preemptive Rights. In the event that the Company proposes an issuance
of any of its securities other than Excluded Stock to any party, it shall give
written notice of such issuance to each holder of Preferred Shares and/or
Conversion Shares (the "Offerees"). The Company's written notice to the Offerees
shall describe the securities proposed to be issued by the Company and specify
the number, price and payment terms. Each holder of the Preferred Shares and/or
Conversion Shares shall have the right, for a period of twenty (20) days from
such notice, to agree to purchase, at the same price and on the same terms and
conditions, that number of additional securities of the Company as would be
necessary to preserve such holder's percentage interest in the equity of the
Company on a fully diluted, as converted basis, as of the time immediately prior
to such issuance. Each Offeree may accept the Company's offer as to the full
number of securities offered to it or any lesser number, by written notice
thereof given by it to the Company prior to the expiration of the aforesaid
twenty (20) day period in which event the Company shall promptly sell and such
Offeree shall buy, upon the terms specified, the number of securities agreed to
be purchased by such Offeree.
The Company shall be free at any time after the end of the aforesaid
twenty (20) day period and prior to ninety (90) days after the date of its
notice of offer to the Offerees, to offer and sell to any third party or parties
the number of such securities not agreed by the Offerees to be purchased by
them, at a price and on payment terms no less favorable to the Company than
those specified in such notice of offer to the Offerees. However, if such third
party sale or sales are not consummated within such ninety (90) day period, the
Company shall not sell such securities and shall not have been purchased within
such period without again complying with this Section 3.1. The obligations of
the Company under this Section 3.1 shall terminate upon the completion of a
Qualified Public Offering. Notwithstanding anything contained in this Agreement
to the contrary, the Company's written notice of its proposed issuance of newly
issued shares to which a participation right applies (as provided in the
preceding paragraph) need not be given prior to the issuance of such newly
issued shares, provided such notice is sent within five (5) days thereafter and
the Offeree's participation rights remain open for a twenty (20) day period from
the receipt thereof, and further provided that the Company has set aside a
number of shares sufficient to satisfy the obligations of the Company pursuant
to this section.
SECTION 4
MISCELLANEOUS
3.2 Successors and Assigns. All covenants and agreements contained in this
Agreement by or on behalf of any of the parties hereto shall bind and inure to
the benefit of the respective successors and assigns of the parties hereto,
whether so expressed or not; provided, however, that the rights conferred in
10
this Agreement on the Investors shall only inure to the benefit of a transferee
of Preferred Shares or Registrable Securities if: (a) (1) there is transferred
to such transferee at least $400,000 Registrable Securities (the transferee in
any such case being referred to as an "Investor Transferee"), or (2) such
transferee is an affiliate of the transferor; (b) such transfer may otherwise be
effected in accordance with applicable securities laws; and (c) notice of such
transfer or assignment is given to the Company and such Transferee has agreed in
writing to be bound by the terms of this Agreement and the Stockholders'
Agreement.
3.3 Governing Law. This Agreement shall be governed by and construed in
accordance with the laws of the State of Arizona for all purposes and in all
respects, without giving effect to the conflict of law provisions thereof.
3.4 Integration; Amendment. This Agreement and the other documents
delivered pursuant hereto constitute the full and entire understanding and
agreement among the parties with regard to the subjects hereof and thereof, and
supersede any previous agreement or understanding between or among the parties
with respect to such subjects. No party shall be liable or bound to any other
party in any manner by any warranties, representations or covenants except as
specifically set forth herein or therein. Except as expressly provided herein
neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought;
provided, however, that with the written consent of the Company and holders of
at least a majority of the Registrable Securities that are outstanding
(including, for these purposes, Conversion Shares) may waive, modify or amend,
on behalf of all parties hereto, any provisions of this Agreement and such
waiver, modification or amendment may be given or withheld for any reason or no
reason in the sole discretion of any party. Any amendments, waivers, discharges
or terminations of this Agreement effected in accordance herewith shall be
binding upon all parties hereto, including those not signing such amendment,
waiver, discharge or termination.
3.5 Notices. All notices, requests, demands, and other communications
under this Agreement shall be in writing and shall be deemed to have been duly
given on the date of service if served personally on the party to whom notice is
to be given, on the date of transmittal of services via telecopy to the party to
whom notice is to be given (with a confirming copy being delivered within 24
hours thereafter), or on the third day after mailing if mailed to the party to
whom notice is to be given, by first class mail, registered or certified,
postage prepaid, or via overnight courier providing a receipt and properly
addressed as set forth on Exhibit A hereto. Any party may change its address for
purposes of this paragraph by giving notice of the new address to each of the
other parties in the manner set forth above.
3.6 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
3.7 Severability. In the event that any provision of this Agreement
becomes or is declared by a court of competent jurisdiction to be illegal,
unenforceable or void, this Agreement shall continue in full force and effect
without said provision; provided that no such severability shall be effective if
it materially changes the economic benefit of this Agreement to any party.
3.8 Dispute Resolution. If the parties should have a material dispute
arising out of or relating to this Agreement or the parties' respective rights
and duties hereunder, then the parties will resolve such dispute in the
following manner: (i) any party may at any time deliver to the others a written
dispute notice setting forth a brief description of the issue for which such
notice initiates the dispute resolution mechanism contemplated by this Section
3.8; (ii) during the forty-five (45) day period following the delivery of the
notice described in Section 3.8(i) above, appropriate representatives of the
various parties will meet and seek to resolve the disputed issue through
negotiation, (iii) if representatives of the parties are unable to resolve the
disputed issue through negotiation, then within thirty (30) days after the
period described in Section 3.8(ii) above, the parties will refer the issue (to
the exclusion of a court of law) to final and binding arbitration in Phoenix,
Arizona in accordance with the then existing rules (the "Rules") of the American
Arbitration
11
Association ("AAA"), and judgment upon the award rendered by the arbitrators may
be entered in any court having jurisdiction thereof; provided, however, that the
law applicable to any controversy shall be the law of the State of Arizona,
regardless of principles of conflicts of laws. In any arbitration pursuant to
this Agreement, (i) discovery shall be allowed and governed by the Arizona Code
of Civil Procedure and (ii) the award or decision shall be rendered by a
majority of the members of a Board of Arbitration consisting of three (3)
members, one of whom shall be appointed by each of the respective parties and
the third of whom shall be the chairman of the panel and be appointed by mutual
agreement of said two party-appointed arbitrators. In the event of failure of
said two arbitrators to agree within sixty (60) days after the commencement of
the arbitration proceeding upon the appointment of the third arbitrator, the
third arbitrator shall be appointed by the AAA in accordance with the Rules. In
the event that either party shall fail to appoint an arbitrator within thirty
(30) days after the commencement of the arbitration proceedings, such arbitrator
and the third arbitrator shall be appointed by the AAA in accordance with the
Rules. Nothing set forth above shall be interpreted to prevent the parties from
agreeing in writing to submit any dispute to a single arbitrator in lieu of a
three (3) member Board of Arbitration. Upon the completion of the selection of
the Board of Arbitration (or if the parties agree otherwise in writing, a single
arbitrator), an award or decision shall be rendered within no more than
forty-five (45) days. Notwithstanding the foregoing, the request by either party
for preliminary or permanent injunctive relief, whether prohibitive or
mandatory, shall not be subject to arbitration and may be adjudicated only by
the courts of the State of Arizona or the U.S. District Court in Arizona.
3.9 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
12
IN WITNESS WHEREOF, the Company and the Investors have executed this
Agreement under seal as of the date first above written.
THE COMPANY:
KONA GRILL, INC.
By: /s/ Xxxxx Xxxxxxx
-------------------------------------------------------
Name: Xxxxx Xxxxxxx
Its: Vice President of Operations
THE INVESTORS:
/s/ Xxxxxx X. Xxxxx
-----------------------------------------------------------
Xxxxxx X. Xxxxx
KONA KC INVESTMENT LLC
an Arizona limited liability company
By: XX XX, LLC, an Arizona limited liability company
Its: Manager
By: /s/ Xxxxxx X. Xxxxx
---------------------------------------------------
Xxxxxx X. Xxxxx, Manager
XXXX XXXXXXXX TRUST 2000 U-I, dated 10/18/00
By: /s/ Xxxx Xxxxxxxx
-------------------------------------------------------
Xxxx Xxxxxxxx
Its: Trustee
/s/ D. Xxxxx Xxxxxx
-----------------------------------------------------------
D. Xxxxx Xxxxxx
/s/ Xxxxxx X. Xxxxxxxxxx
-----------------------------------------------------------
Xxxxxx X. Xxxxxxxxxx
/s/ Xxxxxxxx X. Xxxxxxxxxx
-----------------------------------------------------------
Xxxxxxxx X. Xxxxxxxxxx
/s/ Xxxxx Xxxxxx Xxxxxxxx
-----------------------------------------------------------
Xxxxx Xxxxxx Xxxxxxxx
13
/s/ Xxxxxx X. Xxxxxxxx
-----------------------------------------------------------
Xxxxxx X. Xxxxxxxx
/s/ Xxx Xxxxxxxxxxxxx
-----------------------------------------------------------
Xxx Xxxxxxxxxxxxx
00
XXXXXXX XXXX XXXXXX, INC., a Minnesota corporation
By: /s/ Xxxxxxx Xxxxxx
_______________________________________________________
Name: Xxxxxxx Xxxxxx
Its: President
/s/ Xxxxx X. Xxxxx
___________________________________________________________
Xxxxx X. Xxxxx
15
