EXHIBIT 10.4
APPLIED SCIENCE FICTION, INC.
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AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
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THIS AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the "Agreement") is
made as of the 29th day of March, 1999, by and among Applied Science Fiction,
Inc., a Delaware corporation (the "Company"), the holders of the Company's
Series C Preferred Stock and Series D Preferred Stock listed on Exhibit A hereto
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(each an "Investor") and the stockholders of the Company identified on Exhibit B
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hereto (each a "Key Employee Stockholder").
R E C I T A L S:
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WHEREAS, certain of the Investors hold shares of the Company's Series C
Preferred Stock (the "Series C Preferred Stock"), and possess registration
rights, information rights and other rights pursuant to an Investors' Rights
Agreement dated as of July 29, 1997, among the Company, such Investors and the
Key Employee Stockholders (the "Original Agreement");
WHEREAS, the Company, Investors holding in excess of sixty percent (60%) of
the outstanding shares of Series C Preferred Stock and the undersigned Key
Employee Stockholders who hold in excess of a majority of the Key Employee
Shares (as hereinafter defined) desire to amend and restate the Original
Agreement pursuant to Section 3.3 thereof and to accept the rights created
pursuant hereto in lieu of the rights granted to them under the Original
Agreement;
WHEREAS, the Company and certain of the Investors have entered into the
Series D Purchase Agreement (as defined below) of even date herewith pursuant to
which the Company has agreed to sell, and such Investors have agreed to
purchase, shares of the Series D Preferred Stock of the Company (the "Series D
Preferred Stock");
WHEREAS, the respective obligations of the parties to consummate the
transactions contemplated by the Series D Purchase Agreement are conditioned
upon the execution and delivery of this Agreement; and
WHEREAS, in order to induce the Company to enter into the Series D Purchase
Agreement and to induce those Investors that have entered into the Series D
Purchase Agreement to invest funds in the Company pursuant to their purchase of
Series D Preferred Stock, each of the Investors, the Key Employee Stockholders
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 issuable to
the Investors and certain other matters as set forth herein.
NOW THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the Investors who are parties to the Original Agreement hereby
amend and restate the Original Agreement in its entirety and the parties hereto
agree as follows:
SECTION 1
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Restrictions on Transferability of Securities; Registration Rights
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1.1 Certain Definitions. As used in this Agreement, the following
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terms shall have the meanings set forth below:
(a) "Closing" shall mean the date of the initial sale of shares of the
Series D Preferred Stock under the Series D Purchase Agreement.
(b) "Commission" shall mean the United States Securities and Exchange
Commission or any other federal agency at the time administering the Securities
Act.
(c) "Common Stock" shall mean the Company's Common Stock, par value $0.001
per share.
(d) "Exchange Act" shall mean the Securities Exchange Act of 1934, as
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.
(e) "Holder" shall mean any Investor who holds Registrable Securities and
any holder of Registrable Securities to whom the registration rights conferred
by this Agreement have been transferred in compliance with Section 1.11 hereof.
(f) "Initiating Holders" shall mean any Holder or Holders who, in the
aggregate, hold not less than twenty five percent (25%) of the outstanding
Registrable Securities.
(g) "Investors" shall mean persons who purchased Shares pursuant to the
Series C Purchase Agreement or the Series D Purchase Agreement, and their
respective affiliates, constituent members and partners.
(h) "Investor Warrants" shall mean those warrants to purchase up to
1,224,879 shares of Common Stock issued to certain of the Investors pursuant to
the Series C Purchase Agreement.
(i) "Key Employee Shares" shall mean (i) 8,796,000 shares of Common Stock
or options to acquire Common Stock (as presently constituted and subject to
adjustment for subsequent stock splits, reverse splits and the like) held by the
Key Employee Stockholders on the date hereof, (ii) shares of Common Stock issued
or issuable pursuant to the conversion of 19,143 shares of Series B Preferred
Stock, including shares of Series B Preferred Stock issuable upon the exercise
of warrants to purchase Series B Preferred Stock, held by the Key Employee
Stockholders on the date hereof and (iii) any Common Stock issued as a dividend
or other distribution with respect to or in exchange for or in replacement of
the shares referenced in (i) or (ii) above, provided, however, that Key Employee
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Shares shall not include any securities which have previously been registered or
which have been sold to the public pursuant to a registration statement or Rule
144 or which have otherwise been sold or transferred by the Key Employee
Stockholders.
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(j) "Other Stockholders" shall mean persons other than Holders and Key
Employee Stockholders who, by virtue of agreements with the Company, are
entitled to include their securities in certain registrations hereunder.
(k) "Preferred Stock" shall mean the Series B Preferred Stock, the Series C
Preferred Stock and the Series D Preferred Stock.
(l) "Qualified IPO" shall mean the first underwritten public offering of
equity securities by the Company registered under the Securities Act.
(m) The terms "register," "registered" and registration" shall refer to a
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.
(n) "Registrable Securities" shall mean (1) shares of Common Stock issued
or issuable pursuant to the conversion of the Shares and Investor Warrants and
(2) any Common Stock 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 (1) above; provided, however, that Registrable Securities shall
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not include any 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 or transferred in a private transaction in
which the transferees rights under this Agreement are not assigned.
(o) "Registration Expenses" shall mean all expenses incurred by the Company
in effecting 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, fees and disbursements of a single counsel for the Holders and/or
Key Employee Stockholders and expenses of any regular or special audits incident
to or required by any such registration, but shall not include Selling Expenses
(but excluding the compensation of regular employees of the Company, which shall
be paid in any event by the Company).
(p) "Rule 144" shall mean Rule 144 as promulgated by the Commission under
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.
(q) "Rule 145" shall mean Rule 145 as promulgated by the Commission under
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.
(r) "Securities Act" shall mean the Securities Act of 1933, as 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.
(s) "Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale of Registrable Securities.
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(t) "Series B Preferred Stock" shall mean the Company's Series B Preferred
Stock, par value $.001 per share.
(u) "Series B Warrants" shall mean those certain warrants to purchase up to
8,556 shares of Series B Preferred Stock which the Company has issued to holders
of Series B Preferred Stock.
(v) "Series C Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of July 29, 1997, between the Company and the purchasers of the Series
C Preferred Stock named therein.
(w) "Series D Purchase Agreement" shall mean the Stock Purchase Agreement
dated as of March 29, 1999, between the Company and the purchasers of the Series
D Preferred Stock named therein.
(x) "Shares" shall mean the Company's Series C Preferred Stock, par value
$.001 per share, and Series D Preferred Stock, par value $.001 per share.
1.2 Requested Registration.
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(a) Request for Registration. If the Company shall receive from the
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Initiating Holders at any time not earlier than one hundred eighty (180) days
after the closing of the Company's Qualified IPO, a written request that the
Company effect a registration with respect to at least twenty five percent (25%)
of the Registrable Securities (or a lesser percentage if the aggregate public
offering price of the Registrable Securities subject to such request will exceed
$7,500,000), then the Company will:
(i) promptly give written notice of the proposed registration to all
other Holders; and
(ii) promptly use its best efforts to effect such registration
(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) and to
take all such actions as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the
Registrable Securities of any Holder or Holders joining in such request as
are specified in a written request received by the Company within twenty
(20) days after such written notice from the Company is mailed or
delivered.
The Company shall not be obligated to effect, or to take any action to
effect, any such registration pursuant to this Section 1.2:
(A) In any particular jurisdiction in which the Company would be
required to execute a general consent to service of process in effecting
such registration, qualification, or compliance, unless the Company is
already subject to service in such jurisdiction and except as may be
required by the Securities Act;
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(B) After the Company has initiated one such registration pursuant
to this Section 1.2(a) (counting for these purposes only registrations
which have been declared or ordered effective and pursuant to which
securities have been sold and registrations which have been withdrawn by
the Holders as to which the Holders have not elected to bear the
Registration Expenses pursuant to Section 1.4 hereof and would, absent such
election, have been required to bear such expenses); provided, that if in
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the registration effected pursuant to this Section 1.2(a), less than sixty-
seven percent (67%) of all Registrable Securities outstanding at the time
of the delivery of the Company's notice under Section 1.2(a)(i) were sold
in such registration and at least one hundred eighty (180) days have
elapsed since the effective date of such first registration, then such
first registration shall not be counted against the single registration
which the Initiating Holders may request under this Section 1.2(a);
provided, further, that if at the time the Holders elect to withdraw a
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request for registration, the Holders have learned of a material adverse
change in the condition, business or prospects of the Company from that
known to the Holders at the time of their request for registration and have
withdrawn the request with reasonable promptness following disclosure by
the Company of such material adverse change, then the Holders shall retain
their rights to request registration and shall not be required to pay the
costs of the withdrawn registration.
(C) During the period beginning sixty (60) days prior to the date
of the filing of a registration statement by the Company pursuant to a
Company-initiated registration and ending one hundred eighty (180) days
after the effective date of such registration statement; provided, that the
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Company is actively employing in good faith all reasonable efforts to cause
such registration statement to become effective; or
(D) If the Initiating Holders propose to dispose of shares of
Registrable Securities which may be immediately registered on Form S-3
pursuant to a request made under Section 1.5 hereof.
(b) Filing of Registration Statement. Subject to the foregoing clauses (A)
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through (D), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as practicable
after receipt of the request or requests of the Initiating Holders;
provided, however, that if (i) in the good faith judgment of the Board of
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Directors of the Company, such registration would be seriously detrimental to
the Company and the Board of Directors of the Company concludes, as a result,
that it is necessary 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 of the Company, it would be seriously detrimental to the
Company for such registration statement to be filed in the near future and that
it is, therefore, necessary to defer the filing of such registration statement,
then the Company shall have the right to defer such filing for the period during
which such disclosure would be seriously detrimental, provided that (except as
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provided in clause (C) above) the Company may not defer the filing for a period
of more than ninety (90) days after receipt of the request of the Initiating
Holders, and, provided further, that
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the Company shall not defer its obligation in this manner more than once in any
twelve (12) month period.
The registration statement filed pursuant to the request of the Initiating
Holders may, subject to the provisions of Sections 1.2(b) and 1.13 hereof,
include other 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
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Section 1.2 shall be conditioned upon such Holder's participation in any such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Registrable Securities held by the Holders participating in such registration
and such Holder with respect to such participation and inclusion) to the extent
provided herein. A Holder may elect to include in such underwriting all or a
part of the Registrable Securities he holds.
(d) Procedures. If the Company shall request inclusion in any registration
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pursuant to Section 1.2 of securities being sold for its own account, or if
other persons shall request inclusion in any registration pursuant to Section
1.2, the Initiating Holders shall on behalf of all 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 1 (including
Section 1.12). 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 Holders, which underwriters are reasonably acceptable
to the Company. Notwithstanding any other provision of this Section 1.2, if the
representative of the underwriters advises the Initiating Holders 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 1.13 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
Holders. The securities so excluded shall also be withdrawn from registration.
Any Registrable Securities or other securities excluded shall also be withdrawn
from such registration. 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 1.2(d), then the
Company shall offer to all 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
inclusions in accordance with Section 1.13.
1.3 Company Registration.
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(a) Piggy-back Rights. If the Company shall determine to register any of
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its securities either for its own account or the account of a security holder or
holders exercising their respective registration rights (other than pursuant to
Section 1.2 or 1.5 hereof), other than a registration relating solely to
employee benefit plans, or a registration relating solely to a Rule
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145 transaction, or a registration on any registration form that does not permit
secondary sales, the Company will:
(i) promptly give to each Holder and Key Employee Stockholder 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 1.3(b) below, and in any underwriting involved
therein, all the Registrable Securities or Key Employee Shares, as the case
may be, specified in a written request or requests made by any Holder or
Key Employee Stockholders, respectively, and received by the Company within
ten (10) business 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 or
all or any part of a Key Employee Stockholder's Key Employee Shares, as the
case may be.
(b) Underwriting. If the registration of which the Company gives notice is
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for a registered public offering involving an underwriting, the Company shall so
advise the Holders and Key Employee Stockholders as a part of the written notice
given pursuant to Section 1.3(a)(i). In such event, the right of any Holder and
of any Key Employee Stockholder to registration pursuant to this Section 1.3
shall be conditioned upon such persons participation in such underwriting and
the inclusion of such Holder's Registrable Securities or such Key Employee
Stockholder's Key Employee Shares (as applicable) in the underwriting to the
extent provided herein. All Holders and Key Employee Stockholders 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 1.3, if the
representative of the underwriters advises the Company in writing that marketing
factors require a limitation on the number of shares to be underwritten, the
representative may (subject to the limitations set forth below) exclude all
Registrable Securities and Key Employee Shares from, or limit the number of
Registrable Securities and Key Employee Shares to be included in, the
registration and underwriting. If the registration is the Qualified IPO, the
Company may limit, to the extent so advised by the underwriters, the amount of
securities (including Registrable Securities and Key Employee Shares) to be
included in the registration by the Company's stockholders (including the
Holders and Key Employee Stockholders), or may exclude, to the extent so advised
by the underwriters, such underwritten securities entirely from such
registration. If such registration is the second or any subsequent registered
offering of the Company's securities to the general public initiated by the
Company or at the request of any other holder, the Company may limit, to the
extent so advised by the underwriters, the amount of securities (including
Registrable Securities and Key Employee Shares) to be included in the
registration by the Company's stockholders (including the Holders and Key
Employee Stockholders); provided, however, that the Company shall permit the
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Holders to include at least thirty percent (30%) of the total securities to be
offered in such registration. The Company shall so advise all holders of
securities requesting registration and, subject to the proviso in the
immediately preceding
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sentence, the number of shares of securities that are entitled to be included in
the registration and underwriting shall be allocated first to the Company for
securities being sold for its own account and thereafter as set forth in Section
1.13. If any person does not agree to the terms of any such underwriting, such
person shall be excluded therefrom by written notice from the Company or the
underwriter. Any Registrable Securities, Key Employee Shares 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 and Key Employee Shares 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 1.13 hereof.
1.4 Expenses of Registration. All Registration Expenses incurred in
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connection with any registration, qualification or compliance pursuant to
Section 1.2 hereof, and the reasonable fees of one counsel for all of the
selling stockholders, shall be borne by the Company; provided, however, that if
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the Holders bear the Registration Expenses for any registration proceeding begun
pursuant to Section 1.2 and subsequently withdrawn by the Holders registering
shares therein, such registration proceeding shall not be counted as a requested
registration pursuant to Section 1.2 hereof, except in the event that such
withdrawal is based upon material adverse information relating to the Company
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 1.2, in which event such
registration shall not be treated as a counted registration for purposes of
Section 1.2 hereof, even though the Holders do not bear the Registration
Expenses for such registration. All Registration Expenses incurred in connection
with any registration, qualification or compliance with respect to Registrable
Securities or Key Employee Shares pursuant to Sections 1.3 or 1.5 hereof, and
the reasonable fees of one counsel for all of the selling stockholders, shall be
paid by the Company. Selling Expenses relating to securities registered under
any section hereof 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.
1.5 Registration on Form S-3.
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(a) After its initial public offering, the Company shall use its best
efforts to qualify for registration on Form S-3 or any comparable or successor
form or forms. After the Company has qualified for the use of Form S-3, in
addition to the rights contained in the foregoing provisions of this Section 1,
the Holders shall have the right to request up to an aggregate of four
registrations, but no more than two in any twelve (12) month period, each on
Form S-3 (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
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the Company shall not be obligated to effect any such registration (i) 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) on Form S-3 at an aggregate price
to the public of less than $1,000,000, (ii) in the event that
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the Company shall furnish the certification described in paragraph 1.2(b)(ii)
(but subject to the limitations set forth therein) or (iii) 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 1.5(a)
hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and
(ii) and Section 1.2(b) hereof shall apply to such registration. If the
registration is for an underwritten offering, the provisions of Sections 1.2(c)
and 1.2(d) hereof shall apply to such registration.
1.6 Registration Procedures. In the case of each registration effected by
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the Company pursuant to Section 1, the Company will keep each Holder and, if
applicable, Key Employee Stockholder, 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 one hundred
eighty (180) days or until the Holder or Holders (and, if applicable, Key
Employee Stockholder(s)) have completed the distribution described in the
registration statement relating thereto, whichever first occurs; provided,
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however, that (i) such one hundred eighty (180) day period shall be extended for
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a period of time equal to the period the Holder or Key Employee Stockholder
refrain 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 one hundred eighty
(180) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any 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 and permit counsel for the Holders participating in such
registration to review all such amendments and supplements and such prospectus
prior to the filing thereof with the Commission;
(c) Furnish such number of prospectuses in conformity with the requirements
of the Securities Act and other documents incident thereto, including any
amendment of or supplement to the prospectus, as a Holder (and, if applicable,
Key Employee Stockholder) from time to time may reasonably request;
(d) Use its best efforts to register or qualify such Registrable Securities
under the securities or blue sky laws of such jurisdictions as any Holder
participating in such registration
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reasonably requests and do any and all other acts and things which may be
reasonably necessary or advisable to enable such Holder to consummate the
disposition in such jurisdictions of Registrable Securities owned by such
Holder; provided, that the Company will not be required to (i) qualify generally
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to do business in any jurisdiction where it would not otherwise be required to
qualify but for this paragraph (d), (ii) subject itself to taxation in any such
jurisdiction or (iii) consent to general service of process in any such
jurisdiction;
(e) Notify each seller of Registrable Securities or Key Employee Shares
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading or incomplete in the light of the
circumstances then existing, and at the request of any such seller, prepare and
furnish to such seller a reasonable number of copies of a supplement to or an
amendment of such prospectus as may be necessary so that, as thereafter
delivered to the purchasers of such shares, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required to
be stated therein or necessary to make the statements therein not misleading or
incomplete in the light of the circumstances then existing (and, pending receipt
of such supplemental or amended prospectus or of a written notice from the
Company that the use of the applicable prospectus may be resumed, each seller
shall forthwith discontinue disposition of such Registrable Securities or Key
Employee Shares covered by such registration); provided, however, that the
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period set forth in (a) above shall be extended for a number of days equal to
the number of days that the Holder was unable to sell Registrable Securities
under the registration statement;
(f) Cause all such Registrable Securities (and, if applicable, Key Employee
Shares) registered pursuant hereunder to be listed on each securities exchange
on which similar securities issued by the Company are then listed;
(g) Provide a transfer agent and registrar for all Registrable Securities
(and, if applicable, Key Employee Shares) registered pursuant to such
registration statement and a CUSIP number for all such Registrable Securities
and Key Employee Shares, in each case not later than the effective date of such
registration; and
(h) In connection with any underwritten offering pursuant to a registration
statement filed pursuant to Section 1.2 and 1.5 hereof, the Company will enter
into an underwriting agreement reasonably necessary to effect the offer and sale
of Common Stock, provided such underwriting agreement contains customary
underwriting provisions and provided further that if the underwriter so requests
the underwriting agreement will contain customary contribution provisions.
1.7 Indemnification.
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(a) The Company will indemnify and hold harmless each Holder and Key
Employee Stockholder, each of its officers, directors and partners, legal
counsel, and accountants and each person controlling such Holder or Key Employee
Stockholder within the meaning of Section 15 of the Securities Act, with respect
to which registration, qualification, or compliance has been
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effected pursuant to this Section 1, and each underwriter, if any, and each
person who controls within the meaning of Section 15 of the Securities Act any
underwriter, against all expenses, claims, losses, damages, and liabilities (or
actions, proceedings, or settlements in respect thereof) arising out of or based
on any untrue statement (or alleged 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 (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, or any violation or
alleged violation by the Company of the Securities Act, the Exchange Act, any
state securities laws or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities laws 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 and Key Employee Stockholder, each of its officers, directors, partners,
legal counsel, and accountants and each person controlling such Holder or Key
Employee Stockholder, each such underwriter, and each person who controls any
such underwriter, 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, that the Company will not be liable in
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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, Key Employee
Stockholder or underwriter and stated in writing to be specifically for use
therein. It is agreed that the indemnity agreement contained in this Section
1.7(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 has not been unreasonably withheld).
(b) Each Holder and Key Employee Stockholder will, if Registrable
Securities held by it or him 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 and each underwriter, if any, of the Company's securities covered by
such a registration statement, each person who controls the Company or such
underwriter within the meaning of Section 15 of the Securities Act, each other
such Holder, Key Employee Stockholder and Other Stockholder, and each of their
officers, directors, and partners, and each person controlling such Holder or
Other Stockholder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue statement (or
alleged untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company and such Holders, Key Employee Stockholders, Other Stockholders,
directors, officers, partners, legal counsel, and accountants, persons,
underwriters, or control persons 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 alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular,
or other document in reliance upon and in conformity with written information
furnished to the Company by such Holder or Key Employee Stockholder and stated
to be specifically for use therein; provided, however, that the obligations of
-------- -------
such Holder or Key Employee Stockholder hereunder shall not apply to amounts
paid in settlement of any such claims, losses, damages, or liabilities (or
actions
11
in respect thereof) if such settlement is effected without consent of such
Holder or Key Employee Stockholder, as the case may be (which consent shall not
be unreasonably withheld). Notwithstanding the foregoing, in no event shall any
indemnity under this subsection (b) exceed the net proceeds from the offering
received by such Holder or Key Employee Stockholder, as the case may be.
(c) Each party entitled to indemnification under this Section 1.7 (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
unreasonably be withheld), and the Indemnified Party (together with all other
Indemnified Parties that may be represented without conflict by one counsel) may
participate in such defense at such party's expense; provided, however, that the
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Indemnifying Party shall pay the fees and expenses of additional counsel if more
than one counsel is required to be retained by other Indemnified Parties due to
actual or potential conflicts for one counsel to represent all of the
Indemnified Parties; and provided, further, that the failure of any Indemnified
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Party to give notice as provided herein shall not relieve the Indemnifying Party
of its obligations under this Section 1 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 1.7 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 the 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.
12
1.8 Information by Holder. Each Holder of Registrable Securities and
---------------------
each Key Employee Stockholder shall furnish to the Company such information
regarding such person or entity and the distribution proposed by such person or
entity 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 1.
1.9 Limitations on Registration of Issues of Securities. From and after
---------------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of two thirds (2/3rds) in interest of the Holders, enter into any
agreement with any holder or prospective holder of any securities of the Company
giving such holder or prospective holder any rights to initiate a registration
of securities of the Company. Notwithstanding the foregoing, from and after the
date of this Agreement, the Company may enter into any agreement with any holder
or prospective holder of any securities of the Company giving such holder or
prospective holder rights to initiate a registration of securities of the
Company the terms of which are pari passu with the registration rights granted
to the Holders in Section 1.2 hereof only upon the written consent of two thirds
(2/3rds) in interest of the Holders; provided, however, that without the prior
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written consent of a majority in interest of the Holders, in no registration may
the amount of Registrable Securities to be included in such registration by the
Holder be limited due to marketing factors, pursuant to Sections 1.2(d) or
1.3(b) of this Agreement, unless the securities held by such third-party holder
or holders are excluded from such registration altogether.
1.10 Rule 144 Reporting. With a view to making available the benefits of
------------------
certain rules and regulations of the Commission that may permit the sale of
Registrable Securities that are "restricted securities" within the meaning of
the Securities Act ("Restricted Securities") to the public without registration,
the Company agrees to use its best efforts to:
(a) Make and keep public information regarding the Company available as
those terms are understood and defined in Rule 144 under the Securities Act, at
all times from and after ninety (90) days following the effective date of the
first registration statement under the Securities Act filed by the Company for
an offering of its securities to the general public;
(b) File with the Commission in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements; and
(c) So long as a Holder owns any Restricted Securities, furnish to the
Holder forthwith upon written request a written statement by the Company as to
its compliance with the reporting requirements of Rule 144 (at any time from and
after ninety (90) days following the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange Act (at any time after it
has become subject to such reporting requirements), a written statement that the
Company is eligible to use Form S-3, a copy of the most recent annual or
quarterly report of the Company, and such other reports and documents so filed
as a Holder may reasonably request in availing itself of any rule or regulation
of the Commission allowing a Holder to sell any such securities without
registration.
13
1.11 Transfer or Assignment of Registration Rights. The rights to cause
---------------------------------------------
the Company to register securities granted to a Holder by the Company under this
Section 1 may be transferred or assigned along with all related obligations
(including, without limitation, those set forth in Section 1.12) by a Holder
only (a) to a transferee or assignee of not less than 300,000 shares
(aggregating all shares of Registrable Securities held by affiliates of such
Holder) of Registrable Securities (as presently constituted and subject to
subsequent adjustments for stock splits, stock dividends, reverse stock splits,
and the like) or, if less, all shares of Registrable Securities held by such
Holder, (b) to an affiliate, constituent partner, limited partner, shareholder
or retired partner of such Holder in connection with a transfer or assignment of
such Holder's Registrable Securities or (c) to a person who is a Holder
immediately prior to such transfer or assignment; provided, in all such cases,
--------
that the Company is given written notice at the time of or within a reasonable
time after such transfer or assignment, stating the name and address of the
transferee or assignee and identifying the securities with respect to which such
registration rights are being transferred or assigned; and provided further,
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that the transferee or assignee of such rights assumes the obligations of such
Holder under this Section 1. The right of Key Employee Stockholders to cause the
Company to register securities granted to such Key Employee Stockholder under
this Section 1 may not be transferred or assigned.
1.12 "Market Stand-Off" Agreement. If requested by the Company or an
---------------------------
underwriter of Common Stock (or other securities) of the Company, no Holder or
Key Employee Stockholder shall sell or otherwise transfer or dispose of any
Registrable Securities or Key Employee Shares and any other shares of capital
stock acquired prior to the date of the Company's Qualified IPO held by such
Holder or Key Employee Stockholder, respectively (other than those included in
the registration) during a period not to exceed one hundred eighty (180) days
following the effective date of the Company's Qualified IPO; provided, that (i)
--------
each officer, director and holder of at least one percent (1%) of the Company's
securities entitled to vote generally in the election of directors (calculated
assuming full conversion of all voting securities which are convertible into
Common Stock), enter into similar agreements and (ii) if the Company or any
representative of the underwriters of the Qualified IPO shall provide, in its
discretion, a waiver or termination of the "market stand-off" restrictions for
the benefit of any of the Company's shareholders (the "Waiver Recipient"), then
the "market stand-off" restriction imposed hereunder shall immediately cease to
be applicable to all Holders and Key Employee Stockholders on a pro rata basis
according to the number of shares subject to the waiver or termination held by
the Waiver Recipient bears to the total number of shares held by all Holders and
Key Employee Stockholders.
The obligations described in this Section 1.12 shall apply only to the
Qualified IPO. The Company may impose stop-transfer instructions with respect
to the shares (or securities) subject to the foregoing restriction until the end
of such one hundred eighty (180) day period.
1.13 Allocation of Registration Opportunities. In any circumstance
----------------------------------------
in which all of the Registrable Securities, Key Employee Shares and shares of
Common Stock 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) with registration rights held by Other Stockholders (the "Other
Shares") requested to be included in a registration on behalf of the Holders,
Key Employee Stockholders or Other Stockholders cannot be so included as a
result of limitations of the aggregate number of shares of Registrable
Securities, Key Employee Shares and Other Shares that may be so included, the
number of shares of Registrable Securities, Key Employee Shares
14
and Other Shares that may be so included shall be allocated as follows:
(a) if the registration is initiated by Holders, then Holders requesting
inclusion of Registrable Securities shall be entitled to include shares first on
a pro rata basis among them, with any additional shares that may be included
allocated pro rata among the Key Employee Stockholders and Other Stockholders;
(b) if the registration is initiated by the Company, then the shares
available for sale by the Holders, Key Employee Stockholders and Other
Stockholders requesting inclusion of shares in such registration shall be
allocated among the Holders and the Other Stockholders pro rata on the basis of
the number of shares of Registrable Securities, Key Employee Shares and Other
Shares that would be held by such Holders, Key Employee Stockholders and Other
Stockholders, assuming conversion, with any additional shares that may be
included allocated pro rata among the Key Employee Stockholders, subject to
Section 1.3(b) hereof;
(c) if the registration is initiated by Other Stockholders, then the
shares available for sale by the Holders, Key Employee Stockholders and Other
Stockholders requesting inclusion of shares in such registration shall be
allocated first among the Holders and the Other Stockholders 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 Stockholders, assuming conversion, with
any additional shares that may be included allocated pro rata among the Key
Employee Stockholders; or
(d) if the registration is initiated by Key Employee Stockholder (should
they, after the date hereof, receive rights to initiate a registration), then
the shares available for sale by the Holders, Key Employee Stockholders and
Other Stockholders requesting inclusion of shares in such registration shall be
allocated first among the Holders and the Key Employee Stockholders pro rata on
the basis of the number of shares of Registrable Securities and Key Employee
Shares that would be held by such Holders and Key Employee Stockholders,
assuming conversion, with any additional shares that may be included allocated
pro rata among the Other Stockholders;
provided, however, so that any such allocation shall not operate to reduce the
- -------- -------
aggregate number of Registrable Securities, Key Employee Shares and Other Shares
to be included in such registration, if any Holder, Key Employee Stockholder or
Other Stockholder does not request inclusion of the maximum number of shares of
Registrable Securities, Key Employee Shares and Other Shares allocated to it
pursuant to the above-described procedure, the remaining portion of its
allocation shall be reallocated among those requesting Holders, Key Employee
Stockholders and Other Stockholders whose allocations did not satisfy their
requests in accordance with the allocation provisions set forth above, and this
procedure shall be repeated until all of the shares of Registrable Securities,
Key Employee Shares and Other Shares which may be included in the registration
on behalf of the Holders, Key Employee Stockholders and Other Stockholders have
been so allocated. Notwithstanding the foregoing, the Company shall not limit
the number of Registrable Securities or Key Employee Shares to be included in a
registration pursuant to this Agreement in order to include shares held by
stockholders with no registration rights, and with respect to registrations
under Sections 1.2 or 1.5 hereof, shall not limit the number of Registrable
15
Securities included in such registration in order to include therein any Key
Employee Shares, Other Shares or securities registered for the Company's own
account.
1.14 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 1.
1.15 Termination of Registration Rights. The right to request registration
----------------------------------
or inclusion in any registration pursuant to Section 1.2, 1.3 or 1.5 (and the
right of any Key Employee Stockholder to request inclusion in any registration
pursuant to Section 1.3) shall terminate five (5) years after the closing of a
Qualified IPO in which all shares of Preferred Stock convert into Common Stock
or earlier, with respect to any Holder or Key Employee Stockholder, at such time
as such Holder or Key Employee Stockholder shall be able to sell all of such
Holder's Registrable Securities or such Key Employee Stockholder's Key Employee
Shares, as the case may be, under Rule 144 during any three (3) month period.
SECTION 2
---------
Covenants of the Company
------------------------
The Company hereby covenants and agrees, so long as any Holder owns any
Registrable Securities and subject to the other terms and conditions provided
herein, as follows:
2.1 Financial Information. The Company will furnish the following reports
---------------------
to each Holder owning at least 150,000 shares of Registrable Securities (for
purposes of calculating the ownership of any Holder under this Section 2,
Registrable Securities owned by any entity that is, within the meaning of the
Securities Act, controlling, controlled by or under common control with such
Holder shall be aggregated with Registrable Securities owned by such Holder), as
presently constituted and subject to subsequent adjustment for stock splits,
stock dividends, reverse stock splits and the like (each, a "Significant
Holder"):
(a) As soon as practicable after the end of each fiscal year (beginning
with the fiscal year ending December 31, 1999) of the Company, and in any event
within ninety (90) days thereafter, an audited consolidated balance sheet of the
Company and its subsidiaries, if any, as at the end of such fiscal year, and
audited consolidated statements of income and cash flows of the Company and its
subsidiaries, if any, for such year, prepared in accordance with generally
accepted accounting principles consistently applied, all in reasonable detail
and prepared by accountants of nationally recognized standing;
(b) At least thirty (30) days prior to the end of each fiscal year of the
Company, an annual operating budget and updated business plan of the Company;
and
(c) As soon as practicable after the end of the first, second, and third
quarterly accounting periods in each fiscal year of the Company, and in any
event within forty-five (45) days thereafter, an unaudited consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and unaudited consolidated statements of income and cash flows
of the Company and its subsidiaries for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles
16
consistently applied, subject to changes resulting from normal year-end audit
adjustments, all in reasonable detail and certified by the principal financial
or accounting officer of the Company, except that such financial statements need
not contain the notes required by generally accepted accounting principles.
2.2 Inspection. The Company shall permit each Investor that holds at
----------
least 150,000 shares of Registrable Securities, at such Investor's expense and
upon forty-eight hours prior notice, 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. The Company hereby grants to each Investor the
--------------------
right of first offer to purchase a pro rata share of New Securities (as defined
in this Section 2.3) which the Company may, from time to time, propose to sell
and issue. An Investor's pro rata share, for purposes of this right of first
offer, is the ratio of (i) the sum of (x) the number of shares of Common Stock
owned by such Investor immediately prior to the issuance of New Securities,
assuming full conversion of the Shares, and (y) the shares issuable upon
exercise of the Investor Warrants owned by such Investor, to (ii) the sum of the
total number of shares of Common Stock outstanding immediately prior to the
issuance of New Securities, assuming full conversion of the Shares and exercise
of all outstanding rights, options and warrants to acquire Common Stock of the
Company, and the 2,211,900 shares currently reserved for issuance under options
that may be granted in the future under the Company's director-approved stock
option/stock issuance plan. Each Investor shall have a right of over-allotment
such that if any Investor, or any other securities holder of the Company with
rights of first offer to purchase New Securities, fails to exercise its right
hereunder or under any other agreement with the Company to purchase its pro rata
share of New Securities, the other Investors may purchase the non-purchasing
Investor's or other securities holder's portion on a pro rata basis within five
(5) days from the date of notice of such failure to exercise provided by the
Company such non-purchasing Investor or other securities holder fails to
exercise its right to purchase its pro rata share of New Securities. This right
of first offer 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 Series D Purchase Agreement; (ii) securities issued or
issuable upon the conversion or exercise of currently outstanding options,
warrants, rights or other convertible or exercisable securities (including,
without limitation, upon conversion or exercise of the Shares, the Series B
Preferred Stock, the Series B Warrants and the Investor Warrants); (iii)
securities issued pursuant to any acquisition by the Company of another business
entity or business segment of any such entity by merger, purchase of assets or
otherwise, or pursuant to any other business combination, or in connection with
any joint venture or other corporate partnering transaction, in each such case,
so long as such issuance has been approved by the Board of Directors of the
Company; (iv) any warrants issued pursuant to contractual obligations of the
Company existing on the date of this Agreement; (v) any borrowings or guarantees
17
thereof, 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; (vi) any warrants, options or
similar rights issued to financial institutions, other lenders or guarantors in
connection with borrowings or commitments or agreements therefor, whether or not
involving present borrowings, or to a lessor, guarantor or other person in
connection with obtaining lease financing, provided that such issuance is
approved by the Company's Board of Directors and does not have equity financing
as its principal purpose; (vii) up to 2,211,900 shares of Common Stock issuable
after the date of this Agreement to employees, consultants, officers or
directors of the Company pursuant to any stock option, stock purchase or stock
bonus plan, agreement or arrangement for the primary purpose of soliciting or
retaining such persons' services; (viii) securities issued to vendors or
customers or to other persons in similar commercial situations with the Company
if such issuance is approved by the Board of Directors and is for other than
primarily equity financing purposes; (ix) Common Stock issued in a Qualified IPO
in which all Preferred Stock converts into Common Stock; and (x) securities
issued in connection with any stock split, stock dividend or recapitalization of
the Company.
(b) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Investor 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 Investor shall have
twenty (20) days after any such notice is mailed or delivered to agree to
purchase such Investor'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 Investors fail to exercise fully the right of first
offer within such twenty (20) day period and after the expiration of the five
(5) day period for the exercise of the over-allotment provisions of this Section
2.2, the Company shall have ninety (90) days thereafter to sell or enter into an
agreement (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within ninety (90) days from the date of such agreement) to
sell the New Securities respecting which the Investors' right of first offer
option set forth in this Section 2.2 was not exercised, at a price and upon
terms no more favorable to the purchasers thereof than specified in the
Company's notice to the Investors pursuant to Section 2.2(b). In the event the
Company has not sold within such ninety (90) day period or entered into an
agreement to sell the New Securities in accordance with the foregoing within
ninety (90) days from the date of such agreement, the Company shall not
thereafter issue or sell any New Securities, without first again offering such
securities to the Investors in the manner provided in Section 2.2(b) above.
(d) The right of first offer granted under this Agreement shall expire
upon, and shall not be applicable to, the first sale of Common Stock of the
Company to the public effected pursuant to a registration statement filed with,
and declared effective by, the Commission under the Securities Act in which all
classes of Preferred Stock are converted into shares of the Company's Common
Stock.
(e) The right of first offer set forth in this Section 2.2 may not be
assigned or transferred, except that such right shall be assignable by each
Investor to any affiliate of such Investor (within the meaning of the Securities
Act) or to any constituent partner, limited partner, shareholder or retired
partners of such Investor; provided, however, that no such assignment or
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18
transfer shall be permitted except in connection with the sale or transfer of at
least 150,000 Shares (as presently constituted and subject to subsequent
adjustments for stock splits, stock dividends, reverse stock splits, and the
like) (or, if less, all of the Shares held by such Investor), to the proposed
assignee or transferee of such right, provided that the Company is given written
notice at the time of or within a reasonable time after such transfer or
assignment, stating the name and address of the transferee or assignee and
identifying the Shares with respect to which such right of first offer is being
transferred or assigned and provided, further, that the proposed assignee or
transferee is an "accredited investor" (as defined in Regulation D under the
Securities Act) and provides the Company, upon request, with written
certification of its qualifications as a permitted assignee under this Section
2.2(e).
(f) In the event that Investors holding, in the aggregate, at least two
thirds (2/3rds) of the Shares shall waive their rights under this Section 2.2,
such waiver shall be binding upon all Investors; provided, however, that if
-------- -------
an Investor is an "investment company" within the meaning of the Investment
Company Act of 1940, as amended, such waiver shall only be effective as to such
Investor if executed by it.
2.4 Board of Directors. Until the time of effectiveness of a Qualified
------------------
IPO in which all shares of Preferred Stock convert into Common Stock, the
parties agree to take all appropriate actions such that the Company shall fix
and maintain a Board of Directors of no more than nine persons. The makeup of
the Board of Directors immediately following the Closing under the Series D
Purchase Agreement shall be Mark Urdahl, Sada Cumber, Albert Edgar, Laura
Kilcrease (such person being referred to as the "Interim Director"), Terrence
Rock, Charles Phipps, Harvey B. Cash, Richard Kimball (as the designee of the
holders of the Series D Preferred Stock) and Mike Wilkes. All holders of Series
D Preferred Stock hereby agree that entities affiliated with Technology
Crossover Ventures ("TCV") shall be entitled to designate one person to serve as
a member of the Board of Directors and agree to vote their Shares in favor of
the election of such person (and for any successor or replacement) so long as
TCV and its affiliates continue to own at least seventy five percent (75%) of
the shares of Series D Preferred Stock purchased by TCV and its affiliates under
the Series D Purchase Agreement. All holders of Series C Preferred Stock hereby
agree that CenterPoint Venture Partners ("CenterPoint") shall be entitled to
designate two persons, and InterWest Partners ("InterWest") shall be entitled to
designate one person, to serve as members of the Board of Directors and agree to
vote their Shares in favor of the election of such persons (and for any
successors or replacements) so long as CenterPoint or InterWest, respectively,
and their respective affiliates continue to own at least a majority of the
shares of Series C Preferred Stock purchased by CenterPoint and InterWest and
their respective affiliates under the Series C Purchase Agreement. The parties
agree to work cooperatively to identify a replacement director of recognized
standing in the Company's industry as soon as practicable after the date hereto
and the Key Employee Stockholders agree to use their respective best efforts to
cause such replacement director to be elected to the Board of Directors in
replacement of the Interim Director, as soon as practicable thereafter. Such
replacement director shall serve on the Board of Directors in accordance with
the Fourth Restated Certificate of Incorporation and Bylaws. Each Director shall
be entitled to reimbursement of reasonable expenses incurred by him or her in
connection with attending meetings of the Board of Directors.
19
2.5 Qualified Small Business Stock. In the event that the Company
------------------------------
proposes to act or engage in a transaction that would be reasonably expected to
result in the termination or impairment of the Company's capital stock status as
"qualified small business stock" as set forth in Section 1202(c) of the Internal
Revenue Code of 1986, as amended (the "Code"), the Company shall notify the
Investors and consult in good faith to devise a mutually agreeable and
reasonable alternative transaction structure that would preserve such status. In
addition, the Company shall submit to the Investors and to the Internal Revenue
Service any reports that may re required under Section 1202(d)(1)(c) of the Code
and any related Treasury Regulations. In addition, within twenty (20) days after
any Investor has delivered to the Company a written request therefor, the
Company shall deliver to such Investor a written statement informing the
Investor whether such Investor's interest in the Company constitutes "qualified
small business stock" as defined in Section 1202 (c) of the Code; provided,
---------
however, that an Investor shall only be entitled to make one such request in any
- -------
twelve (12) month period at the expense of the Company and any expenses directly
related to fulfilling any additional request within such twelve (12) month
period shall be borne by the Investor making such request with the estimated
amount of such expenses (based on such expenses incurred to fulfill prior
requests) being payable in advance to the Company by the Investor. The Company's
obligation to furnish a written statement pursuant to this Section 2.5 shall
continue notwithstanding the fact that a class of the Company's stock may be
traded on an established securities market.
2.6 Termination of Covenants. The covenants set forth in this Section 2
------------------------
(except for Section 2.5) shall terminate and be of no further force and effect
after the time of effectiveness of the registration statement for the Company's
Qualified IPO in which all shares of Preferred Stock will convert into Common
Stock upon the consummation thereof.
SECTION 3
---------
Miscellaneous
-------------
3.1 Governing law. This Agreement shall be governed in all respects by
-------------
the laws of the State of Delaware, as if entered into by and between Delaware
residents exclusively for performance entirely within Delaware.
3.2 Successors and Assigns. Except as otherwise expressly provided herein,
----------------------
the provisions hereof shall inure to the benefit of and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
3.3 Entire Agreement Amendment: Waiver. This Agreement (including the
Exhibits hereto) constitutes the full and entire understanding and agreement
between the parties with regard to the subject matter hereof and supersedes all
prior agreements, including, but not limited to, the Original Agreement which is
hereby terminated and of no further force or effect. Neither this Agreement nor
any term hereof may be amended, waived, discharged or terminated, except by a
written instrument signed by the Company, the holders of at least two thirds
(2/3rds) of the Series C Preferred Stock and the holders of at least two thirds
(2/3rds) of the Series D Preferred Stock (and, in the case of an amendment,
waiver, discharge or termination of the rights of Key Employee Stockholders
adverse in a manner different from the affect on the Holders under Section 1.3
hereof, at least a majority of the Key Employee Shares) and any such amendment,
20
waiver, discharge or termination shall be binding on all the Holders and Key
Employee Stockholders, but in no event shall the obligation of any Holder or Key
Employee Stockholder hereunder be materially increased, except upon the written
consent of such Holder or Key Employee Stockholder, and in no event shall any
amendment or waiver be effective as to an Investor that is an "investment
company" within the meaning of the Investment Company Act of 1940, as amended,
unless consented to in writing by such Investor.
3.4 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be sent by registered United
States mail, postage prepaid, or delivered personally by hand or nationally
recognized courier addressed (a) if to a Holder or Key Employee Stockholder, as
indicated on the list of Holders and Key Employee Stockholders attached hereto
as Exhibits A and B or at such other address as such Holder, Key Employee
Stockholder or permitted assignee shall have furnished to the Company in
writing, or (b) if to the Company, at 8920 Business Park Drive, Austin, Texas
78759, Attention: President, or at such other address as the Company shall have
furnished to each holder in writing. All such notices and other written
communications shall be effective (i) if mailed, five (5) days after mailing and
(ii) if delivered, upon delivery.
3.5 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to any Holder or Key Employee Stockholder, upon any
breach or default of the Company under this Agreement shall impair any such
right, power or remedy of such Holder or Key Employee Stockholder 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. All remedies, either under
this Agreement or by law or otherwise afforded to any Holder or Key Employee
Stockholder, shall be cumulative and not alternative.
3.6 Rights; Separability. Unless otherwise expressly provided herein, a
--------------------
Holder's or Key Employee Stockholder's rights hereunder are several rights, not
rights jointly held with any of the other Holders or Key Employee Stockholders.
In case any provision of the Agreement shall be invalid, illegal or
unenforceable, the validity, legality and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
3.7 Information Confidential. Each Holder and Key Employee Stockholder
------------------------
acknowledges that the information received by such holder 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 to the general
partners of a Holder, or the affiliates of such general partners, limited
partners, or to the directors, employees or agents of a Holder having a need to
know the contents of such information, and its attorneys, or to the extent
required by any law, or any rule or regulation of a government agency or any
order or mandate of any court or similar judicial body), except in connection
with the exercise of rights under this Agreement, unless the Company has made
such information available to the public generally or such Holder or Key
Employee Stockholder is required to disclose such information by a governmental
body.
21
3.8 Titles and Subtitles. The titles of the paragraphs and
--------------------
subparagraphs of this Agreement are for convenience of reference only and are
not to be considered in construing this Agreement.
3.9 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.
3.10 Condition Precedent to Agreement. This Agreement shall not bind or
--------------------------------
grant rights to any Key Employee Stockholder who does not execute this
Agreement. In any such event all references to such person who is not bound
hereby shall be deleted herefrom, and such person shall not be considered a Key
Employee Stockholder for purposes of this Agreement but this Agreement shall
otherwise remain in effect.
22
IN WITNESS WHEREOF, the parties hereto have executed this Amended and
Restated Investors Rights Agreement effective as of the day and year first above
written.
Applied Science Fiction, inc.
By:
------------------------------
Mark Urdahl,
President and Chief Executive Officer
23
HOLDERS:
--------
TCV III (GP)
By: Technology Crossover Management III, L.L.C.,
its General Partner
By:
----------------------------------
Robert C. Bensky,
Chief Financial Officer
TCV III, L.P.
By: Technology Crossover Management III, L.L.C.,
its General Partner
By:
----------------------------------
Robert C. Bensky,
Chief Financial Officer
TCV III (Q), L.P.
By: Technology Crossover Management III, L.L.C.,
its General Partner
By:
----------------------------------
Robert C. Bensky,
Chief Financial Officer
TCV III Strategic Partners, L.P.
By: Technology Crossover Management III, L.L.C.,
its General Partner
By:
----------------------------------
Robert C. Bensky,
Chief Financial Officer
[Signature page to amended and Restated Investors' Rights Agreement]
AMERINDO INVESTMENT ADVISORS
By:
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
SELIGMAN COMMUNICATIONS AND
INFORMATION FUND, INC.
By: J. & W. Seligman & Co. Incorporated,
its investment adviser
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
BEAGLE LIMITED
By:
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ASF LLC
By:
----------------------------------
Anthony B. Davis,
General Partner
[Signature page to Amended and Restated Investors' Rights Agreement]
HAMBRECHT & QUIST CALIFORNIA
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
HAMBRECHT & QUIST EMPLOYEE
VENTURE FUND, L.P. II
By: H & Q Venture Management, L.L.C., its
General Partner
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACCESS TECHNOLOGY PARTNERS, L.P.
By: Access Technology Management, L.L.C., its
General Partner
By: H & Q Venture Management, L.L.C., its
Managing Member
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
ACCESS TECHNOLOGY PARTNERS
BROKERS FUND, L.P. II
By: H & Q Venture Management, L.L.C., its
General Partner
By:
----------------------------------
Name:
---------------------------------
Title:
--------------------------------
[Signature page to Amended and Restated Investors' Rights Agreement]
VF FAMILY PARTNERSHIP
By:
-----------------------------------
Gary D. Vollen,
Partnership Manager
SCULLEY BROTHERS, LLC
By:
----------------------------------
Arthur Sculley,
General Partner
GROSVENOR SELECT LP
By: Grosvenor Select Partners LLC, its General
Partner
By:
-----------------------------------
Doug Dunnan,
[Title]
[Signature page to Amended and Restated Investors' Rights Agreement]
INTERWEST PARTNERS VI, L.P.
By: InterWest Management Partners VI,
L.L.C., its General Partner
By:
------------------------------------
Stephen Holmes,
Managing Director
INTERWEST INVESTORS VI, L.P.
By: InterWest Management Partners VI,
L.L.C., its General Partner
By:
-------------------------------------
Stephen Holmes,
Managing Director
[Signature page to Amended and Restated Investors' Rights Agreement]
SEVIN ROSEN FUND V, L.P.
By: SRB Associates V L.P., its General
Partner
By:
--------------------------------------
John V. Jaggers,
General Partner
SEVIN ROSEN V AFFILIATES FUND L.P.
By: SRB Associates V L.P., its General
Partner
By:
-----------------------------------------
John V. Jaggers,
General Partner
SEVIN ROSEN FUND VI L.P.
By: SRB Associates VI L.P., its General
Partner
By:
-----------------------------------------
John V. Jaggers,
General Partner
SEVIN ROSEN VI AFFILIATES FUND L.P.
By: SRB Associates VI L.P., its General
Partner
By:
-----------------------------------------
John V. Jaggers,
General Partner
[Signature page to Amended and Restated Investors' Rights Agreement]
TIMARK L.P.
By:
-----------------------------------------
Frank J. Marshall
General Partner
KNCL ASSOCIATES LIMITED
By:
-----------------------------------------
Kent Fuka,
General Partner
CROWN GROWTH PARTNERS, LP
By: Crown Partners LLC, its General Partner
By:
-----------------------------------------
David F. Bellet,
General Partner
PARSON FINANCE LIMITED
By: Crown Advisors International Ltd, its
Investment Manager
By:
-----------------------------------------
David F. Bellet,
Chairman
[Signature page to Amended and Restated Investors' Rights Agreement]
INDIVIDUAL HOLDERS:
-----------------------------------------
Thomas Aschenbrenner
-----------------------------------------
Joseph Arsenio
-----------------------------------------
Harvey B. Cash
-----------------------------------------
Neil Cohen
-----------------------------------------
James Davidson
-----------------------------------------
Dietrich R. Erdmann
-----------------------------------------
Ken Hao
-----------------------------------------
Eugene Lowenthal
-----------------------------------------
Regis McKenna
-----------------------------------------
Benjamin Rosen
-----------------------------------------
L.J. Sevin
-----------------------------------------
Steven J. Wallach
[Signature page to Amended and Restated Investors' Rights Agreement]
KEY EMPLOYEE STOCKHOLDERS:
-----------------------------------------
Mark Urdahl
-----------------------------------------
Sada Cumber
-----------------------------------------
Albert Edgar
-----------------------------------------
Mark Bishop
-----------------------------------------
Sheppard Parker
-----------------------------------------
Mike Wilkes
-----------------------------------------
Steven Penn
[Signature page to Amended and Restated Investors' Rights Agreement]
TRITON VENTURE PARTNERS, L.P.
By: Triton Venture Management, LLC, its General
Partner
By:
-----------------------------------------
Laura J. Kilcrease,
Manager
[Signature page to Amended and Restated Investors' Rights Agreement]
GREENOVER GROUP L.P.
By: Greenover Managers, L.L.C., its General
Partner
By:
-----------------------------------------
Kelley Williams, Jr.,
General Partner
[Signature page to Amended and Restated Investors' Rights Agreement]
CENTERPOINT VENTURE PARTNERS L.P.
By: Paluck Associates, L.P., its General Partner
By:
-----------------------------------------
Robert J. Paluck,
General Partner
[Signature page to Amended and Restated Investors' Rights Agreement]
EXHIBIT A
---------
SCHEDULE OF INVESTORS
---------------------
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- --------------------------------------------------- ------------------ ------------------
TCV III (GP) -- 10,554
c/o Technology Crossover Management III, L.L.C.
Attn: Robert C. Bensky
56 Main Street
Milburn, New Jersey 07041
and
CC: Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301
TCV III, L.P. -- 50,132
c/o Technology Crossover Management III, L.L.C.
Attn: Robert C. Bensky
56 Main Street
Milburn, New Jersey 07041
and
CC: Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301
TCV III (Q), L.P. -- 1,332,462
c/o Technology Crossover Management III, L.L.C.
Attn: Robert C. Bensky
56 Main Street
Milburn, New Jersey 07041
and
CC: Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- --------------------------------------------------- ------------------ ------------------
TCV III Strategic Partners, L.P. -- 60,341
c/o Technology Crossover Management III, L.L.C.
Attn: Robert C. Bensky
56 Main Street
Milburn, New Jersey 07041
and
CC: Mike Linnert
575 High Street, Suite 400
Palo Alto, California 94301
ATGF II -- 205,174
Attn: Marc Weiss
399 Park Avenue
18th Floor
New York, New York 10022
Litton Master Trust -- 179,923
Attn: Marc Weiss
399 Park Avenue
18th Floor
New York, New York 10022
Marc Weiss -- 2,499
399 Park Avenue
18th Floor
New York, New York 10022
J.W. Seligman -- 387,595
Attn: Paul Goucher
100 Park Avenue
New York, New York 10017
Beagle Limited -- 193,798
Attn: Victor Cunningham
1 West 67th Street
Suite 101
New York, New York 10023
Triton Venture Partners, L.P. -- 183,075
Attn: Laura Kilcrease
1301 W. 25th Street
Suite 300
Austin, Texas 78705
A-2
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- --------------------------------------------------- ------------------ ------------------
ASF LLC -- 96,899
Attn: Joe Tate
2119 E. 30th Place
Tulsa, Oklahoma 74114
Hambrecht & Quist California -- 6,298
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Hambrecht & Quist Employee Venture Fund, L.P. II -- 2,422
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Access Technology Partners, L.P. -- 51,034
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Access Technology Partners Brokers Fund, L.P. -- 565
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
VF Family Partnership -- 689
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Kenneth Hao -- 689
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Joseph Arsenio -- 689
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
A-3
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- --------------------------------------------------- ------------------ ------------------
James Davidson -- 2,218
c/o Hambrecht & Quist
Attn: Michael Beblo
One Bush Street
San Francisco, California 94104
Sculley Brothers -- 64,599
Attn: Arthur Sculley
90 Park Avenue
32nd Floor
New York, New York 10016
Neil Cohen -- 32,300
10501 Rhode Island Avenue
Beltsville, Maryland 20705
Greenover Group L.P. -- 32,300
Attn: Kelley Williams, Jr.
4418 Hickory Ridge
Jackson, Mississippi 39211
Grosvenor Select Partners LLC -- 32,300
Attn: Bruce Dunnan
1717 Pennsylvania Avenue, N.W.
Suite 225
Washington, D.C. 20006
CenterPoint Venture Partners, L.P. 594,595 258,398
Attn: Robert J. Paluck
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
InterWest Partners VI, L.P. 393,407 250,543
Attn: Stephen Holmes
Building 3, Suite 255
3000 Sand Hill Road
Menlo Park, California 94025
InterWest Investors VI, L.P. 11,999 7,855
Building 3, Suite 255
3000 Sand Hill Road
Menlo Park, California 94025
A-4
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- --------------------------------------------------- ------------------ ------------------
Sevin Rosen Fund V L.P. 311,208 123,902
Attn: John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Sevin Rosen V Affiliates Fund L.P. 13,297 5,297
Attn: John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Sevin Rosen Fund VI L.P. -- 359,302
Attn: John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Sevin Rosen VI Affiliates Fund L.P. -- 28,295
Attn: John Jaggers
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
L.J. Sevin 25,000 32,300
Two Galleria Tower
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Benjamin Rosen 25,000 0
One Central Park West
Apartment 43A
New York, New York 10023
Thomas H. Aschenbrenner 19,065 18,605
6016 Oakcrest
Dallas, Texas 75248
Steven J. Wallach 2,703 3,230
7314 Wester Way
Dallas, Texas 75248
Eugene Lowenthal 5,406 4,522
9600 Crumley Ranch Road
Austin, Texas 78736
A-5
Shares of Series C Shares of Series D
Name and Address Preferred Stock Preferred Stock
- ------------------------------------------------ ------------------ ------------------
David Bellet 13,513 0
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165
Crown Growth Partners, LP -- 11,628
Attn: David Bellet
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165
Parson Finance Limited -- 7,752
Attn: David Bellet
The Lincoln Building
Suite # 3405
60 East 42nd Street
New York, NY 10165
Harvey B. Cash 13,513 0
c/o CenterPoint Venture Partners, L.P.
13455 Noel Road, Suite 1670
Dallas, Texas 75240
Dietrich R. Erdman 13,507 13,175
c/o CenterPoint Venture Partners, L.P.
13455 Noel Road, Suite 1670
Dallas, Texas 75240
KNCL Associates Limited 2,441 0
Kent Fuka, General Partner
10904 Low Bridge Lane
Austin, Texas 78750
Regis McKenna 13,513 13,178
c/o The McKenna Group
1755 Embarcadero Road
Palo Alto, California 94303
TIMARK, L.P. 13,513 3,230
Frank J. Marshall, General Partner
20100 Hill Ave.
Saratoga, California 95070
1,471,500 4,069,767
========= =========
A-6
EXHIBIT B
---------
LIST OF KEY EMPLOYEE STOCKHOLDERS
---------------------------------
Shares of and
Shares of and Warrants to
Options to Acquire Purchase Series B
Name and Address Common Stock Preferred Stock
---------------- ------------ ---------------
Mark Urdahl 2,515,998 9,734
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
Sada Cumber 1,616,001 --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
Dr. Albert Edgar 2,515,998 4,867
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
Mark Bishop 716,001 4,542
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
Sheppard Parker 716,001 --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
Mike Wilkes 716,001 --
c/o Applied Science Fiction, Inc.
8920 Business Park Drive
Austin, TX 78759-5321
B-1