EXHIBIT 4.01
INVESTORS RIGHTS AGREEMENT
This Investors Rights Agreement (this "Agreement") is made and entered into
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as of September 12, 1996 by and among ONSALE, a California corporation (the
"Company"), the Investors listed in Schedule 1 hereto (each, an "Investor" and
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collectively the "Investors"), S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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(collectively, the "Shareholders").
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R E C I T A L S
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A. The Investors have agreed to purchase from the Company, and the Company
has agreed to sell to the Investors, shares of the Company's Series A Preferred
Stock ("Series A Stock"), and a certain investor has agreed to purchase from the
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Company, and the Company has agreed to sell to such Investor, a call option to
purchase shares of the Company's Series B Preferred Stock ("Series B Stock")
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(the "Call Options"), all on the terms and conditions set forth in that certain
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Stock and Call Option Purchase Agreement, dated of even date herewith by and
between the Company and the Investors (the "Purchase Agreement"). The Series A
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Stock and the Series B Stock will be collectively hereinafter referred to as the
"Preferred Stock".
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B. The Purchase Agreement provides that the Investors shall be granted
certain information and registration rights and rights of first refusal, all as
more fully set forth herein.
NOW, THEREFORE, in consideration of the foregoing recitals and the mutual
promises hereinafter set forth, the parties hereto agree as follows:
1. INFORMATION RIGHTS.
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1.1 Financial Information. The Company covenants and agrees that,
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commencing on the date of this Agreement, for so long as an Investor holds any
shares of Preferred Stock issued under the Purchase Agreement or the Call
Option, or shares of Common Stock of the Company ("Common Stock") issued upon
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the conversion of such shares of Preferred Stock ("Conversion Stock") the
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Company will:
(a) Annual Reports. Furnish to the Investor, as soon as
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practicable and in any event within 90 days after the end of each fiscal year of
the Company, a consolidated Balance Sheet as of the end of such fiscal year, a
consolidated Statement of Income and a consolidated Statement of Cash Flows of
the Company and its subsidiaries for such year, setting forth in each case in
comparative form the figures from the Company's previous fiscal year (if any),
all prepared in accordance with generally accepted accounting principles and
practices and audited by nationally recognized independent certified public
accountants;
(b) Quarterly Reports. Furnish to the Investor as soon as
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practicable, and in any case within forty-five (45) days of the end of each
fiscal quarter of the Company (except the last quarter of the Company's fiscal
year), quarterly unaudited financial statements, including an unaudited Balance
Sheet and an unaudited Statement of Income;
(c) Monthly Reports. Provided an Investor holds at least 100,000
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shares of Preferred Stock issued under the Purchase Agreement, the Call Option
and/or the equivalent number (on an as-converted basis) of shares of Conversion
Stock, furnish to the Investor as soon as practicable, and in any case within
forty-five (45) days of the end of each calendar month (except the last month of
the Company's fiscal year), monthly unaudited financial statements, including
and an unaudited Balance Sheet an unaudited Statement of Income; and
(d) Annual Budget. Provided an Investor holds at least 100,000
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shares of Preferred Stock issued under the Purchase Agreement, the Call Option
and/or the equivalent number (on an as-converted basis) of shares of Conversion
Stock, furnish to the Investor as soon as practicable and in any event no later
than thirty (30) days after the close of each fiscal year of the Company, an
annual operating plan and budget, prepared on a monthly basis, for the next
immediate fiscal year. The Company shall also furnish to such Investor, within a
reasonable time of its preparation, amendments to the annual budget, if any.
(e) Confidentiality. Each Investor agrees to hold all
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information received pursuant to this Section in confidence, and not to use or
disclose any of such information to any third party, except to the extent such
information may be made publicly available by the Company.
1.2 Inspection Rights. Provided an Investor holds at least 100,000
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shares of Preferred Stock issued under the Purchase Agreement and/or the
equivalent number (on an as-converted basis) of shares of Conversion Stock, the
Company shall permit the Investor, at such Investor's expense, to visit and
inspect the Company's properties, to examine its books of account and records
and to discuss the Company's affairs, finances and accounts with its officers,
all at such reasonable times as may be requested by such Investor. Each
Investor agrees to hold all information received from such inspections in
confidence, and not to use or disclose any of such information to any third
party, except to the extent such information may be made publicly available by
the Company.
1.3 Termination of Certain Rights. The Company's obligations under
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Sections 1.1 and 1.2 above will terminate upon the closing of the Company's
initial public offering of Common Stock pursuant to an effective registration
statement filed under the U.S. Securities Act of 1933, as amended (the
"Securities Act").
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2. REGISTRATION RIGHTS.
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2.1 Definitions. For purposes of this Section 2:
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(a) Registration. The terms "register," "registered," and
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"registration" refer to a registration effected by preparing and filing a
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registration statement in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement.
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(b) Registrable Securities. The term "Registrable Securities" means:
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(1) all the shares of Common Stock of the Company issued or issuable upon the
conversion of any shares of Preferred Stock issued under the Purchase Agreement
or the Call Option, provided, however, any such shares issued under the Call
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Option shall not be deemed Registrable Securities for purposes of Section 3, (2)
any shares of Common Stock of the Company issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of, all such shares of Common Stock described in clause (1) of this
subsection (b) and (3) for purposes of Section 2.3 only, any shares of Common
Stock of the Company issued at any time to each of S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇, ▇▇▇▇
▇▇▇▇▇▇, ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (collectively, the "Shareholders' Shares"); excluding in
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all cases, however, any Registrable Securities sold by a person in a transaction
in which rights under this Section 2 are not assigned in accordance with this
Agreement or any Registrable Securities sold to the public or sold pursuant to
Rule 144 promulgated under the Securities Act.
(c) Registrable Securities Then Outstanding. The number of shares of
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"Registrable Securities then outstanding" shall mean the number of shares of
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Common Stock which are Registrable Securities and (1) are then issued and
outstanding or (2) are then issuable pursuant to the exercise or conversion of
then outstanding and then exercisable options, warrants or convertible
securities.
(d) Holder. For purposes of this Section 2 and Sections 3 and 4
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hereof, the term "Holder" means any person owning of record Registrable
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Securities that have not been sold to the public or pursuant to Rule 144
promulgated under the Securities Act or any assignee of record of such
Registrable Securities to whom rights under this Section 2 have been duly
assigned in accordance with this Agreement; provided, however, that for purposes
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of this Agreement, a record holder of shares of Preferred Stock convertible into
such Registrable Securities shall be deemed to be the Holder of such Registrable
Securities; and provided, further, that the Company shall in no event be
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obligated to register shares of Preferred Stock and that Holders of Registrable
Securities will not be required to convert their shares of Preferred Stock into
Common Stock in order to exercise the registration rights granted hereunder,
until immediately before the closing of the offering to which the registration
relates.
(e) Form S-3. The term "Form S-3" means such form under the
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Securities Act as is in effect on the date hereof or any successor 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.
(f) SEC. The term "SEC" or "Commission" means the U.S. Securities
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and Exchange Commission.
2.2 Demand Registration.
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(a) Request by Holders. If the Company shall receive at any time
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after the later of (i) September __, 1998, or (ii) six (6) months after the
effective date of the Company's initial public offering of its securities
pursuant to a registration filed under the
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Securities Act, a written request from the Holders of at least 50% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration of Registrable
Securities pursuant to this Section 2.2, then the Company shall, within ten (10)
business days of the receipt of such written request, give written notice of
such request ("Request Notice") to all Holders, and effect, as soon as
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practicable, the registration under the Securities Act of all Registrable
Securities which Holders request to be registered and included in such
registration by written notice given by such Holders to the Company within
twenty (20) days after receipt of the Request Notice, subject only to the
limitations of this Section 2.2; provided that the Registrable Securities
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requested by all Holders to be registered pursuant to such request must either
(i) be at least fifty percent (50%) of all Registrable Securities then
outstanding or (ii) have an anticipated aggregate public offering price (before
any underwriting discounts and commissions) of not less than $10,000,000.
(b) Underwriting. If the Holders initiating the registration request
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under this Section 2.2 ("Initiating Holders") intend to distribute the
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Registrable Securities covered by their request by means of an underwriting,
then they shall so advise the Company as a part of their request made pursuant
to this Section 2.2 and the Company shall include such information in the
written notice referred to in subsection 2.2(a). In such event, the right of
any Holder to include its 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 enter into an
underwriting agreement in customary form with the managing underwriter or
underwriters selected for such underwriting by the Holders with the consent of
the Company, which will not be unreasonably withheld. Notwithstanding any other
provision of this Section 2.2, if the underwriter(s) advise(s) the Company in
writing that marketing factors require a limitation of the number of securities
to be underwritten then the Company shall so advise all Holders of Registrable
Securities which would otherwise be registered and underwritten pursuant hereto,
and the number of Registrable Securities that may be included in the
underwriting shall be reduced as required by the underwriter(s) and allocated
among the Holders of Registrable Securities on a pro rata basis according to the
number of Registrable Securities then outstanding held by each Holder requesting
registration (including the Initiating Holders); provided, however, that the
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number of shares of 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. Any
Registrable Securities excluded and withdrawn from such underwriting shall be
withdrawn from the registration.
(c) Maximum Number of Demand Registrations. The Company is obligated
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to effect only two (2) such registrations pursuant to this Section 2.2.
(d) Deferral. Notwithstanding the foregoing, if the Company shall
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furnish to Holders requesting the filing of a registration statement pursuant to
this Section 2.2, a certificate signed by the President or Chief Executive
Officer of the Company stating that in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and
its shareholders for such registration statement to be filed and it is therefore
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essential to defer the filing of such registration statement, then the Company
shall have the right to defer such filing for a period of not more than 90 days
after receipt of the request of the Initiating Holders; provided, however, that
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the Company may not utilize this right more than once in any twelve (12) month
period.
(e) Expenses. All expenses incurred in connection with a registration
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pursuant to this Section 2.2, including without limitation all registration and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, (but excluding underwriters' discounts and
commissions), shall be borne by the Company. Each Holder participating in a
registration pursuant to this Section 2.2 shall bear such Holder's proportionate
share (based on the total number of shares sold in such registration other than
for the account of the Company) of all discounts, commissions or other amounts
payable to underwriters or brokers in connection with such offering and the fees
and disbursements of any counsel for the participating Holders. Notwithstanding
the foregoing, the Company shall not be required to pay for any expenses of any
registration proceeding begun pursuant to this Section 2.2 if the registration
request is subsequently withdrawn at the request of the Holders of a majority of
the Registrable Securities to be registered, unless the Holders of a majority of
the Registrable Securities then outstanding agree to forfeit their right to one
(1) demand registration pursuant to this Section 2.2 (in which case such right
shall be forfeited by all Holders of Registrable Securities); provided, further,
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however, that if at the time of such withdrawal, the Holders have learned of a
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material adverse change in the condition, business, or prospects of the Company
not known to the Holders at the time of their request for such registration and
have withdrawn their request for registration with reasonable promptness after
learning of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to this
Section 2.2.
2.3 Piggyback Registrations. The Company shall notify all Holders of
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Registrable Securities in writing at least thirty (30) days prior to filing any
registration statement under the Securities Act for purposes of effecting a
public offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to any registration
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under Section 2.2 or Section 2.4 of this Agreement or to any employee benefit
plan or a corporate reorganization) and will afford each such Holder an
opportunity to include in such registration statement all or any part of the
Registrable Securities then held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by such Holder shall, within twenty (20) days after receipt of
the above-described notice from the Company, so notify the Company in writing,
and in such notice shall inform the Company of the number of Registrable
Securities such Holder wishes to include in such registration statement. If a
Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If a registration statement under which the Company
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gives notice under this Section 2.3 is for an underwritten offering, then the
Company
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shall so advise the Holders of Registrable Securities. In such event,
the right of any such Holder's Registrable Securities to be included in a
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their Registrable Securities through such
underwriting shall enter into an underwriting agreement in customary form with
the managing underwriter or underwriter(s) selected for such underwriting.
Notwithstanding any other provision of this Agreement, if the managing
underwriter determine(s) in good faith that marketing factors require a
limitation of the number of shares to be underwritten, then the managing
underwriter(s) may exclude shares (including Registrable Securities) from the
registration and the underwriting, and the number of shares that may be included
in the registration and the underwriting shall be allocated, first, to the
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Company, second, to each of the Investors requesting inclusion of their
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Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Investor,
and third, to each of the other Holders requesting inclusion of their
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Registrable Securities in such registration statement on a pro rata basis based
on the total number of Registrable Securities then held by each such Holder,
provided however, that the right of the underwriters to exclude shares
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(including Registrable Securities) from the registration and underwriting as
described above shall be restricted so that the number of Registrable Securities
included in any such registration is not reduced below twenty-five percent (25%)
of the shares included in the registration, except for a registration relating
to the Company's initial public offering from which all Registrable Securities
may be excluded. If any Holder disapproves of the terms of any such
underwriting, such Holder may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior
to the effective date of the registration statement. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded and withdrawn
from the registration. For any Holder which is a partnership or corporation,
the partners, retired partners and shareholders of such Holder, or the estates
and family members of any such partners and retired partners and any trusts for
the benefit of any of the foregoing persons shall be deemed to be a single
"Holder", and any pro rata reduction with respect to such "Holder" shall be
based upon the aggregate amount of shares carrying registration rights owned by
all entities and individuals included in such "Holder", as defined in this
sentence.
(b) Expenses. All expenses incurred in connection with a
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registration pursuant to this Section 2.3 (excluding underwriters' and brokers'
discounts and commissions), including, without limitation all federal and "blue
sky" registration and qualification fees, printers' and accounting fees, fees
and disbursements of counsel for the Company shall be borne by the Company.
2.4 Form S-3 Registration. In case the Company shall receive from
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any Holder or Holders of Registrable Securities 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, then the Company will:
(a) Notice. Promptly give written notice of the proposed
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registration and the Holder's or Holders' request therefor, and any related
qualification or compliance, to all other Holders of Registrable Securities; and
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(b) Registration. As soon as practicable, effect such
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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 twenty (20) days after receipt of such written
notice from the Company; provided, however, that the Company shall not be
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obligated to effect any such registration, qualification or compliance pursuant
to this Section 2.4:
(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 of less than $250,000;
(3) if the Company shall furnish to the Holders a certificate
signed by the President or Chief Executive Officer of the Company stating that
in the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement no more
than once during any twelve month period for a period of not more than 90 days
after receipt of the request of the Holder or Holders under this Section 2.4;
(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 2.4; 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.
(c) Expenses. Subject to the foregoing, the Company shall file
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a Form S-3 registration statement covering the Registrable Securities and other
securities so requested to be registered pursuant to this Section 2.4 as soon as
practicable after receipt of the request or requests of the Holders for such
registration. The Company shall pay all expenses incurred in connection with
each registration requested pursuant to this Section 2.4 (excluding
underwriters' or brokers' discounts and commissions), including without
limitation all filing, registration and qualification, printers' and accounting
fees, and counsel for the Company.
(d) Not Demand Registration. Form S-3 registrations shall not be
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deemed to be demand registrations as described in Section 2.2 above.
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2.5 Obligations of the Company. Whenever required to effect the
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registration of any Registrable Securities under this Agreement, 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 up to ninety (90) days.
(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 number 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 the Registrable
Securities owned by them that are included in such registration.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders,
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter(s) 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) 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 becomes 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
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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.
2.6 Furnish Information. It shall be a condition precedent to the
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obligations of the Company to take any action pursuant to Sections 2.2, 2.3 or
2.4 that the selling Holders shall furnish to the Company such information
regarding themselves, the Registrable Securities held by them, and the intended
method of disposition of such securities as shall be required to timely effect
the registration of their Registrable Securities.
2.7 Delay of Registration. No Holder shall have any right to obtain
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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 2.
2.8 Indemnification. In the event any Registrable Securities are
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included in a registration statement under Sections 2.2, 2.3 or 2.4:
(a) By the Company. To the extent permitted by law, the
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Company will indemnify and hold harmless each Holder, the partners, officers and
directors of each Holder, any underwriter (as defined in the Securities Act) for
such Holder and each person, if any, who controls such Holder or underwriter
within the meaning of the Securities Act or the Securities Exchange Act of 1934,
as amended, (the "1934 Act"), against any losses, claims, damages, or
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liabilities (joint or several) to which they may become subject under the
Securities Act, the l934 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"):
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(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 make
the statements therein not misleading, or
(iii) any violation or alleged violation by the Company of
the Securities Act, the 1934 Act, any federal or state securities
law or any rule or regulation promulgated under the Securities
Act, the 1934 Act or any federal or state securities law in
connection with the offering covered by such registration
statement;
and the Company will reimburse each such Holder, partner, officer or director,
underwriter or controlling person for any legal or other expenses reasonably
incurred by them, as incurred, in
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connection with investigating or defending any such loss, claim, damage,
liability or action; provided however, that the indemnity agreement contained in
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this subsection 2.8(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, partner, officer, director, underwriter or controlling person of
such Holder.
(b) By Selling Holders. To the extent permitted by law, each
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selling Holder will indemnify and hold harmless the Company, each of its
directors, each of its officers who have signed the registration statement, each
person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter and any other Holder selling securities under such
registration statement or any of such other Holder's partners, directors or
officers or any person who controls such Holder within the meaning of the
Securities Act or the 1934 Act, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, partner or
director, officer or controlling person of such other Holder 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 reimburse any
legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, partner, officer,
director or controlling person of such other Holder in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided, however, that the indemnity agreement contained in this subsection
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2.8(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; and provided
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further, that the total amounts payable in indemnity by a Holder under this
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Section 2.8(b) in respect of any Violation shall not exceed the net proceeds
received by such Holder in the registered offering out of which such Violation
arises.
(c) Notice. Promptly after receipt by an indemnified party
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under this Section 2.8 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 2.8,
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 shall
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have the right to retain its own 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 conflict of 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
-10-
a reasonable time of the commencement of any such action, if prejudicial to its
ability to defend such action, shall relieve such indemnifying party of any
liability to the indemnified party under this Section 2.8, 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 2.8.
(d) Defect Eliminated in Final Prospectus. The foregoing
-------------------------------------
indemnity agreements of the Company and Holders are subject to the condition
that, insofar as they relate to any Violation made in a preliminary prospectus
but eliminated or remedied in the amended prospectus on file with the SEC at the
time the registration statement in question becomes effective or the amended
prospectus filed with the SEC pursuant to SEC Rule 424(b) (the "Final
-----
Prospectus), such indemnity agreement shall not inure to the benefit of any
----------
person if a copy of the Final Prospectus was furnished to the indemnified party
and 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.
(e) Contribution. In order to provide for just and equitable
------------
contribution to joint liability under the Securities Act in any case in which
either (i) any Holder exercising rights under this Agreement, or any controlling
person of any such Holder, makes a claim for indemnification pursuant to this
Section 2.8 but it is judicially determined (by the entry of a final judgment or
decree by a court of competent jurisdiction and the expiration of time to appeal
or the denial of the last right of appeal) that such indemnification may not be
enforced in such case notwithstanding the fact that this Section 2.8 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.8; then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion so that such Holder
is responsible for the portion represented by the percentage that the public
offering price of its Registrable Securities offered by and sold under the
registration statement bears to the public offering price of all securities
offered by and sold under such registration statement, and the Company and other
selling Holders are responsible for the remaining portion; provided, however,
-------- -------
that, in any such case, (A) 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 (B)
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.
(f) Survival. The obligations of the Company and Holders under
--------
this Section 2.8 shall survive the completion of any offering of Registrable
Securities in a registration statement, and otherwise.
2.9 "Market Stand-Off" Agreement. Each Holder hereby agrees that it
---------------------------
shall not, to the extent requested by the Company or an underwriter of
securities of the Company, sell or otherwise transfer or dispose of any
Registrable Securities or other shares of stock of the Company then owned by
such Holder (other than to donees or partners of the Holder who agree
-11-
to be similarly bound) for up to one hundred eighty (180) days following the
effective date of a registration statement of the Company filed under the
Securities Act; provided, however, that:
-------- -------
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers securities to be sold on its
behalf to the public in an underwritten offering but not to Registrable
Securities sold pursuant to such registration statement; and
(b) all officers and directors of the Company then holding
Common Stock of the Company and all persons and entities each holding in excess
of one percent 1% of the then outstanding shares of the Company's Common Stock
enter into similar agreements.
In order to enforce the foregoing covenant, the Company shall have the
right to place restrictive legends on the certificates representing the shares
subject to this Section and to impose stop transfer instructions with respect to
the Registrable Securities and such other shares of stock of each Holder (and
the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.10 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 Registrable 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:
(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 of the first registration under the Securities Act
filed by the Company for an offering of its securities to the general public;
(b) Use its best efforts to file with the Commission in a timely
manner all reports and other documents required of the Company under the
Securities Act and the 1934 Act (at any time after it has become subject to such
reporting requirements); and
(c) So long as a Holder owns any Registrable Securities, to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after 90 days after 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 1934 Act (at any time after it has become
subject to the reporting requirements of the 1934 Act), a copy of the most
recent annual or quarterly report of the Company, and such other reports and
documents of the Company as a Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration (at any time after the Company has become
subject to the reporting requirements of the 1934 Act).
2.11 Termination of the Company's Obligations. The Company shall
----------------------------------------
have no obligations pursuant to Sections 2.2 through 2.4 with respect to: (i)
any request or requests for registration made by any Holder on a date more than
six (6) years after the closing date of the
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Company's initial public offering; or (ii) any Registrable Securities proposed
to be sold by a Holder in a registration pursuant to Section 2.2, 2.3 or 2.4 if,
in the opinion of counsel to the Company, all such Registrable Securities
proposed to be sold by a Holder may be sold in a three-month period without
registration under the Securities Act pursuant to Rule 144 under the Securities
Act.
3. RIGHT OF FIRST REFUSAL.
----------------------
3.1 General. Each Holder (as defined in Section 2.1(d)) and any
-------
party to whom such Holder's rights under this Section 3 have been duly assigned
in accordance with Section 4.1(b) (each such Holder or assignee being
hereinafter referred to as a "Rights Holder") has the right of first refusal to
-------------
purchase such Rights Holder's Pro Rata Share (as defined below), of all (or any
part) of any "New Securities" (as defined in Section 3.2) that the Company may
from time to time issue after the date of this Agreement. A Rights Holder's
"Pro Rata Share" for purposes of this right of first refusal is the ratio of (a)
---------------
the number of Registrable Securities as to which such Rights Holder is the
Holder (and/or is deemed to be the Holder under Section 2.1(d)), to (b) a number
of shares of Common Stock of the Company equal to the sum of (i) the total
number of shares of Common Stock of the Company then outstanding plus (ii) the
total number of shares of Common Stock of the Company into which all then
outstanding shares of Preferred Stock of the Company are then convertible plus
(iii) the number of shares of Common Stock of the Company reserved for issuance
under stock purchase and stock option plans of the Company and outstanding
warrants and options.
3.2 New Securities. "New Securities" shall mean any Common Stock or
-------------- --------------
Preferred Stock of the Company, whether now authorized or not, and rights,
options or warrants to purchase such Common Stock or Preferred Stock, and
securities of any type whatsoever that are, or may become, convertible or
exchangeable into such Common Stock or Preferred Stock; provided, however, that
-------- -------
the term "New Securities" does not include:
---- --- -------
(i) any shares of the Company's Common Stock (and/or options or
warrants therefor) issued or issuable to employees, officers, directors,
contractors, advisors or consultants of the Company pursuant to incentive
agreements or plans approved by the Board of Directors of the Company;
(ii) any shares of Preferred Stock issued under the Purchase
Agreement as such agreement may be amended.
(iii) any securities issuable upon conversion of or with respect
to any then outstanding shares of Preferred Stock of the Company or Common Stock
or other securities issuable upon conversion thereof;
(iv) any securities issuable upon exercise of any options,
warrants or rights to purchase any securities of the Company outstanding on the
date of this Agreement, including securities issuable upon exercise of the Call
Option ("Warrant Securities") and any securities issuable upon the conversion of
------------------
any Warrant Securities;
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(v) shares of the Company's Common Stock or Preferred Stock
issued in connection with any stock split or stock dividend;
(vi) securities offered by the Company to the public pursuant to
a registration statement filed under the Securities Act;
(vii) any shares of the Company's stock (and/or options or
warrants therefor) issued or issuable to employees, directors, consultants, or
other parties pursuant to contracts or other arrangements that are approved by
the Board of Directors of the Company;
(viii) any shares of the Company's stock (and/or options or
warrants therefor) issued or issuable to banks, equipment leasing organizations
or similar entities pursuant to any transaction in which the Company borrows
money or anything else of value; or
(ix) securities issued pursuant to the acquisition of another
corporation or entity by the Company by consolidation, merger, purchase of all
or substantially all of the assets, or other reorganization in which the Company
acquires, in a single transaction or series of related transactions, all or
substantially all of the assets of such other corporation or entity or fifty
percent (50%) or more of the voting power of such other corporation or entity or
fifty percent (50%) or more of the equity ownership of such other entity.
3.3 Procedures. In the event that the Company proposes to undertake
----------
an issuance of New Securities, it shall give to each Rights Holder written
notice of its intention to issue New Securities (the "Notice"), describing the
------
type of New Securities and the price and the general terms upon which the
Company proposes to issue such New Securities. Each Rights Holder shall have
ten (10) days from the date of mailing of any such Notice to agree in writing to
purchase such Rights Holder's Pro Rata Share of such New Securities for the
price and upon the general terms specified in the Notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased (not to exceed such Rights Holder's Pro Rata Share). If any Rights
Holder fails to so agree in writing within such ten (10) day period to purchase
such Rights Holder's full Pro Rata Share of an offering of New Securities (a
"Nonpurchasing Holder"), then such Nonpurchasing Holder shall forfeit the right
---------------------
hereunder to purchase that part of his Pro Rata Share of such New Securities
that he did not so agree to purchase and the Company shall promptly give each
Rights Holder who has timely agreed to purchase his full Pro Rata Share of such
offering of New Securities (a "Purchasing Holder") written notice of the failure
-----------------
of any Nonpurchasing Holder to purchase such Nonpurchasing Rights Holder's full
Pro Rata Share of such offering of New Securities (the "Overallotment Notice").
--------------------
Each Purchasing Holder shall have a right of overallotment such that such
Purchasing Holder may agree to purchase a portion of the Nonpurchasing Holders'
unpurchased Pro Rata Shares of such offering on a pro rata basis according to
the relative Pro Rata Shares of the Purchasing Rights Holders, at any time
within five (5) days after receiving the Overallotment Notice.
3.4 Failure to Exercise. In the event that the Rights Holders fail
-------------------
to exercise in full the right of first refusal within such ten (10) plus five
(5) day period, then the Company shall have 90 days thereafter to sell the New
Securities with respect to which the Rights Holders' rights
-14-
of first refusal hereunder were not exercised, at a price and upon general terms
not materially more favorable to the purchasers thereof than specified in the
Company's Notice to the Rights Holders. In the event that the Company has not
issued and sold the New Securities within such 90 day period, then the Company
shall not thereafter issue or sell any New Securities without again first
offering such New Securities to the Rights Holders pursuant to this Section 3.
3.5 Termination. This right of first refusal shall terminate (i)
-----------
immediately before the closing of the first underwritten sale of Common Stock of
the Company to the public pursuant to a registration statement filed with, and
declared effective by, the SEC under the Securities Act, covering the offer and
sale of Common Stock to the public, or (ii) upon (a) the acquisition of all or
substantially all the assets of the Company or (b) an acquisition of the Company
by another corporation or entity by consolidation, merger or other
reorganization in which the holders of the Company's outstanding voting stock
immediately prior to such transaction own, immediately after such transaction,
securities representing less than fifty percent (50%) or more of the voting
power of the corporation or other entity surviving such transaction pursuant to
this Section 3.
4. ASSIGNMENT AND AMENDMENT.
------------------------
4.1 Assignment of Registration Rights. Notwithstanding anything
---------------------------------
herein to the contrary, the registration rights of a Holder under Section 2
hereof may be assigned only to (i) a party who acquires at least 100,000 shares
of Preferred Stock issued under the Purchase Agreement, the Call Option and/or
an equivalent number (on an as-converted basis) of Registrable Securities issued
upon conversion thereof, (ii) any partner or retired partner of any Holder which
is a partnership, or (iii) any family member or trust for the benefit of any
Holder who is an individual; provided, however that no party may be assigned any
-------- -------
of the foregoing rights unless the Company is given written notice by the
assigning party at the time of such assignment stating the name and address of
the assignee and identifying the securities of the Company as to which the
rights in question are being assigned; and provided further that any such
-------- -------
assignee shall receive such assigned rights subject to all the terms and
conditions of this Agreement, including without limitation the provisions of
this Section 4.
4.2 Amendment of Rights. Any provision of this Agreement may be
-------------------
amended and 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 Investors (and/or any of their permitted
successors or assigns) holding shares of Preferred Stock and/or Conversion Stock
representing and/or convertible into a majority of all the Investors' Shares (as
defined below), provided, however, that the piggyback registration rights
-------- -------
granted to the Shareholders under Section 2.3 of this Agreement may not be
eliminated or materially and adversely changed without the written consent of
persons holding a majority of the Shareholders' Shares; and provided, further,
-------- -------
that the grant to third parties of piggyback registration rights under Section
2.3 hereof on a pari passu basis with the piggyback registration rights of the
Shareholders' Shares under Section 2.3 shall not be deemed to be a material and
adverse change to the piggyback registration rights of the Shareholders under
this Agreement. As used herein, the term "Investors' Shares" shall mean the
-----------------
shares of Common Stock then issuable upon conversion of all then outstanding
shares of Preferred Stock issued under the Purchase
-15-
Agreement and the Call Option plus all then outstanding shares of Conversion
Stock that were issued upon the conversion of any shares of Preferred Stock
issued under the Purchase Agreement and the Call Option. Any amendment or waiver
effected in accordance with this Section 4.2 shall be binding upon the Investor,
each Holder, each permitted successor or assignee of the Investor or such Holder
and the Company.
5. GENERAL PROVISIONS.
------------------
5.1 Notices. Any notice, request or other communication required or
-------
permitted hereunder shall be in writing and shall be deemed to have been duly
given if personally delivered or if deposited in the U.S. mail by registered or
certified mail, return receipt requested, postage prepaid, as follows: if to the
Investor, at the address for such Investor indicated in Exhibit A hereto and if
---------
to the Company, at:
ONSALE
▇▇▇▇ ▇▇▇▇▇▇▇▇ ▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Phone: (▇▇▇) ▇▇▇-▇▇▇▇
Any party hereto (and such party's permitted assigns) may by notice so given
change its address for future notices hereunder. Notice shall conclusively be
deemed to have been given when personally delivered or when deposited in the
mail in the manner set forth above.
5.2 Entire Agreement. This Agreement, together with all the Exhibits
----------------
hereto, constitutes and contains the entire agreement and understanding of the
parties with respect to the subject matter hereof and supersedes any and all
prior negotiations, correspondence, agreements, understandings, duties or
obligations between the parties respecting the subject matter hereof.
5.3 Governing Law. This Agreement shall be governed by and construed
-------------
exclusively in accordance with the internal laws of the State of California as
applied to agreements among California residents entered into and to be
performed entirely within California, excluding that body of law relating to
conflicts of law and choice of law.
5.4 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, then such provision(s) shall be
excluded from this Agreement and the balance of this Agreement shall be
interpreted as if such provision(s) were so excluded and shall be enforceable in
accordance with its terms.
5.5 Third Parties. Nothing in this Agreement, express or implied, is
-------------
intended to confer upon any person, other than the parties hereto and their
successors and assigns, any rights or remedies under or by reason of this
Agreement.
5.6 Successors And Assigns. Subject to the provisions of Section
----------------------
4.1, the provisions of this Agreement shall inure to the benefit of, and shall
be binding upon, the successors and permitted assigns of the parties hereto.
-16-
5.7 Captions. The captions to sections of this Agreement have been
--------
inserted for identification and reference purposes only and shall not be used to
construe or interpret this Agreement.
5.8 Counterparts. This Agreement may be executed in counterparts,
------------
each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
5.9 Costs And Attorneys' Fees. In the event that any action, suit or
-------------------------
other proceeding is instituted concerning or arising out of this Agreement or
any transaction contemplated hereunder, the prevailing party shall recover all
of such party's costs and attorneys' fees incurred in each such action, suit or
other proceeding, including any and all appeals or petitions therefrom.
5.10 Adjustments for Stock Splits, Etc. Wherever in this Agreement
----------------------------------
there is a reference to a specific number of shares of Common Stock or Preferred
Stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock, the
specific number of shares so referenced in this Agreement shall automatically be
proportionally adjusted to reflect the affect on the outstanding shares of such
class or series of stock by such subdivision, combination or stock dividend.
5.11 Aggregation of Stock. All shares 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.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement as of
the date and year first above written.
THE COMPANY: INVESTOR:
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ONSALE ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ VIII
a California corporation ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Name: /s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ Name: /s/ L. ▇▇▇▇ ▇▇▇▇▇
---------------------------- ----------------------------
By: S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ By: L. ▇▇▇▇ ▇▇▇▇▇
---------------------------- ----------------------------
Title: President Title: Partner
---------------------------- ----------------------------
INVESTOR:
--------
KPCB Information Sciences Zaibatsu Fund II
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▇▇▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
Name: /s/ L. ▇▇▇▇ ▇▇▇▇▇
----------------------------
By: L. ▇▇▇▇ ▇▇▇▇▇
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Title: Partner
----------------------------
S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇: ▇▇▇▇ ▇▇▇▇▇▇:
----------------- -----------
/s/ S. ▇▇▇▇▇▇▇ ▇▇▇▇▇▇ /s/ ▇▇▇▇ ▇▇▇▇▇▇
---------------------------- ----------------------------
▇▇▇▇ ▇▇▇▇▇▇▇▇▇:
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/s/ ▇▇▇▇ ▇▇▇▇▇▇▇▇▇
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[SIGNATURE PAGE TO INVESTORS RIGHTS AGREEMENT]
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