EXHIBIT 4.1
IMX EXCHANGE, INC.
FOURTH AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
This Fourth Amended and Restated Investor Rights Agreement (this
"Agreement") is made as of February 18, 2000 by and among IMX Exchange, Inc., a
Delaware corporation (the "Company"), the Administrator of the estate of Xxxxxxx
X. Xxxxxx (the "Founder"), the entities listed as "Investors" on signature pages
hereto (individually, an "Investor" and collectively, the "Investors"), and
First Corp. (the "Lender").
RECITALS
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WHEREAS, certain Investors (the "Prior Purchasers") purchased from the
Company and the Company sold to the Prior Purchasers an aggregate of 4,216,216
shares of Series A Preferred Stock pursuant to a Series A Preferred Stock
Purchase Agreement dated December 20, 1996 (the "Series A Purchase Agreement"),
4,970,179 shares of Series B Preferred Stock pursuant to a Series B Preferred
Stock Purchase Agreement dated August 12, 1997 (the "Series B Purchase
Agreement"), 6,822,579 shares of Series C Preferred Stock pursuant to a Series C
Preferred Stock Purchase Agreement dated March 3, 1998 (the "Series C Purchase
Agreement") and 8,763,958 shares of Series D Preferred Stock pursuant to a
Series D Preferred Stock Purchase Agreement dated January 22, 1999 (the "Series
D Agreement");
WHEREAS, the Lender holds a warrant to purchase 11,000 shares of the
Company's Series B Preferred Stock (the "Warrant");
WHEREAS, in connection with the Series A Purchase Agreement, the Series B
Purchase Agreement, the Series C Purchase Agreement, the Series D Purchase
Agreement and the Warrant, the Prior Purchasers and Xxxxxxx X. Xxxxxx were
granted certain rights and privileges set forth in the Third Amended and
Restated Investor Rights Agreement dated January 22, 1999 (the "Prior Rights
Agreement");
WHEREAS, certain of the Investors and the Company have entered or will
enter into a Series E Preferred Stock Purchase Agreement (the "Series E Purchase
Agreement") dated the date hereof in which such Investors purchased or will
purchase from the Company and the Company sold or will sell to such Investors up
to 5,500,000 shares of Series E Preferred Stock;
WHEREAS, the obligations of the Company and such Investors under the Series
E Purchase Agreement are conditioned, among other things, upon the execution and
delivery of this Agreement by the Investors and the Company; and
WHEREAS, the Company, the Investors, the Founder and the Lender desire to
enter into this Agreement and to amend, restate and replace their rights under
the Prior Rights Agreement with the rights set forth in this Agreement as
provided in Section 16.1 of the Prior Rights Agreement;
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NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. Certain Definitions. All capitalized terms used and not otherwise
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defined herein shall have the meanings given them in the Series E Purchase
Agreement. As used in this Agreement, the following 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.
"Common Stock" shall mean the Common Stock of the Company.
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"Conversion Stock" shall mean the Common Stock issued or issuable
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pursuant to conversion of the Preferred Stock.
"Holder(s)" shall mean (i) any Investor holding Registrable
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Securities, (ii) any person holding Registrable Securities to whom the rights
under this Agreement have been transferred in accordance with Section 510
hereof, (iii) following any exercise of the Warrant, the Lender, and (iv) for
the limited purposes set forth in Section 52 hereof, the Founder.
"Initiating Holders" shall mean any Holders who in the aggregate hold
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at least forty percent (40%) of the outstanding Registrable Securities.
"Permitted Holder(s)" shall mean any person holding registration
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rights as to whom the grant of such rights has been authorized in accordance
with Section 54 hereof.
"Preferred Stock" shall mean (i) the Series A Preferred Stock of the
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Company issued pursuant to the Series A Purchase Agreement, the Series B
Preferred Stock of the Company issued pursuant to the Series B Purchase
Agreement, the Series C Preferred Stock of the Company issued pursuant to the
Series C Purchase Agreement, the Series D Preferred Stock of the Company issued
pursuant to the Series D Purchase Agreement and the Series E Preferred Stock of
the Company issued pursuant to the Series E Agreement, as such agreements may be
amended from time to time, and (ii) up to 11,000 shares of Series B Preferred
Stock of the Company issued to the Lender upon the exercise of the Warrant.
"Registrable Securities" means the Conversion Stock and any Common
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Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock dividend, recapitalization or similar event, or any
Common Stock otherwise issuable with respect to the Conversion Stock; provided,
however, that shares of Conversion Stock or other securities shall be treated as
Registrable Securities only if and so long as they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction.
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.
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"Registration Expenses" shall mean all expenses, except as otherwise
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stated below, incurred by the Company in complying with Sections 51, 52 and 53
hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any services of the
Company's independent auditors incident to or required by any such registration
including, without limitation, the expenses of any regular or special audits
incident to or required by such registration (but excluding the compensation of
regular employees of the Company, which shall be paid in any event by the
Company, and Selling Expenses) and the reasonable fees and disbursements of one
counsel for all Holders selected by the Holders and approved by the Company
(which consent will not be unreasonably withheld).
"Restricted Securities" shall mean the securities of the Company
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required to bear the legend set forth in Section 3 hereof (or any similar
legend).
"SBIC Investor" means an Investor that is a licensed Small Business
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Investment Company.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
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commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses," all
reasonable fees and disbursements of counsel for any Holder.
2. Restrictions on Transferability. The Preferred Stock, the Conversion
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Stock and any other securities issued in respect of the Preferred Stock or the
Conversion Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Agreement, which conditions
are intended to ensure compliance with the provisions of the Securities Act.
Each Investor or Lender, as the case may be, will cause any proposed purchaser,
assignee, transferee, or pledgee of any such shares held by such Investor or
Lender, as the case may be, to agree to take and hold such securities subject to
the provisions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing (i) the Preferred
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Stock, (ii) the Conversion Stock, and (iii) any other securities issued in
respect of the Preferred Stock or the Conversion Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 4 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):
"THESE SECURITIES HAVE NOT BEEN REGISTERED UNDER THE SECURITIES
ACT OF 1933, AS AMENDED. THEY MAY NOT BE SOLD, OFFERED FOR SALE,
PLEDGED OR HYPOTHECATED IN THE ABSENCE OF A REGISTRATION
STATEMENT IN EFFECT WITH RESPECT TO THE
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SECURITIES UNDER SUCH ACT OR AN OPINION OF COUNSEL REASONABLY
SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT
REQUIRED OR UNLESS SOLD PURSUANT TO RULE 144 OF SUCH ACT."
Each Investor and/or Holder consents to the Company making a notation on
its records and giving instructions to any transfer agent of the Preferred Stock
or the Common Stock in order to implement the restrictions on transfer
established in this Agreement.
4. 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 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than (i) a
transfer not involving a change in beneficial ownership, (ii) in transactions
involving the transfer or distribution of Restricted Securities by a Holder that
is a partnership, corporation or limited liability company to (A) a partner of
such partnership, a stockholder of such corporation or member of such limited
liability company, (B) a retired partner of such partnership who retires after
the date hereof, (C) the estate of any such partner, stockholder or member, or
(D) an affiliate (as defined in Rule 405 under the Securities Act) of any such
partnership, corporation or limited liability company, (iii) in transactions
involving the transfer without consideration of Restricted Securities by the
Investor during his lifetime by way of gift or on death by will or intestacy,
(iv) in transactions involving the transfer or distribution of Restricted
Securities by a corporation or partnership to an affiliate (as defined in Rule
405 under the Securities Act) or (v) in transactions in compliance with Rule 144
(provided that the Holder provides a statement of circumstances to indicate that
Rule 144 is applicable), so long as each such transferee agrees in writing to be
bound by the terms of this Agreement), 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, sale, assignment or pledge. Each such notice shall
describe the manner and circumstances of the proposed transfer, sale, assignment
or pledge in sufficient detail, and shall be accompanied, at such Holder's
expense, if reasonably requested by the Company, by either (i) an unqualified
written opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "No Action" letter from the
Commission to the effect that the transfer of such securities without
registration will not result in a recommendation by the staff of the Commission
that action be taken with respect thereto, 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
Company. Each certificate evidencing the Restricted Securities transferred as
above provided shall bear the appropriate restrictive legend set forth in
Section 3 above, except that such certificate shall not bear such restrictive
legend if, (i) in the opinion of counsel for such Holder and the Company, such
legend is not required in order to establish compliance with any provision of
the Securities Act; (ii) such transfer is made pursuant to Rule 144(k); or (iii)
such transfer is otherwise made pursuant to Rule 144 and counsel for the Company
does not deem it necessary to require such legend. Notwithstanding the
foregoing, no such opinion of counsel or "No Action" letter shall be necessary
for a transfer without value by an Investor to an affiliate (as such term is
defined in Rule 405 under the Securities Act) of such Investor, if the
transferee agrees in writing to be subject to the terms of this Agreement.
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5. Registration.
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5.1 Requested Registration.
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(a) Request for Registration. In case the Company shall receive
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from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to more than forty
percent (40%) of the outstanding shares of the Registrable Securities, or any
lesser number of shares if the anticipated aggregate offering price, before
underwriting discounts and commissions, would exceed (i) with respect to the
first underwritten firm commitment public offering of securities of the Company,
Fifteen Million Dollars ($15,000,000) at a price per share of not less than
$8.00 (adjusted to reflect stock dividends, stock splits or other
recapitalizations), or (ii) with respect to any other public offering, Five
Million Dollars ($5,000,000), the Company will:
(i) within 20 days of receipt of such request, give
written notice of the proposed registration, qualification or compliance to all
other Holders; and
(ii) use its best efforts to effect, as soon as
practicable, such registration, qualification or compliance (including, without
limitation, the filing of post-effective amendments, appropriate qualification
under applicable blue sky or other state securities laws and appropriate
compliance with applicable regulations issued under the Securities Act and any
other governmental requirements or regulations) as may be so requested and as
would permit or facilitate the sale and distribution of all of such Registrable
Securities as are specified in such request, together with all of the
Registrable Securities of any Holder or Holders joining in such request as are
specified in a written request received by the Company within twenty (20) days
after receipt of such written notice from the Company; provided, however, that
the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 51:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to the earlier of January 22, 2003 or six
months after the effective date of the Company's first registered public
offering of its stock;
(C) If the Company, within thirty (30) days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), which registration statement is subject to Section 52 hereof, provided
that the Company in good faith uses all reasonable efforts to cause such
registration statement to become effective in a timely manner;
(D) During the period starting with the date of
filing of, and ending on the date 180 days immediately following the effective
date of, any registration statement pertaining to securities of the Company
(other than a registration of securities in a
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Rule 145 transaction or with respect to an employee benefit plan) which
registration statement is subject to Section 52 hereof, provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(E) After the Company has effected two (2) such
registrations pursuant to this Section 51, and such registrations have been
declared or ordered effective and pursuant to which securities have been sold;
or
(F) If the Company shall furnish to such Initiating
Holders a certificate signed by the President 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 or its stockholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use its best efforts to register, qualify or comply under this Section 51
shall be deferred for a period not to exceed 60 days from the date of receipt of
written request from the Initiating Holders, provided that the Company may not
exercise this deferred right more than twice per twelve-month period.
Subject to the foregoing clauses through , the Company shall
file a registration statement under the Securities Act covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request or requests of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
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Section 51 is for a public offering involving an underwriting, the Company shall
so advise the Holders as part of the notice given pursuant to Section 51, and
the right of any Holder to include its Registrable Securities in such
registration pursuant to this Section 51 shall be conditioned upon such Holder's
participation in such underwriting arrangements, and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent requested
shall be limited to the extent provided herein.
The Company shall (together with all Holders proposing to
distribute their securities through such underwriting) enter into an
underwriting agreement in customary form with the managing underwriter selected
for such underwriting by the Company, but subject to the Initiating Holders'
reasonable approval. Notwithstanding any other provision of this Section 51, if
the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders and Permitted Holders (which Permitted Holders have rights on par with
and not subordinate to the Holders) requesting registration in proportion, as
nearly as practicable, to the respective amounts of Registrable Securities or
other securities entitled to registration rights held by such Holders or
Permitted Holders (which Permitted Holders have rights on parity with and not
subordinate to the Holders) at the time of filing the registration statement;
provided, however, that the number of shares of Registrable Securities to be
included in such underwriting and registration shall not be reduced unless all
other securities of the Company not entitled to registration rights pursuant to
this Section 51 are first entirely excluded from the
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underwriting and registration, and thereafter, all securities held by the
Founder are entirely excluded from the underwriting and registration. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in any such registration.
To facilitate the allocation of shares in accordance with the above provisions,
the Company or the underwriters may round the number of shares allocated to any
Holder or Permitted Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the
terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, the managing underwriter and the Initiating
Holders. The Registrable Securities and/or other securities so withdrawn shall
also be withdrawn from registration, and such Registrable Securities shall not
be transferred in a non-registered public distribution prior to 180 days after
the effective date of such registration, or such other shorter period of time as
the underwriters may require.
5.2 Company Registration.
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(a) Notice of Registration. If at any time or from time to
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time the Company shall determine to register any of its equity securities,
either for its own account or for the account of a security holder or holders,
other than (A) a registration relating solely to employee benefit plans, or (B)
a registration relating solely to a Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof,
and
(ii) 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 thirty (30) days after receipt of such written notice
from the Company, by any Holder.
(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 52. In such event the right of any Holder to registration
pursuant to Section 52 shall be conditioned upon such Holder's participation in
such underwriting, and the inclusion of Registrable Securities in the
underwriting shall be limited 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 managing underwriter selected
for such underwriting by the Company. Notwithstanding any other provision of
this Section 52, if the managing underwriter determines that marketing factors
require a limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities and other securities entitled
to registration rights to be included in such registration (i) in the case of
the Company's initial public offering, to zero, provided that any such
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limitation or "cut-back" shall first be applied to all shares proposed to be
sold in such offering other than for the account of the Company that are not
Registrable Securities or other securities entitled to registration rights, and
thereafter to all securities held by the Founder, and
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thereafter to shares proposed to be sold by stockholders with registration
rights other than those granted pursuant to this Agreement, and (ii) in the case
of any other offering, to an amount no less than twenty-five percent (25%) of
all shares to be included in such offering, provided that (x) any such
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limitation or "cut-back" shall first be applied to all shares proposed to be
sold in such offering other than for the account of the Company which are not
Registrable Securities or other securities entitled to registration rights, and
thereafter to all securities held by the Founder, and thereafter to shares
proposed to be sold by stockholders with registration rights other than those
granted pursuant to this Agreement, and (y) notwithstanding clause (x), in no
event shall any shares being sold by a stockholder exercising a demand
registration right similar to that granted in Section 51 be excluded from such
offering. The Company shall so advise all Holders and other holders distributing
their securities through such underwriting, and the number of shares of
Registrable Securities or other securities that may be included in the
registration and underwriting shall be first allocated among all the Holders and
Permitted Holders (which Permitted Holder has rights on parity with and not
subordinate to the Holders) in proportion, as nearly as practicable, to the
respective amounts of Registrable Securities or other securities entitled to
registration rights held by such Holder or Permitted Holder at the time of
filing the Registration Statement. For purposes of the preceding sentence
concerning apportionment, for any Holder that is a partnership or corporation,
the partners, retired partners and stockholders of such Holder, together with
the estates and family members of any such partners and retired partners and any
trust for the benefit of any of the foregoing persons or any affiliate (as
defined in Rule 405 under the Securities Act) of the foregoing persons, shall be
deemed to be a single "Holder," and any pro rata reduction with respect to such
Holder shall be based upon the aggregate amount of Registrable Securities owned
by all such related entities and individuals. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder or Permitted Holder to the nearest 100 shares.
If any Holder or Permitted Holder disapproves of the terms
of any such underwriting, he may elect to withdraw therefrom by written notice
to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration, and
shall not be transferred in a non-registered public distribution prior to 180
days after the effective date of the registration statement relating thereto, or
such other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have
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the right to terminate or withdraw any registration initiated by it under this
Section 52 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration. The expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 55 hereof.
(d) Registration Rights of Founder. The Founder shall be
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entitled to include any shares of Common Stock of the Company held by him in any
registration that is subject to Section 52 above, subject to the limitations,
obligations and restrictions set forth in Section 52 above. In such event, the
Founder shall be deemed to be a "Holder" for purposes of Sections 56 and 57
hereof and this Section 52.
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5.3 Registration on Form S-3.
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(a) If any Holder or Holders request that the Company file a
registration statement on Form S-3 (or any successor form to Form S-3) for a
public offering of shares of the Registrable Securities at such time as the
Company is a registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, and either (i) the reasonably anticipated
aggregate price to the public of such shares would equal or exceed $500,000 or
(ii) such Holder or Holders in the aggregate hold not less than twenty percent
(20%) of the outstanding Registrable Securities, then the Company shall use its
best efforts to cause such Registrable Securities to be registered for the
offering as soon as practicable on such form and to cause such Registrable
Securities to be qualified in such jurisdictions as such Holder or Holders may
reasonably request; provided, however, that the Company shall not be required to
effect more than two registrations pursuant to this Section 5.3 in any twelve
(12) month period. The Company shall promptly inform other Holders of the
proposed registration and offer them the opportunity to participate and shall
include in such registration all the Registrable Securities specified in a
written request or requests made within thirty (30) days after receipt of notice
from the Company by the Holder. In the event the registration is proposed to be
part of a firm commitment underwritten public offering, the substantive
provisions of Section 5.1(b) shall be applicable to each such registration
initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 53:
(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within thirty (30) days of the
receipt of the request of the initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan), which registration statement is subject to Section 52 hereof, provided
that the Company in good faith uses all reasonable efforts to cause such
registration statement to become effective in a timely manner;
(iii) during the period starting with the date of filing
of, and ending on the date 180 days immediately following the effective date of,
any registration statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to an
employee benefit plan) which registration statement is subject to Section 52
hereof, provided that the Company is actively employing in good faith all
reasonable efforts to cause such registration statement to become effective; or
(iv) if the Company shall furnish to such Holder or
Holders a certificate signed by the President 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 or its stockholders for registration
statements to be filed in the near future, in which case the
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Company's obligation to use its best efforts to file a registration statement
shall be deferred for a period not to exceed sixty (60) days from the receipt of
the request to file such registration statement by such Holder or Holders,
provided that the Company may not exercise this deferral right more than twice
per twelve-month period.
5.4 Limitations on Subsequent Registration Rights. From and after
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the date hereof, the Company shall not enter into any agreement granting any
holder or prospective holder of any securities of the Company registration
rights with respect to such securities without the written consent of the
holders of a majority of the Registrable Securities then outstanding, unless (i)
such other registration rights are subordinate to the registration rights
granted to the Holders hereunder and the inclusion of such securities will not
reduce the amount of the Registrable Securities of the Holders that are included
in a given registration, and (ii) the holders of such rights are subject to
market standoff obligations no more favorable to such persons than those
contained herein.
5.5 Expenses of Registration. All Registration Expenses incurred in
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connection with (i) two registrations pursuant to Section 51, (ii) all
registrations pursuant to Section 52, and (iii) all registrations pursuant to
Section 53, shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
5.6 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Agreement,
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) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed, whichever first occurs;
(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 participating in such registration
and to the underwriters of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus and final
prospectus, each in conformity with the Securities Act, and such other documents
as such Holders and underwriters may reasonably request in order to facilitate
the public offering of such securities;
(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
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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 underwriters 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) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or authorized for quotation
on each automated quotation system on which similar securities issued by the
Company are then listed or authorized for quotation;
(h) 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
"comfort" 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;
(i) Provide a transfer agent and registrar and a CUSIP number
for all such Registrable Securities, in each case not later than the effective
date of such registration; and
(j) In the event of any underwritten public offering, cooperate
with the participating Holders, the underwriters participating in the offering
and their counsel in any due diligence investigation reasonably requested by the
participating Holders or the underwriters in connection therewith, and
participate, to the extent reasonably requested by the managing underwriter for
the offering or the participating Holders, in efforts to sell the Registrable
Securities under the offering (including, without limitation, participating in
"roadshow" meetings with prospective investors) that would be customary for
underwritten primary offerings of a comparable amount of equity securities by
the Company.
11
5.7 Indemnification.
---------------
(a) The Company will indemnify and hold harmless each Holder of
Registrable Securities included in a registration pursuant to this Agreement,
each of its officers and directors and partners, members, managers, stockholders
and each person controlling such Holder within the meaning of Section 15 of the
Securities Act, with respect to which registration, qualification or compliance
has been effected pursuant to this Agreement, and each underwriter, if any, and
each person who controls any underwriter within the meaning of Section 15 of the
Securities Act, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, 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, or any violation or
alleged violation by the Company of the Securities Act, the Securities Exchange
Act of 1934, as amended, state securities law or any Rule or regulation
promulgated under the such laws applicable to the Company in connection with any
such registration, qualification or compliance, and the Company will reimburse
each such Holder, each of its officers, directors and partners, stockholders,
members, managers, 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, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim, loss,
damage, liability or action, 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 made in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by any Holder, controlling person or underwriter and stated to be
specifically for use therein; provided, however, that the foregoing indemnity
agreement is subject to the condition that, insofar as it relates to any such
untrue statement, alleged untrue statement, omission or alleged omission made in
a preliminary prospectus on file with the Commission at the time the
registration statement becomes effective or the amended prospectus filed with
the Commission pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any underwriter, if a copy of the
Final Prospectus 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, and if the Final Prospectus would have cured the defect giving
rise to the loss, liability, claim or damage; provided that such indemnity
agreement contained in this Section 57 shall not apply to amounts paid in
settlement of any such loss, liability, claim or damage if such settlement is
effected without the consent of the Company, which consent shall not be
unreasonably withheld.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify and hold harmless the
Company, each of its directors and officers, 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 Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors and
partners, stockholders, members, managers and each person controlling such
Holder within the meaning
12
of Section 15 of the Securities Act, against all expenses, 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 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, and will reimburse the Company, such Holders, such
directors, officers, partners, stockholders, members, managers, persons,
underwriters or control persons for any legal or any other expenses reasonably
incurred, as such expenses are incurred, in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, 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. Notwithstanding the foregoing, the liability of
each Holder under this Section 57 shall be limited in an amount equal to the net
proceeds of the shares sold by such Holder, unless such liability arises out of
or is based upon a willful material misrepresentation by such Holder. Such
indemnity agreement contained in this Section 57 shall not apply to amounts paid
in settlement of any such loss, liability, claim or damage of such settlement is
effected without the consent of such Holder, which consent shall not be
unreasonably withheld.
(c) Each party entitled to indemnification under this Section 57
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge 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), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 57 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
in which case the Indemnifying Party shall be relieved of its obligations under
this Section 57 to the extent of such prejudice (the omission to so deliver
written notice to the Indemnifying Party will not relieve it of any liability
that it may have to any Indemnified Party otherwise than as set forth in this
Section 57), and provided further that the Indemnifying Party shall not assume
the defense for matters as to which representation of both the Indemnifying
Party and the Indemnified Party by the same counsel would be inappropriate due
to actual or potential differing interests between them, but shall instead in
such event pay the fees and costs of separate counsel for the Indemnified Party.
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.
(d) If the indemnification provided for in this Section 57 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
herein, then the Indemnifying Party, in lieu
13
of indemnifying such Indemnified Party hereunder, shall contribute to the amount
paid or payable by such Indemnified Party as a result of such loss, liability,
claim, damage, or expense 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 statements or omissions that resulted
in such loss, liability, claim, damage, or expense as well as any other relevant
equitable considerations. The relative fault of the Indemnifying Party and of
the Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
Indemnifying Party or by the Indemnified Party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission, provided, however, that, in any such case, (A) no such
-----------------
Holder will be required to contribute any amount in excess of the public
offering price of all such Registrable Securities offered and sold by such
Holder pursuant to such registration statement, net of Selling Expenses; and (B)
no person or entity guilty or fraudulent misrepresentation (within the meaning
of Section 11(f) of the Securities Act) will be entitled to contribution from
any person or entity who was not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and Holders under this
Section 57 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
5.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration undertaken pursuant to this Agreement
shall furnish to the Company such information regarding such Holder or Holders,
the Registrable Securities held by them and the distribution proposed by such
Holder or Holders as the Company may reasonably request in writing and as shall
be required in connection with any registration, qualification or compliance
referred to in this Agreement.
5.9 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration or
pursuant to a registration statement on Form S-3, after such time as a public
market exists for the Common Stock of the Company, the Company agrees to use its
best efforts to:
(a) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Securities Exchange Act of 1934, as
amended;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Securities Exchange Act of 1934, as amended (at any time after it has become
subject to such reporting requirements); and
(c) So long as a Holder owns any Restricted Securities, to
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its
14
securities to the general public) and of the Securities Act and the Securities
Exchange Act of 1934, as amended (at any time after it has become subject to
such reporting requirements), or as to its eligibility to file a registration
statement on Form S-3 with respect to the resale of Registrable Securities, a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as the Holder may
reasonably request in availing itself of any Rule or regulation of the
Commission allowing the Holder to sell any such securities without registration
or pursuant to Form S-3 (at any time after the Company has become subject to the
reporting requirements of the Securities Exchange Act of 1934, as amended).
5.10 Transfer of Registration Rights. The rights to cause the Company
-------------------------------
to register securities granted Holders under Sections 51, 52 and 53 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the Holder provided that: (i) such
transfer may otherwise be effected in accordance with applicable securities
laws, (ii) such assignee or transferee acquires at least 250,000 shares of
Preferred Stock and/or Conversion Stock held by the assignor or transferor
(appropriately adjusted for recapitalizations, stock splits and the like) or
such lesser number, if it constitutes all such shares held by the assignor or
transferor, (iii) written notice is promptly given to the Company and (iv) such
transferee agrees to be bound by the provisions of this Agreement.
Notwithstanding the foregoing, the rights to cause the Company to register
securities may be assigned by any Holder that is a partnership, corporation or
limited liability company to (A) a partner of such partnership, a stockholder of
such corporation or member of such limited liability company, (B) a retired
partner of such partnership who retires after the date hereof, (C) the estate of
any such partner, stockholder or member or (D) an affiliate (as defined in Rule
405 under the Securities Act) of any such partnership, corporation or limited
liability company, provided written notice thereof is promptly given to the
Company and the transferee agrees to be bound by the provisions of this
Agreement.
5.11 Termination of Registration Rights. The rights granted pursuant
----------------------------------
to Sections 51, 52 and 53 of this Agreement shall terminate as to any Holder
upon the earliest of (i) at such time as such Holder holds less than 1% of the
Company's outstanding stock and is able (A) to sell all of his Registrable
Securities pursuant to Rule 144(k) promulgated under the Securities Act, or (B)
to sell all Registrable Securities held by him in one three (3) month period
under Rule 144 promulgated under the Securities Act; or (ii) five (5) years
after the effective date of the Company's first registered public offering of
its stock (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan).
6. Financial Information. The Company will provide the following reports
---------------------
to each holder of at least 1,000,000 shares of Preferred Stock and/or Conversion
Stock (appropriately adjusted for recapitalizations, stock splits and the like)
(each such holder referred to herein as a "Qualified Investor"):
(i) As soon as practicable after the end of each fiscal year, and
in any event within ninety (90) days thereafter, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of operations and of cash flows and stockholders' equity
of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles ("GAAP") and
15
setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail and audited by independent public
accountants of national standing selected by the Company, and a capitalization
table in reasonable detail for such fiscal year.
(ii) As soon as practicable after the end of the first, second and
third quarterly accounting periods in each fiscal year of the Company, and in
any event within forty-five (45) days thereafter, a consolidated balance sheet
of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of operations and of cash flows of
the Company and its subsidiaries for such period and for the current fiscal year
to date, prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments, in reasonable
detail and accompanied by a certificate signed by the principal financial or
accounting officer of the Company certifying that such financial statements have
been prepared in accordance with GAAP and fairly present the Company's financial
condition and results of operation as of the date and for the period specified
therein, and a capitalization table in reasonable detail for such quarterly
period, if requested by a Qualified Investor.
(iii) At least thirty (30) days after the beginning of each fiscal
year, a budget adopted by the Company's Board of Directors for the fiscal year,
prepared on a monthly basis, and, as soon as prepared, any other budgets or
revised budgets prepared by the Company.
(iv) Within thirty (30) days after the end of the first and second
monthly accounting period in each quarter, a consolidated condensed balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
monthly period, and consolidated condensed statement of operations of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with GAAP (other than for accompanying notes),
subject to changes resulting from year-end audit adjustments, together with a
statement of the chief financial or accounting officer of the Company explaining
any differences from the budget for such monthly accounting period, and signed
by the principal financial or accounting officer of the Company certifying that
such financial statements have been prepared in accordance with GAAP and fairly
present the Company's financial condition and results of operation as of the
date and for the period specified therein.
(v) As soon as practicable after the meeting of the Board of
Directors at which the annual business plan is presented by management, a copy
of such business plan.
7. Right of First Offer.
--------------------
(a) The Company hereby grants to each Qualified Investor the
right of first offer to purchase its Pro Rata Share of New Securities (as
defined in this Section 7) which the Company may, from time to time, propose to
sell and issue. For purposes of this right of first offer, "Pro Rata Share"
shall mean the ratio that (i) the sum of the number of shares of Common Stock
then held by such Holder and the number of shares of Common Stock issuable upon
conversion of the Preferred Stock then held by such Holder bears to (ii) the sum
of the total number of shares of Common Stock then outstanding and the number of
shares of Common Stock issuable upon conversion of all the then outstanding
shares of Preferred Stock.
16
(b) Except as set forth below, "New Securities" shall mean any
shares of capital stock of the Company, including Common Stock and any series of
preferred stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or preferred stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or preferred stock. Notwithstanding the
foregoing, "New Securities" does not include (i) the Conversion Stock, (ii)
Common Stock offered to the public generally pursuant to a registration
statement under the Securities Act, (iii) securities issued pursuant to the
acquisition of another corporation or entity by the Company by merger, purchase
of all or substantially all of the assets or other reorganization whereby the
Company acquires substantially all the assets of such other corporation or
entity or the Company or its stockholders own more than fifty percent (50%) of
the voting power of the surviving or successor corporation, (iv) up to 8,366,100
shares of the Company's Common Stock or related options, warrants or other
rights to purchase such Common Stock, including options, warrants or other
rights outstanding as of the date hereof, issued to employees, officers and
directors of, and consultants to, the Company, pursuant to arrangements approved
by the Board of Directors of the Company provided that the foregoing number of
shares shall be increased by the number of shares of Common Stock that were
outstanding prior to the date of this Agreement and that are repurchased by the
Company at cost upon termination of the holder's service relationship with the
Company, (v) any other stock issued pursuant to any rights, agreements or
convertible securities, including without limitation options and warrants,
provided that the rights of first offer established by this Section 7 applied
with respect to the initial sale or grant by the Company of such rights,
agreements or convertible securities, (vi) up to 11,000 shares of Series B
Preferred Stock issuable upon exercise of the Warrant, (vii) up to 125,806
shares of Series C Preferred Stock issuable to Comdisco upon exercise of
warrants to purchase Series C Preferred Stock issued to Comdisco, (viii) up to
125,806 shares of Series C Preferred Stock issuable upon exercise of Series C
Preferred Stock warrants issuable to Comdisco pursuant to commitments in effect
as of the date hereof, (ix) up to 1,150,000 shares of Series E Preferred Stock
issuable upon exercise of warrants issuable to loan origination software vendors
(the "Series E Warrants"), (x) stock issued in connection with any stock split,
stock dividend or other recapitalization by the Company, (xi) the issuance of
stock or warrants in connection with equipment lease financing transactions or
bank financing transactions unanimously approved by the Board of Directors,
where the issuance of such shares is not principally for the purpose of raising
additional equity capital for the Company, (xii) up to 88,569 shares of Common
Stock issued to Xxxxxxx X. Xxxxxx pursuant to a consulting agreement approved by
the Board of Directors of the Company, or (xiii) up to an aggregate of 50,000
shares of the Company's Common Stock issued after the date of this Agreement
pursuant to unanimous approval by the Board of Directors of the Company that the
Board of Directors unanimously determines are specifically excluded from this
right of first offer.
(c) In the event the Company proposes to undertake an issuance
of New Securities, it shall give each Qualified Investor written notice of its
intention, describing the amount and type of New Securities, and the price and
terms upon which the Company proposes to issue the same. Each Qualified Investor
shall have twenty (20) days from the date of receipt of any such notice to agree
to purchase up to its respective Pro Rata Share of such New Securities for the
price and upon the terms specified in the notice by giving written notice to the
Company and stating therein the quantity of New Securities to be purchased.
17
(d) In the event all of the New Securities are not elected to be
purchased pursuant to Section 7 above, the Company shall have one hundred and
twenty (120) days thereafter to sell the New Securities not elected to be
purchased at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice to Qualified Investors
pursuant to Section 7(c). In the event the Company has not sold the New
Securities within said one hundred and twenty (120) day period, the Company
shall not thereafter issue or sell any New Securities without first offering
such securities in the manner provided in Section 7(c) above.
8. Right to Participate in Initial Public Offering.
-----------------------------------------------
8.1 Grant of Rights. The Company hereby agrees to cause the
---------------
underwriters of its initial public offering (the "IPO") to allocate to each
Qualified Investor who holds shares of Series C Preferred Stock or Series C
Conversion Shares (as defined below), without regard to the number of such
shares held (a "Series C Investor") and each Qualified Investor who holds shares
of Series E Preferred Stock or Series E Conversion Shares (as defined below),
without regard to the number of such shares held (a "Series E Investor"), a
right to purchase certain shares of Common Stock in the IPO, subject to the
terms and conditions of this Section 8. For purposes of this Section 8, "Series
C Investor" includes any Series C Investor's general partners, managing members
and affiliates that hold shares of Series C Preferred Stock or Series C
Conversion Shares. In addition, for the purposes of this Section 8, "Series E
Investor" includes any Series E Investor's general partners, managing members
and affiliates that hold shares of Series E Preferred Stock or Series E
Conversion Shares.
8.2 Allocation of Shares.
--------------------
(a) In connection with the IPO, subject to the approval of the
Company's Board of Directors in consultation with the managing underwriters of
the IPO, which approval shall not be unreasonably withheld (subject to Section
8.2(c)), the Company will cause the underwriters of the IPO to offer to each
Series C Investor its IPO Pro Rata Share (as defined in Section 8.3(b)) of a
number of shares of the Company's Common Stock to be sold in the IPO (the
"Series C IPO Shares") equal to an amount no less than $1,500,000 divided by the
midpoint of the filing range set forth in the preliminary prospectus.
(b) In connection with the IPO, subject to the approval of the
Company's Board of Directors in consultation with the managing underwriters of
the IPO, which approval shall not be unreasonably withheld (subject to Section
8.2(c)), the Company will cause the underwriters of the IPO to offer to each
Series E Investor its IPO Pro Rata Share (as defined in Section 8.3(c)) of a
number of shares of the Company's Common Stock to be sold in the IPO (the
"Series E IPO Shares," and, together with the Series C IPO Shares, the "IPO
Shares") equal to an amount no less than $1,500,000 divided by the midpoint of
the filing range set forth in the preliminary prospectus.
(c) For purposes of Sections 8.2(a) and 8.2(b), the approval of
the Board of Directors shall be deemed to have been reasonably withheld if the
Board determines in good faith that (i) the allocation of IPO Shares pursuant to
Sections 8.2(a) and 8.2(b) is reasonably likely to be materially detrimental to
the success of the IPO, (ii) based on an opinion
18
of underwriter's or the Company's counsel, such allocation of IPO Shares
pursuant to Sections 8.2(a) and 8.2(b) violates applicable securities laws
including, but not limited to, Section 5 of the Securities Act, or (iii) based
on an opinion of underwriters' counsel, such allocation of IPO Shares pursuant
to Sections 8.2(a) and 8.2(b) violates applicable rules and regulations,
including, without limitation, the "Free Riding and Withholding" and other
applicable conduct rules of the National Association of Securities Dealers.
8.3 Allocation Procedures. The procedures for allocating IPO Shares
---------------------
shall be as follows (or shall conform to such other procedures as the managing
underwriters of the IPO may reasonably propose):
(a) The Company shall deliver a notice in accordance with
Section 166 ("IPO Notice") to the Series C Investors and the Series E Investors
stating (i) its bona fide intention to consummate the IPO, (ii) the amount of
Common Stock proposed to be offered (including the number of shares, when
determined) and (iii) the proposed price range (if such a price range will be
set forth on the cover of the preliminary prospectus). The preliminary
prospectus for the IPO shall accompany the IPO Notice if available or shall be
delivered to the Series C Investors and the Series E Investors as soon after
delivery of the IPO Notice as such preliminary prospectus becomes available.
(b) Each Series C Investor shall have the right to purchase from
the managing underwriters, at the public offering price appearing on the final
prospectus for the IPO, up to that number of Series C IPO Shares (the Series C
Investor's "IPO Pro Rata Share") that equals that number of Series C IPO Shares
multiplied by (i) the number of shares of Common Stock of the Company then
issued or issuable to that Series C Investor upon conversion of shares of Series
C Preferred Stock ("Series C Conversion Shares") divided by (ii) the number of
Series C Conversion Shares then held or deemed to be held by all of the Series C
Investors.
(c) Each Series E Investor shall have the right to purchase from
the managing underwriters, at the public offering price appearing on the final
prospectus for the IPO, up to that number of Series E IPO Shares (the Series E
Investor's "IPO Pro Rata Share") that equals the full number of Series E IPO
Shares multiplied by (i) the number of shares of Common Stock of the Company
then issued or issuable to that Series E Investor upon conversion of shares of
Series E Preferred Stock (the "Series E Conversion Shares") divided by (ii) the
number of Series E Conversion Shares then held or deemed to be held by all of
the Series E Investors.
(d) Each Series C Investor that offers to purchase its full IPO
Pro Rata Share (a "Fully-Exercising Series C Investor") may, by so specifying in
its notice of election, offer to purchase Series C IPO Shares for which other
Series C Investors were entitled to subscribe but which were not subscribed for
by such Series C Investors; including Series C Investors whose subscriptions are
void pursuant to Section 8.3(f) (the "Unsubscribed Series C IPO Shares"). In
making such offer, the Fully-Exercising Series C Investor shall specify the
maximum number of shares that such Fully-Exercising Series C Investor is
offering to purchase, or alternatively may state that it is offering to purchase
any and all shares that are allocated to the Series C Investors. Such Fully-
Exercising Series C Investor shall be entitled to purchase up to that portion of
the Series C IPO Shares that is equal to (i) the number of Series C Conversion
Shares then held or deemed to be held by that Fully-Exercising Series C Investor
divided by
19
(ii) the number of Series C Conversion Shares then held or deemed to be held by
all of the Fully-Exercising Series C Investors who are subscribing for the
Unsubscribed Series C IPO Shares. Any Series C IPO Shares remaining unallocated
at the conclusion of such reallocation among Fully-Exercising Series C Investors
shall be further reallocated at the sole discretion of the managing
underwriters.
(e) Each Series E Investor that offers to purchase its full IPO
Pro Rata Share (a "Fully-Exercising Series E Investor") may, by so specifying in
its notice of election, offer to purchase Series E IPO Shares for which other
Series E Investors were entitled to subscribe but which were not subscribed for
by such Series E Investors; including Series E Investors whose subscriptions are
void pursuant to Section 8.3(f) (the "Unsubscribed Series E IPO Shares"). In
making such offer, the Fully-Exercising Series E Investor shall specify the
maximum number of shares that such Fully-Exercising Series E Investor is
offering to purchase, or alternatively may state that it is offering to purchase
any and all shares that are allocated to the Series E Investors. Such Fully-
Exercising Series E Investor shall be entitled to purchase up to that portion of
Series E IPO Shares that is equal to (i) the number of Series E Conversion
Shares then held or deemed to be held by that Fully-Exercising Series E Investor
divided by (ii) the number of Series E Conversion Shares then held or deemed to
be held by all of the Fully-Exercising Series E Investors who are subscribing
for the Unsubscribed Series E IPO Shares. Any Series E IPO Shares remaining
unallocated at the conclusion of such reallocation among Fully-Exercising Series
E Investors shall be further reallocated at the sole discretion of the managing
underwriters.
(f) In offering to purchase IPO Shares, a Series C Investor or
Series E Investor may specify a price range above or below which the offer shall
be void.
9. Issuances to Employees and Consultants; Insurance.
-------------------------------------------------
9.1 Vesting and Transfer Restrictions. Unless otherwise determined
---------------------------------
by a majority of the members of the Board of Directors elected by, as the case
may be, the holders of Series A Preferred Stock, the holders of Series B
Preferred Stock, the holders of Series C Preferred Stock, the holders of Series
D Preferred Stock or the holders of Series E Preferred Stock, each voting as a
separate series, following the Closing (as defined in the Series E Purchase
Agreement), the Company shall not issue shares of Common Stock or other
securities of the Company or any option, warrant or right to acquire such shares
to any of its employees, officers, directors or consultants which vest on a
schedule other than twenty-five percent (25%) vesting at the end of the first
year of the holder's employment or service with the Company and the remaining
seventy-five percent (75%) vesting on a monthly basis over the following thirty-
six months, with unvested shares being repurchasable by the Company or its
assignee at cost upon termination of the holder's employment or services with
the Company for any reason. No shares of Common Stock or other securities of
the Company issued to employees, officers, directors and consultants of the
Company shall be transferable other than to the Company or the Holders prior to
vesting, and all such shares shall be subject to market standoff agreements at
least as restrictive as those set forth in Section 11 hereof in connection with
the initial public offering of the Company's securities.
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9.2 Right of First Refusal. All such shares issued to any employee,
----------------------
officer, director or consultant shall be subject to a right of first refusal
held, initially, by the Company and, secondarily if the Company does not
exercise its right, by the Holders pro rata in proportion to the number of
shares of Conversion Stock held, or issuable upon conversion of Preferred Stock
held, by each. Upon receipt of any notice of a proposed sale that will be
subject to such right of first refusal, unless the Company exercises its right
in full, it will use its best efforts to forward the notice to the Holders a
reasonable time prior to the time when the right of first refusal lapses to
enable the Holders to evaluate whether to exercise such right.
9.3 Key Person Insurance. The Company shall maintain a One Million
--------------------
Dollar ($1,000,000) insurance policy in favor of the Company on the life of
Xxxxxxx Xxxxxx, as long as he is employed by the Company. The Company covenants
that it will not assign the benefits of such key person insurance, except to an
acquiror of the Company or substantially all of its assets. Any insurance
obligations of the Company under this Section 9.3 shall terminate upon the
Company's initial public offering.
10. Termination of Covenants. The covenants set forth in Sections 6, 7,
------------------------
9, 131 and 15 shall terminate and be of no further force or effect upon the
consummation of a firm commitment underwritten public offering at a price of
$8.00 per share and of an aggregate value of $15,000,000 or at such time as the
Company (or if the Company is acquired, the survivor) is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, whichever shall occur first (the "Termination Date"). The covenants
set forth in Section 13.2 shall terminate and be of no further force and effect
on the fifth (5th) anniversary of the Termination Date. The covenants set forth
in Section 14 shall terminate and be of no further force or effect as to any
SBIC Investor at such time as such SBIC Investor no longer holds shares of
Preferred Stock or Conversion Stock.
11. Standoff Agreement. In connection with the initial public offering of
------------------
the Company's securities, each Investor and Holder agrees, upon request of the
Company or the underwriters managing such offering, not to sell, make any short
sale of, loan, grant any option for the purchase of, or otherwise dispose of any
Registrable Securities (other than those included in the registration), IPO
Shares or Series E IPO Shares without the prior written consent of the Company
or such underwriters, as the case may be, for such period of time (not to exceed
one hundred eighty (180) days) from the effective date of such registration as
may be requested by the underwriters, provided that all officers and directors
of the Company who own more than one percent (1%) of the outstanding capital
stock of, or hold options to purchase stock of, the Company, and all Holders,
Permitted Holders and other persons with registration rights, also agree to such
restrictions. The Investors and Holders agree that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section 11. The Company shall cause the underwriters to
agree that they shall not waive or terminate the foregoing transfer restrictions
as to any securities, except (i) with respect to up to 5,000 shares sold by any
single stockholder or group of affiliated stockholders (as such number may be
adjusted for stock splits, reverse stock splits and the like) or (ii) in the
case of financial hardship on the part of the holder of such securities, unless
each Holder is granted the same waiver or termination on a pro rata basis, or
unless the Holders of two-thirds (2/3) of the Registrable Securities then
outstanding consent to such waiver or termination, which consent shall not be
unreasonably withheld.
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12. Determination of Share Amounts and Percentages. For the purposes of
----------------------------------------------
determining the minimum holdings set forth in this Agreement, including without
limitation the minimum holdings pursuant to Sections 510, 5.11, 6, 7, 8, 161 and
161, the following rules shall govern:
(a) All shares held by entities affiliated with the holder shall
be deemed held by such holder, and any holder which is a partnership shall be
deemed to hold any shares of Preferred Stock and/or Conversion Stock originally
purchased by such holder and subsequently distributed to partners of such
holder, but which have not been resold by such partners.
(b) When shares of Preferred Stock are counted together with
shares of Conversion Stock or shares of Common Stock, shares of Preferred Stock
shall be counted on an as-converted into Common Stock basis, and the term
"Conversion Stock" shall mean only the shares of Common Stock which have been
issued pursuant to conversion of Preferred Stock.
13. Section 1202.
------------
13.1 Section 1202 Compliance. The Company shall use its reasonable
-----------------------
best efforts to:
(a) comply with the reporting and recordkeeping requirements of
Sections 1202 of the Internal Revenue Code of 1986, as amended (the "Code"); and
(b) refrain from taking any of the following actions:
(i) within one (1) year after the date hereof, purchasing
an amount of its own stock (within the meaning of Section 1202(c)(3) of the
Code) having an aggregate value at the time(s) of purchase exceeding five
percent (5%) of the aggregate value of all of its outstanding stock determined
as of the date one (1) year prior to the date hereof, other than repurchases of
unvested stock from terminated employees, consultants or other service providers
at the original purchase price in transactions approved by the Board of
Directors;
(ii) conducting any of the following businesses (as
defined for purposes of Section 1202(e)(3) of the Code), except to the extent
that the activities described in the Company's Business Overview that was
provided to the Investors in connection with the offer and sale of Series D
Preferred Stock, or approved by the Board of Directors of the Company including
the affirmative vote of a director nominated by the holders of Series C
Preferred Stock would be treated as constituting the conduct of any such
business:
(A) any business involving the performance of
services in the fields of law, accounting, actuarial science, performing arts,
athletics or brokerage services;
(B) any banking or insurance business;
(C) any farming business (including the business of
raising or harvesting trees);
22
(D) any business involving the production or
extraction of natural resources with respect to which a deduction is allowable
under Section 613 or 613A of the Code; or
(E) any business of operating a hotel, motel,
restaurant or similar establishment;
(iii) permitting more than ten percent (10%) of the value
of its assets to consist of stock issued by other companies (other than stock of
companies that qualify as subsidiaries of the Company within the meaning of
Section 1202(e)(5) of the Code or stock that is held as working capital or
reasonably expected to be sold within two years to finance research and
experimentation within the meaning of Section 1202(e)(6) of the Code);
(iv) permitting more than ten percent (10%) of the value
of its assets to consist of real property that is not used in the active conduct
of a qualified trade or business within the meaning of Section 1202(e)(7) of the
Code;
(v) making an election under Section 936 of the Code
(relating to the Puerto Rico and possessions tax credit) or permitting a
subsidiary to make such an election; or
(vi) in a single transaction or series of related
transactions, raising capital through the issuance of securities or the
incurrence of indebtedness if such transaction or series of related transactions
would cause the Company to fail to satisfy the active business requirement set
forth in Section 1202(e)(1) of the Code by virtue of holding excess cash or
investment assets.
For purposes of the foregoing, any valuation or other determination (including,
without limitation, a determination that a specific course of action does not
constitute the conduct of a business described in Section 13 above) made by the
Company's Board of Directors in good faith or for which there was, at the time
made, a reasonable basis in law or fact shall be conclusive.
13.2 Certification as to Compliance. The Company shall submit to the
------------------------------
Investors and to the Internal Revenue Service any reports that may be required
under Section 1202(d)(1)(C) of the Code and any related Treasury Regulations.
In addition, within thirty (30) days after any written request of any Investor,
the Company will deliver to such Investor a certificate in the form attached
hereto as Exhibit A (a "QSBS Certificate") informing the Investor whether such
Investor's interest in the Company constitutes, to the best of the Company's
knowledge, a qualified small business stock, as defined in Section 1202(c) of
the Code. The Company's obligation to furnish a QSBS Certificate pursuant to
this Section 13.2 shall continue notwithstanding the fact that a class of the
Company's stock may be traded on an established securities market.
14. SBA Matters.
-----------
14.1 Use of Proceeds. The proceeds from the issuance and sale of the
---------------
Series E Preferred Stock pursuant to the Series E Purchase Agreement (the
"Proceeds") shall be used by
23
the Company for its growth, modernization or expansion. The Company shall
provide each SBIC Investor and the Small Business Administration (the "SBA")
reasonable access to the Company's books and records for the purpose of
confirming the use of the Proceeds.
14.2 Business Activity. For a period of one year following the
-----------------
Closing (as defined in the Series D Purchase Agreement), the Company shall not
change the nature of its business activity if such change would render the
Company ineligible as provided in 13 C.F.R. (S) 107.720.
14.3 Compliance. So long as any SBIC Investor holds any securities of
----------
the Company, the Company will at all times comply with the non-discrimination
requirements of 13 C.F.R. Parts 112, 113 and 117.
14.4 Information for SBIC Investor. Within 45 days after the end of
-----------------------------
each fiscal year and at such other times as an SBIC Investor may reasonably
request, the Company shall deliver to such SBIC Investor a written assessment,
in form and substance satisfactory to such SBIC Investor, of the economic impact
of such SBIC Investor's financing specifying the full-time equivalent jobs
created or retained in connection with such investment, and the impact of the
financing on the Company's business in terms of profits and on taxes paid by the
Company and its employees. Upon request, the Company agrees to promptly provide
each SBIC Investor with sufficient information to permit such Purchasers to
comply with their obligations under the Small Business Investment Act; provided,
however, each SBIC Investor agrees that it will protect any information which
the Company labels as confidential to the extent permitted by law. Any
submission of any financial information under this section shall include a
certificate of the Company's president, chief executive officer, treasurer or
chief financial officer. The Company shall provide each SBIC Investor and the
SBA reasonable access to the Company's books, records and properties for the
purposes of confirming the use of the proceeds received hereunder.
14.5 Number of Holders of Voting Securities. So long as any SBIC
--------------------------------------
Investor holds any securities purchased pursuant to the Series C, Series D or
Series E Purchase Agreement or issued by the Company with respect thereto, the
Company shall notify each SBIC Investor (i) at least 15 days prior to taking any
action after which the number of record holders of the Company's voting
securities would be increased from fewer than 50 to 50 or more, if, immediately
following such action, such SBIC Investor, together with its affiliates and
associates, will own at least 25% of the Company's outstanding voting
securities, and (ii) of any other action or occurrence after which the number of
record holders of the Company's voting securities was increased (or would
increase) from fewer than 50 to 50 or more, as soon as practicable after the
Company becomes aware that such other action or occurrence has occurred or is
proposed to occur.
15. Additional Covenants.
--------------------
15.1 Certain Transactions. The Company shall not enter into any (i)
--------------------
material agreement or transaction with any affiliate of the Company (as defined
in Rule 144 promulgated under the Securities Act), other than a Purchaser under
the Series E Purchase Agreement, (ii) sale or exclusive license, to any third
party, of any intellectual property material to the Company, or (iii) repurchase
of its Common Stock above cost unless, in each case, the
24
Company, in addition to all consents and approvals that may be required by the
Company's Bylaws and Certificate of Incorporation, also obtains the approval of
a majority of the members of the Board of Directors of the Company who have been
elected by the holders of Preferred Stock.
15.2 Nondisclosure and Confidentiality Agreement. With respect to any
-------------------------------------------
current employee that has executed a Nondisclosure and Confidentiality Agreement
that contains an expiration date, the Company shall use its best efforts to
cause such employee, prior to that expiration date, to enter into a new
agreement containing no expiration date and otherwise containing terms and
conditions that are no less favorable to the Company than the employee's current
Nondisclosure and Confidentiality Agreement.
15.3 Like Treatment of Holders. Neither the Company nor any of its
-------------------------
affiliates shall, directly or indirectly, pay or cause to be paid any
consideration, whether by way of interest, fee, payment for the redemption or
exchange of any shares of any series of its Preferred Stock (all such series
being collectively referred to as "Preferred Stock"), or otherwise, to any
holder of Preferred Stock for or as an inducement to, or in connection with
solicitation of, any consent, waiver or amendment of any terms or provisions of
its Preferred Stock or this Agreement, the Company's Certificate of
Incorporation, the Third Amended and Restated Voting Agreement of even date
herewith or the Fourth Amended and Restated Co-Sale Agreement of even date
herewith, unless such consideration is paid to all holders of Preferred Stock
bound by such consent, waiver or amendment, whether or not such holders so
consent, waive or agree to amend and whether or not such holders tender their
Preferred Stock for redemption or exchange.
16. Miscellaneous.
-------------
16.1 Amendments.
----------
(a) Any provision of Section 5 of this Agreement or this Section
161 may be amended or the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding or deemed to be outstanding. Any
amendment or waiver effected in accordance with this Section 161 shall be
binding upon each Investor and each Holder of Registrable Securities at the time
outstanding or deemed to be outstanding (including securities into which such
securities are convertible), each future holder of all such securities, and the
Company.
(b) Any provision of Section 8 or this Section 161 may be
amended or the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only with the
written consent of the Company and Series C Investors holding two-thirds (2/3)
of the Series C Preferred Stock or Series C Conversion Stock then held by all of
the Series C Investors; provided, however, that nothing in this paragraph shall
in any way limit the discretion of the Board of Directors of the Company set
forth in Section 8.2 with respect to allocation of IPO Shares to Series C
Investors.
25
(c) Any provision of Section 14 of this Agreement or this
Section 16.1(c) may be amended or the observance thereof may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and each SBIC
Investor.
(d) Except as expressly provided herein, no other section of
this Agreement may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
holders of a majority of the Preferred Stock and Conversion Stock outstanding or
issuable upon conversion of outstanding Preferred Stock may, with the Company's
prior written consent, waive, modify or amend on behalf of all holders any
provisions hereof other than the provisions of Sections 5, 8 and 14 so long as
the effect thereof will be that all such persons will be treated in the same
manner.
16.2 Governing Law. This Agreement and the legal relations between
-------------
the parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
16.3 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding the matters set forth
herein. 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.
16.4 Prior Rights Agreement Superseded. Pursuant to Section 16.1 of
---------------------------------
the Prior Rights Agreement, the undersigned parties who are parties to such
Prior Rights Agreement hereby restate the Prior Agreement to read in its
entirety as set forth in this Agreement, such that the Prior Rights Agreement is
hereby terminated and entirely replaced and superseded by this Agreement.
16.5 Waiver of Right of First Refusal. Pursuant to Section 16.1(d) of
--------------------------------
the Prior Rights Agreement, the undersigned parties, constituting all of the
parties to such Prior Rights Agreement hereby waive all of such parties' right
of first refusal under Section 7 of the Prior Rights Agreement with respect to
the Company's issuance of Series E Preferred Stock under this Agreement.
16.6 Notices, Etc. All notices and other communications required or
-------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one business day after deposit with a
recognized overnight courier and four business days after deposit in the U.S.
mail, certified or registered, return receipt requested, addressed (a) if to an
Investor, at such Investor's address or addresses as set forth on the Schedule
of Investors attached hereto, or at such other address or addresses as such
Investor shall have furnished to the Company in writing in accordance with this
Section 166, with a copy to special counsel to the Investors, (b) if to any
other holder of Preferred Stock or Conversion Stock, at such address as
26
such holder shall have furnished the Company in writing in accordance with this
Section 166, or, until any such holder so furnishes an address to the Company,
then to and at the address of the last holder thereof who has so furnished an
address to the Company, or (c) if to the Company, at its principal office with a
copy to Xxxx Xxxx Xxxx & Freidenrich, 000 Xxxxxxxx Xxxxxx, Xxxx Xxxx, XX 00000-
1825, Attn: Xxxx X. Xxxxxxxxxxx.
16.7 Consent to Grant of Warrants. Pursuant to Section 7 of the
----------------------------
Company's Fifth Amended and Restated Certificate of Incorporation, the holders
of Preferred Stock of the Company hereby consent to the issuance of the Series E
Warrants and the shares of Series E Preferred Stock issuable upon exercise
thereof.
16.8 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.
16.9 Attorney's Fees. In the event of any action to enforce any of
---------------
the terms of this Agreement, the prevailing party shall be entitled to
reimbursement from the non-prevailing party of its costs and expenses (including
reasonable attorneys' fees) incurred in connection therewith, in addition to all
other remedies and relief to which such prevailing party is entitled.
16.10 Severability. If any provision of this Agreement shall be
------------
judicially determined to be invalid, illegal or unenforceable, the validity,
legality and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
27
