EXHIBIT 10.7
EVOLVING SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
May 31, 1996
TABLE OF CONTENTS
PAGE
1. FULL AND COMPLETE UNDERSTANDING..................................... 1
2. DEFINITIONS......................................................... 1
3. RESTRICTIONS ON TRANSFER; REGISTRATION.............................. 3
3.1 Restrictions on Transfer.................................... 3
3.2 Demand Registration......................................... 4
3.3 Piggyback Registrations..................................... 5
3.4 Form S-3 Registration....................................... 7
3.5 Obligations of the Company.................................. 7
3.6 Termination of Registration Rights.......................... 9
3.7 Furnish Information......................................... 9
3.8 Delay of Registration....................................... 9
3.9 Indemnification............................................. 9
3.10 Assignment of Registration Rights........................... 11
3.11 Amendment of Registration Rights............................ 11
3.12 Limitation on Subsequent Registration Rights................ 11
3.13 "Market Stand Off" Agreement................................ 12
4. COVENANTS OF THE COMPANY............................................ 12
4.1 Basic Financial Information and Reporting.................... 12
4.2 Confidentiality.............................................. 13
4.3 Termination of Covenants..................................... 13
5. RIGHT OF FIRST REFUSAL.............................................. 13
5.1 Right of First Refusal of Securityholder Issuances........... 13
5.2 Right of First Refusal of Company Issuances.................. 15
6. CO-SALE RIGHTS...................................................... 17
6.1 Sales by Original Investors.................................. 17
6.2 Exempt Transfers............................................. 18
6.3 Termination of Co-Sale Rights................................ 19
7. BOARD OF DIRECTORS.................................................. 19
7.1 Election of Directors........................................ 19
7.2 Termination of Board Rights.................................. 20
8. INSURANCE........................................................... 20
8.1 Transfers at Death........................................... 20
8.2 Required Policies............................................ 20
8.3 Termination of Required Policies............................. 21
i.
9. MISCELLANEOUS....................................................... 21
9.1 Governing Law............................................... 21
9.2 Survival.................................................... 21
9.3 Successors and Assigns...................................... 21
9.4 Severability................................................ 21
9.5 Amendment and Waiver........................................ 21
9.6 Delays or Omissions......................................... 21
9.7 Notices, etc................................................ 22
9.8 Attorneys' Fees............................................. 22
9.9 Titles and Subtitles........................................ 22
9.10 Counterparts................................................ 22
ii
EVOLVING SYSTEMS, INC.
REGISTRATION RIGHTS AGREEMENT
THIS REGISTRATION RIGHTS AGREEMENT (the "AGREEMENT") is entered into as of
the 31st day of May, 1996, by and among EVOLVING SYSTEMS, INC., a Delaware
corporation (the "COMPANY"), the parties listed on Exhibit A hereto (the
"PURCHASERS") and the parties listed on Exhibit B hereto (the "ORIGINAL
INVESTORS").
WHEREAS, certain existing stockholders of the Company propose to sell and
issue up to an aggregate of 1,337 shares of Series A Preferred Stock of the
Company pursuant to that certain Stock Transfer Agreement dated as of even date
herewith (the "TRANSFER AGREEMENT");
WHEREAS, the Company proposes to sell and issue warrants to purchase up to
485,333 shares of Non-Voting Common Stock (the "WARRANTS") pursuant to that
certain Note and Warrant Purchase Agreement dated as of even date herewith (the
"NOTE AND WARRANT AGREEMENT"); and
WHEREAS, as a condition of entering into the Transfer Agreement and the
Note and Warrant Agreement, the prospective purchasers have requested that the
Company extend certain registration rights, rights of first refusal and rights
to financial information to the Purchasers and Original Investors as set forth
below.
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
considerations and releases contained herein, the parties hereby agree as
follows:
1. FULL AND COMPLETE UNDERSTANDING
This Agreement constitutes the full and entire understanding among the
parties with regard to the subject matter hereof, and no party shall be liable
or bound to any other party in any manner by any warranties, representations or
covenants relating to the subject matter, except as specifically set forth
herein.
2. DEFINITIONS
2.1 The term "NEW HOLDER" means any Purchaser owning of record Registrable
Securities that have not been sold to the public or any assignee of a Purchaser
of such Registrable Securities in accordance with Section 3.10 hereof.
2.2 The term "ORIGINAL HOLDER" means any Original Investor 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
3.10 hereof.
2.3 An Original Holder's "PERSONAL REPRESENTATIVE" includes any
administrator, executor, trustee, or other personal representative who is vested
with the responsibility for administering the disposition of any stock on
account of a deceased original holder's death, and equally any individual who
holds such stock as a legatee, distributee, or successor in interest, or
1
trustee where no executor, administrator, or similar fiduciary is appointed or
where any appointed executor, administrator, or fiduciary does not have control
over any of the deceased original holder's shares of the stock.
2.4 The terms "REGISTER," "REGISTERED," and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement or document.
2.5 The term "REGISTRABLE SECURITIES" means (a) Common Stock of the
Company issued or issuable upon conversion of the Series A Preferred Stock (the
"PREFERRED STOCK"); (b) shares of Non-Voting Common Stock issuable upon exercise
of the Warrants; (c) shares of Common Stock purchased by the Holders or issued
or issuable to Holders upon conversion of other securities purchased by Holders
pursuant to their right of first refusal in Section 5 of this Agreement; (d) 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, conversion of or in
replacement of, such above-described securities; and (e) shares of Common Stock
owned by the Original Investors as of the date hereof. 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 3
of this Agreement with respect to such registration rights are not assigned and
shall not include securities held by a person if all the securities held by such
person may be sold pursuant to Rule 144 in any three month period.
2.6 The number of shares of "REGISTRABLE SECURITIES THEN OUTSTANDING"
shall be determined by calculating the total number of shares of the Company's
Common Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities.
2.7 The term "SECURITIES" shall mean (a) any stock or similar security of
the Company, (b) any security convertible, with or without consideration, into
any stock or similar security of the Company, (c) any security carrying any
warrant or right to subscribe to or purchase any stock or similar security of
the Company, or (d) any such warrant or right.
2.8 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended.
2.9 The term "SECURITYHOLDER" shall refer to any holder of Securities.
2.10 The term "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.
2.11 The term "HOLDER" or "HOLDERS" refers to the New Holders and Original
Holders combined.
2
2.12 The term "SEC" or "COMMISSION" means the Securities and Exchange
Commission.
3. RESTRICTIONS ON TRANSFER; REGISTRATION
3.1 RESTRICTIONS ON TRANSFER
(A) Each Holder agrees not to make any disposition of all or any
portion of the Preferred Stock or Registrable Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
Sections 3, 5 and 6 of this Agreement, provided and to the extent such Section
is then applicable and:
(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) 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 (B) 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 to its affiliates or by a Holder which is a
partnership to its partners or affiliates in accordance with partnership
interests provided the transferee will be subject to the terms of this Section
3.1 to the same extent as if he were an original Holder hereunder.
(B) Each certificate representing Preferred Stock 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 the 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, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR
BASED ON OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE
SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE
OR TRANSFER, PLEDGE OR HYPOTHECATION IS IN COMPLIANCE THEREWITH.
3
(C) The Company shall 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 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.
3.2 DEMAND REGISTRATION.
(A) Subject to the conditions of this Section 3.2, if the Company
shall receive at any time after the earlier of six months after the effective
date of the first underwritten public offering of the Company's securities (the
"INITIAL OFFERING") or June 30, 1998 a written request from the New Holders of
not less than forty percent (40%) of the outstanding Registrable Securities then
owned by the New Holders (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, net of underwriting
discounts and commission, in excess of $5,000,000, 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 Section 3.2(b),
effect, as soon as practicable, the registration under the Securities Act of all
Registrable Securities that the New Holders request to be registered (a "DEMAND
REGISTRATION"). Provided that such request of the New Holders is satisfied, the
Original Holders may, subject to the limitations of Section 3.2(b), participate
in such Demand Registration.
(B) Any registration under this Section 3.2 must be a firmly
underwritten offering with an underwriter or underwriters of nationally
recognized standing selected for such underwriting by a majority in interest of
the Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). The right of any New Holder and Original Holder, if
any, to include his Registrable Securities in such registration shall be
conditioned upon such New Holder's and Original Holder's, if any, participation
in such underwriting and the inclusion of such New Holder's and Original
Holder's, if any, Registrable Securities in the underwriting to the extent
provided herein. All New Holders and Original Holders, if any, proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters.
Notwithstanding any other provision of this Section 3.2, if the underwriter
advises the Company in writing that marketing factors require a limitation of
the number of securities to be underwritten (including Registrable Securities)
then the Company shall so advise all New Holders and Original Holders, if any,
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, first, to the New Holders on a pro rata basis based on the number of
Registrable Securities held by all such New Holders (including the Initiating
Holders); second, to the Original Holders, if any, on a pro rata basis based on
the number of Registrable Securities
4
held by all such Original Holders; and third, to shares to be registered and
sold for the Company's own account. In any event the New Holders shall be
entitled to include in such registration no less than fifty percent (50%) of all
the Registrable Securities included by all Holders.
(C) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 3.2. A registration pursuant to this
Section 3.2 may be the Initial Offering.
(D) The Company shall not be required to effect a registration
pursuant to this Section 3.2 during the period starting with the date of filing
of, and ending on the date ninety (90) days following the effective date of the
registration statement pertaining to the Initial Offering, provided that the
Company is making reasonable and good faith efforts to cause such registration
statement to become effective. In addition, the Company shall not be required to
effect a registration pursuant to this Section 3.2 if within thirty (30) days of
receipt of a written request from Initiating Holders pursuant to Section 3.2(a),
the Company gives notice to the Holders of the Company's intention to make its
Initial Offering and files the registration statement with respect thereto
within sixty days of such notice.
(E) Notwithstanding the foregoing, if the Company shall furnish to
the New Holders requesting a registration statement pursuant to this Section
3.2, a certificate signed by the Chief Executive Officer of the Company stating
that, in the good faith judgment of the Board of Directors of the Company, it
would be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
such filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; provided that such right to delay a request
shall be exercised by the Company no more than once in any one-year period.
(F) All expenses incurred in connection with the registrations
pursuant to this Section 3.2 (excluding underwriters' discounts and commissions,
which shall be paid by the selling New Holders and Original Holders, if any, pro
rata), including without limitation all registration, filing, qualification,
printers' and accounting fees, fees and disbursements of counsel for the
Company, and the reasonable fees and disbursements of a single counsel for the
selling New Holders and Original Holders, if any, shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 3.2 if the
registration request is subsequently withdrawn by the Initiating Holders, unless
the withdrawal of the registration request results from either (i) intentional
actions by the Company outside the normal course of business or (ii) the
discovery of information about the Company that is not known at the time of the
Initiating Holders' request made pursuant to Section 3.2(a) that materially
reduces the feasibility of the registration proceeding.
3.3 PIGGYBACK REGISTRATIONS. The Company shall notify all Holders of
Registrable Securities (or their transferees who have received the Registrable
Securities in compliance with Section 3.1 of this Agreement, who for purposes of
this Section 3.3 shall be deemed to be a
5
Holder) 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 and corporate reorganizations) 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 twenty (20) days after receipt of 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 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) If the registration statement under which the Company gives
notice under this Section 3.3 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 3.3 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. 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 for its own account; 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 (other than a Holder) invoking contractual rights to
have their securities registered, if any, on a pro rata basis. No such reduction
shall reduce the securities being offered by the Company for its own account to
be included in the registration and underwriting, except that in no event shall
the amount of securities of the selling Holders included in the registration be
reduced below twenty-five percent (25%) of the total amount of securities
included in such registration, unless such offering is the Initial Offering, in
which event any or all of the Registrable Securities of the Holders may be
excluded in accordance with the immediately preceding sentence. If any Holder
disapproves of the terms of any such underwriting, he may elect to withdraw
therefrom by written notice to the Company and the underwriter, delivered at
least five (5) days prior to the effective date of the registration statement.
Any Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.
(B) The Company shall bear all fees and expenses incurred in
connection with any registration under this Section 3.3, including without
limitation all registration, filing, qualification, printers' and accounting
fees, fees and disbursements of counsel to the Company, and the reasonable fees
and disbursements of a single counsel to the selling Holders, except that each
participating Holder shall bear its proportionate share of all amounts payable
to underwriters in connection with such offering for discounts and commissions.
6
3.4 FORM S-3 REGISTRATION. In case the Company shall receive a written
request or requests from Holders of Registrable Securities owning at least one
percent (1%) of the outstanding shares of the Company's Common Stock on an as-
converted (fully diluted) basis that the Company effect a registration on Form
S-3 and any related qualification or compliance with respect to all or a part of
the Registrable Securities owned by such Holder or Holders, the Company will:
(I) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders of Registrable
Securities; and
(II) as soon as practicable, effect such registration and all
such qualifications and compliances as may be so requested and as would permit
or facilitate the sale and distribution of all or such portion of such Holder's
or Holders' Registrable Securities as are specified in such request, together
with all or such portion of the Registrable Securities of any other Holder or
Holders joining in such request as are specified in a written request given
within 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 3.4: (a) if
Form S-3 is not available for such offering by the Holders, (b) 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 $1,000,000 or
less, (c) if the Company shall furnish to the Holders a certificate signed by
the Chief Executive Officer of the Company stating that in the good faith
judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Form S-3 Registration
to be 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 ninety (90) days after receipt of the request of the Holder or Holders
under this Section 3.4, (d) if the Company has, within the twelve (12) month
period preceding the date of such request, already effected two (2)
registrations on Form S-3 for the Holders pursuant to this Section 3.4, or (e)
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.
(III) 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. The Company shall pay all expenses
incurred in connection with all registrations requested pursuant to this Section
3.4 (excluding underwriters' discounts and commissions, which shall be paid by
the selling Holders pro rata), including without limitation all registration,
filing, qualification, printers' and accounting fees, fees and disbursements of
counsel for the Company, and the reasonable fees and disbursements of a single
counsel for the selling Holder or Holders.
3.5 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 its best efforts to cause such
registration statement to become
7
effective, and, upon the request of the Holders of a majority of the Registrable
Securities registered thereunder, keep such registration statement effective for
up to ninety (90) days.
(B) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement.
(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 its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(E) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(F) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing.
(G) Furnish, at the request of any Holder requesting registration of
Registrable Securities, on the date that such Registrable Securities are
delivered to the underwriters for sale, if 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 to the Holders
requesting registration of Registrable Securities.
8
3.6 TERMINATION OF REGISTRATION RIGHTS. All registration rights granted
under this Section 3 shall terminate and be of no further force and effect after
the date seven (7) years following the Company's Initial Offering.
3.7 FURNISH INFORMATION. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to Sections 3.2, 3.3 or
3.4 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.
3.8 DELAY OF REGISTRATION. No Holder shall have any right to obtain or
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 3.
3.9 INDEMNIFICATION. In the event any Registrable Securities are included
in a registration statement under Sections 3.2, 3.3 or 3.4:
(A) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, officers and directors of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 ACT"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereof) arise out of or are based upon any
of the following statements, omissions or violations (collectively a
"Violation") 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 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 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 3.9(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 selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers, each person, if any, who
9
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 1934 Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Holder expressly for use in connection with such
registration; and each such Holder will reimburse any legal or other expenses
reasonably incurred by the Company or any such director, officer, controlling
person, underwriter or other Holder, 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 3.9(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 3.9(b) exceed the gross proceeds from the offering
received by such Holder.
(C) Promptly after receipt by an indemnified party under this Section
3.9 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 3.9, 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 3.9, 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 3.9.
(D) If the indemnification provided for in this Section 3.9 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
10
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.
(E) The foregoing indemnity agreements of the Company and Holders are
subject to the condition that, insofar as they relate to any Violation made in a
preliminary prospectus but eliminated or remedied in the amended prospectus on
file with the SEC at the time the registration statement in question becomes
effective or the amended prospectus filed with the SEC pursuant to SEC Rule
424(b) (the "FINAL PROSPECTUS"), such indemnity agreement shall not inure to the
benefit of any person if a copy of the Final Prospectus was furnished to the
indemnified party and was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act.
(F) The obligations of the Company and Holders under this Section 3.9
shall survive the completion of any offering of Registrable Securities in a
registration statement, and otherwise.
3.10 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to
register Registrable Securities pursuant to this Section 3 may be assigned by a
Holder to a transferee or assignee of Registrable Securities; provided, however,
that except as provided below no such transferee or assignee shall be entitled
to registration rights under Sections 3.2, 3.3 or 3.4 hereof unless (i) it owns
a minimum of 100,000 shares of Registrable Securities (on an as-converted basis
and subject to subsequent adjustments for stock splits, stock dividends, reverse
stock splits and similar events) or (ii) with respect to an aggregate of thirty
(30) shares as provided in Section 5.1(a)(iv), and the Company shall promptly be
furnished with 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. Notwithstanding the foregoing, rights to cause the Company to
register Registrable Securities may be assigned to any subsidiary or parent of a
Holder or to any general or limited partner of any Holder.
3.11 AMENDMENT OF REGISTRATION RIGHTS. Any provision of this Section 3 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, New Holders holding a majority of the
Registrable Securities held by all New Holders and Holders holding a majority of
Registrable Securities held by all Holders. Any amendment or waiver effected in
accordance with this Section 3.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 3, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
3.12 LIMITATION ON SUBSEQUENT REGISTRATION RIGHTS. After the date of this
Agreement, the Company shall not, without the prior written consent of both a
majority of the Holders and a majority of the New Holders, enter into any
agreement with any holder or
11
prospective holder of any securities of the Company that would permit such
holder to require to participate in any registration of securities of the
Company or that the Company register any securities held by such holder.
3.13 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that during
the 180-day period following the effective date of a registration statement of
the Company filed under the 1933 Act, it shall not, to the extent requested by
the Company and the managing underwriter, sell or otherwise transfer or dispose
of (other than to donees who agree to be similarly bound) any Common Stock of
the Company held by it at any time during such period except Common Stock
included in such registration; provided, however, that:
(A) Such agreement shall be applicable only to the first such
registration statement of the Company which covers Common Stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
and
(B) All officers and directors of the Company and all other persons
with registration rights (whether or not pursuant to this Agreement) enter into
similar agreements.
In order to enforce the foregoing covenant, the Company may impose stop-
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
4. COVENANTS OF THE COMPANY
4.1 BASIC FINANCIAL INFORMATION AND REPORTING.
(A) The Company will maintain true books and records of account in
which full and correct entries will 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 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 will furnish
each Purchaser an audited consolidated balance sheet of the Company, as at the
end of such fiscal year, an audited consolidated statement of income and an
audited consolidated statement of cash flows of the Company, for such year, all
prepared in accordance with generally accepted accounting principles 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 of national
standing selected by the Company's Board of Directors.
(C) The Company will furnish each Purchaser (i) at least thirty (30)
days prior to the beginning of each fiscal year an operating plan for such
fiscal year and (ii) within thirty (30) days after the end of each month, an
unaudited sheet and statements of income and
12
cash flows, prepared in accordance with generally accepted accounting
principles, which also set forth applicable budget figures and variances from
budget.
4.2 CONFIDENTIALITY. Each Purchaser shall, at the request of the Company,
enter into a non-disclosure and non-use agreement reasonably acceptable to the
Purchaser and the Company with respect to the information it receives from the
Company.
4.3 TERMINATION OF COVENANTS. All covenants of the Company contained in
Section 4 of this Agreement shall expire and terminate as to each Purchaser upon
the closing of an underwritten public offering of Common Stock of the Company
made pursuant to an effective registration statement under the Securities Act.
5. RIGHT OF FIRST REFUSAL
5.1 RIGHT OF FIRST REFUSAL OF SECURITYHOLDER ISSUANCES. No Securityholder
shall sell, assign, pledge, or in any manner transfer any of the Securities of
the Company or any right or interest therein, whether voluntarily or by
operation of law, or by gift or otherwise, except by a transfer which meets the
requirements hereinafter set forth in this Section 5.1.
(A) If the Securityholder receives from anyone a bona fide offer
acceptable to the Securityholder to purchase any of his Securities, then the
Securityholder shall first give written notice thereof to the Company. The
notice shall name the proposed transferee and state the price and quantity of
the Securities to be transferred, as well as all other terms and conditions of
the offer; provided, however, that this Section 5.1(a) shall not apply to either
(i) Xxxxxx Xxxxxxx Venture Capital Fund II, L.P. and affiliated funds or to
Trident Capital Management, L.L.C. and affiliated funds or to their transferees,
(ii) the sale by Xxxxxx X. Xxxxxx to Xxxxx X. Xxxxx of ten (10) shares of Series
A Preferred Stock, (iii) the sale by Xxxxx X. Xxxxxx to Xxxxxxx X. Xxxxxxxx of
three (3) shares of Series A Preferred Stock, and (iv) the sale by Xxxxx X. Fair
or Xxxxxx X. Xxxxxx of up to thirty (30) shares of Series A Preferred Stock to
officers of the Company.
(B) For fifteen (15) days following receipt of such notice, the
Company shall have the option to purchase all or a portion of the Securities
specified in the notice at the price and upon the terms set forth in such bona
fide offer. In the event the Company elects to purchase all or a portion of the
Securities, it shall give written notice to the selling Securityholder of its
election and settlement for said shares shall be made as provided below in
paragraph (d).
(C) In the event the Company does not elect to acquire all of the
Securities specified in the selling Securityholder's notice, the Secretary of
the Company shall, within fifteen (15) days of receipt of said selling
Securityholder's notice, give written notice thereof to the Original Investors
and Purchasers of the Company other than the selling Securityholder. Said
written notice shall state the number of Securities that the Company has elected
to purchase and the number of Securities remaining available for purchase (which
shall be the same as the number contained in said selling Securityholder's
notice, less any such Securities that the Company has elected to purchase). Each
of the Original Investors and Purchasers shall have the option to purchase a
maximum of that proportion of the Securities available for purchase as the
number of shares of Common Stock of the Company owned by each such Original
Investor or
13
Purchaser, on an as-converted (fully diluted) basis, bears to the total issued
and outstanding shares of Common Stock of the Company held by all Original
Investors and Purchasers, on an as-converted (fully diluted) basis, excepting
those shares owned by the selling Securityholder. An Original Investor or
Purchaser electing to exercise such option shall, within ten (10) days after
mailing of the Company's notice, give notice to the Company specifying the
number of Securities such Original Investor or Purchaser will purchase and
specifying any additional Securities such Original Investor or Purchaser will
purchase if additional Securities are made available. Failure to respond in
writing within said ten day period to the notice given by the Secretary of the
Company shall be deemed a rejection of such Original Investor's and Purchaser's
right to acquire a proportionate part of the Securities of the selling
Securityholder. In the event one or more Original Investors or Purchasers do not
elect to acquire the Securities available to them, said Securities shall be
allocated on a pro rata basis to the Original Investors and Purchasers who
requested Securities in addition to their pro rata allotment.
(D) In the event the Company and/or Original Investors and
Purchasers, other than the selling Securityholder, elect to acquire any of the
Securities of the selling Securityholder as specified in said selling
Securityholder's notice, the Secretary of the Company shall so notify the
selling Securityholder and settlement thereof shall be made in cash within
thirty (30) days after the Secretary of the Company receives said selling
Securityholder's notice; provided that if the terms of payment set forth in said
selling Securityholder's notice were other than cash against delivery, the
Company and/or its other Original Investors and Purchasers shall pay for said
Securities on the same terms and conditions set forth in said selling
Securityholder's notice.
(E) In the event the Company and/or its other Original Investors and
Purchasers do not elect to acquire all of the Securities specified in the
selling Securityholder's notice, said selling Securityholder may, within the
sixty day period following the expiration of the option rights granted to the
Company, sell elsewhere the Securities specified in said selling
Securityholder's notice which were not acquired by the Company and/or its other
Original Investors and Purchasers, in accordance with the provisions of
paragraph (d) of this Section 5.1, provided that said sale shall not be on terms
and conditions more favorable to the purchaser than those contained in the bona
fide offer set forth in said selling Securityholder's notice. All Securities so
sold by said selling Securityholder shall continue to be subject to the
provisions of Section 5 in the same manner as before said transfer.
(F) Anything to the contrary contained herein notwithstanding, the
following transactions shall be exempt from the provisions of this Section 5.1:
(I) A Securityholder's transfer of any or all Securities held
by such Securityholder to such Securityholder's immediate family or to a
charity, provided it is a bona fide gift. "IMMEDIATE FAMILY" as used herein
shall mean spouse (or domestic partner), lineal descendant (by birth or
adoption), father, mother, brother, sister, niece, nephew or lineal descendant
of father or mother (by birth or adoption) of the Securityholder making such
transfer and shall include any trust established primarily for the benefit of
the Securityholder or his immediate family;
(II) A Securityholder's bona fide pledge or mortgage of any
Securities with a commercial lending institution, provided that any subsequent
transfer of said Securities by said institution shall be conducted in the manner
set forth in this Section 5.1;
14
(III) A Securityholder's transfer of any or all of such
Securityholder's Securities to the Company;
(IV) A Securityholder's transfer of any or all of such
Securityholder's Securities to a person who, at the time of such transfer, is an
officer or director of the Company;
(V) A corporate Securityholder's transfer of any or all of its
shares pursuant to and in accordance with the terms of any merger,
consolidation, reclassification of shares or capital reorganization of the
corporate stockholder, or pursuant to a sale of all or substantially all of the
stock or assets of a corporate stockholder;
(VI) A corporate Securityholder's transfer of any or all of its
Securities to any or all of its Securityholders; and
(VII) A transfer by a Securityholder which is a limited or
general partnership to any or all of its partners.
In any such case, the transferee, assignee, or other recipient
shall receive and hold such Securities subject to Section 5.1 of this Agreement,
and there shall be no further transfer of such stock except in accordance with
this Agreement.
(G) Any sale or transfer, or purported sale or transfer, of
Securities of the Company shall be null and void unless the terms, conditions,
and provisions of this Section 5 are strictly observed and followed.
(H) The rights of first refusal established by this Section 5.1 shall
terminate upon the consummation of a public offering of the Company's securities
satisfying the conditions for automatic conversion of the Series A Preferred
Stock set forth in Section IVA4k(1) of the Company's Amended and Restated
Certificate of Incorporation (a "QUALIFIED INITIAL OFFERING").
(I) The certificates representing shares of stock of the Company
shall bear on their face the following legend so long as the foregoing right of
first refusal remains in effect:
"The shares represented by this certificate are subject to a right of
first refusal option in favor of the Company and certain stockholders of the
Company, as provided in the Registration Rights Agreement."
(J) The Company is specifically authorized to enter into individual
contracts with its stockholders respecting the transfer of shares of stock of
the Company. In that event, the terms of such contract shall prevail and this
Agreement shall not apply as long as such contract is in effect.
5.2 RIGHT OF FIRST REFUSAL OF COMPANY ISSUANCES. Each Holder shall have a
right of first refusal to purchase a maximum of that proportion of the
Securities available for purchase as the number of shares of Common Stock of the
Company owned by each such Original Investor or Purchaser, on an as-converted
(fully diluted) basis, bears to the total issued and outstanding shares of
Common Stock of the Company held by all Original Investors and Purchasers, on an
as-converted (fully diluted) basis (the "PRO RATA SHARE") of all Securities that
the Company may, from time to time, propose to sell and issue after the date of
this Agreement, other than the Securities excluded by Section 5.2(e) hereof.
Each Holder's pro rata share is equal to the ratio of
15
the number of shares of Preferred Stock and Common Stock (or Common Stock
issuable upon conversion thereof) with respect to which such Holder is deemed to
be a holder immediately prior to the issuance of such Securities to the total
number of outstanding shares of Preferred Stock and Common Stock (or Common
Stock issuable upon conversion thereof) held by all Holders.
(A) EXERCISE OF RIGHTS. If the Company proposes to issue any
Securities, it shall give each Holder written notice of its intention,
describing the Securities, the price, and the terms and conditions upon which
the Company proposes to issue the same. Each Holder shall have twenty (20) days
from the receipt of such notice to agree to purchase its pro rata share of the
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 Securities to be purchased. Any Holder electing to purchase its pro rata
share of Securities to be issued may assign its right to purchase such
Securities to a successor fund or entity. Notwithstanding the foregoing, the
Company shall not be required to offer or sell such Securities to any Holder who
would cause the Company to be in violation of applicable federal securities laws
by virtue of such offer or sale.
(B) ISSUANCE OF EQUITY SECURITIES TO OTHER PERSONS. If the Holders
fail to exercise in full the rights of first refusal within such twenty (20) day
period, the Company shall have ninety (90) days thereafter to sell the
Securities in respect of which the Holders' rights were not exercised, at a
price and upon terms and conditions no more favorable to the purchasers thereof
than specified in the Company's notice to the Holders pursuant to Section 5.2(a)
hereof. If the Company has not sold such Securities within such ninety (90)
days, the Company shall not thereafter issue or sell any Securities, without
first offering such securities to the Holders in the manner provided above.
(C) TERMINATION OF RIGHTS OF FIRST REFUSAL. The rights of first
refusal established by Section 5.2 shall terminate upon the consummation of a
Qualified Initial Offering.
(D) TRANSFER OF RIGHTS OF FIRST REFUSAL. The rights of first refusal
of each Holder under this Section 5.2 may be transferred (a) to any subsidiary
or parent of such Holder or to any successor in interest to all or substantially
all the assets of such Holder or (b) with respect to at least 100,000 shares of
Registrable Securities (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits and similar
events), to a transferee other than a direct competitor of the Company, provided
that the Company is given written notice by the Holder stating the name and
address of the transferee and identifying the Registrable Securities with
respect to which the rights under this Section 5.2 are being assigned.
(E) EXCLUDED SECURITIES. The rights of first refusal established by
this Section 5.2 shall have no application to any of the following Securities :
(I) 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
16
or any subsidiary, pursuant to stock purchase or stock option plans or other
arrangements that are approved by the Board of Directors of the Company;
(II) any Securities issued pursuant to any rights or agreements
outstanding as of the date of this Agreement, including without limitation
convertible securities, options and warrants; and any Securities issued pursuant
to any such rights or agreements granted after the date of this Agreement,
provided that the rights of first refusal established by this Section 5.2
applied with respect to the initial sale or grant by the Company of such rights
or agreements;
(III) any Securities issued for consideration other than cash
pursuant to a merger, consolidation, acquisition or similar business
combination;
(IV) any Securities that are issued by the Company as part of an
underwritten public offering of the Company's securities pursuant to a
registration statement filed under the Securities Act;
(V) shares of Common Stock issued in connection with any stock
split, stock dividend or recapitalization by the Company
(VI) shares of Common Stock issued upon conversion of the
Preferred Stock; and
(VII) any Securities issued pursuant to any venture equipment
leasing arrangement approved by the Board of Directors.
6. CO-SALE RIGHTS
6.1 SALES BY ORIGINAL INVESTORS.
(A) If an Original Investor proposes to sell or transfer any shares
of Preferred Stock or Common Stock (the "CO-SALE STOCK"), and if such Co-Sale
Stock is not all repurchased by the Company, Purchasers or Original Investors
pursuant to the Amended and Restated Bylaws of the Company, then the Original
Investor shall promptly give written notice (the "NOTICE") to the Purchasers and
other Original Holders at least thirty (30) days prior to the closing of such
sale or transfer. 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.
(B) Each Purchaser and Original Holder shall have the right,
exercisable upon written notice to such Original Investor within fifteen (15)
days after the Notice, to participate in such sale of Co-Sale Stock on the same
terms and conditions based upon its Pro Rata Share. Such notice shall indicate
the number of shares of Common Stock or Preferred Stock such Purchaser or
Original Holder wishes to sell under his or her right to participate. To the
extent one or more of the Purchasers or Original Holders exercises such right of
participation in
17
accordance with the terms and conditions set forth below, the number of shares
of Co-Sale Stock that such Original Investor may sell in the transaction shall
be correspondingly reduced.
(C) Each Purchaser or Original Holders who elects to participate in
the sale pursuant to this Section 6.1 shall effect its participation in the sale
by promptly delivering to such Original Investor for transfer to the prospective
purchaser one or more certificates, properly endorsed for transfer, which
represent the type and number of shares of stock which such Purchaser or
Original Holder elects to sell.
(D) The exercise or non-exercise of the rights of the Purchasers or
Original Holders hereunder to participate in one or more sales of Co-Sale Stock
made by such Original Investor shall not adversely affect their rights to
participate in subsequent sales of Co-Sale Stock subject to Section 6.1.
(E) If none of the Purchasers or Original Holders elect to
participate in the sale of the Co-Sale Stock subject to the Notice, such
Original Investor may, not later than sixty (60) days following delivery of the
Notice, enter into an agreement providing for the closing of the transfer of the
Co-Sale Stock covered by the Notice within thirty (30) days of such agreement on
terms and conditions not more materially favorable to the transferor than those
described in the Notice. Any proposed transfer on terms and conditions
materially more favorable than those described in the Notice, as well as any
subsequent proposed transfer of any of the Co-Sale Stock by an Original
Investor, shall again be subject to the co-sale rights of the Purchasers or
Original Holders as described in this Section 6.1.
6.2 EXEMPT TRANSFERS.
(A) Notwithstanding the foregoing, the co-sale rights of the
Purchasers shall not apply to:
(I) any transfer or transfers by an Original Investor which in
the aggregate, over the term of this Agreement, amount to no more than one
hundred thousand (100,000) shares of Co-Sale Stock (on an as-converted basis)
held by an Original Investor as of the date hereof,
(II) any transfer of Co-Sale Stock to such Original Investor's
immediate family or to a charity, provided it is a bona fide gift. "IMMEDIATE
FAMILY" as used herein shall mean spouse (or domestic partner), lineal
descendant (by birth or adoption), father, mother, brother, sister, niece,
nephew or lineal descendant of father or mother (by birth or adoption) of the
Original Investor making such transfer and shall include any trust established
primarily for the benefit of the Original Investor or his immediate family.
(III) an Original Investor's bona fide pledge or mortgage of any
Co-Sale Stock with a commercial lending institution,
(IV) a corporate Original Investor's transfer of any or all of
its Co-Sale Stock to any or all of its securityholders,
18
(V) a transfer by an Original Investor which is a limited or
general partnership to any or all of its partners; and
(VI) the sale by Xxxxxx X. Xxxxxx to Xxxxx X. Xxxxx of ten (10)
shares of Series A Preferred Stock, the sale by Xxxxx X. Xxxxxx to Xxxxxxx X.
Xxxxxxxx of three (3) shares of Series A Preferred Stock, and the sale by Xxxxx
X. Fair or Xxxxxx X. Xxxxxx of up to thirty (30) shares of Series A Preferred
Stock to officers of the Company.
Except with respect to Co-Sale Stock transferred under clause (i)
above (which Co-Sale Stock shall no longer be subject to the co-sale right of
the Purchasers), such transferred Co-Sale Stock shall remain "Co-Sale Stock"
hereunder, and such pledgee, transferee or donee shall be treated as the
"Original Investor" for purposes of Section 6.1.
(B) Notwithstanding the foregoing, the provisions of Section 6.1
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 Commission
under the Securities Act.
6.3 TERMINATION OF CO-SALE RIGHTS. The rights granted under Section 6 will
terminate upon the consummation of a Qualified Initial Offering.
7. BOARD OF DIRECTORS
7.1 ELECTION OF DIRECTORS.
(A) Each of the Holders agrees to take any and all action necessary,
including, without limitation, the voting of its shares of Equity Securities of
the Company, the execution of written consents, the calling of special meetings,
the removal of directors, the filling of vacancies in directorships on the
Board, the waiving of notice, the attending of meetings and the amendment of the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, so as to cause the Board to at all times include Xxxxxx X.
Xxxxxxxxxx, Xxxxx X. Fair, one member designated by Xxxxxx Xxxxxxx Venture
Capital Fund II, L.P. ("MSVCF"), one member designated by the mutual consent of
the Company and MSVCF and one additional director selected by a majority in
interest of the stockholders other than Xxxxxx X. Xxxxxxxxxx, Xxxxx X. Fair and
the Purchasers and their assignees.
(B) Concurrently with the execution of this Agreement, there shall be
imprinted, or otherwise placed, on the certificates representing the
shares, the following restrictive legend:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE
TERMS AND CONDITIONS OF A REGISTRATION RIGHTS AGREEMENT, DATED
MAY 31, 1996, WHICH PLACES CERTAIN RESTRICTIONS ON THE VOTING OF
THE SHARES REPRESENTED HEREBY. ANY PERSON ACCEPTING ANY INTEREST
IN SUCH SHARES SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND
BY ALL THE PROVISIONS OF SUCH AGREEMENT. A COPY OF SUCH
REGISTRATION RIGHTS AGREEMENT WILL BE
19
FURNISHED TO THE RECORD HOLDER OF THIS CERTIFICATE WITHOUT CHARGE UPON
WRITTEN REQUEST TO EVOLVING SYSTEMS, INC. AT ITS PRINCIPAL PLACE OF
BUSINESS.
7.2 TERMINATION OF BOARD RIGHTS. The rights granted pursuant to this
Section 7 shall terminate upon a Qualified Initial Offering.
8. INSURANCE
8.1 TRANSFERS AT DEATH. For a period of fifteen (15) months after the
death of any Original Holder, the Personal Representative of such deceased
Original Holder's estate shall have the option to demand that the Company redeem
stock owned by such deceased Original Holder having value up to the amount of
life insurance proceeds received by the Company under the Required Policies (as
defined in Section 8.2 hereof) as a result of such Original Holder's death, plus
all interest earned on those proceeds through the date of demand, and such stock
shall be purchased by the Company at the then-current fair market price as
determined by the Board; provided, however, that if the Personal Representative
disagrees with the Board's valuation he/she may request, at his/her own cost,
the Company to engage an independent appraiser acceptable to the Company to
value such stock. The Company agrees to keep all life insurance proceeds
received upon an Original Holder's death in a segregated, interest bearing
account during the above-described period to assure that funds necessary to
accomplish the redemption are readily available. In the event that no demand is
made within such fifteen (15) month period, the Company shall have no obligation
to purchase any stock of the deceased Original Holder and shall be free to use
the life insurance proceeds as it sees fit.
8.2 REQUIRED POLICIES. The Company now owns and is the beneficiary of
policies of life insurance on the lives of its Original Holders having a face
value as follows:
STOCKHOLDER FACE AMOUNT OF COVERAGE
------------ -----------------------
Xxxxxx X. Xxxxxxxxxx $3,500,000
Xxxxx X. Fair $3,500,000
Xxxxxx X. Xxxxxx $1,000,000
Xxxxx X. Xxxxxx $1,000,000
Xxxx X. Xxxxxxx $1,000,000
Xxxxxxx X. Xxxxxxxx NONE
Xxxxx X. Xxxxx NONE
The Company will take any actions required to maintain in force life
insurance policies on each Original Holder having an aggregate face amount as
set forth above for such Original Holder (the "REQUIRED POLICIES"), and will not
cause a lesser amount of life insurance to be owned by the Company on the life
of any Original Holder without the prior written consent of such Original
Holder; provided, however, that the aggregate face amount of coverage required
for each Original Holder will decrease by a proportional amount to be determined
by the
20
Company when and if an Original Holder's ownership interest in the Company
decreases due to a sale of his securities.
8.3 TERMINATION OF REQUIRED POLICIES. The Company's obligation to maintain
in force the Required Policies as specified in Section 8.2 will terminate upon
the consummation of a Qualified Initial Offering.
9. MISCELLANEOUS
9.1 GOVERNING LAW. This Agreement shall be governed in all respects by the
laws of the State of Colorado.
9.2 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.
9.3 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.
9.4 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.
9.5 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 a majority
of the New Holders and a majority of the Holders.
(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 a majority of the New Holders and a majority of the
Holders.
9.6 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
21
construed to be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of or in 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.
9.7 NOTICES, ETC. All notices and other communications required or
permitted hereunder shall be in writing and shall be sent by registered or
certified mail, return receipt requested, postage prepaid, and, if to an address
outside the United States of America, by telex or facsimile transmitted
substantially concurrently with the mailing of such written notice, addressed:
(a) if to a Holder, at such Holder's address as set forth on the Company's
records, or at such other address as such Holder shall have furnished to the
Company in writing, or (b) if to the Company, at its address as set forth at the
end of this Agreement, or at such other address as the Company shall have
furnished to the Holders in writing.
9.8 ATTORNEYS' FEES.' If legal action is brought to enforce or interpret
this Agreement, the prevailing party shall be entitled to recover its reasonable
attorneys' fees and legal costs in connection therewith.
9.9 TITLES AND SUBTITLES. The titles of the paragraphs and subparagraphs
of this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
9.10 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.
22
IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date set forth in the first paragraph hereof.
COMPANY: PURCHASERS:
EVOLVING SYSTEMS, INC. XXXXXX XXXXXXX VENTURE CAPITAL
FUND II, L.P.
By:______________________________
Name:____________________________ By: Xxxxxx Xxxxxxx Venture Partners
Title:___________________________ II, L.P. its General Partner
By: Xxxxxx Xxxxxxx Venture Capital
II, Inc. Managing General Partner
INVESTORS:
By:_____________________________________
_________________________________ Xxxxxx X. Xxxxxx
Xxxxxxx X. Xxxxxxxx Vice President
_________________________________
Xxxx X. Xxxxxxx XXXXXX XXXXXXX VENTURE CAPITAL
FUND II, C.V.
_________________________________ By: Xxxxxx Xxxxxxx Venture Partners
Xxxxx X. Fair II, L.P. its Investment General
Partner
_________________________________ By: Xxxxxx Xxxxxxx Venture Capital II,
Xxxxxx X. Xxxxxx Inc. Managing General Partner
_________________________________ By:_____________________________________
Xxxxxx X. Xxxxxxxxxx Xxxxxx X. Xxxxxx
Vice President
_________________________________
Xxxxx X. Xxxxx XXXXXX XXXXXXX VENTURE INVESTORS, L.P.
_________________________________ By: Xxxxxx Xxxxxxx Venture Partners II,
Xxxxx X. Xxxxxx L.P. its General Partner
By: Xxxxxx Xxxxxxx Venture Capital II,
Inc. Managing General Partner
By:_____________________________________
Xxxxxx X. Xxxxxx
Vice President
23
Information Associates, L.P.
By: Trident Capital Management, L.L.C.
its General Partner
By:___________________________________
Its:__________________________________
Information Associates, C.V
By: Trident Capital Management, L.L.C.
its Investment General Partner
By:___________________________________
Its:__________________________________
24
EXHIBIT A
PURCHASERS
COMMON SERIES A
NAME OF PURCHASER STOCK STOCK
Xxxxxx Xxxxxxx Venture Partners II, L.P. 0 470
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Fax: (000) 000-0000
Xxxxxx Xxxxxxx Venture Capital Fund II, C.V. 0 117
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Fax: (000) 000-0000
Xxxxxx Xxxxxxx Venture Investors, L.P. 0 122
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, Xxxxx 000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx Xxxxxx
Fax: (000) 000-0000
Information Associates, L.P. 0 611
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Phone: (000) 000-0000
Information Associates, C.V. 0 17
0000 Xxxx Xxxx Xxxx
Xxxxx Xxxx, XX 00000
Phone: (000) 000-0000
------- -------
TOTAL: 0 1,337
EXHIBIT B
ORIGINAL INVESTORS
COMMON SERIES A
NAME OF INVESTOR STOCK STOCK
Xxxxxxx X. Xxxxxxxx 10,000 83
Evolving Systems, Inc.
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxx X. Xxxxxxx 100,000 750
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxxx X. Fair 350,000 2,200
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxxxx X. Xxxxxx 100,000 300
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxxxx X. Xxxxxxxxxx 350,000 2,800
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxxx X. Xxxxx 10,000 90
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
Xxxxx X. Xxxxxx 100,000 600
Evolving Systems, Inc
0000 Xxxxx Xxxxxxxx
Xxxxxxxxx, Xxxxxxxx 00000
--------- ----------
TOTAL: 1,020,000 6,823
EVOLVING SYSTEMS, INC.
FIRST AMENDMENT
TO
REGISTRATION RIGHTS AGREEMENT
THIS FIRST AMENDMENT TO THE REGISTRATION RIGHTS AGREEMENT, (the
"Registration Agreement") is entered into as of August 7, 1997, by and among
EVOLVING SYSTEMS, INC., a Delaware corporation (the "Company"), the parties
listed on Exhibit A hereto (the "Purchasers") and the parties listed on Exhibit
B hereto (the "Original Investors").
RECITALS
WHEREAS, the Company, the Purchasers and the Original Investors are parties
to the Registration Agreement;
WHEREAS, the Company, the Purchasers and the Original Investors desire to
amend certain provisions of the Registration Agreement governing election of
directors; and
WHEREAS, under Section 9.5 of the Registration Agreement, the Registration
Agreement may be amended with only the written consent of the Company, a
majority in interest of each of the New Holders and Holders (as those terms are
defined in the Registration Agreement).
In consideration of the mutual agreements, covenants and considerations
contained herein, the parties hereto agree as follows:
1. DEFINITIONS. All capitalized terms used herein without definition shall
have the meanings ascribed to them in the Registration Agreement.
2. ELECTION OF DIRECTORS. Section 7.1(a) of the Registration Agreement is
amended in its entirety to read as follows:
"(a) The authorized number of directors is as set forth in the Company's
Bylaws. Each of the Holders agrees to take any and all action necessary,
including, without limitation, the voting of its shares of Equity Securities of
the Company, the execution of written consents, the calling of special meetings,
the removal of directors, the filing of vacancies in directorships on the Board,
the waiving of notice, the attending of meetings and the amendment of the
Company's Amended and Restated Certificate of Incorporation and Amended and
Restated Bylaws, so as to cause the Board to at all times include (a) Xxxxxx X.
Xxxxxxxxxx, (b) Xxxxx X. Fair, (c) one member designated by Xxxxxx Xxxxxxx
Venture Capital Fund II, L.P. ("MSVCF"), (d) one member selected by a majority
in interest of the stockholders other than Xxxxxx X. Xxxxxxxxxx, Xxxxx X. Fair
and the Purchasers and their assignees, and (e) one member designated by the
mutual consent of the Board of Directors and MSVCF (which Board consent shall be
evidenced by the consent of the directors designated under (a), (b), and (d)
above). Any Board seats in
1
excess of the five seats designated above shall be filled in accordance with the
Company's Bylaws."
3. EFFECT OF AMENDMENT. Except as amended as set forth above, the Registration
Agreement shall continue in full force and effect.
[THIS SPACE INTENTIONALLY LEFT BLANK]
2.
