EXHIBIT 10.8
FORM OF
INFOSPACE, INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (this "Agreement") is entered into as of May
21, 1998, by and between InfoSpace, Inc., a Delaware corporation (the
"Company"), and ____________________ (the "Investor").
RECITALS
A. Pursuant to that certain Common Stock and Common Stock Warrant Purchase
Agreement dated as of the date hereof (the "Purchase Agreement"), the Investor
is purchasing: (i) __________ shares of the common stock of the Company, par
value $.0001 per share (the "Common Stock"), and is also separately purchasing
(ii) Warrants to purchase up to __________ shares of Common Stock (the
"Warrants").
B. The execution and delivery of this Agreement is a condition to the
Closing under the Purchase Agreement.
AGREEMENTS
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION 1. RESTRICTIONS ON TRANSFERABILITY; REGISTRATION RIGHTS
1.1 CERTAIN DEFINITIONS
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.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"Holder" shall mean the Investor and any person holding Registrable
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Securities to whom the rights under this Agreement have been transferred in
accordance with Section 1.13 hereof.
"Initial Public Offering" shall mean the first public offering of
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Common Stock by the Company to the public pursuant to a registration statement
filed with, and declared effective by, the Commission under the Securities Act.
"Initiating Holders" shall mean the Investor or transferees of the
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Investor under Section 1.13 hereof who in the aggregate are Holders of not less
than fifty percent (50%) of the Registrable Securities.
The terms "register", "registered" and "registration" refer to a
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registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the
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Company in complying with Sections 1.5, 1.6 and 1.7 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, and the expense of any special audits incident to or required by
any such registration (but excluding the compensation of regular employees of
the Company which shall be paid in any event by the Company).
"Registrable Securities" means the Shares and the Warrant Shares or
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other securities issued or issuable with respect to the Shares or Warrant Shares
upon any stock split, stock dividend, recapitalization or similar event, or any
Common Stock otherwise issued or issuable with respect to the Shares or Warrant
Shares; provided, however, that shares of Common Stock or other securities shall
only be treated as Registrable Securities if and so long as they have not been
(A) sold to or through a broker or dealer or underwriter in a public
distribution or a public securities transaction, or (B) sold in a transaction
exempt from the registration and prospectus delivery requirements of the
Securities Act under Section 4(l) thereof so that all transfer restrictions and
restrictive legends with respect thereto are removed upon the consummation of
such sale.
"Restricted Securities" shall mean the securities of the Company
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required to bear the legend set forth in Section 1.3 hereof.
"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 all fees and disbursements of counsel for the Holders (as
limited by Section 1.8).
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"Shares" shall mean the shares of Common Stock being issued pursuant
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to the Subscription Agreement.
"Warrant Shares" shall mean the Common Stock issued or issuable upon
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exercise of the Warrants.
1.2 RESTRICTIONS
The Shares and the Warrant Shares 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. The Investor will cause any proposed purchaser, assignee,
transferee or pledgee of the Shares and the Warrant Shares, to agree to take and
hold such securities subject to the provisions and upon the conditions specified
in this Agreement.
1.3 RESTRICTIVE LEGEND
Each certificate representing (i) the Shares, (ii) the Warrant Shares, and
(iii) any other securities issued in respect of the securities referenced in
clauses (i) and (ii) upon any stock split, stock dividend, recapitalization,
merger, consolidation or similar event shall (unless otherwise permitted by the
provisions of Section 1.4 below) be stamped or otherwise imprinted with a legend
in the form of Exhibit A attached hereto (in addition to any legend required
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under applicable state securities laws). The Investor and Holder consents to
the Company making a notation on its records and giving instructions to any
transfer agent of the Restricted Securities in order to implement the
restrictions on transfer established in this Section 1.
1.4 NOTICE OF PROPOSED TRANSFERS
The holder of each certificate representing Restricted Securities, by
acceptance thereof, agrees to comply in all respects with the provisions of this
Section 1. Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration statement under
the Securities Act covering the proposed transfer, the holder thereof shall give
written notice to the Company of such holder's intention to effect such
transfer, 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 by either
(i) a written opinion of legal counsel who shall, 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, or (iii) any other evidence
reasonably satisfactory to counsel to the Company, whereupon the holder of
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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. The Company shall not require such a legal opinion or "no action"
letter in any transaction in compliance with Rule 144. Each certificate
evidencing the Restricted Securities transferred as above provided shall bear,
except if such transfer is made pursuant to Rule 144, the appropriate
restrictive legend set forth in Section 1.3 above, except that such certificate
shall not bear such restrictive legend if, in the opinion of counsel for such
holder and the Company, such legend is not required in order to establish
compliance with any provisions of the Securities Act.
1.5 REQUESTED REGISTRATION
(a) Request for Registration. In case the Company shall receive from
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Initiating Holders a written request that the Company effect any registration,
qualification or compliance with respect to the Registrable Securities, the
Company will:
(i) promptly give written notice of the proposed registration,
qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to effect such
registration, qualification or compliance (including, without limitation, the
execution of an undertaking to file 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 or
such portion of such Registrable Securities as are specified in such request,
together with all or such portion 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 1.5:
(1) 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;
(2) Prior to the earlier of (a) one year following the effective
date of the Company's Initial Public Offering or (b) the third anniversary of
the date of this Agreement;
(3) Unless at least one half of the Registrable Securities then
outstanding are included in the request for registration pursuant to Section
1.5(a) above,
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and the proposed aggregate offering price therefor, net of underwriting
discounts and commissions, is at least $5,000,000;
(4) If the Company is unable to arrange for the proposed
offering to be underwritten on commercially reasonable terms by an underwriting
firm of nationally recognized standing;
(5) After the Company has effected two (2) such registrations
pursuant to this subparagraph 1.5(a) and each such registration has been
declared or ordered effective and remained effective for the period specified in
Section 1.9(a) of this Agreement; or
(6) If the Company shall furnish to such Holders a certificate,
signed by the President of the Company, stating that in the good faith judgment
of the Board of Directors it would be seriously detrimental to the Company or
its stockholders for a registration statement to be filed in the near future,
then the Company's obligation to use its commercially reasonable efforts to
register, qualify or comply under this Section 1.5 shall be deferred for a
period not to exceed one hundred and twenty (120) days from the date of receipt
of written request from the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve (12) month
period.
Subject to the foregoing clauses (1) through (6), the Company shall file a
registration statement 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. The right of any Holder to registration pursuant to
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Section 1.5 shall be conditioned upon such Holder's participation in the
underwriting arrangements required by this Section 1.5 and the inclusion of such
Holder's Registrable Securities in the underwriting, to the extent requested, 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 (which managing underwriter shall
be reasonably acceptable to a majority in interest of the Initiating Holders).
Notwithstanding any other provision of this Section 1.5, if the managing
underwriter determines 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 in writing, and the number of shares of Registrable
Securities that may be included in the registration and underwriting shall be
allocated among all Holders thereof in proportion, as nearly as practicable, to
the respective amounts of Registrable Securities held by such 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 shall not
be reduced unless all other securities are first entirely excluded from the
underwriting.
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No Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in 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 to the nearest one hundred (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 public distribution prior to one
hundred and eighty (180) days after the effective date of such registration.
1.6 COMPANY REGISTRATION
(a) Notice of Registration. If at any time or from time to time after
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completion of the Company's Initial Public Offering the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders, other than (x) a registration relating solely to
employee benefit plans or (y) a registration relating solely to a Commission
Rule 145 transaction, the Company will (but not more than five (5) times
pursuant to this Section 1.6(a)):
(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 fifteen (15) days after receipt of such written notice from the Company
by any Holder.
(b) Underwriting. If the registration of which the Company gives notice is
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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
1.6(a)(i). In such event, the right of any Holder to registration pursuant to
Section 1.6 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of Registrable Securities in the underwriting, to
the extent requested, 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 1.6, 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 number of
Registrable Securities to be included in the registration and underwriting, on a
pro rata basis based on the total number of securities (including, without
limitation, Registrable Securities) entitled to registration pursuant to
registration rights granted to the participating Holders by the Company. To
facilitate the
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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 other
holder to the nearest one hundred (100) shares. If any Holder or other holder
disapproves of the terms of any such underwriting, he or she 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 public
distribution prior to one hundred eighty (180) days after the effective date of
the registration statement relating thereto.
(c) Right to Terminate Registration. The Company shall have the right to
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terminate or withdraw any registration initiated by it under this Section 1.6
prior to the effectiveness of such registration, whether or not any Holder has
elected to include securities in such registration.
1.7 REGISTRATION ON FORM S-3
(a) If any Holder or Holders of Registrable Securities requests that the
Company file a registration statement on Form S-3 (or any successor form to Form
S-3) for a public offering of Registrable Securities, the reasonably anticipated
aggregate price to the public of which, net of underwriting discounts and
commissions, would exceed $2,000,000, and the Company is a registrant entitled
to use Form S-3 to register the Registrable Securities for such an offering, the
Company shall use its best efforts to cause such Registrable Securities to be
registered for the offering on such form. The Company will (i) promptly give
written notice of the proposed registration to all other Holders and (ii) as
soon as practicable use its best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file 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 or such portion of such Registrable Securities as are
specified in such request, together with all or such portion 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 fifteen (15) days after receipt
of such written notice from the Company. The substantive provisions of Section
1.5(b) shall be applicable to each registration initiated under this Section
1.7.
(b) Notwithstanding the foregoing, the Company shall not be obligated to
take any action pursuant to this Section 1.7: (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) during the period starting with the date
sixty (60) days prior to the Company's estimated date of filing of, and ending
on the date six (6) months immediately following
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the effective date of, a registration statement (other than with respect to a
registration statement relating to a Rule 145 transaction, an offering solely to
employees or any other registration which is not appropriate for the
registration of Registrable Securities), provided that the Company is actively
employing in good faith all reasonable efforts to cause such registration
statement to become effective; (iii) after the Company has effected three (3)
such registrations pursuant to this Section 1.7 and each such registration has
been declared or ordered effective and has remained effective for the period
specified in Section 1.9(a) of this Agreement; (iv) in any calendar year after
the Company has effected two (2) such registrations pursuant to this Section 1.7
in such calendar year and each such registration has been declared or ordered
effective and has remained effective for the period specified in Section 1.9(a)
of this Agreement; and (v) if the Company shall furnish to such Holder a
certificate signed by the President of the Company stating that, in the good
faith judgment of the Board of Directors, it would be seriously detrimental to
the Company or its stockholders for registration statements to be filed in the
near future, then the Company's obligation to use its best efforts to file a
registration statement shall be deferred for a period not to exceed one hundred
twenty (120) days from the receipt of the request to file such registration by
such Holder or Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
1.8 EXPENSES OF REGISTRATION
All Registration Expenses incurred in connection with any registration
pursuant to Sections 1.5 and 1.6, and up to one registration in any calendar
year after the date hereof under Section 1.7, and the reasonable cost of one
special legal counsel to represent all of the Holders together in any such
registration, shall be borne by the Company. All Registration Expenses incurred
in connection with any registration pursuant to Section 1.7 of this Agreement
above and beyond one registration in any calendar year after the date hereof,
and the cost of any counsel for the Holders in any such registration, shall be
borne by the Holders pro rata according to the number of Registrable Securities
included by them in such registration. If a registration proceeding is begun
upon the request of Initiating Holders pursuant to Section 1.5 or Section 1.7
(if the first request under Section 1.7 in any calendar year), but such request
is subsequently withdrawn, then the Holders of Registrable Securities to have
been registered may either: (i) bear all Registration Expenses of such
proceeding, pro rata on the basis of the number of shares to have been
registered, in which case the Company shall be deemed not to have effected a
registration pursuant to subparagraph 1.5(a) or 1.7, as the case may be, of this
Agreement, or (ii) require the Company to bear all Registration Expenses of such
proceeding, in which case the Company shall be deemed to have effected a
registration pursuant to subparagraph 1.5(a) or 1.7, as the case may be, of this
Agreement. The preceding sentence shall not apply if, at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request. Unless otherwise stated, all other Selling
Expenses relating to securities registered on behalf of the Holders
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shall be borne by the Holders of the securities included in such
registration pro rata on the basis of the number of shares so registered.
1.9 REGISTRATION PROCEDURES
In the case of each registration, qualification or compliance effected by
the Company pursuant to this Section 1, 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 until the distribution described in the
registration statement has been completed, but in no event longer than ninety
(90) days; and
(b) Prepare and file with the Commission 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, if any, of the securities being registered such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such 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 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, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter 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 Act of the happening of any event as a result
of which the prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
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(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange or other trading market on
which similar securities issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Use its best efforts to furnish, at the request of any Holder
requesting registration of Registrable Securities pursuant to this Section 1, on
the date that such Registrable Securities are delivered to the underwriters for
sale in connection with a registration pursuant to this Section 1, if such
securities are being sold through underwriters, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters and to the Holders requesting
registration of Registrable Securities and (ii) a letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.10 INDEMNIFICATION
(a) The Company will indemnify each Holder, each of its officers and
directors and partners, 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 Section 1, and
each underwriter, if any, and each person who controls any underwriter within
the meaning of Section 15 of the Securities Act, against all actual out-of-
pocket expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in any litigation or 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, preliminary 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, in light of the
circumstances in which they were made, not misleading, or any violation or any
alleged violation by the Company of the Securities Act or the Exchange Act or
any state securities law, or of any rule or regulation promulgated under any of
the foregoing 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 and directors, and each person controlling
such Holder, each such underwriter and each person who controls any such
underwriter, for any legal and any other actual
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out-of-pocket expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action, as
such expenses are incurred; provided, however, that the indemnity agreement
contained in this Section 1.10(a) shall not apply to amounts paid in settlement
of any such matter if the settlement is effected without the consent of the
Company, which consent shall not be unreasonably withheld; and provided further
that the Company will not be liable in any such case to the extent that any such
claim, loss, damage, liability or expense arises out of or is based on any
untrue statement or omission or alleged untrue statement or omission, made in
reliance upon and in conformity with written information furnished to the
Company by such Holder, controlling person or underwriter specifically for use
therein.
(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 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 and directors and each person
controlling such Holder within the meaning of Section 15 of the Securities Act,
against all actual out-of-pocket expenses, claims, losses, damages and
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 such 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, in
light of the circumstances in which they were made, or necessary to make the
statements therein not misleading, and will reimburse the Company, such Holders,
such directors, officers, persons, underwriters or control persons for any legal
and any other actual out-of pocket expenses reasonably incurred in connection
with investigating or defending any such claim, loss, damage, liability or
action, as such expenses are incurred, in each case to the extent, but only to
the extent, that such untrue statement (or alleged untrue statement) or omission
(or alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity with
written information furnished to the Company by such Holder specifically for use
therein; provided, however, that the indemnity agreement contained in this
Section 1.10(b) shall not apply to amounts paid in settlement of any matter if
the settlement is effected without the consent of the Holder, which consent
shall not be unreasonably withheld; and provided further that the maximum
liability of each selling Holder under this Section 1.10(b) shall be equal to
the total cash proceeds to such selling Holder as a result of such registration
and offering.
(c) Each party entitled to indemnification under this Section 1.10 (the
"Indemnified Party") shall give notice to the party required to provide
indemnification
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(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; provided, however, that an Indemnified Party (together with all
other Indemnified Parties which may be represented without conflict by one
counsel) shall have the right to retain one separate counsel, with the
reasonable fees and expenses of such counsel to be paid by the Indemnifying
Party, if representation of such Indemnified Party by the counsel retained by
the Indemnifying Party would be inappropriate due to actual or potential
differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding. The failure of any Indemnified
Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1.10 unless the failure to give such
notice is materially prejudicial to an Indemnifying Party's ability to defend
such action. No Indemnifying Party, in the defense of any such claim or
litigation, shall, except with the consent of each Indemnified Party (not to be
unreasonably withheld), 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 1.10 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 therein,
then the indemnifying party, in lieu 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;
provided, that, in no event shall any contribution by a Holder under this
Subsection 1.10(d) exceed the net proceeds from the offering received by such
Holder, except in the case of willful fraud by such Holder. 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.
(e) Notwithstanding the foregoing, to the extent that the provisions on
indemnification and contribution contained in the underwriting agreement entered
into in
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connection with the underwritten public offering are in conflict with the
foregoing provisions, the provisions in the underwriting agreement shall
control.
(f) The obligations of the Company and Holders under this Section 1.10
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 INFORMATION BY HOLDER
The Holder or Holders of Registrable Securities included in any
registration 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 request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 1.
1.12 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, 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 Exchange Act.
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Exchange Act (at any time after it
has become subject to such reporting requirements); and
(c) So long as the Investor owns any Restricted Securities, to
furnish to the Investor forthwith upon request a written statement by the
Company as to its compliance with the reporting requirements of 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 securities to the general
public), and of the Exchange Act (at any time after it has become subject to
such reporting requirements), a copy of the most recent annual or quarterly
report of the Company, and such other reports and documents of the Company and
other information in the possession of or reasonably obtainable by the Company
as the Investor may reasonably request in availing itself of any rule or
regulation of the Commission allowing the Investor to sell any such securities
without registration.
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1.13 TRANSFER OF REGISTRATION RIGHTS
The rights to cause the Company to register securities granted to the
Investor under Sections 1.5, 1.6 and 1.7 may be assigned to a transferee or
assignee in connection with any transfer or assignment of Registrable Securities
by the Investor (together with any affiliate); provided that (a) such transfer
may otherwise be effected in accordance with applicable securities laws, (b)
notice of such assignment is given to the Company, and (c) such transferee or
assignee (i) is a wholly-owned subsidiary or constituent partner (including
limited partners, retired partners, spouses and ancestors, lineal descendants
and siblings of such partners or spouses who acquire Registrable Securities by
gift, will or intestate succession) of the Investor, or (ii) acquires from the
Investor at least 250,000 shares of Common Stock (as appropriately adjusted for
stock splits and the like).
1.14 STANDOFF AGREEMENT
Each Holder agrees in connection with any registration of the Company's
securities (other than a registration of securities in a Rule 145 transaction or
with respect to an employee benefit plan), upon request of the underwriters
managing any underwritten offering of the Company's securities, not to sell,
make any short sale of, loan, pledge (or otherwise encumber or hypothecate),
grant any option for the purchase of, or otherwise directly or indirectly
dispose of any Registrable Securities (other than those included in the
registration) without the prior written consent of the Company and such managing
underwriters for such period of time (not to exceed 180 days) as the Board of
Directors establishes pursuant to its good faith negotiations with such managing
underwriters; provided, however, that the Investor shall not be subject to such
lockup unless the officers and directors of the Company who own stock of the
Company and all other persons with registration rights (whether or not pursuant
to this Agreement) shall also be bound by such restrictions. This Section 1.14
shall apply only to the first such registration statement of the Company which
covers Common Stock (or other securities) to be sold on its behalf to the public
in an underwritten offering.
1.15 TERMINATION OF RIGHTS
The rights of any particular Holder to cause the Company to register
securities under Sections 1.5, 1.6 and 1.7 shall terminate with respect to such
Holder on the earlier of (a) the fifth anniversary of the effective date of the
Company's Initial Public Offering or (b) such time as Rule 144 or another
similar exemption under the Securities Act is available for the sale of all such
Holder's securities during a three (3)-month period without registration or (c)
the seventh anniversary of the date of this Agreement.
1.16 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not, without
the prior written consent of the Holders of a majority of the Registrable
Securities, enter into
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any agreement with any holder or prospective holder of any securities of the
Company which would allow such holder or prospective holder (a) to include such
securities in any registration filed under Section 1.5 hereof, unless under the
terms of such agreement, such holder or prospective holder may include such
securities in any such registration only to the extent that the inclusion of his
securities will not reduce the amount of the Registrable Securities of the
Holders which are included or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.5(a)(ii)(2) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.5.
SECTION 2. AFFIRMATIVE COVENANTS OF THE COMPANY
The Company hereby covenants and agrees as follows:
2.1 FINANCIAL INFORMATION
The Company will furnish to the Investor the following reports:
(a) As soon as practicable after the end of each fiscal year, and in
any event within ninety (90) days thereafter, audited consolidated balance
sheets and statements of stockholders' equity of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such fiscal year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, all in reasonable detail and certified by independent
public accountants of national standing selected by the Company;
(b) As soon as practicable after the end of each quarter, and in any
event within 45 days thereafter, unaudited balance sheets of the Company and its
subsidiaries, if any, as of the end of the most recent quarter, and consolidated
statements of income and cash flows of the Company and its subsidiaries, if any,
for such quarter and for the then current fiscal year to the end of such
quarter, all prepared in accordance with generally accepted accounting
principles, together with a comparison of such statements to the Company's
operating plan then in effect; and
(c) Upon the request of the Investor, consolidated balance sheets of
the Company and its subsidiaries, if any, as of the end of each calendar month,
and consolidated statements of income and cash flows for such period and for the
current fiscal year to date, all prepared in accordance with generally accepted
accounting principles, together with a comparison of such statements to the
Company's operating plan then in effect.
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2.2 OPERATING PLAN AND BUDGET
The Company will furnish to the Investor a budget and operating plan
(including projected balance sheets and profit and loss and cash flow
statements) for each fiscal year, as soon as practicable after approval or
adoption thereof by the Company's Board of Directors, but in any event no later
than 30 days before the beginning of the fiscal year covered thereby.
2.3 ASSIGNMENT OF RIGHTS TO FINANCIAL INFORMATION
The rights granted pursuant to Sections 2.1 and 2.2 may be assigned by the
Investor to a third party who acquires at least 250,000 shares of Common Stock
from the Investor (as adjusted for any stock splits, consolidations and the
like) and who is not an actual or potential competitor, or affiliated in any
manner with a competitor, of the Company, provided that the Company receives
notice fifteen (15) days prior to such assignment. If the Company reasonably
believes it necessary to protect proprietary information, the Company may
require any transferee or assignee of the rights under this Section 2 to execute
a confidentiality agreement as a condition receiving such information.
2.4 PREEMPTIVE RIGHT
Subject to the terms and conditions specified in this Section 2.4, the
Company hereby grants to the Investor a right of first offer with respect to
future sales by the Company of its Securities (as hereinafter defined).
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Securities"), the Company shall first make an offering of such
Securities to the Investor in accordance with the following provisions:
(a) The Company shall deliver a notice ("Notice") to the Investor
stating (i) its bona fide intention to offer such Securities, (ii) the number of
such Securities to be offered, (iii) the price, if any, for which it proposes to
offer such Securities, and (iv) any other material terms of such offer.
(b) Within fifteen (15) calendar days after receipt of the Notice, the
Investor may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to an amount of such Securities equal to that
portion of such Securities which equals the proportion that the number of shares
of Common Stock then issued or issuable to the Investor upon exercise of the
Warrants held by the Investor bears to the sum of the number of shares of Common
Stock then issued and outstanding plus the number of shares of Common Stock
issuable upon (i) conversion of all convertible securities of the Company then
outstanding and (ii) exercise of all options and warrants then outstanding.
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The Investor shall be entitled to apportion the right of first offer hereby
granted among itself and its partners and affiliates in such proportions as it
deems appropriate.
(c) If all Securities which the Investor is entitled to purchase
pursuant to this Section 2.4 are not elected to be obtained as provided in
subsection 2.4(b) hereof, the Company may, during the one hundred eighty (180)
day period following the expiration of the period provided in subsection 2.4(b)
hereof, offer such unsubscribed Securities to any person or persons at a price
not less than, and upon terms not materially more favorable to the offeree than,
those specified in the Notice. If the Company does not enter into an agreement
for the sale of the Securities within such period, or if such agreement is not
consummated within thirty (30) days of the execution thereof, the right provided
hereunder shall be deemed to be revived.
(d) The right of first offer in this Section 2.4 shall not be
applicable (i) to the issuance or sale of shares of capital stock (or options
therefor) to employees, officers, directors, consultants or other parties
eligible to receive options under the Company's stock option plan or plans, (ii)
to the issuance or sale of the Company's securities to leasing entities or
financial institutions in connection with commercial leasing or borrowing
transactions, (iii) to, or after consummation of, the Company's Initial Public
Offering, (iv) to conversions of convertible securities or exercises of
exercisable securities, (v) to any issuance of securities in connection with any
acquisition, business combination, reorganization, merger or similar event, (vi)
to any issuance of securities in connection with the settlement or resolution of
the disputes (as more fully described in the Schedule of Exceptions to the
Purchase Agreement) between the Company and each of Xxxxxx Xxxxxxxx and Xxxx
Xxxxxx, or (vii) after the tenth anniversary of this Agreement.
2.5 KEY MAN INSURANCE
The Company shall maintain a key man insurance policy on the life of Xxxxxx
Xxxx in the amount of $1,000,000, with benefits payable to the Company.
2.6 RESTRICTION ON ISSUANCE OF SECURITIES
Until a simple majority of the Board of Directors of the Company is
comprised of directors who have not been appointed by Xxxxxx Xxxx (including
Jain himself), the Company shall not (a) without additional cash consideration
paid therefor by Xxxxxx Xxxx, issue to Xxxxxx Xxxx any shares of Common Stock or
(b) in any twelve-month period, grant to Xxxxxx Xxxx options to purchase more
than 25,000 shares of Common Stock (as such number of shares may be adjusted for
stock splits, recapitalizations and similar events).
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2.7 TERMINATION OF COVENANTS
The covenants set forth in Sections 2.1 through 2.6 shall (if not
terminated by their own terms) terminate on, and be of no further force or
effect after, the closing of the Company's Initial Public Offering.
SECTION 3. MISCELLANEOUS
3.1 ASSIGNMENT
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
successors and assigns of the parties hereto.
3.2 THIRD PARTIES
Nothing in this Agreement, express or implied, is intended to confer upon
any party, other than the parties hereto, and their respective successors and
assigns, any rights, remedies, obligations or liabilities under or by reason of
this Agreement, except as expressly provided herein.
3.3 GOVERNING LAW
This Agreement shall be governed by and construed under the laws of the
State of Washington in the United States of America without regard to the
conflict or choice of law provisions of such State.
3.4 COUNTERPARTS
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
3.5 NOTICES
All notices and other communications required or permitted hereunder shall
be in writing and shall be mailed by first class mail, postage prepaid, or
otherwise delivered by hand or by messenger, facsimile or courier, addressed (a)
if to the Investor, at such Investor's address set forth on the signature page
hereto, or at such other address as the Investor shall have furnished to the
Company in writing, with a copy to Xxxx X. Xxxxx, Xxxxx Xxxxxx Xxxxxxxx, 0000
Xxxxxxx Xxxxxx, 0000 Xxxxxx Xxxxxx, Xxxxxxx, XX 00000, or (b) if to any other
Holder of Registrable Securities, at such address as such Holder shall have
furnished the Company in writing, or, until any such Holder so furnishes an
address to the Company, then to and at the address of the last Holder of such
Registrable Securities who has so furnished an address to the Company, or (c) if
to the Company, at
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its principal executive office, attention President, or at such other address as
the Company shall have furnished to the Investor, with a copy to Xxxxxxx X.
Xxxx, Xx., Xxxxxxx Coie, 0000 Xxxxx Xxxxxx, 00xx Xxxxx, Xxxxxxx, XX 00000. If
notice is provided by mail, it shall be deemed to be given three (3) business
days after proper deposit in the U.S. Mail, and if notice is given by hand or by
messenger, facsimile or courier, it shall be deemed to be given upon receipt.
3.6 SEVERABILITY
If one or more provisions of this Agreement are held to be unenforceable
under applicable law, portions of such provisions, or such provisions in their
entirety, to the extent necessary, shall be severed from this Agreement, and the
balance of this Agreement shall be enforceable in accordance with its terms.
3.7 AMENDMENT AND WAIVER
Any provision of this Agreement may be amended with the written consent of
the Company and the Holders of at least fifty percent (50%) of the outstanding
shares of the Registrable Securities. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each Holder of Registrable
Securities and the Company. In addition, the Company may waive performance of
any obligation owing to it, as to some or all of the Holders of Registrable
Securities, or agree to accept alternatives to such performance, without
obtaining the consent of any Holder of Registrable Securities. In the event
that an underwriting agreement is entered into between the Company and any
Holder, and such underwriting agreement contains terms differing from this
Agreement, as to any such Holder the terms of such underwriting agreement shall
govern.
3.8 EFFECT OF AMENDMENT OR WAIVER
The Investor and its successors and assigns acknowledge that by the
operation of Section 3.7 hereof the holders of fifty percent (50%) of the
outstanding Registrable Securities, acting in conjunction with the Company, will
have the right and power to diminish or eliminate any or all rights or increase
any or all obligations pursuant to this Agreement.
3.9 RIGHTS OF HOLDERS
Each Holder of Registrable Securities shall have the absolute right to
exercise or refrain from exercising any right or rights that such holder may
have by reason of this Agreement, including, without limitation, the right to
consent to the waiver or modification of any obligation under this Agreement,
and such Holder shall not incur any liability to any other holder of any
securities of the Company as a result of exercising or refraining from
exercising any such right or rights.
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3.10 DELAYS OR OMISSIONS
No delay or omission to exercise any right, power or remedy accruing to any
party to this Agreement, upon any breach or default of the other party, shall
impair any such right, power or remedy of such non-breaching party nor shall it
be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
of any provisions or conditions of this Agreement, must be made in writing and
shall be effective only to the extent specifically set forth in such writing.
All remedies, either under this Agreement, or by law or otherwise afforded to
any holder, shall be cumulative and not alternative.
3.11 AGGREGATION OF SHARES
All Registrable Securities held or acquired by affiliated persons or
entities shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
3.12 ENTIRE AGREEMENT
This Agreement constitutes the full and entire understanding of the parties
hereto with regard to the matters set forth herein and supersedes any prior or
contemporaneous agreements or understandings with respect hereto.
[This space intentionally left blank.]
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EXHIBIT A
RESTRICTIVE LEGEND
THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS AND
CONDITIONS OF AN INVESTOR RIGHTS AGREEMENT, A COPY OF WHICH IS ON FILE AT THE
PRINCIPAL OFFICE OF THE CORPORATION, AND MAY NOT BE SOLD, TRANSFERRED OR
ENCUMBERED EXCEPT IN ACCORDANCE WITH THE TERMS AND PROVISIONS OF SAID AGREEMENT
AS SAID AGREEMENT MAY FROM TIME TO TIME BE AMENDED AND SUPPLEMENTED.
INVESTOR LIST
Acorn Ventures-IS, LLC 1,875,000 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 3,377,457 shares
Xxxxxxx Partners LLP 312,500 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 460,561 shares
Xxxx and Xxxxxxx Xxxxxxxxxx 62,500 shares of Common Stock
Common Stock Purchase Warrants to
purchase up to 153,521 shares
-2-
