EXHIBIT 4.2
XXXXXX.XXX
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
APRIL 19, 2000
TABLE OF CONTENTS
PAGE
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1. Registration Rights...........................................................................................1
1.1 Definitions.........................................................................................1
1.2 Request for Registration............................................................................2
1.3 Company Registration................................................................................3
1.4 Form S-3 Registration...............................................................................5
1.5 Obligations of the Company..........................................................................6
1.6 Information from Holder.............................................................................7
1.7 Expenses of Registration............................................................................7
1.8 Delay of Registration...............................................................................7
1.9 Indemnification.....................................................................................7
1.10 Reports Under Securities Exchange Act of 1934......................................................9
1.11 Assignment of Registration Rights.................................................................10
1.12 Limitations on Subsequent Registration Rights.....................................................10
1.13 "Market Stand-Off"Agreement.......................................................................10
1.14 Termination of Registration Rights................................................................11
2. Covenants of the Company.....................................................................................11
2.1 Delivery of Financial Statements...................................................................11
2.2 Inspection.........................................................................................12
2.3 Right of First Offer...............................................................................12
2.4 Directors and Officers Insurance...................................................................13
2.5 Termination of Covenants...........................................................................13
2.6 Option Vesting.....................................................................................13
3. Miscellaneous................................................................................................14
3.1 Successors and Assigns.............................................................................14
3.2 Governing Law......................................................................................14
3.3 Counterparts.......................................................................................14
3.4 Titles and Subtitles...............................................................................14
3.5 Notices............................................................................................14
3.6 Expenses...........................................................................................14
3.7 Entire Agreement; Amendments and Waivers...........................................................14
3.8 Severability.......................................................................................15
3.9 Aggregation of Stock...............................................................................15
3.10 Additional Parties................................................................................15
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
THIS SECOND AMENDED AND RESTATED INVESTORS' RIGHTS
AGREEMENT is made as of the 19th day of April 2000, by and among Xxxxxx.xxx,
a California corporation (the "Company"), and the investors listed on
SCHEDULE A hereto, each of which is herein referred to as an "Investor."
RECITALS
WHEREAS, certain of the Investors (the "Existing
Investors") hold shares of the Company's Series A Preferred Stock, Series B
Preferred Stock and/or Common Stock issued upon conversion of Series A
Preferred Stock or Series B Preferred Stock (the "Existing Preferred Stock")
and possess registration rights, information rights, rights of first offer,
and other rights pursuant to an Amended and Restated Investors' Rights
Agreement dated as of December 9, 1999 among the Company and such Existing
Investors (the "Prior Agreement"); and
WHEREAS, the Existing Investors are holders of at least a
majority of the "Registrable Securities" of the Company (as defined in the
Prior Agreement), and desire to terminate the Prior Agreement and to accept
the rights created pursuant hereto in lieu of the rights granted to them
under the Prior Agreement; and
WHEREAS, the Company and certain of the Investors are
parties to the Series C Preferred Stock Purchase Agreement of even date
herewith (the "Series C Agreement"); and
WHEREAS, in order to induce the Company to approve the
issuance of the Series C Preferred Stock and to induce such certain Investors
to invest funds in the Company pursuant to the Series C Agreement, the
Investors and the Company hereby agree that this Agreement shall govern the
rights of the Investors to cause the Company to register shares of Common
Stock issued or issuable to them and certain other matters as set forth
herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. REGISTRATION RIGHTS. The Company covenants and
agrees as follows:
1.1 DEFINITIONS. For purposes of this
Section 1:
(a) The term "Act" means the Securities
Act of 1933, as amended.
(b) The term "Form S-3" means such form
under the Act as in effect on the date hereof or any registration form under
the Act subsequently adopted by the SEC that permits inclusion or
incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
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(c) The term "Holder" means any person
owning or having the right to acquire Registrable Securities or any assignee
thereof in accordance with Section 1.10 hereof.
(d) The term "Initial Offering" means the
Company's first firm commitment underwritten public offering of its Common
Stock under the Act.
(e) The term "1934 Act" means the
Securities Exchange Act of 1934, as amended.
(f) The terms "register," "registered,"
and "registration" refer to a registration effected by preparing and filing a
registration statement or similar document in compliance with the Act, and
the declaration or ordering of effectiveness of such registration statement
or document.
(g) The term "Registrable Securities"
means (i) the Common Stock issuable or issued upon conversion of the Series
A, Series B and Series C Preferred Stock and (ii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (i) above, excluding in all cases, however, any
Registrable Securities sold by a person in a transaction in which his rights
under this Section 1 are not assigned.
(h) The number of shares of "Registrable
Securities" outstanding shall be determined by the number of shares of Common
Stock outstanding that are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities that are, Registrable
Securities.
(i) The term "SEC" shall mean the Securities
and Exchange Commission.
1.2 REQUEST FOR REGISTRATION.
(a) Subject to the conditions of this
Section 1.2, if the Company shall receive at any time after six (6) months
after the effective date of the Initial Offering, a written request from the
Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding (the "Initiating Holders") that the Company file a registration
statement under the Act covering the registration of Registrable Securities
with an anticipated aggregate offering price of at least $20,000,000, then
the Company shall, within twenty (20) days of the receipt thereof, give
written notice of such request to all Holders, and subject to the limitations
of this Section 1.2, use all reasonable efforts to effect, as soon as
practicable, the registration under the Act of all Registrable Securities
that the Holders request to be registered in a written request received by
the Company within twenty (20) days of the mailing of the Company's notice
pursuant to this Section 1.2(a).
(b) If the Initiating Holders intend to
distribute the Registrable Securities covered by their request by means of an
underwriting, they shall so advise the Company as a part of their request
made pursuant to this Section 1.2 and the Company shall
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include such information in the written notice referred to in Section 1.2(a).
In such event the right of any Holder to include its Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities
in the underwriting (unless otherwise mutually agreed by two-thirds in
interest of the Initiating Holders and such Holder) to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected for such underwriting by the
Company (which underwriter or underwriters shall be reasonably acceptable to
a majority in interest of the Initiating Holders). Notwithstanding any other
provision of this Section 1.2, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities
underwritten (including Registrable Securities), then the Company shall so
advise all Holders of Registrable Securities that would otherwise be
underwritten pursuant hereto, and the number of shares that may be included
in the underwriting shall be allocated to the Holders of such Registrable
Securities on a pro rata basis based on the number of Registrable Securities
held by all such Holders (including the Initiating Holders). Any Registrable
Securities excluded or withdrawn from such underwriting shall be withdrawn
from the registration.
(c) The Company shall not be required to
effect a registration pursuant to this Section 1.2:
(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, unless the
Company is already subject to service in such jurisdiction and except as may
be required under the Act; or
(ii) after the Company has
effected two (2) registrations pursuant to this Section 1.2, and such
registrations have been declared or ordered effective; or
(iii) during the period starting
with the date sixty (60) days prior to the Company's good faith estimate of
the date of the filing of, and ending on a date one hundred eighty (180) days
following the effective date of, a Company-initiated registration subject to
Section 1.3 below, provided that the Company is actively employing in good
faith all reasonable efforts to cause such registration statement to become
effective; or
(iv) if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2,
a certificate signed by the Company's Chief Executive Officer or Chairman of
the Board stating that in the good faith judgment of the Board of Directors
of the Company, it would be seriously detrimental to the Company and its
shareholders for such registration statement to be effected at such time, in
which event the Company shall have the right to defer such filing for a
period of not more than ninety (90) days after receipt of the request of the
Initiating Holders, provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve (12)-month period.
1.3 COMPANY REGISTRATION.
(a) If (but without any obligation to do
so) the Company proposes to register (including for this purpose a
registration effected by the Company for
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shareholders other than the Holders) any of its stock or other securities
under the Act in connection with the public offering of such securities
(other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration relating to a corporate
reorganization or other transaction under Rule 145 of the Act, a registration
on any form that does not include substantially the same information as would
be required to be included in a registration statement covering the sale of
the Registrable Securities, or a registration in which the only Common Stock
being registered is Common Stock issuable upon conversion of debt securities
that are also being registered), the Company shall, at such time, promptly
give each Holder written notice of such registration. Upon the written
request of each Holder given within twenty (20) days after mailing of such
notice by the Company in accordance with Section 3.5, the Company shall,
subject to the provisions of Section 1.3(c), use all reasonable efforts to
cause to be registered under the Act all of the Registrable Securities that
each such Holder has requested to be registered.
(b) RIGHT TO TERMINATE REGISTRATION. The
Company shall have the right to terminate or withdraw any registration
initiated by it under this Section 1.3 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities in
such registration. The expenses of such withdrawn registration shall be borne
by the Company in accordance with Section 1.7 hereof.
(c) UNDERWRITING REQUIREMENTS. In
connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under this Section
1.3 to include any of the Holders' securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the Company
and the underwriters selected by it (or by other persons entitled to select
the underwriters) and enter into an underwriting agreement in customary form
with an underwriter or underwriters selected by the Company, and then only in
such quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion is
compatible with the success of the offering, then the Company shall be
required to include in the offering only that number of such securities,
including Registrable Securities, that the underwriters 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 securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually
be agreed to by such selling Holders), but in no event shall (i) the amount
of securities of the selling Holders included in the offering be reduced
below twenty-five percent (25%) 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, or (ii) notwithstanding (i) above, any
shares being sold by a shareholder exercising a demand registration right
similar to that granted in Section 1.2 be excluded from such offering. For
purposes of the preceding parenthetical concerning apportionment, for any
selling shareholder that is a Holder of Registrable Securities and that is a
partnership or corporation, the partners, retired partners and shareholders
of such Holder, or the estates and family members of any such partners and
retired partners and any trusts for the benefit of any of the foregoing
persons shall
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be deemed to be a single "selling Holder," and any pro rata reduction with
respect to such "selling Holder" shall be based upon the aggregate amount of
Registrable Securities owned by all such related entities and individuals.
1.4 FORM S-3 REGISTRATION. In case the
Company shall receive from the Holders of at least fifty percent (50%) of
the Registrable Securities a written request or requests that the Company
effect a registration on Form S-3 and any related qualification or compliance
with respect to all or a part of the Registrable Securities owned by such
Holder or Holders, the Company shall:
(a) promptly give written notice of the
proposed registration, and any related qualification or compliance, to all
other Holders; and
(b) use all reasonable best efforts to
effect, as soon as practicable, such registration and all such qualifications
and compliances as may be so requested and as would permit or facilitate the
sale and distribution of all or such portion of such Holders' Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any other Holders joining in such
request as are specified in a written request given within fifteen (15) days
after receipt of such written notice from the Company, provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance pursuant to this section 1.4:
(i) if Form S-3 is not available
for such offering by the Holders;
(ii) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion
in such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $500,000;
(iii) if the Company shall
furnish to the Holders a certificate signed by the Chief Executive Officer or
Chairman of the Board of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be seriously detrimental
to the Company and its shareholders for such Form S-3 Registration to be
effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not
more than one hundred twenty (120) days after receipt of the request of the
Holder or Holders under this Section 1.4; provided, however, that the Company
shall not utilize this right more than once in any twelve month period;
(iv) if the Company has, within
the twelve (12) month period preceding the date of such request, already
effected two registrations on Form S-3 for the Holders pursuant to this
Section 1.4; or
(v) in any particular
jurisdiction in which the Company would be required to qualify to do business
or to execute a general consent to service of process in effecting such
registration, qualification or compliance.
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(c) Subject to the foregoing, the Company
shall file a registration statement covering the Registrable Securities and
other securities so requested to be registered as soon as practicable after
receipt of the request or requests of the Holders. Registrations effected
pursuant to this Section 1.4 shall not be counted as requests for
registration effected pursuant to Sections 1.2.
1.5 OBLIGATIONS OF THE COMPANY. Whenever
required under this Agreement to effect the registration of any Registrable
Securities, the Company shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use
all reasonable efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration
statement effective for a period of up to one hundred twenty (120) days or,
if earlier, until the distribution contemplated in the Registration Statement
has been completed;
(b) prepare and file with the SEC
such amendments and supplements to such registration statement and the
prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Act with respect to the
disposition of all securities covered by such registration statement;
(c) furnish to the Holders such numbers
of copies of a prospectus, including a preliminary prospectus, in conformity
with the requirements of the Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them;
(d) use all reasonable efforts to
register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as shall
be reasonably requested by the Holders, provided that the Company shall not
be required in connection therewith or as a condition thereto to qualify to
do business or to file a general consent to service of process in any such
states or jurisdictions;
(e) in the event of any underwritten
public offering, enter into and perform its obligations under an
underwriting agreement, in usual and customary form, with the
managing underwriter of such offering;
(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 or the
happening of any event as a result of which the prospectus included in such
registration statement, as then in effect, includes an untrue statement of a
material fact or omits to state a material fact required to be stated therein
or necessary to make the statements therein not misleading in the light of
the circumstances then existing;
(g) cause all such Registrable Securities
registered pursuant hereunder to be listed on each securities exchange on
which similar securities issued by the Company are then listed; and
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(h) provide a transfer agent and
registrar for all Registrable Securities registered hereunder and a CUSIP
number for all such Registrable Securities, in each case not later than the
effective date of such registration.
1.6 INFORMATION FROM HOLDER. It shall be a
condition precedent to the obligations of the Company to take any action
pursuant to this Section 1 with respect to the Registrable Securities of any
selling Holder that such Holder shall furnish to the Company such information
regarding itself, the Registrable Securities held by it, and the intended
method of disposition of such securities as shall be required to effect the
registration of such Holder's Registrable Securities.
1.7 EXPENSES OF REGISTRATION. All expenses
other than underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and
1.4, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company and the reasonable fees and disbursements of one
counsel for the selling Holders (not to exceed $15,000) shall be borne by the
Company. Notwithstanding the foregoing, the Company shall not be required to
pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of
the Holders of a majority of the Registrable Securities to be registered (in
which case all participating Holders shall bear such expenses pro rata based
upon the number of Registrable Securities that were to be requested in the
withdrawn registration), unless, in the case of a registration requested
under Section 1.2, the Holders of a majority of the Registrable Securities
agree to forfeit their right to one demand registration pursuant to Section
1.2.
1.8 DELAY OF REGISTRATION. No Holder shall
have any right to obtain or seek an injunction restraining or otherwise
delaying any such registration as the result of any controversy that might
arise with respect to the interpretation or implementation of this Section 1.
1.9 INDEMNIFICATION. In the event any
Registrable Securities are included in a registration statement under this
Section 1:
(a) To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners or
officers, directors and shareholders of each Holder, legal counsel and
accountants for each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Act or the 1934 Act, against any losses, claims,
damages or liabilities (joint or several) to which they may become subject
under the Act, the 1934 Act or any state securities laws, insofar as such
losses, claims, damages, or liabilities (or actions in respect thereof) arise
out of or are based upon any of the following statements, omissions or
violations (collectively, a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary
to make the statements therein not misleading, or (iii) any violation or
alleged violation by the Company of the Act, the 1934 Act, any state
securities laws or any rule or regulation promulgated under the Act, the 1934
Act
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or any state securities laws; and the Company will reimburse each such
Holder, underwriter or controlling person for any legal or other expenses
reasonably incurred by them in connection with investigating or defending any
such loss, claim, damage, liability or action; provided, however, that the
indemnity agreement contained in this subsection l.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability or
action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action
to the extent that it arises out of or is based upon a Violation that occurs
in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person; provided further, however, that the
foregoing indemnity agreement with respect to any preliminary prospectus
shall not inure to the benefit of any Holder or underwriter, or any person
controlling such Holder or underwriter, from whom the person asserting any
such losses, claims, damages or liabilities purchased shares in the offering,
if a copy of the prospectus (as then amended or supplemented if the Company
shall have furnished any amendments or supplements thereto) was not sent or
given by or on behalf of such Holder or underwriter to such person, if
required by law so to have been delivered, at or prior to the written
confirmation of the sale of the shares to such person, and if the prospectus
(as so amended or supplemented) would have cured the defect giving rise to
such loss, claim, damage or liability.
(b) To the extent permitted by law, each
selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the Act,
legal counsel and accountants for the Company, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Act, the 1934 Act or any state
securities laws, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs
in reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will reimburse any person intended to be indemnified pursuant to this
subsection l.9(b), for any legal or other expenses reasonably incurred by
such person in connection with investigating or defending any such loss,
claim, damage, liability or action; provided, however, that the indemnity
agreement contained in this subsection l.9(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder (which consent shall
not be unreasonably withheld), provided that in no event shall any indemnity
under this subsection l.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an
indemnified party under this Section 1.9 of notice of the commencement of any
action (including any governmental action), such indemnified party will, if a
claim in respect thereof is to be made against any indemnifying party under
this Section 1.9, deliver to the indemnifying party a written notice of the
commencement thereof and the indemnifying party shall have the right to
participate in, and, to the extent the indemnifying party so desires, jointly
with any other indemnifying party similarly noticed, to assume the defense
thereof with counsel mutually satisfactory to the parties;
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provided, however, that an indemnified party (together with all other
indemnified parties that may be represented without conflict by one counsel)
shall have the right to retain one separate counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such
indemnified party by the counsel retained by the indemnifying party would be
inappropriate due to actual or potential differing interests between such
indemnified party and any other party represented by such counsel in such
proceeding. The failure to deliver written notice to the indemnifying party
within a reasonable time of the commencement of any such action, if
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this
Section 1.9, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to
any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for
in this Section 1.9 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any loss, liability,
claim, damage or expense referred to herein, then the indemnifying party, in
lieu 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) The obligations of the Company and
Holders under this Section 1.9 shall survive the completion of any offering
of Registrable Securities in a registration statement under this Section 1,
and otherwise.
1.10 REPORTS UNDER 1934 ACT. With a view to
making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) make and keep public information
available, as those terms are understood and defined in SEC Rule 144, at all
times after ninety (90) days after the effective date of the registration
statement filed in connection with the Initial Offering;
(b) file with the SEC in a timely manner
all reports and other documents required of the Company under the Act and the
1934 Act; and
(c) furnish to any Holder, so long as the
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements
of SEC Rule 144 (at any time after ninety (90) days after the effective date
of the first registration statement filed by the Company), the Act and the
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1934 Act (at any time after it has become subject to such reporting
requirements), or that it qualifies as a registrant whose securities may be
resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy
of the most recent annual or quarterly report of the Company and such other
reports and documents so filed by the Company, and (iii) such other
information as may be reasonably requested in availing any Holder of any rule
or regulation of the SEC that permits the selling of any such securities
without registration or pursuant to such form.
1.11 ASSIGNMENT OF REGISTRATION RIGHTS. The
rights to cause the Company to register Registrable Securities pursuant to
this Section 1 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities that after such
assignment or transfer, holds at least fifty thousand (50,000) shares of
Registrable Securities (subject to appropriate adjustment for stock splits,
stock dividends, combinations and other recapitalizations), provided: (a) the
Company is, within a reasonable time after such transfer, furnished with
written notice of the name and address of such transferee or assignee and the
securities with respect to which such registration rights are being assigned;
(b) such transferee or assignee agrees in writing to be bound by and subject
to the terms and conditions of this Agreement, including without limitation
the provisions of Section 1.13 below; and (c) such assignment shall be
effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the Act.
1.12 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 at least two-thirds of
the Registrable Securities, enter into any agreement with any holder or
prospective holder of any securities of the Company that would allow such
holder or prospective holder (a) to include such securities in any
registration filed under Section 1.3 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 such
securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of their securities.
1.13 "MARKET STAND-OFF" AGREEMENT. Each
Holder hereby agrees that it will not, without the prior written consent of
the managing underwriter, during the period commencing on the date of the
final prospectus relating to the Company's public offering and ending on the
date specified by the Company and the managing underwriter (such period not
to exceed one hundred eighty (l80) days for the Company's initial public
offering) (i) lend, offer, pledge, sell, contract to sell, sell any option or
contract to purchase, purchase any option or contract to sell, grant any
option, right or warrant to purchase, or otherwise transfer or dispose of,
directly or indirectly, any shares of Common Stock or any securities
convertible into or exercisable or exchangeable for Common Stock (whether
such shares or any such securities are then owned by the Holder or are
thereafter acquired), or (ii) enter into any swap or other arrangement that
transfers to another, in whole or in part, any of the economic consequences
of ownership of the Common Stock, whether any such transaction described in
clause (i) or (ii) above is to be settled by delivery of Common Stock or such
other securities, in cash or otherwise. The foregoing provisions of this
Section 1.13 shall only be applicable to the Holders if all officers and
directors and greater than one percent (1%) shareholders of the Company enter
into similar agreements. The underwriters in connection with the Company's
initial public
10
offering are intended third party beneficiaries of this Section 1.13 and
shall have the right, power and authority to enforce the provisions hereof as
though they were a party hereto.
In order to enforce the foregoing covenant, the Company may
impose stop-transfer instructions with respect to the Registrable Securities
of each Holder (and the shares or securities of every other person subject to
the foregoing restriction) until the end of such period.
1.14 TERMINATION OF REGISTRATION RIGHTS. No
Holder shall be entitled to exercise any right provided for in this Section 1
after five (5) years following the consummation of the Initial Offering or,
as to any Holder, such earlier time at which the Company's shares are
publicly traded on a recognized national exchange, such Holder owns less than
5% of the Company's outstanding shares, and all Registrable Securities held
by such Holder (and any affiliate of the Holder with whom such Holder must
aggregate its sales under Rule 144) can be sold in any three (3)-month period
without registration in compliance with Rule 144 of the Act.
2. COVENANTS OF THE COMPANY.
2.1 DELIVERY OF FINANCIAL STATEMENTS. The
Company shall deliver to each Investor that holds at least one hundred
thousand (100,000) shares (as adjusted for subsequent stock splits, stock
dividends, combinations and other recapitalizations) of Preferred Stock (or
Common Stock issued upon conversion thereof) of the Company:
(a) as soon as practicable, but in any
event within ninety (90) days after the end of each fiscal year of the
Company, an income statement for such fiscal year, a balance sheet of the
Company and statement of shareholder's equity as of the end of such year, and
a statement of cash flows for such year, such year-end financial reports to
be in reasonable detail, prepared in accordance with generally accepted
accounting principles ("GAAP"), and audited and certified by independent
public accountants of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any
event within forty-five (45) days after the end of each of the first three
(3) quarters of each fiscal year of the Company, an unaudited income
statement, statement of cash flows for such fiscal quarter and an unaudited
balance sheet as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of
each month, an unaudited income statement and statement of cash flows and
balance sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any
event at least thirty (30) days prior to the end of each fiscal year, a
budget and business plan for the next fiscal year, prepared on a monthly
basis, including balance sheets, income statements and statements of cash
flows for such months and, as soon as prepared, any other budgets or revised
budgets prepared by the Company; and
(e) with respect to the financial
statements called for in subsections (b) and (c) of this Section 2.1, an
instrument executed by the Chief Financial Officer
11
or President of the Company certifying that such financials were prepared in
accordance with GAAP consistently applied with prior practice for earlier
periods (with the exception of footnotes that may be required by GAAP) and
fairly present the financial condition of the Company and its results of
operation for the period specified, subject to year-end audit adjustment.
2.2 INSPECTION. The Company shall permit
each Investor that holds at least one hundred thousand (100,000) shares (as
adjusted for subsequent stock splits, stock dividends, combinations and other
recapitalizations) of Preferred Stock (and/or Common Stock issued upon
conversion thereof), at such Investor's expense, to visit and inspect the
Company's properties, to examine its books of account and records and to
discuss the Company's affairs, finances and accounts with its officers, all
at such reasonable times as may be requested by the Investor; provided,
however, that the Company shall not be obligated pursuant to this Section 2.2
to provide access to any information that it reasonably considers to be a
trade secret or similar confidential information.
2.3 RIGHT OF FIRST OFFER. Subject to the
terms and conditions specified in this Section 2.3, the Company hereby grants
to each "Major Investor" (as hereinafter defined) a right of first offer with
respect to future sales by the Company of its Shares (as hereinafter
defined). For purposes of this Section 2.3, a "Major Investor" shall mean any
Investor or transferee that holds at least one hundred thousand (100,000)
shares of Series A, Series B or Series C Preferred Stock (or the Common Stock
issued upon conversion thereof) (as adjusted for stock splits, stock
dividends, combinations and other recapitalizations). For purposes of this
Section 2.3, Investor includes any general partners and affiliates of an
Investor. A Major Investor shall be entitled to apportion the right of first
offer hereby granted it among itself and its partners and affiliates in such
proportions as it deems appropriate.
Each time the Company proposes to offer any shares of, or
securities convertible into or exchangeable or exercisable for any shares of,
any class of its capital stock ("Shares"), the Company shall first make an
offering of such Shares to each Major Investor in accordance with the
following provisions.
(a) The Company shall deliver a notice in
accordance with Section 3.5 ("Notice") to the Major Investors stating (i) its
bona fide intention to offer such Shares, (ii) the number of such Shares to
be offered, and (iii) the price and terms upon which it proposes to offer
such Shares.
(b) By written notification received by
the Company, within twenty (20) calendar days after receipt of the Notice,
the Major Investor may elect to purchase or obtain, at the price and on the
terms specified in the Notice, up to that portion of such Shares that equals
the proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Preferred Stock then held, by such Major
Investor bears to the total number of shares of Common Stock of the Company
then outstanding (assuming full conversion and exercise of all convertible
and exercisable securities).
(c) If all Shares that Major Investors
are entitled to obtain pursuant to subsection 2.3(b) are not elected to be
obtained as provided in subsection 2.3(b)
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hereof, those non-subscribed shares shall be reoffered to the Major Investors
who purchased their entire allocation of Shares pursuant to subsection
2.3(b), and by written notification received by the Company within twenty
(20) calendar days after receipt of the Notice pertaining to the
non-subscribed Shares, those Major Investors may elect to obtain, at the
price and on the terms specified in the original Notice, their pro rata
portion of such non-subscribed shares. If any Shares that Major Investors are
entitled to obtain pursuant to the immediately preceding sentence are not
purchased by such Major Investors, the Company may, during the ninety (90)
day period following the expiration of the periods provided in subsection
2.3(b) and the first sentence of this subsection 2.3(c), offer the remaining
non-subscribed portion of such Shares to any person or persons at a price not
less than, and upon terms no 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 Shares within such period, or if such agreement is not
consummated within ninety (90) days of the execution thereof, the right
provided hereunder shall be deemed to be revived and such Shares shall not be
offered unless first reoffered to the Major Investors in accordance with this
Section 2.3.
(d) The right of first offer in this
Section 2.3 shall not be applicable to (i) the issuance or sale of up to
6,300,000 shares of Common Stock (or options therefor) to employees,
directors, officers and consultants for the primary purpose of soliciting or
retaining their services; (ii) the issuance of securities pursuant to a bona
fide, firmly underwritten public offering of shares of Common Stock
registered under the Act; (iii) the issuance of securities pursuant to the
conversion or exercise of convertible or exercisable securities; (iv) the
issuance of securities in connection with a bona fide business acquisition of
or by the Company, whether by merger, consolidation, sale of assets, sale or
exchange of stock or otherwise; (v) the issuance of securities to banks or
equipment lessors; or (vi) the issuance of stock, warrants or other
securities or rights to persons or entities with which the Company has
business relationships provided such issuances are for other than primarily
equity financing purposes.
2.4 DIRECTORS AND OFFICERS INSURANCE. The
Company has obtained from financially sound and reputable insurers directors
and officers liability insurance in the amount of $1,000,000. The Company
shall maintain in full force and effect such coverage for so long as the
Series B Investors are entitled to elect at least one (1) member of the
Company's Board of Directors.
2.5 TERMINATION OF COVENANTS. The covenants
set forth in Sections 2.1, 2.2 and 2.3 shall terminate as to Investors and be
of no further force or effect when the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with
the firm commitment underwritten offering of its securities to the general
public is consummated, the public offering price of which was not less than
$15.00 per share (as adjusted for any stock splits, stock dividends,
recapitalizations or the like) and $20,000,000 in the aggregate (a "Qualified
IPO"), or when the Company first becomes subject to the periodic reporting
requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event
shall first occur.
2.6 OPTION VESTING. The Company agrees,
unless otherwise agreed to by a unanimousvote of the Company's Board of
Directors, that all stock and stock equivalents issued to employees,
directors, consultants and other service providers will be subject to
vesting,
13
such that 25% of such shares shall vest 12 months following the date of such
issuance, with the remaining 75% to vest monthly over the next four years. In
addition, the Company agrees that it will not accelerate vesting of any
currently issued, but unvested shares, prior to the closing of the Series C
financing.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. 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 (including transferees of any shares of Registrable
Securities). Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities
under or by reason of this Agreement, except as expressly provided in this
Agreement.
3.2 GOVERNING LAW. This Agreement shall be
governed by and construed under the laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California.
3.3 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.
3.4 TITLES AND SUBTITLES. The titles and
subtitles used in this Agreement are used for convenience only and are not to
be considered in construing or interpreting this Agreement.
3.5 NOTICES. Unless otherwise provided, any
notice required or permitted under this Agreement shall be given in writing
and shall be deemed effectively given upon personal delivery to the party to
be notified or upon delivery by confirmed facsimile transmission, nationally
recognized overnight courier service, or upon deposit with the United States
Post Office, by registered or certified mail, postage prepaid and addressed
to the party to be notified at the address indicated for such party on the
signature page hereof, or at such other address as such party may designate
by ten (10) days' advance written notice to the other parties. In addition, a
copy of any notice sent to the Company pursuant to this Agreement shall be
sent to Weil, Gotshal & Xxxxxx LLP, 0000 Xxxx Xxxx Xxxx, Xxxxx 000, Xxxxx
Xxxx, Xxxxxxxxxx 00000, Attn: Xxxxx X. Xxxx.
3.6 EXPENSES. If any action at law or in
equity is necessary to enforce or interpret the terms of this Agreement, the
prevailing party shall be entitled to reasonable attorneys' fees, costs and
necessary disbursements in addition to any other relief to which such party
may be entitled.
3.7 ENTIRE AGREEMENT; AMENDMENTS AND WAIVERS.
This Agreement (including the Exhibits hereto, if any) constitutes the full
and entire understanding and agreement among the parties with regard to the
subjects hereof and thereof. Any term of this Agreement may be amended and
the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the
14
written consent of the Company and the holders of two-thirds of the
Registrable Securities. Any amendment or waiver effected in accordance with
this Section 3.7 shall be binding upon each holder of any Registrable
Securities, each future holder of all such Registrable Securities and the
Company.
3.8 SEVERABILITY. If one or more provisions
of this Agreement are held to be unenforceable under applicable law, such
provision shall be excluded from this Agreement and the balance of the
Agreement shall be interpreted as if such provision were so excluded and
shall be enforceable in accordance with its terms.
3.9 AGGREGATION OF STOCK. All shares of
Registrable Securities held or acquired by affiliated entities or persons
shall be aggregated together for the purpose of determining the availability
of any rights under this Agreement.
3.10 ADDITIONAL PARTIES. In the event of a
subsequent closing with a purchaser as provided for in Section 1.3 of the
Series C Agreement, such purchaser shall become a party to this Agreement as
an "Investor" upon receipt from such purchaser of a fully executed signature
page hereto.
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