EXHIBIT 10.2
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "AGREEMENT") is made and entered
into as of this 26 day of January, 2001, by and between XXXXXXXXXX.XXX INC., a
Delaware corporation (the "COMPANY") and PLANET ZANETT CORPORATE INCUBATOR,
INC., a Delaware corporation (the "INVESTOR").
RECITALS
A. The Investor has agreed to purchase from the Company, and the
Company has agreed to sell to the Investor, Four Hundred Fifty (450) shares of
the Company's Common Stock, without par value (the "COMMON STOCK"), on the terms
and conditions set forth in that certain Common Stock Purchase Agreement, of
even date herewith, by and between the Company and the Investor (the "PURCHASE
AGREEMENT"). Capitalized terms used herein but not otherwise defined shall have
the meaning given such terms in the Purchase Agreement.
B. The Purchase Agreement provides that the Investor shall be granted
certain information, registration rights and rights of first refusal, all as
more fully set forth herein.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing recitals and the
mutual promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
1.1. FINANCIAL INFORMATION. The Company covenants and agrees that,
commencing on the date of this Agreement, for so long as the Investor holds at
least ten percent (10%) of the issued and outstanding shares of Common Stock of
the Company, the Company will:
(a) ANNUAL REPORTS. Furnish to the Investor, as soon as
practicable and in any event within sixty (60) days after the end of each fiscal
year of the Company, a Balance Sheet as of the end of such fiscal year, a
Statement of Income and a Statement of Cash Flows of the Company for such year,
setting forth in each case in comparative form the figures from the Company's
previous fiscal year (if any), all prepared in accordance with generally
accepted accounting principles and practices and audited by an independent
certified public accountant selected by the Company and acceptable to the
Investor. Draft copies of the annual Balance Sheet, Statement of Income and
Statement of Cash Flows, if any, shall be furnished to the Investor immediately
following their receipt by the Company.
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(b) QUARTERLY REPORTS. Furnish to the Investor as soon as
practicable, and in any case within thirty (30) days of the end of each fiscal
quarter of the Company (except the last quarter of the Company's fiscal year),
quarterly and year-to-date unaudited financial statements, including an
unaudited Balance Sheet, an unaudited Statement of Income and an unaudited
Statement of Cash Flows, together with a management report thereon. Management
reports shall include a budget variance analysis and a discussion and analysis
of the related financial statements.
(c) ANNUAL BUDGET AND MANAGEMENT REPORTS . Furnish to the
Investor, as soon as practicable and in any event no later than forty-five (45)
days before the close of each fiscal year of the Company, a management report
and an annual operating plan and budget, prepared on a quarterly basis, for the
next immediate fiscal year, and on a basis consistent with prior periods
(including, among other items, appropriate reserves, accruals and provisions for
income taxes). The Company shall also furnish to the Investor, within a
reasonable time of its preparation, any amendments to the annual budget that
have been prepared at the discretion of or for presentation to the Board. Such
budget shall include underlying assumptions and a qualitative description of the
Company's plan by the Chief Executive Officer, Chief Financial Officer, Chief
Accounting Officer or Controller in support of that budget.
(d) MATERIAL EVENTS. The Company will notify the
Investor, as soon as possible and in any event within ten (10) days, of (i) the
existence and status of any litigation, pending or threatened, which could, in
the event of an unfavorable outcome, have a material adverse effect upon the
financial condition or results of operations of the Company considered in the
aggregate, (ii) any material change in any material fact or circumstance
represented or warranted in this Agreement and (iii) a default or any event or
occurrence which with lapse of time or notice or both could become a default
under the Purchase Agreement. Such notice shall contain a reasonably detailed
statement outlining such default or event, and the Company's proposed response.
(e) CONFIDENTIALITY.
(i) The Investor recognizes that the
customer lists, plans, marketing methods and systems, business prospects,
pricing information, inventions, discoveries, or any secret or other proprietary
information, knowledge or data (in oral, written, or in machine- readable form)
of the Company relating to its operations are valuable, special and unique
assets of the business of the Company. Therefore, the Investor shall not, either
during the term of this Agreement or thereafter, disclose any of the Company's
lists of customers or part thereof, plans, concepts, marketing methods and
systems, business prospects, pricing information, inventions, discoveries, or
secrets or other proprietary information coming into to its possession to any
person, firm, corporation or other entity for any reason whatsoever without
advance written authorization by the Company; PROVIDED, HOWEVER, that the
Investor may, in the ordinary course of business, but subject to the prior
written approval of the Company, which written approval shall not be
unreasonably withheld, provide the financial results of the Company to third
parties in the same manner such information is provided by the Investor with
respect to its portfolio companies.
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(ii) The obligations of the Investor in
relation to confidentiality shall not apply to the extent that any information
(i) is required to be disclosed in accordance with any law, rule, regulation or
order of any court, arbitration panel, governmental, regulatory or self-
regulatory authority or audit requirement or (ii) has entered into the public
domain other than by a breach of duty on the part of the Investor. The Investor
will provide the Company with reasonable notice prior to making a disclosure of
confidential information pursuant to an order of any court, arbitration panel,
governmental, regulatory or self-regulatory authority. .
(iii) The Company expressly acknowledges
that certain information about the Company will be disclosed by the Investor, or
an affiliate thereof, in filings made pursuant to applicable law.
(f) SUBSTITUTE FINANCIALS. In the event the Company fails
to provide the reports required by SECTION 1.1, the Investor may give the
Company notice requesting immediate delivery of such reports. If the Company
fails to deliver such reports within a two-week period after receipt of such
notice from the Investor, then the Investor, shall have the right and authority,
at the Company's sole expense, to retain the services of a nationally recognized
accounting firm of its choice (the expense of which shall not exceed the usual
and customary expenses associated with the preparation of such reports), to
prepare such reports for the purpose of delivering them to the Investor. All
fees and costs associated with such actions by Investor shall be the sole
expense of the Company.
(g) OTHER INFORMATION. The Company shall provide such
other financial data and operational information as may reasonably be requested
in writing by the Investor within twenty (20) days after the later of (i) the
close of each calendar month and (ii) the date of the Investor's request. The
Company shall provide to the Investor, promptly upon request, such other
information as the Investor shall reasonably request in order for the
preparation of annual, quarterly and other reports filed by the Investor under
the Securities Act of 1933 and the Securities Exchange Act of 1934.
(h) VARIANCE REPORTS; CERTIFICATIONS. Each of the
financial statements and other reports described in this SECTION 1.1 shall be
accompanied by a report of the Chief Financial Officer, Chief Accounting Officer
or Controller of the Company explaining any material variances in such financial
statement or report from the Company's operating plan and budget for the quarter
covered and stating that such financial statement or report fairly presents the
financial position and financial results of the Company for the period covered.
(i) COMPANY'S FAILURE TO COMPLY. In the event that the
Company fails to provide any information required by this Section 1.1, it shall
reimburse the Investor for all fees and expenses of accountants incurred in the
preparation of such financial statement and management reports necessary for the
Investor to comply with its reporting requirements.
1.2. INSPECTION RIGHTS. The Company shall permit a designated
representative of the Investor, at the Investor's expense, to visit and inspect
the Company's properties, to examine its
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books of account, operational records, and reports and to discuss the business,
operations, and financial affairs of the Company with its respective officers,
upon not less than seven (7) days advance written notice thereof to the Company
and which inspection shall not disrupt the business and operations of the
Company in any material way (e.g., such inspection shall not occur
simultaneously with a new version release of the Company's product, etc.). The
Company will provide the Investor's representatives with any additional
information, opinions, certifications, and documents, in addition to those
herein mentioned, relating to the operation of the Company as may be reasonably
requested.
1.3. TERMINATION OF CERTAIN RIGHTS. The Company's obligations under
SECTIONS 1.1 and 1.2 above will terminate upon (a) the consummation of a
Qualified Public Offering (as defined in Section 5.1(c) of the Stockholders'
Agreement) or (b) a consolidation or merger of the Company with or into any
other corporation in which the holders of record of the Company's outstanding
shares of stock immediately before such consolidation or merger hold (by virtue
of securities issued as consideration in such transaction or otherwise) less
than a majority of the voting power of the surviving corporation of such
consolidation or merger, or the sale of all or substantially all of the assets
of the Company (a "CHANGE OF CONTROL EVENT"). After a Qualified Public Offering,
the Company shall provide the Investor with all reports normally provided to its
shareholders.
1.4. RULE 144A INFORMATION, PORTAL. Subject to the Investor's
compliance with the shareholders' agreement by and among the Investor, the
Company and the initial shareholders of the Company (hereinafter, the
"Shareholders' Agreement"), and provided that the Company's common stock
qualifies for designation as a PORTAL security under the rules and regulations
of the National Association of Securities Dealers, Inc. system for Private
Offerings Resales and Trading through Automated Linkages ("PORTAL"), at all
times during which the Company is neither subject to the reporting requirements
of Section 13 or 15(d) of the Securities Exchange Act of 1934, as amended (the
"EXCHANGE ACT"), nor exempt from reporting pursuant to Rule 12g3-2(b) under the
Exchange Act, provide in written form, upon the written request of the Investor,
or a prospective purchaser of securities of the Company from the Investor, all
information required by Rule 144A(d)(4)(i) of the Rules and Regulations
promulgated under the Securities Act (the "144A INFORMATION"); the Company
further agrees, upon written request, to cooperate with and assist the Investor
or any member of PORTAL in applying to designate and thereafter maintaining the
eligibility of the Company's securities for trading through PORTAL. With respect
to each, the Company's obligations under this SECTION 1.4 shall at all times be
contingent upon the Investor's obtaining from a prospective purchaser an
agreement to use its commercially reasonable efforts to safeguard the 144A
Information from disclosure to anyone other than employees of the prospective
purchaser who require access to the 144A Information for the sole purpose of
evaluating its purchase of the Company's securities.
2. REGISTRATION RIGHTS.
2.1. DEFINITIONS. For purposes of this SECTION 2.1:
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(a) REGISTRATION. The terms "REGISTER", "REGISTERED", and
"REGISTRATION" refer to a registration effected by preparing and filing a
registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
(b) REGISTRABLE SECURITIES. The term "REGISTRABLE
SECURITIES" means: (i) all the shares of Common Stock of the Company issued or
issuable upon the conversion of any shares of stock issued to the Investor that
are now owned or may hereafter be acquired by the Investor or the Investor's
permitted successors and assigns; and (ii) any shares of Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, all such shares of
Common Stock described in clause (i) of this SECTION 2.1(B), EXCLUDING in all
cases, however, any Registrable Securities sold by a person in a transaction in
which rights under this SECTION 2.1 are not assigned in accordance with this
Agreement or any Registrable Securities sold to the public or sold pursuant to
Rule 144 promulgated under the Securities Act.
(c) REGISTRABLE SECURITIES THEN OUTSTANDING. The number
of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING" shall mean the number of
shares of Common Stock which are Registrable Securities and are then (i) issued
and outstanding or (ii) issuable pursuant to the exercise or conversion of then
outstanding and then exercisable options, warrants or convertible securities.
(d) HOLDER. The term "HOLDER" means any person owning of
record Registrable Securities that have not been sold to the public or pursuant
to Rule 144 promulgated under the Securities Act or any assignee of record of
such Registrable Securities to whom rights under this SECTION 2 have been duly
assigned in accordance with this Agreement.
(e) FORM S-3. The term "FORM S-3" means such form under
the Securities Act as is in effect on the date hereof or any successor
registration form under the Securities Act subsequently adopted by the SEC which
permits inclusion or incorporation of substantial information by reference to
other documents filed by the Company with the SEC.
(f) SECURITIES ACT. The term "SECURITIES ACT" means the
Securities Act of 1933, as amended.
(g) SEC. The term "SEC" or "COMMISSION" means the U.S.
Securities and Exchange Commission.
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2.2. DEMAND REGISTRATION.
(a) REQUEST BY HOLDERS. If the Company shall receive at
any time after one hundred eighty (180) days after the effective date of the
Company's initial public offering of its securities pursuant to a registration
filed under the Securities Act, a written request from the Holders of at least a
majority of the Registrable Securities Then Outstanding that the Company file a
registration statement under the Securities Act covering the registration of
Registrable Securities pursuant to this SECTION 2.2 then the Company shall,
within ten (10) business days of the receipt of such written request, give
written notice of such request ("REQUEST NOTICE") to all Holders, and use
commercially reasonable efforts to effect, as soon as practicable, the
registration under the Securities Act of all Registrable Securities which
Holders request to be registered and included in such registration by written
notice given such Holders to the Company within twenty (20) days after receipt
of the Request Notice, subject only to the limitations of this SECTION 2.2.
(b) UNDERWRITING. If the Holders initiating the
registration request under this SECTION 2.2 ("INITIATING HOLDERS"), intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, then they shall so advise the Company as a part of their request
made pursuant to this SECTION 2.2 and the Company shall include such information
in the written notice referred to in SECTION 2.2(A). In such event, the right of
any Holder to include its Registrable Securities in such registration shall be
conditioned upon such Holder's participation in such underwriting and the
inclusion of such Holder's Registrable Securities in the underwriting (unless
otherwise mutually agreed by a majority in interest of the Initiating Holders
and such Holder) to the extent provided herein. All Holders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Company and a majority in
interest of the Initiating Holders. Notwithstanding any other provision of this
SECTION 2.2 to the contrary, if the underwriter(s) advise(s) the Company in
writing that marketing factors require a limitation of the number of securities
to be underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a PRO RATA basis according to the
number of Registrable Securities Then Outstanding held by each Holder requesting
registration (including the Initiating Holders). Any Registrable Securities
excluded and withdrawn from such underwriting shall be withdrawn from the
registration.
(c) MAXIMUM NUMBER OF DEMAND REGISTRATIONS. The Company
is obligated to effect only two (2) Demand Registrations pursuant to this
SECTION 2.2.
(d) DEFERRAL. Notwithstanding anything to the contrary
contained in the preceding subsection (c), if the Company shall furnish to
Holders requesting the filing of a registration statement pursuant to this
SECTION 2.2, a certificate signed by the President or Chief Executive Officer of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed and it is, therefore,
essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than
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120 days after receipt of the request of the Initiating Holders; PROVIDED,
HOWEVER, that the Company may not utilize this right more than once in any
twelve (12) month period.
(e) EXPENSES. All expenses incurred in connection with a
registration pursuant to this SECTION 2.2, including without limitation all
registration and qualification fees, printers' and accounting fees, fees and
disbursements of counsel for the Company and the reasonable fees and
disbursements of one counsel for the selling Holders (EXCLUDING underwriters'
discounts and commissions), shall be borne by the Company. Each Holder
participating in a registration pursuant to this SECTION 2.2 shall bear such
Holder's proportionate share (based on the total number of shares sold in such
registration other than for the account of the Company), of all discounts,
commissions or other amounts payable to underwriters or brokers in connection
with such offering. Notwithstanding the foregoing, the Company shall not be
required to pay for any expenses of any registration proceeding begun pursuant
to this SECTION 2.2 if the registration request is subsequently withdrawn at the
request of the Holders of a majority of the Registrable Securities requested to
be registered; PROVIDED HOWEVER, that if at the time of such withdrawal, the
Holders have learned of a material adverse change in the condition, business, or
prospects of the Company not known to the Holders at the time of their request
for such registration and have withdrawn their request for registration with
reasonable promptness after learning of such material adverse change, then the
Holders shall not be required to pay any of such expenses and shall retain their
rights pursuant to this SECTION 2.2.
2.3. Piggyback Registrations.
(a) REGISTRATION RIGHTS. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) days prior to
filing any registration statement under the Securities Act for purposes of
effecting a public offering of securities of the Company, including, but not
limited to, registration statements relating to secondary offerings of
securities of the Company, but specifically EXCLUDING registration statements
relating to: (i) any registration under SECTION 2.2 or SECTION 2.4 of this
Agreement; or (ii) any employee benefit plan, corporate reorganization or
acquisition or other transactions under Rule 145 of the Securities Act of 1933,
and will afford each such Holder an opportunity to include in such registration
statement all or any part of the Registrable Securities then held by such
Holder. Each Holder desiring to include in any such registration statement all
or any part of the Registrable Securities held by such Holder shall, within
twenty (20) days after receipt of the above-described notice from the Company,
so notify the Company in writing, and in such notice shall inform the Company of
the number of Registrable Securities such Holder wishes to include in such
registration statement. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
(b) UNDERWRITING. If a registration statement under which
the Company gives notice under this SECTION 2.3 is for an underwritten offering,
then the Company shall so advise the
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Holders of Registrable Securities. In such event, the right of any such Holder's
Registrable Securities to be included in a registration pursuant to this SECTION
2.3 shall be conditioned upon such Holder's participation in such underwriting
and the inclusion of such Holder's Registrable Securities in the underwriting to
the extent provided herein. All Holders proposing to distribute their
Registrable Securities through such underwriting shall enter into an
underwriting agreement in customary form with the managing underwriter or
underwriter(s) selected for such underwriting. Notwithstanding any other
provision of this Agreement, if the managing underwriter determines in good
faith that marketing factors require a limitation of the number of shares to be
underwritten, then the managing underwriter may exclude shares (including
Registrable Securities) from the registration and the underwriting, and the
number of shares that may be included in the registration and the underwriting
shall be allocated, FIRST to the Company, and SECOND to each of the Holders
("Other Holders") requesting inclusion of their Registrable Securities in such
registration statement on a PRO RATA basis based on the total number of
Registrable Securities then held by each such Holder; PROVIDED, HOWEVER, that
the right of the underwriters to exclude shares (including Registrable
Securities) from the registration and underwriting as described above shall be
restricted so that (i) the number of Registrable Securities included in any such
registration is not reduced below a reasonable percentage of the shares included
in the registration, except for a registration relating to the Company's initial
public offering from which all Registrable Securities shall be excluded; and
(ii) all shares that are not Registrable Securities and are held by persons who
are employees or directors of the Company (or any subsidiary of the Company)
shall first be excluded from such registration and underwriting before any
Registrable Securities are so excluded. If any Holder disapproves of the terms
of any such underwriting, such Holder may elect to withdraw therefrom by written
notice to the Company and the underwriter, delivered at least ten (10) business
days prior to the effective date of the registration statement. Any Registrable
Securities excluded or withdrawn from such underwriting shall be excluded and
withdrawn from the registration. For any Holder which is a partnership or
corporation, the partners, retired partners and stockholders of such Holder, or
the estates and family members of any such partners and retired partners and any
trusts for the benefit of any of the foregoing persons shall be deemed to be a
single "Holder", and any PRO RATA reduction with respect to such "Holder" shall
be based upon the aggregate amount of shares carrying registration rights owned
by all entities and individuals included in such "Holder", as defined in this
sentence.
(c) EXPENSES. All expenses incurred in connection with a
registration pursuant to this SECTION 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company and reasonable fees and
disbursements of one counsel for the selling Holders shall be borne by the
Company.
2.4. FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or Holders of at least a majority of all Registrable Securities Then
Outstanding a written request or requests that the Company effect a registration
on Form S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder or Holders, then the
Company will:
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(a) NOTICE. Promptly give written notice of the proposed
registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
(b) REGISTRATION. As soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder's or Holders' Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities of
any other Holder or Holders joining in such request as are specified in a
written request given within twenty (20) days after receipt of such written
notice from the Company; PROVIDED, HOWEVER, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this SECTION 2.4:
(i) if Form S-3 is not available for such
offering by the Holders;
(ii) If the Company shall furnish to the Holders
a certificate signed by the President or Chief Executive Officer of the Company
stating that in the good faith judgment of the Board of Directors of the
Company, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 registration to be affected at such time in which event, the
Company shall have the right to defer the filing of the Form S-3 registration
statement no more than once during any twelve (12) month period for a period of
not more than one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 2.4;
(iii) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected one (1)
registration on Form S-3 for the Holders pursuant to SECTION 2.2 OR 2.4; or
(iv) in any particular jurisdiction in which the
Company would be required to qualify to do business or to execute a general
consent to service of process in effecting such registration, qualification or
compliance.
(c) EXPENSES. Subject to the foregoing, the
Company shall file a Form S-3 registration statement covering the Registrable
Securities and other securities so requested to be registered pursuant to this
SECTION 2.4 as soon as practicable after receipt of the request or requests of
the Holders for such registration. The Company shall pay all expenses incurred
in connection with each registration requested pursuant to this SECTION 2.4,
(excluding underwriters' or brokers' discounts and commissions), including
without limitation all filing, registration and qualification, printers' and
accounting fees and the reasonable fees and disbursements of one counsel for the
selling Holder or Holders and counsel for the Company.
(d) NOT DEMAND REGISTRATION. Form S-3
registrations shall not be deemed to be a demand registration as described in
SECTION 2.2 above.
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(e) NUMBER OF FORM S-3 REGISTRATIONS. Upon
request in accordance with this SECTION 2.4, the Company is obligated to effect
one (1) such registration annually pursuant to this SECTION 2.4.
2.5. OBLIGATIONS OF THE COMPANY. Whenever required, upon request in
accordance with this SECTION 2.5, to effect the registration of any Registrable
Securities under this Agreement, the Company shall, as expeditiously and as
reasonably as possible:
(a) Prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use commercially
reasonable 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
ninety (90) days.
(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 for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of the Registrable
Securities owned by them that are included in such registration.
(d) Use commercially reasonable 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(s) 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 of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(g) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, if
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such securities are being sold through underwriters, or, if such securities are
not being sold through underwriters, on the date that the registration statement
with respect to such securities becomes effective, (i) an opinion, dated as of
such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering and reasonably satisfactory to a majority in
interest of the Holders requesting registration, addressed to the underwriters,
if any, and to the Holders requesting registration of Registrable Securities and
(ii) a "comfort" letter dated as of such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
2.6. FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to SECTIONS 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7. DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this SECTION 2.
2.8. INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under SECTIONS 2.2, 2.3 or 2.4:
(a) BY THE COMPANY. To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 ACT"), against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the
Securities Act, the 1934 Act or other federal or state law, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively a "VIOLATION"):
(i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto;
(ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or
11
(iii) any violation or alleged violation by the
Company of the Securities Act, the 1934 Act, any federal or state securities law
or any rule or regulation promulgated under the Securities Act, the 1934 Act or
any federal or state securities law in connection with the offering covered by
such registration statement; and the Company will reimburse each such Holder,
partner, officer or director, underwriter or controlling person for any legal or
other expenses reasonably incurred by them, as incurred, in connection with
investigating or defending any such loss, claim, damage, liability or action;
PROVIDED, HOWEVER, that the indemnity agreement contained in this SECTION 2.8(A)
shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with information furnished expressly
for use in connection with such registration by such Holder, partner, officer,
director, underwriter or controlling person of such Holder, including without
limitation, any information furnished by any Holder of the Company pursuant to
SECTION 2.6 hereof.
(b) BY SELLING HOLDERS . To the extent permitted by law,
each selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act (collectively "COMPANY INDEMNITEE"), against any
losses, claims, damages or liabilities (joint or several) to which the Company
or any such Company Indemnitee may become subject under the Securities Act, the
1934 Act or other federal or state law, insofar as such losses, claims, damages
or liabilities (or actions in respect thereto) arise out of or are based upon
any Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with information furnished
by such Holder expressly for use in connection with such registration; and each
such Holder will reimburse any legal or other expenses reasonably incurred by
the Company or any such Company Indemnitee in connection with investigating or
defending any such loss, claim, damage, liability or action; PROVIDED, HOWEVER,
that the indemnity agreement contained in this SECTION 2.8(B) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or action
if such settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and PROVIDED, FURTHER, that the total
amounts payable in indemnity by a Holder under this SECTION 2.8(B) in respect of
any Violation shall not exceed the gross proceeds received by such Holder in the
registered offering out of which such Violation arises.
(c) NOTICE. Promptly after receipt by an indemnified
party under this SECTION 2.8 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this SECTION
2.8, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof
12
with counsel mutually satisfactory to the parties; PROVIDED, HOWEVER, that an
indemnified party shall have the right to retain its own counsel, with the fees
and expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential conflict of interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this SECTION 2.8, but the omission
so to deliver written notice to the indemnifying party will not relieve it of
any liability that it may have to any indemnified party otherwise than under
this SECTION 2.8.
(d) DEFECT ELIMINATED IN FINAL PROSPECTUS. The foregoing
indemnity agreement of the Holders is subject to the conditions that, insofar as
it relates to: (i) any Violation made in a prospectus in which the Company is
selling securities; and (ii) any Violation made in a preliminary prospectus but
eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "FINAL
PROSPECTUS"), such indemnity agreement shall not inure to the benefit of the
Company if a copy of the Final Prospectus was furnished to the Holders and was
not furnished by the Company to the person asserting the loss, liability, claim
or damage at or prior to the time such action is required by the Securities Act.
(e) CONTRIBUTION. In order to provide for just and
equitable contribution to joint liability under the Securities Act in any case
in which either (i) any Holder exercising rights under this Agreement, or any
controlling person of any such Holder, makes a claim for indemnification
pursuant to this SECTION 2.8, but it is judicially determined (by the entry of a
final judgment or decree by a court of competent jurisdiction and the expiration
of time to appeal or the denial of the last right of appeal) that such
indemnification may not be enforced in such case notwithstanding the fact that
this SECTION 2.8 provides for indemnification in such case, or (ii) contribution
under the Securities Act may be required on the part of any such selling Holder
or any such controlling person in circumstances for which indemnification is
provided under this SECTION 2.8; then, and in each such case, the Company and
such Holder will contribute to the aggregate losses, claims, damages or
liabilities to which they may be subject (after contribution from others) in
such proportion so that such Holder is responsible for the portion represented
by the percentage that the public offering price of its Registrable Securities
offered by and sold under the registration statement bears to the public
offering price of all securities offered by and sold under such registration
statement, and the Company and other selling Holders are responsible for the
remaining portion; PROVIDED, HOWEVER, that, in any such case, (a) no such Holder
will be required to contribute any amount in excess of the public offering price
of all such Registrable Securities offered and sold by such Holder pursuant to
such registration statement; and (b) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
will be entitled to contribution from any person or entity who was not guilty of
such fraudulent misrepresentation.
13
(f) SURVIVAL. The obligations of the Company and Holders
under this SECTION 2.8 shall survive the completion of any offering of
Registrable Securities in a registration statement, and otherwise.
2.9. "LOCK-UP" AGREEMENT. Each Holder hereby agrees that it shall
not, to the extent requested by the Company or an underwriter of securities of
the Company, sell or otherwise transfer or dispose of any Registrable Securities
or other shares of stock of the Company then owned by such Holder (other than to
donees or partners of the Holder who agree to be similarly bound) for up to one
hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act; PROVIDED, HOWEVER,
that:
(a) such agreement shall be applicable only to the first
such registration statement of the Company which covers securities to be sold on
its behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all officers, directors then holding Common Stock and
all holders of more than one percent (1%) of the outstanding capital stock of
the Company enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the right to
place restrictive legends on the certificates representing the shares subject to
this Section and to impose stop transfer instructions with respect to the
Registrable Securities and such other shares of stock of each Holder (and the
shares or securities of every other person subject to the foregoing restriction)
until the end of such period.
2.10. RULE 144 REPORTING. With a view to making available the
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Registrable Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Make and keep public information available, as those
terms are understood and defined in Rule 144 under the Securities Act, at all
times after the effective date of the first registration under the Securities
Act filed by the Company for an offering of its securities to the general
public;
(b) Use commercially reasonable efforts to file with the
Commission in a timely manner all reports and other documents required of the
Company under the Securities Act and the 1934 Act (at any time after it has
become subject to such reporting requirements); and
(c) So long as a Holder owns any Registrable Securities,
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting
14
requirements of said Rule 144 (at any time after 90 days 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 1934
Act (at any time after it has become subject to the reporting requirements of
the 1934 Act), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents of the Company as a Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing a Holder to sell any such securities without registration
(at any time after the Company has become subject to the reporting requirements
of the 1934 Act).
2.11. TERMINATION OF THE COMPANY'S OBLIGATIONS. The Company shall
have no obligations pursuant to SECTIONS 2.2 through 2.4 with respect to: (a)
any request or requests for registration made by any Holder on a date more than
four (4) years after the closing date of a Qualified Public Offering; (b) any
Registrable Securities proposed to be sold by a Holder in a registration
pursuant to SECTION 2.2, 2.3 or 2.4 if, in the opinion of counsel to the
Company, all such Registrable Securities proposed to be sold by a Holder may be
sold in a three (3) month period without registration under the Securities Act
pursuant to Rule 144 under the Securities Act, or under any replacement rule
promulgated by the SEC permitting the resale of restricted securities without
the necessity of a registration statement; or (c), in connection with any
particular registration undertaken by the Company, any Holder who fails to
provide promptly the Company such information as the Company may reasonably
request at any time to enable the Company to comply with any applicable law or
regulation or to facilitate preparation and filing of said registration.
2.12. LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the Registrable Securities 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 (a) to include such securities in any registration filed under SECTION
2.2 hereof, unless under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of his securities will not reduce the amount of the
Registrable Securities of the Holders which is included, or (b) to make a demand
registration which could result in such registration statement being declared
effective prior to the earlier of either of the dates set forth in SECTION
2.2(A), or within one hundred twenty (120) days of the effective date of any
registration effected pursuant to SECTION 2.2.
3. PREEMPTIVE RIGHT.
3.1. GENERAL. Each Holder and any party to whom such Holder's
rights under this SECTION 3.1 have been duly assigned in accordance with SECTION
4.1(B) (each such Holder or assignee being hereinafter referred to as a "RIGHTS
HOLDER") shall have the right of first refusal to purchase such Rights Holder's
Pro Rata Share (as defined below), of all (or any part) of any "NEW SECURITIES"
(as defined in SECTION 3.2) that the Company may from time to time issue after
the date of this Agreement. A Rights Holder's "PRO RATA SHARE" for purposes of
this right of first refusal shall mean a fraction, the numerator of which is (a)
the number of Registrable Securities as to which such Rights
15
Holder is the Holder (or is deemed to be the Holder under SECTION 2.1(D)), and
the denominator of which is (b) the number of shares of common stock of the
Company then outstanding.
3.2. NEW SECURITIES. "NEW SECURITIES" shall mean any common stock
or preferred stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such common stock or preferred stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such common stock or preferred stock; PROVIDED, HOWEVER, that
the term "New Securities" DOES NOT INCLUDE:
(a) up to 245,000 shares of the Company's Common Stock
(or options or warrants therefor) issued to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company, and
including in such number all Warrant Securities (as defined below);
(b) any shares of Common Stock issued under the Purchase
Agreement, as such agreement may be amended;
(c) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement ("WARRANT SECURITIES"), and any securities issuable upon
the conversion of any Warrant Securities;
(d) shares of the Company's Common Stock issued in
connection with any stock split or stock dividend or similar event;
(e) securities offered by the Company to the public
pursuant to a registration statement filed under the Securities Act; or
(f) securities issued pursuant to the acquisition of
another corporation or entity by the Company by consolidation, merger, purchase
of all or substantially all of the assets, or other reorganization in which the
Company acquires, in a single transaction or series of related transactions, all
or substantially all of the assets of such other corporation or entity or
fifty-one percent (51%), or more of the voting power of such other corporation
or entity or fifty-one percent (51%), or more of the equity ownership of such
other entity, PROVIDED THAT , such acquisition was approved by (i) the Company's
Investor Director (as defined below) or (ii) by holders of a majority of the
outstanding shares of Common Stock.
3.3. PROCEDURES. In the event that the Company proposes to
undertake an issuance of New Securities, it shall give to each Rights Holder
written notice of its intention to issue New Securities (the "NOTICE"),
describing the type of New Securities and the price and the general terms upon
which the Company proposes to issue such New Securities. Each Rights Holder
shall have ten (10) days from the date of mailing of any such Notice to agree in
writing to purchase such Rights Holder's Pro Rata Share of such New Securities
for the price and upon the general terms specified in the Notice by giving
written notice to the Company and stating therein the quantity of New Securities
to be
16
purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights
Holder fails to so agree in writing within such ten (10) day period to purchase
such Rights Holder's full Pro Rata Share of an offering of New Securities (a
"NONPURCHASING HOLDER"), then such Nonpurchasing Holder shall forfeit the right
hereunder to purchase that part of his Pro Rata Share of such New Securities
that he did not so agree to purchase and the Company shall promptly give each
Rights Holder who has timely agreed to purchase his full Pro Rata Share of such
offering of New Securities (a "PURCHASING HOLDER") written notice of the failure
of any Nonpurchasing Holder to purchase such Nonpurchasing Rights Holder's full
Pro Rata Share of such offering of New Securities (the "OVERALLOTMENT NOTICE").
Each Purchasing Holder shall have a right of overallotment such that such
Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders'
unpurchased Pro Rata Shares of such offering on a pro rata basis according to
the relative Pro Rata Shares of the Purchasing Rights Holders, at any time
within five (5) days after receiving the Overallotment Notice.
3.4. FAILURE TO EXERCISE. To the extent that the Rights Holders
fail to exercise in full the right of first refusal within such ten (10) plus
five (5) day period, then the Company shall have 120 days thereafter to sell the
New Securities with respect to which the Rights Holders' rights of first refusal
hereunder were not exercised, at a price and upon general terms not materially
more favorable to the purchasers thereof than specified in the Company's Notice
to the Rights Holders. In the event that the Company has not issued and sold the
New Securities within such 120 day period, then the Company shall not thereafter
issue or sell any New Securities without again first offering such New
Securities to the Rights Holders pursuant to this SECTION 3.4.
3.5. TERMINATION. This right of first refusal shall terminate (a)
upon consummation of a Qualified Public Offering, or (b) upon a merger,
consolidation or sale of the stock or substantially all of the assets of the
Company in which the shareholders of the Company immediately prior to such
transaction do not retain a majority of voting power in the surviving entity( a
"CHANGE OF CONTROL EVENT").
4. ASSIGNMENT AND AMENDMENT.
4.1. ASSIGNMENT. Notwithstanding anything herein to the contrary:
(a) INFORMATION RIGHTS. The rights of the Investor under
SECTION 1 hereof may be assigned only to (i) a Related Party (as defined below)
or (ii) a party who acquires from the Investor (or the Investor's permitted
assigns) at least ten percent (10%) of the Common Stock then owned by the
Investor.
(b) REGISTRATION RIGHTS; PREEMPTIVE RIGHTS. The
registration rights of a Holder under SECTION 2 hereof and the preemptive rights
of a Rights Holder under SECTION 3 hereof may be assigned only to a party who
acquires at least ten percent (10%), of the Common Stock then owned by the
Investor; PROVIDED, HOWEVER, that no party may be assigned any of rights under
SECTION 4.1
17
unless the Company is given written notice by the assigning party at the time of
such assignment stating the name and address of the assignee and identifying the
securities of the Company as to which the rights in question are being assigned;
and PROVIDED, FURTHER that any such assignee shall receive such assigned rights
subject to all the terms and conditions of this Agreement, including without
limitation the provisions of this SECTION 4.1.
(c) ASSIGNMENTS BY THE INVESTOR. Notwithstanding anything
to the contrary in SECTION 4.1(B), the Investor may assign any of its rights
under this Agreement to a Related Party, provided, however, that it is
concurrent with, subsequent to or in conjunction with an assignment of Common
Stock to a Related Party. The Company expressly agrees to cooperate in effecting
any such assignment.
4.2. AMENDMENT OF RIGHTS. Any provision of this Agreement may be
amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Holders holding shares of Common Stock
representing a majority of all the Investor's Shares (as defined below) as of
the date of any proposed amendment. As used herein, the term "INVESTOR'S SHARES"
shall mean the shares of Common Stock issued under the Purchase Agreement. Any
amendment or waiver effected in accordance with this SECTION 4.2 shall be
binding upon the Investor, each Holder, each permitted successor or assignee of
the Investor or Holder and the Company.
4.3. RELATED PARTY. As used herein, the term "RELATED PARTY" with
respect to any Holder means (i) any person or entity that, directly or
indirectly, through one or more intermediaries, has voting control of, is
controlled by, or is under common voting control with, such Holder; or (ii) a
trust, corporation, partnership or other entity, the beneficiaries,
stockholders, partners or owners or persons or entities holding controlling
interest of which consist of any Holder and/or such other persons or entities
referred to in the immediately preceding clause (i); and (iii) any Holders'
current partners, stockholders or members as the case may be, pro rata in
accordance with the current distribution provision of such entities charter
documents.
5. COVENANTS OF THE COMPANY.
5.1. BOARD OF DIRECTORS; MEETINGS.
(a) So long as the Investor or its assignee holds shares
of Common Stock, the Company will use commercially reasonable efforts to cause
promptly the election to its Board of Directors and maintenance in office one
(1) person designated by the Investor (the "INVESTOR DIRECTOR"). The Company
shall cause the Board of Directors to meet at least once every fiscal quarter.
(b) SPECIAL VOTING RIGHTS. The Company shall not, without
the approval, by vote or written consent, of the Investor Director:
18
(i) amend its Certificate of Incorporation in
any manner that would alter or change any of the rights, preferences, privileges
or restrictions of the Common Stock owned by the Investor;
(ii) reclassify any outstanding shares of
securities of the Company;
(iii) authorize or issue, or obligate itself to
issue any Common Stock or other stock of the Company, or any securities
convertible into or exercisable or exchangeable for Common Stock of the Company;
(iv) merge or consolidate with or into any
corporation;
(v) sell all or substantially all the Company's
assets in a single transaction or series of related transactions;
(vi) liquidate or dissolve;
(vii) declare or pay any dividends (other than
dividends payable solely in shares of Common Stock) on or declare or make any
other distribution (other than Permitted Repurchases), directly or indirectly,
on account of any shares of Common Stock now or hereafter outstanding;
(viii) redeem or repurchase any outstanding shares
of the Company's capital stock (other than Permitted Repurchases);
(ix) adopt any annual operating or capital budget
or approve any material modifications thereto;
(x) pay any bonuses to officers, directors or
employees of the Company not contemplated in an approved annual operating and
budgets;
(xi) award stock options, stock appreciation
rights or similar employee benefits or determine vesting schedules, exercise
prices or similar features; provided that the Company shall have the right to
issue or grant such stock options, stock appreciation rights or similar employee
benefits convertible into up to an aggregate of fifteen percent (15%) of the
shares of Common Stock on a fully diluted basis;
(xii) pledge its assets or guarantee the
obligations of any other individual or entity;
(xiii) incur indebtedness (other than trade
payables) in excess of $1,000,000 in the aggregate, including (A) the execution
of any promissory note, loan agreement or other
19
agreement evidencing indebtedness, (B) drawing upon a line of credit or similar
credit facility, or (C) causing a letter of credit to be issued in the Company's
name;
(xiv) amend the Company's Bylaws to alter any
rights of the Investor Director or the holders of the Common Stock purchased by
the Investor pursuant to the Purchase Agreement or to increase the size of the
Board to more than five (5) directors;
(xv) hire, retain or amend the compensation
arrangements with new executive officers of the Company or modify or extend any
existing arrangement with current executive officers of the Company; or
(xvi) enter into a new line of business unrelated
to its contemplated core business.
5.2. MINUTES. The Company will deliver to the Investor copies of
the complete minutes of all meetings of the Company's Board of Directors
(including all committees thereof) and stockholders no later than the earlier
of: (i) thirty (30) days after any such meeting; or (ii) the next successive
board or stockholder meeting, as applicable.
5.3. ADDITIONAL BOARD MEMBERS. Any appointment or nomination of
additional directors, whether outside industry representatives or as a condition
of securing additional financing, must be acceptable to the Investor, such
approval not to be unreasonably withheld.
5.4. BOARD COMMITTEES. The Investor shall have one (1)
representative appointed to the audit and compensation committees of the Board
of Directors, each committee to consist of not more than three (3) members, if
such committees exist.
5.5. BYLAWS. The Company shall at all times cause its By-laws to
provide that, (a) unless otherwise required by the laws of the State of
Delaware, the holders of at least fifty percent (50%) of the Common Stock owned
by the Investor then outstanding shall be entitled to call a special meeting of
the Board of Directors or stockholders of the Company and (b) the number of
directors fixed in accordance therewith shall in no event conflict with any of
the terms or provisions of the Purchase Agreement. The Company shall at all
times maintain provisions in its Bylaws or Certificate of Incorporation
indemnifying all directors against liability and absolving all directors from
liability to the Company and its stockholders to the maximum extent permitted
under the laws of the State of Delaware. To the extent that such coverage is
available on commercially reasonable terms, the Company shall purchase, and at
all times maintain, directors and officers liability insurance with coverage
limits customary for similarly situated companies, but in no event less than
$2,000,000 per occurrence.
5.6. INVESTOR'S EXPENSES. Following each Closing, any reasonable
expenses incurred by the Investor or its representatives on behalf of the
Company, including reasonable expenses associated with attendance at meetings of
the Board of Directors (other than observer expenses if the
20
Investor no longer has a representative elected to the Board), trade shows or
similar meetings or events, shall be borne by the Company.
5.7. SUBSIDIARIES OR JOINT VENTURES. The Company will not, without
the prior approval of the Board of Directors, establish or invest in any
subsidiary or joint venture.
5.8. CONDUCT OF BUSINESS. The Company will duly observe and conform
to or cause to be observed or conformed to all valid requirements of all
governmental authorities relative to the conduct of the business of the Company
or to its properties or assets, the failure to observe or conform to which would
have a materially adverse effect on the business of the Company, and will
maintain and keep in full force and effect all licenses and permits necessary to
the proper conduct of the business of the Company.
5.9. PRESERVATION OF CORPORATE EXISTENCE. The Company shall
preserve and maintain its respective corporate existence, rights, franchises and
privileges in its jurisdiction of incorporation, and will qualify and remain
qualified as a foreign corporation in every jurisdiction in which such
qualification is necessary in view of the business and operations of the Company
or the ownership of their respective properties.
5.10. PERFORMANCE UNDER OTHER DOCUMENTS. The Company will promptly
pay or perform or cause to be performed all payments and obligations required of
it under the terms, agreements and covenants of the Purchase Agreement and the
Related Agreements.
5.11. PERFORMANCE OF OBLIGATIONS. The Company will promptly perform
or cause to be performed every commitment, undertaking, agreement or covenant of
the Company with any third person whether or not specifically referred to in
this Agreement, the non-performance of which could cause the acceleration of
indebtedness of the Company; PROVIDED, HOWEVER, that (unless and until
foreclosure, sale or similar proceedings have been commenced) the Company shall
have the right in good faith to contest the obligation to perform any such
commitment, undertaking, agreement or covenant.
5.12. PAYMENT OF TAXES AND ACCOUNTS. The Company will pay or cause
to be paid all taxes, assessments, and governmental charges or levies imposed
upon the Company or upon its respective income, profits, or properties before
the same shall become delinquent; PROVIDED, HOWEVER, that (unless and until
foreclosure, sale or similar proceedings have been commended) nothing herein
shall require the Company to pay or cause to be paid any such tax, assessment,
charge, levy or account so long as the validity thereof shall be contested in
good faith by appropriate proceedings and the Company has set aside on its books
and maintained adequate reserves with respect thereto.
5.13. MAINTENANCE OF PROPERTY. The Company will use commercially
reasonable efforts to maintain or cause to be maintained the real and personal
property which is required for the business of the Company in good repair,
working order and condition, and from time to time will
21
use commercially reasonable efforts to make or cause to be made all repairs,
renewals, and replacements that are necessary and proper.
5.14. INSURANCE ON PROPERTIES. The Company will maintain or cause to
be maintained insurance with reputable insurance companies on such of the
properties of the Company in such amounts and against such risks as is deemed
sufficient by the Company's management and as is satisfactory to the Investor.
The Company will furnish to the Investor, upon request, certificates signed by
the President or the Chief Financial Officer of the Company setting forth a list
of all insurance in force on the properties of the Company and containing a
general schedule of property insured, risks insured against and amount of
insurance then in force.
5.15. PROPRIETARY ASSETS. The Company shall take all steps
commercially reasonable and necessary utilizing sound business judgment to
preserve and protect, when commercially warranted, its intellectual property,
including without limitation patents, copyrights, trade secrets, trademarks,
tradenames, and service marks used in its business.
5.16. GUARANTEES. The Company shall not, without the prior approval
of the Board of Directors (including the Investor Director) at any time become a
guarantor or surety of or pledge its credit on any undertaking of a third party.
5.17. LIQUIDATION AND DISSOLUTION. The Company will not, without
the consent of either the Investor Director or the Holders of a majority of the
Registrable Securities Then Outstanding, take any action to place the Company or
any subsidiary in dissolution, liquidation, or receivership.
5.18. MATERIAL NEW BUSINESSES. The Company will not, without the
prior approval of the Board of Directors (including the Investor Director),
directly or indirectly, engage in any business inconsistent with the core "peer
to peer" technology which has been developed by the Company.
5.19. FISCAL YEAR AND ACCOUNTING METHODS. The Company will not
change its fiscal year or method of accounting (other than immaterial changes in
methods), except to the extent necessary to comply with generally accepted
accounting principles.
5.20. LOANS, ADVANCES AND INVESTMENTS. The Company will not, without
the prior approval of the Board of Directors (including the Investor Director),
directly or indirectly, make any loan or advance to, or invest in, any person
who is a stockholder, director, or officer (or a relative of any such person) of
the Company, other than advances to employees for travel and other expenses
incurred in the ordinary course of business.
5.21. PENSION REFORM ACT. The Company will not permit (a) the
funding requirements under ERISA with respect to any employee benefit plan
established or maintained by the Company or any subsidiary to be less than the
minimum required by ERISA or the regulations thereunder, or (b) any employee
benefit plan established or maintained by the Company to be subject to
involuntary termination proceedings.
22
5.22. RESTRICTIVE ASSIGNMENTS. The Company will not, without the
prior approval of the Board of Directors (including the Investor Director),
enter into or become obligated under any agreement or contract, including
(without limitation) any loan agreement, promissory note (or other evidence of
indebtedness), mortgage, security agreement, or lease, which either (a)
precludes or prevents the Investor from curing (on behalf of the Company)
defaults, breaches or failures to perform, or (b) by its terms prevents or
restricts the Company from performing its obligations under the Purchase
Agreement.
5.23. TERMINATION. The covenants in this SECTION 5 shall terminate
(a) upon consummation of a Qualified Public Offering, or (b) Change of Control
Event.
5.24. PROFESSIONAL ADVISORS. The Investor shall have the right to
approve (which shall not be unreasonably withheld or delayed) all of the
Company's professional advisors, including but not limited to, the Company's
accountants, attorneys, investment bankers and public relations consultants.
5.25. PUBLICITY.
(a) The Company has and shall retain the right to issue
press releases and make public statements of any nature concerning its business
and operations when, in its judgment, they are determined to be in the Company's
best interests and would not be in conflict with applicable law; provided,
however, that the Company shall not, without the prior written consent of the
Investor (which consent shall not be unreasonably withheld) make any press
release or public statements regarding the Investor, its relationship with the
Company or the transactions contemplated by that certain Purchase Agreement (and
the Related Agreements as defined therein) except that, notwithstanding the
foregoing, the Company may make such disclosures and filings as may be required
by applicable law without the consent of the Investor (but only to the extent
required by applicable law). The Investor shall be provided with a copy of all
press releases twenty four (24) hours prior to issuance by the Company.
(b) Subject to the confidentiality obligations of the
Investor set forth in Section 1.1 of this Agreement, the Investor shall not make
any public statements or press releases about the Company including, but not
limited to, the transactions contemplated by the Purchase Agreement (and the
Related Agreements defined therein), without the prior written consent of the
Company (which consent shall not be unreasonably withheld), except that the
Investor may make such disclosures and such governmental filings concerning the
Company as it may be required in order to comply with the applicable law (but
only to the extent required by applicable law). The Company shall be provided
with a copy of all press releases and disclosures made by the Investor
concerning the Company.
6. GENERAL PROVISIONS.
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6.1. NOTICES. Any notice, request or other communication required
or permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows:
if to the Investor, at: Planet Zanett Corporate Incubator, Inc.
000 Xxxx 00xx Xxxxxx
00xx Xxxxx
Xxx Xxxx, XX 00000
Attention: Xxxxxxx Xxxxxxxx
President
with a copy (which shall not constitute notice hereunder) to:
Klehr, Harrison, Xxxxxx, Branzburg & Xxxxxx, LLP
000 X. Xxxxx Xxxxxx
Xxxxxxxxxxxx, XX 00000
Attention: Xxxxxxx X. Xxxxxxx, Esquire
If to the Company: XxxxxXxxxx.Xxx Inc.
00 Xxxxxxxx Xxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attention: Xx. Xxxxx Xxxxxxxxxxx
President & CEO
with a copy (which shall not constitute notice hereunder) to:
Aieta & Xxxxx
00 Xxxxxx Xxxxxx, Xxxxx 000
Xxx Xxxx, XX 00000
Attention: Xxxx X. Xxxxx, Esq.
Any party hereto (and such party's permitted assigns) may by notice so
given change its address for future notices hereunder. Notice shall conclusively
be deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
6.2. ENTIRE AGREEMENT. This Agreement, together with all the
Exhibits hereto, constitutes and contains the entire agreement and understanding
of the parties with respect to the subject matter hereof and supersedes any and
all prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
6.3. GOVERNING LAW; JURISDICTION. This Agreement shall be governed
by a construed exclusively in accordance with the internal laws of the State of
Delaware, excluding that body of law
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relating to conflict of laws and choice of law. The parties consent to the
exclusive jurisdiction of Delaware in which to bring a cause of action.
6.4. SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
6.5. THIRD PARTIES. Nothing in this Agreement, express or implied,
is intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
6.6. SUCCESSORS AND ASSIGNS. Subject to the provisions of SECTION
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
6.7. CAPTIONS. The captions to sections of this Agreement have been
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
6.8. COUNTERPARTS. This Agreement may be executed in two
counterparts, each of which shall be deemed an original, but both of which
together shall constitute one and the same instrument.
6.9. COSTS AND ATTORNEYS' FEES. In the event that any action, suit
or other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
6.10. ADJUSTMENTS FOR STOCK SPLITS, ETC. Wherever in this Agreement
there is a reference to a specific number of shares of Common Stock of the
Company of any class or series, then, upon the occurrence of any subdivision,
combination or stock dividend of such class or series of stock, the specific
number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
6.11. AGGREGATION OF STOCK. All shares held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
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SIGNATURES ON FOLLOWING PAGE
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IN WITNESS WHEREOF, the parties hereto have executed this Investor
Rights Agreement as of the date and year first above written.
THE COMPANY: THE INVESTOR:
XXXXXXXXXX.XXX INC., PLANET ZANETT CORPORATE
INCUBATOR, INC.
a Delaware corporation a Delaware corporation
By: ______________________________ By:___________________________
Xxxxx Xxxxxxxxxxx Xxxxx XxXxxxxx
President & CEO Chief Operating Officer
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