Exhibit 4.8
OVATION PRODUCTS CORPORATION
THIRD AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
TABLE OF CONTENTS
PAGE
SECTION 1. GENERAL...........................................................2
1.1 Definitions.......................................................2
SECTION 2. REGISTRATION......................................................3
2.1 Piggyback Registrations...........................................3
2.2 Expenses of Registration..........................................4
2.3 Obligations of the Company........................................4
2.4 Termination of Registration Rights................................5
2.5 Delay of Registration; Furnishing Information.....................5
2.6 Indemnification...................................................6
2.7 Assignment of Registration Rights.................................8
2.8 Amendment of Registration Rights..................................8
2.9 Limitation on Subsequent Registration Rights......................8
2.10 "Market Stand-Off" Agreement; Agreement to Furnish Information....8
2.11 Rule 144 Reporting................................................9
SECTION 3. COVENANTS OF THE COMPANY..........................................9
3.1 Basic Financial Information and Reporting.........................9
3.2 Inspection Rights................................................10
3.3 Confidentiality of Records.......................................10
3.4 Reservation of Common Stock......................................11
3.5 Indemnification..................................................11
3.6 Termination of Covenants.........................................11
SECTION 4. PREEMPTIVE RIGHTS................................................11
4.1 Subsequent Offerings.............................................11
4.2 Exercise of Rights...............................................11
4.3 Issuance of Equity Securities to Other Persons...................12
4.4 Termination and Waiver of Preemptive Rights......................12
4.5 Excluded Securities..............................................12
SECTION 5. MISCELLANEOUS....................................................12
5.1 Governing Law....................................................12
5.2 Survival.........................................................12
5.3 Successors and Assigns...........................................13
5.4 Entire Agreement.................................................13
5.5 Severability.....................................................13
5.6 Amendment and Waiver.............................................13
5.7 Delays or Omissions..............................................13
5.8 Notices..........................................................14
5.9 Attorneys' Fees..................................................14
5.10 Titles and Subtitles.............................................14
5.11 Counterparts.....................................................14
5.12 Arbitration......................................................14
-i-
OVATION PRODUCTS CORPORATION
THIRD AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT (this
"Agreement") is entered into as of the 30th day of June, 2004, by and among
OVATION PRODUCTS CORPORATION, a Delaware corporation (the "Company"), the
investors listed on Schedule I hereto and other future investors who may become
a party to this Agreement (collectively, the "Investors" and, each individually,
an "Investor").
RECITALS
WHEREAS, the Company and SJ Electro Inc., a Minnesota corporation ("SJE")
have previously entered into an Investor Rights Agreement, dated December 29,
2000 (the "Original Agreement");
WHEREAS, the Original Agreement was amended and restated in its entirety
by the terms of an Amended and Restated Investor Rights Agreement (the "First
Amended Rights Agreement") among the Company, SJE and the investors set forth on
Schedule I to the First Amended Rights Agreement;
WHEREAS, the First Amended Rights Agreement was amended and restated in
its entirety by the terms of a Second Amended and Restated Investor Rights
Agreement (the "Second Amended Rights Agreement") among the Company, SJE and the
investors set forth on Schedule I to the Second Amended Rights Agreement, which
the parties hereto desire to amend and restate in its entirety;
WHEREAS, SJE is the holder of 160,000 shares of the Company's Series A
Preferred Stock (the "Series A Stock") and a Warrant to purchase up to an
additional 40,000 shares of Series A Stock (the "Series A Warrant");
WHEREAS, the Company previously issued 294,102 shares of the Company's
Series B Preferred Stock (the "Series B Stock") to certain investors (the
"Series B Financing");
WHEREAS, the Company previously issued 131,000 shares of the Company's
Series B-1 Preferred Stock (the "Series B-1 Stock") to certain investors (the
"Series B-1 Financing");
WHEREAS, the Company will be issuing up to 400,000 shares of the Company's
Series C Preferred Stock (the "Series C Stock") and warrants to purchase up to
an additional 120,000 shares of Series C stock (the "Series C Warrants") to the
Investors in the amounts set forth on Schedule I and other future investors who
may become a party to this Agreement (the "Series C Financing");
WHEREAS, in connection with the consummation of the Series C Financing,
the Company desires to grant registration, information rights and other rights
to the Investors as set forth below.
AGREEMENT
NOW, THEREFORE, in consideration of the premises and for other good and
valuable consideration, the receipt and sufficiency of which are hereby
acknowledged, the parties agree hereto as follows:
SECTION 1. GENERAL.
1.1 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.
"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 2.7 hereof.
"Initial Offering" means the Company's first firm commitment underwritten
public offering of its Common Stock registered under the Securities Act.
"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: (a) Common Stock of the Company issued or
issuable upon conversion of the Shares and (b) 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 or are issuable pursuant to then
exercisable or convertible securities.
"Registration Expenses" shall mean all expenses incurred by the Company in
complying with Section 2.1 hereof, including, without limitation, all
registration and filing fees, printing expenses, blue sky fees and expenses,
selling 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" shall mean the Securities Act of 1933, as amended.
2
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean (i) the Company's Series A Stock and the Series A
Stock issuable upon exercise of the Series A Warrant held by SJE and its
permitted assigns, (ii) the Company's Series B Stock held by the Investors and
their permitted assigns, (iii) the Company's Series B-1 Stock held by the
Investors and their permitted assigns, (iv) the Company's Series C Stock and the
Series C Stock issuable upon exercise of the Series C Warrants held by the
Investors and their permitted assigns.
"Special Registration Statement" shall mean a registration statement
relating to any employee benefit plan or with respect to any corporate
reorganization or other transaction under Rule 145 of the Securities Act.
SECTION 2. REGISTRATION.
2.1 PIGGYBACK REGISTRATIONS. The Company shall notify each Holder in
writing at least 45 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 Special
Registration Statements) and will afford each Holder an opportunity to include
in such registration statement all or part of the Registrable Securities. If a
Holder desires to include in any such registration statement all or any part of
the Registrable Securities held by it, then such Holder shall, within 15 days
after the above-described notice from the Company, notify the Company in
writing. Such notice shall state the intended method of disposition of the
Registrable Securities by the 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
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 2.1 is for an underwritten
offering, the Company shall so advise each Holder. In such event, the
right of a Holder to be included in a registration pursuant to this
Section 2.1 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. Each Holder 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, then: (i) no party shall
participate in the underwriting except for the Company, the Holders and,
if applicable, a shareholder of the Company invoking a right to demand
registration of the Company's Common Stock held by it, and (ii) the number
of shares that may be included in the underwriting shall be allocated on a
PRO RATA basis among the parties described in subsection (i); PROVIDED,
HOWEVER, that in the case of the Company's Initial Offering, the Holders
(other than SJE) may be excluded if the underwriter makes the
determination described above and no
3
other shareholder's securities (other than SJE's) are included. If a
Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. Any PRO RATA reduction with respect to a "Holder" shall be
based upon the aggregate amount of Registrable Securities that a Holder
has elected to include in such registration.
(B) RIGHT TO TERMINATE REGISTRATION. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 2.1 prior to the effectiveness of such registration whether or not
any Holders have elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.2 hereof.
2.2 EXPENSES OF REGISTRATION. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration under Section
2.1 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.
2.3 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 keep such
registration statement effective for up to ninety (90) days or, if
earlier, until each Holder has completed the distribution related thereto.
The Company shall not be required to file, cause to become effective or
maintain the effectiveness of any registration statement that contemplates
a distribution of securities on a delayed or continuous basis pursuant to
Rule 415 under the Securities Act.
(B) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with
such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by, such registration statement for the period set
forth in paragraph (a) above.
(C) Furnish to the Holders whose securities are included in such
registration 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 may reasonably be requested in
order to facilitate the disposition of Registrable Securities.
(D) Use its 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 a Holder; PROVIDED, HOWEVER, that the Company shall not be
required in connection therewith or as a condition thereto to
4
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. The
Holders participating in such underwriting shall also enter into and
perform its obligations under such an agreement.
(F) Notify the Holders 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. The Company
will use reasonable efforts to amend or supplement such prospectus in
order to cause such prospectus not to include any untrue statement of a
material fact or omit to state a material fact required to be stated
therein or necessary to make the statements therein not misleading in the
light of the circumstances then existing.
(G) Use its reasonable efforts to furnish, 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 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, addressed to the underwriters, if any, 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 addressed to the underwriters.
2.4 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 Company's Initial Offering, so long as the
Holders are able to sell its Registrable Securities pursuant to the limited
resale provisions of Rule 144 during any 90-day period. In addition, the
registration rights for a particular Holder shall expire if (a) the Company has
completed its Initial Offering and is subject to the provisions of the Exchange
Act; (b) such Holder (together with its affiliates) holds less than 1% of the
Company's outstanding Common Stock (treating all shares of convertible Preferred
Stock on an as converted basis); and (c) all Registrable Securities held by and
issuable to such Holder (and its affiliates) may be sold under Rule 144 during
any 90-day period.
2.5 DELAY OF REGISTRATION; FURNISHING INFORMATION.
(A) No Holder shall have the 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.
5
(B) It shall be a condition precedent to the obligations of the
Company to register the Registrable Securities held by a Holder pursuant
to Section 2.1 that such Holder shall furnish to the Company such
information regarding itself, the Registrable Securities held by it and
the intended method of disposition of such securities as shall be required
to effect the registration of their Registrable Securities.
2.6 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Section 2:
(A) To the extent permitted by law, the Company shall indemnify and
hold harmless each Holder, the officers and directors of such 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 pay as incurred to each such
Holder, officer, 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 2.6(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 any such Holder, officer,
director, underwriter or controlling person of such Holder.
(B) To the extent permitted by law, each Holder shall indemnify and
hold harmless the Company, each of its directors, its officers and each
person, if any, who controls the Company within the meaning of the
Securities Act, any underwriter, any other Holder selling securities in
such registration statement and any controlling person of any such
underwriter or other 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 Holder selling
securities 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
6
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 such Holder shall pay as incurred any legal or other
expenses reasonably incurred by any person intended to be indemnified
pursuant to this subsection 2.6(b) 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 2.6(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
such Holder, which consent shall not be unreasonably withheld; PROVIDED
FURTHER, that in no event shall any indemnity under this Section 2.6(b)
exceed the net proceeds from the offering received by such Holder.
(C) Promptly after receipt by an indemnified party under this
Section 2.6 of notice of the commencement of any action (including any
governmental action), such indemnified party shall, if a claim in respect
thereof is to be made against any indemnifying party under this Section
2.6, 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 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 2.6, 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 2.6.
(D) If the indemnification provided for in this Section 2.6 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
Violations) 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
7
statement or omission; PROVIDED, HOWEVER, that in no event shall any
contribution by a Holder hereunder exceed the net proceeds from the
offering received by such Holder, and in no event shall any contribution
by a Holder hereunder exceed the amount such Holder would have been
obligated to pay pursuant to Section 2.6(b) had such clause been
enforceable.
(E) The obligations of the Company and the Holders under this
Section 2.6 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.
2.7 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 one or more transferees or assignees of the Registrable Securities;
PROVIDED, HOWEVER: (i) the transferor shall, within ten 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 (ii) such transferee shall agree to
be subject to all restrictions set forth in this Agreement. Any such transferee
or assignee shall be included in the term "Holder" as used in this Agreement.
2.8 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 holding a majority in interest of
Registrable Securities. Any amendment or waiver effected in accordance with this
Section 2.8 shall be binding upon each Holder and the Company.
2.9 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not 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.
2.10 "MARKET STAND-OFF" AGREEMENT; AGREEMENT TO FURNISH INFORMATION. Each
Holder hereby agrees that such Holder shall not sell, transfer, make any short
sale of, grant any option for the purchase of (or enter into any hedging or
similar transaction with the same economic effect as a sale) 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
8
(ii) all officers, directors and holders of at least 1% of the
issued and outstanding capital stock of the Company enter into
similar agreements.
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. In
addition, if requested by the Company or the representative of the underwriters
of Common Stock (or other securities) of the Company, each Holder shall provide,
within ten days of such request, such information as may be required by the
Company or such representative in connection with the completion of any public
offering of the Company's securities pursuant to a registration statement filed
under the Securities Act. The obligations described in this Section 2.10 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 180-day
period. Each Holder agrees that any transferee of any shares of Registrable
Securities shall be bound by this Section 2.10.
2.11 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; and
(C) So long as a Holder owns any Registrable Securities, furnish to
such Holder forthwith upon request: (i) 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); (ii) a copy of the most
recent annual or quarterly report of the Company; and (iii) such other
reports and documents as such Holder may reasonably request in availing
itself of any rule or regulation of the SEC allowing it to sell any such
securities without registration.
SECTION 3. COVENANTS OF THE COMPANY
3.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company shall maintain true books and records of account in
which full and correct entries shall be made of all its business
transactions pursuant to a system of accounting established and
administered in accordance with generally accepted accounting principles
consistently applied, and will set aside on its books all such proper
9
accruals and reserves as shall be required under generally accepted
accounting principles consistently applied.
(B) As soon as practicable after the end of each fiscal year of the
Company, and in any event within 120 days thereafter, the Company shall
furnish to each Investor holding at least 20,000 shares of Common Stock
(including shares of Common Stock issued or issuable upon conversion of
shares of Preferred Stock) (a "Major Investor") a balance sheet of the
Company, as at the end of such fiscal year, and a statement of income and
a statement of cash flows of the Company, for such year, all prepared in
accordance with generally accepted accounting principles consistently
applied and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail. Such financial
statements shall be accompanied by a report and opinion thereon by
independent public accountants selected by the Company's Board of
Directors. Nothing herein shall be deemed to require the Company to have
audited financial statements.
(C) The Company shall furnish to each Major 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 45 days thereafter, a balance sheet of the Company as of the end of
each such quarterly period, and a statement of income and a statement of
cash flows of the Company for such period and for the current fiscal year
to date, prepared in accordance with generally accepted accounting
principles, with the exception that no notes need be attached to such
statements and year-end audit adjustments may not have been made.
(D) The Company will furnish to each Major Investor: (i) at least 30
days prior to the beginning of each fiscal year an annual budget and
operating plans for such fiscal year (and as soon as available, any
subsequent revisions thereto) and (ii) as soon as practicable after the
end of each month, and in any event within 20 days thereafter, a balance
sheet of the Company as of the end of each such month, and a statement of
income and a statement of cash flows of the Company for such month and for
the current fiscal year to date, including a comparison to plan figures
for such period, prepared in accordance with generally accepted accounting
principles consistently applied, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have
been made.
3.2 INSPECTION RIGHTS. On five days' written notice, each Major Investor
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.
3.3 CONFIDENTIALITY OF RECORDS. The Investor agrees to use, and to use its
best efforts to insure that its authorized representatives use, the same degree
of care as the 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).
10
3.4 RESERVATION OF COMMON STOCK. The Company shall at all times reserve
and keep available, solely for issuance and delivery upon the conversion of the
Series A Stock (including Series A Stock issuable upon exercise of the Series A
Warrants), the Series B Stock, the Series B-1 Stock and Series C Stock
(including Series C Stock issuable upon exercise of the Series C Warrants), all
Common Stock issuable from time to time upon such conversion.
3.5 INDEMNIFICATION. The Company's Certificate of Incorporation and Bylaws
shall provide, to the maximum extent permitted by law, for elimination of the
liability of directors and for indemnification of directors and officers for
acts on behalf of the Company.
3.6 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 3 of this Agreement shall remain in effect so long as the Investor
continues to hold shares of Series A Stock, Series B Stock, Series B-1 Stock or
Series C Stock.
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 4.5 hereof. The
Investor's PRO RATA share is equal to the Equity Securities offered by the
Company multiplied by a fraction: (i) the numerator of which is the sum of 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 the Investor is
deemed to be a holder immediately prior to the issuance of such Equity
Securities; (ii) the denominator of which is 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) immediately prior to the issuance of the Equity
Securities. The term "Equity Securities" shall mean: (A) any Common Stock,
Preferred Stock or other security of the Company (excluding shares of Series B
Stock issued in connection with the Series B Financing, shares of Series B-1
Stock issued in connection with the Series B-1 Financing and shares of Series C
Stock issued in connection with the Series C Financing); (B) 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); (C) any security carrying any warrant or right to subscribe to or
purchase any Common Stock, Preferred Stock or other security; or (D) 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 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.
11
4.3 ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If any Investor fails
to exercise in full its preemptive right, the Company shall have 90 days
thereafter to sell the Equity Securities in respect of which such Investor's
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 each Investor pursuant to Section 4.2 hereof. If the Company
has not sold such Equity Securities within 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 each Investor in
the manner provided above.
4.4 TERMINATION AND WAIVER 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 Company's
Initial Offering.
4.5 EXCLUDED SECURITIES. The preemptive rights established by this Section
4 shall have no application to any of the following Equity Securities:
(A) shares of Common Stock (and/or options, warrants or other Common
Stock purchase rights issued pursuant to such options, warrants or other
rights) as adjusted for any stock dividends, combinations, splits,
recapitalizations and the like 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;
(B) 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;
(C) any Equity Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors;
(D) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company; and
(E) shares of Common Stock issued upon conversion of the Shares.
SECTION 5. MISCELLANEOUS.
5.1 GOVERNING LAW. This Agreement shall be governed by and construed under
the laws of the State of Delaware (without regard to principles of conflicts of
laws).
5.2 SURVIVAL. The representations, warranties, covenants and agreements
made herein shall survive any investigation made by the Investors 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
12
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.
5.3 SUCCESSORS AND ASSIGNS. Except as otherwise expressly provided herein,
the provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Shares from time to time; PROVIDED, HOWEVER, that prior to the
receipt by the Company of adequate written notice of the transfer of any Shares
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.
5.4 ENTIRE AGREEMENT. This Agreement and the other documents delivered
pursuant thereto 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.
5.5 SEVERABILITY. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.6 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
Investors holding a majority in interest of the then outstanding Shares.
(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 a majority in
interest of the Registrable Securities.
(C) For the purposes of determining the persons entitled to vote or
exercise any rights hereunder, the Company shall be entitled to rely
solely on the list of record holders of its stock as maintained by or on
behalf of the Company.
5.7 DELAYS OR OMISSIONS. It is agreed that no delay or omission to
exercise any right, power or remedy accruing to each Investor, 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
an Investor's part of any breach, default or noncompliance under the Agreement
or any waiver on such Investor'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
13
Agreement, by law or otherwise afforded to each Investor, shall be cumulative
and not alternative.
5.8 NOTICES. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified; (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day; (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid; or (d) one 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 page hereof or
at such other address as such party may designate by 10 days' advance written
notice to the other parties hereto.
5.9 ATTORNEYS' FEES. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the arbitrator may allocate attorneys'
fees and expenses so that the prevailing party in such dispute is entitled to
recover from the losing party all or some of its, attorneys' fees and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement. For purposes of this Section 5.9, "attorneys' fees and expenses" may
include such reasonable fees and expenses of attorneys and accountants, as well
as arbitration fees, costs and expenses of appeals.
5.10 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.
5.11 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.
5.12 ARBITRATION. All disputes, controversies or differences which may
arise between the parties out of, in relation to or in connection with this
Agreement (or its breach), which cannot be amicably resolved by the parties,
shall be finally settled by arbitration in Chicago, Illinois, pursuant to the
Commercial Arbitration Rules of the American Arbitration Association or its
successor, before a panel of one arbitrator with investment banking experience,
to be selected in accordance with said rules. Except as provided in Section 5.9
above: (i) the costs of arbitration shall be shared equally between the parties,
and (ii) each party shall be responsible for its own attorneys' fees. The
parties shall have the right to discovery as provided for in the Federal Rules
of Civil Procedure, and the arbitrator shall be empowered to compel such
discovery. The award rendered therein shall be final and binding upon all the
parties and may be reduced to a judgment in a court of competent jurisdiction.
14
IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
THE COMPANY:
OVATION PRODUCTS CORPORATION
Signature: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------
Print Name: Xxxxxxx X. Xxxxxxxx
---------------------------------
Title: President and COO
--------------------------------------
ADDRESS:
000 Xxxx Xxxxxxxxx Xxxx
Xxxxxx, XX 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
IN WITNESS WHEREOF, the parties hereto have executed this THIRD AMENDED
AND RESTATED INVESTOR RIGHTS AGREEMENT as of the date set forth in the first
paragraph hereof.
THE INVESTORS:
Signature: /s/ Xxxxxxx X. Xxxxxxxx
----------------------------------
Print Name: Xxxxxxx X. Xxxxxxxx
---------------------------------
Title: President and COO
--------------------------------------
ADDRESS:
