1
EXHIBIT 4.3
RIGHTS AGREEMENT
This Rights Agreement (the "AGREEMENT"), is entered into as of the 25th
day of June, 1996, by and among Pegasus Systems, Inc., a Delaware corporation
(the "COMPANY") and the purchasers of the Company's Series A Preferred Stock
listed on Schedule I attached hereto (the "PURCHASERS") and, for purposes of
certain provisions hereof, the stockholders listed on Schedule II hereto,
including without imitation Lodging Network, Inc., a Delaware corporation
("LNI") (each an "EXISTING STOCKHOLDER" and collectively the "Existing
Stockholders") and the stockholders listed on Schedule III hereto (each a
"Management Holder" and collectively the "MANAGEMENT HOLDERS").
RECITALS
A. The Purchasers and the Company are parties to that certain
Series A Preferred Stock Purchase Agreement dated as of the date hereof (the
"PURCHASE AGREEMENT"),
B. The Existing Stockholders (other than LNI) and the Management
Holders currently hold capital stock of the Company, and the parties desire to
provide certain rights to such holders as provided herein.
C. The Company and LNI have agreed that the Company shall
repurchase from LNI a portion of the shares of capital stock held by LNI in The
Hotel Clearing Corporation, a subsidiary of the Company ("HCC'') and shall issue
shares of Common Stock of the Company to LNI upon conversion by LNI of the
balance of the HCC shares held by LNI, and to grant certain rights to LNI as
set forth herein.
D. The execution of this Agreement is a condition to the closing
of the transactions contemplated by the Purchase Agreement.
E. The Purchasers, the Existing Stockholders, the Management
Holders and the Company desire that the transactions contemplated by the
Purchase Agreement be consummated.
NOW, THEREFORE, in reliance on the foregoing recitals, and in and for
the mutual covenants and consideration set forth herein, the parties hereto
agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following
terms shall have the following respective meanings:
1.1 The terms "AFFILIATE" and "AFFILIATED" shall refer to
any person who is an "affiliate" as defined in Rule 12b-2 of the General Rules
and Regulations under the Securities Exchange Act of 1934, as amended. For
purposes of this definition, "person" shall mean any individual, firm,
corporation, partnership, trust, incorporated or unincorporated association,
joint venture, joint stock company, governmental authority or other entity of
any kind, and shall include any successor (by merger or otherwise of such
entity.
2
1.2 "COMMISSION" shall mean the Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
1.3 "COMMON STOCK" shall mean the Company's Common Stock,
$0.01 par value per share.
1.4 "CONVERSION STOCK" shall mean the Common Stock issued
or issuable pursuant to conversion of the Series A Preferred.
1.5 "EXISTING STOCKHOLDERS" shall mean the Existing
Stockholders as listed on Schedule II hereof and any person holding Other
Shareholder Stock to whom the rights under this Agreement have been transferred
in accordance with Section 14 hereof.
1.6 "HOLDER" shall mean any Purchaser, Existing
Stockholder or Management Holder holding Registrable Securities and any person
holding Registrable Securities to whom the rights under this Agreement have
been transferred in accordance with Section 14 hereof.
1.7 "INITIATING HOLDERS" shall mean any Holder or Holders
(other than Management Holders and Existing Stockholders) holding, in the
aggregate, at least forty percent (40%) of the then outstanding Registrable
Securities (not including Management Stock or Other Shareholder Stock).
1.8 The term "MAJOR HOLDER" shall mean each Holder (but
not any Management Holder or Existing Stockholder) who is a holder of at least
50,000 shares of Registrable Securities (as adjusted for any stock split, stock
dividend or similar capital reorganization), and permitted assignees under
Section 17(e) hereof.
1.9 "MANAGEMENT HOLDERS" shall mean the Management
Holders as listed on Schedule III hereof and any person holding Management
Stock to whom the rights under this Agreement have been transferred in
accordance with Section 14 hereof.
1.10 "REGISTRABLE SECURITIES" shall mean (a) the
Conversion Stock and any Common Stock of the Company issued or issuable in
respect of the Conversion Stock, or other securities issued or issuable
pursuant to the conversion of the Series A Preferred upon any stock split,
dividend, combination, recapitalization or similar event, or any Common Stock
otherwise issued or issuable with respect to the Series A Preferred; (b) all
shares of Common Stock of the Company currently held by the Existing
Stockholders as well as the 67,300 shares of Common Stock to be issued to LNI
in connection with the repurchase of HCC stock, as set forth on Schedule II
hereto (the "Other Shareholder Stock"), and any Common Stock of the Company
issued or issuable in respect of such Other Shareholder Stock upon any stock
split, dividend, combination, recapitalization or similar event (which
additional shares shall also be referred to as Other Shareholder Stock); and
(c) with respect to any registration subsequent to the Company's initial
Qualified Public Offering (as defined below), up to 25% of the shares of the
Common Stock currently held by the Management Holders, as specified on Schedule
III hereto, and held as of the time of such registration by Management Holders
who shall continue to be employees or consultants to the Company (the
"Management Stock"), and any Common Stock of the Company issued
-2-
3
or issuable in respect of such Management Stock upon any stock split, dividend,
combination, recapitalization or similar event (which additional shares shall
also be referred to as Management Stock); provided, however, that shares of
Common Stock or other securities shall only be treated as Registrable
Securities if and so long as they have not been (i) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction, or (ii) subject to Section 16 below, sold or are available for
sale in the opinion of counsel to the Company in a transaction exempt from the
registration and prospectus delivery requirements of the Securities Act so that
all transfer restrictions and restrictive legends with respect thereto are
removed upon the consummation of such sale.
1.11 The terms "REGISTER," "REGISTEREd" and "REGISTRATION"
refer to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement by the Commission.
1.12 "REGISTRATION EXPENSES" shall mean all expenses,
except as otherwise stated below, incurred by the Company in complying with
Sections 5, 6 and 7 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, fees and disbursements for one
counsel for the Holders selected by the Holders and approved by the Company
(which consent will not be unreasonably withheld), blue sky fees and expenses,
and the expense of any special audits incident to or required by any such
registration, but excluding (a) the compensation of regular employees of the
Company, which shall be paid in any event by the Company, and (b) Selling
Expenses.
1.13 "RESTRICTED SECURITIES" shall mean the securities of
the Company required to bear the legend set forth in Section 3 hereof.
1.14 "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.
1.15 "SELLING EXPENSES" shall mean all underwriting
discounts, selling commissions and stock transfer taxes applicable to the
securities registered by the Holders and, except as set forth above, all
reasonable fees and disbursements of counsel for any Holder other than the fees
and disbursements of counsel included in Registration Expenses.
1.16 "SERIES A PREFERRED" shall mean the Company's Series
A Preferred Stock, $0.01 par value per share, issued pursuant to the Purchase
Agreement.
1.17 "UNDERWRITER" shall mean the managing underwriter or
underwriters in a public offering pursuant to Section 5, Section 6 or Section 7
hereof.
2. RESTRICTIONS ON TRANSFERABILITY. The Series A Preferred and
the Conversion Stock shall not be sold, assigned, transferred or pledged except
upon the conditions specified in this Agreement, which conditions are intended
to ensure compliance with the provisions of the Securities Act and
-3-
4
applicable state and foreign securities laws. Each Purchaser shall cause any
proposed purchaser, assignee, transferee, or pledgee of Series A Preferred or
Conversion Stock held by such Purchaser to agree to take and hold such
securities subject to the provisions and upon the conditions specified in this
Agreement.
3. RESTRICTIVE LEGEND. Each certificate representing (a) the
Series A Preferred Stock, (b) the Conversion Stock and (c) any other securities
issued in respect of the Series A Preferred or the Conversion Stock upon any
stock split, stock dividend, recapitalization, merger, consolidation or similar
event shall (unless otherwise permitted by the provisions of Section 4 below)
be stamped or otherwise imprinted with the following legends (in addition to
any legend required under applicable state or foreign securities laws):
(a) "THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED. SUCH
SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE ABSENCE
OF SUCH REGISTRATION OR UNLESS THE COMPANY RECEIVES
AN OPINION OF COUNSEL REASONABLY ACCEPTABLE TO IT
STATING THAT SUCH SALE OR TRANSFER IS EXEMPT FROM THE
REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF
SAID ACT. COPIES OF THE AGREEMENTS COVERING THE
PURCHASE OF THESE SHARES, IMPOSING CERTAIN RIGHTS OF
FIRST REFUSAL AND RESTRICTING THEIR TRANSFER MAY BE
OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY
OF THE COMPANY AT THE PRINCIPAL EXECUTIVE OFFICES OF
THE COMPANY."
Each Purchaser consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Series A
Preferred or the Common Stock in order to implement the restrictions on
transfer established pursuant to this Agreement or applicable law.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
representing Restricted Securities by acceptance thereof agrees to comply in
all respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (a) a
transfer not involving a change in beneficial ownership or (b) in transactions
involving the distribution without consideration of Restricted Securities by
any of the Purchasers to any of its partners, or retired partners, or to the
estate of any of its partners or retired partners, so long as each such
transferee agrees in writing to be bound by the terms of this Agreement),
unless there is in effect a registration statement under the Securities Act
covering the proposed transfer, the holder thereof shall give written notice to
the Company of such holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in
sufficient detail, and shall be accompanied, at such holder's expense by either
(a) an unqualified written opinion of legal counsel addressed to the Company,
to the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act, or (b) a "no action"
-4-
5
letter from the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of the
Commission that action be taken with respect thereto, whereupon the holder of
such Restricted Securities shall be entitled to transfer such Restricted
Securities in accordance with the terms of the notice delivered by the holder
to the Company. Each certificate evidencing the Restricted Securities
transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144 (or similar successor provision), the appropriate
restrictive legend set forth in Section 3 above, except that such certificate
shall not bear such restrictive legend if in the opinion of counsel for such
holder and the Company such legend is not required in order to establish
compliance with any provision of the Securities Act or this Agreement.
5. REQUESTED REGISTRATION.
5.1 Notice of Registration; Registration. In case the
Company shall receive from Initiating Holders a written request that the
Company effect any registration, qualification or compliance (other than a
registration on Form S-3 or any successor form) with respect to at least 20% of
the Registrable Securities then held by the Initiating Holders (or any lesser
percentage resulting in an aggregate offering price to the public of at least
$10,000,000 at a price of at least $13.00 per share (as adjusted for stock
splits, dividends, subdivision, combinations, reclassifications and like
events)), the Company will:
(i) promptly give written notice of the proposed
registration to all other Holders; and
(ii) as soon as practicable, use all reasonable
efforts to effect such registration, qualification or compliance (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within twenty (20) days after
receipt of such written notice from the Company, provided, however, that the
Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 5:
(1) In any particular jurisdiction in
which the Company would be required to qualify to do business or execute a
general consent to service of process in effecting such registration,
qualification or compliance unless the Company is already subject to service in
such jurisdiction and except as may be required by the Securities Act;
(2) Prior to the earlier of (a) three
(3) years following the date of this Agreement, or (b) six months after the
effective date of the registration statement pertaining to the first
underwritten firm commitment public offering of securities of the Company for
its own account (other than a registration relating solely to a Commission Rule
145 transaction or a registration relating solely to employee benefit plans);
-5-
6
(3) After the Company has effected
two (2) registrations pursuant to this Section 5 and such registrations have
been declared or ordered effective and all or a portion of the securities
offered pursuant to such registrations have been sold; or
(4) If at the time of the request
to register Registrable Securities the Company gives notice within thirty (30)
days of such request that it is engaged or has bona fide plans to engage within
thirty (30) days of the time of the request in a firmly underwritten registered
public offering in which the Holders may include Registrable Securities
pursuant to Section 5, 6 or 7 hereof.
Subject to the foregoing clauses (l) through (4) and to Section 5.3,
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt
of the request of the Initiating Holders.
5.2 Underwriting
(a) If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request made
pursuant to Section 5 and the Company shall include such information in the
written notice referred to in Section 5.1. The right of any Holder to
registration pursuant to Section 5 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 requested (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) as provided herein.
(b) The Company shall (together with all Holders
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the Underwriter selected for
such underwriting by a majority in interest of the Initiating Holders. If any
Holder disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the Underwriter and the
Initiating Holders. The Registrable Securities and/or other securities so
withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed
by the underwriters), then the Company shall offer to all Holders who have
included Registrable Securities in the registration the right to include
additional Registrable Securities in proportion (as nearly as practicable) to
the total amount of Registrable Securities held by each such Holder.
(c) Notwithstanding any other provision of this
Section 5, if the Underwriter determines that marketing factors require a
limitation on the number of shares to be underwritten, the Underwriter may
limit the number of Registrable Securities to be included in the registration
and underwriting; provided, however, that the number of shares of Registrable
Securities offered by the Holders that may be included in the registration and
underwriting shall be allocated among the Holders in proportion, as nearly as
practicable, to the respective aggregate amounts of Registrable Securities held
by such Holders at the time of filing the registration statement. If the
Underwriter has not so limited the
-6-
7
number of Registrable Securities to be underwritten, the Company may include
securities for its own account or the account of others in such registration if
the Underwriter so agrees and if the number of Registrable Securities which
would otherwise have been included in such registration and underwriting will
not thereby be limited or the price applicable to such included Registrable
Securities will not thereby be reduced.
5.3 Delay of Registration. If the Company shall furnish
to the Initiating Holders a certificate signed by the President of the Company
stating that, in the good faith judgment of the Board of Directors of the
Company, it would be not in the best interests of the Company and its
stockholders for such registration statement (including any supplement or
amendment thereto) to be filed on or before the date filing would be required
and it is therefore appropriate to defer such filing, then the Company may
direct that such request for registration be delayed for a period not in excess
of sixty (60) days, such right to delay a request to be exercised by the
Company no more than twice in any twelve month period.
6. COMPANY REGISTRATION.
6.1 Notice of Registration. If at any time or from time
to time the Company shall determine to register any of its equity securities,
either for its own account or the account of a security holder or holders,
other than (a) a registration relating solely to employee benefit plans, or (b)
a registration relating solely to a Rule 145 transaction, the Company shall:
(i) promptly give to each Holder written notice thereof, and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within twenty (20) days after receipt of such
written notice from the Company, by any Holder.
6.2 Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the written
notice given pursuant to Section 6.l(i). In such event the right of any
Holder to registration pursuant to this Section 6 shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting
shall (together with the Company) enter into an underwriting agreement in
customary form with the Underwriter, selected for such Underwriting by the
Company. Notwithstanding any other provision of this Section 6, if the
Underwriter determines that marketing factors require a limitation of the
number of shares to be underwritten, the underwriter may limit, on a pro rata
basis, the Registrable Securities to be included in such registration;
provided, however, that in no public offering shall other holders of
"piggyback" registration rights participate in such offering unless the Holders
have participated to the full extent requested. The Company shall so advise
all Holders distributing their securities through such underwriting and the
number of shares of Registrable Securities that may be included in the
registration and underwriting shall be allocated among all Holders in
proportion, as nearly as practicable, to the respective amounts of Registrable
Securities held by such Holders at the time of filing the registration
-7-
8
statement. To facilitate the allocation of shares in accordance with the above
provisions, the Company may round the number of shares allocated to any Holder
to the nearest one hundred (100) shares. If any Holder disapproves of the terms
of any such underwriting, he may elect to withdraw therefrom by written notice
to the Company and the managing underwriter.
6.3 Right to Terminate Registration. The Company shall
have the right to terminate or withdraw any registration initiated by it under
this Section 6 prior to the effectiveness of such registration whether or not
any Holder has elected to include securities in such registration.
7. REGISTRATION ON FORM S-3.
(a) If Initiating Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form 5-3) for a
public offering of shares of the Registrable Securities the reasonably
anticipated aggregate price to the public of which, net of underwriting
discounts and commissions, would exceed $500,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable Securities for
such an offering, the Company shall (i) promptly give written notice of the
proposed registration to all other Holders, and (ii) as soon as practicable,
use all reasonable efforts to effect such registration, qualification or
compliance (including, without limitation, the execution of an undertaking to
file post-effective amendments, appropriate qualification under applicable blue
sky or other state securities laws and appropriate compliance with applicable
regulations issued under the Securities Act) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
such Registrable Securities as are specified in such request, together with all
or such portion of the Registrable Securities of any Holder or Holders joining
in such request as are specified in a written request given within twenty (20)
days after receipt of such written notice from the Company, use all reasonable
efforts to cause such Registrable Securities to be registered for the offering
on such form and to cause such Registrable Securities to be qualified in such
jurisdictions as the Initiating Holders may reasonably request; provided,
however, that the Company shall not be obligated to effect more than four (4)
registrations under this Section 7. The substantive provisions of Section 6.2,
excluding all provisions relating to the rights of the Underwriter to exclude
certain percentages of Registrable Securities for a subject offering, shall be
applicable to each registration initiated under this Section 7.
(b) Notwithstanding the foregoing, the Company shall not
be obligated to take any action pursuant to this Section 7: (i) more than once
in any twelve (12) month period; (ii) in any particular jurisdiction in which
the Company would be required to execute a general consent to service of
process in effecting such registration, qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act; (iii) if the Company, within ten (10) days of
the receipt of the request of Initiating Holders pursuant to this Section 7,
gives notice of its bona fide intention to effect the filing of a registration
statement with the Commission within sixty (60) days of receipt of such request
(other than with respect to a registration statement relating to a Rule 145
transaction, an offering solely to employees or any other registration which is
not appropriate for the registration of Registrable Securities) in which such
Holders can exercise their rights pursuant to Section 6 hereof; or (iv) 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 three (3) months
immediately following, the effective date of any registration statement
pertaining to securities of the Company (other
-8-
9
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.
(c) Registrations effected pursuant to this Section 7
shall not be counted as demands for registration or registrations effected
pursuant to Section 5 or Section 6, respectively.
8. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the consent of (i)
Holders of in excess of 50% of the Registrable Securities then outstanding, and
(ii) Holders of in excess of 50% of the Registrable Securities held by Holders
other than Existing Holders and Management Holders, enter into any agreement
granting any holder or prospective holder of any securities of the Company
registration rights, including standoff rights, superior to the registration
rights granted Holders hereunder.
9. EXPENSES OF REGISTRATION. All Registration Expenses incurred
in connection with all registrations pursuant to Section 5, Section 6 and
Section 7 shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered. In connection with any registration pursuant to Sections
5 and 6, if the participating Holders elect to be represented by counsel for
the Company, the Company shall pay reasonable fees and disbursements of one
counsel incurred in so representing such participating Holders.
10. REGISTRATION PROCEDURES. In the case of each registration,
qualification or compliance effected by the Company pursuant to this Agreement,
the Company shall keep each Holder or its counsel advised in writing as to the
initiation of each registration, qualification and compliance and as to the
completion thereof At its expense the Company shall:
(a) Prepare and file with the Commission a registration
statement, and all requisite supplements and amendments thereto, with respect
to such securities and use its best efforts to cause such registration
statement, as amended, to become and remain effective for at least one hundred
twenty (120) days;
(b) Furnish to the Holders or their counsel participating
in such registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement, and all
supplements and amendments thereto, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order
to facilitate the public offering of such securities and such other information
necessary to allow the Holders participating in such registration to remain
reasonably informed about the public offering;
(c) With respect to registrations effected pursuant to
Section 6 and Section 7 above, 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, however, that the Company shall not be required in
connection therewith or as a condition
-9-
10
thereto to qualify to do business or to file a general consent to service for
process in any such states or jurisdictions;
(d) With respect to registrations effected pursuant to
Section 7 above, in the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the Underwriter of such offering;
(e) Notify each Holder of Registrable Securities or its
counsel covered by such registration statement, at any time when a prospectus
relating thereto is required to be delivered under the Securities Act, of the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of the
circumstances then existing; and
(f) At the request of any Holder requesting registration
of Registrable Securities pursuant to Section 5, Section 6 or Section 7 above,
furnish to the Holders participating in such registration and to the
underwriters, if any, of such offering, on the date that such Registrable
Securities are delivered to the underwriters for sale in connection with a
registration statement pursuant to SectionS, Section 6 or Section 7 above, 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 such date, of counsel representing the Company for the purposes of
registration addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities and (ii) a letter, dated such
date, from the independent certified public accountants of the Company, in form
and substance as is customarily given by independent public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities.
11. INDEMNIFICATION.
(a) The Company will indemnify each Holder, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, or the
Securities Exchange Act of 1934, as amended (the "EXCHANGE ACT"), against all
expenses, claims, losses, damages or liabilities (joint or several) (or actions
in respect thereof), to which they become subject under the Securities Act or
the Exchange Act, including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to
make the statements therein, in the light of the circumstances in which they
were made, not misleading, or any violation by the Company of the Securities
Act or the Exchange Act or any rule or regulation promulgated thereunder
applicable to the Company in connection with any such registration,
qualification or
-10-
11
compliance, and the Company will pay to each such Holder, each of its officers
and directors, and each person controlling such Holder, each such underwriter
and each person who controls any such underwriter, any legal and any other
expenses reasonably incurred as such expenses are incurred in connection with
investigating, preparing or defending any such claim, loss, damage; liability
or action, provided that the Company will not be liable in any such case to the
extent that any such claim, loss, damage, liability or expense arises out of or
is based on any untrue statement or omission or alleged untrue statement or
omission, made in reliance upon and in conformity with written information
furnished to the Company by an instrument duly executed by such Holder
controlling person or underwriter and stated to be specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 11(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.
(b) Each Holder will, if Registrable Securities held by
such Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act or the Exchange Act, and each other such Holder, each of its
officers and directors and each person controlling such Holder within the
meaning of Section 15 of the Securities Act or the Exchange Act, against all
claims, losses, damages and liabilities (or actions in respect thereof) to
which any of the foregoing persons may become subject under the Securities Act
or the Exchange Act, arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any 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
reimburse the Company, such Holders, such directors, officers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred as such expenses are incurred in connection with investigating or
defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such
registration statement, prospectus, offering circular or other document in
reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by such Holder and stated to be
specifically for use therein; provided, however, that the indemnity agreement
contained in this Section 11(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. Notwithstanding the foregoing, the liability of each
Holder under this Section 11(b) shall be limited to an amount equal to the
aggregate proceeds received by such Holder from the sale of Registrable
Securities hereunder, unless such liability arises out of or is based on
willful conduct by such Holder.
(c) Each party entitled to indemnification under this
Section 11 (the "INDEMNIFIED PARTY") shall give notice to the party required to
provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may
be sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of
-11-
12
such claim or litigation, shall be approved by the Indemnified Party (whose
approval shall not unreasonably be withheld), and the Indemnified Party may
participate in such defense at such party's expense, and provided further that
the failure of any Indemnified Party to give notice as provided herein shall
not relieve the Indemnifying Party of its obligations under this Agreement
unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action and provided further, that
the Indemnifying Party shall not assume the defense for matters as to which
there is a conflict of interest or separate and different defenses. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.
12. INFORMATION BY HOLDER. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company or its
counsel such information regarding such Holder or Holders, the Registrable
Securities held by them and the distribution proposed by such Holder or Holders
as the Company or its counsel may reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
13. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market legally exists for the Common
Stock of the Company, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date that the Company becomes subject to the
reporting requirements of the Securities Act or the Exchange Act;
(b) Use its best efforts to file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements);
(c) Take such action, including the voluntary
registration of its Common Stock under Section 12 of the Exchange Act, as is
necessary to enable the Holders to utilize Form S-3 for the sale of their
Registrable Securities, such registration under Section 12 to be taken as soon
as practicable after the six-month period following the date on which the first
registration statement filed by the Company for the offering of its equity
securities to the general public is declared effective; and
(d) So long as a Purchaser owns any Restricted Securities
to furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days after the effective date of the first
registration statement filed by the Company for an offering of its equity
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably
-12-
13
obtainable by the Company as a Purchaser may reasonably request in availing
itself of any rule or regulation of the Commission allowing a Purchaser to sell
any such securities without registration.
14. TRANSFER OF REGISTRATION RIGHTS. The rights to cause the
Company to register securities granted Holders under Sections 5, 6 and 7 may be
assigned or transferred to any third party who acquires at least 50,000 shares
of Registrable Securities (as may be appropriately adjusted upon any stock
split, stock dividend, recapitalization, merger, consolidation or similar
event), provided that (a) such transfer may otherwise be effected in accordance
with applicable securities laws, and (b) such assignee or transferee agrees to
be bound by the terms of this Agreement and assumes all of the obligations of
the transferring Holder hereunder. Notwithstanding the foregoing, however, the
rights to cause the Company to register securities may be assigned to partners
and constituent members, former partners and former constituent members and
Affiliates of that Holder without regard to the foregoing share threshold or
other requirements, provided that written notice thereof is promptly given to
the Company.
15. STANDOFF AGREEMENT. Each Holder and each of the Existing
Stockholders agree, in connection with the first registration of the Company's
securities which covers Common Stock (or other securities) to be sold on its
behalf to the general public in an underwritten initial public offering, upon
request of the Company or the Underwriter of such initial public offering, not
to sell, make any short sale of; loan, grant any option for the purchase of, or
otherwise dispose of any of the Company's equity securities (other than those
included in the registration) without the prior written consent of the Company
or such Underwriter, as the case may be, for a period of time not to exceed one
hundred eighty (180) days from the effective date of such registration;
provided, however, that all officers, directors and holders of registration
rights (including registration rights granted other than pursuant to this
Agreement) enter into similar agreements and the Company uses all reasonable
efforts to cause all of the holders of one percent (1%) or more of the
outstanding voting securities of the Company to enter into similar agreements.
16. TERMINATION OF REGISTRATION RIGHTS. The rights granted
pursuant to Sections 1 through 15 of this Agreement shall terminate as to any
Holder at such time as Holder holds less than 1% of the Company's outstanding
capital stock and may sell all of such Holder's shares under Rule 144 (or any
successor provisions) promulgated under the Securities Act, or a successor
rule, within a three-month period.
17. RIGHT OF FIRST REFUSAL FOR ISSUANCE OF NEW SECURITIES. The
Company hereby grants to each Major Holder and permitted assignee under Section
17(e) the right of first refusal to purchase a Pro Rata Share (as defined
below) of any New Securities (as defined in subsection 17(a)) which the Company
may, from time to time, propose to sell and issue. A "PRO RATA SHARE," for
purposes of this right of first refusal, shall be a fraction, the numerator of
which is the sum of the number of shares of Common Stock then held by such
Major Holder or issuable to such Major Holder upon conversion of the Series A
Preferred held by such Major Holder, and the denominator of which is the sum of
the total number of shares of Common Stock then outstanding and the number of
shares of Common Stock issuable upon conversion or exercise of all outstanding
capital stock options or warrants convertible into or exercisable for Common
Stock.
-13-
14
(a) Except as set forth below, "NEW SECURITIES" shall
mean any shares of capital stock of the Company, including Common Stock and
Preferred Stock whether now authorized or not. Notwithstanding the foregoing,
"NEW SECURITIES" does not include (i) securities issued pursuant to the
acquisition of another corporation by the Company by merger, purchase of all or
substantially all of the assets or other transaction whereby the Company or its
stockholders own not less than fifty-one percent (51%) of the voting power of
the surviving or successor corporation, (ii) shares of the Company's Common
Stock or Options exercisable for the purchase of Common Stock issued from and
after the date hereof to employees, officers and directors of, and consultants
to, the Company, pursuant to any incentive program or written agreement
approved by the Board of Directors of the Company (net of any repurchases of
such shares or any other shares of Common Stock originally issued to officers,
directors, employees or consultants to the Corporation, and net of cancellation
or expiration of options), (iii) securities issued in connection with lease or
debt financing transactions, (iv) Common Stock issuable upon conversion of the
Series A Preferred, and (v) securities issued solely pursuant to a stock split
or stock dividend.
(b) In the event that the Company proposes to undertake
an issuance of New Securities, it shall give each Major Holder written notice
of its intention, describing the type of New Securities, and the price and
terms upon which the Company proposes to issue the same. Each such Major Holder
shall have twenty (20) days from the date of receipt of any such notice to
agree to purchase all but not a portion of its respective Pro Rata Share of
such New Securities for the price and upon terms specified in the notice by
giving written notice to the Company.
(c) In the event that such Major Holder fails to exercise
the right of first refusal within said twenty (20) day period, the Company
shall have sixty (60) days thereafter to sell or enter into an agreement
(pursuant to which the sale of New Securities covered thereby shall be closed,
if at all, within thirty (30) days from the date of said agreement) to sell the
New Securities not elected to be purchased by such Major Holder at the price
and upon terms no more favorable to the purchasers of such securities than
specified in the Company's notice. In the event that the Company has not sold
the New Securities or entered into an agreement to sell the New Securities
within said sixty (60) day period (or sold and issued New Securities in
accordance with the foregoing within thirty (30) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities
without first offering such securities in the manner provided above.
(d) The right of first refusal granted under this
Agreement shall terminate immediately prior to the closing of an initial public
offering of the Common Stock of the Company to the general public which is
effected pursuant to a registration statement filed with, and declared
effective by, the Commission under the Securities Act.
(e) The right of first refusal granted Major Holders
under this Section may be in whole or in part assigned or transferred to any
third party who acquires at least 50,000 shares of Registrable Securities (as
may be appropriately adjusted upon a stock split, stock dividend,
recapitalization, merger, consolidation or similar event), provided that, (a)
such transfer may otherwise be effected in accordance with applicable
securities laws, and (b) such assignee or transferee agrees to be bound by this
Agreement and assumes the obligations of the transferring Major Holder
hereunder.
-14-
15
Notwithstanding the foregoing, however, the right of first refusal may be
assigned by a Major Holder that is a partnership to any of its partners, that
is a venture capital group or fund to an Affiliated entity or person, or that
is a corporation to any of its shareholders without regard to the foregoing
share threshold or other requirement, provided that (a) written notice thereof
is promptly given to the Company, (b) such transfer may otherwise be effected
in accordance with applicable securities laws, and (c) such assignee or
transferee agrees to be bound by this Agreement and assumes the obligations of
the transferring Major Holder hereunder.
18. AFFIRMATIVE COVENANTS. The Company and each Purchaser hereby covenants
and agrees as follows:
18.1 Financial Information.
(a) The Company shall mail the following reports
to each Major Holder:
(i) As soon as practicable after the end
of each fiscal year, and in any event within 90 days thereafter, a copy of the
annual audit report (prepared in accordance with generally accepted accounting
principles) for such year for the Company and any consolidated subsidiary,
including therein Consolidated balance sheets of the Company and any such
subsidiary as of the end of such fiscal year, Consolidated statements of income
and stockholders equity and statements of cash flow of the Company and any such
subsidiary for such fiscal year, setting forth in each case in comparative form
the corresponding figures for the preceding fiscal year, all duly certified by
an independent public accounting firm selected by the Company's Board of
Directors;
(ii) As soon as practicable after the end
of the first, second, third and fourth quarterly accounting periods in each
fiscal year of the Company, and in any event within 45 days thereafter, a
Consolidated budget model balance sheet of the Company as of the end of each
such quarterly period, and Consolidated budget model statements of income and
stockholders equity and Consolidated budget model statements of cash flows of
the Company and any subsidiary for such period and for the current fiscal year
to date, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, and signed by the principal financial or accounting officer
of the Company;
(iii) As soon as practicable after the end of
each month, and in any event within 30 days thereafter, Consolidated budget
model balance sheets of the Company and any subsidiary as of the end of such
month, and Consolidated budget model statements of income and stockholders'
equity for each month and for the current fiscal year to date, and comparing
such results to the then current business plan, prepared in accordance with
generally accepted accounting principles (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments and signed by the
principal financial or accounting officer of the Company;
(iv) As soon as available (but in any
event at least within 30 days before the commencement of its fiscal year), an
annual budget and business plan prepared on a monthly basis for each fiscal
year, together with any modifications thereto adopted through such fiscal year;
-15-
16
(v) With respect to the financial
statements called for in subsections (ii) and (iii) of this Section 18.1 (a),
an instrument executed by the Chief Financial Officer or President of the
Company and certifying that such financial statements were prepared in
accordance with generally accepted accounting principles consistently applied
with prior practice for earlier periods (with the exception of footnotes that
may be required by generally accepted accounting principles) and fairly present
the financial condition of the Company and its results of operation for the
period specified, subject to period-end adjustment; and
(vi) Such other information relating to
the financial condition, business, prospects or corporate affairs of the
Company as the Major Holder may from time to time reasonably request.
(b) The Company shall also afford each Major
Holder, at the principal offices of the Company, reasonable access to material
documents of the Company and rights to examine without undue disruption the
facilities and offices of the Company, upon at least five (5) days notice in
advance of such visit to the Company from such Major Holder and upon receipt of
a request from such Major Holder specifying which documents, offices and
facilities such Major Holder wishes to inspect five (5) days in advance of such
visit; but, in any event, not more than once every fiscal quarter.
(c) The Company shall afford each Major Holder,
reasonable Board of Directors' visitation rights. Such visitation rights shall
include the right to designate one representative of the Major Holders
(selected by the affirmative vote of a majority of the Major Holders) to (i)
receive reasonable notice in advance of all Board of Directors' meetings, (ii)
the right to receive, concurrently with receipt by members of the Board of
Directors, all materials, reports and other written communications received by
members of the Board of Directors and (iii) the right to attend all Board of
Directors meetings.
(d) The covenants set forth in this Section 18.1
shall terminate and be of no further force or effect at such time as the
Company is required to file reports pursuant to Section 13 or 15(d) of the
Exchange Act.
(e) Notwithstanding any other provisions of this
Section 18.1 or Section 13(d), the Company may require as a condition precedent
to any Major Holder's rights under this Section 18.1 or Section 13(d), that
each person proposing to attend any meeting of the Board of Directors and each
person to have access to any of the information provided by the Company to its
Board of Directors shall agree to hold in confidence and trust and to act in a
fiduciary manner with respect to all information so received during such
meetings or otherwise; and, provided further, that the Company reserves the
right not to provide such information to a Major Holder or its representative
(or not to provide to a Major Holder such portions of the information which is
sensitive vis & vis such Major Holder) and to exclude such Major Holder or its
representative from any meeting or portion thereof to the extent necessary in
order to prevent the breach of attorney client privilege or if such Major
Holder or its representative is a competitor of the Company (including any of
its direct or indirect subsidiaries).
-16-
17
18.2 Confidential Information. Each Major Holder agrees
that any information obtained by such Major Holder pursuant to Section 18.1 or
Section 13(d) which is, or would reasonably be perceived to be, proprietary to
the Company or otherwise confidential will not be disclosed without the prior
written consent of the Company. Notwithstanding the foregoing, each Major
Holder may disclose such information, on a need to know basis, to its
employees, accountants or attorneys, or to the employees, accountants or
attorneys of its general partner or investment manager (so long as each such
person to whom confidential information is disclosed agrees to keep such
information confidential), in compliance with a court order or when otherwise
necessary to enforce any of the Major Holder's rights hereunder. Such
information may also be disclosed to a Major Holder's constituent partners,
members or shareholders (so long as each such person to whom confidential
information is disclosed agrees to keep such information confidential). Each
Major Holder further acknowledges and understands that any information will not
be utilized by such Major Holder in connection with purchases and/or sales of
the Company's securities except in compliance with applicable state and federal
antifraud statutes.
18.3 Assignment of Rights to Financial Information. The
rights and obligations pursuant to Sections 18.1 and 18.2 may be assigned or
otherwise conveyed by any Major Holder, or by any subsequent transferee of any
such rights to a transferee, upon prior written notice to the Company, upon the
transfer by such Major Holder of at least 50,000 shares of Registrable
Securities to any transferee other than a competitor or customer of the Company
(including any of its direct or indirect subsidiaries); provided, however, that
the Company shall not be obligated under Section 18.1 to provide to any
transferee other than a person or entity affiliated with the transferor any
information which the Company deems in good faith to be a trade secret or
similar confidential information.
19. VOTING AGREEMENT.
(a) For so long as the Purchasers or their Affiliates
hold not less than an aggregate of 180,000 shares of Series A Preferred or
Common Stock issued on conversion thereof (as appropriately adjusted for all
stock splits, dividends, combinations, reclassifications and the like), each of
the Existing Stockholders, Management Holders and Purchasers (and their
Affiliates) agrees to vote all of the shares of Common Stock Series A Preferred
or other securities of the Company entitled to vote in the election of
directors, to elect two (2) persons designated by the Purchasers to serve as
members of the Company's Board of Directors; provided, however, that if the
size of the Board of Directors shall be increased or decreased, each of the
Existing Stockholders, Management Holders and Purchasers (and their Affiliates)
agrees to vote all of the shares of Common Stock Series A Preferred or other
securities of the Company entitled to vote in an election of directors, to
elect a number of persons designated by the Purchasers to serve as members of
the Company's Board of Directors such that the number of persons designated by
the Purchasers shall constitute at least 20% of the Board of Directors. The
Purchasers have designated Xxxxxx Xxxxx and Xxxxxxxx Xxxxxxxx to serve as
directors effective as of the date hereof The Company shall reimburse the
reasonable expenses of Board meeting attendance by the representatives of the
Purchasers.
(b) In the event that any person designated to the Board
of Directors in accordance with Section 19(a) above resigns or otherwise ceases
to be a director, a replacement director shall be
-17-
18
designated by the Purchasers and the terms of this Section 19 shall apply to
any such replacement director for so long as it would otherwise apply to the
initial director.
(c) Each of the Purchasers, Management Holders and
Existing Stockholders agrees to be present, in person or by proxy, at all
meetings of shareholders of the Company so that all shares of voting securities
held by such Purchaser, Management Holder or Existing Stockholder may be voted
for the election of the directors as set forth in this Section 19.
(d) So long as the provisions of this Section 19 are in
effect, each certificate evidencing shares of voting securities held by the
Purchasers, Management Holders and the Existing Stockholders shall bear a
legend in substantially the following form:
"THESE SECURITIES ARE SUBJECT TO CERTAIN RESTRICTIONS ON VOTING AS SET
FORTH IN A RIGHTS AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL
HOLDER OF SUCH SHARES. A COPY OF SUCH AGREEMENT IS ON FILE AT THE
COMPANY'S PRINCIPAL PLACE OF BUSINESS AND ITS REGISTERED OFFICE."
(e) The provisions of this Section 19 shall terminate
upon the closing of the Company's initial public offering of Common Stock
pursuant to a registration statement declared effective by the Commission.
20. COMPANY RIGHT OF FIRST REFUSAL ON CERTAIN SALES OF SERIES A
PREFERRED STOCK AND CONVERSION STOCK
20.1 General. In the event that a Holder proposes to make
any sale or transfer of Series A Preferred and Conversion Stock (or proposed
sale or transfer) otherwise permitted pursuant to this Agreement, to any
proposed transferee which is not solely a financial investor and which proposes
to acquire the shares for strategic business purposes and not solely as an
investment, then prior to effecting such sale or transfer the Holder shall give
the Company the opportunity to purchase such shares in the following manner:
(i) Such Holder shall give notice (the "TRANSFER
NOTICE") to the Company in writing of such intention, specifying the securities
proposed to be sold or transferred, the proposed price per share therefor (the
"TRANSFER PRICE"), the name of the proposed transferee or transferees and the
other material terms upon which such disposition is proposed to be made,
including such other terms and information as the Company may reasonably
request in order to confirm the bona fide nature of the proposed transaction.
(ii) The Company shall have the right, exercisable
by written notice given by the Company to such Holder within ten (10) days
after receipt of such Transfer Notice to purchase all (but not less than all)
of the securities specified in such Transfer Notice. The Company may during
such ten (10) day period advise such Holder of the Company's desire to exercise
its right of first refusal set forth herein subject to the ability of the
Company to secure financing. In such event, the Company shall
-18-
19
have an additional thirty (30) days following the initial ten (10) day period
in which to secure financing. At the end of the thirty (30) period, the Company
shall advise such Holder as to whether the Company has successfully secured the
financing. If not, the Company's exercise of its right of first refusal shall
be deemed void and such Holder shall be entitled to consummate the proposed
transaction with the third party or parties.
(iii) If the Company exercises its right of first
refusal hereunder, the closing of the purchase of the securities with respect
to which such right has been exercised shall take place within thirty (30) days
after the Company gives notice of such exercise, which period of time shall be
extended if necessary to comply with applicable securities laws and
regulations. Upon exercise of its right of first refusal, the Company and such
Holder shall be legally obligated to consummate the purchase contemplated
thereby and shall use their best efforts to secure any approvals required in
connection therewith.
(iv) If the Company does not exercise its right of
first refusal hereunder within the ten (10) day period specified for such
exercise (or, in the event that the right has been exercised subject to
securing financing, within the additional thirty (30) day period specified
above), such Holder shall be free, during the period of ninety (90) days
following the expiration of such time for exercise to enter into an agreement
to sell the securities specified in such Transfer Notice, to the specified
proposed transferee or another investor which is solely a financial investor
acquiring for investment purposes, on terms no less favorable to such Holder
than the terms specified in such Transfer Notice, provided that the closing of
the purchase and sale of such securities shall take place within sixty (60)
days after such Holder enters into such agreement.
20.2 No Assignment of Rights of First Refusal The Company
may not assign its rights of first refusal under this Section 20.
20.2 Termination The Company's right of first refusal set
forth herein shall terminate upon the first to occur of (i) the closing of an
initial public offering of the Common Stock of the Company to the general
public which is effected pursuant to a registration statement filed with, and
declared effective by, the Commission under the Securities Act, and (ii) such
date as the Company shall be subject to the reporting requirements of Section
13(a) or 15(d) of the Securities Exchange Act of 1934, as amended.
21. MISCELLANEOUS.
21.1 Aggregation of Shares. For purposes of any provision
of this Agreement requiring a person or entity to hold a minimum number of
shares of Series A Preferred or Registrable Securities in order to gain the
benefit of such provision, all shares beneficially owned by Affiliated entities
or persons (including partners and constituent members and former partners and
former constituent members) shall be aggregated together for the purposes of
determining such Holder's status or rights under such provision. For purposes
of this Section 21.1 the Company may rely on such person whom a group of
related persons shall designate from time to time (which person shall initially
be the Chief
-19-
20
Financial Officer of Trident Capital, L.P., for Information Associates, L.P.
and Information Associates, C.V. and related persons) for information relating
to the affiliations of entities or persons.
21.2 Governing Law. This Agreement in all respects shall
be governed by and construed and enforced in accordance with the corporate laws
of the State of Delaware and (with respect to matters other than matters of
corporate law) the laws of the State of Texas as such laws apply to contracts
entered into and wholly to be performed within such state. In any litigation
relating to this Agreement or the transactions contemplated hereby, the
prevailing party shall be entitled to recover its costs and reasonable
attorneys' fees.
21.3 Survival. The representations, warranties, covenants
and agreements made herein shall survive any investigation made by any
Purchaser and the closing of the transactions contemplated hereby.
21.4 Successors and Assigns. Except as otherwise provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
21.5 Entire Agreement; Amendment. This Agreement and the
other documents delivered pursuant hereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects
hereof and thereof; and 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 any provision of this Agreement may be amended,
waived or modified with the written consent of (i) the Company, (ii) Holders of
at least 50% of the outstanding shares of Registrable Securities, and (iii)
Holders other than Existing Stockholders and Management Holders who hold at
least a majority of the outstanding shares of Registrable Securities held by
all holders other than Existing Stockholders and Management Holders.
21.6 Effect of Amendment or Waiver, Each Purchaser
acknowledges that by the operation of Section 21.5 hereof the Holders of more
than 50% of the outstanding shares of Registrable Securities shall have the
right and power to diminish or eliminate all rights of such Holders under this
Agreement.
21.7 Notices. All notices and other communications
required or permitted hereunder shall be in writing, shall be effective when
given, and shall in any event be deemed to be given upon receipt or, if
earlier, (a) five (5) days after deposit with the U.S. Postal Service or other
applicable postal service, if delivered by first class mail, postage prepaid,
(b) upon delivery, if delivered by hand, (c) one business day after the
business day of deposit with Federal Express or similar overnight courier,
freight
-20-
21
prepaid or (d) one business day after the business day of facsimile
transmission, if delivered by facsimile transmission with copy by first class
mail, postage prepaid, and shall be addressed (i) if to a Purchaser, at such
Purchaser's address as set forth in the Purchase Agreement, (ii) if to an
Existing Stockholder, at such Existing Stockholder's address according to the
Company's stock records, and (iii) if to the Company, at the address of its
principal corporate offices (attention: Secretary), or at such other address as
a party may designate by ten days' advance written notice to the other party
pursuant to the provisions above.
21.8 Delays or Omissions. Except as expressly provided
herein, no delay or omission to exercise any right, power or remedy accruing to
any Holder of any Registrable Securities, upon any breach or default of the
Company under this Agreement, shall impair any such right, power or remedy of
such Holder nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence therein, or of or in any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement, or any
waiver on the part of any Holder of any provisions or conditions of this
agreement, must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement or by law or otherwise afforded to any Holder, shall be cumulative
and not alternative.
21.9 Counterparts. This Agreement may be executed in any
number of counterparts, each of which may be executed by less than all of the
Purchasers, each of which shall be enforceable against the parties actually
executing such counterparts, and all of which together shall constitute one
instrument.
21.10 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.
21.11 Titles and Subtitles. The titles and subtitles used
in this Agreement are used for convenience only and are not considered in
construing or interpreting this Agreement.
-21-
22
[Signature Page to Rights Agreement]
The foregoing agreement is hereby executed as of the date
first above written.
"COMPANY"
PEGASUS Systems, INC.
a Delaware corporation
By: /s/ XXXX X. XXX III
--------------------------------
Title: PRESIDENT
-----------------------------
"PURCHASERS"
INFORMATION ASSOCIATES, L.P.
By: Trident Capital Management,L.L.C.
Its: General Partner
By: /s/ [ILLEGIBLE]
--------------------------------
INFORMATION ASSOCIATES, C.V
By: Trident Capital Management, L.L.C.
Its: Investment General Partner
By: /s/ [ILLEGIBLE]
--------------------------------
"EXISTING STOCKHOLDERS"
PEGASUS SYSTEMS, INC.
By:
--------------------------------
Its:
-------------------------------
CHOICE HOTELS
By: /s/ XXXXX X. XXXXXX
--------------------------------
Its: SA. Vice President
-------------------------------
-22-
23
[Signature Page to Rights Agreement]
ANASAZI, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: CEO
-------------------------------
BEST WESTERN INTERNATIONAL
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Board Representative for BWI
-------------------------------
XXXX TRAVEL GROUP,
A Division of Xxxx Elsevier Inc.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: EVP Finance & Operations
-------------------------------
HYATT HOTELS CORPORATION
By: /s/ [ILLEGIBLE] 6-25-96
--------------------------------
Its: Executive-Vice President
-------------------------------
INTER-CONTINENTAL HOTELS CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Senior Vice President-Property
Management
-------------------------------
[ILLEGIBLE]
FORTE HOTELS
By: /s/ [ILLEGIBLE]
--------------------------------
Its: EXECUTIVE DIRECTOR HOTELS
-------------------------------
June 25th 1996
-23-
24
[Signature Page to Rights Agreement]
ITT SHERATON CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------
Its: S.V.P. - CIO
-------------------------------
LA QUINTA INNS, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Sr. Vice President - Acct &
Admin
-------------------------------
MARRIOTT INTERNATIONAL, INC.
By: /s/ XXXXX XXXXX
--------------------------------
Its: Vice President, Distribution
Sales
-------------------------------
PROMUS HOTELS, INC.
By: /s/ [ILLEGIBLE] 6/25/96
--------------------------------
Its:
-------------------------------
UTELL INTERNATIONAL LTD.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: Authorized Representative
-------------------------------
CHOICE HOTELS INTERNATIONAL
By:
--------------------------------
Its:
-------------------------------
HFS, INC.
By: /s/ [ILLEGIBLE]
--------------------------------
Its: VP MIS
-------------------------------
TRUSTHOUSE FORTE CALIFORNIA, INC.
By:
--------------------------------
Its:
-------------------------------
HILTON HOTELS CORPORATION
By: /s/ [ILLEGIBLE]
--------------------------------
Its: V.P. Marketing Distribution
-------------------------------
-24-
25
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
LODGING NETWORK, INC. WESTIN HOTELS & RESORTS
By: /s/ XXXXX X. XXXXXXXX By: /s/ XXXXXXX X. XXXXXXX
------------------------------- -------------------------------
Its: Vice-President Xxxxxxx X. Xxxxxxx
-------------------------------
Its: Vice President-Distribution
--------------------------------
/s/ XXXX X. XXXXX, III
-------------------------------
Xxxx X. Xxxxx, III
"MANAGEMENT HOLDERS"
/s/ XXXX X. XXXXX, III
-------------------------------
Xxxx X. Xxxxx, III
/s/ XXXX XXXXXXXXX
-------------------------------
Xxxx Xxxxxxxxx
/s/ XXXX XXXX
-------------------------------
Xxxx Xxxx
/s/ XXXXX XXXXXXX
-------------------------------
Xxxxx Xxxxxxx
/s/ XXXX XXXX
-------------------------------
Xxxx Xxxx
/s/ XXXXX XXXXXXX
-------------------------------
Xxxxx Xxxxxxx
/s/ XXXXX XXXXXXXX
-------------------------------
Xxxxx Xxxxxxxx
-25-
26
[SIGNATURE PAGE TO RIGHTS AGREEMENT]
/s/ XXX XXXXX
-------------------------------
Xxx Xxxxx
/s/ XXXXXX XXXXXXXXX
-------------------------------
Xxxxxx Xxxxxxxxx
/s/ XXXXX XXXXXXX
-------------------------------
Xxxxx Xxxxxxx
/s/ XXXXXXX XXXX
-------------------------------
Xxxxxxx Xxxx
-26-
27
SCHEDULE I
Purchasers:
Information Associates, L.P.
Information Associates, C.V.
28
SCHEDULE II
Existing Stockholders:
Anasazi Service Corporation
Best Western International
Choice Hotels International
Trusthouse Forte California, Inc.
Hilton Hotels Corporation
Hospitality Franchise Systems, Inc.
Xxxx Travel Group
Hyatt Hotels Corporation
Inter-Continental Hotels Corporation
ITT Sheraton Corporation
La Quinta Corporation Inns, Inc.
Marriott International, Inc.
Promus Hotels, Inc.
Utell International, Ltd.
Westin Hotels and Resorts
Xxxx X. Xxxxx, III
29
SCHEDULE III
Management Holders:
Xxxx X. Xxxxx, III
Xxxxxx X. Xxxxxxxxx
Xxxx Xxxx
Xxxxx Xxxxxxx
Xxxx Xxxx
Xxxxx Xxxxxxx
Xxxxx Xxxxxxxx
Xxx X. Xxxxx
Xxxxxx Xxxxxxxxx
Xxxxx Xxxxxxx
Xxxxxxx Xxxx
