Exhibit 10.3
OPTIONSXPRESS, INC.
INVESTOR RIGHTS AGREEMENT
THIS AGREEMENT is made as of January 15, 2004 by and among
optionsXpress, Inc., a Delaware corporation (the "COMPANY"), and the Persons
listed on the SCHEDULE OF INVESTORS attached hereto (each, an "INVESTOR" and
collectively, the "INVESTORS").
WHEREAS, the parties to this Agreement are parties to a Stock Purchase
and Recapitalization Agreement, dated as of December 17, 2003 (the
"RECAPITALIZATION AGREEMENT"), pursuant to which the Investors shall purchase
shares of the Company's Series A Convertible Preferred Stock, par value $.0001
per share (the "SERIES A PREFERRED");
WHEREAS, in order to induce the Investors to enter into the
Recapitalization Agreement and consummate the transactions contemplated thereby,
the Company has agreed to enter into this Agreement for the benefit of the
Investors;
WHEREAS, the execution and delivery of this Agreement is a condition
to the Closing under the Recapitalization Agreement; and
WHEREAS, unless otherwise provided in this Agreement, capitalized
terms used herein shall have the meanings set forth in Section 2 hereof.
NOW, THEREFORE, in consideration of the mutual covenants contained
herein and other good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged, the parties to this Agreement hereby agree as
follows:
Section 1. COVENANTS.
1A. FINANCIAL STATEMENTS AND OTHER INFORMATION. The Company shall
deliver to (or, in the case of subparagraph (vi) below, shall make available for
inspection by) the Designated Investor (so long as the Investors who are
original signatories hereto and/or their affiliated investment funds
collectively hold at least 10% of the Series A Preferred or at least 10% of the
Underlying Common Stock originally issued to the Investors as of the date
hereof) and to each holder of at least 10% of the outstanding Series A Preferred
and each holder of at least 10% of the Underlying Common Stock:
(i) as soon as available but in any event within 30 days
after the end of each monthly accounting period in each fiscal year,
unaudited consolidating and consolidated statements of income and cash
flows of the Company and its Subsidiaries for such monthly period and for
the period from the beginning of the fiscal year to the end of such month,
and unaudited consolidating and consolidated balance sheets of the Company
and its Subsidiaries as of the end of such monthly period, setting forth
for each monthly period in each fiscal year comparisons to the Company's
budget and to the corresponding period in the preceding fiscal year, and
all such statements setting forth the results of a fiscal quarter of the
Company shall be prepared in accordance with GAAP,
consistently applied as applicable to interim period financial statements
(except for the absence of footnote disclosures with respect thereto and subject
to changes resulting from normal year-end adjustments for recurring accruals,
and, except that in the case of monthly unaudited financial statements, such
statements shall consist of the regular reports prepared for management, which
may or may not be in accordance with GAAP);
(ii) within 90 days after the end of each fiscal year,
consolidating and consolidated statements of income and cash flows of the
Company and its Subsidiaries for such fiscal year, and consolidating and
consolidated balance sheets of the Company and its Subsidiaries as of the
end of such fiscal year, all prepared in accordance with GAAP, consistently
applied, and accompanied by (a) with respect to the consolidated portions
of such statements, an opinion of a "Big Four" accounting firm selected by
the Company's board of directors containing no exceptions or qualifications
regarding compliance with GAAP or otherwise, (b) a copy of such firm's
annual management letter to the Company's board of directors, if any, and
(c) in each case, comparisons to the Company's annual budget and to the
preceding fiscal year;
(iii) promptly upon receipt thereof, any additional reports,
management letters or other detailed information concerning significant
aspects of the Company's operations or financial affairs given to the
Company by its independent accountants (and not otherwise contained in
other materials provided hereunder);
(iv) at least 30 days but no more than 60 days prior to the
beginning of each fiscal year, an annual budget and operating plan prepared
on a monthly basis for the Company and its Subsidiaries for such fiscal
year (displaying anticipated statements of income and cash flows and
balance sheets), and promptly upon preparation thereof any other
significant budgets or operating plans prepared by the Company and any
revisions of such annual or other budgets or operating plans (the annual
budget ("projections") and operating plan for 2004 having been delivered
prior to the date hereof);
(v) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Event of Noncompliance, any
default under any material agreement to which the Company or any of its
Subsidiaries is a party which could reasonably be anticipated to have a
material adverse effect upon the business, financial condition, operating
results, value, assets, operations or business prospects of the Company and
its Subsidiaries taken as a whole, or any other material adverse change,
event or circumstance affecting the Company and its Subsidiaries taken as a
whole (including, without limitation, the filing of any material litigation
against the Company or any Subsidiary or the existence of any dispute with
any Person which the Company believes is reasonably likely to lead to such
litigation being commenced), a notice letter from the Company specifying
the same; and
(vi) with reasonable promptness, make available for
inspection such other information and financial data concerning the Company
and its Subsidiaries as the holders of a majority of the outstanding Series
A Preferred may reasonably request.
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Each of the financial statements referred to in subparagraphs (i) and (ii) above
shall be true and correct in all material respects as of the dates and for the
periods set forth therein, subject in the case of the unaudited financial
statements to the absence of footnote disclosures with respect thereto and
changes resulting from normal year-end adjustments for recurring accruals, and
except that, in the case of the monthly unaudited financial statements, such
statements shall consist of the regular reports prepared for management, which
may or may not be in accordance with GAAP. Notwithstanding the foregoing, the
provisions of this paragraph 1A and paragraph 1B below shall cease to be
effective so long as the Company is subject to the periodic reporting
requirements of the Securities Exchange Act and continues to comply with such
requirements. Except as otherwise required by law or judicial order or decree or
by any governmental agency or authority, each Person entitled to receive
information regarding the Company and its Subsidiaries under this paragraph 1A
or paragraph 1B below shall use the same standards and controls which such
Person uses to maintain the confidentiality of its own confidential information
(but in no event less than reasonable care) to maintain the confidentiality of
all nonpublic information of the Company or any of its Subsidiaries obtained by
it pursuant to this paragraph 1A or paragraph 1B below; PROVIDED THAT,
notwithstanding the foregoing or the provisions of any confidentiality agreement
in favor of the Company, each such Person may disclose such information in
connection with the sale or transfer of any Series A Preferred or Underlying
Common Stock if such Person's transferee agrees in writing to be bound by the
provisions hereof. For purposes of this Agreement and the Registration
Agreement, all holdings of Series A Preferred and Underlying Common Stock by
Persons who are Affiliates of each other shall be aggregated for purposes of
meeting any threshold tests under this Agreement and the Registration Agreement.
1B. INSPECTION OF PROPERTY. The Company shall permit any
representatives designated by any Investor (so long as the Investors who are the
original signatories hereto and/or their affiliated investment funds
collectively hold at least 25% of the Series A Preferred and/or at least 25% of
the Underlying Common Stock originally issued to the Investors as of the date
hereof) or any holder of at least 25% of the outstanding Series A Preferred or
at least 25% of the Underlying Common Stock, upon reasonable notice and during
normal business hours and at such other times as any such holder may reasonably
request, to (i) visit and inspect any of the properties of the Company and its
Subsidiaries, (ii) examine the corporate and financial records of the Company
and its Subsidiaries and make copies thereof and (iii) consult with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries concerning the affairs, finances and accounts of the
Company and its Subsidiaries. The presentation of an executed copy of this
Agreement by any Investor or any such holder of Series A Preferred or Underlying
Common Stock, along with reasonable evidence of compliance with the Series A
Preferred or Underlying Common Stock ownership thresholds set forth immediately
above, to the Company's independent accountants shall constitute the Company's
permission to its independent accountants to participate in discussions with
such Persons.
1C. CERTAIN NEGATIVE COVENANTS. So long as the Investors who are
the original signatories hereto and/or their affiliated investment funds
collectively hold at least 25% of the Series A Preferred originally issued as of
the date hereof, the Company shall not (without the prior written consent of the
holders of a majority of the outstanding Series A Preferred):
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(i) directly or indirectly declare or pay, or permit any
Subsidiary to declare or pay, any dividends or make any distributions upon
any of its capital stock or other equity securities, except that (a) the
Company may declare and pay dividends payable in shares of its Common Stock
issued upon the outstanding shares of its Common Stock (including but not
limited to an Option Adjustment Dividend) and any Subsidiary may declare
and pay dividends or make distributions to the Company or any Wholly-Owned
Subsidiary, (b) the Company may declare and pay cash dividends upon its
outstanding Common Stock and the Series A Preferred (on an as-if-converted
basis) pursuant to Section 1 of Part D of Article IV of the Company's
Certificate of Incorporation so long as (1) the Company's Tangible Net
Worth (as determined immediately after giving effect to the declaration and
payment of any such dividends) is not less than $20,000,000, (2) the
aggregate dividends declared and paid in any calendar year do not exceed
80% of the Company's after-tax net income for such calendar year (as
determined on a consolidated basis in accordance with GAAP) AND (3) the
Company's Equity Value (as determined immediately after giving effect to
the declaration and payment of such dividends) is not less than
$180,000,000, (c) the Company may declare and pay the Net Book Value
Dividend (as defined in the Recapitalization Agreement) pursuant to the
terms of Paragraph 1F of the Recapitalization Agreement, and (d) the
Company may declare and pay Stock Option Proceeds Dividends (as defined in
the Company's Certificate of Incorporation);
(ii) directly or indirectly redeem, purchase or otherwise
acquire, or permit any Subsidiary to redeem, purchase or otherwise acquire,
any of the Company's or any Subsidiary's capital stock or other equity
securities (including, without limitation, warrants, options and other
rights to acquire such capital stock or other equity securities), other
than (a) the Series A Preferred pursuant to the terms of the Certificate of
Incorporation, (b) repurchases of Common Stock from former employees of the
Company and its Subsidiaries upon termination of employment for an
aggregate purchase price of no more than $250,000 in any twelve-month
period pursuant to arrangements approved by the Company's board of
directors; or directly or indirectly redeem, purchase or make any payments
with respect to any stock appreciation rights, phantom stock plans or
similar rights or plans or (c) pursuant to a Put Request (as defined in the
Restricted Stock Agreements);
(iii) authorize, issue or enter into any agreement providing
for the issuance (contingent or otherwise) of (a) any notes or debt
securities containing equity features (including, without limitation, any
notes or debt securities convertible into or exchangeable for capital stock
or other equity securities, issued in connection with the issuance of
capital stock or other equity securities or containing profit participation
features), (b) any capital stock or other equity securities (or any
securities convertible into or exchangeable for any capital stock or other
equity securities) which are senior to or on a parity with the Series A
Preferred with respect to the payment of dividends, redemptions,
distributions upon liquidation or otherwise, or (c) any additional shares
of Series A Preferred;
(iv) make, or permit any Subsidiary to make, any loans or
advances to, guarantees for the benefit of, or Investments in, any Person
(other than a Wholly-Owned
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Subsidiary established under the laws of a jurisdiction of the United
States or any of its territorial possessions and, subject to compliance
with subparagraph (xiv) below, any other Wholly-Owned Subsidiary), except
for (a) reasonable advances to employees in the ordinary course of business
(but expressly prohibiting any loans or the arranging of any loans to or
for the benefit of any employees for any purpose), (b) acquisitions as
described in and as otherwise permitted pursuant to subparagraph (viii)
below, (c) Investments otherwise permitted pursuant to clause (xvii) below
that do not involve the purchase or acquisition of a majority or
controlling interest in any company or business and (d) Investments having
a stated maturity no greater than one year from the date the Company or any
Subsidiary makes such Investment in (1) obligations of the United States
government or any agency thereof or obligations guaranteed by the United
States government, (2) certificates of deposit of commercial banks having
combined capital and surplus of at least $50 million or (3) commercial
paper with a rating of at least "Prime-1" by ▇▇▇▇▇'▇ Investors Service,
Inc.;
(v) merge or consolidate with any Person or, except as
permitted by subparagraph (viii) below, permit any Subsidiary to merge or
consolidate with any Person (other than (a) a merger of a Wholly-Owned
Subsidiary with another Wholly-Owned Subsidiary or (b) a transaction
structured as a merger with an Independent Third Party (whether or not the
Company is the surviving corporation) on reasonable market terms in which
(1) the consideration to be received or thereafter held by the Company's
stockholders as a result thereof in respect of all of the Company's
outstanding capital stock held by such stockholders immediately prior to
such merger transaction consists solely of cash and/or freely and
immediately tradeable public company securities resulting from a
combination with a company with an aggregate "public float" of not less
than $400,000,000 and an aggregate market equity capitalization of not less
than $1,000,000,000, in each case as determined immediately prior to such
merger transaction, (2) all holders of Common Stock (including the holders
of Series A Preferred on an as-if-converted-basis) receive the same form
and amount of consideration per share of Common Stock, or, if any holders
of Common Stock are given an option as to the form and consideration to be
received, all holders are given the same option, (3) the Investors and the
Company's other stockholders receive their pro rata share of all
consideration (however described or allocated) that is paid to any of the
Company's other stockholders in connection with such transaction that is
not for the sale of capital stock (including, without limitation, for
purposes hereof any compensation or other amounts payable in respect of any
management, consulting or similar agreements, noncompete or other
restrictive covenants or change-in-control or retention or other payments
however described which is in excess of arm's length compensation for the
consideration or services to be provided therefor as determined by the
members of the compensation committee of the Company's board of directors
(but with any member of the compensation committee abstaining from
participation in any such determination with regard to any such
consideration to be received by such member)) and (4) the Investors who are
original signatories hereto receive at the closing of such transaction
aggregate consideration in respect of the Series A Preferred and Underlying
Common Stock held by them immediately prior to such closing equal to not
less than two (2) times the allocable portion of the original investment
amount with respect to such shares) (with any
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transaction described in clause (b) immediately above being referred to
herein as a "QUALIFIED SALE"));
(vi) sell, lease or (other than pursuant to a Qualified Sale)
otherwise dispose of, or permit any Subsidiary to sell, lease or (other
than pursuant to a Qualified Sale) otherwise dispose of, more than 15% of
the consolidated assets (including, without limitation, the capital stock
of any Subsidiaries) of the Company and its Subsidiaries (computed on the
basis of book value, determined in accordance with GAAP consistently
applied, contribution to the Company's revenues or earnings, or fair market
value, determined by the Company's board of directors in its reasonable
good faith judgment) in any transaction or series of related transactions;
or, except in the ordinary course of business to an Independent Third Party
with the prior approval of the Company's board of directors, sell or
permanently dispose of any of its or any Subsidiary's material Intellectual
Property Rights;
(vii) liquidate, dissolve or effect a recapitalization or
reorganization in any form of transaction (including, without limitation,
any reorganization into a limited liability company, a partnership or any
other non-corporate entity which is treated as a partnership for federal
income tax purposes, or the formation of a parent holding company for the
Company);
(viii) acquire, or permit any Subsidiary to acquire, any
majority or controlling interest in any company or business (whether by a
purchase of assets, purchase of stock, merger or otherwise), or enter into
any joint venture, if the aggregate consideration related to such
transaction and any other transactions consummated during the prior
twelve-month period (including, without limitation, the assumption of
Indebtedness whether direct or indirect) exceeds 10% of the Company's
Equity Value determined as of the date of the most recent of such
transactions;
(ix) enter into, or permit any Subsidiary to enter into, the
ownership, active management or operation of any business that is not
related to the financial services industry;
(x) become subject to, or permit any of its Subsidiaries to
become subject to, (including, without limitation, by way of amendment to
or modification, extension or renewal of) any agreement or instrument which
by its terms would (under any circumstances) restrict (a) the right of any
Subsidiary to make loans or advances or pay dividends or distributions to,
transfer property to, or repay any Indebtedness owed to, the Company or
another Subsidiary or (b) the Company's right to perform the provisions of
this Agreement, the Registration Agreement, the Stockholders Agreement, the
Certificate of Incorporation or the Company's Bylaws (including, without
limitation, provisions relating to the declaration and payment of dividends
on and the making of redemptions of the Series A Preferred Stock and
conversions of the Series A Preferred);
(xi) make any amendment to the Certificate of Incorporation
or the Company's Bylaws, or file any resolution of the Company's board of
directors with the Delaware Secretary of State containing any provisions
which would increase the number
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of authorized shares of Series A Preferred, amend or otherwise change the
terms of the Series A Preferred or adversely affect or otherwise impair the
rights or the relative preferences and priorities of the holders of the
Series A Preferred or the Underlying Common Stock under this Agreement, the
Certificate of Incorporation, the Company's Bylaws or the Registration
Agreement or the Stockholders Agreement;
(xii) enter into, amend, modify or supplement, or permit any
Subsidiary to enter into, amend, modify or supplement, any agreement,
transaction, commitment or arrangement with any of its or any Subsidiary's
officers, directors, stockholders who hold greater than 3% of the Company's
outstanding Common Stock, or, with any individual or entity known by any of
the Company's chairman, president or chief executive officer to be an
Affiliate of any of the foregoing, or to be related by blood, marriage or
adoption to any such individual, or with any entity in which (to the
knowledge of the Company's chairman, president or chief executive officer)
any such Person or individual owns a beneficial interest, except (without
duplication) for (a) customary employment arrangements (but not employment
agreements) and benefit programs on reasonable terms as approved by the
compensation committee established by the Company's board of directors
pursuant to the Stockholders Agreement, (b) ordinary course transactions on
arm's length terms (as determined by the Company's board of directors)
which do not involve annual payments in excess of $250,000, or (c) as
otherwise expressly contemplated by this Agreement;
(xiii) increase, or permit any Subsidiary to increase, any
compensation (including salary, bonuses, benefits and other forms of
current and deferred compensation) payable to any executive officer or
director of the Company or any Subsidiary, except for increases approved by
the compensation committee established by the Company's board of directors
pursuant to the Stockholders Agreement;
(xiv) except as permitted by subparagraph (viii) above,
establish or acquire or permit (a) any Subsidiaries other than Wholly-Owned
Subsidiaries or (b) any Subsidiaries organized outside of the United States
and its territorial possessions (other than, in the case of this clause
(b), in the ordinary course of business so long as the existence of such
foreign Subsidiaries would not reasonably be expected to restrict the
Company's ability to perform the provisions of this Agreement, the
Stockholders Agreement or the Certificate of Incorporation (including,
without limitation, provisions relating to the declaration and payment of
dividends on and the making of redemptions of the Series A Preferred
Stock));
(xv) create, incur, assume or suffer to exist, or permit any
Subsidiary to create, incur, assume or suffer to exist, any Indebtedness
if, immediately after giving effect thereto, the Company's total
Indebtedness exceeds three (3) times the Company's Net Worth; or create,
incur, assume or suffer to exist, or permit any Subsidiary to create,
incur, assume or suffer to exist, any Liens other than Permitted Liens;
(xvi) make, or permit any Subsidiary to make, any capital
expenditures (including, for purposes of this subparagraph (xvi) and
without limitation, payments with respect to capitalized leases, as
determined in accordance with GAAP consistently
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applied), exceeding on a consolidated basis during any twelve-month period
the greater of (a) $2,000,000 in the aggregate or (b) 10% of the Company's
EBTDA for the trailing twelve (12) months ended immediately prior to the
date of such determination;
(xvii) make, or permit any Subsidiary to make, any Investments
that do not involve the purchase or acquisition of a majority or
controlling interest in any company or business exceeding on an aggregate
basis during any twelve-month period the greater of (a) $2,000,000 in the
aggregate or (b) 10% of the Company's EBTDA for the trailing twelve (12)
months ended immediately prior to the date of such determination;
(xviii) increase the authorized size of its board of directors
above five (5) members;
(xix) amend or modify the Company's Stock Option Plan as in
existence as of the date hereof, adopt any new stock option plan or
employee stock ownership plan or issue any shares of Common Stock or
options or other rights to acquire shares of Common Stock to its or its
Subsidiaries' employees, directors, independent contractors or consultants
other than pursuant to the Company's Stock Option Plan or in an aggregate
amount greater than 398,216 shares (as such number of shares is equitably
adjusted for any stock splits, stock dividends and stock combinations
subsequent to the date hereof and as such number includes all outstanding
stock options outstanding as of the date of the Recapitalization
Agreement), issue any shares of Common Stock or options or other rights to
acquire shares of Common Stock pursuant to the Company's Stock Option Plan
to any Persons other than the Company's or its Subsidiaries' employees,
directors, independent contractors or consultants, or grant any options
having an exercise price less than the fair market value of the Common
Stock at the time of such grant or that provide for vesting on a basis more
favorable than four-years (straight line) or that provide for accelerated
vesting upon an initial public offering;
(xx) issue, sell or otherwise transfer (by dividend or
distribution or otherwise), or permit any Subsidiary to issue, sell or
otherwise transfer (by dividend or distribution or otherwise), any shares
of the capital stock, or rights to acquire shares of the capital stock, of
any Subsidiary to any Person other than the Company or a Wholly-Owned
Subsidiary (other than in connection with foreign qualifying shares or
similar local law requirements of a foreign jurisdiction);
(xxi) consummate an initial public offering that does not
constitute a Qualified Public Offering; or
(xxii) use, or permit any Subsidiary to use, the proceeds from
the sale of the Series A Preferred other than to repurchase shares of
Common Stock pursuant to the Recapitalization Agreement and for working
capital purposes.
1D. CERTAIN AFFIRMATIVE COVENANTS. So long as the Investors who are
original signatories hereto and/or their affiliated investment funds
collectively hold at least 25% of the Series A Preferred originally issued as of
the date hereof, the Company shall, and shall cause
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each Subsidiary to (unless it has received the prior written consent of the
holders of a majority of the outstanding Series A Preferred):
(i) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material
licenses, authorizations and permits necessary to the conduct of its
businesses;
(ii) maintain and keep its material properties in good
working order and condition, and from time to time make all necessary
repairs, renewals and replacements, so that its businesses may be properly
conducted in all material respects at all times;
(iii) pay and discharge when payable all material taxes,
assessments and governmental charges imposed upon its properties or upon
the income or profits therefrom (in each case before the same becomes
delinquent and before penalties accrue thereon) and all material claims for
labor, materials or supplies which if unpaid would by law become a Lien
upon any of its property, unless and to the extent that the same are being
contested in good faith and by appropriate proceedings and adequate
reserves (as determined in accordance with GAAP consistently applied) have
been established on its books with respect thereto;
(iv) comply with all other material obligations which it
incurs pursuant to any contract or agreement, whether oral or written,
express or implied, as such obligations become due, to the extent a failure
to so comply could have a material adverse effect upon the business,
financial condition, operating results, value, assets, operations or
business prospects of the Company and its Subsidiaries taken as a whole,
unless and to the extent that the same are being contested in good faith
and by appropriate proceedings and adequate reserves (as determined in
accordance with GAAP consistently applied) have been established on its
books with respect thereto;
(v) comply with all applicable laws, rules and regulations
of all governmental authorities, the violation of which could reasonably be
expected to have a material adverse effect upon the financial condition,
operating results, value, assets, operations or business of the Company and
its Subsidiaries taken as a whole;
(vi) apply for and continue in force with good and
responsible insurance companies adequate insurance covering risks of such
types and in such amounts as are customary for corporations of similar size
engaged in similar lines of business;
(vii) use its reasonable efforts to obtain (within 60 days
following the date hereof) and maintain the key-man life insurance policy
referred to in paragraph 2M of the Recapitalization Agreement (and not
borrow against, pledge, assign, modify, cancel or surrender such policy);
(viii) maintain all material Intellectual Property Rights
necessary to the conduct of their respective businesses;
(ix) maintain proper books of record and account which
present fairly in all material respects its financial condition and results
of operations; and
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(x) use its reasonable best efforts to take all actions
necessary to make any redemption payments with respect to the Series A
Preferred which it is required to make pursuant to the Company's
Certificate of Incorporation, including, without limitation, by
consummating debt and/or equity financings, recapitalizing and/or, to the
extent permitted by applicable law, revaluing assets.
1E. CURRENT PUBLIC INFORMATION. At all times after the Company has
filed a registration statement with the Securities and Exchange Commission
pursuant to the requirements of either the Securities Act or the Securities
Exchange Act, the Company shall file all reports required to be filed by it
under the Securities Act and the Securities Exchange Act and the rules and
regulations adopted by the Securities and Exchange Commission thereunder and
shall take such further action as any holder or holders of Restricted Securities
may reasonably request, all to the extent required to enable such holders to
sell Restricted Securities pursuant to (i) Rule 144 adopted by the Securities
and Exchange Commission under the Securities Act (as such rule may be amended
from time to time) or any similar rule or regulation hereafter adopted by the
Securities and Exchange Commission or (ii) a registration statement on Form S-2
or S-3 or any similar registration form hereafter adopted by the Securities and
Exchange Commission. Upon request, the Company shall deliver to any holder of
Restricted Securities a written statement as to whether it has complied with
such requirements.
1F. AMENDMENT OF OTHER AGREEMENTS. The Company shall not (and shall
not permit its Subsidiaries to) amend, modify or waive any provision of the
Employment Agreements, the Existing Investor Rights Agreement, the Restricted
Stock Agreements or any stock purchase or option agreement or employment or
other agreement entered into between the Company or any of its Subsidiaries and
any of their executive officers or key employees without the prior written
consent of the Company's Board of Directors, including the affirmative vote of
the director elected by the holders of a majority of the Series A Preferred, and
the Company shall (or shall cause its Subsidiaries to) enforce the material
provisions of the Recapitalization Agreement, the Employment Agreements, the
Existing Investor Rights Agreement, the Restricted Stock Agreements and such
stock purchase and option agreements and employment and other agreements and
shall exercise all of its rights and remedies thereunder (including, without
limitation, any repurchase options and first refusal rights) unless it is
otherwise directed by the Company's Board of Directors, including the
affirmative vote of the director elected by the holders of a majority of the
Series A Preferred.
Section 2. DEFINITIONS. For the purposes of this Agreement, the
following terms have the meanings set forth below:
"AFFILIATE" of any particular Person means any other Person
controlling, controlled by or under common control with such particular Person,
where "control" means the possession, directly or indirectly, of the power to
direct the management and policies of a Person whether through the ownership of
voting securities, contract or otherwise, and such control will be presumed if
any Person owns ten percent (10%) or more of the voting capital stock or other
ownership interests, directly or indirectly, of any other Person.
"CONFIDENTIALITY AND NONCOMPETITION AGREEMENTS" has the meaning given
to that term in the Recapitalization Agreement.
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"EXISTING INVESTOR RIGHTS AGREEMENT" means that certain Amended and
Restated Investors' Rights Agreement, dated as of December 19, 2001, by and
among the Company and the Persons set forth on SCHEDULE I attached thereto.
"DESIGNATED INVESTOR" means Summit Ventures VI-A, L.P.
"DIRECTOR INDEMNIFICATION AGREEMENT" has the meaning given to such
term in the Recapitalization Agreement.
"EBTDA" shall mean, for any particular accounting period, the
Company's consolidated net income for such period, PLUS (i) the amount of the
provision for federal, state and local income taxes for such period PLUS (ii)
the amount of depreciation and amortization expense during such period, all as
determined on a consolidated basis in accordance with GAAP.
"EQUITY VALUE" shall mean, as of any date of determination, the sum of
(A) the Company's EBTDA for the six (6) months ending immediately prior to the
date of such determination as reflected on the Company's consolidated financial
statements for such periods, as delivered to the Investors pursuant to paragraph
1A above, multiplied by twenty (20), PLUS (B) the total amount of unrestricted
cash and unrestricted cash equivalents set forth on the Company's consolidated
balance sheet as of the last month included in such twelve-month period, LESS
(C) the outstanding amount of the Company's total Indebtedness as set forth on
the Company's consolidated balance sheet as of the last month included in such
twelve-month period.
"GAAP" means United States generally accepted accounting principles.
"INDEBTEDNESS" means at a particular time, without duplication: (i)
all obligations of such Person for borrowed money or in respect of loans or
advances, (ii) all obligations of such Person evidenced by bonds, debentures,
notes or other similar instruments or debt securities, (iii) all commitments by
which a Person assures a creditor against loss (including contingent
reimbursement obligations with respect to letters of credit and bankers'
acceptances), (iv) all obligations arising from cash/book overdrafts, (v) all
obligations of such Person secured by a Lien on such Person's assets, (vi) all
guarantees of such Person in connection with any of the foregoing and any other
indebtedness guaranteed in any manner by a Person (including guarantees in the
form of an agreement to repurchase or reimburse), (vii) all capital lease
obligations, (viii) all indebtedness for the deferred purchase price of property
with respect to which a Person is liable, contingently or otherwise, as obligor
or otherwise (other than trade payables and other current liabilities incurred
in the ordinary course of business), (ix) all other liabilities classified as
non-current liabilities in accordance with GAAP as of the Closing Date and (x)
all accrued interest, prepayment premiums or penalties related to any of the
foregoing.
"INDEPENDENT THIRD PARTY" means any Person who, immediately prior to
the contemplated transaction, does not own in excess of 5% of the Company's
Common Stock on a fully-diluted basis (a "5% OWNER"), who is not controlling,
controlled by or under common control with any such 5% Owner and who is not the
spouse or descendent (by birth or adoption) of any such 5% Owner or a trust for
the benefit of such 5% Owner and/or such other Persons.
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"INTELLECTUAL PROPERTY RIGHTS" means any and all intellectual and
proprietary rights and rights in confidential information of every kind and
description anywhere in the world, including all (i) patents, patent
applications, patent disclosures and inventions, (ii) internet domain names,
trademarks, service marks, trade dress, trade names, logos and corporate names
and registrations and applications for registration thereof together with all of
the goodwill associated therewith, (iii) copyrights (registered or unregistered)
and copyrightable works and registrations and applications for registration
thereof, (iv) mask works and registrations and applications for registration
thereof, (v) computer software, data, data bases and documentation thereof, (vi)
trade secrets and other confidential information (including ideas, formulas,
compositions, inventions (whether patentable or unpatentable and whether or not
reduced to practice), know-how, manufacturing and production processes and
techniques, research and development information, drawings, specifications,
designs, plans, proposals, technical data, copyrightable works, financial and
marketing plans and customer and supplier lists and information), (vii) other
intellectual property rights, and (viii) copies and tangible embodiments thereof
(in whatever form or medium), in each case excluding unmodified mass market
software that is commercially available).
"INVESTMENT" as applied to any Person means (i) any direct or indirect
purchase or other acquisition by such Person of any notes, obligations,
instruments, stock, securities or ownership interest (including partnership
interests and joint venture interests) of any other Person and (ii) any capital
contribution by such Person to any other Person.
"LIENS" means any mortgage, pledge, security interest, encumbrance,
lien or charge of any kind (including, without limitation, any conditional sale
or other title retention agreement or lease in the nature thereof), any sale of
receivables with recourse against the Company or any Subsidiary, any filing or
agreement to file a financing statement as debtor under the Uniform Commercial
Code or any similar statute other than to reflect ownership by a third party of
property leased to the Company or any Subsidiaries under a lease which is not in
the nature of a conditional sale or title retention agreement, or any
subordination arrangement in favor of another Person (other than any
subordination arising in the ordinary course of business).
"NET WORTH" shall mean, as of any date of determination, the excess of
the Company's total assets as of such date over the Company's total liabilities
as of such date, in each case as determined on a consolidated basis in
accordance with GAAP.
"OPTION ADJUSTMENT DIVIDEND" has the meaning given to such term in the
Company's Certificate of Incorporation.
"PERMITTED LIENS" means: (i) tax liens with respect to taxes not yet
due and payable or which are being contested in good faith by appropriate
proceedings and for which appropriate reserves have been established in
accordance with GAAP, consistently applied, on the books and financial
statements of the Company and its Subsidiaries; (ii) deposits or pledges made in
connection with, or to secure payment of, utilities or similar services,
workers' compensation, unemployment insurance, old age pensions or other social
security obligations; (iii) purchase money security interests in any property
acquired by the Company or any Subsidiary; (iv) liens or encumbrances with
respect to capital lease obligations that are permitted pursuant to subparagraph
1C(xvi) above, (v) interests or title of a lessor under any lease
- 12 -
permitted by this Agreement; (vi) mechanics', materialmen's or contractors'
liens or encumbrances or any similar lien or restriction for amounts not yet due
and payable; (vii) easements, rights-of-way, restrictions and other similar
charges and encumbrances not interfering with the ordinary conduct of the
business of the Company and its Subsidiaries or detracting from the value of the
assets of the Company and its Subsidiaries; and (viii) liens outstanding on the
date hereof which secure Indebtedness and which are described in the schedules
to the Recapitalization Agreement.
"PERSON" means an individual, a partnership, a corporation, a limited
liability company, an association, a joint stock company, a trust, a joint
venture, an unincorporated organization and a governmental entity or any
department, agency or political subdivision thereof.
"QUALIFIED PUBLIC OFFERING" has the meaning given to such term in the
Company's Certificate of Incorporation.
"REGISTRATION AGREEMENT" has the meaning given to such term in the
Recapitalization Agreement.
"RESTRICTED SECURITIES" means (i) the Series A Preferred issued
pursuant to the Recapitalization Agreement, (ii) the Common Stock issued upon
conversion of Series A Preferred and (iii) any securities issued with respect to
the securities referred to in clauses (i) or (ii) above by way of a stock
dividend or stock split or in connection with a combination of shares,
recapitalization, merger, consolidation or other reorganization. As to any
particular Restricted Securities, such securities shall cease to be Restricted
Securities when they have (a) been effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them
or (b) been distributed to the public through a broker, dealer or market maker
on a securities exchange or in the over-the-counter market pursuant to Rule 144
(or any similar provision then in force) under the Securities Act.
"RESTRICTED STOCK AGREEMENTS" means those certain Amended and Restated
Restricted Stock Agreements, each dated as of the date hereof, by and between
the Company and each of ▇▇▇ ▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇.
"SECURITIES ACT" means the Securities Act of 1933, as amended, or any
similar federal law then in force.
"SECURITIES AND EXCHANGE COMMISSION" includes any governmental body or
agency succeeding to the functions thereof.
"SECURITIES EXCHANGE ACT" means the Securities Exchange Act of 1934,
as amended, or any similar federal law then in force.
"STOCKHOLDERS AGREEMENT" has the meaning given to such term in the
Recapitalization Agreement.
"SUBSIDIARY" means, with respect to any Person, any corporation,
limited liability company, partnership, association or other business entity of
which (i) if a corporation, a
- 13 -
majority of the total voting power of shares of stock entitled (without regard
to the occurrence of any contingency) to vote in the election of directors,
managers or trustees thereof is at the time owned or controlled, directly or
indirectly, by that Person or one or more of the other Subsidiaries of that
Person or a combination thereof, or (ii) if a limited liability company,
partnership, association or other business entity, a majority of the partnership
or other similar ownership interest thereof is at the time owned or controlled,
directly or indirectly, by any Person or one or more Subsidiaries of that Person
or a combination thereof. For purposes hereof, a Person or Persons shall be
deemed to have a majority ownership interest in a limited liability company,
partnership, association or other business entity if such Person or Persons
shall be allocated a majority of limited liability company, partnership,
association or other business entity gains or losses or shall be or control any
managing director or general partner of such limited liability company,
partnership, association or other business entity.
"TANGIBLE NET WORTH" shall mean, as of any date of determination, the
excess of the Company's total tangible assets as of such date over the Company's
total liabilities as of such date, in each case as determined on a consolidated
basis in accordance with GAAP.
"UNDERLYING COMMON STOCK" means (i) the Common Stock issued or
issuable upon conversion of the Series A Preferred and (ii) any Common Stock or
other securities issued or issuable with respect to the securities referred to
in clause (i) above by way of stock dividend or stock split or in connection
with a combination of shares, recapitalization, merger, consolidation or other
reorganization. For purposes of this Agreement, any Person who holds Series A
Preferred shall be deemed to be the holder of the Underlying Common Stock
obtainable upon conversion of the Series A Preferred in connection with the
transfer thereof or otherwise regardless of any restriction or limitation on the
conversion of the Series A Preferred, such Underlying Common Stock shall be
deemed to be in existence, and such Person shall be entitled to exercise the
rights of a holder of Underlying Common Stock hereunder. As to any particular
shares of Underlying Common Stock, such shares shall cease to be Underlying
Common Stock when they have been (a) effectively registered under the Securities
Act and disposed of in accordance with the registration statement covering them,
(b) distributed to the public through a broker, dealer or market maker pursuant
to Rule 144 under the Securities Act (or any similar provision then in force) or
(c) repurchased by the Company or any Subsidiary.
"WHOLLY-OWNED SUBSIDIARY" means, with respect to any Person, a
Subsidiary of which all of the outstanding capital stock or other ownership
interests are owned by such Person or another Wholly-Owned Subsidiary of such
Person (other than, in the case of a Subsidiary organized under the laws of a
foreign jurisdiction, any capital stock or other ownership interests that are
not so owned due solely to any foreign qualifying share or similar local law
requirements of such foreign jurisdiction).
Section 3. MISCELLANEOUS.
3A. EXPENSES. The Company shall pay, and hold each Investor and all
holders of Series A Preferred and Underlying Common Stock harmless against
liability for the payment of, (i) the reasonable fees and expenses incurred with
respect to any amendments or waivers (whether or not the same become effective)
under or in respect of this Agreement, the agreements contemplated hereby, or
the Certificate of Incorporation and (ii) stamp and other
- 14 -
taxes which may be payable in respect of the execution and delivery of this
Agreement or the agreements contemplated hereby or the issuance, delivery or
acquisition of any shares of Series A Preferred or any shares of Common Stock
issuable upon conversion of the Series A Preferred.
3B. REMEDIES. Each holder of Series A Preferred and Underlying
Common Stock shall have all rights and remedies set forth in this Agreement and
the Certificate of Incorporation and all rights and remedies which such holders
have been granted at any time under any other agreement or contract and all of
the rights which such holders have under applicable law. Any Person having any
rights under any provision of this Agreement shall be entitled to enforce such
rights specifically (without posting a bond or other security), to recover
damages by reason of any breach of any provision of this Agreement and to
exercise all other rights granted by law.
3C. CONSENT TO AMENDMENTS. Except as otherwise expressly provided
herein, the provisions of this Agreement may be amended and the Company may take
any action herein prohibited, or fail to perform any act herein required to be
performed by it, only if the Company has obtained the prior written consent of
the holders of a majority of the Underlying Common Stock. No other course of
dealing between the Company and the holder of any Series A Preferred or
Underlying Common Stock or any delay in exercising any rights hereunder or under
the Certificate of Incorporation shall operate as a waiver of any rights of any
such holders.
3D. SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, 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, and whether or not any express assignment has been made, the provisions of
this Agreement which are for any Investor's benefit as a Investor or holder of
Series A Preferred or Underlying Common Stock are also for the benefit of, and
enforceable by, any subsequent holder of such Series A Preferred or such
Underlying Common Stock.
3E. CAPITAL AND SURPLUS; SPECIAL RESERVES. The Company agrees that
the capital of the Company (as such term is used in Section 154 of the General
Corporation Law of Delaware) in respect of the Series A Preferred issued
pursuant to the Recapitalization Agreement shall be equal to the aggregate par
value of such shares and that it shall not increase the capital of the Company
with respect to any shares of the Company's capital stock at any time on or
after the date of this Agreement without the prior consent of the holders of a
majority of the outstanding Series A Preferred. The Company also agrees that it
shall not create any special reserves under Section 171 of the General
Corporation Law of Delaware without the prior written consent of the holders of
a majority of the outstanding Series A Preferred.
3F. GENERALLY ACCEPTED ACCOUNTING PRINCIPLES. Where any accounting
determination or calculation is required to be made under this Agreement, such
determination or calculation (unless otherwise provided) shall be made in
accordance with GAAP, consistently applied, except that if because of a change
in generally accepted accounting principles the Company would have to alter a
previously utilized accounting method or policy in order to remain in compliance
with GAAP, such determination or calculation shall continue to be made in
accordance with the Company's previous accounting methods and policies, unless
otherwise
- 15 -
directed by the Company's Board of Directors, including the affirmative vote of
the director elected by the holders of a majority of the outstanding Series A
Preferred.
3G. SEVERABILITY. Whenever possible, each provision of this
Agreement shall be interpreted in such manner as to be effective and valid under
applicable law, but if any provision of this Agreement is held to be prohibited
by or invalid under applicable law, such provision shall be ineffective only to
the extent of such prohibition or invalidity, without invalidating the remainder
of this Agreement.
3H. COUNTERPARTS. This Agreement may be executed simultaneously in
two or more counterparts, any one of which need not contain the signatures of
more than one party, but all such counterparts taken together shall constitute
one and the same Agreement.
3I. DESCRIPTIVE HEADINGS; INTERPRETATION. The descriptive headings
of this Agreement are inserted for convenience only and do not constitute a
substantive part of this Agreement. The use of the word "including" in this
Agreement shall be by way of example rather than by limitation.
3J. GOVERNING LAW. The corporate law of the State of Delaware shall
govern all issues and questions concerning the relative rights and obligations
of the Company and its stockholders. All other issues and questions concerning
the construction, validity, enforcement and interpretation of this Agreement and
the exhibits and schedules hereto shall be governed by, and construed in
accordance with, the laws of the State of Illinois, without giving effect to any
choice of law or conflict of law rules or provisions (whether of the State of
Illinois or any other jurisdiction) that would cause the application of the laws
of any jurisdiction other than the State of Illinois.
3K. NOTICES. All notices, demands or other communications to be
given or delivered under or by reason of the provisions of this Agreement shall
be in writing and shall be deemed to have been given when delivered personally
to the recipient, sent to the recipient by reputable overnight courier service
(charges prepaid) or mailed to the recipient by certified or registered mail,
return receipt requested and postage prepaid. Such notices, demands and other
communications shall be sent to each Investor at the address indicated on the
SCHEDULE OF INVESTORS attached hereto and to the Company at the address
indicated below:
optionsXpress, Inc.
▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: President
- 16 -
WITH A COPY TO:
(which shall not constitute notice to the Company)
KMZ Rosenman
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇-▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇▇▇▇ ▇▇▇▇▇, Esq.
or to such other address or to the attention of such other person as
the recipient party has specified by prior written notice to the sending party.
3L. NO STRICT CONSTRUCTION. The parties hereto have participated
jointly in the negotiation and drafting of this Agreement. In the event an
ambiguity or question of intent or interpretation arises, this Agreement shall
be construed as if drafted jointly by the parties hereto, and no presumption or
burden of proof shall arise favoring or disfavoring any party by virtue of the
authorship of any of the provisions of this Agreement. The parties hereto intend
that each covenant and agreement contained herein shall have independent
significance. If any party has breached any covenant or agreement contained
herein in any respect, the fact that there exists another covenant or agreement
relating to the same subject matter (regardless of the relative levels of
specificity) which such party has not breached shall not detract from or
mitigate the fact that such party is in breach of the first covenant or
agreement.
3M. COMPLETE AGREEMENT. This Agreement and the other agreements and
instruments referred to herein contain the complete agreement between the
parties hereto with respect to the subject matter hereof and thereof and
supersede any prior understandings, agreements and representations by or between
the parties hereto (whether written or oral) which may have related to the
subject matter hereof or thereof in any way.
* * * * *
- 17 -
IN WITNESS WHEREOF, the parties hereto have executed this Investor
Rights Agreement on the date first written above.
OPTIONSXPRESS, INC.
By: /s/ ▇▇▇▇▇ ▇▇▇▇
--------------------------------
Its: President
SUMMIT VENTURES VI-A, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Member
SUMMIT VENTURES VI-B, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Member
SUMMIT VI ADVISORS FUND, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Member
SUMMIT VI ENTREPRENEURS FUND,
L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Member
SUMMIT INVESTORS VI, L.P.
By: Summit Partners VI (GP), L.P.
Its: General Partner
By: Summit Partners VI (GP), LLC
Its: General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇
--------------------------------
Member
SCHEDULE OF INVESTORS
Summit Ventures VI-A, L.P.
Summit Ventures VI-B, L.P.
Summit VI Advisors Fund, L.P.
Summit VI Entrepreneurs Fund, L.P.
Summit Investors VI, L.P.
c/o Summit Partners, L.P.
▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇. ▇▇▇▇▇ ▇. ▇▇▇▇▇
WITH A COPY TO:
(which shall not constitute notice to the Investors)
▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ LLP
▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇, ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Telephone: (▇▇▇) ▇▇▇-▇▇▇▇
Telecopy: (▇▇▇) ▇▇▇-▇▇▇▇
Attention: ▇▇▇ ▇. ▇▇▇▇, P.C.
