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EXHIBIT 10.6
QUEST SOFTWARE, INC.
INVESTORS' RIGHTS AGREEMENT
DATED AS OF
APRIL 21, 1999
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INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT (this "Agreement") is made as of the
21st day of April 1999, by and between Quest Software, Inc., a California
corporation (the "Company") and the Investors listed on the Schedule of
Investors attached as Exhibit B to the Securities Purchase Agreement (as defined
herein) ("each an "Investor" and together the "Investors").
RECITALS
WHEREAS, the Company, and the Investors are parties to the Securities
Purchase Agreement of even date herewith (the "Securities Purchase Agreement");
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 Investors and the Company
hereby agree that this Agreement shall govern the rights of the Investors to
cause the Company to register shares of the Company's Common Stock (the "Common
Stock") issuable upon conversion of its Series A Preferred Stock (the "Series A
Stock") as set forth herein.
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as follows:
1.1 Definitions. For purposes of this Section 1:
(a) The term "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 SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
(b) The term "Holder" means any person owning or having the right
to acquire Registrable Securities or any assignee thereof in accordance with
Section 1.12 hereof.
(c) The term "Initial Public Offering" shall mean the closing of
the sale of securities pursuant to an effective registration statement filed by
the Company under the Securities Act (as hereinafter defined) in connection with
a firm commitment underwritten offering of its securities to the general public.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered," and "registration" refer
to a registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
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(f) The term "Registrable Securities" means the Common Stock
issuable or issued upon conversion of the Series A Stock (including without
limitation shares of Series A Stock issuable upon conversion of the Company's
Series B Redeemable Preferred Stock) sold and issued to the Investors pursuant
to the Securities Purchase Agreement.
(g) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
(h) The term "SEC" shall mean the Securities and Exchange
Commission.
(i) The term "Securities Act" means the Securities Act of 1933,
as amended.
1.2 Demand Registration Rights.
(a) If the Company shall receive at any time after the earlier of
(i) the effective date of the first registration statement for an Initial Public
Offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145 transaction)
or (ii) three (3) years from the date hereof, a written request from Holders of
at least 40% of the Registrable Securities that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities then outstanding, then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) use its best efforts to effect, as soon as practicable
and in any event within ninety (90) days of the receipt of such request, 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 4.5) subject to the limitations
of Section 1.2(b).
(b) If the Holders initiating the registration request hereunder
(the "Initiating Holders") intend to distribute the Registrable Securities
covered by their request by means of an underwriting, they shall so advise the
Company as a part of their request made pursuant to Section 1.2(a) and the
Company shall include such information in the written notice referred to in
Section 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 his 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 Company as
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provided in Section 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) Notwithstanding the foregoing, if the Company shall furnish
to Holders requesting a registration statement pursuant to this Section 1.2 a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company it would be
materially detrimental to the Company and its Shareholders for such registration
statement to be filed and it is therefore necessary to defer the filing of such
registration statement, 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 twice in any twelve month period.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected two (2) registrations
pursuant to this Section 1.2 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date Ninety (90)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date Ninety (90) days after the effective date of, a registration
subject to Section 1.3 hereof; provided that the Company is actively employing
in good faith all reasonable efforts to cause such registration statement to
become effective; or
(iii) If the Initiating Holders propose to dispose of shares
of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 1.11 below.
1.3 Company Registration. If the Company at any time 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 an Initial Public Offering that does not include a
sale of shares other than by the Company or a registration statement relating
either to the sale of securities to employees of the Company pursuant to a stock
option, stock purchase or similar plan or a SEC Rule 145 transaction), the
Company shall, at such time, promptly give each Holder at least thirty (30) days
written notice of such registration. Upon the written request of each Holder
given within twenty (20) days after receipt of such notice by the Holder in
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accordance with Section 3.5, the Company shall, subject to the provisions of
Section 1.7, 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 SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to One Hundred Eighty (180)
days; provided, however, that (i) such One Hundred Eighty (180) 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; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such One Hundred Eighty
(180) day period shall be extended, if necessary, to keep the registration
statement effective until all such Registrable Securities are sold, provided
that Rule 415, or any successor rule under the Securities Act, permits an
offering on a continuous or delayed basis, and provided further that applicable
rules under the Securities Act governing the obligation to file a post-effective
amendment permit, in lieu of filing a post-effective amendment which (I)
includes any prospectus required by Section 10(a)(3) of the Securities Act or
(II) reflects facts or events representing a material or fundamental change in
the information set forth in the registration statement, the incorporation by
reference of information required to be included in (I) and (II) above to be
contained in periodic reports filed pursuant to Section 13 or 15(d) of the 1934
Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements
to such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
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, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act.
(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
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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, or if such securities are not already so
listed, on NASDAQ (or, if such listing is not permitted under the rules of
NASDAQ, on a securities exchange reasonably designated by a majority of the
holders of such Registrable Securities).
(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, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (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 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,
if any, and to the Holders requesting registration of Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
obligations of the Company to take any action pursuant to this Section 1 with
respect to the Registrable Securities of any selling Holder that such Holder
shall furnish to the Company such information regarding itself, the Registrable
Securities held by it, and the intended method of disposition of such securities
as shall be required to effect the registration of such Holder's Registrable
Securities.
1.6 Expenses of Registration. All expenses (other than underwriting
discounts and commissions relating solely to Registrable Securities so
registered) incurred in connection with registrations, filings or qualifications
pursuant to Section 1.2, Section 1.3 or Section 1.11 (which right may be
assigned as provided in Section 1.12), including (without limitation) all
registration, filing and qualification fees, printers' and accounting fees, fees
and disbursements
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of counsel for the Company (including without limitation fees and disbursements
of a single counsel for the selling Holders) shall be borne by the Company.
1.7 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 such Holders accept the terms of the
underwriting as agreed upon between the Company and the underwriters selected by
the Company (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 is compatible with the success of the offering, then the Company
shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters determine
in their sole discretion will not jeopardize the success of the offering (the
securities so included to be apportioned pro rata among the selling Holders
according to the total amount of securities entitled to be included therein
owned by each selling Holder or in such other proportions as shall mutually be
agreed to by such selling Holders), notwithstanding the foregoing, in no event
shall any Registrable Securities be excluded from such offering, unless all
other securities being offered, other than those being offered by the Company,
are first excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling Holder which is a holder
of Registrable Securities and which is a partnership, corporation or limited
liability company, the partners, retired partners, shareholders and members 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 Holder", and any pro-rata reduction with respect
to such "selling Holder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling Holder", as defined in this sentence.
1.8 Delay of Registration. No Holder shall have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.9 Indemnification. In the event any Registrable Securities are
included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify
and hold harmless each Holder, 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 1934 Act, against
any losses, claims, damages, or liabilities (joint or several) to which they may
become subject under the Securities Act, the 1934 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 alleged
omission to state therein a material fact required to be stated therein, or
necessary to
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make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 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 Section 1.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by 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, the 1934 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 Section 1.9(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder (which consent shall not be unreasonably withheld);
provided, that, in no event shall any indemnity under this Section 1.9(b) exceed
the net proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 1.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 1.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; 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 within a reasonable time of the commencement of any such
action, if materially prejudicial to its
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ability to defend such action, shall relieve such indemnifying party, to the
extent of such prejudice, of any liability to the indemnified party for any
losses, claims, damages or liabilities for which indemnification would otherwise
be available under this Section 1.9, but the omission so to deliver written
notice to the indemnifying party will not relieve it of any liability that it
may have to any indemnified party otherwise than under this Section 1.9.
(d) If the indemnification provided for in this Section 1.9 is
held by a court of competent jurisdiction to be unavailable to an indemnified
party with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the
provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) The obligations of the Company and Holders under this Section
1.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.10 Reports Under Securities Exchange Act of 1934. 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 SEC 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 SEC Rule 144, 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 1934 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;
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(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the 1934 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 with the reporting requirements of SEC Rule 144 (at
any time after ninety (90) days after the effective date of the first
registration statement filed by the Company), the Securities Act and the 1934
Act (at any time after it has become subject to such reporting requirements), or
that it qualifies as a registrant whose securities may be resold pursuant to
Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent
annual or quarterly report of the Company and such other reports and documents
so filed by the Company, and (iii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
1.11 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 at least twenty (20) days 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
fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.11: (1) if
Form S-3 is not 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 (net of any
underwriters' discounts or commissions) of less than Five Hundred Thousand
Dollars ($500,000); (3) if the Company shall furnish to the Holders a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
materially 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 1.11; provided, however, that the Company
shall not utilize this right more than twice in any twelve (12) month period;
(4) if the Company has, within the twelve (12) month period preceding the date
of such request, already effected two (2) registrations on Form S-3 for the
Holders pursuant to this Section 1.11; or (5) in any particular jurisdiction in
which the Company would be required to qualify to do business or to execute a
general consent to service of process in effecting such registration,
qualification or compliance.
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(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 1.11, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne by the
Company. Registrations effected pursuant to this Section 1.11 shall not be
counted as demands for registration or registrations effected pursuant to
Sections 1.2 or 1.3, respectively.
1.12 Assignment of Registration Rights. The rights to cause the
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities, provided: (a) the Company is, within a reasonable
time after such transfer, furnished with written notice of the name and address
of such transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.13 below;
(c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Securities Act and (d) such transferee or
assignee acquires at least 25% of such Holders shares of Registrable Securities.
1.13 "Market Stand-Off" Agreement. Each Investor hereby agrees that,
during the period of duration specified by the Company and an underwriter of
common stock or other securities of the Company, following the date of a sale to
the public pursuant to a registration statement of the Company filed under the
Securities Act, 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 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:
(a) all officers, directors and ten percent (10%) or greater
stockholders of the Company (whether or not pursuant to this Agreement) enter
into similar agreements; and
(b) such market stand-off time period shall not exceed one
hundred eighty (180) days in the case of the Company's Initial Public Offering,
and shall not exceed ninety (90) days in all other registrations.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (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
1.13 shall not apply to a registration relating solely to employee benefit plans
on Form S-8 or similar forms
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which may be promulgated in the future, or a registration relating solely to a
SEC Rule 145 transaction on Form S-4 or similar forms which may be promulgated
in the future.
2. Covenants of the Company.
2.1 Pre-emptive Rights. For so long as shares of the Series A Stock
or the Series B Stock remain outstanding, the Company hereby grants the
Investors pre-emptive rights with respect to future sales of equity securities
by the Company. Each time the Company offers any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall make an offering of such Shares to the
Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail
("Notice") to the Investors stating (i) that the Company is offering such
Shares, (ii) the number of such Shares to be offered and (iii) the price and
terms, if any, upon which it proposes to offer such Shares.
(b) Within twenty (20) days after receipt of the Notice, the
Investors may elect to purchase or obtain, at the price and on the terms
specified in the Notice, up to that portion of such Shares which equals the
proportion that the number of shares of Common Stock issued and held, or
issuable upon conversion of the Series A Stock, then held, by such Investor
bears to the total number of shares of Common Stock issued and outstanding and
issuable upon the conversion of the Series A Stock then outstanding (the "Pro
Rata Share"); provided, however that if the issuance of such Shares is at a
price of less than $5.625 per share (subject to adjustment after the date hereof
for stock splits, dividends, reclassifications and the like), such Investors may
elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to twice such Investor's Pro Rata Share.
(c) Notwithstanding the foregoing, if the Shares to be issued by
the Company are an equity security, the proceeds of which will be used by the
Company to redeem the Redeemable Preferred Stock purchased by the Investors
under the Securities Purchase Agreement, in lieu of the rights granted in
subsection (b) above, the Investors shall have the right to purchase or obtain,
at the price and on the terms specified in the Notice, up to twice such
Investors Pro Rata Share.
(d) Thereafter, the Company may, during the six (6) month period
following the expiration of the period provided in Section 2.1(b) hereof, offer
the remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for the
sale of the Shares within such period, or if such agreement is not consummated
within six (6) months of the execution thereof, the right provided hereunder
shall be deemed to be revived and such Shares shall not be offered unless first
reoffered to the Investor in accordance herewith.
(e) The pre-emptive rights in this Section 2.1 shall not be
applicable (i) to the issuance or sale of shares of Common Stock (or options or
warrants therefor) to service providers of the Company for the primary purpose
of soliciting or retaining their employment, or otherwise providing compensation
to such person, provided that such issuance or sale is
13
consummated pursuant to the terms of a stock option plan or other equity
incentive program approved by the Board of Directors, and provided that the
Company has not issued to ▇▇▇▇▇▇▇ ▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇▇▇, in any twelve (12)
month period, the lesser of (A) 3% of the outstanding Common Stock of the
Company or (B) an amount equal to the industry standard for officers of
similarly situated companies, and provided further, that each service provider
of the Company executes an agreement, in the form of an option agreement, in
form and substance reasonably satisfactory to the Board of Directors of the
Company, (ii) with respect to, or after consummation of, a firm commitment
public offering by the Company pursuant to an effective registration statement
under the Securities Act of 1933, as amended, provided, that such registration
statement covers the offer and sale of Common Stock of which the aggregate net
proceeds after deducting underwriting discounts and commissions attributable to
sales for the account of the Corporation exceed $25,000,000 at a per share price
to public (as set forth in the final prospectus in connection with such public
offering) equal to at least $8 (subject to adjustment for stock splits,
combinations, stock dividends or recapitalizations), (iii) to the issuance of
securities pursuant to the conversion or exercise of convertible or exercisable
securities, (iv) to the issuance of securities in connection with a bona fide
business acquisition of or by the Company, whether by merger, consolidation,
sale of assets, sale or exchange of stock or otherwise, (v) to the issuance of
stock, warrants or other securities or rights to persons or entities with which
the Company has business relationships, provided such issuances are for other
than primarily equity financing purposes, that such issuances are not to
affiliates of the Company and that at the time of any such issuance, the
aggregate of such issuances and similar issuances in the preceeding twelve (12)
month period do not exceed 2% of the then outstanding Common Stock of the
Company (assuming full conversion and exercise of all convertible and
exercisable securities) and (vi) warrants issued to persons or entities that are
not affiliates of the Company and in connection with a bona-fide debt financing,
joint venture, strategic development agreement, lease line or credit arrangement
or bank financing approved by the Board of Directors.
(f) The pre-emptive rights set forth in this Section 2.1 may not
be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly-owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Securities Act, controlling,
controlled by or under common control with, any such Holder, and (ii) such right
is assignable between and among any of the Holders.
2.2 Delivery of Financial Statements. The Company shall deliver to
each Investor:
(a) as soon as practicable, but in any event within one hundred
twenty (120) days after the end of each fiscal year of the Company, an income
statement for such fiscal year, a balance sheet of the Company, statement of
shareholders' equity as of the end of such year and a statement of cash flows
for such year, audited and prepared in accordance with generally accepted
accounting principles;
(b) as soon as practicable, but in any event within forty-five
(45) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, an unaudited profit or loss statement, a statement of cash
flows schedule for such fiscal quarter, an unaudited balance sheet and a
statement of shareholder's equity as of the end of such fiscal quarter;
14
(c) as soon as practicable, but in any event sixty (60) days
after the end of each fiscal year, beginning with the fiscal year ending
December 31, 1999, a budget and business plan for the next fiscal year, prepared
on a quarterly basis, including balance sheets and a statement of cash flows for
such months and, as soon as prepared, any other budgets or revised budgets
prepared by the Company; and
(d) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (d) or any other
subsection of Section 2.2 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
(e) Each Investor hereby agrees to hold in confidence and trust
and not to misuse or disclose any confidential information of the Company,
including the financial statements referred to in this Section 2.2
("Confidentially Disclosed Information"), without the prior written consent of
the Company; provided, however that an Investor shall not be required to obtain
the prior written consent of the Company to distribute the Confidentially
Disclosed Information to any affiliate of limited partner of such Investor
provided that such affiliate or limited partner has agreed to hold such
information in the same manner as set forth in this paragraph (e).
2.3 Termination of Information Covenants. The covenants set forth in
Section 2.2 shall terminate as to Investor and be of no further force or effect
upon either (a) the sale of securities pursuant to a registration statement
filed by the Company under the Securities Act in connection with the Initial
Public Offering or (b) the date on which 25% of the Series A Stock ceases to be
outstanding.
3. Miscellaneous.
3.1 Successors and Assigns. Except as otherwise provided herein, the
terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any Securities). Nothing in this Agreement, express or implied,
is intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California, exclusive of the provisions thereof
governing conflicts of laws.
3.3 Counterparts. This Agreement may be executed in two (2) or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15
3.5 Notices. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary to
enforce or interpret the terms of this Agreement, the prevailing party shall be
entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be amended
and the observance of any term of this Agreement may be waived (either generally
or in a particular instance and either retroactively or prospectively), only
with the written consent of (i) the Company, (ii) the holders of a majority of
the Series A Stock, excluding shares of Series A Stock issued upon conversion of
shares of Series B Stock, (or, if there shall be no such Series A Stock
outstanding, a majority of the Common Stock issued upon conversion of such
Series A Stock, and (iii) the holders of a majority of the Series B Stock (or,
if there shall be no Series B Stock outstanding, a majority of the Series A
Stock issued upon conversion of the Series B Stock, or, if there shall be no
such shares of Series A Stock outstanding, a majority of the shares of Common
Stock issued upon conversion of such Series A Stock) as of the date of the
amendment or waiver. Any amendment or waiver effected in accordance with this
paragraph shall be binding upon each holder of any securities purchased under
the Securities Purchase Agreement then outstanding, each future holder of all
such securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Series A Stock, Series B
Stock and Common Stock issued or issuable upon conversion of the Series A Stock
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement among the parties with regard to the
subjects hereof and thereof.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
QUEST SOFTWARE, INC.
By:
---------------------------------
Name: ▇▇▇▇▇ ▇▇▇▇▇
Its: Chief Executive Officer
Address:
▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
INSIGHT CAPITAL PARTNERS II, L.P.
By: Insight Venture Associates II, LLC
Its General Partner
By:
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: Managing Member
INSIGHT CAPITAL PARTNERS (CAYMAN)
II, L.P.
By: Insight Venture Associates II, LLC
Its General Partner
By:
---------------------------------
Name: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇
Its: Managing Member
UBS CAPITAL II LLC
By:
---------------------------------
Name:
Title:
By:
---------------------------------
Name:
Title:
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]
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WI SOFTWARE INVESTORS LLC
By:
---------------------------------
Name:
Title:
[SIGNATURE PAGE TO INVESTORS' RIGHTS AGREEMENT]