Exhibit 10.2
XXXXXXXXXX.XXX INC.
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made and entered
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into as of the 9th day of July, 1999 by and among XxxxxXxxxx.xxx Inc., a
Delaware corporation (the "Company"), Sierra Ventures VII, L.P., a California
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limited partnership ("Sierra LP"), Sierra Ventures Associates VII, L.L.C., a
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California limited liability company ("Sierra LLC"), Xxxxxx Xxxxx, an individual
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("Simon"), Xxxx Xxxx, an individual ("Shah"), Palomar Ventures I, L.P., a
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Delaware limited partnership ("Palomar"), and The Right Start, Inc., a
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California corporation ("Parent").
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Recitals
WHEREAS, each of the members of the Sierra Group (as defined below),
Palomar and the Company are parties to the Series A Preferred Stock Purchase
Agreement dated as of even date herewith (the "Purchase Agreement");
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WHEREAS, Parent owns shares of the Company's Common Stock; and
WHEREAS, certain of the Company's and the obligations of the Principal
Stockholders (as defined below) under the Purchase Agreement are conditioned
upon the execution and delivery by the Principal Stockholders and the Company of
this Agreement;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto further agree as follows:
1. CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall
have the meanings set forth below:
1.1 "Affiliate" of any party means any person (or group of persons) who
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effectively controls, is effectively controlled by or is under common control
with such party.
1.2 "Closing" shall mean the date of the initial sale of shares of the
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Company's Series A Preferred Stock.
1.3 "Commission" shall mean the Securities and Exchange Commission or any
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other federal agency at the time administering the Securities Act.
1.4 "Common Stock" shall mean the common stock of the Company, $.01 par
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value per share.
1.5 "Conversion Shares" shall mean the Common Stock issued upon
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conversion of the Series A Preferred Stock.
1.6 "Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended, or any similar successor federal statute and the rules and regulations
thereunder, all as the same shall be in effect from time to time.
1.7 "Holder" shall mean any of the Principal Stockholders so long as it
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holds any Series A Preferred Stock, Conversion Shares or Common Stock and any
holder of Series A Preferred Stock or Common Stock who acquired such Securities
from a Principal Stockholder pursuant to the terms of this Agreement.
1.8 "Other Stockholders" shall mean persons other than Holders who, by
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virtue of "Other Stockholders" shall mean persons other than Holders who, by
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virtue of agreements with the Company, are entitled to include their securities
in certain registrations hereunder.
1.9 "Preferred Stock" shall mean the Company's outstanding Series A
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Preferred Stock and any other class or series of preferred stock of the Company
in existence on the date hereof or subsequently issued by the Company.
1.10 "Principal Stockholders" shall mean each of Parent, Palomar and the
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Sierra Group.
1.11 "Registrable Securities" shall mean (i) Conversion Shares and (ii) any
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Common Stock (whether issued as a dividend or other distribution with respect to
or in exchange for or in replacement of the Conversion Shares or otherwise) held
by a Holder granted or receiving registration rights under Section 3 of this
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Agreement; provided, however, that Registrable Securities shall not include any
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shares of Common Stock which have previously been registered or which have been
sold to the public either pursuant to a registration statement or Rule 144, or
which have been sold in a private transaction in which the transferor's rights
under this Agreement are not assigned.
1.12 The terms "register," "registered" and "registration" shall refer to a
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registration effected by preparing and filing a registration statement in
compliance with the Securities Act and applicable rules and regulations
thereunder, and the declaration or ordering of the effectiveness of such
registration statement.
1.13 "Registration Expenses" shall mean all expenses incurred in effecting
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any registration pursuant to this Agreement, 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 expenses of any regular or special audits incident to or required by any
such registration, but shall not include Selling Expenses, fees and
disbursements of counsel for the Holders.
1.14 "Rule 144" shall mean Rule 144 as promulgated by the Commission under
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the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.15 "Rule 415" shall mean Rule 415 as promulgated by the Commission under
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the Securities Act, as such Rule may be amended from time to time, or any
similar successor rule that may be promulgated by the Commission.
1.16 "Securities" shall mean shares of the Company's Common Stock and
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Preferred Stock (or warrants or other securities convertible into Common Stock
or Preferred Stock) now owned or subsequently acquired.
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1.17 "Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar successor federal statute and the rules and regulations thereunder,
all as the same shall be in effect from time to time.
1.18 "Selling Expenses" shall mean all underwriting discounts, selling
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commissions and stock transfer taxes applicable to the sale of Registrable
Securities and fees and disbursements of special counsel to the selling
stockholder.
1.19 "Series A Preferred Stock" shall mean the Company's Series A
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Convertible Preferred Stock, par value $.01 per share.
1.20 "Sierra Group" shall mean the group comprised of Sierra LP, Sierra
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LLC, Simon and Shah.
2. RESTRICTIONS ON TRANSFER.
2.1 Right of First Refusal.
(a) Transfer by a Principal Stockholder.
(i) Subject to Section 2.1(b) below, if any of the Principal
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Stockholders (or their respective Affiliates to whom Securities have been
transferred) propose to sell or transfer any Securities in one or more related
transactions which will result in the transfer of any Securities by such
Principal Stockholder or its Affiliate, as applicable, then such Principal
Stockholder or Affiliate of such Principal Stockholder proposing to transfer
Securities, as the case may be (a "Selling Stockholder") shall promptly give
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written notice ("Notice") to the other Principal Stockholders at least twenty
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(20) days prior to the closing of such sale or transfer. The Notice shall
describe in reasonable detail the proposed sale or transfer including, without
limitation, the number and type of Securities to be sold or transferred (the
"Notice Shares"), the nature of such sale or transfer, the consideration to be
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paid, the requested method of payment and the name and address of each
prospective purchaser or transferee. In the event that the sale or transfer is
being made pursuant to the provisions of Section 2.1(b) hereof, the Notice shall
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state under which paragraph and subparagraph the sale or transfer is being made.
(ii) Each of the non-transferring Principal Stockholders, or their
respective Affiliates acting on their behalf, shall have the right, exercisable
upon written notice to such Selling Stockholder within ten (10) days after
receipt of the Notice, to purchase a pro rata share (based on the number of
Registrable Securities then held by the non-transferring Principal Stockholders)
of such proposed transfer and if either of the two other non-transferring
Principal Stockholders elects not to purchase all of its pro rata portion, the
other eligible purchaser shall be entitled to all of the remaining shares, in
each case on the same terms and conditions specified in the Notice.
(iii) If the non-transferring Principal Stockholders elect to so purchase
all or a portion of the Notice Shares, such Principal Stockholders, or their
respective Affiliates acting on their behalf (the "Purchasing Stockholders")
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shall purchase the Notice Shares by delivering the consideration to be paid for
the Notice Shares to the Selling Stockholder pursuant to the payment method
specified in the Notice on a date mutually agreed to by the parties.
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(iv) Simultaneously upon receipt of the consideration specified in the
Notice and delivered pursuant to the foregoing paragraph (a)(iii) of this
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Section 2.1, the Selling Stockholder shall deliver to the Purchasing
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Stockholder(s) a stock certificate or certificates representing the Notice
Shares in consummation of the sale of such shares pursuant to the terms and
conditions specified in the Notice.
(v) The exercise or non-exercise of the rights of any Principal
Stockholder hereunder (or their respective Affiliates acting on their behalf) to
participate as a purchaser in one or more sales of Securities made by a
Principal Stockholder (or its Affiliates) shall not adversely affect their
rights to participate as purchasers in subsequent sales of Securities subject to
paragraph (a)(i) of Section 2.1.
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(vi) If the Principal Stockholders do not elect to participate in the
purchase of the Notice Shares (or purchase only a portion of the Notice Shares),
then the Selling Stockholder may, not later than sixty (60) days following
delivery to the other Principal Stockholder(s), enter into an agreement
providing for the closing of the transfer of the remaining Notice Shares within
sixty (60) days of such agreement on terms and conditions not more favorable to
the transferor than those described in the Notice, subject to the provisions of
Section 2.2 below. Any proposed transfer on terms and conditions more favorable
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than those described in the Notice, as well as any subsequent proposed transfer
of any additional Securities by a Principal Stockholder or its Affiliate, shall
again be subject to the rights of the other Principal Stockholders (and their
respective Affiliates) set forth herein and shall require compliance with the
procedures described in this Section 2.1(a).
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(b) Exempt Transfers.
(i) Notwithstanding the foregoing, the provisions of paragraphs (a)(i)
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through (a)(vi) of Section 2.1 shall not apply to (A) any pledge of
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Securities made pursuant to a bona fide loan transaction that creates a mere
security interest, (B) any transfer to an Affiliate of transferor; provided that
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(1) the Selling Stockholder shall inform the other Principal Stockholders of
such pledge or transfer prior to effecting it and (2) the pledgee or transferee
shall furnish the other Principal Stockholders with a written agreement to be
bound by and comply with all provisions of Section 2.1(a), or (C) the transfer
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by Parent to Guidance Solutions, Inc. (or its affiliate) of up to 288,333 shares
of Common Stock. Such pledged or transferred Securities under subsections (A) or
(B) above shall remain "Securities" hereunder, and such pledgee or transferee
under subsections (A) or (B) shall be treated as a "Principal Stockholder" for
purposes of this Agreement; provided, however, that Securities transferred
pursuant to subsection (C) above shall no longer be subject to this Agreement
upon transfer.
(ii) Notwithstanding the foregoing, the provisions of Section 2.1(a) shall
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not apply to the sale of any Securities (A) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Securities Act of 1933, as amended (the
"Securities Act"); or (B) to the Company.
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(c) Prohibited Transfers. Any attempt by a Selling Stockholder to
transfer Securities in violation of Section 2.1(a) hereof shall be void and the
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Company agrees it will not effect such a transfer nor will it treat any alleged
transferee as the holder of such shares without the written consent of the non-
transferring Principal Stockholders (or their respective Affiliates acting on
their behalf).
(d) Legend.
(i) Each certificate representing Securities now or hereafter owned
by the Principal Stockholders or issued to any person in connection with a
transfer pursuant to paragraph (a) of Section 2.1 hereof shall be endorsed
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with the following legend:
"THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN INVESTORS' RIGHTS AGREEMENT BY AND BETWEEN THE COMPANY
AND CERTAIN HOLDERS OF STOCK OF THE COMPANY. COPIES OF SUCH AGREEMENT
MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY."
(ii) Each Principal Stockholder agrees that the Company may instruct
its transfer agent to impose transfer restrictions on the shares
represented by certificates bearing the legend referred to in paragraph
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(d)(i) of this Section 2.1 to enforce the provisions of this Agreement and
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the Company agrees promptly to do so. The legend shall be removed upon
termination of this Agreement.
(e) Amendment of Section 2.1. Any provision of this Section 2.1 may be
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amended and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), only by the
written consent of the Principal Stockholders adversely affected by such
amendment or waiver. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon the applicable parties, and such parties'
successors and assigns.
(f) Term. The rights and obligations set forth in this Section 2.1 shall
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terminate upon the earlier of (i) the closing of a firm commitment underwritten
public offering pursuant to an effective registration statement under the
Securities Act covering the offer and sale of the Company's Common Stock, and
(ii) the closing of the Company's sale of all or substantially all of its assets
or the acquisition of the Company by another entity by means of a merger or
consolidation resulting in the exchange of the outstanding shares of the
Company's capital stock for securities or consideration issued, or caused to be
issued, by the acquiring entity or its subsidiary.
(g) Ownership. For purposes of this Section 2.1, each Principal
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Stockholder represents and warrants to the other Principal Stockholders, that
such Principal Stockholder is the sole legal and beneficial owner of the shares
of stock subject to this Section 2.1 and that no other person has any interest
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(other than a community property interest) in such shares, other than the
interest of the Parent's senior secured lender in the Securities held by Parent
and the individual interests of the members of the Sierra Group in the
Securities held by the Sierra Group.
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2.2 General Restrictions on Transfer. Each Holder agrees not to make any
disposition of all or any portion of the Securities unless and until the
transferee has agreed in writing for the benefit of the Company to be bound by
this Section 2.2, and provided that:
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(a) There is then in effect a registration statement under the Securities Act
covering such proposed disposition and such disposition is made in accordance
with such registration statement; or
(b) (i) Such Holder shall have notified the Company of the proposed disposition
and shall have furnished the Company with a detailed statement of the
circumstances surrounding the proposed disposition, and (ii) if reasonably
requested by the Company, such Holder shall have furnished the Company with an
opinion of counsel, reasonably satisfactory to the Company, that such
disposition will not require registration of such shares under the Securities
Act.
(c) Notwithstanding the provisions of paragraphs (a) and (b) above, no such
registration statement or opinion of counsel shall be necessary for a transfer
by a Holder (i) which is a partnership to its partners or retired partners in
accordance with partnership interests or to a partnership under common control
with such Holder, (ii) which is a corporation to its shareholders in accordance
with their interest in the corporation, (iii) which is a limited liability
company to its members or former members in accordance with their interest in
the limited liability company, or (iv) to such Holder's family member or trust
for the benefit of an individual Holder, provided the aforementioned transferees
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will be subject to the terms of this Section 2.2 to the same extent as if such
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transferee were an original Holder hereunder.
2.3 Legends.
(a) Each certificate representing Securities shall (unless otherwise permitted
by the provisions of this Agreement) be imprinted with a legend substantially
similar to the following (in addition to any legend required under applicable
state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD OR TRANSFERRED,
ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SUCH
ACT OR UNLESS THE COMPANY HAS RECEIVED AN OPINION OF COUNSEL OR OTHER
EVIDENCE, SATISFACTORY TO THE cOMPANY AND ITS COUNSEL, THAT SUCH
REGISTRATION IS NOT REQUIRED.
(b) The Company shall be obligated to reissue promptly unlegended certificates
at the request of any Holder thereof if the Holder shall have obtained an
opinion of counsel at such Holder's expense (which counsel may be counsel to the
Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration,
qualification or legend.
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3. REGISTRATION RIGHTS.
3.1 Demand Registration.
(a) If the Company shall receive at any time after June 1, 2002 (so long as
such request is not within 180 days after the effective date of a registration
statement filed by the Company covering an underwritten offering of any of its
securities to the general public) a written request from one or more Principal
Stockholders that the Company file a registration statement registering (x)
Registrable Securities constituting at least twenty percent (20%) of the shares
of Common Stock issuable upon conversion of the Series A Preferred Stock
originally issued to the Principal Stockholders under the Purchase Agreement, or
(y) any amount of Registrable Securities if the aggregate offering price for the
registration, net of underwriting discounts and commissions, would exceed
$5,000,000, then the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders holding Registrable Securities; and
(ii) as soon as practicable, use its best efforts to effect such
registration, on Form S-3 or successor form replacing Form S-3, if practicable,
(including, without limitation, filing post-effective amendments, appropriate
qualifications under applicable blue sky or other state securities laws, and
appropriate compliance with the Securities Act) 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
permitted hereunder) as are specified in a written request received by the
Company within twenty (20) days after such written notice from the Company is
mailed or delivered.
Notwithstanding the foregoing provisions, the Company shall not be
obligated to effect, or to take any action to effect, any such registration
pursuant to this Section 3 if:
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(A) in any particular jurisdiction, 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) the Company has initiated two registrations pursuant to
Section 3.1(a) (counting for these purposes only (1) registrations which have
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been declared or ordered effective and pursuant to which securities have been
sold and (2) registrations which have been withdrawn by the initiating Holders
as to which the Holders have not paid the Registration Expenses pursuant to
Section 3.3 hereof and were required to bear such expenses);
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(C) such request for registration is made during the period starting
with the date sixty (60) days prior to the Company's good faith estimate of the
date of filing of, and ending on a date one hundred eighty (180) days after the
effective date of, a Company-initiated registration; provided that the Company
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is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
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(b) Subject to the foregoing clauses (A) through (C), 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 Principal Stockholders (or their respective permitted Affiliate
transferees), as the case may be; provided, however, that if (i) in the good
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faith judgment of the Board of Directors of the Company (the "Board of
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Directors"), such registration would be seriously detrimental to the Company
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and the Board of Directors concludes, as a result, that it is essential to defer
the filing of such registration statement at such time, and (ii) 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 for such registration statement to
be filed in the near future and that it is, therefore, essential to defer the
filing of such registration statement, then the Company shall have the right to
defer such filing (except as provided in clause (C) above) for a period of not
more than one hundred twenty (120) days after receipt of the request of the
initiating Principal Stockholder(s) (or their permitted Affiliate transferees),
as the case may be, and, provided further, that the Company shall not defer its
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obligation in this manner more than once in any twelve-month period.
The registration statement filed pursuant to the request of the initiating
Principal Stockholder(s) (or their respective permitted Affiliate transferees)
may, subject to the provisions of Sections 3.1(d) and 3.11 hereof, include other
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securities of the Company, with respect to which registration rights have been
granted, and may include securities of the Company being sold for the account of
the Company.
(c) Underwriting. The right of any Holder to registration pursuant to
Section 3.1 shall be conditioned upon such Holder's participation in such
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underwriting, the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein and such other restrictions as may be
reasonably imposed by the underwriter. A Holder may elect to include in such
underwriting all or a part of the Registrable Securities he holds.
(d) Procedures. The Company shall (together with all Holders and other persons
proposing to distribute their securities through such underwriting) enter into
an underwriting agreement in customary form with the representative of the
underwriter or underwriters selected for such underwriting by a majority in
interest of the initiating Holder(s), which underwriters are reasonably
acceptable to the Company. If the Company shall request inclusion in any
registration pursuant to Section 3.1 of securities being sold for its own
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account, or if other persons shall request inclusion in any registration
pursuant to Section 3.1, the initiating Holder(s) shall, on behalf of all
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Holders, offer to include such securities in the underwriting and may condition
such offer on their acceptance of the further applicable provisions of this
Section 3 (including Section 3.10). Notwithstanding any other provision of
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this Section 3.1, if the representative of the underwriters advises the
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initiating Holder(s) in writing that marketing factors require a limitation on
the number of shares to be underwritten, the number of shares to be included in
the underwriting or registration shall be allocated as set forth in Section 3.11
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hereof. If a person who has requested inclusion in such registration as provided
above does not agree to the terms of any such underwriting, such person shall be
excluded therefrom by written notice from the Company, the underwriter or the
initiating Holder(s). The securities so excluded shall also be withdrawn from
registration. Any Registrable Securities or other securities excluded or
withdrawn from such underwriting shall also be withdrawn from such registration.
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If shares are so withdrawn from the registration and if the number of shares to
be included in such registration was previously reduced as a result of marketing
factors pursuant to this Section 3.1(d), then the Company shall offer to all
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Holders who have retained rights to include securities in the registration the
right to include additional securities in the registration in an aggregate
amount equal to the number of shares so withdrawn, with such shares to be
allocated among such Holders requesting additional inclusion in accordance with
Section 3.11.
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3.2 Registration on Form S-3; Shelf Registration.
(a) After the Company has qualified for the use of Form S-3, in addition to the
rights contained in Sections 3.1 and 3.3 hereof, the Holders of Registrable
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Securities who hold in excess of two percent (2%) of the then outstanding Common
Stock of the Company shall have the right to request registrations on Form S-3
on a continuous or delayed basis pursuant to Rule 415 (such requests shall be in
writing and shall state the number of shares of Registrable Securities to be
disposed of and the intended methods of disposition of such shares by such
Holder or Holders), provided, however, that the Company shall not be obligated
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to effect any such registration (i) if the Holders propose to sell Registrable
Securities and such other securities (if any) on Form S-3 at an aggregate price
to the public of less than $1,000,000, (ii) in the circumstances described in
clauses (A) and (C) of Section 3.1(a), (iii) if the Company shall furnish the
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certification described in paragraph 1.3(b) (but subject to the limitations set
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forth therein), (iv) if, in a given twelve-month period, the Company has
effected one (1) such registration in such period or (v) if it is to be effected
more than five (5) years after the Company's initial public offering.
(b) If a request complying with the requirements of Section 3.2(a) hereof is
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delivered to the Company, the provisions of Sections 3.1(a)(i) and Section
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3.1(b) hereof shall apply to such registration. If the registration is for
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an underwritten offering, the provisions of Sections 3.1(c) and 3.1(d) hereof
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shall apply to such registration.
3.3 Piggyback Registration.
(a) If the Company shall determine to register any of its securities either for
its own account or the account of a security holder or holders exercising their
respective demand registration rights (other than a registration relating solely
to employee benefit plans, or a registration relating to a corporate
reorganization or other transaction on Form S-4, or a registration on any
registration form that does not permit secondary sales), the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) use its best efforts to include in such registration (and any related
qualification under blue sky laws or other compliance), except as set forth in
Section 3.3(b) below, and in any underwriting involved therein, all the
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Registrable Securities specified in a written request or requests, made by any
Holder and received by the Company within ten (10) days after the written notice
from the Company described in clause (i) above is mailed or delivered by the
Company. Such written request may specify all or a part of a Holder's
Registrable Securities.
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(b) Underwriting. If the registration of which the Company gives notice
is for a registered public offering involving an underwriting, the Company shall
so advise the Holders as a part of the written notice given pursuant to
Section 3.3(a)(i). In such event, the right of any Holder to registration
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pursuant to this Section 3.3 shall be conditioned upon such Holder's
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participation in such underwriting, the inclusion of such Holder's Registrable
Securities in the underwriting to the extent provided herein and such other
restrictions as may be reasonably imposed by the underwriter and the Company.
All Holders proposing to distribute their securities through such underwriting
shall (together with the Company and the other holders of securities of the
Company with registration rights to participate therein distributing their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected by the Company.
Notwithstanding any other provision of this Section 3.3, if the
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representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten or the
Company's Board of Directors reasonably determines that the number of shares
proposed to be registered must be reduced in view of then existing market
conditions, the Company shall be required to include in the offering only that
number of Registrable Securities that the Board of Directors determine in their
sole discretion will not jeopardize the success of the offering (the securities
so included to be apportioned pro rata among the selling Holders according to
the total amount of Registrable Securities (to be determined assuming full
conversion of all securities convertible into Registrable Securities at such
time) entitled to be included therein owned by each selling Holder or in such
other proportions as shall mutually be agreed to be such selling Holders), but
in no event shall the amount of Registrable Securities of the selling Holders
included in such offering be reduced below thirty percent (30%) of the total
amount of securities included in such offering, unless such offering is the
initial public offering of the Company's securities (in which case, the selling
Holders may be excluded if the underwriters make the determination described
above and no other shareholder's securities are included in such offering). If
any person does not agree to the terms of any such underwriting, he or she shall
be excluded therefrom by written notice from the Company or the underwriter.
Any Registrable Securities or other securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration.
If shares are so withdrawn from the registration and if the number of
shares of Registrable Securities to be included in such registration was
previously reduced as a result of marketing factors, the Company shall then
offer to all persons who have retained the right to include securities in the
registration the right to include additional securities in the registration in
an aggregate amount equal to the number of shares so withdrawn, with such shares
to be allocated among the persons requesting additional inclusion in accordance
with Section 3.11 hereof.
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3.4 Expenses of Registration. All Registration Expenses incurred in
connection with any registration, qualification or compliance pursuant to
Sections 3.1, 3.2 or 3.3 hereof shall be borne by the Company; provided,
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however, that if the Holders bear the Registration Expenses for any
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registration proceeding begun pursuant to Section 3.1 and subsequently
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withdrawn by the Holders registering shares therein, such registration
proceeding shall not be counted as a requested registration pursuant to
Section 3.1 hereof. Furthermore, in the event that a withdrawal by the
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Holders is based upon material adverse information relating to the Company
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that is different from the information known or available (upon request from the
Company or otherwise) to the Holders requesting registration at the time of
their request for registration under Section 3.1, such registration shall not be
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treated as a counted registration for purposes of Section 3.1 hereof, even
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though the Holders do not bear the Registration Expenses for such registration.
All Selling Expenses relating to securities so registered shall be borne by the
holders of such securities pro rata on the basis of the number of shares of
securities so registered on their behalf, as shall any other expenses in
connection with the registration required to be borne by the Holders of such
securities.
3.5 Registration Procedures. In the case of each registration
effected by the Company pursuant to this Section 3, the Company will keep each
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Holder advised in writing as to the initiation of each registration and as to
the completion thereof. At its expense, the Company will use its best efforts
to:
(a) Keep such registration effective for a period of ninety (90) days or until
the Holder or Holders have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
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however, that (i) such 90-day period shall be extended for a period of time
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equal to the period the Holder refrains from selling any securities included in
such registration at the request of an underwriter of Common Stock (or other
securities) of the Company; and (ii) in the case of any registration of
Registrable Securities on Form S-3 which are intended to be offered on a
continuous or delayed basis, such 90-day period shall be extended, if necessary,
to keep the registration statement effective until all such Registrable
Securities are sold, however in no event longer than one year from the effective
date of the registration statement and provided that Rule 415, or any
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successor rule under the Securities Act, permits an offering on a continuous
or delayed basis, and provided further that applicable rules under the
----------------
Securities Act governing the obligation to file a post-effective amendment
permit, in lieu of filing a post-effective amendment that (A) includes any
prospectus required by Section 10(a)(3) of the Securities Act or (B) reflects
----------------
facts or events representing a material or fundamental change in the information
set forth in the registration statement, the incorporation by reference of
information required to be included in (A) and (B) above to be contained in
periodic reports filed pursuant to Section 13 or 15(d) of the Exchange Act in
the registration statement;
(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 such number of prospectuses and other documents incident thereto,
including any amendment of or supplement to the prospectus, as a Holder from
time to time may reasonably request;
(d) Cause all such Registrable Securities registered pursuant hereunder to be
listed on each securities exchange on which similar securities issued by the
Company are then listed, if any;
11
(e) Provide a transfer agent and registrar for all Registrable Securities
registered pursuant to such registration statement and a CUSIP number for all
such Registrable Securities, in each case not later than the effective date of
such registration;
(f) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 3.1 hereof, the Company will enter into an
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an underwriting agreement in form reasonably necessary to effect the offer and
sale of Common Stock.
3.6 Indemnification.
(a) The Company will indemnify each Holder, each of its officers, directors and
partners, legal counsel, and accountants 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 3, against all expenses, claims, losses, damages, and liabilities (or
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actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement of a material fact contained in any prospectus, offering
circular, or other document (including any related registration statement,
notification, or the like) incident to any such registration, qualification, or
compliance, or based on any omission to state therein a material fact required
to be stated therein or necessary to make the statements therein not misleading,
or any violation by the Company of the Securities Act or any rule or regulation
thereunder applicable to the Company and relating to action or inaction required
of the Company in connection with any such registration, qualification, or
compliance, and will reimburse each such Holder, each of its officers,
directors, partners, legal counsel, and accountants and each person controlling
such Holder, each such underwriter, and each person who controls any such
underwriter, as incurred, for any legal and any other expenses reasonably
incurred in connection with investigating and defending or settling any such
claim, loss, damage, liability, or action; provided, however, that the Company
-----------------
will not be liable in any such case to the extent that any such claim, loss,
damage, liability, or expense arises out of or is based on any untrue statement
or omission based upon written information furnished to the Company by such
Holder or underwriter. It is agreed that the indemnity agreement contained in
this Section 3.6(a) shall not apply to amounts paid in settlement of any such
--------------
loss, claim, damage, liability, or action if such settlement is effected without
the consent of the Company.
(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,
officers, partners, legal counsel, and accountants, each person who controls the
Company within the meaning of Section 15 of the Securities Act, and each Other
Stockholder, and each of their officers, directors, and partners, and each
person controlling such Other Stockholder, against all claims, losses, damages
and liabilities (or actions in respect thereof) arising out of or based on any
untrue statement of a material fact contained in any such registration
statement, prospectus, offering circular, or other document, or any 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 and such
Other Stockholders, directors, officers, partners, legal counsel, and
accountants, persons, underwriters, or control persons, as incurred, for any
legal or any other expenses reasonably incurred in connection with investigating
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 omission is
made in such registration
12
statement, prospectus, offering circular, or other document in reliance upon and
in conformity with written information furnished to the Company by such Holder;
provided, however, that the obligations of such Holder hereunder shall not apply
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to amounts paid in settlement of any such claims, losses, damages, or
liabilities (or actions in respect thereof) if such settlement is effected
without the consent of such Holder (which consent shall not be unreasonably
withheld); and provided further that in no event shall any indemnity under this
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Section 3.6(b) exceed the net proceeds from the offering received by such
--------------
Holder.
(c) Each party entitled to indemnification under this Section 3.6 (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 such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
--------
Party, who shall conduct the defense of such claim or any litigation resulting
therefrom, shall be approved by the Indemnified Party (whose approval shall not
be unreasonably 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 3, to the extent such
---------
failure is not prejudicial. 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 that 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. Each Indemnified Party shall furnish such information
regarding itself or the claim in question as an Indemnifying Party may
reasonably request in writing and as shall be reasonably required in connection
with defense of such claim and litigation resulting therefrom.
(d) If the indemnification provided for in this Section 3.6 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. 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 an underwriting agreement entered
into in connection with the underwritten public offering are in conflict with
the foregoing provisions, the provisions in the underwriting agreement shall
control and the foregoing Section 3.6 shall have no further force and effect.
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13
3.7 Information by Holder. Each Holder of Registrable Securities shall
furnish to the Company such information regarding such Holder and the
distribution proposed by such Holder as the Company may reasonably request in
writing and as shall be reasonably required in connection with any registration,
qualification, or compliance referred to in this Section 3.
---------
3.8 Transfer or Assignment of Registration Rights. Prior to the
Company's initial public offering of its Common Stock, a Principal Stockholder's
right to cause the Company to register Registrable Securities pursuant to
Section 3.1 shall not be transferrable except to its respective Affiliates. The
-----------
rights to cause the Company to register a Holder's Registrable Securities (as
presently constituted and subject to subsequent adjustments for stock splits,
stock dividends, reverse stock splits, and the like) granted under Section 3.1
-----------
(only after the Company's initial public offering of its Common Stock) and under
Section 3.2 or 3.3 may be transferred or assigned (a) to a transferee or
------------------
assignee (in accordance with Section 2 hereof) who acquires at least twenty
---------
percent (20%) of such Holder's Securities, (b) to a transferee or assignee who
acquires at least two percent (2%) of the Company's Common Stock from a Holder,
which assignee or transferee is acceptable to the Company (which acceptance
shall not be unreasonably withheld), (c) to partners or retired partners of the
such Holder in accordance with their partnership interests, or (d) to another
affiliate of Holder, which assignee or transferee is acceptable to the Company
(which acceptance shall not be unreasonably withheld); provided that the Company
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is given written notice at the time of or within a reasonable time after said
transfer or assignment, stating the name and address of the proposed transferee
or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; and provided further,
----------------
that the transferee or assignee of such rights assumes in writing the
obligations of such Holder under this Section 3.
---------
3.9 "Lock-Up" Agreement. If requested by the Company or any
representative of an underwriter of Common Stock (or other securities) of the
Company following an initial public offering, each of the holders of the
Securities shall not sell or otherwise transfer or dispose of any Common Stock
or other securities of the Company held by such holders (other than those
included in the registration) during the one hundred eighty (180) day period
following the effective date of a registration statement of the Company filed
under the Securities Act. If requested by the Company or any representative of
an underwriter of Common Stock (or other securities) of the Company following
the first public offering of the Company after the Company's initial public
offering, each of the holders of the Securities shall not sell or otherwise
transfer or dispose of any Common Stock or other securities of the Company held
by such holders (other than those included in the registration) during the
ninety (90) day period following the effective date of a registration statement
of the Company filed under the Securities Act. The obligations described in this
Section 3.10 shall not apply to a registration relating solely to employee
------------
benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated
in the future, or a registration relating solely to a transaction on Form S-4 or
similar forms that may be promulgated in the future. The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of such lock-up
periods.
3.10 Allocation of Registration Opportunities. In any circumstance in
which all of the Registrable Securities of the Company (including shares of
Common Stock issued or issuable upon conversion of shares of any currently
unissued series of preferred stock of the Company)
14
with registration rights (the "Other Shares") requested to be included in a
------------
registration on behalf of the Holders or other selling stockholders cannot be so
included as a result of limitations of the aggregate number of shares of
Registrable Securities and Other Shares that may be so included, the number of
shares of Registrable Securities and Other Shares that may be so included shall
be allocated among the Holders and other selling stockholders requesting
inclusion of shares pro rata on the basis of the number of shares of Registrable
Securities and Other Shares that would be held by such Holders and other selling
stockholders, assuming conversion; provided, however, that such allocation shall
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not operate to reduce the aggregate number of Registrable Securities and Other
Shares to be included in such registration, if any Holder or other selling
stockholder does not request inclusion of the maximum number of shares of
Registrable Securities and Other Shares allocated to him pursuant to the above-
described procedure, in which case the remaining portion of his allocation shall
be reallocated among those requesting Holders and other selling stockholders
whose allocations did not satisfy their requests pro rata on the basis of the
number of shares of Registrable Securities and Other Shares which would be held
by such Holders and other selling stockholders, assuming conversion, and this
procedure shall be repeated until all of the shares of Registrable Securities
and Other Shares which may be included in the registration on behalf of the
Holders and other selling stockholders have been so allocated.
3.11 Delay of Registration. No Holder shall have any right to take any
action to restrain, enjoin, or otherwise delay any registration as the result of
any controversy that might arise with respect to the interpretation or
implementation of this Section 3.
---------
3.12 Termination of Registration Rights. The right of any Holder to
request registration or inclusion in any registration pursuant to Section 3.1,
------------
3.2 or 3.3 shall terminate on the closing of the first Company-initiated
----------
registered public offering of Common Stock of the Company, if all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, or the
earlier of (i) such date after the closing of the first Company-initiated
registered public offering of Common Stock of the Company as all shares of
Registrable Securities held or entitled to be held upon conversion by such
Holder may immediately be sold under Rule 144 during any 90-day period, and (ii)
five (5) years after the closing of the first Company-initiated registered
public offering.
4. COVENANTS OF THE COMPANY.
The Company hereby covenants and agrees as follows:
4.1 Basic Financial Information
(a) Upon request, the Company will furnish the following reports to a Holder so
long as such Holder owns at least 300,000 shares of the Series A Preferred
Stock, or such number of shares of Common Stock issued upon conversion of
300,000 or more shares of the Series A Preferred Stock, or any combination
thereof (as presently constituted and subject to subsequent adjustment for stock
splits, stock dividends, reverse stock splits, recapitalizations and the like):
(i) monthly financial statements as soon as practicable at the end of each month
and (ii) a summary of the financial plan of the Company for each fiscal year as
soon as practicable after the end of each fiscal year; provided, however, that
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the obligation of the Company to furnish
15
such monthly financial statements and annual financial plan shall terminate upon
a firmly underwritten public offering of the Common Stock of the Company.
(b) Upon request, the Company will furnish, as soon as practicable after the
end of the first, second and third quarterly accounting periods in each fiscal
year of the Company, to a Holder if it holds at least 150,000 of the outstanding
shares of Series A Preferred Stock, or shares of common stock issued upon
conversion thereof, or any combination thereof (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like), annual and quarterly financial
statements for such period (including a balance sheet of the Company as of the
end of such period and statements of income and cash flows of the Company for
such period), prepared in accordance with generally accepted accounting
principles consistently applied, subject to changes resulting from normal year-
end audit adjustments, and except that such financial statements need not
contain the notes required by generally accepted accounting principles. Annual
financial statements of the Company provided to a Holder under this paragraph
shall be certified by independent public accountants of recognized national
standing selected by the Company.
4.2 Additional Information and Rights.
(a) The Company will permit any Holder, so long as such Holder owns at least
300,000 shares of the Series A Preferred Stock, or such number of shares of
Common Stock issued upon conversion of 300,000 or more shares of the Series A
Preferred Stock, or any combination thereof (as presently constituted and
subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like) and each Holder which represents
that it is a "venture capital operating company" for purposes of Department of
Labor Regulation Section 2510.3-101, who requests them (a "Significant Holder")
------------------
(or a representative of any Significant Holder) to visit and inspect any of the
properties of the Company, including its books of account and other records, and
to discuss its affairs, finances and accounts with the Company's officers and
its independent public accountants, all at such reasonable times and as often as
any such person may reasonably request.
(b) The provisions of Section 4.1 and this Section 4.2 shall not be in
----------- -----------
limitation of any rights which any Holder or Significant Holder may have with
respect to the books and records of the Company and its subsidiaries, or to
inspect their properties or discuss their affairs, finances and accounts, under
the laws of the jurisdictions in which they are incorporated.
(c) Anything in this Agreement to the contrary notwithstanding, no Holder by
reason of this agreement shall have access to any trade secrets or classified
information of the Company. Each Holder hereby agrees to hold in confidence and
trust and not to misuse or disclose any confidential information provided
pursuant to this Section 4.2. The Company shall not be required to comply with
-----------
this Section 4.2 in respect of any Holder whom the Company reasonably determines
-----------
to be a competitor or an officer, employee, director or greater than ten percent
(10%) stockholder of a competitor.
(d) From the date the Company becomes subject to the reporting requirements of
the Exchange Act (which shall include any successor federal statute), the
Company's obligation to
16
provide financial information required pursuant to Sections 4.1 and 4.2 hereof
------------ ---
shall automatically terminate.
(e) Each Holder who represents to the Company that it is a "venture capital
operating company" for purposes of Department of Labor Regulation Section
2510.3-101 shall, in addition, have the right to consult with and advise the
officers of the Company as to the management of the Company.
4.3 Right to Purchase New Securities. The Company hereby grants (a)
to each Principal Stockholder (other than Palomar) and its Affiliates who
collectively own at least 1,333,333 shares of Series A Preferred Stock, or an
equivalent number of shares of Common Stock that would be issued upon conversion
of 1,333,333 or more shares of the Series A Preferred Stock, or any combination
thereof (as presently constituted and subject to subsequent adjustment for stock
splits, stock dividends, reverse stock splits, recapitalizations and the like)
and (b) to Palomar and its Affiliates if they collectively own at least 333,333
shares of Series A Preferred Stock, or an equivalent number of shares of Common
Stock that would be issued upon conversion of 333,333 or more shares of the
Series A Preferred Stock, or any combination thereof (as presently constituted
and subject to subsequent adjustment for stock splits, stock dividends, reverse
stock splits, recapitalizations and the like), a right to purchase a pro rata
share of New Securities (as defined in this Section 4.3) which the Company may,
-----------
from time to time, propose to sell and issue. A Principal Holder's pro rata
share, for purposes of this right, is the ratio of the number of shares of
Common Stock (taken together with Common Stock underlying Series A Preferred
Stock) owned by such Principal Holder (and its Affiliates) immediately prior to
the issuance of the New Securities, to the total number of shares of Common
Stock (taken together with Common Stock underlying Series A Preferred Stock)
held by all Holders immediately prior to the issuance of New Securities. Each
eligible Principal Holder shall have a right of over-allotment such that if any
Principal Holder (or its Affiliates acting on its behalf) fails to exercise its
right hereunder to purchase its pro rata share of New Securities, the other
eligible Principal Holders (and their respective Affiliates) may purchase the
non-purchasing Holder's portion on a pro rata basis within five (5) days from
the date such non-purchasing Principal Holder (or Affiliate) fails to exercise
its right hereunder to purchase its pro rata share of New Securities. This right
shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock (including Common Stock
--------------
and/or preferred stock) of the Company whether now authorized or not, and
rights, options or warrants to purchase such capital stock, and securities of
any type whatsoever that are, or may become, convertible into capital stock;
provided that the term "New Securities" does not include (i) securities
purchased under the Purchase Agreement; (ii) securities issued upon conversion
of the Series A Preferred Stock; (iii) securities issued in connection with a
merger, acquisition, reorganization or other similar transaction undertaken by
the Company; (iv) any borrowings, direct or indirect, from financial
institutions or other persons by the Company, whether or not presently
authorized, including any type of loan or payment evidenced by any type of debt
instrument, provided such borrowings do not have any equity features including
warrants, options or other rights to purchase capital stock and are not
convertible into capital stock of the Company; (v) securities issued to
employees, consultants, officers or directors of the Company pursuant to any
stock option, stock purchase stock bonus plan, warrant, agreement or arrangement
approved by the Board of Directors; (vi) securities issued to vendors or
customers
17
or to other persons in similar commercial situations with the Company if such
issuance is approved by the Board of Directors and such issuance is undertaken
for purposes primarily other than equity financing; (vii) securities issued in
connection with obtaining lease financing, whether issued to a lessor, guarantor
or other person and such issuance is undertaken for purposes primarily other
than equity financing; (viii) securities issued in connection with any stock
split, stock dividend or recapitalization of the Company; (ix) securities issued
in connection with corporate partnering transactions on terms approved by the
Board of Directors and such issuance is undertaken for purposes primarily other
than equity financing; and (x) any right, option or warrant to acquire any
security convertible into the securities excluded from the definition of New
Securities pursuant to subsections (i) through (ix) above.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each eligible Principal Holder written notice of its
intention, describing the type of New Securities, and their price and the
general terms upon which the Company proposes to issue the same. Each eligible
Principal Holder (or its Affiliate) shall have ten (10) days after any such
notice is mailed or delivered to agree to purchase such Principal Holder's 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.
(c) In the event the eligible Principal Holders (or their Affiliates) fail to
exercise fully the right within said ten (10) day period and after the
expiration of the 5-day period for the exercise of the over-allotment provisions
of this Section 4.3, the Company shall have sixty (60) days thereafter to sell
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or enter into an agreement (pursuant to which the sale of New Securities covered
thereby shall be closed, if at all, within sixty (60) days from the date of said
agreement) to sell the New Securities respecting which the Principal Holders'
(or their Affiliates') right option set forth in this Section 4.3 was not
-----------
exercised, at a price and upon terms no more favorable to the purchasers thereof
than specified in the Company's notice to eligible Principal Holders pursuant to
Section 4.3(b). In the event the Company has not sold within such sixty (60) day
--------------
period or entered into an agreement to sell the New Securities in accordance
with the foregoing within sixty (60) days from the date of said agreement, the
Company shall not thereafter issue or sell any New Securities, without first
again offering such securities to the eligible Principal Holders (and their
Affiliates) in the manner provided in Section 4.3(b) above.
--------------
(d) The right set forth in this Section 4.3 may not be assigned or transferred
-----------
(except as otherwise expressly permitted above in this Section).
4.4 Termination of Covenants. The covenants set forth in this
Section 4 shall terminate and be of no further force and effect after the
---------
consummation of the Company's first firm commitment underwritten public offering
registered under the Securities Act.
5. COVENANTS OF THE PRINCIPAL STOCKHOLDERS.
5.1 Operating Committee. Until such time as the Company employs a
full-time Chief Executive Officer, each of the members of the Sierra Group and
Parent agree to use its best efforts to cause its director nominees to vote in
favor of creating an operating committee (the "Operating Committee") of the
-------------------
Board of Directors of the Company comprised of one
18
representative appointed by Parent, who shall be Xxxxx X. Xxxxx, and one
representative of the Sierra Group, who shall be Xxxxx Xxxxxx. The Operating
Committee shall approve in advance all expenditures of the Company in excess of
ten thousand dollars ($10,000) if such expenditures are not in the ordinary
course of business of the Company. Upon employment by the Company of a full-time
Chief Executive Officer, the Operating Committee shall be dissolved.
5.2 Exclusive On-Line E-Commerce Provider. Parent hereby covenants
to the Sierra Group and Palomar that the Company will be the Parent's exclusive
channel of on-line sales of products for children under age 12 over the
Internet, so long as the Sierra Group continues to hold at least 500,000 shares
of the Company's Series A Preferred Stock or shares of Common Stock issued on
conversion thereof (or any combination thereof) or Palomar continues to hold at
least 300,000 shares of the Company's Series A Preferred Stock or shares of
Common Stock issued on conversion thereof (or any combination thereof).
5.3 Board of Directors.
(a) So long as a Holder holds at least 67 percent of the Series A Preferred
Stock (or Common Stock issued upon conversion thereof), such Holder shall be
entitled to designate two (2) members to the Company's Board of Directors. So
long as a Holder holds at least 67 percent of the Series A Preferred Stock (or
Common Stock issued upon conversion thereof), such Holder shall also be entitled
(along with Parent) to propose additional members of the Company's Board of
Directors, two (2) of which proposed members shall be appointed to the Company's
Board of Directors by mutual agreement between the Parent and such Holder. If a
Holder of the Series A Preferred Stock (or Common Stock issued upon conversion
thereof) holds less than 67 percent but more than 33 percent of the Series A
Preferred Stock (or Common Stock issued upon conversion thereof), then such
Holder shall be entitled to designate one (1) member to the Company's Board of
Directors. If a Holder of the Series A Preferred Stock (or Common Stock issued
upon conversion thereof) holds less than 67 percent but more than 33 percent of
the Series A Preferred Stock (or Common Stock issued in conversion thereof),
then such Holder shall be entitled (along with Parent) to propose additional
members of the Company's Board of Directors, one (1) of which proposed members
shall be appointed to the Company's Board of Directors by mutual agreement
between the Parent and such Holder. If a Holder holds 33 percent or less of the
Series A Preferred Stock (or Common Stock issued on conversion thereof), such
Holder shall have no right to designate any member of the Company's Board of
Directors. The holders of the Company's Common Stock shall be entitled to elect
all members of the Board of Directors not designated pursuant to the above.
Additionally, any person entitled to designate a member of the Board of
Directors of the Company pursuant to the foregoing also shall be entitled,
exclusively and in such person's sole discretion, to designate such member for
removal from the Board of Directors. Each of the Principal Stockholders agrees
that it will vote shares of Series A Preferred Stock and Common Stock held by it
in favor of the foregoing. This paragraph (a) is subject in its entirety to
Section 5.3(d) below.
--------------
(b) Each of the members of the Company's Board of Directors shall serve a one-
year term or until his successor is elected (in accordance with Section 5.3(a)
--------------
above) and has qualified.
(c) The makeup of the Board of Directors immediately following the Closing
under the Purchase Agreement shall be Xxxxx X. Xxxxx, Xxxxx Xxxxxx, Xxxxxx
Xxxxx, Xxxxxxx Xxxxx,
19
Xxxx Xxxxx and the Chief Executive Officer of the Company, of which Xxxxx Xxxxxx
and Xxxxxx Xxxxx have been nominated solely by the Sierra Group, as holder of
more than 67 percent of the Series A Preferred Stock.
(d) The rights and obligations under Section 5.3(a) shall be nontransferrable
--------------
by Stockholder and shall automatically terminate as to both parties upon the
effectiveness of the Company's initial public offering.
5.4 Termination of Covenants. The covenants set forth in this
Section 5 shall terminate and be of no further force and effect after the
---------
consummation of the Company's first firm commitment underwritten public offering
registered under the Securities Act.
6. MISCELLANEOUS.
6.1 Governing Law. This Agreement shall be governed in all respects by
the laws of the State of Delaware (except choice of law provisions thereof).
6.2 Arbitration. The parties hereto agree that any dispute or
controversy arising out of or relating to any interpretation, construction,
performance or breach of this Agreement (other than disputes involving
confidentiality or infringement of intellectual property rights) shall be
settled by arbitration to be held in Los Angeles County, California, in
accordance with the rules then in effect of the American Arbitration
Association. The arbitrator, who shall be mutually agreed upon by the parties
hereto, may grant injunctions or other relief in such dispute or controversy.
The decision of the arbitrator shall be final, conclusive and binding on the
parties to the arbitration. Judgement may be entered on the arbitrator's
decision in any court of competent jurisdiction. The non-prevailing party shall
pay the costs and expenses of such arbitration, and each party hereto shall
separately pay its respective counsel fees and expenses.
6.3 Successors and Assigns. Except as otherwise expressly provided
herein, this Agreement, nor the provisions hereof, shall be assignable by the
parties hereto. To the extent assignable as otherwise 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.
6.4 Entire Agreement; Amendment; Waiver. Except as set forth in
Section 2.1(f), this Agreement (including the Exhibits and Schedules hereto)
constitutes the full and entire understanding and agreement between the parties
with regard to the subjects hereof. Neither this Agreement nor any term hereof
may be amended, waived, discharged or terminated, except by a written instrument
signed by the Company and the holders of at least seventy-five percent (75%) of
the Securities, and any such amendment, waiver, discharge or termination shall
be binding on all the Holders, but in no event shall the obligation of any
Holder hereunder be materially increased, except upon the written consent of
such Holder.
6.5 Notices, etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by United States
first-class mail, postage prepaid, sent by facsimile or delivered personally by
hand or nationally recognized courier addressed (a) if to the Sierra Group (or
any member thereof), to the address set forth below, (b) if to a Holder other
than the Sierra Group (or a member thereof), at such address or facsimile
20
number as such holder or permitted assignee shall have furnished to the Company
in writing, or (c) if to the Company, at the following address:
If to the Sierra Group:
Sierra Ventures
0000 Xxxx Xxxx Xxxx
Xxxxxxxx 0, #000
Xxxxx Xxxx, XX 00000
Attn: Xxxxxx X. Xxxxx
Facsimile: (000) 000-0000
with a copy to:
Xxxx Xxxxxxx, Esq.
Xxxxxxxxx Xxxxxxx
000 Xxxxxxxxxxxx Xxxxx
Xxxxx Xxxx, XX 00000
Facsimile: (000) 000-0000
If to Palomar:
Palomar Ventures
0000 Xxxxxxx Xxxxxxx Xxxx
Xxxxxxxx, XX 00000
Attn: Xxx Xxxxx
Facsimile: (000) 000-0000
If to the Company or Parent:
XxxxxXxxxx.xxx Inc. or The Right Start, Inc.
Each at the following address:
0000 Xxxxxxxx Xxxxxx Xxxxx - Xxxx X
Xxxxxxxx Xxxxxxx, XX 00000
Attn: President
Telecopy: (000) 000-0000
with a copy to:
Xxxxxxx X. Xxxxxxxx, Esq.
Milbank, Tweed, Xxxxxx & XxXxxx LLP
601 So. Xxxxxxxx Street, 30th Floor
Xxx Xxxxxxx, Xxxxxxxxxx 00000
Telecopy: (000) 000-0000
21
All such notices and other written communications shall be effective on the
date of mailing, confirmed facsimile transfer or delivery.
6.6 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any Holder, upon any breach or default of the
Company under this Agreement shall impair any such right, power or remedy of
such Holder 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 therefore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any Holder of any breach or default under this Agreement or any
waiver on the part of any Holder 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.
6.7 Rights; Separability. Unless otherwise expressly provided herein, a
Holder's rights hereunder are several rights, not rights jointly held with any
of the other Holders.
6.8 Information Confidential. Each Holder acknowledges that the
information received by them pursuant hereto may be confidential and for its use
only, and it will not use such confidential information in violation of the
Exchange Act or reproduce, disclose or disseminate such information to any other
person (other than its employees or agents having a need to know the contents of
such information, and its attorneys), except in connection with the exercise of
fights under this Agreement, unless the Company has made such information
available to the public generally or such Holder is required to disclose such
information by a governmental body.
6.9 Headings. The titles of the paragraphs and subparagraphs of this
Agreement are for convenience of reference only and are not to be considered in
construing or interpreting this Agreement.
6.10 Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
22
Exhibit 10.2
IN WITNESS WHEREOF, the parties hereto have executed this Investors' Rights
Agreement effective as of the day and year first above written.
XXXXXXXXXX.XXX INC.
By:____________________________
Xxxxx X. Xxxxx
President
THE RIGHT START, INC.
By:____________________________
Xxxx X. Xxxxxxxxx
Chief Financial Officer and Secretary
SIERRA VENTURES VII, L.P.
By:___________________________,
its general partner
By:___________________________,
Name:
Title:
SIERRA VENTURES ASSOCIATES VII, L.L.C.
By:_____________________________________,
Managing Member
_____________________________________
Xxxxxx Xxxxx
_____________________________________
Xxxx Xxxx
PALOMAR VENTURES I, L.P., a Delaware limited
partnership:
By:_____________________________________
Name: Xxx Xxxxx
Its: General Partner
Address: Palomar Ventures I, L.P.
000 Xxxxxxxx Xxxxxxxxx, Xxxxx 000
Xxxxx Xxxxxx, XX 00000
Facsimile: (000) 000-0000
