EXHIBIT 4.2
ZHONE TECHNOLOGIES, INC.
RIGHTS AGREEMENT
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THIS RIGHTS AGREEMENT is entered into as of November 1, 1999, by and among
Zhone Technologies, Inc., a Delaware corporation (the "Company"), the
undersigned purchaser of Series A-1 Preferred Stock of the Company (the "Series
A-1 Holder"), the undersigned purchaser of Series A-2 Preferred Stock of the
Company (the "Series A-2 Holder"), the undersigned purchaser of Series A-3
Preferred Stock of the Company (the "Series A-3 Holder"), the undersigned
purchaser of Series A-4 Preferred Stock of the Company (the "Series A-4
Holder"), the undersigned purchaser of Series A-5 Preferred Stock of the Company
(the "Series A-5 Holder"), the undersigned purchaser of Series A-6 Preferred
Stock of the Company (the "Series A-6 Holder"), the undersigned purchaser of
Series A-7 Preferred Stock of the Company (the "Series A-7 Holder"), the
undersigned purchaser of Series A-8 Preferred Stock of the Company (the "Series
A-8 Holder"), the undersigned purchaser of Series A-9 Preferred Stock of the
Company (the "Series A-9 Holder"), the undersigned purchaser of Series A-10
Preferred Stock of the Company (the "Series A-10 Holder"), the undersigned
purchaser of Series A-11 Preferred Stock of the Company (the "Series A-11
Holder"), the undersigned purchaser of Series A-12 Preferred Stock of the
Company (the "Series A-12 Holder") (the Series A-1 Holder, Series A-2 Holder,
Series A-3 Holder, Series A-4 Holder, Series A-5 Holder, Series A-6 Holder,
Series A-7 Holder, Series A-8 Holder, Series A-9 Holder, Series A-10 Holder,
Series A-11 Holder and Series A-12 Holder are collectively referred to herein as
the "Preferred Stock Holders") and Xxxx Xxxxxx, Xxxxxxxx Xxxxxx and Xxxxxx Xxxx
(each a "Founder" and collectively, the "Founders").
RECITALS:
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A. The Series A-1 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-1 Preferred Stock Purchase
Agreement (the "Series A-1 Agreement"), pursuant to which the Series A-1 Holder
is purchasing from the Company shares of its Series A-1 Preferred Stock.
B. The Series A-2 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-2 Preferred Stock Purchase
Agreement (the "Series A-2 Agreement"), pursuant to which the Series A-2 Holder
is purchasing from the Company shares of its Series A-2 Preferred Stock.
C. The Series A-3 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-3 Preferred Stock Purchase
Agreement (the "Series A-3 Agreement"), pursuant to which the Series A-3 Holder
is purchasing from the Company shares of its Series A-3 Preferred Stock.
D. The Series A-4 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-4 Preferred Stock Purchase
Agreement (the "Series A-4 Agreement"), pursuant to which the Series A-4 Holder
is purchasing from the Company shares of its Series A-4 Preferred Stock.
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E. The Series A-5 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-5 Preferred Stock Purchase
Agreement (the "Series A-5 Agreement"), pursuant to which the Series A-5 Holder
is purchasing from the Company shares of its Series A-5 Preferred Stock.
F. The Series A-6 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-6 Preferred Stock Purchase
Agreement (the "Series A-6 Agreement"), pursuant to which the Series A-6 Holder
is purchasing from the Company shares of its Series A-6 Preferred Stock.
G. The Series A-7 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-7 Preferred Stock Purchase
Agreement (the "Series A-7 Agreement"), pursuant to which the Series A-7 Holder
is purchasing from the Company shares of its Series A-7 Preferred Stock.
H. The Series A-8 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-8 Preferred Stock Purchase
Agreement (the "Series A-8 Agreement"), pursuant to which the Series A-8 Holder
is purchasing from the Company shares of its Series A-8 Preferred Stock.
I. The Series A-9 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-9 Preferred Stock Purchase
Agreement (the "Series A-9 Agreement"), pursuant to which the Series A-9 Holder
is purchasing from the Company shares of its Series A-9 Preferred Stock.
J. The Series A-10 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-10 Preferred Stock Purchase
Agreement (the "Series A-10 Agreement"), pursuant to which the Series A-10
Holder is purchasing from the Company shares of its Series A-10 Preferred Stock.
K. The Series A-11 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-11 Preferred Stock Purchase
Agreement (the "Series A-11 Agreement"), pursuant to which the Series A-11
Holder is purchasing from the Company shares of its Series A-11 Preferred Stock.
L. The Series A-12 Holder and the Company have entered into or
concurrently herewith are entering into a Series A-12 Preferred Stock Purchase
Agreement (the "Series A-12 Agreement"), pursuant to which the Series A-12
Holder is purchasing from the Company shares of its Series A-12 Preferred Stock.
M. The obligations of the Company and the Series A-1 Holder under the
Series A-1 Agreement, Series A-2 Holder under the Series A-2 Agreement, Series
A-3 Holder under the Series A-3 Agreement, Series A-4 Holder under the Series X-
0 Agreement, Series A-5 Holder under the Series A-5 Agreement, Series A-6 Holder
under the Series A-6 Agreement, Series A-7 Holder under the Series A-7
Agreement, Series A-8 Holder under the Series A-8 Agreement, Series A-9 Holder
under the Series A-9 Agreement, Series A-10 Holder under the Series A-10
Agreement, Series A-11 Holder under the Series A-11 Agreement and Series A-12
Holder under the Series A-12 Agreement are each conditioned, among other things,
upon the execution and
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delivery of this Agreement by the Company, the Founders and each of the
Preferred Stock Holders.
AGREEMENT:
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NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties agree as follows:
1. Registration Rights.
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1.1 Definitions. As used in this Agreement, the following terms
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shall have the following respective meanings:
(a) The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration statement in
compliance with the Securities Act of 1933, as amended (the "Securities Act"),
and the declaration or ordering of the effectiveness of such registration
statement.
(b) The term "Registrable Securities" means (i) any and all
shares of Common Stock of the Company issued or issuable upon conversion of the
shares of Series A-1 Preferred Stock, Series A-2 Preferred Stock, Series A-3
Preferred Stock, Series A-4 Preferred Stock, Series A-5 Preferred Stock, Series
A-6 Preferred Stock, Series A-7 Preferred Stock, Series A-8 Preferred Stock,
Series A-9 Preferred Stock, Series A-10 Preferred Stock, Series A-11 Preferred
Stock and Series A-12 Preferred Stock, (which shares of Series X-0, Xxxxxx X-0,
Series A-3, Series A-4, Series A-5, Series A-6, Series A-7, Series A-8, Series
A-9, Series A-10, Series A-11 and Series A-12 Preferred Stock are referred to
herein as the "Preferred Shares"), (ii) except for Sections 1.2, 1.4, 1.9, 2 and
5.1, the Founder Shares, (iii) stock issued in lieu of the securities referred
to in (i) and (ii) above in any reorganization or (iv) stock issued in respect
of the stock referred to in (i), (ii) and (iii) above and this clause (iv) as a
result of a stock split, stock dividend, recapitalization or the like
(collectively, a "Recapitalization Event").
(c) The terms "Holder" or "Holders" mean(s) any person or persons
to whom Registrable Securities were originally issued or qualifying transferees
under subsection 1.10 hereof who hold Registrable Securities.
(d) The term "Initiating Holders" means any Holder or Holders of
twenty percent (20%) or greater of the Registrable Securities then held by the
Holders.
(e) The term "Founder Shares" shall mean the shares of Common
Stock that the Founders beneficially own on the date hereof, but excluding any
such Common Stock that has been (i) registered under the Securities Act pursuant
to an effective registration statement filed thereunder and disposed of in
accordance with the registration statement covering them or (ii) publicly sold
pursuant to Rule 144 under the Securities Act.
(f) The term "SEC" means the Securities and Exchange Commission.
(g) The term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with any single registration effected
pursuant to subsections 1.2,
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1.3 and 1.4 hereof, including, without limitation, all registration,
qualification and filing fees, printing expenses, escrow fees, fees and
disbursements of counsel for the Company, reasonable fees and expenses of one
special counsel for all selling stockholders up to One Hundred Fifty Thousand
Dollars ($150,000), blue sky fees and expenses, and the expense of any special
audits incident to or required by any such registration (but excluding the
compensation of regular employees of the Company which shall be paid in any
event by the Company).
(h) The term "Qualified IPO" means an underwritten public
offering of the Common Stock of the Company resulting in gross proceeds to the
Company of not less than $100 million (prior to expenses and underwriting
commissions) and at an offering price per share of not less than an amount equal
to two (2) multiplied by the greatest of the then in effect (A) Series A-1
Purchase Price, (B) Series A-2 Purchase Price, (C) Series A-3 Purchase Price,
(D) Series A-4 Purchase Price, (E) Series A-5 Purchase Price, (F) Series A-6
Purchase Price, (G) Series A-7 Purchase Price, (H) Series A-8 Purchase Price,
(I) Series A-9 Purchase Price, (J) Series A-10 Purchase Price, (K) Series A-11
Purchase Price and (L) Series A-12 Purchase Price, (each as defined in Article
IV, Section 2(d)(1) of the Company's Amended and Restated Certificate of
Incorporation), each as adjusted for any Recapitalization Event.
(i) The term "Material Adverse Change" shall mean any change,
effect or circumstance that, individually or when taken together with all other
such changes, effects or circumstances, has or is reasonably likely to have, any
material adverse effect on the assets, liabilities, operations, business,
competitive position, prospects, results of operations or condition (financial
or otherwise) of the Company; provided, however that none of the following shall
be deemed to constitute a Material Adverse Change: any change, effect or
circumstance that results from conditions affecting the U.S. economy or the
world economy.
(j) The term "LLC Operating Agreements" shall collectively mean
the Operating Agreements of each Preferred Stock Holder dated as of October 28,
1999, as the same may be amended from time to time.
(k) The term "Person" means any natural person, partnership
(whether limited or general), limited liability company, trust, estate,
association, corporation, custodian, nominee or any other individual or entity
in its own or any representative entity.
1.2 Demand Registration.
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(a) Request for Registration. In case the Company shall receive
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from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to Registrable Securities
with an anticipated aggregate offering price before deduction of standard
underwriting discounts and commissions, in excess of Five Million Dollars
($5,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect
all such registrations, qualifications and compliances (including, without
limitation, the execution of an undertaking to file post-effective amendments,
appropriate qualifications under the applicable
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blue sky or other state securities laws and appropriate compliance with
exemptive regulations issued under the Securities Act and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Initiating
Holder's or Initiating Holders' 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 thirty (30) days after receipt of such written notice from the
Company; provided, that the Company shall not be obligated to take any action to
effect such registration, qualification or compliance pursuant to this
subsection 1.2:
(A) at any time prior to six (6) months following the
effective date of the registration statement under the Securities Act for the
Company's initial registered underwritten public offering (the "IPO") of its
securities to the general public (other than a registration statement relating
either solely to a sale of securities to employees of the Company pursuant to a
stock option, stock purchase or similar plan or a SEC Rule 145 transaction);
(B) in any particular jurisdiction in which the Company
would be required to execute a general qualification or compliance unless the
Company is already subject to service in such jurisdiction and except as
required by the Securities Act; or
(C) after the Company has effected two (2) such
registrations pursuant to this subsection 1.2(a) and such registrations have
been declared or ordered effective.
Subject to the foregoing clauses (A) through (C), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practical, but in any event within ninety (90) days after
receipt of the request or requests of the Initiating Holders; provided, however,
that if the Company shall furnish to such Initiating Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors it would be detrimental to the Company and its
stockholders for such registration statement to be filed at the date filing
would be required and it is therefore essential to defer the filing of such
registration statement, the Company shall have an additional period of not more
than sixty (60) days after the expiration of the initial ninety (90) day period
within which to file such registration statement; provided, that the Company may
not use this right more than once in any twelve (12) month period. The Company
shall use its best efforts to cause such registration statement to remain
effective for at least one hundred twenty (120) days, or until the distribution
described in the registration statement has been completed, whichever occurs
first. In the event the Company does not perform its obligations set forth in
the preceding sentence, then such registration shall not be deemed effected for
the purposes of the limitations set forth in Section 1.2(a)(ii)(C).
(b) Underwriting. If the Initiating Holders intend to distribute
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the Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to
subsection 1.2 and the Company shall include such information in the written
notice referred to in subsection 1.2(a)(i). In such event, the underwriter shall
be selected by a majority in interest of the Initiating Holders and shall be
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reasonably acceptable to the Company. The right of any Holder to registration
pursuant to subsection 1.2 shall be conditioned upon such Holder's participation
in such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by a majority in interest
of the Initiating Holders and such Holder) to the extent provided herein. 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 or underwriters. Notwithstanding any other
provision of this subsection 1.2, if the underwriter advises the Initiating
Holders in writing that marketing factors require a limitation of the number of
shares to be underwritten, the Initiating Holders shall so advise all Holders
participating in the registration, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all such Holders thereof in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by such
Holders. If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. Any Registrable Securities which are
excluded from the underwriting by reason of the underwriter's marketing
limitation or withdrawn from such underwriting shall be withdrawn from such
registration.
(c) Company Shares. If the managing underwriter has not limited
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the number of Registrable Securities to be underwritten, the Company may include
securities for its own account or for the account of others in such registration
if the managing 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.
1.3 Company Registration.
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(a) Registration. If at any time or from time to time, the
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Company shall determine to register any of its securities, for its own account
or the account of any of its stockholders (other than a registration (A) on Form
S-1 or S-8 or successor forms relating solely to employee stock option or
purchase plans, (B) on Form S-4 relating solely to an SEC Rule 145 transaction
or (C) a registration on any other form or successor forms the use of which is
not appropriate for the sale of Registrable Securities), the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) include in such registration (and 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 or Holders, except as set forth in
subsection 1.3(b) below.
(b) Underwriting. If the registration of which the Company gives
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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 subsection 1.3(a)(i). In such event the right of any Holder to
registration pursuant to subsection 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other
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stockholders distributing their securities through such underwriting) enter into
an underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this subsection 1.3, if the underwriter determines that marketing
factors require a limitation of 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 in no event shall the amount of
Registrable Securities of the Holders included in the offering be reduced below
thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company's
securities in which case the Holders may be excluded entirely if the
underwriters make the determination described above or the Holders holding a
majority of the Registrable Securities consent in writing to such a reduction.
In the event of a cutback by the managing underwriter of the number of
Registrable Securities to be included in the registration and underwriting, the
Company shall advise all Holders of Registrable Securities which would otherwise
be registered and underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated first among all of such Holders, excluding the Holders of
Founder Shares, in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders as of the date of the
notice pursuant to subsection 1.3(a)(i). If, after such Holders participate to
the full extent they desire in such registration and underwriting, the managing
underwriter determines that additional shares of Registrable Securities may be
included, the number of such shares shall be allocated among all of the Holders
of Founder Shares in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders of Founder Shares. If any
Holder disapproves of the terms of the underwriting, he or she may elect to
withdraw therefrom by written notice to the Company and the underwriter. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
1.4 Form S-3. In addition to the rights and obligations set forth in
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subsections 1.2 and 1.3 above, if Initiating Holders request that the Company
file a registration statement on Form S-3 (or any successor to Form S-3) for a
public offering of Registrable Securities, and the Company is then a registrant
entitled to use Form S-3 to register shares for such an offering, the Company
will: (i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and (ii) as soon as
practicable, use its best efforts to effect all such registrations,
qualifications and compliances (including, without limitation, the execution of
an undertaking to file post-effective amendments, appropriate qualifications
under the applicable blue sky or other state securities laws and appropriate
compliance with exemptive regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all or such portion of
such Initiating Holder's or Initiating Holders' 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 thirty (30) days after receipt of such written
notice from the Company. The Company shall use its best efforts to cause such
registration statement to remain effective for at least one hundred twenty (120)
days, or until the distribution described in the registration statement has been
completed, whichever occurs first; provided, however the Company shall not be
required to effect a registration pursuant to this subsection 1.4:
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(a) 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;
(b) if the Company, within ten (10) days of the receipt of the
request of the Initiating Holders, gives notice of its bona fide intention to
effect the filing of a registration statement with the SEC within forty-five
(45) 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);
(c) during a period of ninety (90) days following the effective
date of any registration statement filed under the Securities Act (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);
(d) if the Company has effected two (2) registrations pursuant to
this subsection 1.4 within the previous twelve (12) months, provided, however,
in the event the Company does not exercise best efforts to cause a registration
statement to remain effective for at least one hundred twenty (120) days, or
until the distribution is completed, whichever occurs first, then such
registration shall not be deemed effected for the purposes of the limitations of
this Section 1.4(d); or
(e) if the Company shall furnish to such 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 detrimental
to the Company and its stockholders for such registration statement to be filed
on or before the date filing would be required and it is therefore essential to
defer the filing of such registration statement, in which case the Company shall
have the right to defer such filing for a period of not more than ninety (90)
days after the furnishing of such a certificate of deferral, provided that the
Company may not defer such filing pursuant to this subsection 1.4 more than once
in any twelve (12) month period.
In the event such Initiating Holders propose to offer the shares of
Registrable Securities pursuant to this subsection 1.4 by means of an
underwriting, the proposed underwriter(s) shall be selected by a majority in
interest of the Initiating Holders and shall be reasonably acceptable to the
Company. In such event, the right of any Holder to registration pursuant to
subsection 1.4 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. 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 or underwriters. Notwithstanding any other provision
of this subsection 1.4, if the underwriter advises the Initiating Holders in
writing that marketing factors require a limitation of the number of shares to
be underwritten, the Initiating Holders shall so advise all Holders
participating in the registration, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all such Holders thereof in proportion, as
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nearly as practicable, to the respective amounts of Registrable Securities held
by such Holders. If any Holder disapproves of the terms of the underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company,
the underwriter and the Initiating Holders. Any Registrable Securities which are
excluded from the underwriting by reason of the underwriter's marketing
limitation or withdrawn from such underwriting shall be withdrawn from such
registration.
1.5 Expenses of Registration. All Registration Expenses incurred in
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connection with any registration, qualification or compliance pursuant to this
Section 1 shall be borne by the Company except as follows:
(a) The Company shall not be required to pay for Registration
Expenses of any registration proceeding begun pursuant to subsection 1.2, the
request for which has been subsequently withdrawn by the Initiating Holders, in
which latter such case, such expenses shall be borne pro rata by the Holders
requesting such withdrawal. Notwithstanding the foregoing, the Company shall be
required to pay for Registration Expenses of any registration proceeding begun
pursuant to subsection 1.2 if the request for such registration proceeding has
been withdrawn (i) by the Initiating Holders at the Company's request, (ii) due
to the occurrence of a Material Adverse Change or (iii) when the Initiating
Holders agree to forfeit one (1) other registration for which the Company would
be obligated to pay expenses.
(b) The Company shall not be required to pay fees or
disbursements of legal counsel other than the fees and disbursements of one
special counsel selected by a majority of the participating Holders.
(c) The Company shall not be required to pay Registration
Expenses for more than two (2) registrations pursuant to subsection 1.2.
(d) The Company shall not be required to pay Registration
Expenses for more than six (6) registrations pursuant to subsection 1.4.
(e) The Company shall not be required to pay underwriters' fees,
discounts or commissions relating to Registrable Securities.
1.6 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Rights
Agreement, the Company will keep each Holder participating therein advised in
writing as to the initiation of each registration, qualification and compliance
and as to the completion thereof. Except as otherwise provided in subsection
1.5, at its expense the Company will:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities (drafts of which shall be provided to the
Holders for the sole purpose of confirming the accuracy of the information
therein relating to each such Holder) and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for up to one hundred twenty (120) days.
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(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement (drafts of which shall be provided to the Holders for the
sole purpose of confirming the accuracy of the information therein relating to
each such Holder).
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act or the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
1.7 Indemnification.
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(a) The Company will indemnify each Holder of Registrable
Securities and each of its officers, directors, members and partners, and each
Person controlling any such Person, with respect to which such registration,
qualification or compliance has been effected pursuant to this Rights Agreement,
and each underwriter, broker or dealer, if any, and each Person who controls any
underwriter, broker or dealer of the Registrable Securities held by or issuable
to such Holder, against all claims, losses, expenses, damages and liabilities
(or actions in respect thereto) arising out of or based on any untrue statement
(or alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other document (including any related registration
statement, notification or the like) 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 statement therein not misleading, or any violation or alleged violation by
the Company of the Securities Act, the Securities Exchange Act of 1934, as
amended, ("Exchange Act") or any state securities law applicable to the Company
or any rule or regulation promulgated under the Securities Act, the Exchange Act
or any such state law and relating to action or inaction required of the Company
in
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connection with any such registration, qualification of compliance, and will
reimburse each such Holder, each of its officers, directors, members and
partners, and each Person controlling any such Person, each such underwriter,
broker or dealer and each Person who controls any such underwriter, broker or
dealer, within a reasonable amount of time after incurred for any reasonable
legal and any other expenses incurred in connection with investigating,
defending or settling any such claim, loss, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
1.7(a) shall not apply to amounts paid in settlement of any such claim, loss,
damage, liability, or action if such settlement is effected without the consent
of the Company (which consent shall not be unreasonably withheld); and provided,
further that the Company will not be liable in any such case to the extent that
any such claim, loss, damage or liability arises out of or is based solely on
any untrue statement or omission based upon written information furnished to the
Company by an instrument duly executed by such Holder or underwriter, broker or
dealer specifically for use therein.
(b) Each Holder will, if Registrable Securities held by or
issuable to 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, broker or dealer,
if any, of the Company's securities covered by such a registration statement,
each person who controls the Company within the meaning of the Securities Act,
and each other such Holder, each of its officers, directors, members and
partners and each Person controlling such Person, against all claims, losses,
expenses, damages and liabilities (or actions in respect thereof) 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, partners, members, Persons or underwriters, brokers or
dealers for any reasonable legal or any other expenses incurred in connection
with investigating, defending or settling 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 solely upon and in conformity with written
information furnished to the Company by the Holder in an instrument duly
executed by such Holder specifically for use therein; provided, however that the
indemnity agreement contained in this subsection 1.7(b) shall not apply to
amounts paid in settlement of any such claim, loss, damage, liability or action
if such settlement is effected without the consent of the Holder, (which consent
shall not be unreasonably withheld); and provided, further that the total amount
for which any Holder shall be liable under this subsection 1.7(b) shall not in
any event exceed the aggregate net proceeds received by such Holder from the
sale of Registrable Securities held by such Holder in such registration.
(c) Each party entitled to indemnification under this subsection
1.7 (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 such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not be unreasonably
withheld), and the
11
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
hereunder, unless such failure resulted in prejudice to the Indemnifying Party;
and provided, further that an Indemnified Party (together with all other
Indemnified Parties which may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and expenses
to be paid by the Indemnifying Party, if representation of such Indemnified
Party by the counsel retained by the Indemnifying Party would be inappropriate
due to actual or potential differing interests between such Indemnified Party
and any other party represented by such counsel in such proceeding. 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.
(d) If the indemnification provided for in this Section 1.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any losses, claims, damages or liabilities referred to
herein, the Indemnifying Party, in lieu of indemnifying such Indemnified Party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such Indemnified Party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the Indemnifying Party on the one hand and of the Indemnified
Party on the other in connection with the violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the net proceeds received from the offering by such
Holder.
(e) The obligations of the Company and Holders under this Section
1.7 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. 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.
1.8 Information by Holder. Any Holder or Holders of Registrable
---------------------
Securities included in any registration shall promptly furnish to the Company
such information regarding such Holder or Holders and the distribution proposed
by such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to herein.
1.9 Rule 144 Reporting. With a view to making available to Holders
------------------
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees at all times to:
12
(a) make and keep public information available, as those terms
are understood and defined in SEC Rule 144, beginning after the effective date
of the first registration filed by the Company for an offering of its securities
to the general public;
(b) file with the SEC 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); and
(c) so long as a Holder owns any Registrable Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time beginning after the effective date of the first registration statement
filed by the Company for an offering of its 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 so filed
by the Company as the Holder may reasonably request in complying with any rule
or regulation of the SEC allowing the Holder to sell any such securities without
registration.
1.10 Transfer of Registration Rights. Subject to Article VI of each
-------------------------------
of the LLC Operating Agreements, Holders' rights to cause the Company to
register their securities and keep information available, granted to them by the
Company under Section 1, may be assigned by any Holder upon the (i) sale or
transfer by such Holder to a transferee of any portion of the Registrable
Securities held by such Holder in excess of 500,000 Preferred Shares (as
adjusted for any Recapitalization Event), (ii) transfer of Registrable
Securities to an affiliated partnership or other entity or to an affiliate or an
associate of such Holder and (iii) transfer of any portion of the Registrable
Securities held by such Holder to any other Holder; provided, that the Company
is given written notice by such Holder at the time of or within a reasonable
time after said transfer, stating the name and address of said transferee and
identifying the securities with respect to which such registration rights are
being assigned, and further provided that said transferee shall agree to become
subject to the obligations of the transferring party hereunder.
1.11 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date hereof, the Company shall not, without the prior written consent of the
Holders of not less than a majority of the Registrable Securities held by all of
the Holders then outstanding, enter into any agreement with any holder or
prospective holder of any securities of the Company which would allow such
holder or prospective holder to demand any registration or include such
securities in any registration filed under subsections 1.2, 1.3 or 1.4 hereof if
such inclusion would adversely affect the rights of any Holder under such
subsections.
1.12 "Market Stand-Off" Agreement. Each Holder hereby agrees that,
----------------------------
during the period of duration (not to exceed one hundred eighty (180) days)
specified by the Company and an underwriter of Common Stock or other securities
of the Company following the effective date of a registration statement of the
Company filed under the Securities Act, it shall not, to the extent requested by
the Company and such underwriter, directly or indirectly sell, offer to sell,
contract to sell (including, without limitation, any short sale), grant any
option to purchase, pledge or otherwise transfer or dispose of (other than to
donees who agree to be similarly bound)
13
any securities of the Company held by it at any time during such period except
common stock included in such registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(b) such agreement shall not be required unless all executive
officers, directors and holders of 1% or more of the outstanding capital stock
of the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares of securities of every other person subject to the
foregoing restriction) until the end of such period.
1.13 Termination of Registration Rights. No Holder shall be entitled
----------------------------------
to exercise any right provided for in this Section 1 after seven (7) years
following the consummation of the sale of securities pursuant to a registration
statement filed by the Company under the Securities Act, in connection with the
initial firm commitment underwritten offering of its securities to the general
public; provided, however, that a Holder's rights provided for in this Section 1
shall terminate earlier when such Holder may sell all its shares in a three (3)
month period under Rule 144 of the Securities Act (without reference to Rule
144(k)).
2. Affirmative Covenants of the Company. The Company hereby covenants and
------------------------------------
agrees as follows:
2.1 Financial Information. The Company will furnish to each Holder
---------------------
of at least of 1,000,000 Preferred Shares (as adjusted for any Recapitalization
Event):
(i) as soon as practicable after the end of each fiscal
year, and in any event within ninety (90) days thereafter, consolidated balance
sheets of the Company and its subsidiaries, if any, as at the end of such fiscal
year, and consolidated statements of operations and consolidated statements of
changes in financial position (or equivalent cash flow statements if required by
the Financial Accounting Standards Board) of the Company and its subsidiaries,
if any, for such fiscal year, prepared in accordance with generally accepted
accounting principles, all in reasonable detail and certified by independent
public accountants of recognized national standing selected by the Company, and
(ii) as soon as practicable after the end of each month (if
requested) and each quarter (except the last month and last quarter of the
fiscal year), and in any event within thirty (30) and forty-five (45) days,
respectively, thereafter, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such month or quarter; and consolidated
statements of income (or equivalent cash flow statements if required by the
Financial Accounting Standards Board), for such month or quarter and for the
current fiscal year to date, prepared in accordance with generally accepted
accounting principles (except for required footnotes), subject to changes
resulting from year-end audit adjustments by the principal financial officer or
chief executive officer of the Company, all in reasonable detail and signed, and
14
(iii) as soon as practicable, but in no event later than
thirty (30) days prior to the commencement of such fiscal year, an annual plan
for each fiscal year which shall include monthly capital and operating expense
budgets, cash flow statements, projected balance sheets and profit and loss
projections for each such month and for the end of the year and other longer
term forecasts, itemized in such detail as the Board of Directors may reasonably
determine and certified by the Chief Financial Officer of the Company.
2.2 Inspection. The Company shall permit each Holder of Registrable
----------
Securities representing two and one-half percent (2.5%) or more of the fully
diluted Common Stock of the Company, or such Holder's representatives, at such
Holder's expense, to visit and inspect the Company's properties, to examine its
books of account and records and to discuss the Company's affairs, finances and
accounts with its officers, all at such reasonable times as may be requested by
the Holder; provided, however, that the Company shall not be obligated pursuant
to this Section 2.2 to provide access to any information which it reasonably
considers to be a trade secret or similar confidential information.
2.3 Board Observation Rights. From and after the date hereof and at
------------------------
all times throughout the term of this Agreement, the Series A-4 Holder and the
Series A-5 Holder shall each be entitled to designate one person to be an
observer at all meetings of the Company's Board of Directors or any committee
thereof (collectively, the "Board Observers"); provided, however that
notwithstanding the foregoing, if the Series A-4 Holder or Series A-5 Holder is
in Default (as defined in the Series A-4 Agreement and Series A-5 Agreement,
respectively) (the "Defaulting Holder"), the board observation rights granted in
this Section 2.3 shall terminate as to the Defaulting Holder. Each Board
Observer shall be entitled to attend all meetings of the Board of Directors or
any committee thereof and shall receive (at the same time as such materials are
sent to the members of the Board of Directors or any committee thereof) (a)
notice of all such meetings, (b) copies of all written consents and (c) copies
of all written materials.
2.4 Termination of Information Covenants and Confidentiality of
-----------------------------------------------------------
Information. The covenants of the Company set forth in subsections 2.1, 2.2 and
-----------
2.3 shall terminate and be of no further force or effect (i) upon the
consummation by the Company of a Qualified IPO, or (ii) when the Company first
becomes subject to the periodic reporting requirements of Section 12(g) or 15(d)
of the Exchange Act, whichever event shall first occur. Each Holder granted
rights under Sections 2.1, 2.2 or 2.3 (a "Qualified Holder") agrees that it will
keep confidential and will not disclose or divulge any confidential, proprietary
or secret information which such Qualified Holder may obtain from the Company,
and which the Company has prominently marked "confidential," "proprietary" or
"secret" or has otherwise identified as being such, pursuant to financial
statements, reports and other materials submitted by the Company as required
hereunder, unless (w) the disclosure of such information is required by law, (x)
such information is or becomes known to the Qualified Holder from a source other
than the Company without violation of any rights of the Company, or (y) is or
becomes publicly known, or (z) unless the Company gives its written consent to
the Qualified Holder's release of such information, except that no such written
consent shall be required (and the Qualified Holder shall be free to release
such information to such recipient) if such information is to be provided to a
Qualified Holder's counsel, accountant or consultant (and the provision of such
information is directly necessary in order for such recipient to provide
services to Qualified Holder), or to an officer, director or partner of a
Qualified Holder, provided that the Qualified Holder shall inform
15
the recipient of the confidential nature of such information, and such recipient
agrees in writing in advance of disclosure to treat the information as
confidential.
2.5 Key Person Life Insurance. The Company shall use reasonable
-------------------------
commercial efforts to procure and maintain key person life insurance policies
covering Xxxx Xxxxxx and Xxxxxxxx Xxxxxx in the amount of One Hundred Million
Dollars ($100,000,000) each and naming the Company as the beneficiary.
2.6 Acquisition Approval. The consent of at least six (6) of the
--------------------
nine (9) members of the Company's Board of Directors shall be required to
approve any acquisition with a transaction value greater than Fifty Million
Dollars ($50,000,000) or any series of acquisitions with a cumulative value
greater than One Hundred Million Dollars ($100,000,000) in a twelve (12) month
period. The consent of a majority of the members of the Company's Board of
Directors shall be required for all other acquisitions. At the first meeting of
the Company's Board of Directors following the Closing (as defined in each of
the Preferred Stock Purchase Agreements), the Board of Directors shall delegate
approval authority for acquisitions with a transaction value below a certain
value to a subcommittee of the Board of Directors. The covenant contained in
this Section 2.6 shall terminate upon the closing of the Company's first public
offering of its Common Stock pursuant to an effective registration statement
filed under the Securities Act.
2.7 Right of First Refusal on New Issuances.
---------------------------------------
(a) If, at any time prior to the termination of this right of
first refusal pursuant to Section 2.7(f), the Company should desire to issue in
a transaction not registered under the Securities Act in reliance upon a claimed
exemption thereunder, any Equity Securities (as hereinafter defined), it shall
give each Holder who continues to hold at least fifty percent (50%) of the
Preferred Shares purchased by such Holder pursuant to a Preferred Stock Purchase
Agreement (a "Qualified First Refusal Holder") the first right to purchase such
Qualified First Refusal Holder's pro rata share (or any part thereof) of all of
such privately offered Equity Securities on the same terms as the Company is
willing to sell such Equity Securities to any other person. Each Qualified First
Refusal Holder's pro rata share of the Equity Securities shall be equal to that
percentage of the outstanding Common Stock of the Company held by such Qualified
First Refusal Holder on the date hereof. For purposes of this Section 2.7, the
outstanding Common Stock of the Company shall include (i) outstanding shares of
Common Stock and (ii) shares of Common Stock issued or issuable upon conversion
of any then outstanding Preferred Stock of the Company.
(b) Prior to any sale or issuance by the Company of any Equity
Securities, the Company shall notify each Qualified First Refusal Holder in
writing of its intention to sell and issue such securities, setting forth the
terms under which it proposes to make such sale. Within thirty (30) days after
receipt of such notice, each Qualified First Refusal Holder shall notify the
Company whether such Qualified First Refusal Holder desires to exercise the
option to purchase such Qualified First Refusal Holder's pro rata share (or any
part thereof) of the Equity Securities so offered. If a Qualified First Refusal
Holder elects to purchase such Qualified First Refusal Holder's pro rata share,
then such Qualified First Refusal Holder shall have a right of over-allotment
such that if any other Qualified First Refusal Holder fails to
16
purchase such Qualified First Refusal Holder's pro rata share of the Equity
Securities the Company shall provide notice to each Qualified First Refusal
Holder of such right and any such Qualified First Refusal Holder(s) who have
elected to purchase their pro rata shares will have ten (10) days to give notice
of its intent to purchase, on a pro rata basis, that portion of the Equity
Securities which such other Qualified First Refusal Holder elected not to
purchase.
(c) After termination of the forty (40) day period specified in
Section 2.7(b) above, the Company may, during a period of sixty (60) days
following the end of such forty (40) day period, sell and issue such Equity
Securities as to which the Qualified First Refusal Holders do not indicate a
desire to purchase to another person as well as those additional shares of
Equity Securities it originally intended to issue to other persons, upon the
same terms and conditions as those set forth in the notice to the Qualified
First Refusal Holders. In the event the Company has not sold the Equity
Securities, or has not entered into an agreement to sell the Equity Securities,
within said sixty (60) day period, the Company shall not thereafter issue or
sell any Equity Securities without first offering such securities to the
Qualified First Refusal Holders in the manner provided above.
(d) If a Qualified First Refusal Holder gives the Company notice
that such Qualified First Refusal Holder desires to purchase any of the Equity
Securities offered by the Company, payment for the Equity Securities shall be by
check, or wire transfer, against delivery of the Equity Securities at the
executive offices of the Company within fifteen (15) business days after giving
the Company such notice, or, if later, the closing date for the sale of such
Equity Securities. The Company shall take all such action as may be required by
any regulatory authority in connection with the exercise by a Qualified First
Refusal Holder of the right to purchase Equity Securities as set forth in this
Section 2.7.
(e) The right of first refusal contained in this Section 2.7
shall not apply to the issuance by the Company of Equity Securities (i) issued
or granted to officers, directors employees or consultants of the Company and
its subsidiaries pursuant to any stock plans approved by the Company's Board of
Directors not in excess of 50,000,000 shares in the aggregate, (ii) issued
pursuant to transactions described in Article III Section 2(e)(1) of the
Company's Amended and Restated Certificate of Incorporation, as amended from
time to time, (iii) issued upon conversion of the Company's Preferred Stock,
(iv) convertible or exchangeable for capital stock issued (A) to the Company's
vendors or service providers, (B) in conjunction with an equipment lease
financing, debt financing, licensing or acquisition transaction that is approved
by the Company's Board of Directors or (C) to companies or entities with whom
the Company has business relationships, in any such case not to exceed in the
aggregate twenty-five percent (25%) of the then current maximum number of shares
reserved for issuance under the Company's option plan(s) or (v) issued in
connection with the conversion of shares not subject to this right of first
refusal.
(f) The right of first refusal contained in this Section 2.7
shall terminate upon the closing of a Qualified IPO.
(g) The term "Equity Securities" shall mean (i) Common Stock and
rights, options or warrants to purchase Common Stock, (ii) any security other
than Common Stock having voting rights in the election of the Board of
Directors, not contingent upon a failure
17
to pay dividends, (iii) any security convertible into or exchangeable for any of
the foregoing and (iv) any agreement or commitment to issue any of the
foregoing.
(h) A Qualified First Refusal Holder's right to purchase any
Equity Securities pursuant to this Section 2.7 may be assigned by a Qualified
First Refusal Holder to an affiliate of a Qualified First Refusal Holder. For
the purposes of this Section 2.7, an "affiliate" shall mean any person or entity
that directly or indirectly through one or more intermediaries controls or is
controlled by or is under common control with a Qualified First Refusal Holder.
2.8 Covenant of the Company. The Company covenants and agrees to
-----------------------
provide any notices given pursuant to the Company's Certificate of
Incorporation, as amended to date, to the Series A Member (as defined in the
Operating Agreements) of each Preferred Stock Holder.
3. Right of First Refusal - Preferred Stock Holders. Before any equity
------------------------------------------------
securities of the Company registered in the name of a Preferred Stock Holder may
be sold or transferred (including transfer by operation of law) other than to
members or their partners, stockholders, subsidiaries, affiliates, affiliated
partnerships or other affiliated entities, family members, family trusts or the
estates of the members of the Preferred Stock Holder or in connection with the
liquidation of a Series A Holder (provided that such permitted transferees shall
agree, as a condition of the transfer, to be bound by the provisions of this
Section 3), such shares shall first be offered to the other Preferred Stock
Holders in the following manner:
3.1 Notice. The Preferred Stock Holder intending to sell securities
------
of the Company ("Preferred Selling Party") shall first deliver a written notice
("Notice") to the other Preferred Stock Holders stating (i) the Preferred
Selling Party desires to sell or transfer such equity securities, (ii) the
number of equity securities proposed to be sold or transferred and (iii) the
price and other terms of the proposed sale or transfer.
3.2 Preferred Stock Holders Right. Within ten (10) business days
-----------------------------
after receipt of the Notice, each Preferred Stock Holder may elect to purchase
its pro rata share or any part thereof of such equity securities, on the same
terms and conditions specified in the Notice, by delivering to the Preferred
Selling Party written notice of such election. Each Preferred Stock Holder's
pro rata share of these equity securities shall be a fraction calculated by
dividing (i) the number of shares of Common Stock issued and issuable upon
exercise, conversion or exchange of all outstanding Preferred Stock held by such
Preferred Stock Holder as of the date of delivery of the Notice by (ii) the
total number of shares of Common Stock issued and issuable upon exercise,
conversion or exchange of all outstanding equity securities held by the
Preferred Stock Holders (other than the Preferred Selling Party) as of that
date.
3.3 Over-allotment. If, within ten (10) business days after receipt
--------------
of the Notice, a Preferred Stock Holder does not notify the Preferred Selling
Party that it desires to purchase its pro-rata share (or any part thereof) of
the equity securities, those Preferred Stock Holders who have elected to
purchase equity securities during the ten (10) business day period (the "Over-
allotment Purchasers") may elect to purchase those equity securities not so
purchased. The Preferred Selling Party shall provide written notice to the
Over-allotment Purchasers not later than thirty (30) days after receipt of the
Notice of the number of shares of
18
equity securities of the Preferred Selling Party available for purchase pursuant
to this over-allotment right. Each of these Over-allotment Purchasers shall have
until forty (40) days after receipt of the Notice to notify the Preferred
Selling Party in writing that it elects to purchase at least its pro rata share
or any part thereof of the equity securities so offered. Each Over-allotment
Purchaser's pro rata share of the equity securities shall be a fraction
calculated by dividing (i) the number of shares of Common Stock issued and
issuable upon exercise, conversion or exchange of all outstanding equity
securities of the Company held by the Over-allotment Purchaser as of the date of
the Notice by (ii) the total number of shares of Common Stock issued and
issuable upon exercise, conversion or exchange of all outstanding equity
securities of the Company held by all Over-allotment Purchasers as of the date
of the Notice.
3.4 Preferred Stock Holder Purchases. In the event the Preferred
--------------------------------
Stock Holders elect to acquire any of the equity securities offered pursuant to
Section 3, the Preferred Stock Holders and the Preferred Selling Party shall
complete the sale and purchase of such equity securities within sixty (60) days
after the Preferred Selling Party provides the Notice.
3.5 Selling Party Right. If all of the equity securities to which
-------------------
the Notice refers are not elected to be purchased by the Preferred Stock
Holders, the Preferred Selling Party may sell all such shares not to be so
purchased at the price and on the terms specified in the Notice, provided that
(i) such sale or transfer is consummated within one hundred fifty (150) days of
the date of the Notice, and (ii) that prior to the transfer, the transferee of
such equity securities agrees in writing (in a form satisfactory to the
Preferred Stock Holders) that such transferee shall receive and hold such
securities subject to the provisions of this Section 3.
3.6 Termination. The rights and obligations of the Preferred Stock
-----------
Holders under this Section 3 shall terminate upon (and not apply to the transfer
of shares upon) the closing of the Company's initial public offering pursuant to
an effective registration statement on Form S-1 (or a successor form) under the
Securities Act covering the offer and sale of Common Stock for the account of
the Company to the public (the "IPO").
3.7 Transfer. The right of first refusal granted hereunder to the
--------
Preferred Stock Holders may be assigned to a transferee or assignee reasonably
acceptable to the Company.
4. Voting Agreement.
----------------
4.1 Election of Certain Directors. At any annual or special meeting
-----------------------------
called, or in any other action taken, for the purpose of electing directors to
the Company's Board of Directors, the Preferred Stock Holders agree to vote all
of the shares of the Company's capital stock now or hereafter owned by them (the
"Stockholders' Shares"), whether beneficially or otherwise, so as to elect each
of the following persons as a director of the Company:
(a) two (2) nominees designated by the Series A-1 Holder, who
shall initially be Xxx Xxxxxxx and Xxx Xxxxxxx;
(b) two (2) nominees designated by the Series A-2 Holder, who
shall initially be Xxxxx Xxxxxx and Xxxxxxxxx Xxxxx, Xx.;
19
(c) one (1) nominee designated by the Series A-3 Holder, who
shall initially be Xxxx Xxxxxxxx; and
(d) one (1) nominee designated by holders of a majority of the
Company's Common Stock and holders of a majority of the Company's Preferred
Stock.
4.2 Delinquency Removal. In the event a Class A Member (as defined
-------------------
in the applicable Operating Agreement for each Preferred Stock Holder) of a
Preferred Stock Holder is Delinquent (as defined in the applicable Operating
Agreement for each Preferred Stock Holder) and such Preferred Stock Holder (the
"Delinquent Stock Holder") is entitled to nominate one or more directors to the
Company's Board of Directors pursuant to Section 4.1 hereof, then upon such
Delinquency, the director or directors nominated by the Delinquent Stock Holder
shall be removed and replaced by a director or directors appointed by the vote
of a majority of the Preferred Stock Holders.
4.3 Vacancies. Except as otherwise provided in Section 4.2 hereof,
---------
in the event of any vacancy of the directorships referenced in Section 4.1 that
is to be filled by the Preferred Stock Holders, the Preferred Stock Holders
agree to vote the Stockholders' Shares to fill such vacancy with a nominee
designated in the same manner as the person who held the directorship so
vacated.
4.4 Removal. At any annual or special meeting called where a vote is
-------
taken, or in any other action taken where a consent is sought, for the removal
of any director, the Preferred Stock Holders agree not to vote any of the
Stockholders' Shares for the removal of any director unless (a) the Preferred
Stock Holders having the right to nominate such director vote or have voted for
such removal, (b) such removal is for cause or (c) such removal is required
pursuant to Section 4.2 hereof.
4.5 Other Matters. The provisions of this Section 4 shall not extend
-------------
to voting upon questions and matters, other than the matters referenced herein,
upon which the Preferred Stock Holders have a right to vote under the Company's
Certificate of Incorporation or Bylaws, each as amended to date, or under the
laws of the State of Delaware.
4.6 Legend on Certificates. Each certificate representing shares
----------------------
held by the Preferred Stock Holders, and any assignees or transferees thereof,
shall bear the following legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A VOTING
AGREEMENT AMONG THE COMPANY, THE STOCKHOLDER AND CERTAIN OTHER PERSONS,
WHICH HAS BEEN DEPOSITED WITH THE COMPANY AT ITS PRINCIPAL OFFICE. COPIES
OF SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE SECRETARY
OF THE COMPANY.
A counterpart of this Agreement shall be deposited with the Company at its
principal office and shall be subject to the same rights of examination by a
stockholder of the Company
20
(or a proposed bona fide assignee or transferee thereof), in person or by agent
or attorney, as are the books and records of the Company.
4.7 No Liability for Election of Recommended Director. None of the
-------------------------------------------------
parties hereto and no officer, director, stockholder, partner, employee or agent
of any party makes any representation or warranty as to the fitness or
competence of the nominee of any party hereunder to serve on the Board of
Directors by virtue of such party's execution of this Agreement or by the act of
such party in voting for such nominee pursuant to this Agreement.
4.8 Manner of Voting. The voting of shares pursuant to this
----------------
Agreement may be effected in person, by proxy, by written consent or in any
other manner permitted by applicable law or the Company's Bylaws.
4.9 Grant of Proxy. Should the provisions of this Section 4 be
--------------
construed to constitute the granting of proxies, such proxies shall be deemed
coupled with an interest and are irrevocable for the term of this Agreement.
4.10 Termination. The provisions of this Section 4 shall terminate
-----------
upon the earliest to occur of any one of the following:
(a) The liquidation or dissolution of the Company;
(b) The execution by the Company of a general assignment for the
benefit of creditors, the appointment of a receiver or trustee to take
possession of the property and assets of the Company or the filing by the
Company for bankruptcy protection under Chapter 11 of the United States
Bankruptcy Code;
(c) The closing of the IPO; and
(d) The occurrence of any of the following events, provided that
the "beneficial owners" (as such terms is defined by the Exchange Act) of the
stock of the Company immediately prior thereto shall immediately thereafter own
less than fifty percent (50%) of the voting power of the surviving Person or an
entity that holds eighty percent (80%) or more of the beneficial equity interest
in such surviving Person: (i) the merger or consolidation of the Company with or
into another Person, (ii) the issuance by the Company of voting securities to
another Person, (iii) the sale, transfer or other disposition (but not including
a transfer or disposition by pledge or mortgage to a bona fide lender) of all or
substantially all of the assets of the Company or (iv) other transaction.
4.11 Bylaw Amendments; Voting. The parties hereto agree to vote their
------------------------
shares of Preferred Stock and Common Stock (a) to implement the provisions of
this Agreement and the Preferred Stock Purchase Agreements and (b) to make any
amendments to the Company's Bylaws which may be necessary to implement any of
the provisions of this Agreement and each of the Preferred Stock Purchase
Agreements.
21
5. General.
-------
5.1 Waivers and Amendments. With the written consent of the record
----------------------
or beneficial holders of at least sixty six and two-thirds percent (66K%) of the
Registrable Securities, the obligations of the Company and the rights of the
parties under this Agreement may be waived (either generally or in a particular
instance, either retroactively or prospectively, and either for a specified
period of time or indefinitely), and with the same consent the Company, when
authorized by resolution of its Board of Directors, may enter into a
supplementary agreement for the purpose of adding any provisions to or changing
in any manner or eliminating any of the provisions of this Agreement; provided,
however that notwithstanding the foregoing, Sections 2.1, 2.2 and 2.3 of this
Agreement cannot be amended without the written consent of the Series A-4
Holder; provided, further, however that no modification, amendment or waiver of
this Agreement shall adversely affect any Preferred Stock Holder in a way
different than any other Preferred Stock Holder without the first Preferred
Stock Holder's written consent; provided, further, however that no such
modification, amendment or waiver shall reduce the aforesaid percentage of
Registrable Securities without the consent of all of the Holders of the
Registrable Securities. Upon the effectuation of each such waiver, consent,
agreement of amendment or modification, the Company shall promptly give written
notice thereof to the record holders of the Registrable Securities who have not
previously consented thereto in writing.
5.2 Governing Law. This Agreement shall be governed in all respects
-------------
by the laws of the State of Delaware as such laws are applied to agreements
between Delaware residents entered into and to be performed entirely within
Delaware.
5.3 Successors and Assigns. Except as otherwise expressly 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.
5.4 Entire Agreement. Except as set forth below, 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 this Agreement shall supersede and cancel all prior
agreements between the parties hereto with regard to the subject matter hereof.
5.5 Notices, etc. All notices, requests, consents and other
------------
communications under this Agreement shall be in writing and shall be delivered
by hand or fax or sent by a nationally recognized overnight courier service with
written verification of receipt:
If to the Company, at Zhone Technologies, Inc., 0000 Xxxxxxx Xxxxxx,
Xxxxx 0000, Xxxxxxx, Xxxxxxxxxx 00000 (fax no. 000-000-0000),
Attention: President, or at such other address or addresses as may
have been furnished in writing by the Company to the Preferred Stock
Holders, with a copy to Xxxx Xxxx Xxxx & Freidenrich LLP, 000 Xxxxxxxx
Xxxxxx, Xxxx Xxxx, Xxxxxxxxxx 00000-0000 (fax no. 000-000-0000),
Attention: Xxxxxx X. Xxxxxxx, Esq.; and
22
If to a Preferred Stock Holder, at its address set forth on Exhibit A
---------
to the Series A Agreement, or at such other address or addresses as
may have been furnished to the Company in writing by such Preferred
Stock Holder.
Notices provided in accordance with this Section 5.5 shall be deemed delivered
upon actual receipt. All notices, requests, consents and other communications
under this Agreement shall also be delivered in accordance with the provisions
of this Section 5.5 to the Class A Member of each Preferred Stock Holder.
5.6 Severability. In case any provision of this Agreement shall be
------------
invalid, illegal, or unenforceable, the validity, legality and enforceability of
the remaining provisions of this Agreement shall not in any way be affected or
impaired thereby.
5.7 Titles and Subtitles. The titles of the sections and subsections
--------------------
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
5.8 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.9 Attorney's Fees. In the event that any dispute among the
---------------
Company, any or all Founders and any or all Preferred Stock Holders should
result in arbitration, the arbitrator may award to one or more of the Prevailing
Persons such reasonable attorney fees, costs and expenses, as determined by the
arbitrator. Any judgment or order enforcing such arbitration may, in the
discretion of the court entering such judgment or order, contain a specific
provision providing for the recovery of attorney fees and costs incurred in
enforcing such judgment or order and an award of prejudgment interest from the
date of the breach at the maximum rate of interest allowed by law. For the
purposes of this Section 5.9, "attorney fees" shall include, without limitation,
attorney fees incurred in arbitration, post-arbitration order or judgment
motions, contempt proceedings, garnishment, levy, and debtor and third party
examinations, discovery and bankruptcy litigation. For purposes of this Section
5.9, "Prevailing Person" shall mean any person who is determined by the
arbitrator in the proceeding to have prevailed or who prevails by dismissal,
default or otherwise.
5.10 Binding Arbitration. The Company, each Founder, each Preferred
-------------------
Stock Holder and each Class A Member of a Preferred Stock Holder agree that any
controversy or claim arising out of or relating to this Agreement, or the breach
thereof, shall be settled by binding arbitration, and judgment upon the final
award may be entered in any court having jurisdiction. The arbitration shall be
in Palo Alto, California and in accordance with the Comprehensive Arbitration
Rules and Procedures ("Rules") of the Judicial Arbitration and Mediation
Services/Endispute in San Francisco, California. Except as otherwise provided
in Section 5.9 ("Attorney's Fees") of this Agreement, all fees and expenses of
the arbitration shall be borne by the parties equally.
A single arbitrator shall be selected according to the Rules within thirty (30)
days of submission of the dispute to the arbitrator. The arbitrator shall
conduct the arbitration in accordance with the
23
California Evidence Code. The parties shall allow and participate in discovery
in accordance with the California Rules of Civil Procedure for a period of sixty
(60) days after the filing of an answer or other responsive pleading. All issues
regarding compliance with discovery requests shall be decided by the arbitrator.
Any party may seek the arbitrator's permission to take any additional deposition
which is necessary to preserve the testimony of a witness who either is, or may
become, outside the subpoena power of the arbitrator or otherwise unavailable to
testify in the arbitration.
The arbitrator shall have the power to enter any award that could be entered by
a Judge of the Superior Court of the State of California sitting without a jury,
and only such power, except that the arbitrator shall not have the power to
award punitive damages, treble damages or any other damages that do not
represent actual damages, even if permitted under the laws of the State of
California or any other applicable law.
The parties hereby agree to the Optional Appeal Procedure provided for in the
Rules. The final arbitration award may be enforced in any court having
jurisdiction over the parties and the subject matter of the arbitration.
Notwithstanding the foregoing, the Company, each Founder, each Preferred Stock
Holder and each Class A Member of a Preferred Stock Holder irrevocably submit to
the non-exclusive jurisdiction of the Superior Court of the State of California,
Santa Xxxxx County, and the United States District Court for the Northern
District of California, Branch nearest to Palo Alto, California, in any action
to enforce an arbitration award.
The Company, each Founder, each Preferred Stock Holder and each Class A Member
further agree that personal jurisdiction over it may be effected by service of
process by registered or certified mail addressed as provided in Section 5.5 of
this Agreement, and that when so made shall be as if served upon it personally
within the State of California.
[Signatures to Follow]
24
IN WITNESS WHEREOF, the parties hereby have executed this Agreement on the
date first above written.
Company:
Zhone Technologies, Inc.
By: /s/ Xxxx Xxxxxx
------------------------------------
Xxxx Xxxxxx,
Chief Executive Officer
The Founders Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print your name and sign to the
right.
Name (Please Print):
Xxxx Xxxxxx
-----------------------------------------
Signature: /s/ Xxxx Xxxxxx
------------------------------
The Founders Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print your name and sign to the
right.
Name (Please Print):
Xxxxxxxx Xxxxxx
------------------------------------------
Signature: /s/ Xxxxxxxx Xxxxxx
-------------------------------
The Founders Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print your name and sign to the
right.
Name (Please Print):
Xxxxxx X. Xxxx
------------------------------------------
Signature: /s/ Xxxxxx X. Xxxx
-------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized Zhone Investors I, L.L.C.
person sign to the right.
By: TPG Zhone L.L.C.
Manager
By: TPG Partners II, L.P.
By: TPG GENPAR II, L.P.
By: TPG ADVISORS II, INC.
By: Xxxxx Xxxxxxx
----------------------------------
Name (Please Print):
Signature: /s/ Xxxxx Xxxxxxx
--------------------------
Title: Vice President
------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS II, L.L.C.
person sign to the right.
By: /s/
---------------------------------
Manager
_____________________________________
Name (Please Print):
Signature: __________________________
Title: ______________________________
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS III, L.L.C.
person sign to the right.
By: NEW ENTERPRISE
ASSOCIATES VIII,
LIMITED PARTNERSHIP
Its: Managing Member
By: NEA Partners VIII Limited
Partnership
By: /s/ Xxxxx X. Xxxxxx
----------------------------------
Its: General Partner
Name: Xxxxx X. Xxxxxx
Signature: /s/ Xxxxx X. Xxxxxx
---------------------------
Title: _______________________________
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS IV, L.L.C.
person sign to the right.
By: PACIFIC CORPORATE INTERNATIONAL,
INC., its Manager
By: /s/ Xxxxxx Xxxxxx
---------------------------------
Name: Xxxxxx Xxxxxx
Title: Treasurer
Address:
0000 Xxxxxxxx Xxxxxx
Xx Xxxxx, Xxxxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxxx Xxxxxx
Xxxxx XxXxxxx
Xxxx Xxxx
With Copies To:
California Public Employees'
Retirement System
Lincoln Plaza
000 "X" Xxxxxx
Xxxxxxxxxx, Xxxxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxxxx X. Xxxxx
Xxxxx, Day, Xxxxxx & Xxxxx
000 Xxxx Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxxxxx, Xxxxxxxxxx 00000-0000
Fax No.: (000) 000-0000
Attention: Xxxxxx X. Brand, Esq.
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS V, L.L.C
person sign to the right.
By: Madison Dearborn Capital Partners
III, as Manager of Zhone Investors
V, L.L.C
By: Madison Dearborn Partners III, I.P.
Its General Partner
By: Madison Dearborn Partners, LLC
Its General Partner
By: Xxxxx X. Xxxxx, Xx.
-----------------------------------
Signature: /s/ Xxxxx X. Xxxxx, Xx.
----------------------------
Title: Managing Director
--------------------------------
Address:
_______________________________________
_______________________________________
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS FF, L.L.C.
person sign to the right.
By: /s/ Xxxxxx Xxxx
---------------------------------
Xxxxxx Xxxx, Manager
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS VII, L.L.C.
person sign to the right.
By: U.S. VENTURE PARTNERS VI,
L.P. as nominee for
U.S. Venture Partners VI, L.P.
USCVP VI Affiliates Fund, L.P.
2180 Associates Fund VI, L.P.
USVP Entrepreneur Partners VI,
L.P.
By: Presidio Management Group VI,
L.L.C., general partner
Xxxxxxx X. Xxxxx
-------------------------------------
Name (Please Print):
Signature: /s/ Xxxxxxx X. Xxxxx
--------------------------
Title: Attorney In Fact
------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS VIII, L.L.C.
person sign to the right.
By: Pacific Corporate
International, Inc.
Its: Manager
By: /s/ Xxxxxx Xxxxxx
---------------------------------
Name: Xxxxxx Xxxxxx
Title: Treasure
Address:
0000 Xxxxxxxx Xxxxxx
Xx Xxxxx, Xxxxxxxxxx 00000
Fax No.: (000) 000-0000
Attention: Xxxxxx Xxxxxx
Xxxxx XxXxxxx
Xxxx Xxxx
With Copies To:
Christensen, Miller, Fink, Jacobs,
Xxxxxx, Weil & Xxxxxxx, LLP
2121 Avenue of the Starts, 00xx Xxxxx
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Attention: Xxxx Xxxx, Esq.
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS IX, L.L.C.
person sign to the right.
____________________________________
Name (Please Print):
NEXUS CAPITAL PARTNERS II, L.P. Signature: /s/ X. Xxxxxxx
--------------------------
Title: General Partner
------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS X, L.L.C.
person sign to the right.
By: BancBoston Investments Inc., as
Manager of Zhone Investors X, L.L.C.
Xxxx X. Xxxxxxx
-----------------------------------------
Name (Please Print):
Signature: /s/ Xxxx X. Xxxxxxx
------------------------------
Title: Vice President
----------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS XI, L.L.C.
person sign to the right.
_______________________________________
Credit Suisse First Boston Venture Fund
I, L.P.
By: QBB Management I, L.L.C., its
general partner
Signature: /s/
-----------------------------
Title: Member
---------------------------------
Counterpart Signature Page
Zhone Technologies, Inc.
Rights Agreement
Please print the legal name of the Name of Organization:
organization and have an authorized ZHONE INVESTORS XII, L.L.C.
person sign to the right.
By: Xxxxx Ventures L.L.C.
By: Xxxxxxx X. Xxxx
Signature: /s/ Xxxxxxx X. Xxxx
--------------------------
Title: General Partner
------------------------------
