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EXHIBIT 10.5
XXX.XXX, INC.
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
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TABLE OF CONTENTS
PAGE
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Section 1. General ..............................................................1
1.1 Amendment of Prior Agreement.............................................1
Section 2. Registration; Restrictions on Transfer................................2
2.1 Restrictions on Transfer.................................................2
2.2 Demand Registration......................................................3
2.3 Piggyback Registrations..................................................4
2.4 Form S-3 Registration....................................................5
2.5 Expenses of Registration.................................................6
2.6 Obligations of the Company...............................................7
2.7 Termination of Registration Rights.......................................8
2.8 Delay of Registration; Furnishing Information............................8
2.9 Indemnification..........................................................9
2.10 Assignment of Registration Rights.......................................11
2.11 Amendment of Registration Rights........................................11
2.12 Limitation on Subsequent Registration Rights............................11
2.13 "Market Stand-Off" Agreement............................................11
2.14 Rule 144 Reporting......................................................12
2.15 Definitions.............................................................12
Section 3. Covenants of the Company.............................................14
3.1 Basic Financial Information and Reporting...............................14
3.2 Inspection Rights.......................................................14
3.3 Confidentiality of Records..............................................14
3.4 Reservation of Common Stock.............................................15
3.5 Proprietary Information and Inventions Agreement........................15
3.6 SBIC Covenants..........................................................15
3.7 Notification of Certain Events..........................................16
3.8 Termination of Covenants................................................16
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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Section 4. Preemptive Rights....................................................16
4.1 Subsequent Offerings....................................................16
4.2 Exercise of Rights......................................................16
4.3 Issuance of Equity Securities to Other Persons..........................16
4.4 Termination of Preemptive Rights........................................17
4.5 Transfer of Preemptive Rights...........................................17
4.6 Excluded Securities.....................................................17
Section 5. Rights of First Offer and Co-Sale Rights.............................18
5.1 Definitions.............................................................18
5.2 Sales by Major Investors................................................18
5.3 Exempt Transfers........................................................21
5.4 Prohibited Transfers....................................................22
5.5 Legend..................................................................22
5.6 Transfer of Rights......................................................23
5.7 Termination of Rights...................................................23
Section 6. Miscellaneous........................................................23
6.1 Governing Law...........................................................23
6.2 Survival................................................................23
6.3 Successors and Assigns..................................................23
6.4 Entire Agreement........................................................24
6.5 Severability............................................................24
6.6 Amendment and Waiver....................................................24
6.7 Delays or Omissions.....................................................24
6.8 Notices.................................................................24
6.9 Attorneys' Fees.........................................................25
6.10 Titles and Subtitles....................................................25
6.11 Counterparts............................................................25
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XXX.XXX, INC.
SECOND AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (the
"Agreement") is entered into as of the 12th day of August, 1998, by and among
XXX.XXX, INC., a Delaware corporation (the "Company") and the holders of the
Company's Series A Preferred Stock ("Series A Stock"), Series B Preferred Stock
("Series B Stock"), Series C Preferred Stock ("Series C Stock") (the "Prior
Investors") and the purchasers of the Company's Series D Preferred Stock
("Series D Stock") (the "Additional Investors") set forth on Exhibit A hereto.
The Prior Investors and the Additional Investors shall collectively be referred
to hereinafter as the "Investors" and each individually as an "Investor."
RECITALS
WHEREAS, the Company and the Prior Investors entered into an Amended
and Restated Investor's Rights Agreement (the "Prior Rights Agreement") dated as
of October 17, 1997, as thereafter amended, pursuant to which the Company
granted such Prior Investors certain rights and such Prior Investors undertook
certain obligations with respect to their shares of the Company's capital stock.
WHEREAS, in connection with the issuance of the Series D Stock to the
Additional Investors, the Company and the Prior Investors have agreed to provide
the Additional Investors certain rights as set forth herein.
WHEREAS, the Company and the Prior Investors desire to amend and
restate the Prior Rights Agreement as set forth in this Agreement.
NOW, THEREFORE, in consideration of the mutual promises,
representations, warranties, covenants and conditions set forth in this
Agreement, the parties mutually agree as follows:
SECTION 1. GENERAL
1.1 AMENDMENT OF PRIOR AGREEMENT. Effective and contingent upon the
execution of this Agreement by the requisite Prior Investors, the Prior Rights
Agreement is hereby amended and restated as set forth herein, and the Company
and the Investors hereby agree to be bound by the provisions hereof as the sole
agreement of the Company and the Investors with respect to registration rights
of the Company's securities and certain other rights and obligations set forth
herein.
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SECTION 2. REGISTRATION; RESTRICTIONS ON TRANSFER
2.1 RESTRICTIONS ON TRANSFER.
(a) Each Holder agrees not to make any disposition of all or any
portion of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by
the terms of this Agreement, (B) such Holder shall have notified the Company of
the proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
(iii) Notwithstanding the provisions of paragraphs (i) and
(ii) above, no such registration statement or opinion of counsel shall be
necessary for a transfer by a Holder which is (A) a partnership to its partners
or former partners in accordance with partnership interests, (B) a corporation
to its stockholders in accordance with their interest in the corporation, (C) a
limited liability company to its members or former members in accordance with
their interest in the limited liability company, or (D) to the Holder's family
member or trust for the benefit of an individual Holder; provided that in each
case the transferee will be subject to the terms of this Agreement to the same
extent as if he were an original Holder hereunder.
(b) Each certificate representing Shares or Registrable
Securities shall (unless otherwise permitted by the provisions of the Agreement)
be stamped or otherwise imprinted with a legend substantially similar to the
following (in addition to any legend required under applicable state securities
laws or as provided elsewhere in this Agreement):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE "ACT") AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
(c) The Company shall be obligated to reissue promptly unlegended
certificates at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company
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to the effect that the securities proposed to be disposed of may lawfully be so
disposed of without registration, qualification or legend.
(d) Any legend endorsed on an instrument pursuant to applicable
state securities laws and the stop-transfer instructions with respect to such
securities shall be removed upon receipt by the Company of an order of the
appropriate blue sky authority authorizing such removal.
2.2 DEMAND REGISTRATION.
(a) Subject to the conditions of this Section 2.2, if the Company
shall receive a written request from the Holders of more than fifty percent
(50%) of the Registrable Securities then outstanding (the "Initiating Holders")
that the Company file a registration statement under the Securities Act covering
the registration of Registrable Securities having an aggregate offering price to
the public in excess of Ten Million Dollars ($10,000,000), then the Company
shall, within thirty (30) days of the receipt thereof, give written notice of
such request to all Holders, and subject to the limitations of this Section 2.2,
use its best efforts to effect, as soon as practicable, the registration under
the Securities Act of all Registrable Securities that the Holders request to be
registered.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
this Section 2.2 or any request pursuant to Section 2.4 and the Company shall
include such information in the written notice referred to in Section 2.2(a) or
Section 2.4(a), as applicable. 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 underwriter or underwriters selected for such underwriting by a
majority in interest of the Initiating Holders (which underwriter or
underwriters shall be reasonably acceptable to the Company). Notwithstanding any
other provision of this Section 2.2 or Section 2.4, if the underwriter advises
the Company that marketing factors require a limitation of the number of
securities to be underwritten (including Registrable Securities) then the
Company shall so advise all Holders of Registrable Securities which would
otherwise be underwritten pursuant hereto, and the number of shares that may be
included in the underwriting shall be allocated to the Holders of such
Registrable Securities on a pro rata basis based on the number of Registrable
Securities held by all such Holders (including the Initiating Holders). Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
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(c) The Company shall not be required to effect a registration
pursuant to this Section 2.2:
(i) prior to the earlier of (A) October 17, 2002 and (B) the
date one hundred eighty (180) days following the closing of the Initial
Offering; or
(ii) after the Company has effected two (2) registrations
pursuant to this Section 2.2, and such registrations have been declared or
ordered effective, provided that no registration shall be deemed to be effective
unless at least seventy percent (70%) of the Registrable Securities requested to
be registered by the persons exercising such demand right are included in such
registration; or
(iii) during the period starting with the date of filing of,
and ending on the date one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering; provided
that the Company makes reasonable good faith efforts to cause such registration
statement to become effective;
(iv) if within thirty (30) days of receipt of a written
request from Initiating Holders pursuant to Section 2.2(a), the Company gives
notice to the Holders of the Company's intention to make its Initial Offering
within ninety (90) days; or
(v) if the Company shall furnish to Holders requesting a
registration statement pursuant to this Section 2.2, a certificate signed by the
Chairman of the Board 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 effected at such time, in
which event the Company shall have the right to defer such filing for a period
of not more than one hundred twenty (120) days after receipt of the request of
the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12) month period.
2.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities in writing at least thirty (30) days prior to the filing
of any registration statement under the Securities Act for purposes of 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 employee benefit
plans or with respect to corporate reorganizations or other transactions under
Rule 145 of the Securities Act) and will afford each such Holder an opportunity
to include in such registration statement all or part of such Registrable
Securities held by such Holder. Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
shall, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. Such notice shall state the intended
method of disposition of the Registrable Securities by such Holder. 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
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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.
(a) UNDERWRITING. If the registration statement under which the
Company gives notice under this Section 2.3 is for an underwritten offering, the
Company shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder 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 underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of the Agreement, if the underwriter determines in good faith that
marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting
shall be allocated, first, to the Company; second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders;
and third, to any stockholder of the Company (other than a Holder) on a pro rata
basis. No such reduction shall (i) reduce the securities being offered by the
Company for its own account to be included in the registration and underwriting,
or (ii) reduce the amount of securities of the selling Holders included in the
registration below twenty-five percent (25%) of the total amount of securities
included in such registration, unless such offering is the Initial Offering and
such registration does not include shares of any other selling stockholders, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. In no event will
shares of any other selling stockholder be included in such registration which
would reduce the number of shares which may be included by Holders without the
written consent of Holders of not less than two-thirds (66 2/3%) of the
Registrable Securities proposed to be sold in the offering.
(b) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The Registration
Expenses of such withdrawn registration shall be borne by the Company in
accordance with Section 2.5 hereof.
2.4 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders of Registrable Securities a written request or requests that
the Company effect a registration on Form S-3 (or any successor to Form S-3) or
any similar short-form registration statement and any related qualification or
compliance with respect to all or a part of the Registrable Securities owned by
such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(b) 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
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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 fifteen (15) 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 (or any successor or similar form) is not
available for such offering by the Holders, or
(ii) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such registration, propose to
sell Registrable Securities and such other securities (if any) at an aggregate
price to the public of less than Five Hundred Thousand Dollars ($500,000), or
(iii) if the Company shall furnish to the Holders a
certificate signed by the Chairman of the Board of Directors 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 effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement 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;
provided, that such right to delay a request shall be exercised by the Company
not more than once in any twelve (12) month period, or
(iv) if the Company has, within the six (6) month period
preceding the date of such request, already effected a registration on Form S-3
for the Holders pursuant to this Section 2.4, or
(v) 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) 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 as soon as practicable after receipt of the
request or requests of the Holders.
2.5 EXPENSES OF REGISTRATION. Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered. The Company shall not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 2.2 or
2.4, the request of which has been subsequently withdrawn by the Initiating
Holders unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable Securities
agree
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to forfeit their right to one requested registration pursuant to Section 2.2, in
which event such right shall be forfeited by all Holders). If the Holders are
required to pay the Registration Expenses, such expenses shall be borne by the
holders of securities (including Registrable Securities) requesting such
registration in proportion to the number of shares for which registration was
requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or Section 2.4 to a demand
registration.
2.6 OBLIGATIONS OF THE COMPANY. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all 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 or, if earlier,
until the Holder or Holders have completed the distribution related thereto.
(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.
(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 Registrable Securities owned by them.
(d) Use all 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.
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(g) Furnish, at the request of a majority of the Holders
participating in the registration, 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, (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 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 if permitted by
applicable accounting standards, to the Holders requesting registration of
Registrable Securities.
2.7 TERMINATION OF REGISTRATION RIGHTS. All registration rights
granted under this Section 2 shall terminate and be of no further force and
effect five (5) years after the date of the Qualified Public Offering. In
addition, a Holder's registration rights shall expire if (i) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act, (ii) such Holder (together with its affiliates, partners and former
partners) holds less than 1% of the Company's outstanding Common Stock (treating
all share of convertible Preferred Stock on an as converted basis) and (iii) all
Registrable Securities held by and issuable to such Holder (and its affiliates,
partners and former partners) may be sold under Rule 144 during any ninety (90)
day period.
2.8 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(a) 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.
(b) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to Section 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 effect the registration of their
Registrable Securities.
(c) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.2 or Section 2.4 if, due to the
operation of subsection 2.2(b), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 2.2 or Section 2.4,
whichever is applicable.
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2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, the partners, officers, directors and legal
counsel 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 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") by the Company: (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 state securities law or any rule or regulation promulgated
under the Securities Act, the Exchange Act or any 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 in connection with investigating or defending any such loss,
claim, damage, liability or action; provided however, that the indemnity
agreement contained in this Section 2.9(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, partner, officer, director, underwriter
or controlling person of such Holder.
(b) To the extent permitted by law, each Holder will, if
Registrable Securities held by such Holder are included in the securities as to
which such registration qualifications or compliance is being effected,
indemnify and hold harmless the Company, each of its directors, its officers,
and legal counsel and 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, against
any losses, claims, damages or liabilities (joint or several) to which the
Company or any such director, officer, controlling person, underwriter or other
such Holder, or partner, director, officer or controlling person of such other
Holder 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 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 written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably
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incurred by the Company or any such director, officer, controlling person,
underwriter or other Holder, or partner, officer, director or controlling person
of such other Holder in connection with investigating or defending any such
loss, claim, damage, liability or action if it is judicially determined that
there was such a Violation; provided, however, that the indemnity agreement
contained in this Section 2.9(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; provided further, that in no event shall any indemnity
under this Section 2.9 exceed the gross proceeds from the offering received by
such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 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 2.9, 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 differing 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 materially prejudicial to its ability to
defend such action, shall relieve such indemnifying party of any liability to
the indemnified party under this Section 2.9, 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 2.9.
(d) If the indemnification provided for in this Section 2.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any losses, claims, damages or liabilities referred to
herein, the indemnifying party, in lieu of indemnifying such indemnified party
thereunder, shall to the extent permitted by applicable law contribute to the
amount paid or payable by such indemnified party as a result of such loss,
claim, damage or liability in such proportion as is appropriate to reflect the
relative fault of the indemnifying party on the one hand and of the indemnified
party on the other in connection with the Violation(s) that resulted in such
loss, claim, damage or liability, as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by a court of law by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided, that in no event shall any contribution by a
Holder hereunder exceed the proceeds from the offering received by such Holder.
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(e) The obligations of the Company and Holders under this Section
2.9 shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 2 may be
assigned by a Holder to a transferee or assignee of Registrable Securities which
(i) is a subsidiary, parent, general partner, limited partner, retired partner,
member or retired member of a Holder, (ii) is a Holder's family member or trust
for the benefit of an individual Holder, or (iii) acquires at least two hundred
fifty thousand (250,000) shares of Registrable Securities (as adjusted for stock
splits and combinations); provided, however, (A) the transferor shall, within
ten (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 rights are being assigned and (B) such transferee
shall agree to be subject to all restrictions set forth in this Agreement.
2.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 2
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 the Holders of at least seventy percent (70%)
of the Registrable Securities then outstanding. Any amendment or waiver effected
in accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of
this Agreement, the Company shall not, without the prior written consent of the
Holders of at least seventy percent (70%) 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 the Holders hereunder.
2.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that such
Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the representative of the
underwriters of Common Stock (or other securities) of the Company not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act, provided that:
(i) such agreement shall apply only to the Company's Initial
Offering; and
(ii) all officers and directors of the Company and holders of
at least one percent (1%) of the Company's voting securities enter into similar
agreements.
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Each Holder agrees to execute and deliver such other agreements as may
be reasonably requested by the Company or the underwriter which are consistent
with the foregoing or which are necessary to give further effect thereto. The
obligations described in this Section 2.13 shall not apply to a registration
relating solely to employee benefit plans on Form S-1 or Form S-8 or similar
forms that may be promulgated in the future, or a registration relating solely
to a Commission Rule 145 transaction on Form S-4 or similar forms that may be
promulgated in the future. The Company may impose stop-transfer instructions
with respect to the shares of Common Stock (or other securities) subject to the
foregoing restriction until the end of said one hundred eighty (180) day period.
2.14 RULE 144 REPORTING. With a view to making available to the
Holders the benefits of certain rules and regulations of the SEC which may
permit the sale of the Registrable Securities to the public without
registration, the Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an offering of its securities to
the general public;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the Exchange Act;
(c) So long as a Holder owns any Registrable Securities, furnish
to such Holder forthwith upon request: a written statement by the Company as to
its compliance with the reporting requirements of said Rule 144 of the
Securities Act, and of the Exchange Act (at any time after it has become subject
to such reporting requirements); a copy of the most recent annual or quarterly
report of the Company; and such other reports and documents 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.
2.15 DEFINITIONS. As used in this Agreement the following terms shall
have the following respective meanings:
"EXCHANGE ACT" means the Securities Exchange Act of 1934, as
amended.
"FORM S-3" means such form under the Securities Act as 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.
"HOLDER" means any person owning of record Registrable
Securities that have not been sold to the public or any assignee of record of
such Registrable Securities in accordance with Section 2.10 hereof.
"INITIAL OFFERING" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
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"QUALIFIED PUBLIC OFFERING" means a firmly underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company in which (i) the per share price is at least one hundred
fifty percent (150%) of the then applicable price at which the Series D
Preferred Stock converts into Common Stock pursuant to the terms of the
Company's Restated Certificate of Incorporation and (ii) the gross cash proceeds
to the Company (before underwriting discounts, commissions and fees) are at
least $20,000,000.
"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 or document.
"REGISTRABLE SECURITIES" means (i) Common Stock of the Company
issued or issuable upon conversion of the Shares; (ii) for purposes of Section 2
only, Common Stock of the Company issued or issuable upon exercise of that
certain warrant issued to BT Alex. Xxxxx Incorporated on or about August 11,
1998 and (iii) any 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, such above-described securities. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned.
"REGISTRABLE SECURITIES THEN OUTSTANDING" shall be the number of
shares determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (1) are then issued and
outstanding or (2) are issuable pursuant to then exercisable or convertible
securities.
"REGISTRATION EXPENSES" means all expenses incurred by the
Company in complying with Sections 2.2, 2.3 and 2.4 hereof, including, without
limitation, all registration and filing fees, printing expenses, fees and
disbursements of counsel for the Company, reasonable fees and disbursements not
to exceed Twenty-Five Thousand Dollars ($25,000) of a single special counsel for
the Holders, blue sky fees and expenses and the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company which shall be paid in any event by the
Company).
"SEC" OR "COMMISSION" means the Securities and Exchange
Commission.
"SECURITIES ACT" means the Securities Act of 1933, as amended.
"SELLING EXPENSES" means all underwriting discounts and selling
commissions applicable to the sale.
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"SHARES" means the Company's Common Stock, Series A Stock, Series
B Stock, Series C Stock and Series D Stock held by the Investors listed on
Exhibit A hereto and their permitted assigns.
SECTION 3. COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(a) The Company will furnish each Investor, as soon as
practicable after the end of each fiscal year of the Company, and in any event
within one hundred twenty (120) days thereafter, a consolidated balance sheet of
the Company, as at the end of such fiscal year, and a consolidated statement of
income and a consolidated statement of cash flows of the Company, for such year,
all prepared in accordance with generally accepted accounting principles
consistently applied. Such financial statements shall be accompanied by a report
and opinion thereon by independent public accountants selected by the Company's
Board of Directors.
(b) The Company will furnish each Investor, 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 forty-five
(45) days thereafter, a consolidated balance sheet of the Company as of the end
of each such quarterly period, and a consolidated statement of income and a
consolidated statement of cash flows of the Company for such period and for the
current fiscal year to date.
(c) The rights granted under this Section 3.1 may be assigned or
transferred by an Investor to an assignee or transferee which (i) is a
subsidiary, parent, general partner, limited partner or retired partner of such
Investor, (ii) is an Investor's family member or trust for the benefit of an
individual Investor or (iii) acquires at least two hundred fifty thousand
(250,000) shares of Registrable Securities (as adjusted for stock splits and
combinations).
3.2 INSPECTION RIGHTS. Each holder of at least (i) 105,000 shares of
Series A Stock, (ii) 87,800 shares of Series B Stock, (iii) 73,600 shares of
Series C Stock or (iv) 33,900 shares of Series D Stock (each a "Major Investor),
and all other holders of Series D Stock, shall have the right to visit and
inspect any of the properties of the Company or any of its subsidiaries, and to
discuss the affairs, finances and accounts of the Company or any of its
subsidiaries with its officers, and to review such information as is reasonably
requested all at such reasonable times and as often as may be reasonably
requested; provided, however, that the Company shall not be obligated under this
Section 3.2 with respect to a competitor of the Company or with respect to
information which the Board of Directors determines in good faith is
confidential and should not, therefore, be disclosed.
3.3 CONFIDENTIALITY OF RECORDS. Each Investor agrees to use, and to
use its best efforts to insure that its authorized representatives use, the same
degree of care as such Investor uses to protect its own confidential information
to keep confidential any information furnished to it which the Company
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Investor may disclose such
proprietary or
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confidential information to any partner, subsidiary or parent of such Investor
for the purpose of evaluating its investment in the Company as long as such
partner, subsidiary or parent is advised of the confidentiality provisions of
this Section 3.3.
3.4 RESERVATION OF COMMON STOCK. The Company will at all times
reserve and keep available, solely for issuance and delivery upon the conversion
of the Series A Stock, Series B Stock, Series C Stock and Series D Stock, all
Common Stock issuable from time to time upon such conversion.
3.5 PROPRIETARY INFORMATION AND INVENTIONS AGREEMENT. The Company
shall require all key employees and consultants to execute and deliver a
Proprietary Information and Inventions Agreement in the form attached to the
Series D Preferred Stock Purchase Agreement dated on or about August 11, 1998
(the "Purchase Agreement").
3.6 SBIC COVENANTS.
(a) The Company acknowledges that Philadelphia Ventures Liberty
Fund, L.P. (the "SBIC Investor") is a Federal licensee under the Small Business
Investment Act of 1958, as amended (the "Small Business Act"), and, as such, is
subject to regulation by the United States Small Business Administration (the
"SBA") as a small business investment company.
(b) As a result of the SBIC Investor's status as Federal
licensee, the Company covenants and agrees that until May 13, 1999, the Company
shall not make a material change in its primary business activity by becoming
involved in real estate financing, project financing, farm land purchasing,
relender or reinvestor financing, foreign investment and other businesses as
described in 13 C.F.R. Section 107.720, which would make it ineligible for
financing as a portfolio company by a small business investment company under 13
C.F.R. Section 107.760(b), a regulation promulgated by the SBA. In the event
that the Company breaches the foregoing covenant, the Company agrees that,
subject to applicable law, the SBIC Investor shall not be required to retain its
investment in the Series C Stock as further set forth in 13 C.F.R. Section
107.760 and shall be authorized to return such shares in exchange for
reimbursement by the Company of the purchase price paid for such shares.
(c) The Company covenants and agrees that proceeds from the SBIC
Investor from its purchase of Series C Preferred Stock will be used for working
capital purposes or to otherwise finance the growth, modernization or expansion
of the Company. The Company shall provide the SBIC Investor and the SBA
reasonable access to the Company's books and records for the purpose of
confirming the use of such proceeds.
(d) The Company shall provide the SBIC Investor with sufficient
information to permit such Investor to comply with its obligations under the
Small Business Act, provided, however, that the SBIC Investor agrees that it
will protect any information which the Company labels as confidential to the
extent permitted by law. Until May 13, 2000, any submission of financial
information under Section 3.1 to the SBIC Investor shall be accompanied by a
certificate of the president, chief executive officer, treasurer or chief
financial officer, which certificate shall
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state that the Company is not in material default under any of its covenants set
forth in this Section 3.
3.7 NOTIFICATION OF CERTAIN EVENTS. The Company shall promptly notify
The American Express Travel Related Services Company, Inc. and all Major
Investors in writing of any material outstanding or threatened claim, suit,
investigation, proceeding or other process or any material order, judgment,
directive or restrictions against or involving the Company or the transactions
contemplated hereby.
3.8 TERMINATION OF COVENANTS. All covenants of the Company contained
in Section 3 of this Agreement (other than Section 3.6) shall expire and
terminate as to each Investor on the effective date of the Qualified Public
Offering.
SECTION 4. PREEMPTIVE RIGHTS
4.1 SUBSEQUENT OFFERINGS. Each Investor shall have a preemptive right
to purchase its pro rata share of all Equity Securities, as defined below, that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Equity Securities excluded by Section 4.6 hereof.
Each Investor's pro rata share is equal to the ratio of (A) the number of shares
of the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Shares) of which such Investor is deemed to be a
holder immediately prior to the issuance of such Equity Securities to (B) the
total number of shares of the Company's outstanding Common Stock (including all
shares of Common Stock issued or issuable upon conversion of the Shares or upon
the exercise of any outstanding warrants or options) held by all Investors
immediately prior to the issuance of the Equity Securities. The term "Equity
Securities" shall mean (i) any Common Stock, Preferred Stock or other security
of the Company, (ii) any security convertible, with or without consideration,
into any Common Stock, Preferred Stock or other security (including any option
to purchase such a convertible security), (iii) any security carrying any
warrant or right to subscribe to or purchase any Common Stock, Preferred Stock
or other security or (iv) any such warrant or right.
4.2 EXERCISE OF RIGHTS. If the Company proposes to issue any Equity
Securities, it shall give each Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Investor shall have fifteen
(15) days from the giving of such notice to agree to purchase its pro rata share
of the Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If not all of the
Investors elect to purchase their pro rata share of the Equity Securities, then
the Company shall promptly notify in writing the Investors who do so elect and
shall offer such Investors the right to acquire such unsubscribed shares. The
Investors shall have five (5) days after receipt of such notice to notify
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the Company of their election to purchase all or a portion thereof of the
unsubscribed shares. If such Investors fail to exercise in full the preemptive
rights, the Company shall have ninety (90) days thereafter to sell the Equity
Securities in respect of which the Investors' rights were not exercised, at a
price and upon general terms and conditions materially no more favorable to the
purchasers thereof than specified in the Company's notice to the Investors
pursuant to Section 4.2 hereof. If the Company has not sold such Equity
Securities within ninety (90) days of the notice provided pursuant to Section
4.2, the Company shall not thereafter issue or sell any Equity Securities,
without first offering such securities to the Investors in the manner provided
above.
4.4 TERMINATION OF PREEMPTIVE RIGHTS. The preemptive rights
established by this Section 4 shall not apply to, and shall terminate upon the
effective date of the registration statement pertaining to the Qualified Public
Offering.
4.5 TRANSFER OF PREEMPTIVE RIGHTS. The preemptive rights of each
Investor under this Section 4 may be transferred to the same parties set forth
in Section 2.10(i) and (ii), or to a transferee or assignee of Registrable
Securities which acquires at least two hundred fifty thousand (250,000) shares
of Registrable Securities (as adjusted for stock splits, combinations and the
like), subject to the same restrictions as any transfer of registration rights
pursuant to Section 2.10.
4.6 EXCLUDED SECURITIES. The preemptive rights established by this
Section 4 shall have no application to any of the following Equity Securities:
(a) shares of Series D Stock issued pursuant to Section 2.3 of
the Purchase Agreement;
(b) shares of Common Stock (and/or options, warrants or other
Common Stock purchase rights issued pursuant to such options, warrants or other
rights) issued or to be issued to employees, officers or directors of, or
consultants or advisors to the Company or any subsidiary, pursuant to stock
purchase or stock option plans or other arrangements that are approved by the
Board of Directors (collectively, the "Option Shares"), provided that the number
of Option Shares issued pursuant to this clause (a) does not exceed twenty
percent (20%) of the total outstanding capital stock of the Company (assuming
conversion of all shares of Preferred Stock into Common Stock and assuming the
conversion or exercise of all options, warrants or other rights to purchase
capital stock of the Company, including the Option Shares issued);
(c) stock issued pursuant to any rights or agreements outstanding
as of the date of this Agreement, options and warrants outstanding as of the
date of this Agreement; and stock issued pursuant to any such rights or
agreements granted after the date of this Agreement, provided that the
preemptive rights established by this Section 4 applied with respect to the
initial sale or grant by the Company of such rights or agreements;
(d) any Equity Securities issued for consideration other than
cash pursuant to a merger, consolidation, acquisition or similar business
combination;
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(e) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company;
(f) shares of Common Stock issued upon conversion of the Shares;
(g) any Equity Securities issued pursuant to any equipment
leasing arrangement, or debt financing approved by the Board of Directors
(collectively the "Debt Financing Shares") from a bank or similar financial
institution which is not an affiliate of Xxxx Street; provided that the number
of Debt Financing Shares issued in all such transactions does not have an
aggregate value in excess of $250,000;
(h) any Equity Securities that are issued by the Company pursuant
to a registration statement filed under the Securities Act; and
(i) shares of the Company's Common Stock or Preferred Stock
issued in connection with strategic transactions involving the Company and other
entities, including (A) joint ventures, manufacturing, marketing or distribution
arrangements or (B) technology transfer or development arrangements; provided
that such strategic transactions and the issuance of shares therein, has been
approved by the Company's Board of Directors, including the representatives
designated by the holders of the Series A Stock, Series B Stock, Series C Stock
and Series D Stock.
SECTION 5. RIGHTS OF FIRST OFFER AND CO-SALE RIGHTS
5.1 DEFINITIONS. For purposes of this Section 5, the following
definitions shall apply:
(a) "CO-SALE STOCK" shall mean shares of the Company's Common
Stock now owned or subsequently acquired by a Major Investor. The number of
shares of Common Stock owned by each Major Investor is set forth on Exhibit A,
which Exhibit shall be amended from time to time to reflect changes in the
number of shares owned by each Major Investor.
(b) "COMMON STOCK" shall mean the Company's Common Stock and
shares of Common Stock issued or issuable upon conversion of the Company's
outstanding Preferred Stock.
5.2 SALES BY MAJOR INVESTORS.
(a) NOTICE REQUIREMENT. If any Major Investor proposes to sell or
transfer any shares of Co-Sale Stock then such Major Investor shall promptly
give written notice (the "Notice") simultaneously to the Company and to each of
the other Investors at least forty-five (45) days prior to the closing of such
sale or transfer. The Company shall provide such Major Investor with a list of
the addresses of the Investors for purposes of satisfying such notice
requirement. The Notice shall describe in reasonable detail the proposed sale or
transfer including, without limitation, the number of shares of Co-Sale Stock to
be sold or transferred, the nature of such sale or transfer, the consideration
to be paid, and the name and address of each prospective purchaser or
transferee. In the event that the sale or transfer is being made pursuant
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to the provisions of Sections 5.3(a) hereof, the Notice shall state under which
section the sale or transfer is being made.
(b) COMPANY'S RIGHT TO PURCHASE. For a period of fifteen (15)
days following receipt of any Notice described in Section 5.2(a), the Company
shall have the right to purchase all or a portion of the Co-Sale Stock subject
to such Notice on the same terms and conditions as set forth therein. The
Company's purchase right shall be exercised by written notice signed by an
officer of the Company and delivered to the selling Major Investor with a check
for payment for the Co-Sale Stock being purchased.
(c) MAJOR INVESTORS' RIGHT TO PURCHASE. If the Company does not
purchase all of the Co-Sale Stock available pursuant to its rights under Section
5.2(b) within the period set forth therein, each non-selling Major Investor
shall then have the right, exercisable upon written notice to the selling Major
Investor within thirty (30) days of the date of the original Notice described in
Section 5.2(a), to purchase its pro rata share of the Co-Sale Stock subject to
the Notice (less shares purchased by the Company pursuant to Section 5.2(b)) on
the same terms and conditions.
(i) Each non-selling Major Investor may buy all or any part
of that number of shares equal to the product obtained by multiplying (x) the
aggregate number of shares of Co-Sale Stock covered by the Notice (less shares
purchased by the Company pursuant to Section 5.2(b)) by (y) a fraction the
numerator of which is the number of shares of Common Stock owned by the
non-selling Major Investor (on an as-if-converted basis) at the time of the sale
or transfer and the denominator of which is the total number of shares of Common
Stock owned by all of the non-selling Major Investors (on an as-if-converted
basis) at the time of the sale or transfer.
(ii) If not all of the non-selling Major Investors elect to
purchase their pro rata share of the Co-Sale Stock covered by the Notice as
provided in Section 5.2(c)(i) above, then the selling Major Investor shall
promptly notify the non-selling Major Investors who do so elect and shall offer
such non-selling Major Investors the right to acquire such unsubscribed shares.
The non-selling Major Investors who elect to participate shall have five (5)
days after receipt of such notice to notify the selling Major Investor of its
election to purchase all or a portion thereof of the unsubscribed shares.
(d) INVESTORS' RIGHT TO PARTICIPATE IN THE SALE OF CO-SALE STOCK.
Should the non-selling Major Investors and/or the Company fail to exercise their
respective rights to purchase all of the shares of Co-Sale Stock described in
the Notice issued pursuant to Section 5.2(a) following the exercise or
expiration of the rights of purchase described in Sections 5.2(b) and 5.2(c),
then each Investor shall have the right, exercisable upon written notice to the
selling Major Investor within forty-five (45) days of the date of the original
Notice described in Section 5.2(a), to participate in such sale of Co-Sale Stock
on the same terms and conditions. Such notice shall indicate the number of
shares of Common Stock such Investor wishes to sell under his or her right to
participate. To the extent one or more of the Investors exercise such right of
participation in accordance with the terms and conditions set forth below, the
number of
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shares of Co-Sale Stock that the selling Major Investor may sell in the
transaction shall be correspondingly reduced.
(i) Each Investor may sell all or any part of that number of
shares equal to the product obtained by multiplying (x) the aggregate number of
shares of Co-Sale Stock covered by the Notice (as reduced by any purchases
pursuant to Sections 5.2(b) or 5.2(c)) by (y) a fraction the numerator of which
is the number of shares of Common Stock owned by the Investor at the time of the
sale or transfer (on an as-if-converted basis) and the denominator of which is
the total number of shares of Common Stock owned by the selling Major Investor
and the Investors at the time of the sale or transfer (on an as-if-converted
basis).
(ii) Each Investor who elects to participate in the sale
pursuant to this Section 5.2(d) (a "Participant") shall effect its participation
in the sale by promptly delivering to the selling Major Investor for transfer to
the prospective purchaser one or more certificates, properly endorsed for
transfer, which represent:
(1) the type and number of shares of Common Stock which
such Participant elects to sell; or
(2) that number of shares of Preferred Stock which is
at such time convertible into the number of shares of Common Stock which such
Participant elects to sell; provided, however, that if the prospective purchaser
objects to the delivery of Preferred Stock in lieu of Common Stock, such
Participant shall convert such Preferred Stock into Common Stock and deliver
Common Stock as provided in this Section 5.2(d). The Company agrees to make any
such conversion concurrently with the actual transfer of such shares to the
purchaser.
(iii) The stock certificate or certificates that the
Participant delivers to the selling Major Investor pursuant to this Section
5.2(d) shall be transferred to the prospective purchaser in consummation of the
sale of the Common Stock pursuant to the terms and conditions specified in the
Notice, and the selling Major Investor shall concurrently therewith remit to
such Participant that portion of the sale proceeds to which such Participant is
entitled by reason of its participation in such sale. To the extent that any
prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from a Participant exercising its
rights of co-sale hereunder, the selling Major Investor shall not sell to such
prospective purchaser or purchasers any Co-Sale Stock unless and until,
simultaneously with such sale, the selling Major Investor shall purchase such
shares or other securities from such Participant on the same terms and
conditions specified in the Notice.
(iv) The exercise or non-exercise of the rights of the
Participants hereunder to participate in one or more sales of Co-Sale Stock made
by a selling Major Investor shall not adversely affect their rights to
participate in subsequent sales of Co-Sale Stock subject to Section 5.2(a).
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(e) SALE OF CO-SALE STOCK. Should any shares of Co-Sale Stock
remain for sale to a third-party following the exercise or expiration of the
rights of purchase described in Sections 5.2(b) and 5.2(c) and the rights of
co-sale described in Section 5.2(d), then the selling Major Investor may, not
later than seventy-five (75) days following delivery to the Company of the
Notice, enter into an agreement providing for the closing of the transfer of the
Co-Sale Stock covered by the Notice (less shares purchased pursuant to Sections
5.2(b) and 5.2(c)) within thirty (30) days of such agreement on terms and
conditions not more favorable to the transferor than those described in the
Notice. Any proposed transfer on terms and conditions more favorable than those
described in the Notice, as well as any subsequent proposed transfer of any of
the Co-Sale Stock by the selling Major Investor, shall again be subject to the
purchase rights of the Company and the Major Investors and the co-sale rights of
the Investors and shall require compliance by the selling Major Investor with
the procedures described in this Section 5.2.
5.3 EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the purchase rights of the
Company and the Major Investors and the co-sale rights of the Investors shall
not apply to (i) any pledge of Co-Sale Stock made pursuant to a bona fide loan
transaction with a financial institution that creates a mere security interest,
(ii) any transfer to the ancestors, descendants, or significant other or spouse
or to trusts for the benefit of such persons or the Major Investor (so long as
the transferee is not a Major Investor), (iii) any transfer to a general
partner, limited partner, member or retired partner or member of the Major
Investor or (iv) any bona fide gift; provided that in the event of any pledge or
transfer made pursuant to one of the exemptions provided by clauses (i), (ii)
and (iii), (A) the selling Major Investor shall inform the Investors of such
pledge, transfer or gift prior to effecting it and (B) the pledgee, transferee
or donee shall furnish the Investors with a written agreement to be bound by and
comply with all provisions of Section 5.2. Such transferred Co-Sale Stock shall
remain "Co-Sale Stock" hereunder, and such pledgee, transferee or donee shall be
treated as an Investor for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 5.2
shall not apply to the sale of any Co-Sale Stock to the public pursuant to a
registration statement filed with, and declared effective by, the SEC under the
Securities Act.
(c) This Section 5 is subject to, and shall in no manner limit
the right of the Company to repurchase securities from any Investor pursuant to
a stock restriction agreement or other agreement between the Company and such
Investor.
5.4 PROHIBITED TRANSFERS.
(a) In the event that any Major Investor (a "Violating Investor")
should sell any Co-Sale Stock in contravention of the purchase rights of the
Company and the Major Investors and the co-sale rights of the Investors under
this Agreement (a "Prohibited Transfer"), each Investor, in addition to such
other remedies as may be available at law, in equity or hereunder, shall have
the put option provided below, and such Violating Investor shall be bound by the
applicable provisions of such option.
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(b) In the event of a Prohibited Transfer, each Investor shall
have the right to sell to the Violating Investor the type and number of shares
of Common Stock equal to the number of shares each Investor would have been
entitled to transfer to the purchaser under Section 5.2(d) hereof had the
Prohibited Transfer been effected pursuant to and in compliance with the terms
hereof. Such sale shall be made on the following terms and conditions:
(i) The price per share at which the shares are to be sold to
the Violating Investor shall be equal to the price per share paid by the
purchaser to such Violating Investor in the Prohibited Transfer. The Violating
Investor shall also reimburse each non-selling Investor for any and all fees and
expenses, including legal fees and expenses, incurred pursuant to the exercise
or the attempted exercise of the Investor's rights under Section 5.2.
(ii) Within ninety (90) days after the later of the dates on
which the non-selling Investor (a) received notice of the Prohibited Transfer or
(b) otherwise became aware of the Prohibited Transfer, each non-selling Investor
shall, if exercising the option created hereby, deliver to the Violating
Investor the certificate or certificates representing shares to be sold, each
certificate to be properly endorsed for transfer.
(iii) The Violating Investor shall, upon receipt of the
certificate or certificates for the shares to be sold by an Investor, pursuant
to this Section 5.4(b), pay the aggregate purchase price therefor and the amount
of reimbursable fees and expenses, as specified in Section 5.4(b)(i) , in cash
or by other means acceptable to the Investor.
(iv) Notwithstanding the foregoing, any attempt by any Major
Investor to transfer Co-Sale Stock in violation of Section 5.2 hereof shall be
voidable at the option of Investors holding more than two-thirds in interest of
the Common Stock held by all Investors (on an as-converted basis) if the
Investors do not elect to exercise the put option set forth in this Section 5.4,
and the Company agrees it will not effect such a transfer nor will it treat any
alleged transferee as the holder of such shares without the written consent of a
majority in interest of the Investors.
5.5 LEGEND.
(a) Each certificate representing shares of Co-Sale Stock now or
hereafter owned by each Major Investor or issued to any person in connection
with a transfer pursuant to Section 5.3 hereof shall be endorsed with the
following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND BETWEEN THE INVESTOR, THE
COMPANY AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE
COMPANY."
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(b) Each Major Investor agrees that the Company may instruct its
transfer agent to impose transfer restrictions on the shares represented by
certificates bearing the legend referred to in Section 5.5 above to enforce the
provisions of this Agreement and the Company agrees to promptly do so. The
legend shall be removed upon termination of this Agreement.
5.6 TRANSFER OF RIGHTS. The purchase rights of each Major Investor
and the rights of co-sale of each Investor under this Section 5 may be
transferred to the same parties set forth in Section 2.10(i) and (ii), or to a
transferee or assignee of Registrable Securities which acquires at least two
hundred fifty thousand (250,000) shares of Registrable Securities (as adjusted
for stock splits, combinations and the like), subject to the same restrictions
as any transfer of registration rights pursuant to Section 2.10.
5.7 TERMINATION OF RIGHTS. The purchase rights of the Major Investors
and the rights of co-sale of each Investor under this Section 5 shall not apply
to and shall terminate upon the Company's Initial Offering.
SECTION 6. MISCELLANEOUS
6.1 GOVERNING LAW. This Agreement shall be governed in all respects
by the laws of the State of New York without giving effect to conflict of law
principles, with the exception that matters of corporate law shall be governed
by the State of Delaware.
6.2 SURVIVAL. The representations, warranties, covenants, and
agreements made herein shall survive any investigation made by any Holder and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or other instrument delivered by or
on behalf of the Company pursuant hereto in connection with the transactions
contemplated hereby shall be deemed to be representations and warranties by the
Company hereunder solely as of the date of such certificate or instrument.
6.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors, and administrators of the
parties hereto and shall inure to the benefit of and be enforceable by each
person who shall be a holder of Registrable Securities from time to time;
provided, however, that prior to the receipt by the Company of adequate written
notice of the transfer of any Registrable Securities specifying the full name
and address of the transferee, the Company may deem and treat the person listed
as the holder of such shares in its records as the absolute owner and holder of
such shares for all purposes, including the payment of dividends or any
redemption price.
6.4 ENTIRE AGREEMENT. This Agreement, and the Exhibits hereto,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
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6.5 SEVERABILITY. In case any provision of the Agreement shall be
invalid, illegal, or unenforceable, the validity, legality, and enforceability
of the remaining provisions shall not in any way be affected or impaired
thereby.
6.6 AMENDMENT AND WAIVER.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least seventy percent (70%) of the Registrable Securities then
outstanding.
(b) Except as otherwise expressly provided, the obligations of
the Company and the rights of the Holders under this Agreement may be waived
only with the written consent of the holders of at least seventy percent (70%)
of the Registrable Securities then outstanding.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional holders of
shares of Series D Stock as "Investors," "Holders" and parties hereto.
6.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of the Company under this Agreement shall impair any
such right, power, or remedy, nor shall it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring. It is further
agreed that any waiver, permit, consent, or approval of any kind or character on
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's part of any provisions or conditions of this
Agreement must be in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
6.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (i) upon personal delivery to the
party to be notified, (ii) when sent by confirmed telex or facsimile if sent
during normal business hours of the recipient; if not, then on the next business
day, (iii) five (5) days after having been sent by registered or certified mail,
return receipt requested, postage prepaid, or (iv) one (1) day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may designate by ten
(10) days advance written notice to the other parties hereto.
6.9 ATTORNEYS' FEES. In the event that any dispute among the parties
to this Agreement should result in litigation, the prevailing party in such
dispute shall be entitled to recover from the losing party all fees, costs and
expenses of enforcing any right of such prevailing party under or with respect
to this Agreement, including without limitation, such reasonable fees and
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
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6.10 TITLES AND SUBTITLES. The titles of the sections and subsections
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
6.11 COUNTERPARTS. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
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IN WITNESS WHEREOF, the parties hereto have executed this SECOND
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the
first paragraph hereof.
COMPANY: PRIOR INVESTORS:
XXX.XXX, INC. [NAME OF INVESTOR]
By: /s/ XXXX X. STREET By:
------------------------------ ------------------------------
Xxxx X. Street, President Name:
Chairman of the Board and Chief ----------------------------
Executive Officer Title:
0000 Xxxxx Xxxxxxx Xxxx., Xxxxx 000 ---------------------------
Xxxxxxxx Xxxxxxx, XX 00000
Phone: (000) 000-0000
Facsimile: (000) 000-0000 ADDITIONAL INVESTORS:
[NAME OF INVESTOR]
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
BT ALEX. XXXXX INCORPORATED
By:
------------------------------
Name:
----------------------------
Title:
---------------------------
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