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EXHIBIT 10.16
ENTERWORKS, INC.
INVESTOR RIGHTS AGREEMENT
This Agreement dated as of December 30, 1999 is entered into by and among
Enterworks, Inc., a Delaware corporation (the "Company"), Telos Corporation, a
Maryland corporation ("Telos"), Telos Corporation, a California corporation
("Telos California"), and the individuals and entities listed on Exhibit A
attached hereto (the "Purchasers").
Recitals
WHEREAS, the Company and the Purchasers have entered into a Series A
Convertible Preferred Stock Purchase Agreement of even date herewith (the
"Purchase Agreement"); and
WHEREAS, the Company and the Purchasers desire to provide for certain
arrangements with respect to (i) the registration of shares of capital stock of
the Company under the Securities Act of 1933, (ii) the Purchasers' right of
first refusal with respect to certain issuances of securities of the Company,
and (iii) certain negative covenants of the Company;
NOW, THEREFORE, in consideration of the mutual promises and covenants
contained in this Agreement, the parties hereto agree as follows:
1. Certain Definitions.
As used in this Agreement, the following terms shall have the following
respective meanings:
"Commission" means the Securities and Exchange Commission, or any
other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock, $.01 par value per share,
of the Company.
"Exchange Act" means the Securities Exchange Act of 1934, as
amended, or any successor federal statute, and the rules and regulations of the
Commission issued under such Act, as they each may, from time to time, be in
effect.
"Initiating Holders" means the Stockholders initiating a request
for registration pursuant to Section 2.1(a) or 2.1(b), as the case may be.
"Initial Public Offering" means the initial underwritten public
offering of shares of Common Stock pursuant to an effective Registration
Statement.
"Other Holders" shall have the meaning set forth in Section
2.1(d).
"Pari Passu Holders" means the holders of warrants outstanding on
the date hereof to purchase a total of 3,453,285 shares of the Company's Common
Stock, consisting of holders of the Company's outstanding Senior Subordinated
notes (2,048,725 shares), Deutsche
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Bank, Alex. Brown (1,054,560 shares) and Bank of America, N.A. (350,000 shares),
who have registration rights.
"Prospectus" means the prospectus included in any Registration
Statement, as amended or supplemented by an amendment or prospectus supplement,
including post-effective amendments, and all material incorporated by reference
or deemed to be incorporated by reference in such Prospectus.
"Registration Statement" means a registration statement filed by
the Company with the Commission for a public offering and sale of securities of
the Company (other than a registration statement on Form S-8 or Form S-4, or
their successors, or any other form for a similar limited purpose, or any
registration statement covering only securities proposed to be issued in
exchange for securities or assets of another corporation).
"Registration Expenses" means the expenses described in Section
2.4.
"Registrable Shares" means (i) the shares of Common Stock issued
or issuable upon conversion of the Shares, (ii) any shares of Common Stock, and
any shares of Common Stock issued or issuable upon the conversion or exercise of
any other securities, acquired by the Purchasers pursuant to Section 3 of this
Agreement and (iii) any other shares of Common Stock issued in respect of such
shares (because of stock splits, stock dividends, reclassifications,
recapitalizations, or similar events); provided, however, that shares of Common
Stock which are Registrable Shares shall cease to be Registrable Shares upon (i)
any sale pursuant to a Registration Statement or Rule 144 under the Securities
Act or (ii) any sale in any manner to a person or entity which, by virtue of
Section 5 of this Agreement, is not entitled to the rights provided by this
Agreement. Wherever reference is made in this Agreement to a request or consent
of holders of a certain percentage of Registrable Shares, the determination of
such percentage shall include shares of Common Stock issuable upon conversion of
the Shares even if such conversion has not been effected.
"Securities Act" means the Securities Act of 1933, as amended, or
any successor federal statute, and the rules and regulations of the Commission
issued under such Act, as they each may, from time to time, be in effect.
"Selling Stockholder" means any Stockholder owning Registrable
Shares included in a Registration Statement.
"Shares" means the Series A Convertible Preferred Stock sold under
the Purchase Agreement.
"Stockholders" means the Purchasers and any persons or entities to
whom the rights granted under this Agreement are transferred by any Purchasers,
their successors or assigns pursuant to Section 5 hereof.
2. Registration Rights
2.1. Required Registrations.
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(a) At any time after the earlier of (x) December 30,
2001 or (y) six months after the closing of the Initial Public Offering, a
Stockholder or Stockholders holding in the aggregate at least 35% of the
Registrable Shares then outstanding may request, in writing, that the Company
effect the registration on Form S-1 or Form S-2 (or any successor form) of
Registrable Shares owned by such Stockholder or Stockholders having an aggregate
value of at least $5,000,000 (based on the then current market price or fair
value).
(b) At any time after the Company becomes eligible to
file a Registration Statement on Form S-3 (or any successor form relating to
secondary offerings), a Stockholder or Stockholders holding in the aggregate at
least 20% of the Registrable Shares then outstanding may request, in writing,
that the Company effect the registration on Form S-3 (or such successor form),
of Registrable Shares having an aggregate value of at least $500,000 (based on
the then current public market price).
(c) Upon receipt of any request for registration
pursuant to this Section 2, the Company shall promptly give written notice of
such proposed registration to all other Stockholders. Such Stockholders shall
have the right, by giving written notice to the Company within 30 days after the
Company provides its notice, to elect to have included in such registration such
of their Registrable Shares as such Stockholders may request in such notice of
election, subject in the case of an underwritten offering to the approval of the
managing underwriter as provided in Section 2.1(d) below. Thereupon, the Company
shall, as expeditiously as possible, use its best efforts to effect the
registration on an appropriate registration form of all Registrable Shares which
the Company has been requested to so register (provided, however, that in the
case of a registration requested under Section 2.1(b), the Company will only be
obligated to effect such registration on Form S-3 (or any successor form)).
(d) If the Initiating Holders intend to distribute the
Registrable Shares covered by their request by means of an underwriting, they
shall so advise the Company as a part of their request made pursuant to Section
2.1(a) or (b), as the case may be, and the Company shall include such
information in its written notice referred to in Section 2.1(c). The right of
any other Stockholder to include its Registrable Shares in such registration
pursuant to Section 2.1(a) or (b), as the case may be, shall be conditioned upon
such other Stockholder's participation in such underwriting on the terms set
forth herein. If the Company desires that any officers or directors of the
Company holding securities of the Company be included in any registration for an
underwritten offering requested pursuant to Section 2.1(d) or if other holders
of securities of the Company who are entitled, by contract with the Company, to
have securities included in such a registration (the "Other Holders") or the
Pari Passu Holders request such inclusion, the Company may include the
securities of such officers, directors, Pari Passu Holders and Other Holders in
such registration and underwriting on the terms set forth herein. The Company
shall (together with all Stockholders, officers, directors, Pari Passu Holders
and Other Holders proposing to distribute their securities through such
underwriting) enter into an underwriting agreement in customary form (including,
without limitation, customary indemnification and contribution provisions on the
part of the Company) with the managing underwriter; provided that such
underwriting agreement shall not provide for indemnification or contribution
obligations on the part of Stockholders materially greater than the obligations
of the Stockholders pursuant to Section 2.5. Notwithstanding any other provision
of this Section 2.1(d), if the managing underwriter advises the Company that the
inclusion of all shares
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requested to be registered would adversely affect the offering, the securities
of the Company held by officers or directors of the Company (other than
Registrable Shares) and the securities held by Other Holders (other than
Registrable Shares) shall be excluded from such registration and underwriting to
the extent deemed advisable by the managing underwriter, and if a further
limitation of the number of shares is required, the number of shares that may be
included in such registration and underwriting shall be allocated among all
holders of Registrable Shares and Pari Passu Holders requesting registration in
proportion, as nearly as practicable, to the respective number of Registrable
Shares held by the holders of Registrable Shares and shares held by Pari Passu
Holders at the time of the request for registration made by the Initiating
Holders pursuant to Section 2.1(a) or (b), as the case may be. If any holder of
Registrable Shares, officer, director, Pari Passu Holders or Other Holder who
has requested inclusion in such registration as provided above disapproves of
the terms of the underwriting, such person may elect to withdraw therefrom by
written notice to the Company, and the securities so withdrawn shall also be
withdrawn from registration. If the managing underwriter has not limited the
number of Registrable Shares or other securities to be underwritten, the Company
may include securities for its own account in such registration if the managing
underwriter so agrees and if the number of Registrable Shares and other
securities which would otherwise have been included in such registration and
underwriting will not thereby be limited.
(e) The Initiating Holders shall have the right to
select the managing underwriter(s) for any underwritten offering requested
pursuant to Section 2.1(a) or (b), subject to the approval of the Company, which
approval will not be unreasonably withheld.
(f) The Company shall not be required to effect more
than two (2) registrations pursuant to Section 2.1(a) or more than three (3)
registrations in any 12-month period (less any registrations effected during
such 12-month period pursuant to Section 2.1(a)) pursuant to Section 2.1(b). In
addition, the Company shall not be required to effect any registration (other
than on Form S-3 or any successor form relating to secondary offerings) within
six months after the effective date of any other Registration Statement of the
Company. For purposes of this Section 2.1(f), a Registration Statement shall not
be counted until such time as such Registration Statement has been declared
effective by the Commission (unless the Initiating Holders withdraw their
request for such registration (other than as a result of information concerning
the business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and elect
not to pay the Registration Expenses therefor pursuant to Section 2.4).
(g) If at the time of any request to register
Registrable Shares by Initiating Holders pursuant to this Section 2.1, the
Company is engaged or has plans to engage in a registered public offering or is
engaged in any other activity which, in the good faith determination of the
Company's Board of Directors, would be adversely affected by the requested
registration, then the Company may at its option direct that such request be
delayed for a period not in excess of 90 days from the date of such request,
such right to delay a request to be exercised by the Company not more than once
in any 12-month period.
2.2. Incidental Registration.
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(a) Whenever the Company proposes to file a Registration
Statement (other than a Registration Statement filed pursuant to Section 2.1,
but including a Registration Statement filed at the request of the Pari Passu
Holders or Other Holders) at any time and from time to time, it will, prior to
such filing, give written notice to all Stockholders of its intention to do so;
provided, that no such notice need be given if no Registrable Shares are to be
included therein as a result of a determination of the managing underwriter
pursuant to Section 2.2(b). Upon the written request of a Stockholder or
Stockholders given within 20 days after the Company provides such notice (which
request shall state the intended method of disposition of such Registrable
Shares), the Company shall use its best efforts to cause all Registrable Shares
which the Company has been requested by such Stockholder or Stockholders to
register to be registered under the Securities Act to the extent necessary to
permit their sale or other disposition in accordance with the intended methods
of distribution specified in the request of such Stockholder or Stockholders;
provided that the Company shall have the right to postpone or withdraw any
registration effected pursuant to this Section 2.2 without obligation to any
Stockholder.
(b) If the registration for which the Company gives
notice pursuant to Section 2.2(a) is a registered public offering involving an
underwriting, the Company shall so advise the Stockholders as a part of the
written notice given pursuant to Section 2.2(a). In such event, the right of any
Stockholder to include its Registrable Shares in such registration pursuant to
Section 2.2 shall be conditioned upon such Stockholder's participation in such
underwriting on the terms set forth herein. All Stockholders proposing to
distribute their securities through such underwriting shall enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for the underwriting by the Company, provided that such underwriting
agreement shall not provide for indemnification or contribution obligations on
the part of Stockholders materially greater than the obligations of the
Stockholders pursuant to Section 2.5. Notwithstanding any other provision of
this Section 2.2, if the managing underwriter determines that the inclusion of
all shares requested to be registered would adversely affect the offering, the
Company may limit the number of Registrable Shares to be included in the
registration and underwriting. The Company shall so advise all holders of
Registrable Shares requesting registration, and the number of shares that are
entitled to be included in the registration and underwriting shall be allocated
in the following manner. The securities of the Company held by holders other
than Stockholders and Other Holders shall be excluded from such registration and
underwriting to the extent deemed advisable by the managing underwriter, and, if
a further limitation on the number of shares is required, the number of shares
that may be included in such registration and underwriting shall be allocated
among all Stockholders and Other Holders requesting registration in proportion,
as nearly as practicable, to the respective number of shares of Common Stock (on
an as-converted basis) which they held at the time the Company gives the notice
specified in Section 2.2(a). If any Stockholder or Other Holder would thus be
entitled to include more securities than such holder requested to be registered,
the excess shall be allocated among other requesting Stockholders and Other
Holders pro rata in the manner described in the preceding sentence. If any
holder of Registrable Shares or any officer, director or Other Holder
disapproves of the terms of any such underwriting, such person may elect to
withdraw therefrom by written notice to the Company, and any Registrable Shares
or other securities excluded or withdrawn from such underwriting shall be
withdrawn from such registration.
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(c) Notwithstanding the foregoing, the Company shall not
be required, pursuant to this Section 2.2, to include any Registrable Shares in
a Registration Statement (other than in the Initial Public Offering) if such
Registrable Shares can then be sold pursuant to Rule 144(k) under the Securities
Act.
2.3. Registration Procedures.
(a) If and whenever the Company is required by the
provisions of this Agreement to use its best efforts to effect the registration
of any Registrable Shares under the Securities Act, the Company shall:
(i) file with the Commission a Registration
Statement with respect to such Registrable Shares and use its best efforts to
cause that Registration Statement to become effective as soon as possible;
(ii) as expeditiously as possible prepare and file
with the Commission any amendments and supplements to the Registration Statement
and the prospectus included in the Registration Statement as may be necessary to
comply with the provisions of the Securities Act (including the anti-fraud
provisions thereof) and to keep the Registration Statement effective for 12
months from the effective date or such lesser period until all such Registrable
Shares are sold;
(iii) as expeditiously as possible furnish to each
Selling Stockholder such reasonable numbers of copies of the Prospectus,
including any preliminary Prospectus, in conformity with the requirements of the
Securities Act, and such other documents as such Selling Stockholder may
reasonably request in order to facilitate the public sale or other disposition
of the Registrable Shares owned by such Selling Stockholder;
(iv) as expeditiously as possible use its best
efforts to register or qualify the Registrable Shares covered by the
Registration Statement under the securities or Blue Sky laws of such states as
the Selling Stockholders shall reasonably request, and do any and all other acts
and things that may be necessary or desirable to enable the Selling Stockholders
to consummate the public sale or other disposition in such states of the
Registrable Shares owned by the Selling Stockholder; provided, however, that the
Company shall not be required in connection with this paragraph (iv) to qualify
as a foreign corporation or execute a general consent to service of process in
any jurisdiction;
(v) as expeditiously as possible, cause all such
Registrable Shares to be listed on each securities exchange or automated
quotation system on which similar securities issued by the Company are then
listed;
(vi) promptly provide a transfer agent and
registrar for all such Registrable Shares not later than the effective date of
such registration statement;
(vii) promptly make available for inspection by the
Selling Stockholders, any managing underwriter participating in any disposition
pursuant to such Registration Statement, and any attorney or accountant or other
agent retained by any such underwriter or selected by the Selling Stockholders,
all financial and other records, pertinent
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corporate documents and properties of the Company and cause the Company's
officers, directors, employees and independent accountants to supply all
information reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such Registration Statement;
(viii) as expeditiously as possible, notify each
Selling Stockholder, promptly after it shall receive notice thereof, of the time
when such Registration Statement has become effective or a supplement to any
Prospectus forming a part of such Registration Statement has been filed; and
(ix) as expeditiously as possible following the
effectiveness of such Registration Statement, notify each seller of such
Registrable Shares of any request by the Commission for the amending or
supplementing of such Registration Statement or Prospectus.
(b) If the Company has delivered a Prospectus to the
Selling Stockholders and after having done so the Prospectus is amended to
comply with the requirements of the Securities Act, the Company shall promptly
notify the Selling Stockholders and, if requested, the Selling Stockholders
shall immediately cease making offers of Registrable Shares and return all
Prospectuses to the Company. The Company shall promptly provide the Selling
Stockholders with revised Prospectuses and, following receipt of the revised
Prospectuses, the Selling Stockholders shall be free to resume making offers of
the Registrable Shares.
(c) In the event that, in the judgment of the Company,
it is advisable to suspend use of a Prospectus included in a Registration
Statement due to pending material developments or other events that have not yet
been publicly disclosed and as to which the Company believes public disclosure
would be detrimental to the Company, the Company shall notify all Selling
Stockholders to such effect, and, upon receipt of such notice, each such Selling
Stockholder shall immediately discontinue any sales of Registrable Shares
pursuant to such Registration Statement until such Selling Stockholder has
received copies of a supplemented or amended Prospectus or until such Selling
Stockholder is advised in writing by the Company that the then current
Prospectus may be used and has received copies of any additional or supplemental
filings that are incorporated or deemed incorporated by reference in such
Prospectus. Notwithstanding anything to the contrary herein, the Company shall
not exercise its rights under this Section 2.3(c) to suspend sales of
Registrable Shares for a period in excess of 60 days in any 365-day period.
2.4. Allocation of Expenses. The Company will pay all
Registration Expenses for all registrations under this Agreement; provided,
however, that if a registration under Section 2.1 is withdrawn at the request of
the Initiating Holders (other than as a result of information concerning the
business or financial condition of the Company which is made known to the
Stockholders after the date on which such registration was requested) and if the
Initiating Holders elect not to have such registration counted as a registration
requested under Section 2.1, the requesting Stockholders shall pay the
Registration Expenses of such registration pro rata in accordance with the
number of their Registrable Shares included in such registration. For purposes
of this Section, the term "Registration Expenses" shall mean all expenses
incurred by the Company in complying with this Agreement, including, without
limitation, all registration
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and filing fees, exchange listing fees, printing expenses, fees and expenses of
counsel for the Company and the fees and expenses of one counsel selected by the
Selling Stockholders to represent the Selling Stockholders, state Blue Sky fees
and expenses, and the expense of any special audits incident to or required by
any such registration, but excluding underwriting discounts, selling commissions
and the fees and expenses of Selling Stockholders' own counsel (other than the
counsel selected to represent all Selling Stockholders).
2.5. Indemnification and Contribution.
(a) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, the
Company will indemnify and hold harmless each Selling Stockholder, each
underwriter of such Registrable Shares, and each other person, if any, who
controls such Selling Stockholder (including partners, officers and directors)
or underwriter within the meaning of the Securities Act or the Exchange Act
against any losses, claims, damages or liabilities, joint or several, to which
such Selling Stockholder, underwriter or controlling person may become subject
under the Securities Act, the Exchange Act, state securities or Blue Sky laws or
otherwise, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon any untrue statement or alleged
untrue statement of any material fact contained in any Registration Statement
under which such Registrable Shares were registered under the Securities Act,
any preliminary prospectus or final prospectus contained in the Registration
Statement, or any amendment or supplement to such Registration Statement, or
arise out of or are based upon the omission or alleged omission to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading; and the Company will reimburse such Selling Stockholder,
underwriter and each such controlling person for any legal or any other expenses
reasonably incurred by such Selling Stockholder, underwriter or controlling
person in connection with investigating or defending any such loss, claim,
damage, liability or action; provided, however, that the Company will not be
liable in any such case to the extent that any such loss, claim, damage or
liability arises out of or is based upon any untrue statement or omission made
in such Registration Statement, preliminary prospectus or prospectus, or any
such amendment or supplement, in reliance upon and in conformity with
information furnished to the Company, in writing, by or on behalf of such
Selling Stockholder, underwriter or controlling person specifically for use in
the preparation thereof.
(b) In the event of any registration of any of the
Registrable Shares under the Securities Act pursuant to this Agreement, each
Selling Stockholder (including partners, officers and directors), severally and
not jointly, will indemnify and hold harmless the Company, each of its directors
and officers and each underwriter (if any) and each person, if any, who controls
the Company or any such underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages or liabilities, joint or
several, to which the Company, such directors and officers, underwriter or
controlling person may become subject under the Securities Act, Exchange Act,
state securities or Blue Sky laws or otherwise, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are based
upon any untrue statement or alleged untrue statement of a material fact
contained in any Registration Statement under which such Registrable Shares were
registered under the Securities Act, any preliminary prospectus or final
prospectus contained in the Registration Statement, or any amendment or
supplement to the Registration Statement, or arise out of or are based upon
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any omission or alleged omission to state a material fact required to be stated
therein or necessary to make the statements therein not misleading, if the
statement or omission was made in reliance upon and in conformity with
information relating to such Selling Stockholder furnished in writing to the
Company by or on behalf of such Selling Stockholder specifically for use in
connection with the preparation of such Registration Statement, prospectus,
amendment or supplement; provided, however, that the obligations of a Selling
Stockholder hereunder shall be limited to an amount equal to the net proceeds to
such Selling Stockholder of Registrable Shares sold in connection with such
registration.
(c) Each party entitled to indemnification under this
Section (the "Indemnified Party") shall give notice to the party required to
provide indemnification (the "Indemnifying Party") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom; provided, that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not be
unreasonably withheld); and, provided, further, that the failure of any
Indemnified Party to give notice as provided herein shall not relieve the
Indemnifying Party of its obligations under this Section except to the extent
that the Indemnifying Party is adversely affected by such failure. The
Indemnified Party may participate in such defense at such party's expense;
provided, however, that the Indemnifying Party shall pay such expense if
representation of such Indemnified Party by the counsel retained by the
Indemnifying Party would be inappropriate due to actual or potential differing
interests between the Indemnified Party and any other party represented by such
counsel in such proceeding; provided further that in no event shall the
Indemnifying Party be required to pay the expenses of more than one law firm per
jurisdiction as counsel for a given Indemnified Party. The Indemnifying Party
also shall be responsible for the expenses of such defense if the Indemnifying
Party does not elect to assume such defense. No Indemnifying Party, in the
defense of any such claim or litigation shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include as an unconditional term thereof the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
in respect of such claim or litigation, and no Indemnified Party shall consent
to entry of any judgment or settle such claim or litigation without the prior
written consent of the Indemnifying Party, which consent shall not be
unreasonably withheld.
(d) In order to provide for just and equitable
contribution in circumstances in which the indemnification provided for in this
Section 2.5 is due in accordance with its terms but for any reason is held to be
unavailable to an Indemnified Party in respect to any losses, claims, damages
and liabilities referred to herein, then the Indemnifying Party shall, in lieu
of indemnifying such Indemnified Party, contribute to the amount paid or payable
by such Indemnified Party as a result of such losses, claims, damages or
liabilities to which such party may be subject in such proportion as is
appropriate to reflect the relative fault of the Company on the one hand and the
Selling Stockholders on the other in connection with the statements or omissions
which resulted in such losses, claims, damages or liabilities, as well as any
other relevant equitable considerations. The relative fault of the Company and
the Selling Stockholders shall be determined by reference to, among other
things, whether the untrue or alleged untrue statement of material fact related
to information supplied by the Company or the Selling Stockholders and the
parties' relative intent, knowledge, access to information and
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opportunity to correct or prevent such statement or omission. The Company and
the Selling Stockholders agree that it would not be just and equitable if
contribution pursuant to this Section 2.5 were determined by pro rata allocation
or by any other method of allocation which does not take account of the
equitable considerations referred to above. Notwithstanding the provisions of
this paragraph of Section 2.5, (a) in no case shall any one Selling Stockholder
be liable or responsible for any amount in excess of the net proceeds received
by such Selling Stockholder from the offering of Registrable Shares and (b) the
Company shall be liable and responsible for any amount in excess of such
proceeds; provided, however, that no person guilty of fraudulent
misrepresentation (within the meaning of Section 11(f) of the Securities Act)
shall be entitled to contribution from any person who was not guilty of such
fraudulent misrepresentation. Any party entitled to contribution will, promptly
after receipt of notice of commencement of any action, suit or proceeding
against such party in respect of which a claim for contribution may be made
against another party or parties under this Section, notify such party or
parties from whom contribution may be sought, but the omission so to notify such
party or parties from whom contribution may be sought shall not relieve such
party from any other obligation it or they may have thereunder or otherwise
under this Section. No party shall be liable for contribution with respect to
any action, suit, proceeding or claim settled without its prior written consent,
which consent shall not be unreasonably withheld.
2.6. Other Matters with Respect to Underwritten Offerings. In
the event that Registrable Shares are sold pursuant to a Registration Statement
in an underwritten offering pursuant to Section 2.1, the Company agrees to (a)
enter into an underwriting agreement containing customary representations and
warranties with respect to the business and operations of the Company and
customary covenants and agreements to be performed by the Company, including
without limitation customary provisions with respect to indemnification by the
Company of the underwriters of such offering; (b) use its best efforts to cause
its legal counsel to render customary opinions to the underwriters with respect
to the Registration Statement; and (c) use its best efforts to cause its
independent public accounting firm to issue customary "cold comfort letters" to
the underwriters with respect to the Registration Statement.
2.7. Information by Holder. Each holder of Registrable Shares
included in any registration shall furnish to the Company such information
regarding such holder and the distribution proposed by such holder as the
Company may reasonably request in writing and as shall be required in connection
with any registration, qualification or compliance referred to in this
Agreement.
2.8. "Stand-Off" Agreement; Confidentiality of Notices. Each
Stockholder, if requested by the Company and the managing underwriter of an
underwritten public offering by the Company of Common Stock, shall not sell or
otherwise transfer or dispose of any Registrable Shares or other securities
(other than securities purchased in the initial public offering or in other open
market transactions) of the Company held by such Stockholder for a period not to
exceed 180 days following the effective date of a Registration Statement;
provided, that:
(a) such agreement shall only apply to the Initial
Public Offering; and
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(b) all stockholders of the Company then holding at
least 1% of the outstanding Common Stock (on an as-converted basis) and all
officers and directors of the Company enter into similar agreements.
The Company may impose stop-transfer instructions with respect to the
Registrable Shares or other securities subject to the foregoing restriction
until the end of such stand-off period.
Any Stockholder receiving any written notice from the Company regarding
the Company's plans to file a Registration Statement shall treat such notice
confidentially and shall not disclose such information to any person other than
as necessary to exercise its rights under this Agreement or as may be required
under applicable law.
2.9. Limitations on Subsequent Registration Rights. The Company
shall not, without the prior written consent of Stockholders holding at least 66
2/3% of the Registrable Shares then held by all Stockholders, enter into any
agreement (other than this Agreement) with any holder or prospective holder of
any securities of the Company which grant such holder or prospective holder
rights to include securities of the Company in any Registration Statement,
unless (a) such rights to include securities in a registration initiated by the
Company or by Stockholders are not more favorable than the rights granted to
Other Holders under Sections 2.1 and 2.2 of this Agreement, and (b) no rights
are granted to initiate a registration, other than registration pursuant to a
registration statement on Form S-3 (or its successor) in which Stockholders are
entitled to include Registrable Shares on a pro rata basis with such holders
based on the number of shares of Common Stock (on an as-converted basis) owned
by Stockholders and such holders; provided, that each party hereto hereby
acknowledges and consents that the Noteholders are entitled to one (1) demand
registration right which shall be deemed not to conflict with this Section 2.9.
2.10. Rule 144 Requirements. After the earliest of (i) the
closing of the sale of securities of the Company pursuant to a Registration
Statement, (ii) the registration by the Company of a class of securities under
Section 12 of the Exchange Act, or (iii) the issuance by the Company of an
offering circular pursuant to Regulation A under the Securities Act, the Company
agrees to:
(a) make and keep current public information about the
Company available, as those terms are understood and defined in Rule 144;
(b) use its best efforts to 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) furnish to any holder of Registrable Shares upon
request (i) a written statement by the Company as to its compliance with the
reporting requirements of Rule 144 and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements),
(ii) a copy of the most recent annual or quarterly report of the Company, and
(iii) such other reports and documents of the Company as such holder may
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12
reasonably request to avail itself of any similar rule or regulation of the
Commission allowing it to sell any such securities without registration.
2.11. Termination. All of the Company's obligations to register
Registrable Shares under Sections 2.1 and 2.2 of this Agreement shall terminate
three years after the closing of the Initial Public Offering.
3. Right Of First Refusal
3.1. Rights of Purchasers
(a) The Company shall not issue, sell or exchange, agree
to issue, sell or exchange, or reserve or set aside for issuance, sale or
exchange ("Issue"), (i) any shares of its Common Stock, (ii) any other equity
securities of the Company, including, without limitation, shares of preferred
stock, (iii) any option, warrant or other right to subscribe for, purchase or
otherwise acquire any equity securities of the Company, or (iv) any debt
securities convertible into capital stock of the Company (collectively, the
"Offered Securities"), unless in each such case the Company shall have first
complied with this Section 3.1. The Company shall deliver to each Purchaser a
written notice of any proposed or intended issuance, sale or exchange of Offered
Securities (the "Offer"), which Offer shall (i) identify and describe the
Offered Securities, (ii) describe the price and other terms upon which they are
to be issued, sold or exchanged, and the number or amount of the Offered
Securities to be issued, sold or exchanged, (iii) identify the persons or
entities (if known) to which or with which the Offered Securities are to be
offered, issued, sold or exchanged and (iv) offer to issue and sell to or
exchange with such Purchaser a pro rata portion of the Offered Securities
determined by dividing the aggregate number of shares of Common Stock then held
by such Purchaser (giving effect to the conversion of all shares of convertible
preferred stock then held by each Purchaser) by the total number of shares of
Common Stock then outstanding (giving effect to the conversion of all
outstanding shares of convertible preferred stock) (the "Pro Rata Amount"). The
Offer shall remain open for not less than 30 days.
(b) To accept an Offer, in whole or in part, a Purchaser
must deliver a written notice to the Company prior to 30 days after the date of
delivery of the Offer, setting forth the portion of the Purchaser's Pro Rata
Amount that such Purchaser elects to purchase (the "Notice of Acceptance").
(c) The Company shall have 90 days from the expiration
of the period set forth in Section 3.1(b) above to issue, sell or exchange all
or any part of such Offered Securities as to which a Notice of Acceptance has
not been given by the Purchasers (the "Refused Securities"), but only to the
offerees or purchasers described in the Offer (if so described therein) and only
upon terms and conditions (including, without limitation, unit prices and
interest rates) which are not more favorable, in the aggregate, to the acquiring
person or persons or less favorable to the Company than those set forth in the
Offer.
(d) In the event the Company shall propose to sell less
than all the Refused Securities (any such sale to be in the manner and on the
terms specified in Section 3.1(c) above), then each Purchaser may, at its sole
option and in its sole discretion, reduce the number
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13
or amount of the Offered Securities specified in its Notice of Acceptance to an
amount that shall be not less than the number or amount of the Offered
Securities that the Purchaser elected to purchase pursuant to Section 3.1(b)
above multiplied by a fraction, (i) the numerator of which shall be the number
or amount of Offered Securities the Company actually proposes to issue, sell or
exchange (including Offered Securities to be issued or sold to Purchasers
pursuant to Section 3.1(b) above prior to such reduction) and (ii) the
denominator of which shall be the original amount of the Offered Securities. In
the event that any Purchaser so elects to reduce the number or amount of Offered
Securities specified in its Notice of Acceptance, the Company may not issue,
sell or exchange more than the reduced number or amount of the Offered
Securities unless and until such securities have again been offered to the
Purchasers in accordance with Section 3.1(a) above.
(e) Upon the closing of the issuance, sale or exchange
of all or less than all of the Refused Securities, the Purchasers shall acquire
from the Company, and the Company shall issue to the Purchasers, the number or
amount of Offered Securities specified in the Notices of Acceptance, as reduced
pursuant to Section 3.1(d) above if the Purchasers have so elected, upon the
terms and conditions specified in the Offer. The purchase by the Purchasers of
any Offered Securities is subject in all cases to the preparation, execution and
delivery by the Company and the Purchasers of a purchase agreement and any other
final documentation relating to such Offered Securities reasonably satisfactory
in form and substance to the Purchasers and their respective counsel.
(f) Any Offered Securities not acquired by the
Purchasers or other persons in accordance with Section 3.1(c) above may not be
issued, sold or exchanged until they are again offered to the Purchasers under
the procedures specified in this Agreement.
(g) The rights of the Purchasers under this Section 3
shall not apply to:
(1) Common Stock issued as a stock dividend to
holders of Common Stock or upon any subdivision or combination of shares of
Common Stock;
(2) the issuance of any shares of Common Stock
upon conversion of shares of convertible preferred stock;
(3) the issuance of up to 3,387,771 shares of
Common Stock or such greater number as is approved by vote of not less than a
majority of the non-employee directors of the Company, or the grant of options
therefor, including shares issued upon exercise of options outstanding on the
date of this Agreement (such number to be proportionately adjusted in the event
of any stock splits, stock dividends, recapitalizations or similar events
occurring on or after the date of this Agreement) to officers, directors,
consultants and employees of the Company or any subsidiary pursuant to any plan,
agreement or arrangement approved by a vote of not less than a majority of the
Board of Directors of the Company (it being understood that any shares subject
to options that expire or terminate unexercised shall not count towards the
maximum number set forth in this clause (3));
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14
(4) securities issued solely in consideration for
the acquisition (whether by merger or otherwise) by the Company or any of its
subsidiaries of all or substantially all of the stock or assets of any other
entity; or
(5) shares of Common Stock sold by the Company in
an underwritten public offering pursuant to an effective registration statement
under the Securities Act.
3.2. No Impairment. Telos shall not, directly or indirectly,
avoid or seek to avoid the observance or performance of its obligations
hereunder. Without limiting the foregoing, Telos shall not Issue any security or
other ownership interest in an entity which holds securities of the Company
without complying with the provisions of this Section 3.
3.3. Termination. This Section 3 shall terminate upon the
earlier of the following events:
(a) The sale of all or substantially all of the assets
or business of the Company, by merger, sale of assets or otherwise; or
(b) The closing of the Initial Public Offering.
4. Negative Covenants.
(a) So long as at least 25% of the Shares are
outstanding, the Company shall not, without the prior written consent of the
holders of not less than two-thirds (2/3) of the then outstanding Shares:
(i) amend the Certificate of Incorporation of the
Company to authorize any additional shares of Common Stock or Series A Preferred
Stock or to authorize or designate any other class or series of stock senior to,
or on a parity with, the Series A Preferred Stock as to dividends, rights upon
liquidation, redemption or conversion, or with respect to voting rights;
(ii) change the number of directors on the Board
of Directors or alter the manner in which such directors are designated;
(iii) enter into any agreement that would restrict
the Company's ability to perform under the Purchase Agreement, this Agreement,
the Co-Sale Agreement and Investor Rights Agreements of even date herewith or
the Company's Certificate of Incorporation;
(iv) amend any provision of, or add any provision
to, the Company's Certificate of Incorporation or By-Laws, which such amendment
or provisions would adversely affect the Series A Preferred Stock; or
(v) engage in any transaction that would
materially and adversely affect the rights of the holders of the Series A
Preferred Stock as a class.
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15
(b) So long as at least 50% of the Shares are
outstanding, the Company shall not, without the prior written consent of the
holders of not less than a majority of the then outstanding Shares:
(i) apply any of its assets to the redemption,
retirement, purchase or acquisition, directly or indirectly, of any of its
Common Stock (other than purchases of Common Stock from employees, directors or
consultants, at cost, upon termination of their employment or services or other
purchases at nominal cost approved by the Board of Directors);
(ii) declare, make or pay any dividend or other
distribution with respect to the Common Stock or any other capital stock of the
Company;
(iii) sell, lease, pledge, hypothecate or otherwise
dispose of 25% or more of its properties or assets, or engage in any transaction
as a result of which at least a majority of the outstanding capital stock of the
Company, on an as-converted basis, is no longer held by persons who, prior to
such transaction, were stockholders of the Company;
(iv) issue additional securities of the Company to
employees, officers or directors, except securities issuable upon the exercise
of outstanding options and warrants, or issuable upon the exercise of options
granted in the future at fair market value
(v) issue any securities for a price less than
fair market value, other than as may be required by presently existing
contractual commitments;
(vi) enter into any transaction (or series of
transactions), including loans, with any officer or director of the Company or
with their affiliates and family members involving $100,000 or more per year or
$500,000 or more per year in the aggregate; or
(vii) adopt any additional stock option plans or
increase the number of shares of the Company's capital stock available for
issuance under existing plans.
5. Successors and Assigns. This Agreement shall be binding upon and
inure to the benefit of the parties and their respective successors and
permitted assigns. This Agreement, and the rights and obligations of each
Purchaser hereunder, may be assigned by such Purchaser to any person or entity
to which, together with its Affiliates (as defined in Section 6(j)), at least
500,000 Shares (as adjusted for stock splits, stock dividends, recapitalizations
and similar events) are transferred by such Purchaser, and such transferee shall
be deemed a "Purchaser" for purposes of this Agreement; provided that the
transferee provides written notice of such assignment to the Company. The
Company, Telos and Telos California may not assign their rights under this
Agreement.
For the purposes of this Agreement, "Affiliate" means any other person
directly or indirectly controlling, controlled by, or under direct or indirect
common control with the referenced person or entity and includes without
limitation, (a) any person who is an officer, director, or direct or indirect
beneficial holder of at least 5% of the then outstanding capital stock of the
referenced person or entity and (b) any person of which the referenced person or
entity and/or its Affiliates (as defined in clause (a) above), directly or
indirectly, either beneficially
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own(s) at least 5% of the then outstanding equity securities or constitute(s) at
least a 5% equity participant.
6. General.
(a) Severability. The invalidity or unenforceability of any
provision of this Agreement shall not affect the validity or enforceability of
any other provision of this Agreement.
(b) Specific Performance. In addition to any and all other
remedies that may be available at law in the event of any breach of this
Agreement, each Purchaser shall be entitled to specific performance of the
agreements and obligations of the Company hereunder and to such other injunctive
or other equitable relief as may be granted by a court of competent
jurisdiction.
(c) Governing Law. This Agreement shall be governed by and
construed in accordance with the internal laws of the State of Delaware (without
reference to the conflicts of law provisions thereof).
(d) Notices. All notices, requests, consents, and other
communications under this Agreement shall be in writing and shall be deemed
delivered (i) two business days after being sent by registered or certified
mail, return receipt requested, postage prepaid or (ii) one business day after
being sent via a reputable nationwide overnight courier service guaranteeing
next business day delivery, in each case to the intended recipient as set forth
below:
If to the Company, at 19886 Ashburn Road, Ashburn, Virginia 20147,
Attention: President, or at such other address or addresses as may have been
furnished in writing by the Company to the Purchasers, with a copy to Dee
Revere, Esq., Enterworks, Inc., 19886 Ashburn Road, Ashburn, Virginia 20147; or
If to a Purchaser, at his or its address set forth on Exhibit A, or at
such other address or addresses as may have been furnished to the Company in
writing by such Purchaser, with a copy to Terrence R. Brady, Winston & Strawn,
35 W. Wacker Drive, Chicago, Illinois 60601-9703.
Any party may give any notice, request, consent or other communication
under this Agreement using any other means (including, without limitation,
personal delivery, messenger service, telecopy, first class mail or electronic
mail), but no such notice, request, consent or other communication shall be
deemed to have been duly given unless and until it is actually received by the
party for whom it is intended. Any party may change the address to which
notices, requests, consents or other communications hereunder are to be
delivered by giving the other parties notice in the manner set forth in this
Section.
(e) Complete Agreement. This Agreement constitutes the entire
agreement and understanding of the parties hereto with respect to the subject
matter hereof and supersedes all prior agreements and understandings relating to
such subject matter.
(f) Amendments and Waivers. Any term of this Agreement may be
amended or terminated and the observance of any term of this Agreement may be
waived (either
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generally or in a particular instance and either retroactively or
prospectively), with the written consent of the Company and the holders of at
least 66 2/3% of the Registrable Shares held by all of the Stockholders;
provided, that this Agreement may be amended with the consent of the holders of
less than all Registrable Shares only in a manner which applies to all such
holders in the same fashion and provided, further, that any amendment hereto
shall not be effective as to any "investment company" (as defined in the
Investment Company Act of 1940, as amended) without the consent of such
investment company. Any such amendment, termination or waiver effected in
accordance with this Section 6(f) shall be binding on all parties hereto, even
if they do not execute such consent. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
(g) Pronouns. Whenever the context may require, any pronouns
used in this Agreement shall include the corresponding masculine, feminine or
neuter forms, and the singular form of nouns and pronouns shall include the
plural, and vice versa.
(h) Counterparts; Facsimile Signatures. This Agreement may be
executed in any number of counterparts, each of which shall be deemed to be an
original, and all of which together shall constitute one and the same document.
This Agreement may be executed by facsimile signatures.
(i) Section Headings. The section headings are for the
convenience of the parties and in no way alter, modify, amend, limit or restrict
the contractual obligations of the parties.
(j) Special Provisions Relating to Tudor. For purposes of
determining whether, for any provision hereof, the number of shares of capital
stock held by a Tudor Entity is sufficient to meet a required threshold, such
Tudor Entity shall be deemed to hold the number of shares of capital stock
issued or issuable upon conversion, exercise or exchange, directly or
indirectly, of any derivative securities held by such Tudor Entity and any of
its Affiliates and other Tudor Entities.
"Tudor Entity" or "Tudor Entities" means each of the following: Tudor
Private Equity Fund, L.P., Tudor Arbitrage Partners, L.P., Tudor BVI Futures,
Ltd., Raptor Global Fund, L.P., Raptor Global Fund Ltd., Raptor Global
Portfolio, Ltd., ALTAR Rock Fund, L.P. or any funds or other investment vehicles
or entities of which any of the foregoing entities are Affiliates, or any
Affiliate or Affiliated Group of Tudor Investment Corporation and/or Tudor
Global Trading, Inc.
"Affiliate", for the purposes of this Section 6(j), shall have the same
meaning as in Section 5 and shall also include any entities for which a Tudor
Entity or any of its Affiliates (as defined in Section 5 above) serve as general
partner and/or investment advisor or in a similar capacity, and all mutual funds
or other pooled investment vehicles or entities under the control or management
of such Tudor Entity or the general partner or investment adviser thereof or any
person in a similar capacity, or any Affiliate (as defined in Section 5 above)
of any of them, or any Affiliates of any of the foregoing.
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"Affiliated Group" has the meaning given to it in Section 1504 of the
Internal Revenue Code of 1986, as amended, and in addition includes any
analogous combined, consolidated, or unitary group, as defined under any
applicable state, local, or foregoing income tax law.
(k) Telos California. The parties acknowledge that all shares
of capital stock of the Company that are owned by Telos California are pledged
to Bank of America, N.A.
[Remainder of page intentionally blank]
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COUNTERPART SIGNATURE PAGE TO INVESTOR RIGHTS AGREEMENT
Executed as of the date first written above.
COMPANY:
ENTERWORKS, INC.
By:
---------------------------
Name:
------------------------
Title:
-----------------------
TELOS CORPORATION
By:
---------------------------
Name:
------------------------
Title:
-----------------------
PURCHASERS:
[ ]
[ ]
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Exhibit A
Purchasers
Name and Address
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