EXHIBIT 4.2
LIQUID AUDIO, INC.
SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Second Amended and Restated Investor Rights Agreement (the
"AGREEMENT") is made as of July 31, 1998 by and among Liquid Audio, Inc., a
California corporation (the "COMPANY"), and the persons and entities listed on
Exhibit A hereto (each individually an "INVESTOR", and collectively, the
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"INVESTORS").
RECITALS
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A. The Company issued shares of its Series A Preferred Stock (the "SERIES
A PREFERRED") pursuant to that certain Series A Preferred Stock Purchase
Agreement dated May 31, 1996 (the "SERIES A PURCHASE AGREEMENT") and shares of
its Series B Preferred Stock (the "SERIES B PREFERRED") pursuant to that certain
Series B Preferred Stock Purchase Agreement dated May 23, 1997 (the "SERIES B
PURCHASE AGREEMENT"), by and among the Company and certain of the Investors that
are parties thereto (the "PRIOR INVESTORS") and granted to the Prior Investors
certain registration and information rights and rights of first offer under that
certain First Amended and Restated Investor Rights Agreement by and among the
Company and the Prior Investors dated as of May 23, 1997 (the "PRIOR RIGHTS
AGREEMENT").
B. The Company has granted to Silicon Valley Bank (the "SERIES B WARRANT
HOLDER") a warrant to purchase up to an aggregate of 15,306 shares of Series B
Preferred (the "SERIES B WARRANT"), which Series B Warrant provides, or will
provide, for the grant of certain registration rights to the Series B Warrant
Holder.
C. The Company has agreed to grant to N2K, Inc. and Silicon Valley Bank
(the "SERIES C WARRANT HOLDERS") warrants to purchase up to an aggregate of
53,403 shares of Series C Preferred as defined below (the "SERIES C WARRANTS",
together with the Series B Warrants, the "WARRANTS"), which Series C Warrants
provide, or will provide, for the grant of certain registration rights to the
Series C Warrant Holders.
D. The Company has agreed to issue shares of the Company's Series C
Preferred Stock (the "SERIES C PREFERRED") pursuant to that certain Series C
Preferred Stock Purchase Agreement, dated as of even date herewith (the "SERIES
C PURCHASE AGREEMENT") by and among the Company and certain of the Investors
(the "SERIES C INVESTORS"). The Series C Purchase Agreement provides that, as a
condition to the Series C Investors' purchase of Series C Preferred thereunder,
the Company will enter into this Agreement and the Series C Investors will be
granted the rights set forth herein.
E. The Company and the Prior Investors desire for the Series C Investors
to purchase the Series C Preferred Stock and, to induce such purchase and to
grant such rights, desire to enter into
this Agreement in order to amend, restate and replace their rights and
obligations under the Prior Rights Agreement with the rights and obligations set
forth in this Agreement.
F. Section 15(b) of the Prior Rights Agreement provides that holders of a
majority of the Preferred Stock and Conversion Stock (as such terms are defined
in the Prior Rights Agreement) may, with the prior written consent of the
Company, waive, modify or amend, on behalf of all of the Prior Investors, any
provisions of the Prior Rights Agreement, provided the effect thereof will be
that all such persons will be treated in the same manner. The undersigned
parties to this Agreement hold at least a majority of such Preferred Stock and
Conversion Stock and the modifications to the Prior Rights Agreement provided
for herein have such effect.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, all parties hereto agree as follows:
1. CERTAIN DEFINITIONS. All capitalized terms used and not otherwise
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defined herein shall have the meanings given them in the Series C Purchase
Agreement. As used in this Agreement, the following terms shall have the
following respective meanings:
"COMMISSION" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"COMMON STOCK" shall mean the Common Stock of the Company.
"CONVERSION STOCK" means the Common Stock issued or issuable upon:
(i) the conversion of any shares of (A) Series A Preferred issued under the
Series A Purchase Agreement; (B) Series B Preferred issued under the Series B
Purchase Agreement; (C) Series B Preferred issued or issuable upon exercise of
the Series B Warrant; (D) Series C Preferred issued under the Series C Purchase
Agreement; and/or (E) Series C Preferred issued or issuable upon exercise of the
Series C Warrants.
"HOLDER(S)" shall mean: (i) any Investor holding Registrable
Securities; and (ii) any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with Section
5.10 hereof; provided, however, that for the purposes of Sections 8 and 9 of
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this Agreement: (a) the holder of the Warrants issued to Silicon Valley Bank
shall not be a Holder, and (b) the holder of the Series C Warrant issued to N2K,
Inc. shall not be a Holder until exercise of such Series C Warrant, in each case
arising solely from the ownership of such Warrants.
"INITIATING HOLDERS" shall mean any Holders who in the aggregate hold
not less than forty percent (40%) of the outstanding Registrable Securities.
"PREFERRED STOCK" shall mean the Series A Preferred, the Series B
Preferred and the Series C Preferred.
"REGISTRABLE SECURITIES" means the Conversion Stock and any Common
Stock of the Company issued or issuable in respect of the Conversion Stock upon
any stock split, stock dividend,
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recapitalization or similar event, or any Common Stock otherwise issuable with
respect to the Conversion Stock; provided, however, that shares of Conversion
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Stock or other securities shall be treated as Registrable Securities only if and
so long as they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction and,
provided further, that notwithstanding anything herein to the contrary, the
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Conversion Stock issued or issuable upon conversion of Series B Preferred and/or
Series C Preferred issued or issuable upon exercise of the Series B Warrant
and/or the Series C Warrant, respectively, issued to Silicon Valley Bank, shall
not constitute Registrable Securities for the purposes of Sections 5.1, 5.3, 5.4
or 15 of this Agreement.
The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"REGISTRATION EXPENSES" shall mean all expenses, except as otherwise
stated below, incurred by the Company in complying with Sections 5.1, 5.2 and
5.3 hereof, including, without limitation, all registration, qualification and
filing fees, printing expenses, escrow fees, fees and disbursements of counsel
for the Company, blue sky fees and expenses, the expense of any special audits
incident to or required by any such registration (but excluding the compensation
of regular employees of the Company, which shall be paid in any event by the
Company) and the reasonable fees and disbursements of one counsel for all
Holders.
"RESTRICTED SECURITIES" shall mean the securities of the Company
required to bear the legend set forth in Section 3 hereof.
"SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or
any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute, and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
"SELLING EXPENSES" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and, except as set forth under "Registration Expenses", all fees and
disbursements of counsel for any Holder.
2. RESTRICTIONS ON TRANSFERABILITY. The Preferred Stock, the Conversion
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Stock and any other securities issued in respect of the Preferred Stock or the
Conversion Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event shall not be sold, assigned, transferred or
pledged except upon the conditions specified in this Agreement, which conditions
are intended to ensure compliance with the provisions of the Securities Act. The
Investors will cause any proposed purchaser, assignee, transferee, or pledgee of
any such shares held by the Investors to agree to take and hold such securities
subject to the provisions and upon the conditions specified in this Agreement.
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3. RESTRICTIVE LEGEND. Each certificate representing: (i) the Preferred
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Stock, (ii) the Conversion Stock, and (iii) any other securities issued in
respect of the Preferred Stock or the Conversion Stock upon any stock split,
stock dividend, recapitalization, merger, consolidation or similar event, shall
(unless otherwise permitted by the provisions of Section 4 below) be stamped or
otherwise imprinted with a legend in substantially the following form (in
addition to any legend required under applicable state securities laws):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE SALE OR
DISTRIBUTION THEREOF. SUCH SHARES MAY NOT BE SOLD OR TRANSFERRED IN THE
ABSENCE OF SUCH REGISTRATION UNLESS THE COMPANY RECEIVES AN OPINION OF
COUNSEL REASONABLY ACCEPTABLE TO IT STATING THAT SUCH SALE OR TRANSFER IS
EXEMPT FROM THE REGISTRATION AND PROSPECTUS DELIVERY REQUIREMENTS OF SAID
ACT. COPIES OF THE AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND
RESTRICTING THEIR TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST
MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
Each Investor and/or Holder consents to the Company making a notation on its
records and giving instructions to any transfer agent of the Preferred Stock or
the Common Stock in order to implement the restrictions on transfer established
in this Agreement.
4. NOTICE OF PROPOSED TRANSFERS. The holder of each certificate
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representing Restricted Securities by acceptance thereof agrees to comply in all
respects with the provisions of this Section 4. Prior to any proposed sale,
assignment, transfer or pledge of any Restricted Securities (other than: (i) a
transfer not involving a change in beneficial ownership; (ii) in transactions
involving the distribution without consideration of Restricted Securities by the
Investor to any of its partners, or retired partners, or to the estate of any of
its partners or retired partners; (iii) in transactions involving the transfer
without consideration of Restricted Securities by the Investor during his
lifetime by way of gift or on death by will or intestacy; (iv) in transactions
involving the transfer or distribution of Restricted Securities by a corporation
to any subsidiary, parent or affiliated corporation of such corporation; or (v)
in transactions in compliance with Rule 144 (provided that the holder provides a
statement of circumstances to indicate that Rule 144 is applicable)), unless
there is in effect a registration statement under the Securities Act covering
the proposed transfer, the holder thereof shall give written notice to the
Company of such holder's intention to effect such transfer, sale, assignment or
pledge. Each such notice shall describe the manner and circumstances of the
proposed transfer, sale, assignment or pledge in sufficient detail and shall be
accompanied, at such holder's expense, by either: (i) an unqualified written
opinion of legal counsel who shall be, and whose legal opinion shall be,
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Restricted Securities may be effected without
registration under the Securities Act; or (ii) a "no action" letter from the
Commission to the effect
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that the transfer of such securities without registration will not result in a
recommendation by the staff of the Commission that action be taken with respect
thereto, whereupon the holder of such Restricted Securities shall be entitled to
transfer such Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company. Each certificate evidencing the
Restricted Securities transferred as above provided shall bear the appropriate
restrictive legend set forth in Section 3 above, except that such certificate
shall not bear such restrictive legend if: (i) in the opinion of counsel for
such holder and the Company, such legend is not required in order to establish
compliance with any provision of the Securities Act; (ii) such transfer is made
pursuant to Rule 144(k); or (iii) such transfer is otherwise made pursuant to
Rule 144 and counsel for the Company does not deem it necessary to require such
legend.
5. REGISTRATION.
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5.1 Requested Registration.
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(a) Requested Registration. In case the Company shall receive
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from Initiating Holders a written request that the Company effect any
registration, qualification or compliance with respect to not less than twenty-
five percent (25%) of the outstanding shares of the Registrable Securities, or
any lesser number of shares if the anticipated aggregate offering price, before
underwriting discounts and commissions, would exceed five million dollars
($5,000,000), the Company will:
(i) promptly give written notice of the proposed
registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its best efforts to
effect such registration, qualification or compliance (including, without
limitation, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act and any other governmental requirements or regulations)
as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of such Registrable Securities as are
specified in such request, together with all or such portion of the Registrable
Securities of any Holder or Holders joining in such request as are specified in
a written request received by the Company within twenty (20) days after receipt
of such written notice from the Company; provided, however, that the Company
shall not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 5.1:
(A) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to the earlier of May 31, 1999 or one
hundred eighty (180) days after the effective date of the Company's first
registered pubic offering of its stock;
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(C) If the Company, within ten (10) days of the
receipt of the request of the Initiating Holders, gives notice of its bona fide
intention to effect the filing of a registration statement with the Commission
within ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan);
(D) During the period starting with the date of
filing of, and ending on the date one hundred eighty (180) days immediately
following the effective date of, any registration statement pertaining to
securities of the Company (other than a registration of securities in a Rule 145
transaction or with respect to an employee benefit plan), provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(E) After the Company has effected two (2) such
registrations pursuant to this Section 5.1(a), and such registrations have been
declared or ordered effective; or
(F) If the Company shall furnish to such Initiating
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 or its shareholders for a registration
statement to be filed in the near future, in which case the Company's obligation
to use its best efforts to register, qualify or comply under this Section 5.1
shall be deferred for a period not to exceed ninety (90) days from the date of
receipt of written request from the Initiating Holders, provided that the
Company may not exercise this deferral right more than once per twelve (12)
month period.
Subject to the foregoing clauses (A) through (F), the Company shall file a
registration statement covering the Registrable Securities so requested to be
registered as soon as practicable after receipt of the request or requests of
the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
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Section 5.1 is for a public offering involving an underwriting, the Company
shall so advise the Holders as part of the notice given pursuant to Section
5.1(a)(i), that the right of any Holder to registration pursuant to Section 5.1
shall be conditioned upon such Holder's participation in such underwriting
arrangements, and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent requested shall be limited to the extent provided
herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the managing underwriter selected for such underwriting by a
majority in interest of the Initiating Holders, but subject to the Company's
reasonable approval. Notwithstanding any other provision of this Section 5.1,
if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities, and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
Holders requesting
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registration in proportion, as nearly as practicable, to the respective amounts
of Registrable Securities held by such Holders at the time of filing the
registration statement; provided, however, that the number of shares of
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Registrable Securities to be included in such underwriting and registration
shall not be reduced unless all other securities of the Company are first
entirely excluded from the underwriting and registration. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the Company or the
underwriters may round the number of shares allocated to any Holder to the
nearest one hundred (100) shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration, and such Registrable Securities shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of such registration, or such other shorter period of
time as the underwriters may require.
5.2 Company Registration.
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(a) Notice of Registration. If at any time or from time to time
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the Company shall determine to register any of its equity securities, either for
its own account or for the account of a security holder or holders, other than
(A) a registration relating solely to employee benefit plans, or (B) a
registration relating solely to a Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof;
and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within thirty (30) days after receipt of such written notice
from the Company, by any Holder.
(b) Underwriting. If the registration of which the Company
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gives notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 5.2(a)(i). In such event, the right of any Holder to
registration pursuant to Section 5.2 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of Registrable Securities
in the underwriting shall be limited to the extent provided herein.
All Holders proposing to distribute their securities through such
underwriting shall (together with the Company and the other holders distributing
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Company. Notwithstanding any other provision of this Section 5.2, if the
managing underwriter determines that marketing factors require a limitation of
the number of shares to be underwritten, the managing underwriter may limit the
Registrable Securities to be included in such registration: (i) in the case of
the Company's initial public offering, to zero; and (ii) in the case of any
other offering, to an amount no less than twenty-five percent (25%) of all
shares to be
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included in such offering; provided, however, that (x) any such limitation or
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"cut-back" shall be first applied to all shares proposed to be sold in such
offering other than for the account of the Company which are not Registrable
Securities, and (y) notwithstanding clause (x), in no event shall any shares
being sold by a shareholder exercising a demand registration right similar to
that granted in Section 5.1 be excluded from such offering. The Company shall so
advise all Holders and other holders distributing their securities through such
underwriting, that the number of shares of Registrable Securities or other
securities that may be included in the registration and underwriting shall be
first allocated among all the Holders in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by such Holder at the
time of filing the Registration Statement. To facilitate the allocation of
shares in accordance with the above provisions, the Company may round the number
of shares allocated to any Holder to the nearest one hundred (100) shares.
If any Holder or holder disapproves of the terms of any such underwriting,
he may elect to withdraw therefrom by written notice to the Company and the
managing underwriter. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto, or such
other shorter period of time as the underwriters may require.
(c) Right to Terminate Registration. The Company shall have the
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right to terminate or withdraw any registration initiated by it under this
Section 5.2 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.
5.3 Registration on Form S-3.
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(a) If any Holder or Holders who in the aggregate hold not less
than twenty percent (20%) of the outstanding Registrable Securities request that
the Company file a registration statement on Form S-3 (or any successor form to
Form S-3) for a public offering of shares of the Registrable Securities, the
reasonably anticipated aggregate price to the public of which would equal or
exceed five hundred thousand dollars ($500,000), and the Company is a registrant
entitled to use Form S-3 to register the Registrable Securities for such an
offering, the Company shall use its best efforts to cause such Registrable
Securities to be registered for the offering on such form and to cause such
Registrable Securities to be qualified in such jurisdictions as such Holder or
Holders may reasonably request; provided, however, that the Company shall not be
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required to effect more than two (2) registrations pursuant to this Section 5.3
in any twelve (12) month period. The Company shall inform other Holders of the
proposed registration and offer them the opportunity to participate. In the
event the registration is proposed to be part of a firm commitment underwritten
public offering, the substantive provisions of Section 5.1(b) shall be
applicable to each such registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall not be
obligated to take any action pursuant to this Section 5.3:
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(i) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) if the Company, within ten (10) days of receipt of
the request of the Initiating Holders, gives notice of its bona fide intention
to effect the filing of a registration statement with the Commission within
ninety (90) days of receipt of such request (other than a registration of
securities in a Rule 145 transaction or with respect to an employee benefit
plan);
(iii) during the period starting with the date of filing
of, and ending on the date one hundred eighty (180) days immediately following
the effective date of, any registration statement pertaining to securities of
the Company (other than a registration of securities in a Rule 145 transaction
or with respect to an employee benefit plan), provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iv) if the Company shall furnish to such Holder or
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 or its shareholders for registration
statements to be filed in the near future, in which case the Company's
obligation to use its best efforts to file a registration statement shall be
deferred for a period not to exceed ninety (90) days from receipt of the request
to file such registration by such Holder or Holders, provided that the Company
may not exercise this deferral right more than once per twelve (12) month
period.
5.4 Limitations on Subsequent Registration Rights. From and after
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the Closing Date, the Company shall not enter into any agreement granting any
holder, or prospective holder of any securities of the Company, registration
rights with respect to such securities without the written consent of the
holders of a majority of the Registrable Securities then outstanding, unless:
(i) such other registration rights are subordinate to the registration rights
granted to the Holders hereunder; and (ii) the holders of such rights are
subject to market standoff obligations no more favorable to such persons than
those contained herein.
5.5 Expenses of Registration. All Registration Expenses incurred in
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connection with: (i) two (2) registrations pursuant to Section 5.1; (ii) all
registrations pursuant to Section 5.2; and (iii) all registrations pursuant to
Section 5.3, shall be borne by the Company. Unless otherwise stated, all Selling
Expenses relating to securities registered on behalf of the Holders shall be
borne by the Holders of such securities pro rata on the basis of the number of
shares so registered.
5.6 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Agreement,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
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(a) Prepare and file with the Commission a registration
statement with respect to such securities and use its best efforts to cause such
registration statement to become and remain effective for at least one hundred
twenty (120) days or until the distribution described in the registration
statement has been completed, whichever occurs first;
(b) Furnish to the Holders participating in such registration
and to the underwriters of the securities being registered, such reasonable
number of copies of the registration statement, preliminary prospectus, final
prospectus and such other documents as such Holders and underwriters may
reasonably request in order to facilitate the public offering of such
securities;
(c) 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;
(d) 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 underwriters of such offering; each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement;
(e) 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 light of the circumstances then existing;
and
(f) Furnish, at the request of any Holder requesting
registration of Registrable Securities, on the date that such Registrable
Securities are delivered to the underwriters for sale, 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 become effective: (i) an opinion, dated as of 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 and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities; and (ii) a
"comfort" letter dated as of 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 and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities.
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5.7 Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities included in a registration pursuant to this Agreement, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Agreement, and each underwriter, if any, and each person who controls any
underwriter within the meaning of Section 15 of the Securities Act, against all
expenses, claims, losses, damages or liabilities (or actions in respect
thereof), including any of the foregoing incurred in settlement of any
litigation, commenced or threatened, arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in any
registration statement, prospectus, offering circular or other document, or any
amendment or supplement thereto, incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, or any violation by the Company of the
Securities Act, the Exchange Act, state securities law or any rule or regulation
promulgated under such laws applicable to the Company in connection with any
such registration, qualification or compliance, and the Company will reimburse
each such Holder, each of its officers, directors and partners, and each person
controlling such Holder, each such underwriter and each person who controls any
such underwriter, for any legal and any other expenses reasonably incurred, as
such expenses are incurred, in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company by an
instrument duly executed by any Holder, controlling person or underwriter and
stated to be specifically for use therein; provided, however, that the foregoing
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indemnity agreement is subject to the condition that, insofar as it relates to
any such untrue statement, alleged untrue statement, omission or alleged
omission made in a preliminary prospectus on file with the Commission at the
time the registration statement becomes effective or the amended prospectus
filed with the Commission pursuant to Rule 424(b) (the "FINAL PROSPECTUS"), such
indemnity agreement shall not inure to the benefit of any underwriter, if a copy
of the Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is required by
the Securities Act, and if the Final Prospectus would have cured the defect
giving rise to the loss, liability, claim or damage.
(b) Each Holder will, if the Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each underwriter, if any, of the Company's
securities covered by such a registration statement, each person who controls
the Company or such underwriter within the meaning of Section 15 of the
Securities Act, and each other such Holder, each of its officers, directors and
partners and each person controlling such Holder within the meaning of Section
15 of the Securities Act, against all expenses, claims, losses, damages and
liabilities (or actions in respect thereof) arising out of or based on any
untrue statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus,
-11-
offering circular or other document, or any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading, and will reimburse the Company, such
Holders, such directors, officers, partners, persons, underwriters or
controlling persons for any legal or any other expenses reasonably incurred, as
such expenses are incurred, in connection with investigating, preparing or
defending any such claim, loss, damage, liability or action, in each case to the
extent, but only to the extent, that such untrue statement (or alleged untrue
statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein.
Notwithstanding the foregoing, the liability of each Holder under this Section
5.7(b) shall be limited in an amount equal to the net proceeds of the shares
sold by such Holder.
(c) Each party entitled to indemnification under this Section
5.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide
indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense, and provided further that the failure of any Indemnified Party
to give notice as provided herein shall not relieve the Indemnifying Party of
its obligations under this Section 5.7 unless the failure to give such notice is
materially prejudicial to an Indemnifying Party's ability to defend such action,
in which case the Indemnifying Party shall be relieved of its obligations under
this Section 5.7 to the extent of such prejudice, and provided further that the
Indemnifying Party shall not assume the defense for matters as to which
representation of both the Indemnifying Party and the Indemnified Party by the
same counsel would be inappropriate due to actual or potential differing
interests between them, but shall instead in such event pay the fees and costs
of separate counsel for the Indemnified Party. No Indemnifying Party, in the
defense of any such claim or litigation, shall, except with the consent of each
Indemnified Party, consent to entry of any judgment or enter into any settlement
which does not include, as an unconditional term thereof, the giving by the
claimant or plaintiff to such Indemnified Party of a release from all liability
with respect to such claim or litigation.
(d) If the indemnification provided for in this Section 5.7 is
held by a court of competent jurisdiction to be unavailable to an Indemnified
Party with respect to any loss, liability, claim, damage, or expense referred to
herein, then the Indemnifying Party, in lieu of indemnifying such Indemnified
Party hereunder, shall contribute to the amount paid or payable by such
Indemnified Party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
Indemnifying Party on the one hand and of the Indemnified Party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the Indemnifying Party and of the
Indemnified Party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a
-12-
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'
relevant intent, knowledge, access to information, and opportunity to correct or
prevent such statement or omission; provided, however, that, in any such case,
-------- -------
(i) no such Holder will be required to contribute any amount in excess of the
public offering price of all such Registrable Securities offered and sold by
such Holder pursuant to such registration statement; and (ii) no person or
entity guilty of fraudulent misrepresentation (within the meaning of Section
11(f) of the Securities Act) will be entitled to contribution from any person or
entity who was not guilty of such fraudulent misrepresentation.
5.8 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Agreement.
5.9 Rule 144 Reporting. With a view to making available the
------------------
benefits of certain rules and regulations of the Commission which may at any
time permit the sale of the Restricted Securities to the public without
registration, after such time as a public market exists for the Common Stock of
the Company, the Company agrees to use its best efforts 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 the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as a Holder owns any Restricted Securities, to
furnish to such Holder forthwith upon request: (i) a written statement by the
Company as to its compliance with the reporting requirements of said Rule 144
(at any time after ninety (90) days following the effective date of the first
registration statement filed by the Company for an offering of its securities to
the general public) and of the Securities Act and the Exchange Act (at any time
after it has become subject to such reporting requirements); (ii) a copy of the
most recent annual or quarterly report of the Company; and (iii) such other
reports and documents of the Company and other information in the possession of
or reasonably obtainable by the Company as the Holder may reasonably request in
availing itself of any rule or regulation of the Commission allowing the Holder
to sell any such securities without registration (at any time after the Company
has become subject to the reporting requirements of the Exchange Act).
5.10 Transfer of Registration Rights. The rights to cause the
-------------------------------
Company to register securities granted to Investors under Sections 5.1, 5.2 and
5.3 may be assigned to a transferee or assignee in connection with any transfer
or assignment of Preferred Stock or Registrable Securities by the Investor
provided that: (i) such transfer may otherwise be effected in accordance with
-13-
applicable securities law; (ii) such assignee or transferee acquires at least
one hundred thousand (100,000) shares of Preferred Stock and/or Conversion Stock
held by the assignor or transferor (as adjusted for recapitalizations, stock
splits and the like) or such lesser number, if it constitutes all such shares
held by the assignor or transferor; (iii) written notice is promptly given to
the Company; and (iv) such transferee agrees to be bound by the provisions of
this Agreement. Notwithstanding the foregoing, the rights to cause the Company
to register securities may be assigned to: (A) any affiliated partnership or
constituent partner or retired partner of an Investor which is a partnership;
(B) an officer, director or shareholder or a subsidiary, parent or affiliated
corporation of an Investor which is a corporation; or (C) a spouse, lineal
descendant or ancestor or trust for the benefit of an Investor who is an
individual, without compliance with item (ii) above, provided that written
--------
notice thereof is promptly given to the Company and the transferee agrees to be
bound by the provisions of this Agreement.
5.11 Termination of Registration Rights. The rights granted pursuant
----------------------------------
to Sections 5.1, 5.2 and 5.3 of this Agreement shall terminate as to any Holder
upon the earliest of: (i) such time as such Holder can sell all of its
Registrable Securities pursuant to Rule 144(k) promulgated under the Securities
Act; or (ii) five (5) years after the effective date of the Company's first
registered public offering of its stock (other than a registration of securities
in a Rule 145 transaction or with respect to any employee benefit plan).
6. FINANCIAL INFORMATION.
---------------------
6.1 The Company will provide the following reports to each holder of
shares of Preferred Stock and/or Conversion Stock:
(a) As soon as practicable after the end of each fiscal year,
and in any event within ninety (90) days thereafter, consolidated balance sheets
of the Company and its subsidiaries, if any, as of the end of such fiscal year,
and consolidated statements of operations and of cash flow and shareholders'
equity of the Company and its subsidiaries, if any, for such year, prepared in
accordance with generally accepted accounting principles and setting forth, in
each case in comparative form, the figures for the previous fiscal year, all in
reasonable detail and audited by independent public accountants of national
standing selected by the Company, and a capitalization table in reasonable
detail for such fiscal year.
(b) As soon as practicable after the end of the first, second
and third quarterly accounting periods in each fiscal year of the Company, and
in any event within forty-five (45) days thereafter, a consolidated balance
sheet of the Company and its subsidiaries, if any, as of the end of each such
quarterly period, and consolidated statements of operations and of cash flows of
the Company and its subsidiaries for such period and for the current fiscal year
to date, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year-end
audit adjustments, in reasonable detail and signed by the principal financial or
accounting officer of the Company, and a capitalization table in reasonable
detail for such quarterly period.
-14-
6.2 The Company will provide the following reports to each holder of
at least one hundred fifty thousand (150,000) shares of Preferred Stock and/or
Conversion Stock (as adjusted for recapitalizations, stock splits and the like):
(a) At least thirty (30) days after the beginning of each fiscal
year, a budget adopted by the Company's Board of Directors for the fiscal year,
prepared on a monthly basis, and, as soon as prepared, any other budgets or
revised budgets prepared by the Company;
(b) Within thirty (30) days after the end of the first and
second monthly accounting period in each quarter, a consolidated condensed
balance sheet of the Company and its subsidiaries, if any, as of the end of each
such monthly period, and consolidated condensed statement of operations of the
Company and its subsidiaries for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting principles
(other than for accompanying notes), subject to changes resulting from year end
audit adjustments, together with a statement of the chief financial or
accounting officer of the Company explaining any differences from the budget for
such monthly accounting period, and signed by the principal financial or
accounting officer of the Company.
7. VISITATION AND INSPECTION.
-------------------------
7.1 The Company will afford to each holder of at least five hundred
thousand (500,000) shares of Preferred Stock and/or Conversion Stock (as
adjusted for recapitalizations, stock splits and the like) (each such holder
referred to herein as a "QUALIFIED INVESTOR") the right to have a non-voting
representative attend all meetings of the Company's Board of Directors (the
"BOARD"), subject to the Company's right to request in good faith that such
representative excuse himself from executive sessions of the Board where a
conflict of interest might be present and from any Board meeting or any part
thereof if such exclusion is reasonably necessary to preserve the attorney-
client privilege, and, upon request, to receive copies of all notices for and
materials distributed at such meetings, as well as any proposed written actions
by the Board concurrently with the distribution of such items to the Board.
7.2 The Company will afford to each Qualified Investor the right,
upon twenty (20) days advance notice, to meet periodically with the Company's
principal executive officer or chief financial officer during normal business
hours to discuss and make recommendations regarding the conduct of the Company's
business and affairs.
8. RIGHT OF FIRST OFFER.
--------------------
8.1 The Company hereby grants to each Holder, the right of first
offer to purchase its Pro Rata Share of New Securities (as defined in this
Section 8) which the Company may, from time to time, propose to sell and issue.
For purposes of this right of first offer, "PRO RATA SHARE" shall mean the ratio
that: (i) the sum of the number of shares of Common Stock then held by such
Holder and the number of shares of Common Stock issuable upon conversion of the
Preferred Stock then held by such Holder or the Preferred Stock issuable upon
exercise of the Warrants held by such Holder, bears to (ii) the sum of the total
number of shares of Common Stock then outstanding and
-15-
the number of shares of Common Stock issuable upon exercise or conversion of all
the then outstanding securities exercisable for or convertible into, directly or
indirectly, Common Stock.
8.2 Except as set forth below, "NEW SECURITIES" shall mean any shares
of capital stock of the Company, including Common Stock and any series of
Preferred Stock, whether now authorized or not, and rights, options or warrants
to purchase said shares of Common Stock or Preferred Stock, and securities of
any type whatsoever that are, or may become, convertible into or exchangeable
for said shares of Common Stock or Preferred Stock. Notwithstanding the
foregoing, "NEW SECURITIES" does not include: (i) the Conversion Stock; (ii)
Common Stock offered to the public generally pursuant to a registration
statement under the Securities Act; (iii) securities issued pursuant to the
acquisition of another corporation or entity by the Company by merger, purchase
of all or substantially all of the assets, or other reorganizations whereby the
Company acquires substantially all the assets of such other corporation or
entity, or the Company or its stockholders own more than fifty percent (50%) of
the voting power of the surviving or successor corporation; (iv) up to 1,584,486
shares (as adjusted for recapitalizations, stock splits and the like, and net of
any repurchases of stock or terminations or expirations of options, warrants or
other rights) of the Company's Common Stock or related options, warrants or
other rights to purchase such Common Stock issued to employees, officers and
directors of, and consultants to, the Company, pursuant to arrangements approved
by the Board of Directors of the Company; (v) stock issued pursuant to any
rights, agreements or convertible securities, including without limitation
options and warrants, provided that (x) such rights, agreements or convertible
securities were outstanding prior to the date of this Agreement, or (y) the
rights of first offer established by this Section 8 applied with respect to the
initial sale or grant by the Company of such rights, agreements or convertible
securities; (vi) stock issued in connection with any stock split, stock dividend
or other recapitalization by the Company; (vii) the issuance of stock or
warrants in connection with customary commercial leasing or lending transactions
wherein such issuances in the aggregate do not exceed one percent (1%) of the
then outstanding Common Stock of the Company in any calendar year; (viii) the
issuance of the Series C Warrants to N2K, Inc. and Silicon Valley Bank and the
Series C Preferred issuable upon exercise of the Series C Warrants; or (ix) the
issuance of Series A Preferred pursuant to the Series A Purchase Agreement,
Series B Preferred pursuant to the Series B Purchase Agreement and/or Series C
Preferred pursuant to the Series C Purchase Agreement.
8.3 In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice of its intention,
describing the amount and type of New Securities, and the price and terms upon
which the Company proposes to issue the same. Each Holder shall have twenty (20)
days from the date of receipt of any such notice to agree to purchase up to its
respective Pro Rata Share of such New Securities for the price and upon the
terms specified in the notice by giving written notice of the Company and
stating therein the quantity of New Securities to be purchased.
8.4 In the event all of the New Securities are not elected to be
purchased by the Holder pursuant to Section 8(c) above, the Company shall have
one hundred and twenty (120) days thereafter to sell the New Securities not
elected to be purchased by Holders at the price and upon the terms no more
favorable to the purchasers of such securities than specified in the Company's
notice.
-16-
In the event the Company has not sold the New Securities within said one hundred
and twenty (120) day period, the Company shall not thereafter issue or sell any
New Securities without first offering such securities in the manner provided
above.
9. ISSUANCES TO EMPLOYEES AND CONSULTANTS. Unless otherwise determined
--------------------------------------
by the Board of Directors, following the Closing (as defined in the Series C
Purchase Agreement), the Company shall not issue shares of Common Stock or other
securities of the Company or any option, warrant or right to acquire such shares
to any of its employees, officers, directors or consultants which vest on a
schedule other than twenty-five percent (25%) vesting at the end of the first
year of the holder's employment or services with the Company and the remaining
seventy-five percent (75%) vesting on a monthly basis over the following thirty-
six (36) months, with unvested shares repurchasable by the Company or its
assignee, at cost, upon termination of the holder's employment or services with
the Company for any reason. No shares of Common Stock or other securities of the
Company issued to employees, officers, directors and consultants of the Company
shall be transferable other than to the Company or the Holders prior to vesting,
and all such shares shall be subject to market standoff agreements at least as
restrictive as those set forth in Section 11 hereof in connection with the
initial public offering of the Company's securities. All such shares shall be
subject to a right of first refusal held, initially, by the Company and,
secondarily if the Company does not exercise its right, by the Holders, pro rata
in proportion to the number of shares of Preferred Stock and Conversion Stock
held by each.
10. TERMINATION OF COVENANTS. The covenants set forth in Sections 6, 7,
------------------------
8, 9 and 13 shall terminate and be of no further force or effect upon the
consummation of a firm commitment underwritten public offering or at such time
as the Company (or if the Company is acquired, the survivor) is required to file
reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934,
as amended, whichever shall occur first.
11. STANDOFF AGREEMENT. In connection with the initial public offering of
------------------
the Company's securities, each Investor and Holder agrees, upon request of the
Company or the underwriters managing any underwritten offering of the Company's
securities, not to sell, make any short sale of, loan, grant any option for the
purchase of, or otherwise dispose of any securities of the Company (other than
those included in the registration) without the prior written consent of the
Company or such underwriters, as the case may be, for such period of time (not
to exceed one hundred eighty (180) days) from the effective date of such
registration, as may be requested by the underwriters, provided that all
officers and directors of the Company who own stock of, or hold options to
purchase stock of, the Company and all other persons who hold one percent (1%)
or more of the then outstanding capital stock of the Company also agree to such
restrictions. The Investors and Holders agree that the Company may instruct its
transfer agent to place stop-transfer notations in its records to enforce the
provisions of this Section 11.
12. DETERMINATION OF SHARE AMOUNTS AND PERCENTAGES. For the purpose of
----------------------------------------------
determining the minimum holdings set forth in this Agreement, including without
limitation the minimum holdings pursuant to Sections 5.10, 6(b), 7(a) and 15(b),
the following rules shall govern:
-17-
12.1 All shares held by entities affiliated with the holder shall be
deemed held by such holder, and any holder which is a partnership shall be
deemed to hold any shares of Preferred Stock and/or Conversion Stock originally
purchased by such holder and subsequently distributed to partners of such
holder, but which have not been resold by such partners.
12.2 When shares of Preferred Stock are counted together with shares
of Conversion Stock or shares of Common Stock, shares of Preferred Stock shall
be counted on an as converted into Common Stock basis, and the term "CONVERSION
STOCK" shall mean only the shares of Common Stock which have been issued
pursuant to conversion of Preferred Stock.
13. CERTAIN TRANSACTIONS. The Company shall not enter into any: (i)
--------------------
material agreement or transaction with any affiliate of the Company (as defined
in Rule 144 promulgated under the Securities Act), other than a Series A
Investor under the Series A Purchase Agreement, a Series B Investor under the
Series B Purchase Agreement, or a Series C Investor under the Series C Purchase
Agreement; (ii) sale or exclusive license, to any third party, of any
intellectual property material to the Company; or (iii) repurchase of its Common
Stock above cost, unless the Company, in addition to all consents and approvals
that may be required by the Company's Bylaws and Restated Articles, also obtains
the approval of a majority of the members of the Board of Directors of the
Company who have been elected by the holders of Preferred Stock (either as a
single class or together with the holders of Common Stock).
14. YEAR 2000 COMPUTER ISSUES. The Company will use all commercially
-------------------------
reasonable efforts: (a) to assure that any software, hardware, or firmware
product, including, without limitation, embedded microcontrollers ("COMPUTER
SYSTEMS") it currently uses and will use in the future are Year 2000 Compliant;
and (b) to seek assurances that the Computer Systems of third parties on which
the Company's business is dependent or with which the Company has a significant
business relationship (including, without limitation, vendors, service
providers, landlords, and strategic relationship co-parties) are Year 2000
Compliant (and take appropriate action if any Computer Systems of such third
parties may not be Year 2000 Compliant), except to the extent that the failure
of any such Computer Systems to be Year 2000 Compliant would not have a material
adverse affect on the Company or its business, financial condition or prospects.
For purposes of this Section 14, "YEAR 2000 COMPLIANT" shall mean that the
applicable Computer System accurately processes date/time data, including, but
not limited to, recording, storing, calculating, functioning, operating,
sorting, comparing, and presenting calendar dates (including Leap Year dates and
dates that may also be interpreted as so-called "magic numbers", such as "9999"
instead of September 9, 1999) falling before, on, during and after (and, if
applicable, spans of time including) January 1, 2000. "YEAR 2000 COMPLIANT"
shall also mean that the applicable Computer System will process any information
depending on or relating to such dates without loss of functionality, data
integrity, or performance.
15. AMENDMENT.
---------
15.1 Any provision of Section 5 of this Agreement may be amended or
the observance thereof may be 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 a
-18-
majority of the Registrable Securities then outstanding or deemed to be
outstanding. Any amendment or waiver effected in accordance with this Section
15(a) shall be binding upon each Investor and each Holder of Registrable
Securities at the time outstanding or deemed to be outstanding (including
securities into which such securities are convertible), each future holder of
all such securities, and the Company.
15.2 Except as expressly provided herein, no other Section of this
Agreement may be amended, waived, discharged or terminated other than by a
written instrument signed by the party against whom enforcement of any such
amendment, waiver, discharge or termination is sought; provided, however, that
-------- -------
holders of a majority of the Preferred Stock and Conversion Stock may, with the
Company's prior written consent, waive, modify or amend on behalf of all holders
any provisions hereof so long as the effect thereof will be that all such
persons will be treated in the same manner.
15.3 Notwithstanding the foregoing, any party who becomes a party to
the Series C Purchase Agreement as a "PURCHASER" pursuant to Section 2.2 of the
Series C Purchase Agreement shall become a party to this Agreement, as an
Investor hereunder, by signing a signature page to this Agreement, without the
need for any further consents, approval or signature of any party to this
Agreement.
16. GOVERNING LAW. This Agreement and the legal relations between the
-------------
parties arising hereunder shall be governed by and interpreted in accordance
with the laws of the State of California. The parties hereto agree to submit to
the jurisdiction of the federal and state courts of the State of California with
respect to the breach or interpretation of this Agreement or the enforcement of
any and all rights, duties, liabilities, obligations, powers, and other
relations between the parties arising under this Agreement.
17. ENTIRE AGREEMENT. This Agreement constitutes the full and entire
----------------
understanding and agreement between the parties regarding the matters set forth
herein and supersedes the Prior Rights Agreement in its entirety. Except as
otherwise expressly provided herein, the provisions hereof shall inure to the
benefit of, and be binding upon the successors, assigns, heirs, executors and
administrators of the parties hereto.
18. NOTICES, ETC. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified twenty-four (24) hours after
confirmed transmission of a facsimile, one (1) business day after deposit with a
recognized overnight courier and four (4) business days after deposit in the
U.S. mail, certified or registered, return receipt requested, addressed: (a) if
to an Investor, at such Investor's address as set forth in Exhibit A attached
---------
hereto, or at such other address as such Investor shall have furnished to the
Company in writing in accordance with this Section 20, with a copy to special
counsel to the Investors; (b) if to any other holder of Preferred Stock or
Conversion Stock, at such address as such holder shall have furnished to the
Company in writing in accordance with this Section 18, or, until any such holder
so furnishes an address to the Company, then to and at the address of the last
holder thereof who has so furnished an address to the Company; or (c) if to the
-19-
Company, at its principal office with a copy to ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇▇, ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇, ▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇, Attn: ▇▇▇▇ ▇. ▇▇▇▇▇, Esq.
19. COUNTERPARTS. This Agreement may be executed in any number of
------------
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
20. ATTORNEY'S FEES. In the event of any action to enforce any of the
---------------
terms of this Agreement, the prevailing party shall be entitled to reimbursement
from the non-prevailing party of its costs and expenses (including reasonable
attorney's fees) incurred in connection therewith, in addition to all other
remedies and relief to which such prevailing party is entitled.
-20-
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly
executed and delivered as of the day and year first written above.
The Company: LIQUID AUDIO, INC.
By:_________________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇, President
The Investors: INVESTOR:
By:_________________________________________
(signature)
Name:_______________________________________
(please print)
Title:______________________________________
(if applicable)
[LIQUID AUDIO, INC. - SECOND AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT]
-21-
EXHIBIT A
SCHEDULE OF INVESTORS
---------------------
Series A Series B Series C
For Notices: Preferred Preferred Preferred
Name of Investor Send Copies To: Shares Shares Shares
------------------------------------------- ----------------------------- --------------- --------------- ---------------
Intel Corporation Intel Corporation 763,398 612,245 1,140,065
▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇. ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇.
▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇ ▇▇▇▇▇▇ Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇ Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Metromedia Company ▇▇▇▇▇ & Company -- -- 977,198
▇ ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ ▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Attn: ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Attn: ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Fax: (▇▇▇) ▇▇▇-▇▇▇▇
Vulcan Ventures, Inc. -- 510,204 488,599
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Attn: ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇
MediaOne Interactive Services, Inc. MediaOne Group -- -- 325,732
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The Phoenix Partners III -- 318,878 81,433
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The Phoenix Partners IV -- 318,878 81,433
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Presidio Venture Partners, LLC -- -- 130,293
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Sumitomo Corporation -- -- 32,573
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Attn: ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
Series A Series B Series C
For Notices: Preferred Preferred Preferred
Name of Investor Send Copies To: Shares Shares Shares
------------------------------------------- ----------------------------- --------------- --------------- ---------------
Trans Cosmos USA, Inc. -- -- 162,866
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Hummer Winblad Venture Partners II, LP 1,756,098 757,370 80,943
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Hummer Winblad Technology Fund II, LP 62,198 26,825 --
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Hummer Winblad Technology Fund IIA, LP 10,976 4,733 488
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WS Investment Company 98A -- -- 3,867
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
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▇▇. ▇▇▇▇▇▇▇▇ ▇▇▇▇ -- -- 1,628
c/o Numerical Technologies
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▇▇▇▇ ▇. ▇▇▇▇▇ -- -- 204
c/o ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇▇
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Itochu Corporation -- 459,183 --
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Itochu Technology, Inc. -- 51,021 --
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▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ 205,800 -- --
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-2-
Series A Series B Series C
For Notices: Preferred Preferred Preferred
Name of Investor Send Copies To: Shares Shares Shares
------------------------------------------- ----------------------------- --------------- --------------- ---------------
▇▇▇▇▇▇▇ ▇▇▇▇▇ 152,438 -- --
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Platinum Venture Partners II, L.P. -- 127,551 --
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▇▇▇▇▇ ▇▇▇▇ 76,218 -- --
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F&W Investments 1996 22,863 -- --
c/o Fenwick & West LLP
Two ▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
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No. of Shares of No. of Shares of
Series B Preferred Series C Preferred
Stock issuable upon Stock issuable upon
exercise of Series B exercise of Series C
Warrant Holders Warrants Warrants
------------------------------------------------------- ---------------------------- -----------------------------
Silicon Valley Bank 15,306 4,544
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N2K, Inc. -- 48,859
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