EXHIBIT 10.16
INVESTOR'S RIGHTS AGREEMENT
This Investor's Rights Agreement (this "Agreement") is made and entered
into as of July 29,1999, by and between Data Return Corporation, a Texas
corporation (the "Company"), and CPQ Holdings, Inc., a Delaware corporation
("Investor").
RECITALS
A. Investor has agreed to purchase from the Company, and the Company has
agreed to sell to Investor, 4,356 shares (the "Shares") of the Company's Common
Stock pursuant to that certain Stock Purchase Agreement, dated of even date
herewith by and among the Company and Investor (the "Stock Purchase Agreement").
B. Investor has conditioned its purchase of the Shares on the Company
granting Investor certain registration and other rights, all as more fully set
forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. REGISTRATION RIGHTS.
1.1 Definitions. For purposes of this Agreement:
(a) Common Stock. The term "Common Stock" means the common stock of
the Company, par value $.001 per share.
(b) Exchange Act. The term "Exchange Act" means the Securities and
Exchange Act of 1934, as amended.
(c) Holder. For purposes hereof, the term "Holder" means any
Investor holding Registrable Securities and any transferee or assignee of
Registrable Securities to whom the rights under this Section 1 have been
transferred or assigned in accordance with Section 3 of this Agreement.
(d) Initiating Holder(s). The term "Initiating Holder(s)" means (i)
any Holders who in the aggregate are Holders of more than 50% of the Registrable
Securities or (ii) Investor.
(e) Registrable Securities. The term "Registrable Securities" means
all the Shares and any additional Common Stock or other securities issued as a
dividend or other distribution with respect to, or in exchange for, or in
replacement of or in connection with such Common Stock, that are now owned or
may hereafter be acquired by Investor or Holder, excluding in all cases,
however, any Registrable Securities (y) sold by a person in a transaction in
which rights under this Section 1 are not assigned in accordance with this
Agreement or (z) sold in a registered public offering under the Securities Act
or sold pursuant to Rule 144 promulgated under the Securities Act.
(f) 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 by the
SEC.
(g) SEC. The term "SEC" or "Commission" means the U.S. Securities
and Exchange Commission.
(h) Securities Act. The term "Securities Act" means the Securities
Act of 1933, as amended.
1.2 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least 15 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 excluding registration statements relating to any employee benefit
plan, or with respect to a corporate reorganization or other transaction under
Rule 145 promulgated under the Securities Act) 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 15 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.
If a registration statement under which the Company gives notice under
this Section 1.2 is for an underwritten offering, then the Company shall so
advise the 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 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 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. Notwith standing 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(s) may, in their sole discretion,
exclude such portion of the shares (including Registrable Securities) that it
deems necessary 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 person contractually
entitled to participate before the Holders, and third, to each of the 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. If any Holder disapproves of the
terms of any such underwriting, such Holder may elect to withdraw therefrom by
written
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notice to the Company and the underwriter. Any Registrable Securities excluded
or withdrawn from such underwriting shall be excluded and withdrawn from the
registration.
1.3 Demand Registration.
(a) If the Company shall receive at any time after the earlier of (i)
three years from the date hereof and (ii) 180 days after the effective date of
an initial public offering of its Common Stock ("IPO") a written request from
Initiating Holder(s), then the Company shall, within 20 business days of the
receipt of such written request, give written acknowledgment of such request
("Request Acknowledgment") to all Holders, and use its best efforts to effect,
as soon as practicable, the registration under the Securities Act of all
Registrable Securities then owned of record by all Holders and which such
Holders request to be registered and included in such registration by written
notice given by such Holders to the Company within 20 days after receipt of the
Request Acknowledgment; provided, however, that the Company shall not be
obligated to effect any such registration, qualification or compliance pursuant
to this Section 1.3:
(i) if the aggregate value of the Registrable Securities proposed
to be sold by such Holders in such offering is less than $1,000,000;
(ii) if such offering would (y) require disclosure of material
nonpublic information that the Board of Directors of the Company determines
in good faith would be in the best interests of the Company not to disclose
or (z) have a material adverse effect (as determined by the Board of
Directors in good faith) on the Company or its shareholders in relation to
any financing, acquisition, corporate reorganization or other material
transaction actively pursued by the Board of Directors of the Company,
involving the Company or any of its affiliates, in which event, in the
case of both (y) and (z), the Company shall have the right to defer the
filing of the registration statement no more than once during any 12-month
period for a period of not more than 120 days after receipt of the request
of such Holders under this Section 1.3 (the Company must furnish to the
Holders requesting registration a certificate signed by its Chairman of the
Board of Directors, Chief Executive Officer or Chief Financial Officer
certifying as to any such determination made by the Board of Directors);
(iii) if the request is made during the period starting with the
filing of, and ending on a date 90 days following the effective date of, a
registration statement pertaining to an underwritten public offering of
securities for the account of the Company, provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) The Company is obligated to effect only one such registration
pursuant to this Section 1.3 (which registration must be declared or
ordered effective).
(b) If Initiating Holder(s) submit a registration request under
this Section 1.3 and intend to distribute the Registrable Securities covered by
such request by means of an underwriting (an "Underwritten Offering"), then the
Initiating Holder(s) shall so advise the Company as a part of the request made
pursuant to this Section 1.3 and the Company shall
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include such information in the written notice referred to in Section 1.3(a). In
such event, the right of Investor and the other Holders to include their
Registrable Securities in such registration shall be conditioned upon such
Holders' participation in such underwriting and the inclusion of the Holders'
Registrable Securities in the underwriting to the extent provided herein. If
Investor or the other Holders propose to distribute their securities through
such underwriting, they shall enter into an underwriting agreement in customary
form with the managing underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holder(s) from a list
of three nationally-recognized underwriters proposed by the Company. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration. If the representative of such underwriters
determines in good faith that marketing factors require a limitation of the
number of shares to be underwritten and so advises Investor and the Holders in
writing, the Registrable Securities to be sold by Investor shall be the last
securities (including any other registrable securities of any other shareholder
with registration rights) to be excluded from such registration.
1.4 Obligations of the Company.
(a) Expenses.
(i) All expenses incurred in connection with a registration
pursuant to Section 1.2 including, without limitation, all registration and
qualification fees, printers' and accounting fees, fees and disbursements
of counsel for the Company, and reasonable fees and expenses of one special
counsel for the selling Holders (up to a maximum of $25,000) (but excluding
underwriters' and brokers' discounts and commissions with respect to
Registrable Securities to be sold by Holders), shall be borne by the
Company. Each Holder participating in a registration pursuant to Section
1.2 of this Agreement 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 underwriting discounts or commissions
payable to underwriters or brokers in connection with such offerings with
respect to Registrable Securities to be sold by Holders.
(ii) All expenses incurred in connection with a registration
pursuant to Section 1.3 including, without limitation, all registration and
qualification fees, printers' and accounting fees, fees and disbursements
of counsel for the Company, and fees and expenses of counsel for the
selling Holders, including underwriters' and brokers' discounts and
commissions with respect to Registrable Securities to be sold by Holders,
shall be borne by the selling Holders; provided, however, that the Company
shall pay (i) all of its accounting fees and fees and disbursements of
counsel for the Company that are, in the aggregate, greater than $250,000
and (ii) compensation to its employees. Each Holder participating in a
registration pursuant to Section 1.3 of this Agreement 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 such
expenses.
(b) Registration. Whenever required to effect the registration of
any Registrable Securities under this Agreement, the Company shall:
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(i) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause
such registration statement to become effective (provided, that the Company
shall not be required to use such efforts with respect to a registration
pursuant to Section 1.2), and, upon the request of the Holders of a
majority of the Registrable Securities registered thereunder, keep such
registration statement effective for (y) with respect to a registration
statement filed on the SEC Form S-3 or any replacement form thereof, 120
days with respect to an offering initiated by the Holders or for the period
contemplated by the plan of distribution in the case of a registration
initiated by the Company or another shareholder or until the Holders, as
applicable, have completed the distribution described in the registration
statement relating thereto, whichever first occurs and (z) with respect to
a registration statement filed on any other SEC form (including the SEC's
Form S-1 or any replacement form thereof) 60 days with respect to an
offering initiated by the Holders or for the period contemplated by the
plan of distribution in the case of a registration initiated by the Company
or another shareholder or until the Holders, as applicable, have completed
the distribution described in the registration statement relating thereto,
whichever first occurs plus any additional periods represented by any
"Black-Out Period" (as defined in the last paragraph of Section
1.4(b)(vi)).
(ii) 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.
(iii) 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.
(iv) 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.
(v) 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.
(vi) Notify each Holder, 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 contains an untrue statement of a material fact or
omits any fact required to be stated therein or necessary to
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make the statements therein not misleading, and, at the request of the
Holder, the Company will prepare a supplement or amendment to such
prospectus so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact required to be stated therein or omit to state
any fact necessary to make the statements therein not misleading, or of the
determination by the Company that a post-effective amendment to a
registration statement would be required under the Securities Act, and, at
the request of the Holder, the Company will prepare and file a post-
effective amendment to the registration statement as required under the
Securities Act; provided, however, that the Company may postpone preparing
and delivering any such prospectus supplement or amendment or preparing and
filing any post-effective amendment to a registration statement if the
Board of Directors of the Company in good faith determines that such
prospectus supplement or amendment or post-effective amendment (A) would
have a material adverse effect on any active proposal or plan by the
Company to engage in any acquisition of assets (other than in the ordinary
course) or any merger, consolidation, tender offer or similar transaction,
or (B) would require disclosure of material nonpublic information that
would be in the best interests of the Company not to disclose; provided,
that the Company shall have such right to postpone no more than once during
any 12-month period for a period of not more than 120 days. Any such
postponement under this Section shall count as a deferral under Section
1.3(a)(ii), and vice versa. The period during which the Company exercises
its rights as described in this paragraph to postpone, delay or interrupt
the offer and sale of the Registrable Securities or during the pendency of
any stop order, injunction or other order or requirement of the SEC or any
other governmental agency or court shall be referred to herein as "Black-
out Period".
(vii) 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 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, 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 such
underwriters, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
(viii) Use its best efforts to cause a "comfort" letter, dated
as of such date, from the independent certified public accountants of the
Company, to be issued in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering and reasonably satisfactory to Holders, addressed to the
underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 1.2 or 1.3
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 and such other information as
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the Company may reasonably request to timely effect the registration of their
Registrable Securities.
1.6 Indemnification. In the event any Registrable Securities are
included in a registration statement under Sections 1.2 or 1.3:
(a) By the Company. To the extent permitted by law, the Company
will defend, indemnify and hold harmless Investor and each other Holder, the
shareholders, members, managers, partners, officers and directors of Investor
and each other Holder, any underwriter (as defined in the Securities Act) for
Investor and each such other Holder and each person, if any, who controls
Investor or any such other Holder or underwriter within the meaning of the
Securities Act or the Exchange Act against any losses, claims, damages or
liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange 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
(iii) any violation or alleged violation by the Company of the
Securities Act, the Exchange Act, any federal or state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange
Act or any federal or state securities law in connection with the offering
covered by such registration statement,
and the Company will reimburse Investor and each other such Holder and such
other indemnitees 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 1.6(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 written information furnished expressly for use in connection with such
registration by such Holder, or partner, officer, director or controlling person
of such Holder.
(b) By Selling Holders. To the extent permitted by law, each selling
Holder will defend, 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 or the Exchange Act, any underwriter, each person, if any, who controls such
underwriter within the meaning of the Securities Act or the Exchange
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Act, 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 Exchange
Act, against any losses, claims, damages or liabilities (joint or several) to
which the Company or any such director, officer, underwriter or other such
Holder, partner, or director, officer or controlling person of the Company, such
underwriter or such other Holder may become subject under the Securities Act,
the Exchange Act or other federal or state securities law, insofar as such
losses, claims, damages or liabilities (or actions in respect thereof) 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
written 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 director, officer,
controlling person, underwriter or other Holder, partner, officer, director or
controlling person of such other Holder in connection with investigating or
defending any such loss, claim, damage, liability or action; provided, however,
that the indemnity agreement contained in this Section 1.6(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 and reimbursement by a Holder under this Section 1.6(b) in
respect of all Violations shall not exceed the proceeds (net of underwriters'
and brokers' discounts and commissions) received by such Holder in the
registered offering out of which such Violations arise.
(c) Notice. Promptly after receipt by an indemnified party under this
Section 1.6 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 1.6, 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 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; and provided, further,
that under no circumstances shall the indemnifying party be required to pay the
fees and expenses of more than one counsel for all indemnified parties. The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action, if materially prejudicial to its
ability to defend such action, shall relieve such indemnifying party of
liability to the extent caused by such failure to deliver written notice to the
indemnified party under this Section 1.6, 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 1.6.
(d) Contribution. If the indemnification provided in this Section 1.6
is unavailable or insufficient to hold harmless an indemnified party under
Section 1.6(a) or (b), then each indemnifying party shall contribute to the
amount paid or payable by such indemnified party as a result of the losses,
claims, damages or liabilities referred to above (i) in such proportion as
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is appropriate to reflect the relative benefits received by the indemnifying
party on the one hand and the indemnified party on the other from the offering
of the securities or (ii) if the allocation provided by clause (i) above is not
permitted by applicable law, in such proportion as is appropriate to reflect not
only the relative benefits referred to in clause (i) above but also the relative
fault of the indemnifying party on the one hand and the indemnified party on the
other in connection with the Violations that resulted in such losses, claims,
damages or liabilities, such relative fault to be determined considering, among
other items, the relative access to information and opportunity to correct or
prevent misstatements or omissions of each party, as well as any other equitable
considerations . Notwithstanding the provisions of this section, no selling
Holder shall be required to contribute any amount in excess of the amount of the
total net proceeds (net of underwriters' and brokers' discounts and commissions)
received by such Holder in the registered offering out of which the Violation
arises. No person guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) shall be entitled to contribution from any
person who is not guilty of such fraudulent misrepresentation.
(f) Survival. The obligations of the Company and selling Holders
under this Section 1.6 shall survive the completion of any offering of
Registrable Securities in a registration statement, the termination of this
Agreement and otherwise.
1.7 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
shall not, without the consent of the managing underwriter, sell, transfer,
pledge, hypothecate or otherwise transfer or dispose of any Registrable
Securities or other shares of stock of the Company then owned by such Holder
(other than those included in an applicable registration and other than to
donees or partners of the Holder who agree to be similarly bound) for up to 180
days following the effective date of a registration statement (other than a
registration statements relating to any employee benefit plan, or with respect
to a corporate reorganization or other transaction under Rule 145 promulgated
under the Securities Act )of the Company for an IPO filed under the Securities
Act; provided, however, that all officers and directors of the Company and all
holders of Common Stock (or options or other rights to acquire Common Stock)
equal to at least 1% of the Company's voting securities (on a fully-diluted
basis) 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 or entity subject to the foregoing restriction).
1.8 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, 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 or any similar or
analogous rule promulgated 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; and
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(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act (at any time after it has become subject to
such reporting requirements).
(c) So long as a Holder owns any Registrable Securities, furnish to
such Holder upon written request: a written statement by the Company as to its
compliance with the provisions of clauses (a) and (b); a copy of the most recent
annual or quarterly report of the Company; and such other reports and documents
as a Holder may reasonably request in availing itself of any rule or regulation
of the SEC allowing it to sell any such securities without registration.
1.9 Termination of the Company's Obligations. The Company shall have no
obligations pursuant to Sections 1.2 or 1.3 with respect to the Registrable
Securities of a Holder if in the reasonable written opinion of counsel to the
Company (which opinion shall also be addressed and provided to the Holders), all
Registrable Securities then owned by or issuable to such Holder (and its
affiliates, partners, former partners, members and former members) may be sold
in one three month period without registration under the Securities Act pursuant
to Rule 144 under the Securities Act (without giving effect to the provisions of
Rule 144(k)).
2. RIGHT OF FIRST REFUSAL.
2.1 General. As long as Investor or any other Holder continues to own
any Registrable Securities, Investor or such other Holder shall have the right
of first refusal to purchase Investor's then-current Pro Rata Share (as defined
below), of all (or any part) of any "New Securities" (as defined in Section 2.2)
that the Company may from time to time propose to issue after the date of this
Agreement. An Investor's "Pro Rata Share" for purposes of this right of first
refusal shall mean, at any time of determination, the ratio of (a) the number of
Registrable Securities owned by Investor to (b) that number of shares of Common
Stock of the Company then outstanding.
2.2 New Securities. "New Securities" shall mean, whether now authorized
or not, any capital stock of the Company, any rights, options or warrants to
purchase or acquire such capital stock, and securities of any type whatsoever
that are, or may become, convertible or exchangeable into such capital stock;
provided, however, that the term "New Securities" does not include:
(a) shares of Common Stock (and/or options or warrants therefor)
issued after the date of this Agreement to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to agreements or
plans approved by the Board of Directors of the Company.
(b) shares of the Company's capital stock issued in connection with
any stock split or stock dividend;
(c) securities offered by the Company to the public pursuant to its
IPO; or
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(d) securities issued for consideration other than cash 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 business combination 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 more than 50% of the voting power
of such other corporation or entity or more than 50% of the equity ownership of
such other entity.
2.3 Procedures. In the event that the Company proposes to undertake an
issuance of New Securities, it shall give to Investor 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. Investor shall have 20 days from the date of
receipt of any such Notice to agree in writing to purchase Investor'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 purchased (not to exceed such Investor's Pro
Rata Share).
2.4 Termination. This right of first refusal shall terminate upon the
earlier to occur of (i) the closing of its IPO; or (ii) (a) the acquisition of
all or substantially all the assets of the Company by another unaffiliated
entity or (b) an acquisition of the Company by an unaffiliated corporation or
person by share purchase, consolidation, merger or other business combination in
which the holders of the Company's outstanding voting stock immediately prior to
such transaction own, immediately after such transaction, securities
representing less than 50% of the voting power of the corporation or other
entity surviving such transaction pursuant to this Section 2.
3. ASSIGNMENT.
The rights to cause the Company to register Registrable Securities pursuant
to Section 1 and the rights of first refusal contained in Section 2 may be
assigned by Investor or any other Holder to a transferee or assignee of
Registrable Securities which (a) is a subsidiary, parent, general partner,
limited partner, retired partner, member or retired member of a Holder, (b) is a
Holder's family member or trust for the benefit of an individual Holder, (c) is
a Holder of any Registrable Securities or (d) acquires at least 20% of the
Registrable Securities (as adjusted for stock splits and dividends); provided,
however, (i) the transferor shall, within 10 days after such transfer, furnish
to the Company written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration or first
refusal rights are being assigned and (ii) such transferee shall agree to be
subject to all restrictions set forth in this Agreement.
4. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
4.1 Financial Information. Subject to Section 4.3, the Company will mail
the following reports to the Investor or any other Holder for so long as the
Investor or any other Holder is a Holder of any Registrable Securities:
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(a) As soon as practicable after the end of each fiscal year, and in any
event within 90 days thereafter, consolidated balance sheets of the Company and
its subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of operations and consolidated statements of cash flows of the
Company and its subsidiaries, if any, for such year prepared in accordance with
generally accepted accounting principles and setting forth in each case in
comparative form similar information for the previous fiscal year, all in
reasonable detail and audited by independent public accountants of national
standing selected by the Company's Board of Directors. Such financial
statements shall be accompanied by a report and opinion thereon from such
accountants.
(b) As soon as practicable after the end of the first, second and third
quarterly accounting periods in each fiscal year of the Company and in any event
within 45 days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such quarterly period, and
consolidated statements of operations and consolidated statements of cash flows
of the Company and its subsidiaries, if any, for such period and for the current
fiscal year to date, prepared in accordance with GAAP (other than for
accompanying notes), all in reasonable detail and certified by the principal
financial or accounting officer of the Company, subject to changes resulting
from year-end audit adjustments.
(c) Contemporaneously with their delivery to holders of the Company's
Common Stock, a copy of each report or other communication delivered to holders
of its Common Stock.
4.2 Additional Information. Subject to Section 4.3, as long as Investor
or any other Holder holds any Registrable Securities, the Company will deliver
or provide to the Investor:
(a) Within 30 days prior to the beginning of each fiscal year, an "Annual
Plan." The Annual Plan shall set forth full and complete forecasted balance
sheets, statements of operations, and statements of cash flows for such fiscal
year and for each month within that year. The Annual Plan shall also describe
the marketing, production, research and development, organization and staffing,
and financial strategies which support the Annual Plan's forecasted figures.
(b) With reasonable promptness, such other information and data with
respect to the Company and its subsidiaries, if any, as the Investor may from
time to time reasonably request.
(c) For so long as Investor or any other Holder is eligible to receive
reports under this Section 4.2, it shall also have the right, at its expense, to
visit and inspect any of the properties of the Company or any of its
subsidiaries, to examine its books of account and records, and to discuss their
affairs, finances and accounts with their officers, all at such reasonable times
as often as may be reasonably requested.
4.3 Termination of Covenants. The covenants set forth in Sections 4.1 and
4.2 shall terminate and be of no further force or effect at such time as the
Company is required to file reports pursuant to Sections 13 or 15(d) of the
Exchange Act.
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5. GENERAL PROVISIONS.
5.1 Successors and Assigns. Subject to Section3 hereof, the terms and
conditions of this Agreement shall inure to the benefit of and be binding upon
the parties hereto and the respective successors and assigns of the parties
hereto and shall inure to the benefit of and be enforceable by each person or
entity who shall be a Holder of Registrable Securities from time to time.
5.2 Third Parties. Except as set forth in Section 5.1, nothing in this
Agreement, express or implied, is intended to confer upon any person or entity,
other than the parties hereto and their successors and assigns, any rights or
remedies under or by reason of this Agreement.
5.3 Governing Law and Venue. This Agreement shall be governed by and
construed under the internal laws of the state of Texas as applied to agreements
among Texas residents entered into and to be performed entirely within Texas,
without reference to principles of conflict of laws or choice of laws. Venue of
any action arising out of this Agreement shall be had in Dallas County, Texas.
5.4 Counterparts. This Agreement may be executed in two or more
counterparts each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.5 Headings. The headings and captions used in this Agreement are used
for convenience only and are not to be considered in construing or interpreting
this Agreement. All references in this Agreement to sections, paragraphs,
exhibits and schedules shall, unless otherwise provided, refer to sections and
paragraphs hereof and exhibits and schedules attached hereto, all of which
exhibits and schedules are incorporated herein by this reference.
5.6 Notices. All notices, requests, demands or other communications
which are required or may be given pursuant to the terms of this Agreement shall
be in writing and shall be deemed to have been duly given: (i) on the date of
delivery if personally delivered by hand, (ii) upon the third day after such
notice is (a) deposited in the United States mail, if mailed by registered or
certified mail, postage prepaid, return receipt requested, or (b) sent by a
nationally recognized overnight express courier:
If to Investor: 00000 XX 000
X.X. 000000
Attention: Legal/Investments
Xxxxxxx, Xxxxx 00000
If to Company: Data Return Corporation
000 Xxxxxxx Xxxxx, Xxxxx 000
Xxxxxxxxx, Xxxxx 00000
With a copy (which shall not constitute notice) to:
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Xxxxxxxx & Xxxxxx, P.C.
000 Xxxxxx Xxxxxx, Xxxxx 0000
Xxxx Xxxxx, Xxxxx 00000
Attention: Xxxxxxx X. Xxxxxx
Such addresses may be changed, from time to time, by means of a notice given in
the manner provided in this Section 5.6.
5.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of Company and Investor. Any amendment or waiver
effected in accordance with this Section shall be binding upon the Company,
Investor, each other Holder, each successor or assignee of Investor or Holders
and the Company. No waiver of any of the provisions of this Agreement shall be
deemed to be or shall constitute a waiver of any other provisions hereof,
whether or not similar, nor shall any such waiver constitute a continuing
waiver. No waiver shall be binding unless expressed as such in a document
executed by the party making the waiver.
5.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, such provision(s) shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision(s) were so excluded and shall be enforceable in accordance with
its terms.
5.9 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties and no party shall be
liable or bound to any other party in any manner by any warranties,
representations, or covenants except as specifically set forth herein or
therein.
5.10 Indemnification. The Company will indemnify Investor and each
other Holder for any claims brought against Investor or any other Holder by any
third party (including without limitation any other shareholder of the Company),
or any other liabilities, in any case as a result of or related to the issuance
and sale by the Company of the Shares to Investor.
5.11 No Inconsistent Agreements. The Company shall not, after the
date of this Agreement, enter into any agreement with respect to any of its
securities that is inconsistent with the rights granted to Investor or the other
Holders in this Agreement or otherwise conflicts with the provisions hereof. In
furtherance but not in limitation of the preceding sentence, after the date of
this Agreement, the Company shall not, without the prior written consent of
Investor and 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 that would grant such holder registration rights
senior to those granted to Investor and Holders hereunder.
* * * *
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IN WITNESS HEREOF, the parties hereto have entered into and executed this
Agreement as of the date and year first above written.
DATA RETURN CORPORATION
By: /s/ SUNNY X. XXXXXXXXXX
--------------------------------------------
Sunny X. Xxxxxxxxxx, Chief Executive Officer
Investor:
CPQ HOLDINGS, INC.
By: /s/ X. XXXXXXXX
--------------------------------------------
Name: X. Xxxxxxxx
Title: Senior Vice President
Corporate Development
