CLONTECH LABORATORIES, INC.
INVESTOR RIGHTS AGREEMENT
dated as of
September 9, 1997
TABLE OF CONTENTS
PAGE
1. REGISTRATION RIGHTS.................................................1
1.1 Definitions................................................1
1.2 Request for Registration...................................2
1.3 Company Registration.......................................3
1.4 Obligations of the Company.................................3
1.5 Furnish Information........................................5
1.6 Expenses of Demand Registration............................5
1.7 Expenses of Company Registration...........................5
1.8 Underwriting Requirements..................................6
1.9 Delay of Registration......................................6
1.10 Indemnification............................................6
1.11 Reports Under the Exchange Act.............................8
1.12 Form S-3 Registration......................................9
1.13 Assignment of Registration Rights.........................10
1.14 Limitations on Subsequent Registration Rights.............10
1.15 "Market Stand-Off" Agreement..............................11
1.16 Termination of Registration Rights........................11
2. COVENANTS OF THE COMPANY...........................................11
2.1 Financial Statements and Other Information................11
2.2 Inspection of Property....................................13
2.3 Restrictive Covenants for Common Stock....................13
2.4 Affirmative Covenants.....................................15
2.5 Compliance with Agreements................................16
2.6 Preemptive Rights.........................................16
2.7 Put Rights................................................17
2.8 Key-Man Life Insurance....................................20
2.9 Proprietary Information Agreement.........................20
2.10 Board Matters.............................................20
2.11 Compensation Committee....................................21
2.12 401(k) Profit-Sharing Plan: Application for
Determination Letter......................................21
2.13 Public Disclosures........................................21
i.
TABLE OF CONTENTS
(CONTINUED)
PAGE
3. MISCELLANEOUS......................................................21
3.1 Successors and Assigns....................................21
3.2 Notices...................................................22
3.3 Expenses..................................................22
3.4 Amendments and Waivers....................................22
3.5 Severability..............................................22
3.6 Aggregation of Stock......................................22
3.7 Entire Agreement..........................................22
3.8 Titles and Subtitles......................................22
3.9 Governing Law.............................................23
3.10 Counterparts..............................................23
ii.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is made as of
September 9, 1997, by and among CLONTECH LABORATORIES, INC., a California
corporation (the "Company"), and the persons listed in Schedule A hereto (each,
an "Investor" and collectively, the "Investors"). Capitalized terms used and not
otherwise defined herein shall have the respective meanings assigned to them in
the Securities Purchase Agreement referred to below.
RECITALS:
WHEREAS, the Investors and the Company are parties to the Securities
Purchase Agreement of even date herewith (the "Securities Purchase Agreement")
providing for the issuance and sale to the Investors of (i) the Notes and (ii)
the Warrants to purchase shares of Common Stock, par value $.001 per share
("Common Stock"), of the Company; and
WHEREAS, the Investors and the majority shareholder of the Company are
parties to the Stock Purchase Agreement providing for the sale by such
shareholder to the Investors of the Common Shares; and
WHEREAS, in order to induce the Company to enter into the Securities
Purchase Agreement and to induce the Investors to invest funds in the Company
pursuant to the Securities Purchase Agreement, the Company and the Investors
hereby agree that this Agreement shall govern the rights of the Investors as to
the matters set forth herein;
NOW, THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants set forth herein, the parties hereto agree as follows:
1. REGISTRATION RIGHTS. The Company covenants and agrees as follows:
1.1 DEFINITIONS. For purposes hereof:
(a) The term "register", "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act of 1933, as amended
(including the rules and regulations thereunder and any successor statute, the
"Securities Act"), and the declaration or ordering of effectiveness of such
registration statement or document;
(b) The term "Registrable Securities" means (i) the Common Shares
as defined in the Stock Purchase Agreement, (ii) the Common Stock of the Company
issued or issuable upon exercise of Warrants and (iii) any Common Stock of the
Company issued as (or issuable upon the conversion or exercise of any warrant,
right, or other security which is issued as) a dividend or other distribution
with respect to, or in exchange for or in replacement of, any securities
referred to in clause (i) or (ii) above, it being understood that for purposes
of this Agreement, any Person who holds Warrants (and who received such Warrants
in accordance with the restrictions on transfer contained in the Warrants) shall
be deemed to be the holder of Registrable Securities obtainable upon exercise of
such Warrants, such Registrable Securities
1.
shall be deemed to be in existence, and such Person shall be entitled to
exercise the rights of a holder of Registrable Securities hereunder;
(c) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding that are Registrable Securities, and the number of shares of Common
Stock issuable pursuant to then exercisable, exchangeable or convertible
securities which would be Registrable Securities upon such issuance;
(d) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof; and
(e) The term "Form S-3" means such form under the Securities Act
as in effect on the date hereof or any registration form under the Securities
Act subsequently adopted by the Securities and Exchange Commission
("Commission") which permits inclusion or incorporation of substantial
information by reference to other documents filed by the Company with the
Commission.
1.2 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time following the
earlier of (i) December 31, 1999, or (ii) one hundred eighty (180) days after
the effective date of the first registration statement for a public offering of
Common Stock of the Company (other than a registration statement relating solely
to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Securities Act covering the registration of at
least ten percent (10%) of the Registrable Securities then outstanding (or a
lesser percent if the anticipated net proceeds to the Company of such offering
would equal or exceed $10,000,000), then the Company shall use its best efforts
to, within ten (l 0) days of the receipt thereof, give written notice of such
request to all Holders and shall, subject to the limitations of subsection
1.2(b), effect as soon as practicable, subject to subsection 1.2(d), the
registration under the Securities Act of all Registrable Securities which the
Holders request to be registered within twenty (20) days of the mailing of such
notice by the Company in accordance with Section 3.2.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a pan of their request made pursuant to this Section 1.2 and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by a majority in interest of the
Initiating Holders and shall be reasonably acceptable to the Company. In such
event, the right of any Holder to include such Holder's Registrable Securities
in such registration shall be conditioned upon such Holder's participation in
such underwriting and the inclusion of such Holder's Registrable Securities in
the underwriting (unless otherwise mutually agreed by a majority in interest of
the Initiating Holders and such Holder) to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the
2.
Company as provided in subsection 1.4(e)) enter into an underwriting agreement
in customary form with the underwriter or underwriters selected for such
underwriting. Notwithstanding any other provision of this Section 1.2, if the
underwriter advises the Initiating Holders in writing that marketing factors
require a limitation of the number of shares to be underwritten, then the
Initiating Holders shall so advise all Holders of Registrable Securities which
would otherwise be underwritten pursuant hereto, and the number of shares of
Registrable Securities that may be included in the underwriting shall be
allocated among all Holders thereof, including the Initiating Holders, in
proportion (as nearly as practicable) to the amount of Registrable Securities of
the Company owned by each Holder, provided, however, that the number of shares
of Registrable Securities to be included in such underwriting shall not be
reduced unless all other securities are first entirely excluded from the
underwriting.
(c) The Company is obligated to effect only two (2) such
registrations pursuant to this Section 1.2.
(d) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration pursuant to this Section 1.2 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 and its shareholders for such registration statement to be filed and
it is therefore essential to defer the filing of such registration statement,
then the Company shall have the right to defer taking action with respect to
such filing for a period of not more than ninety (90) days after receipt of the
request of the Initiating Holders; provided, however, that the Company may not
utilize this right more than once in any twelve month period.
1.3 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Securities Act in connection with the public
offering of such securities solely for cash (other than a registration relating
solely to the sale of securities to participants in a Company stock plan, or a
registration of securities issued in connection with a merger or other business
combination effected by means of a registration statement on Form S-4, or a
registration on any form which does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities), the Company shall, at such
time, promptly give each Holder written notice of such registration. Upon the
written request of each Holder given within twenty (20) days after mailing of
such notice by the Company in accordance with Section 3.2, the Company shall,
subject to the provisions of Section 1.8, cause to be registered under the
Securities Act all of the Registrable Securities that each such Holder has
requested to be registered.
1.4 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the Commission a registration statement
with respect to such Registrable Securities and use its reasonable best efforts
to cause such registration statement to become effective, and, upon the request
of the Holders of a majority of
3.
the Registrable Securities registered thereunder, keep such registration
statement effective for up to one hundred twenty (120) days; provided, however,
that such 120-day period shall be extended for a period of time equal to the
period the Holder refrains from selling any securities included in such
registration at the request of an underwriter of Common Stock (or other
securities) of the Company.
(b) Prepare and file with the Commission such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 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 in the light of the circumstances then
existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration
of Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, (i) an opinion, dated such date,
of the counsel representing the Company for the purposes of such registration,
in form and substance as is customarily given to underwriters in an underwritten
public Offering, addressed to the underwriters, if any, and to the Holders
requesting registration
4.
of Registrable Securities and (ii) a letter dated such date, from the
independent certified public accountants of the Company, in form and substance
as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering addressed to the underwriters
and to the Holders requesting registration of Registrable Securities.
1.5 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.12 if, due to the
operation of subsection 1.5(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 1.2(a) or subsection
1.12(b)(2), whichever is applicable.
1.6 EXPENSES OF DEMAND REGISTRATION. All expenses, other than
underwriting discounts and commissions, incurred in connection with
registrations, filings, or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing, and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company, and the
reasonable fees and disbursements of counsel for the selling Holders, shall be
borne by the Company; provided, however, that the Company shall not be required
to pay for any expenses of any registration proceeding begun pursuant to Section
1.2 if the registration request is subsequently withdrawn at the request of the
Holders of a majority of the Registrable Securities to be registered (in which
case all participating Holders shall bear such expenses pro rata based on the
number of shares of Registrable Securities each participating Holder has
requested to have registered), unless the Holders of a majority of the
Registrable Securities agree to forfeit their demand registration rights
pursuant to Section 1.2; provided further, however, that if at the time of such
withdrawal, the Holders have learned of a material adverse change in the
condition, business, or prospects of the Company from that known to the Holders
at the time of their request and have withdrawn the request with reasonable
promptness following disclosure by the Company of such material adverse change,
then the Holders shall not be required to pay any of such expenses and shall
retain their rights pursuant to Section 1.2.
1.7 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and pay
all expenses incurred in connection with any registration, filing, or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder, including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto and the reasonable fees and disbursements of
counsel for the selling Holders selected by them, but excluding underwriting
discounts and commissions relating to the Registrable Securities.
5.
1.8 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders'
securities in such underwriting unless they accept the terms of the underwriting
as agreed upon between the Company and the underwriters selected by it (or by
other persons entitled to select the underwriters), and then only in such
quantity as the underwriters determine in their sole discretion will not
jeopardize the success of the offering by the Company. If the total amount of
securities, including Registrable Securities, requested by shareholders to be
included in such offering exceeds the amount of securities sold other than by
the Company that the underwriters determine in their sole discretion can be
included in such offering taking into account marketing factors, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion can be included in such offering taking into account
marketing factors (the securities so included to be apportioned pro rata among
the selling shareholders according to the total amount of securities entitled to
be included therein owned by each selling Holder or in such other proportions as
shall mutually be agreed to by such selling Holder) but in no event shall the
amount of securities of the selling Holders included in the offering be reduced
below thirty percent (30%) of the total amount of securities included in such
offering, unless such offering is the initial public offering of the Company, in
which case the selling shareholders may be excluded if no other shareholder's
securities are included. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners, and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder," as defined in
this sentence.
1.9 DELAY OF REGISTRATION. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.10 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, any underwriter (as defined in the Securities
Act) for such Holder and each person, if any, who controls such Holder or
underwriter within the meaning of the Securities Act or the Securities Exchange
Act of 1934, as amended (including any successor statute, the "Exchange Act"),
against any losses, claims, damages, or liabilities (joint or several) to which
they may become subject under the Securities Act, or the Exchange Act, or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereof) arise out of or are based upon any of the
following statements, omissions or violations (collectively a "Violation"): (i)
any untrue statement or alleged untrue statement of a material fact contained in
such registration statement, including any preliminary prospectus or final
prospectus contained therein or any amendments or supplements thereto, (ii) the
omission or
6.
alleged omission to state therein a material fact required to be stated
therein, or necessary to make the statements therein not misleading, or (iii)
any violation or alleged violation by the Company of the Securities Act, the
Exchange Act, any state securities law or any rule or regulation promulgated
under the Securities Act, or the Exchange Act or any state securities law;
and the Company will pay to each such Holder, underwriter or controlling
person, as incurred, any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any
such case for any such loss, claim, damage, liability, or action to the
extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly
for use in connection with such registration by any such Holder, underwriter,
or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, or the Exchange Act, or
other federal or state law, insofar as' such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 1.10(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 1.10(b) shall not apply to amounts paid
in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 1.10(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.10 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.10, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party
7.
within a reasonable time of the commencement of any such action, if prejudicial
to its ability to defend such action, shall relieve such indemnifying party of
any liability to the indemnified party under this Section 1.10 to the extent of
such prejudice, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party, on the one hand, and of the indemnified party, on the other
hand, in connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 REPORTS UNDER THE EXCHANGE ACT. With a view to making available
to the Holders the benefits of Rule 144 promulgated under the Securities Act and
any other rule or regulation of the Commission that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act, at all times
after ninety (90) days after the effective date of the first registration
statement filed by the Company for the offering of its securities to the general
public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end of the fiscal year in
which the first registration statement filed by the Company for the offering of
its securities to the general public is declared effective;
(c) 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; and
(d) furnish to any Holder, so long as the Holder owns any
Registrable Securities, forthwith upon request (i) a written statement by the
Company that it has complied
8.
with the reporting requirements of Rule 144 under the Securities Act (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Securities Act, and the Exchange Act (at
any time after it has become subject to such reporting requirements), or that it
qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time after it so qualifies), (ii) a copy of the most recent annual or
quarterly report of the Company and such other reports and documents so filed by
the Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the Commission which permits
the selling of any such securities without registration or pursuant to such
form.
1.12 FORM S-3 REGISTRATION. In case the Company shall receive from any
Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration,
and any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not then available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (before taking
into account any underwriters' discounts or commissions) of less than
$1,000,000; (3) if the Company shall furnish to the 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 and its shareholders for such Form S-3 Registration to be effected at
such time, in which event the Company shall have the right to defer the filing
of the Form S-3 registration statement for a period of not more than ninety (90)
days after receipt of the request of the Holder or Holders under this Section
1.12; provided, however, that the Company shall not utilize this right more than
once in any calendar year, (4) if the Company has, within the 120-day period
preceding the date of such request, already effected one (1) registration on
Form S-3 for the Holders pursuant to this Section 1.12; (5) as to any Holder, if
such Holder is then entitled to sell all of the Registrable Securities held by
such Holder within any three-month period under Rule 144 under the Securities
Act; or (6) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance, unless the
Company is already subject to service in such jurisdiction and except as may be
required by the Securities Act.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as
9.
soon as practicable after receipt of the request or requests of the Holders.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively. All expenses, other than underwriting discounts and
commissions, incurred in connection With registrations, filings, or
qualifications pursuant to Section 1.12, including (without limitation) all
registration, filing, and qualification fees, printers' and accounting fees,
fees and disbursements of counsel for the Company, and the reasonable fees and
disbursements of counsel for the selling Holders, shall be borne by the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 1.12 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
participating Holders shall bear such expenses pro rata based on the number of
shares of Registrable Securities each participating Holder has requested to have
registered), unless the Holders of a majority of the Registrable Securities to
be registered agree to forfeit their registration rights pursuant to this
Section 1.12 for a period of six (6) months from the date of such withdrawal;
provided further, however, that if at the time of such withdrawal; the Holders
have learned of a material adverse change in the condition, business, or
prospects of the Company from that known to the Holders at the time of their
request and have withdrawn the request with reasonable promptness following
disclosure by the Company of such material adverse change, then the Holders
shall not be required to pay any of such expenses and shall retain all of their
rights pursuant to this Section 1.12.
1.13 ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee or affiliated group of transferees or assignees of such securities who,
after such assignment or transfer, holds at least 452,572 shares of Registrable
Securities (subject to appropriate adjustment for stock splits, stock dividends,
combinations and other recapitalizations), provided the Company is, within a
reasonable time after such transfer, furnished with written notice of the name
and address of such transferee or assignee and the securities with respect to
which such registration rights are being assigned; and provided, further, that
such assignment shall be effective only if immediately following such transfer
the further disposition of such securities by the transferee or assignee is
restricted under the Securities Act. For the purposes of determining the number
of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants, and siblings of such partners or spouses who acquire Registrable
Securities by gift, will, or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices, or taking any action under this Section 1.
1.14 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of a majority of the outstanding Registrable Securities, enter
into any agreement with any holder or prospective holder of any securities of
the Company which would allow such holder or prospective holder (a) to include
such securities in any registration filed under Section 1.2, 1.3 or 1.12 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his
10.
securities will not reduce the amount of the Registrable Securities of the
Holders which is included, or (b) to make a demand registration which could
result in such registration statement being declared effective prior to the
earlier of either of the dates set forth in subsection 1.2(a) or within one
hundred eighty (180) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "MARKET STAND-OFF" AGREEMENT. Each Holder hereby agrees that,
during the period of duration (not to exceed 180 days) specified by the Company
and an underwriter of Common Stock or other securities of the Company, following
the effective date of the Company's initial firm-commitment underwritten
offering of Common Stock to the general public, it shall not, to the extent
requested by the Company and such underwriter, directly or indirectly sell,
offer to sell, contract to sell (including, without limitation, any short sale),
grant any option to purchase or otherwise transfer or dispose of (other than to
donees (including limited partners of any Holder) who agree to be similarly
bound) any securities of the Company held by it at any time during such period
except Common Stock included in such registration; provided, however, that all
officers and directors of the Company and all other persons with registration
rights (whether or not pursuant to this Agreement) enter into similar
agreements. In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Holder (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-8 or similar forms which may be promulgated in the
future, or a registration relating solely to a Commission Rule 145 transaction
on Form S-4 or similar forms which may be promulgated in the future.
1.16 TERMINATION OF REGISTRATION RIGHTS. No Holder shall be entitled
to exercise any rights provided for in this Section 1 upon the earlier of (a)
seven (7) years after the date hereof, provided that such seven-year period
shall be extended for the length of time, if any, that the Company determines to
defer the filing of a registration statement pursuant to either Section 1.2(d)
or 1.12(b)(3) or (b) at the time as such Holder is entitled to sell all of the
Registrable Securities held by such Holder within a 90-day period under Rule 144
under the Securities Act (or a successor rule).
2. COVENANTS OF THE COMPANY.
2.1 FINANCIAL STATEMENTS AND OTHER INFORMATION.
(a) The Company shall deliver to each Investor (so long as such
Investor beneficially owns any Securities, Common Shares or Warrant Shares) and
to each holder of at least 905,144 shares of Registrable Securities (each such
holder, a "Qualified Holder") (such number of shares to be adjusted
appropriately for subsequent stock splits, stock combinations, stock dividends
and like events):
(i) as soon as available but in any event within 30 days
after the end of each month in each fiscal year, unaudited consolidating and
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such month and from the
11.
period from the beginning of the fiscal year to the end of such month, and
unaudited consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such month, setting forth in each ease comparisons
to the Company's annual budget and to the corresponding period in the preceding
fiscal year, and all such statements shall be prepared in accordance with U.S.
generally accepted accounting principles ("GAAP"), consistently applied, except
that they may not contain full footnote disclosures and may be subject to normal
year-end adjustments for recurring accruals, and shall be certified by the chief
financial officer of the Company;
(ii) as soon as available but in any event within 90 days
after the end of each fiscal year, consolidating and consolidated statements of
income and cash flows of the Company and its Subsidiaries for such fiscal year,
and consolidating and consolidated balance sheets of the Company and its
Subsidiaries as of the end of such fiscal year, setting forth in each case
comparisons to the Company's annual budget and to the preceding fiscal year, all
prepared in accordance with GAAP, consistently applied, and with respect to the
consolidated portions of such statements accompanied by an opinion containing no
exceptions or qualifications (except for qualifications regarding specified
contingent liabilities) of a "Big-Six" accounting firm selected by the Board of
Directors of the Company;
(iii) at least 30 days but not more than 90 days prior to
the beginning of each fiscal year, an annual budget and operating plan prepared
on a monthly basis for the Company and its Subsidiaries for such fiscal year
(displaying anticipated statements of income and cash flows and balance sheets),
and promptly upon preparation thereof any revisions of such annual or other
budgets and operating plans, and within 30 days after any monthly period in
which there is a material adverse deviation from the annual budget, a
certificate of the President and chief financial officer of the Company setting
forth in reasonable detail the deviation and what actions the Company has taken
and proposes to take with respect thereto;
(iv) promptly (but in any event within five business days)
after the discovery or receipt of notice of any Default or Event of Default
(each as defined in the Notes), any other material adverse change, event or
circumstance affecting the Company or any Subsidiary (including, without
limitation, the filing of any material litigation against the Company or any
Subsidiary or the existence of any dispute with any Person which involves a
reasonable likelihood of such litigation being commenced), a certificate of the
President and chief Financial officer of the Company specifying the nature and
period of existence thereof and what actions the Company and its Subsidiaries
have taken and propose to take with respect thereto; and
(v) with reasonable promptness, such other information and
financial data concerning the Company and its Subsidiaries as any Person
entitled to receive information under this paragraph 2.1 may reasonably request.
The Company shall, upon request, prepare and deliver each of
the foregoing financial statements in such format, and by such electronic or
other means of transmission, as any Investor or Qualified Holder may reasonably
request.
12.
(b) Each of the financial statements referred to in subsection
(a) above shall present fairly in all material respects the consolidated
financial condition, results of operations and cash flows of the Company and its
Subsidiaries in accordance with GAAP applied on a consistent basis as of the
dates and throughout the periods set forth therein, subject in the case of the
unaudited financial statements to changes resulting from normal year-end
adjustments for recurring accruals (none of which would, alone or in the
aggregate, be materially adverse to the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries taken as a whole).
(c) Except as otherwise required by law or judicial order or
decree or by any governmental agency or authority, each Person entitled to
receive information regarding the Company and its Subsidiaries under this
Section 2.1 or Section 2.2 below shall use the same standards and controls which
such Person uses to maintain the confidentiality of its own confidential
information (but in no event less than reasonable care) to maintain the
confidentiality of all nonpublic information of the Company or any of its
Subsidiaries obtained by it pursuant to this Section 2.1 or Section 2.2 below;
PROVIDED THAT each such Person may disclose such information in connection with
the sale or transfer of any Securities, Common Shares or Warrant Shares if such
Person's transferee agrees in writing to be bound by the provisions hereof.
(d) Notwithstanding the foregoing, the provisions of this Section
2.1 and Section 2.2 below shall cease to be effective while, and only so long
as, the Company is subject to the periodic reporting requirements of the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), and continues
to comply with such requirements.
2.2 INSPECTION OF PROPERTY. The Company shall permit any Investor and
its representatives (so long as that Investor beneficially owns any Securities,
Common Shares or Warrant Shares) or any Qualified Holder, upon reasonable notice
and during normal business hours and at such other times as any such Person may
reasonably request, to (a) visit and inspect any of the properties of the
Company and its Subsidiaries, (b) examine the corporate and financial records of
the Company and its Subsidiaries and make copies thereof or extracts therefrom
and (c) discuss the affairs, finances and accounts of any such entities with the
directors, officers, key employees and independent accountants of the Company
and its Subsidiaries. The presentation of an executed copy of this Agreement by
any Investor or any Qualified Holder to the Company's independent accountants
shall constitute the Company's permission to its independent accountants to
participate in discussions with such Persons.
2.3 RESTRICTIVE COVENANTS FOR COMMON STOCK. So long as the
Investors and subsequent transferees of Common Shares beneficially own in the
aggregate at least 905,144 Common Shares (such number of shares to be adjusted
appropriately for subsequent stock splits, stock combinations, stock dividends
and like events), prior to the consummation of a Qualified IPO, the Company
shall not (in each case without the prior written consent of the holders of a
majority of the outstanding Common Shares):
13.
(a) amend, waive or modify any provision of its Articles of
Incorporation in any manner that would adversely affect the rights, preferences
or privileges of the Common Stock;
(b) authorize, designate or issue, or obligate itself to
authorize or issue, any other equity security, including any other security
convertible into or exercisable for any equity security having a preference
over, or being on a parity with, the Common Stock with respect to voting,
dividends or upon liquidation;
(c) declare or pay any dividend on or declare or make any other
distributions, direct or indirect, on any shares of Common Stock (other than
dividends or distributions payable solely in shares of Common Stock), or set
aside any sum for any such purpose;
(d) redeem, purchase or otherwise acquire (or pay into or set
aside any sum, as a sinking fund or otherwise, for such purpose) any share or
shares of Common Stock; provided, however, that this restriction shall not apply
to the repurchase of shares of Common Stock from employees, officers, directors,
consultants or other persons performing services for the Corporation or any
subsidiary pursuant to agreements under which the Corporation has the option to
repurchase such shares at cost or at cost upon the occurrence of certain events,
such as the termination of employment;
(e) sell, convey, or otherwise dispose of or encumber all or any
material portion of its property or business or merge into or consolidate with
any other corporation (other than a wholly-owned subsidiary corporation) or
effect any transaction or series of related transactions in which more than
fifty percent (50%) of the voting power of the corporation is transferred or
disposed of;
(f) increase or decrease (other than by redemption or conversion)
the total number of authorized shares of Common Stock;
(g) alter or change the rights or privileges of the shares of
Common Stock;
(h) liquidate or dissolve, or adopt any plan of liquidation,
dissolution or Winding up of the Corporation;
(i) effect any Internal Revenue Code Section 305 transaction;
(j) increase the authorized number of directors to a number
greater than seven (7);
(k) permit any of its Subsidiaries (other than wholly owned
Subsidiaries) to directly or indirectly declare or pay any dividends or make any
distributions upon any of its capital stock or other equity securities other
than to the Company; or
(l) permit any of its Subsidiaries (other than wholly owned
Subsidiaries) to directly or indirectly redeem, purchase or otherwise acquire,
any of the
14.
Company's or any of its Subsidiaries' capital stock or other equity securities
(including, without limitation, warrants, options and other rights to acquire
such capital or other equity securities), or directly or indirectly redeem,
purchase or make any payments with respect to any stock appreciation rights,
phantom stock plans or similar rights or plans.
2.4 AFFIRMATIVE COVENANTS. So long as the Investors and subsequent
transferees of Common Shares beneficially own in the aggregate at least 905,144
Common Shares (such number of shares to be adjusted appropriately for subsequent
stock splits, stock combinations, stock dividends and like events), the Company
shall and shall cause each Subsidiary to (unless it has received the prior
written consent of the holders of a majority of the outstanding Registrable
Securities prior to the consummation of a Qualified IPO:
(a) at all times cause to be done all things necessary to
maintain, preserve and renew its corporate existence and all material licenses,
authorizations and permits necessary to the conduct of its businesses the
failure of which to maintain, preserve and renew have a Material Adverse Effect
were they not maintained;
(b) maintain and keep its material properties in good repair,
working order and condition, and from time to time make all necessary or
desirable repairs, renewals and replacements, so that its businesses may be
properly and advantageously conducted in all material respects at all times;
(c) pay and discharge (within 30 days after becoming due and
payable) all material taxes, assessments and governmental charges imposed upon
its properties or upon the income or profits therefrom (in each case before the
same becomes delinquent and before penalties accrue thereon) and all material
claims for labor, materials or suppliers which if unpaid would by law become a
Lien or Encumbrance upon any of its property, unless and to the extent that the
same are being contested in good faith and by appropriate proceedings and
adequate reserves (as determined in accordance with GAAP, consistently applied)
have been established on its books with respect thereto;
(d) comply with all applicable laws, rules and regulations of all
governmental authorities, the violation of which would reasonably be expected to
have a material adverse effect upon the business, operations, assets,
Properties, liabilities, condition (financial or otherwise), results of
operations or prospects of the Company and its Subsidiaries taken as a whole;
(e) use its best efforts to apply for and continue in force
adequate insurance covering risks of such types and in such amounts as are
customary for corporations of similar size engaged in similar lines of business
if available on commercially reasonable terms;
(f) use its best efforts to maintain the key-man life insurance
policy of the President of the Company as referred to in Section 2.8;
(g) possess and maintain all material Intellectual Property
Rights necessary to the conduct of their respective businesses and own all
right, title and interest in and to, or have a valid license for, all such
Intellectual Property Rights except to the extent that any challenge to the same
is being contested in good faith and by appropriate means; and
15.
(h) maintain proper books of record and account which present
fairly in all material respects its financial condition and results of
operations and make provisions on its financial statements for all such proper
reserves as in each case are required in accordance with GAAP subject to normal
and recurring year-end audit adjustments, consistently applied.
2.5 COMPLIANCE WITH AGREEMENTS. The Company shall perform and observe
all of its obligations to each holder of Securities, Conversion Shares and
Warrant Shares set forth in the Transaction Documents and the certificate of
incorporation and bylaws of the Company.
2.6 PREEMPTIVE RIGHTS.
(a) Except for issuances of Common Stock (i) to the Company's
employees, officers, directors and consultants pursuant to the Company's 1997
Equity Incentive Plan (in an aggregate amount not to exceed 2,571,429 shares,
such number of shares to be adjusted appropriately for subsequent stock splits,
stock combinations, stock dividends and like events), (ii) upon exercise of
Warrants, (iii) upon the exercise of warrants (in an aggregate amount not to
exceed 100,000 shares, such number of shares to be adjusted appropriately for
subsequent stock splits, stock combinations, stock dividends and like events),
issued in connection with the leasing of equipment and line of credit used in
the ordinary course of the Company's business, (iv) in connection with the
acquisition of another company or business as permitted under Section 2.3(h)
above or (v) pursuant to a Qualified IPO (as defined below), if the Company
authorizes the issuance or sale of any shares of Common Stock or any securities
containing options or rights to acquire any shares of Common Stock (other than
as a dividend on the outstanding Common Stock), or any other equity securities
of the Company or any securities exchangeable for or convertible into Common
Stock or such other equity securities, the Company shall first offer to sell to
each holder of Registrable Securities a portion of such stock or securities
equal to the quotient determined by dividing (1) the number of shares of
Registrable Securities and other Common Stock held by such holder by (2) the sum
of (x)the total number of shares of Registrable Securities and (y) the number of
shares of Common Stock outstanding which are not Registrable Securities and (z)
the number of shares issuable upon the exercise of outstanding Warrants and
options granted in accordance with the Company's 1997 Equity Incentive Plan as
currently in effect. Each holder of Registrable Securities shall be entitled to
purchase such stock or securities at the same price and on the same terms as
such stock or securities are to be offered or sold to any other Persons. The
purchase price for all stock and securities offered to the holders of the
Registrable Securities shall be payable in cash or, to the extent otherwise
provided by the terms of any such transaction, notes issued by such holders.
(b) In order to exercise its purchase rights hereunder, a holder
of Registrable Securities must within twenty (20) days after receipt of written
notice from the Company, describing in reasonable detail the stock or securities
being offered, the purchase price thereof, the payment terms, all other terms
and conditions for the Company's proposed issuance, and such holder's
proportionate allotment of such stock or securities, deliver a written notice to
the Company containing its election hereunder. If all of the stock and
securities offered to the holders of Registrable Securities is not fully
subscribed by such holders, the remaining stock and securities shall be
reoffered by the Company to the holders purchasing their full allotment upon the
terms set forth in this paragraph, except that such holders must exercise their
purchase rights
16.
within five (5) days after receipt of such reoffer. Any holder of Registrable
Securities may assign its purchase rights hereunder to any of its Affiliates.
(c) Upon the expiration of the offering periods described above,
the Company shall be entitled to sell such stock or securities which the holders
of the Registrable Securities have not elected to purchase during the sixty (60)
days following such expiration on terms and conditions no more favorable to the
purchasers thereof than those offered to such holders. Any stock or securities
offered or sold by the Company after such 60-day period must be reoffered to the
holders of Underlying Common Stock pursuant to the terms of this paragraph.
(d) The preemptive rights set forth in this Section 2.6 shall
terminate upon the consummation of a Qualified IPO. For purposes hereof, a
"Qualified IPO" shall mean the Company's sale of its Common Stock in a bona fide
firm commitment underwritten public offering pursuant to a registration
statement under the Securities Act in which (i) the public offering price per
share is at least twice the per share purchase price of the Common Shares under
the Stock Purchase Agreement (adjusted to reflect subsequent stock dividends,
stock splits or recapitalizations) and (ii) the aggregate proceeds to the
Company of such sale are at least $20,000,000 and (iii) all outstanding
indebtedness under the Notes is repaid in full.
2.7 PUT RIGHTS.
(a) At any time on or within two years after the earlier of (i)
the seventh anniversary of the Closing Date or (ii) the occurrence of a Put
Trigger Event (as defined below), the Investors and the Holders shall each have
the right to require the Company to purchase all or any Common Shares held by
the Investor or such holder at the Put Price determined as provided below (the
"Put Right") by delivering a written notice to the Company specifying the amount
of securities to be purchased (the "Put Notice"). Upon receipt of the Put
Notice, the Company shall give written notice of the exercise of the Put Right
to each other holder of Common Shares, and each such other holder shall have the
right, within ten days after receipt of such notice, to participate in such
exercise of the Put Right by delivering a written notice (the "Participation
Notice") to the Company specifying the amount of securities to be purchased. All
securityholders of the Company (including, as the case may be, any Investor)
participating in the exercise of the Put Right are referred to herein as the
"Participating Holders." The Company and its directors, officers and employees
shall use their best efforts to honor the Put Right, including, without
limitation by reappraising or revaluing the Company's assets to reflect the fair
market value of such assets so as to permit the payment in full of the Put
Price.
At such time as a majority in interest of the Investors and any
Qualified Holders have exercised the Put Right under this Section 2.7, all
Common Shares then outstanding shall be repurchased by the Company at the price
and upon the terms and conditions specified in this Section 2.7 for
Participating Holders exercising their Put Right.
(b) Upon the delivery of the Put Notice, the Company and the
Participating Holders shall in good faith promptly determine the Put Price as
provided hereunder, and within ten (10) days after the determination of the Put
Price the Company shall purchase and the Participating Holders shall sell the
amount of securities specified in the Put Notice and, as applicable, each
Participation Notice, at a mutually agreeable time and place (the "Put
Closing").
17.
At the Put Closing, each Participating Holder shall deliver to the Company
certificates representing such holder's Common Shares to be purchased by the
Company, free and clear of all Liens and Encumbrances and duly endorsed in blank
or accompanied by duly executed forms of assignment (with signatures
guaranteed), and the Company shall deliver to each such Participating Holder the
Put Price payable to such Participating Holder as determined pursuant to
paragraph (c) immediately below. Notwithstanding the foregoing, unless the Put
Right is exercised following a Put Trigger Event, (i) not more than one-third
(1/3) of the Put Price per share shall be due or payable at any time prior to
each of the seventh, eighth and ninth anniversaries (respectively) of the date
hereof, and (ii) each Participating Holder shall be paid at the Put Closing the
maximum amount of the Put Price to which such Participating Holder is then
entitled, with any remainder being paid to the Participating Holder on the
eighth and/or ninth anniversaries hereof, in the maximum amounts provided in
clause (i). All amounts of the Put Price shall be paid by cashiers or certified
check or wire transfer of immediately available funds to an account designated
by each such Participating Holder.
(c) The Common Shares to be purchased by the Company from each
Participating Holder pursuant to the Put Right shall be purchased at a price
(the "Put Price") equal to the product of (i) the Market Value (as defined
below) of the Company, multiplied by (ii) a fraction, the numerator of which
shall be the number of each such Participating Holder's shares to be purchased
and the denominator of which shall be the total number of shares of Common Stock
then outstanding and the total number of shares of Common Stock issuable upon
conversion, exercise or exchange of all In-the-Money Options and Securities (as
defined below) as of the date the Put Price is determined hereunder.
Notwithstanding the foregoing, the "Put Price" attributable to any Common Shares
shall be equal to the greater of (x) the Put Price otherwise determined with
respect thereto pursuant to the immediately preceding sentence and (y) the
purchase price of such Common Shares under the Stock Purchase Agreement plus an
amount accruing thereon at the rate of 8% per annum from the date on which such
Common Shares are sold pursuant to the Stock Purchase Agreement to and including
the date on which such Common Shares are purchased by the Company pursuant to
the Put Right hereunder. The Market Value of the Company shall be determined
jointly by the Company and the Participating Holders. If such parties are unable
to reach agreement within a reasonable period of time (not to exceed 30 days),
the Market Value of the Company shall be determined by means of the following
procedure:
(i) The Company and the Participating Holders as a group
shall each select and retain an independent appraiser or firm experienced in
valuations of the type contemplated hereby. The Company and the Participating
Holders, respectively, shall bear the fees and expenses of their independent
appraiser or firm. As soon as practicable (and in any event within 30 days)
after being retained, each firm shall submit to the Company and the
Participating Holders a written report setting forth its determination of the
Market Value of the Company. In the event that the Market Value of the Company
as determined by the two firms is not identical but differs by less than ten
percent of the greater estimate, then the final Market Value shall be the
arithmetic mean of the different Market Values as determined by the two firms.
(ii) In the event that the Market Value of the Company as
determined by the two firms is not identical but differs by greater than ten
percent of the greater
18.
estimate, then the two firms shall jointly select and retain, as soon as
practicable (and in any event within 15 days) thereafter, a third independent
appraiser or firm experienced in valuations of the type contemplated hereby. The
expenses of such third appraiser or firm shall be borne equally by the Company,
on the one hand, and the Participating Holders, on the other hand. As soon as
practicable (and in any event within 30 days) after being retained, such firm
shall submit to the Company and the Participating Holders a written report
setting forth its determination of the Market Value of the Company. The final
Market Value shall be the arithmetic mean of the Market Value as determined (A)
by the firm designated in accordance with this subparagraph (ii) and (B) the
Market Value as determined by whichever of the two firms designated in
accordance with subparagraph (i) immediately above is closest to the Market
Value as determined by the firm designated in accordance with this subparagraph
(ii).
(d) As used in this Section, the following terms have the
following respective meanings:
(i) "Market Value" means the fair market value of the
Company's entire common equity determined on a going concern basis as between a
willing buyer and a willing seller and taking into account all relevant factors
determinative of value, including, without limitation: (A) the aggregate
exercise or conversion price of all options, warrants and other securities
exercisable or exchangeable for or convertible into Common Stock at a price less
than what would otherwise be the fair market value of such Common Stock
(collectively, "In-the-Money Options and Securities") and (B) the effect on the
value of the common equity of the conversion of any In-the-Money Options and
Securities that constitute (or may be deemed to constitute) debt securities
which, upon conversion or exercise, would be removed from the Company's balance
sheet in accordance with GAAP, consistently applied. For purposes of determining
Market Value hereunder, no discount shall be applied to take into account any
lack of liquidity of the Common Stock or the size of the interest of any holder
or the fact that any such holder owns a minority interest in the Company.
(ii) "Put Trigger Event" shall be deemed to occur if: (A)
the Company enters into any agreement providing for, or the shareholders of the
Company approve, a merger or consolidation of the Company with or into any other
entity, other than a merger or consolidation which would result in the voting
securities of the Company outstanding immediately prior thereto continuing to
represent (either by remaining outstanding or by being converted into voting
securities of the surviving entity) at least two-thirds (2/3) of the total
voting power represented by the voting securities of the Company or such
surviving entity outstanding immediately after such merger or consolidation, (B)
the shareholders of the Company approve a plan of liquidation, dissolution or
winding up of the Company or an agreement for the sale or disposition (in one
transaction or a series of transactions) by the Company of all or any material
portion of the Company's assets and Properties, (C) the Company's sale of its
Common Stock in a bona fide firm commitment underwritten public offering
pursuant to a registration statement under the Securities Act, or (D) the
Company or any material Subsidiary thereof makes an assignment for the benefit
of creditors or admits in writing its inability to pay its debts generally as
they become due; or an order, judgment or decree is entered adjudicating the
Company or any material Subsidiary thereof bankrupt or insolvent; or any order
for relief with respect to the Company or any material Subsidiary is entered
under the Federal Bankruptcy Code; or the Company or any material Subsidiary
makes any petition or
19.
application to any tribunal for the appointment of a custodian, trustee,
receiver or liquidator of the Company or any material Subsidiary thereof or of
any substantial part of the assets of the Company or any such material
Subsidiary, or any proceeding (other than a proceeding for the voluntary
liquidation and dissolution of a material Subsidiary) is commenced relating to
the Company or any Subsidiary under any bankruptcy, reorganization, arrangement,
insolvency, readjustment of debt, dissolution or liquidation law of any
jurisdiction; or any such petition or application is filed, or any such
proceeding is commenced, against the Company or any material Subsidiary thereof
and either (x) the Company or any such material Subsidiary by any act indicates
its approval thereof, consent thereto or acquiescence therein or (y) such
petition, application or proceeding is not dismissed within 60 days.
(e) As consideration for the grant by the Company to the
Investors of the Put Right hereunder, and in addition to the mutual promises,
covenants and other good and valuable consideration provided in the Transaction
Documents (the receipt and sufficiency of which consideration is hereby
acknowledged), the Investors hereby pay to the Company, and the Company hereby
acknowledges receipt of payment of, an amount equal to $50,000.
(f) The right to exercise the Put Right hereunder shall terminate
upon the consummation of a Qualified IPO.
2.8 KEY-MAN LIFE INSURANCE. The Company will obtain as soon as
practicable hereafter, and so long as any Securities, Common Shares or Warrant
Shares remain outstanding, the Company shall maintain, from Financially sound
and reputable insurers, a life insurance policy in the amount of at least
$2,000,000 on the life of ββ. βββββββ ββββ for so long as such individual
remains an employee of the Company. Such policy shall name the Company as the
primary loss payee and shall not be cancelable by the Company without the prior
approval of the Board of Directors.
2.9 PROPRIETARY INFORMATION AGREEMENT. The Company will cause each
officer and employee of the Company or any of its Subsidiaries to execute a
proprietary information and inventions agreement, in form and substance
reasonably satisfactory to the Investors, that provides for the confidential
treatment of the Intellectual Property Rights of the Company and its
Subsidiaries and the assignment to the Company of inventions developed in
connection with the performance of services for the Company or any of its
Subsidiaries.
2.10 BOARD MATTERS. As soon as practicable following the Closing, the
parties will use their best efforts to cause a person, who is not affiliated or
associated with the Company and who is mutually acceptable to the Company and
the Investors, to be duly elected or appointed to the Board of Directors of the
Company. The Company shall pay all expenses incurred by each director designated
by the Investors (or elected by the holders of Common Shares) in connection with
travelling to and attending meetings of the Board of Directors of the Company or
any committees thereof. So long as any director designated by the Investors (or
elected by the holders of Common Shares) serves on the Company's Board of
Directors, the certificate of incorporation and bylaws of the Company shall
provide for indemnification and exculpation of directors to the fullest extent
permitted under applicable law. Prior to its initial public offering, the
Company shall, at its expense, obtain directors' and officers' liability
20.
insurance providing coverage for its directors and officers in an amount and
upon terms reasonably comparable to that for directors and officers of similarly
situated public companies.
2.11 COMPENSATION COMMITTEE. All salary, bonus, benefits and other
compensation paid or payable to officers of the Company or any of its material
Subsidiaries shall be determined by the Board of Directors of the Company, based
on recommendations of the Compensation Committee of the Board of Directors, and
shall be reasonably comparable to the levels of compensation paid to similarly
situated officers of other publicly-held companies in the industries in which
the Company operates. At all times prior to a Qualified IPO, the Compensation
Committee of the Board of Directors of the Company shall consist of three
members, including one member who is an officer of the Company, one member
selected by the Investors and one member who is an independent Director of the
Company. Following any Qualified IPO, the Investors shall continue to be
entitled to select one member of the Compensation Committee, so long as any of
them beneficially owns any Securities, Common Shares or Warrant Shares.
2.12 401(k) PROFIT-SHARING PLAN: APPLICATION FOR DETERMINATION LETTER.
As soon as practicable following the Closing the Company will file an
application for a determination letter with the Internal Revenue Service on Form
5307 (Application for Determination for Adopters of Master or Prototype, βββββββ
Prototype or Volume Submitter Plans) for the Clontech Laboratories, Inc. 401(k)
Profit-sharing Plan in effect as of the date hereof.
2.13 PUBLIC DISCLOSURES. The Company shall not, nor shall it permit
any of its Subsidiaries to, disclose the name or identity of any Investor or any
Qualified Holder or any Affiliate of any of the same as an investor in the
Company in any press release or other public announcement or in any document or
material filed with any Governmental Entity, without the prior written consent
of such Investor or such Qualified Holder or Affiliate, as the case may be,
unless such disclosure is required by applicable law or governmental regulations
or by order of a court of competent jurisdiction, in which case prior to making
such disclosure the Company shall give written notice to the affected Person
describing in reasonable detail the proposed content of such disclosure and
shall permit the affected Person to review and comment upon the form and
substance of. such disclosure.
3. MISCELLANEOUS.
3.1 SUCCESSORS AND ASSIGNS. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties. Nothing in
this Agreement, express or implied, is intended to confer upon any party other
than the parties hereto or their respective successors and assigns any rights,
remedies, obligations, or liabilities under or by reason of this Agreement,
except as expressly provided in this Agreement. Notwithstanding anything herein
to the contrary, this Agreement is intended to confer upon Qualified Holders and
any subsequent transferee or holder of Common Shares the rights, remedies and
privileges applicable to such Persons as set forth in Section 2 hereof.
21.
3.2 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be sent to
the address/fax number indicated for such party on the signature page hereof
(provided that any party may at any time change its address/fax number for
notice by providing ten (10) days advance written notice to the other party),
and shall be deemed effectively given upon (i) personal delivery to the party to
be notified, (ii) the time of successful facsimile transmission to the party to
be notified, (iii) one (1) day following sending by reputable overnight delivery
service or (iv) three (3) days following deposit with the United State Post
Office, by registered or certified mail, postage prepaid.
3.3 EXPENSES. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs, and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.4 AMENDMENTS AND WAIVERS. Any term of this Agreement may be amended
and the observance of any term of this Agreement maybe waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of the Company and the holders of at least two-thirds
(2/3) of the Registrable Securities then outstanding. The Investors acknowledge
and agree that any amendment or waiver effected in accordance with this Section
shall be binding upon all holders of any Registrable Securities then
outstanding, each future holder of all such Registrable Securities, and the
Company, whether or not such holder in fact consented to such amendment or
waiver.
3.5 SEVERABILITY. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.6 AGGREGATION OF STOCK. For purposes of this Agreement, the term
"Investor" shall include any partner of the Investors who receives any
Securities, Common Shares, Warrant Shares or other Registrable Securities
pursuant to a distribution from or liquidation of any Investor, and all holdings
of Securities, Common Shares, Warrant Shares and other Registrable Securities by
Persons who are Affiliates of each other (which, for this purpose, shall also
include Persons which have received distributions of Securities, Common Shares
or Warrant Shares from a partnership holding such securities) shall be
aggregated for purposes of meeting any numerical or threshold tests or
determining the availability of any rights under this-Agreement.
3.7 ENTIRE AGREEMENT. This Agreement constitutes the full and entire
understanding and-agreement between the parties with regard to the subjects
hereof and thereof.
3.8 TITLES AND SUBTITLES. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
22.
3.9 GOVERNING LAW. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements among
California residents entered into and to be performed entirely within
California.
3.10 COUNTERPARTS. This Agreement may be executed in counterparts,
each of which shall be deemed an original, but both of which together shall
constitute one and the same instrument.
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23.
IN WITNESS WHEREOF, the parties have executed this Investor Rights
Agreement as of the date first above written.
CLONTECH LABORATORIES, INC.
By: /s/ βββββββ ββββ
---------------------------------
βββββββ ββββ
President
SUMMIT VENTURES IV, L.P.
BY: Summit Partners IV, L.P.
Its General Partner
BY: Stamps, βββββββ & Co., IV
Its General Partner
BY: /s/ βββββββ β. ββββ
----------------------------
General Partner
SUMMIT INVESTORS III, L.P.
BY: /s/ βββββββ β. ββββ
----------------------------
General Partner
SUMMIT SUBORDINATED DEBT FUND II, L.P.
BY: Summit Partners SD II, LLC
Its General Partner
BY: /s/ βββββββ β. ββββ
----------------------------
General Partner
1.
SCHEDULE A
LIST OF INVESTORS
Summit Ventures IV, L.P.
Summit Investors III, L.P.
Summit Subordinated Debt Fund II, L.P.
1.