MEGAMARKETING CORPORATION
INVESTOR RIGHTS AGREEMENT
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THIS INVESTOR RIGHTS AGREEMENT (the "Agreement") is entered into as of
_____________, 1998 (the "Execution Date") by and between MegaMarketing
Corporation, a Georgia corporation (the "Company"), and the investors listed on
Exhibit A hereto (the "Purchasers"), as such Exhibit may be amended from time to
time to reflect the additional acceptance of Subscription Agreements (as defined
below).
RECITALS:
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A. The Purchasers are the purchasers of the Company's Series A
Convertible Preferred Stock ("Series A Preferred Stock") and Stock Purchase
Warrants pursuant to Subscription Agreements between the Purchasers and the
Company (the "Subscription Agreements").
B. It is anticipated that future sales of securities of a similar nature
may occur.
C. The Company and the Purchasers desire to set forth the
registration and other rights to be granted to the Purchasers.
AGREEMENT:
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NOW, THEREFORE, in consideration of the mutual promises, representations,
warranties, covenants, and conditions set forth herein and in the Subscription
Agreement pursuant to which the Purchasers acquired their securities in the
Company, the parties mutually agree as follows:
1. Certain Definitions. As used in this Agreement, the following
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terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
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other federal agency at the time administering the Securities Act.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar federal statute promulgated in replacement thereof, and the rules
and regulations of the Commission thereunder, all as the same shall be in effect
at the time.
"Restricted Securities" shall mean the securities of the Company required
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to bear the legend set forth in Section 2.2 hereof.
"Shares" shall mean the Series A Preferred Stock of the Company purchased
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pursuant to the Subscription Agreements.
"Stock Purchase Warrants" shall mean the Stock Purchase Warrants
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purchased pursuant to the Subscription Agreements.
"Registrable Securities" means shares of the Company's Common Stock (i)
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issued pursuant to the conversion or exercise, as the case may be, of the Shares
and Stock Purchase Warrants, or (ii) issued as a dividend or other distribution
with respect to, or in exchange or in replacement of, the Shares, the Stock
Purchase Warrants or such Common Stock, excluding in all cases, however
(including exclusion from the calculation of the number of outstanding
Registrable Securities), any Registrable Securities sold by a person in a
transaction, including a transaction pursuant to a registration statement under
Section 3 or a transaction pursuant to Rule 144.
The terms "register", "registered" and "registration" refer to a
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registration effected by preparing and filing
a registration statement in compliance with the Securities Act, and the
declaration or ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
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in complying with Sections 3.1 and 3.2 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements 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).
"Selling Expenses" shall mean all underwriting discounts and selling
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commissions applicable to the sale.
"Securities" shall mean the Shares, the Stock Purchase Warrants and any
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securities issued in respect thereof or upon conversion or exercise thereof.
"Holder" shall mean any holder of outstanding Registrable Securities,
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Shares or Stock Purchase Warrants.
"Initiating Holders" shall mean any Holder or Holders of not less than
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50% of the then outstanding Registrable Securities.
2. Transferability.
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2.1 Restrictions on Transferability. The Securities shall not be
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transferable except upon the conditions specified in this Agreement, which
conditions are intended to insure compliance with the provisions of the
Securities Act. Each Holder agrees to cause any proposed transferee of the
Securities held by such Holder to agree to take and hold such Securities subject
to the provisions and upon the conditions specified in this Agreement.
2.2 Restrictive Legend. Each certificate representing Securities shall
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(unless otherwise permitted by the provisions of Section 2.3 below) be stamped
or otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws):
THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE BEEN
ACQUIRED FOR INVESTMENT AND HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933. SUCH SECURITIES MAY NOT BE
SOLD OR TRANSFERRED IN THE ABSENCE OF SUCH REGISTRATION OR
AN EXEMPTION THEREFROM UNDER SAID ACT OR AS PROVIDED IN
AGREEMENTS ENTERED INTO IN CONNECTION WITH THE PURCHASE OF
THESE SECURITIES AND RESTRICTING THEIR TRANSFER. COPIES OF
SUCH AGREEMENTS MAY BE OBTAINED AT NO COST BY WRITTEN
REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE
TO THE SECRETARY OF THE CORPORATION AT ITS PRINCIPAL
OFFICE.
2.3 Notice of Proposed Transfers. The holder of each certificate
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representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 2.3. Prior to any proposed transfer
of any Restricted Securities, unless there is in effect a registration statement
under the Securities Act covering the proposed transfer, the holder thereof
shall give written notice to the Company of such holder's intention to effect
such transfer. Each such notice shall describe the manner and circumstances of
the proposed transfer in sufficient detail, and shall be accompanied by either
(i) an unqualified written opinion of legal counsel which counsel shall be
reasonably satisfactory to the Company addressed to the Company and which such
opinion shall be reasonably satisfactory in form and substance to the Company's
counsel, to the effect that the proposed transfer of the Restricted Securities
may be effected without registration under the Securities Act, (ii) a "no
action" letter from the Commission to the effect that the distribution of such
securities without registration will not result in a recommendation by the staff
of the Commission that action be taken with respect thereto, or (iii) such other
showing that may be satisfactory to the Company's legal counsel in such
counsel's sole discretion, whereupon the holder of such Restricted Securities
shall be entitled to transfer such Restricted Securities in accordance with the
terms of the notice delivered by the holder to the
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Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 2.2 above, except that such certificate shall not bear such restrictive
legend if in the opinion of the Company's counsel such legend is not required in
order to establish compliance with any provisions of the Securities Act.
2.4 Company Right of First Refusal on Transfers of Securities.
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In addition to complying with the provisions of Section 2.3 above, in the
event that Holder proposes to sell or otherwise transfer any of the Securities,
whether voluntarily or by operation of law, the Company shall first be given the
right to purchase the Securities that such Holder proposes to transfer. The
Company's right of first refusal shall be subject to the following provisions:
(a) In the event that a Holder proposes to transfer any of its
Securities, such Holder shall give the Company written notice of its intention,
identifying the transferee and describing the price and the specific terms upon
which the transfer is proposed. The Company shall have 20 days from the date of
receipt of any such notice to agree to purchase any or all such Securities for
the price and upon the general terms specified in the notice by giving written
notice to the Holder and stating therein the quantity of Securities to be
purchased.
(b) In the event that the Company fails to exercise the right
of first refusal within said 20 day period, the transferring Holder shall have
90 days thereafter to sell the Securities respecting which the Company's rights
were not exercised, at a price and upon terms no more favorable to the
purchasers thereon than specified in the Company's notice. In the event the
transferring Holder has not sold the Securities within such 90 day period, the
transferring Holder shall not thereafter issue or sell any Securities, without
first offering such Securities to the Company in the manner provided above.
(c) The right of first refusal granted to the Company under
this Section 2.4 shall not apply to and shall expire upon the effective date of
the first firmly underwritten public offering of Common Stock of the Company
that is made pursuant to a registration statement filed with, and declared
effective by, the Commission under the Securities Act (an "IPO").
3. Registration Rights.
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3.1 Company Registration.
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(a) If at any time or from time to time, the Company shall
determine to register any of its Common Stock, for its own account or for the
account of others (other than the Holders), other than a registration relating
solely to employee benefit plans or securities issued or issuable to employees
or consultants (including a registration on Form S-8), a registration relating
solely to a Commission Rule 145 transaction, an IPO, a registration on Form S-4
in connection with a merger, acquisition, divestiture, reorganization or similar
event or a registration on any registration form which does not include
substantially the same information as would be required to be included in a
registration statement covering the sale of Registrable Securities, the Company
will:
(i) Promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 10 days after receipt of such written notice from the
Company, by any Holder or Holders.
(b) Underwriting. If the registration of which the Company
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gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 3.1(a)(i). In such event the right of any Holder to
registration pursuant to Section 3.1 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
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Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company and the other holders distributing their securities
through such underwriting) enter into an underwriting agreement in customary
form with the underwriter or underwriters selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 3.1, if the
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the underwriter may exclude some or all
Registrable Securities from such registration and underwriting. The Company
shall so advise all Holders (except those Holders who have indicated to the
Company their decision not to distribute any of their Registrable Securities
through such underwriting), and the number of shares of Registrable Securities
that may be included in the registration and underwriting, if any, shall be
allocated among such Holders in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities owned by such Holders at the time
of filing the registration statement. No Registrable Securities excluded from
the underwriting by reason of the underwriter's marketing limitation shall be
included in such registration. If any Holder disapproves of the terms of any
such underwriting, such person may elect to withdraw therefrom by written notice
to the Company and the underwriter. The Registrable Securities and/or other
securities so withdrawn from such underwriting shall also be withdrawn from such
registration.
3.2 Expenses of Registration. All Registration Expenses (exclusive of
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underwriting discounts and commissions) incurred in connection with any
registration, qualification or compliance pursuant to Section 3.1 shall be borne
by the Company; and all Selling Expenses shall be borne by the holders of the
securities so registered pro rata on the basis of the number of shares so
registered.
3.3 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Section 3,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense, the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of 90 days or until the Holder or Holders have completed
the distribution described in the registration statement relating thereto,
whichever first occurs; and
(b) Furnish such number of prospectuses and other documents
incident thereto as a Holder from time to time may reasonably request.
3.4 Indemnification.
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(a) The Company will indemnify each Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder, with respect to which registration, qualification or compliance has
been effected pursuant to this Section 3, and each underwriter, if any, and each
person who controls any underwriter against all claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on (i) any
untrue statement (or alleged untrue statement) of a material fact contained in
any prospectus, offering circular or other similar document (including any
related registration statement, notification or the like) incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances under which they were made, or (ii) any violation by the Company
of any federal, state or common law rule or regulation applicable to the Company
in connection with any such registration, qualification or compliance, and will
reimburse each such Holder, each of its officers, directors, partners and legal
counsel, and each person controlling such Holder, each such underwriter and each
person who controls any such underwriter, for any legal and any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, as incurred, provided that the Company
will not be liable in any such case to the extent that any such claim, loss,
damage, liability or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by an
instrument duly executed by such Holder or underwriter and stated to be
specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the
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securities as to which such registration, qualification or compliance is being
effected, indemnify the Company, each of its directors and officers, each legal
counsel and independent accountant of the Company, each underwriter, if any, of
the Company's securities covered by such a registration statement, each person
who controls the Company or such underwriter within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors, and
partners and each person controlling such Holder, against all claims, losses,
damages and liabilities (or actions in respect thereof) arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any such registration statement, prospectus, offering circular or
other similar document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances under which they were
made, and will reimburse the Company, such Holders, such directors, officers,
persons, underwriters or control persons for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, as incurred, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
(c) Each party entitled to indemnification under this Section
3.4 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the Indemnifying Party shall
bear the expense of such defense of the Indemnified Party if representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest. The failure of any Indemnified Party to give
notice as provided herein shall relieve the Indemnifying Party of its
obligations under this Section 3 only to the extent that such failure to give
notice shall materially adversely prejudice the Indemnifying Party in the
defense of any such claim or any such litigation. 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.
3.5 Information by Holder. The Holder or Holders of Registrable
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Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may request in writing and as shall be
required in connection with any registration, qualification or compliance
referred to in this Section 3.
3.6 Rule 144 Reporting. With a view to making available the benefits
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of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
an IPO and following such time as a public market exists for the Common Stock of
the Company, the Company agrees to:
(a) Use its best efforts to facilitate the sale of the
Restricted Securities to the public, without registration under the Securities
Act, pursuant to Rule 144 under the Securities Act, provided that this shall not
require the Company to file reports under the Securities Act and the Exchange
Act at anytime prior to the Company's being otherwise required to file such
reports;
(b) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act at all times
after 90 days after the effective date of the first registration under the
Securities Act filed by the Company for an offering of its securities to the
general public;
(c) Use its best efforts to then file with the Commission in a
timely manner all reports and other documents required of the Company under the
Securities Act and the Exchange Act, as amended (at any
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time after it has become subject to such reporting requirements); and
(d) So long as a Purchaser owns any Restricted Securities to
furnish to the Purchaser forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after 90 days following an IPO), and of the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements), a copy of the most recent annual or quarterly report of the
Company, and such other reports and documents so filed by the Company as a
Purchaser may reasonably request in availing itself of any rule or regulation of
the Commission allowing a Purchaser to sell any such securities without
registration.
3.7 "Market Stand-off" Agreement. Each Holder of more than 1% of the
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Company's outstanding voting stock agrees not to sell or otherwise transfer or
dispose of any Common Stock (or other securities) of the Company held by it
during the 180 day period following the effective date of the Company's IPO if
so requested by the Company and underwriter of Common Stock (or other
securities) of the Company. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of such period.
4. Certain Rights
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4.1 Information Rights. Prior to an IPO, the Company shall furnish to
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each Purchaser, and each Purchaser agrees to maintain the confidentiality of,
the following reports:
(a) As soon as practicable after the end of each fiscal year of
the Company, an audited consolidated balance sheet of the Company as of the end
of such fiscal year, and audited consolidated statements of income and cash
flows of the Company for such year, prepared in accordance with generally
accepted accounting principles.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, an
unaudited consolidated balance sheet of the Company as of the end of such
quarterly period, and unaudited consolidated statements of income and cash flows
of the Company for such quarterly period, subject to changes resulting from
normal year-end audit adjustments, all in reasonable detail, except that such
financial statements need not contain the notes required by generally accepted
accounting principles.
4.2 Inspection and Visitation Rights. Prior to an IPO, the Company
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shall permit any Holder who requests to inspect and visit any of the properties
of the Company, including its books of account and other records, and to discuss
its affairs, finances and accounts with the Company's officers at such times as
such person may reasonably request as long as such requests do not interfere
with the Company's operation of its business.
5. Miscellaneous
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5.1 Governing Law. This Agreement shall be governed by and construed
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in accordance with the laws of the State of Georgia applicable to contracts
between Georgia residents entered into and to be performed entirely within the
State of Georgia.
5.2 Successors and Assigns. Except as otherwise provided herein, the
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provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
5.3 Entire Agreement. This Agreement constitutes the full and entire
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understanding and agreement between the parties with regard to the subjects
hereof.
5.4 Notices, etc. All notices and other communications required or
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permitted hereunder shall be in writing and shall be effective 5 days after
mailed by first-class mail, postage prepaid, or otherwise delivered by hand
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or by messenger, addressed (a) if to a Purchaser, at such address as such
Purchaser shall have furnished to the Company in writing, or (b) if to any other
holder of Registrable Securities, at such address as such holder shall have
furnished the Company in writing, or, until any such holder so furnishes an
address to the Company, then to and at the address of the last holder of such
Registrable Securities who has so furnished an address to the Company, or (c) if
to the Company, at such address as the Company shall have furnished to each
Purchaser and each such other holder in writing.
5.5 Counterparts. This Agreement may be executed in any number of
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counterparts, each of which may be executed by less than all of the Purchasers,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
5.6 Severability. In the case any provision of this Agreement shall be
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invalid, illegal or unenforceable, the validity, legality and enforceability of
the remaining provisions shall not in any way be affected or impaired thereby.
5.7 Amendments. The provisions of this Agreement may be amended at any
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time and from time to time, and particular provisions of this Agreement may be
waived, with and only with an agreement or consent in writing signed by the
Company and by the holders of a majority of the number of shares of Registrable
Securities (or securities convertible into Registrable Securities) outstanding
as of the date of such amendment or waiver; provided, however, that without
obtaining the consent of any other party to this Agreement, the Company may
amend this Agreement to add hereto as parties each person or entity who
purchases Shares and Stock Purchase Warrants pursuant to Subscription
Agreements, such Amendment to be effected by obtaining the signature of each
such party and the Company as a counterpart to this Agreement. Each Purchaser
acknowledges that by the operation of this Section, the holders of a majority of
the outstanding Registrable Securities may have the right and power to diminish
or eliminate all rights of such Purchaser under this Agreement.
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This Investor Rights Agreement is hereby executed as of the date first
above written.
MEGAMARKETING CORPORATION PURCHASER
By: By:
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EXHIBIT A
Units consisting of Series A Convertible
Preferred Stock and Warrants
Purchaser to Purchase Common Stock
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