EXHIBIT 4.2
_______________________________
INVESTORS' RIGHTS AGREEMENT
_______________________________
January 26, 1996
TABLE OF CONTENTS
-----------------
Page
----
1. Registration Rights............................................. 1
-------------------
1.1 Definitions............................................... 1
-----------
1.2 Request for Registration.................................. 2
------------------------
1.3 Company Registration...................................... 3
--------------------
1.4 Obligations of the Company................................ 4
--------------------------
1.5 Furnish Information....................................... 5
-------------------
1.6 Expenses of Demand Registration........................... 5
-------------------------------
1.7 Expenses of Company Registration.......................... 6
--------------------------------
1.8 Underwriting Requirements................................. 6
-------------------------
1.9 Delay of Registration..................................... 6
---------------------
1.10 Indemnification.......................................... 7
---------------
1.11 Reports Under Securities Exchange Act of 1934............ 8
---------------------------------------------
1.12 Form S-3 Registration.................................... 9
---------------------
1.13 Assignment of Registration Rights........................ 10
---------------------------------
1.14 Limitations on Subsequent Registration Rights............ 10
---------------------------------------------
1.15 Market Stand-Off Agreement............................... 10
--------------------------
1.16 Termination of Registration Rights....................... 11
----------------------------------
2. Covenants of the Company........................................ 11
------------------------
2.1 Delivery of Financial Statements.......................... 11
--------------------------------
2.2 Inspection................................................ 12
----------
2.3 Termination of Information and Inspection Covenants....... 12
---------------------------------------------------
2.4 Right of First Offer...................................... 12
--------------------
2.5 Key-Man Insurance......................................... 13
-----------------
2.6 Board Representation...................................... 14
--------------------
2.7 Positive Covenants........................................ 14
------------------
2.8 Negative Covenants........................................ 14
------------------
2.9 Termination of Certain Covenants.......................... 15
--------------------------------
3. Miscellaneous................................................... 15
-------------
3.1 Successors and Assigns.................................... 15
----------------------
3.2 Governing Law............................................. 15
-------------
3.3 Counterparts.............................................. 15
------------
3.4 Titles and Subtitles...................................... 15
--------------------
3.5 Notices................................................... 16
-------
3.6 Expenses.................................................. 16
--------
3.7 Amendments and Waivers.................................... 16
----------------------
3.8 Severability.............................................. 16
------------
3.9 Aggregation of Stock...................................... 16
--------------------
3.10 Entire Agreement; Amendment; Waiver...................... 16
-----------------------------------
Schedule A Schedule of Investors
i
EXHIBIT B
---------
INVESTORS' RIGHTS AGREEMENT
---------------------------
THIS INVESTORS' RIGHTS AGREEMENT is made as of the 26th day of
January, 1996, by and between ▇▇▇▇, ▇▇▇▇▇▇ & Associates, Inc., a California
corporation (the "Company"), ▇▇▇▇▇▇ ▇. ▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇▇▇ (the "Principal
Shareholders") and the investors listed on Schedule A hereto, each of which is
herein referred to as an "Investor."
RECITALS
--------
WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Series A
Agreement");
WHEREAS, in order to induce the Company to enter into the Series A
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Series A Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investor to cause the Company to
register shares of Common Stock issuable to the Investors and certain other
matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Registration Rights. The Company covenants and agrees as
-------------------
follows:
1.1 Definitions. For purposes of this Section 1:
-----------
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the 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.
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(e) The terms "register," "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
(f) The term "Registrable Securities" means (i) the Common Stock
issuable or issued upon conversion of the Series A Preferred Stock, (ii) the
shares of Common Stock issuable on exercise of the Warrants to Purchase Common
Stock dated January 30, 1996, (iii) with respect to Section 1.3, 1.4, 1.6, 1.7,
1.8, 1.10 and 1.11 only, the Common Stock of the Company held by the Principal
Shareholders and (iv) any Common Stock of the Company issued
1
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 the securities referenced in (i) and
(ii) above, excluding in all cases, however, any Registrable Securities sold by
a person in a transaction in which his rights under this Section 1 are not
assigned.
(g) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities which are, Registrable Securities.
(h) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
------------------------
(a) If the Company shall receive at any time after the earlier of (i)
January 30, 2000, or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Holders of a
majority of the Registrable Securities then outstanding that the Company file a
registration statement under the Act covering the registration of the
Registrable Securities then outstanding if the anticipated aggregate offering
price, net of underwriting discounts and commissions, would exceed $10,000,000,
then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) file as soon as practicable, and in any event within 120
days of the receipt of such request, a registration statement under the Act
relating to the sale of all Registrable Securities which the Holders request to
be registered, subject to the limitations of subsection 1.2(b).
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 1.2(a) and the Company
shall include such information in the written notice referred to in subsection
1.2(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. In such event,
the right of any Holder to include his Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
2
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 180 days after receipt
of the request of the Initiating Holders; provided, however, that the Company
may not utilize this right more than once in any twelve-month period.
(d) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected one registration pursuant to
this Section 1.2 and such registration has been declared or ordered effective;
(ii) During the period starting with the date thirty (30) days
prior to the Company's good faith estimate of the date of filing of, and ending
on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 1.3 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of shares of
Registrable Securities that may be immediately registered on Form S-3 pursuant
to a request made pursuant to Section 1.12 below.
1.3 Company Registration. If (but without any obligation to do so)
--------------------
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form which does not include substantially the same information as would
be required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder and each of the Principal Shareholders written notice of such
registration. Upon the written request of each Holder and each of the Principal
Shareholders given within twenty (20) days after mailing of such notice by the
Company in accordance with Section 3.5, the Company shall, subject to the
provisions of Section 1.8, cause to be registered under the Act first, all of
the Registrable Securities that each such Holder has requested to be registered
then, to the extent the manager's underwriter so allows, all of the Registrable
Securities that each such Principal Shareholder has requested to be registered.
3
1.4 Obligations of the Company. Whenever required under this
--------------------------
Section 1 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Act with respect to the disposition of all securities covered by such
registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Act.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter of such offering. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the 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
4
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(h) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration.
(i) Furnish, at the request of any Holder requesting registration of
Registrable Securities pursuant to this Section 1, on the date that such
Registrable Securities are delivered to the underwriters for sale in connection
with a registration pursuant to this Section 1, if such securities are being
sold through underwriters, or, if such securities are not being sold through
underwriters, on the date that the registration statement with respect to such
securities becomes effective, (i) an opinion, dated such date, of the counsel
representing the Company for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering (and given to the underwriters in such offering), addressed to the
underwriters, if any, and to the Holders requesting registration of Registrable
Securities and (ii) a letter dated such date, from the independent certified
public accountants of the Company, in form and substance as is customarily given
by independent certified public accountants to underwriters in an underwritten
public offering (and given to the underwriters in such offering), addressed to
the underwriters, if any, and to the Holders requesting registration of
Registrable Securities.
1.5 Furnish Information. It shall be a condition precedent to the
-------------------
obligations of the Company to take any action pursuant to this Section 1
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be required to effect the registration of such Holder's
Registrable Securities.
1.6 Expenses of Demand Registration. All expenses other than
-------------------------------
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 1.2, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 1.2 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
Participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 1.2; provided further, however, that if
at the time of such withdrawal, the Holders have learned of a material adverse
change in the condition, business, or prospects of the Company from that known
to the Holders at the time of their request and have withdrawn the request with
reasonable promptness following disclosure by the
5
Company of such material adverse change, then the Holders shall not be required
to pay any of such expenses and shall retain their rights pursuant to Section
1.2.
1.7 Expenses of Company Registration. The Company shall bear and
--------------------------------
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 1.3 for each Holder (which right may be assigned as provided
in Section 1.13), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements (which shall not exceed $30,000) of one counsel for the
selling Holders selected by them, but excluding underwriting discounts and
commissions relating to Registrable Securities.
1.8 Underwriting Requirements. In connection with any offering
-------------------------
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 1.3 to include any of the Holders' (or the
Principal Shareholders') securities in such underwriting unless they accept the
terms of the underwriting as agreed upon between the Company and the
underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by shareholders to be included in such offering exceeds the amount of
securities sold other than by the Company that the underwriters determine in
their sole discretion is compatible with the success of the offering, then only
that number of such securities, including Registrable Securities, which the
underwriters determine in their sole discretion will not jeopardize the success
of the offering (the securities so included to be apportioned pro rata among the
selling shareholders according to the total amount of securities entitled to be
included therein owned by each selling Shareholder or in such other proportions
as shall mutually be agreed to by such selling shareholders, provided that
shares held by Principal Shareholders shall be the first to be excluded from
such offering) but in no event shall (i) the amount of securities of the selling
Holders included in the offering be reduced below twenty percent (20%) of the
total amount of securities included in such offering, unless such offering is
the initial public offering of the Company's securities in which case the
selling shareholders may be excluded if the underwriters make the determination
described above and no other shareholder's securities are included, (ii)
notwithstanding (i) above, any shares being sold by a shareholder exercising a
demand registration right similar to that granted in Section 1.2 be excluded
from such offering. For purposes of the preceding parenthetical concerning
apportionment, for any selling shareholder which is a holder of Registrable
Securities and which is a partnership or corporation, the partners, retired
partners and shareholders of such holder, or the estates and family members of
any such partners and retired partners and any trusts for the benefit of any of
the foregoing persons shall be deemed to be a single "selling shareholder", and
any pro-rata reduction with respect to such "selling shareholder" shall be based
upon the aggregate amount of shares carrying registration rights owned by all
entities and individuals included in such "selling shareholder", as defined in
this sentence.
1.9 Delay of Registration. No Holder shall have any right to
---------------------
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
6
1.10 Indemnification. In the event any Registrable Securities
---------------
are included in a registration statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, any underwriter (as defined in the Act) for such
Holder and each person, if any, who controls such Holder or underwriter within
the meaning of the Act or the 1934 Act, against any losses, claims, damages, or
liabilities (joint or several) to which they may become subject under the Act,
the 1934 Act or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a "Violation"): (i) any untrue statement or alleged untrue
statement of a material fact contained in such registration statement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, any state securities law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 1.10(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, any underwriter, any other
Holder selling securities in such registration statement and any controlling
person of any such underwriter or other Holder, against any losses, claims,
damages, or liabilities (joint or several) to which any of the foregoing persons
may become subject, under the Act, the 1934 Act or other federal or state law,
insofar as such losses, claims, damages, or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder expressly for
use in connection with such registration; and each such Holder will pay, as
incurred, any legal or other expenses reasonably incurred by any person intended
to be indemnified pursuant to this subsection 1.10(b), in connection with
investigating or defending any such loss, claim, damage, liability, or action;
provided, however, that the indemnity agreement contained in this subsection
1.10(b) shall not apply to amounts paid in settlement of any such loss, claim,
damage, liability or action if such settlement is effected without the consent
of the Holder, which consent shall not be unreasonably withheld; provided, that,
in no event shall any indemnity under this subsection 1.10(b) exceed the gross
proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.10 of notice of the commencement of any action (including any governmental
action), such indemnified party will, if a claim in respect thereof is to be
made against any indemnifying party under this Section 1.10, deliver to the
indemnifying party a written notice of the commencement
7
thereof and the indemnifying party shall have the right to participate in, and,
to the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party (together with all other indemnified parties which may be represented
without conflict by one counsel) shall have the right to retain one separate
counsel, with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential 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 a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.10, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 1.10.
(d) If the indemnification provided for in this Section 1.10 is held
by a court of competent jurisdiction to be unavailable to an indemnified party
with respect to any loss, liability, claim, damage, or expense referred to
therein, then the indemnifying party, in lieu of indemnifying such indemnified
party hereunder, shall contribute to the amount paid or payable by such
indemnified party as a result of such loss, liability, claim, damage, or expense
in such proportion as is appropriate to reflect the relative fault of the
indemnifying party on the one hand and of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission to state a material fact relates to information supplied by the
indemnifying party or by the indemnified party and the parties' relative intent,
knowledge, access to information, and opportunity to correct or prevent such
statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section
1.10 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
1.11 Reports Under Securities Exchange Act of 1934. With a view
---------------------------------------------
to making available to the Holders the benefits of Rule 144 promulgated under
the Act and any other rule or regulation of the SEC that may at any time permit
a Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the 1934 Act, as is necessary to enable the
Holders to utilize Form S-3 for the sale of their Registrable Securities, such
action to be taken as soon as practicable after the end
8
of the fiscal year in which the first registration statement filed by the
Company for the offering of its securities to the general public is declared
effective;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(d) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC which permits the
selling of any such securities without registration or pursuant to such form.
1.12 Form S-3 Registration. In case the Company shall receive from
---------------------
any Holder or Holders a written request or requests that the Company effect a
registration on Form S-3 and any related qualification or compliance with
respect to all or a part of the Registrable Securities owned by such Holder or
Holders, the Company will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this section 1.12: (1) if Form S-3 is
not available for such offering by the Holders; (2) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $2,500,000; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
shareholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 1.12; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period; (4) if the Company has, within the twelve (12) month period preceding
the date of such request, already effected a registration on Form S-3 for the
Holders pursuant to this Section 1.12; 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.
9
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders. All expenses incurred in connection with a registration
requested pursuant to Section 1.12, including (without limitation) all
registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be by the Company.
Registrations effected pursuant to this Section 1.12 shall not be counted as
demands for registration or registrations effected pursuant to Sections 1.2 or
1.3, respectively.
1.13 Assignment of Registration Rights. The rights to cause the
---------------------------------
Company to register Registrable Securities pursuant to this Section 1 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities which holds all of transferors Registrable
Securities or, after such transfer holds more than 100,000 shares of Registrable
Securities, provided: (a) the Company is, within a reasonable time after such
transfer, furnished with written notice of the name and address of such
transferee or assignee and the securities with respect to which such
registration rights are being assigned; (b) such transferee or assignee agrees
in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 1.15 below;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the
number of shares of Registrable Securities held by a transferee or assignee, the
holdings of transferees and assignees of a partnership who are partners or
retired partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such partners or spouses who acquire Registrable
Securities by gift, will or intestate succession) shall be aggregated together
and with the partnership; provided that all assignees and transferees who would
not qualify individually for assignment of registration rights shall have a
single attorney-in-fact for the purpose of exercising any rights, receiving
notices or taking any action under this Section 1.13.
1.14 Limitations on Subsequent Registration Rights. From and after
---------------------------------------------
the date of this Agreement, the Company shall not, without the prior written
consent of the Holders of a majority of the outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 1.2 hereof,
unless under the terms of such agreement, such holder or prospective holder may
include such securities in any such registration only to the extent that the
inclusion of his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 1.2(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement. Each Investor and Principal
----------------------------
Shareholder hereby agrees that, during the period of duration specified by the
Company and an underwriter of common stock or other securities of the Company,
following the effective date of a registration statement of the Company filed
under the Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase or
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by
10
it at any time during such period except common stock included in such
registration; provided, however, that:
(a) such agreement shall be applicable only to the first such
registration statement of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers, directors and shareholders holding one percent (1%)
of the Company's outstanding Common Stock as determined on an as-converted basis
of the Company and all other persons with registration rights (whether or not
pursuant to this Agreement) enter into similar agreements; and
(c) such market stand-off time period shall not exceed 180 days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 1.15 shall not apply to a registration relating solely to employee
benefit plans on Form S-l or Form S-8 or similar forms which may be promulgated
in the future, or a registration relating solely to a Commission Rule 145
transaction on Form S-4 or similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights. No Holder shall be
----------------------------------
entitled to exercise any right provided for in this Section 1 after five (5)
years following the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
initial firm commitment underwritten offering of its securities to the general
public.
2. Covenants of the Company.
------------------------
2.1 Delivery of Financial Statements. The Company shall deliver to
--------------------------------
each Investor:
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of shareholder's
equity as of the end of such year, and a schedule as to the sources and
applications of funds for such year, such year-end financial reports to be in
reasonable detail, prepared in accordance with generally accepted accounting
principles ("gaap"), and audited and certified by independent public accountants
of nationally recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited profit or loss statement, schedule as to the
sources and application of funds for such fiscal quarter, an unaudited balance
sheet and a statement of shareholder's equity as of the end of such fiscal
quarter and a statement showing the number of shares of each class and series of
capital stock and securities convertible into or exercisable for shares of
capital stock outstanding at the end of
11
the period, the number of common shares issuable upon conversion or exercise of
any outstanding securities convertible or exercisable for common shares and the
exchange ratio or exercise price applicable thereto, all in sufficient detail as
to permit the Investor to calculate its percentage equity ownership in the
Company;
(c) within thirty (30) days of the end of each month, an unaudited
income statement and schedule as to the sources and application of funds and
balance sheet for and as of the end of such month, in reasonable detail;
(d) as soon as practicable, but in any event thirty (30) days prior
to the end of each fiscal year, a budget and business plan for the next fiscal
year, prepared on a monthly basis, including balance sheets and sources and
applications of funds statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company;
(e) with respect to the financial statements called for in
subsections (b) and (c) of this Section 2.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(f) such other reasonably available information relating to the
financial condition, business, prospects or corporate affairs of the Company as
the Investor or any assignee of the Investor may from time to time request,
provided, however, that the Company shall not be obligated under this subsection
(f) or any other subsection of Section 2.1 to provide information which it deems
in good faith to be a trade secret or similar confidential information.
2.2 Inspection. The Company shall permit each Investor which holds
----------
at least 100,000 shares of Series A Preferred Stock, 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 the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
2.3 Termination of Information and Inspection Covenants. The
---------------------------------------------------
covenants set forth in subsections 2.1(c), (d) and (f) and Section 2.2 shall
terminate as to Investors and be of no further force or effect when the sale of
securities pursuant to a registration statement filed by the Company under the
Act in connection with the firm commitment underwritten offering of its
securities to the general public is consummated or when the Company first
becomes subject to the periodic reporting requirements of Sections 12(g) or
15(d) of the 1934 Act, whichever event shall first occur.
2.4 Right of First Offer. Subject to the terms and conditions
--------------------
specified in this paragraph 2.4, the Company hereby grants to each Investor a
right of first offer with respect to future sales by the Company of its Shares
(as hereinafter defined). For purposes of this Section 2.4, Investor includes
any general partners and affiliates of an Investor. An Investor shall be
entitled to apportion the right of first offer hereby granted it among itself
and its partners and affiliates in such proportions as it deems appropriate.
12
Each time the Company proposes to offer any shares of, or securities
convertible into or exercisable for any shares of, any class of its capital
stock ("Shares"), the Company shall first make an offering of such Shares to
each Investor in accordance with the following provisions:
(a) The Company shall deliver a notice by certified mail ("Notice")
to the Investors stating (i) its bona fide intention to offer such Shares, (ii)
the number of such Shares to be offered, and (iii) the price and terms, if any,
upon which it proposes to offer such Shares.
(b) Within 15 calendar days after receipt of the Notice, the Investor
may elect to purchase or obtain, at the price and on the terms specified in the
Notice, up to that portion of such Shares that equals the proportion that the
number of shares of common stock issued and held, or issuable upon conversion of
the Series A Preferred Stock then held, by such Investor bears to the total
number of shares of Common Stock of the Company then outstanding (less 800,000
shares of Common Stock subject to the Pledge Agreement dated January 30, 1996 by
and between the Company, the Investors, ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇).
(c) If all Shares which Investors are entitled to obtain pursuant to
subsection 2.4(b) are not elected to be obtained as provided in subsection
2.4(b) hereof, the Company may, during the 60-day period following the
expiration of the period provided in subsection 2.4(b) hereof, offer the
remaining unsubscribed portion of such Shares to any person or persons at a
price not less than, and upon terms no more favorable to the offeree than those
specified in the Notice. If the Company does not enter into an agreement for
the sale of the Shares within such period, or if such agreement is not
consummated within 30 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Shares shall not be offered
unless first reoffered to the Investors in accordance herewith.
(d) The right of first offer in this paragraph 2.4 shall not be
applicable (i) to the issuance or sale of up to an aggregate of 825,000 shares
of Common Stock (or options therefor) to the Company's employees, directors,
officers or consultants for the primary purpose of soliciting or retaining their
employment, (ii) to or after consummation of a bona fide, firmly underwritten
public offering of shares of common stock, registered under the Act pursuant to
a registration statement on Form S-1, at an offering price of at least $12.50
per share (appropriately adjusted for any stock split, dividend, combination or
other recapitalization) and $20,000,000 in the aggregate, or (iii) the issuance
of securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale ore exchange of
stock or otherwise.
(e) The right of first refusal set forth in this Section 2.4 may not
be assigned or transferred, except that (i) such right is assignable by each
Holder to any wholly owned subsidiary or parent of, or to any corporation or
entity that is, within the meaning of the Act, controlling, controlled by or
under common control with, any such Holder or any such partner, and (ii) such
right is assignable between and among any of the Holders.
2.5 Key-Man Insurance. The Company has as of the date hereof or
-----------------
shall within ninety (90) days of the date hereof use its reasonable commercial
efforts to obtain from financially sound and reputable insurers term life
insurance on the life of ▇▇▇▇▇▇ ▇▇▇▇ and ▇▇▇▇ ▇▇▇▇▇▇ in the amount of $2,000,000
and $2,000,000 , except as otherwise decided in accordance with policies adopted
by the Company's Board of Directors. The Company will cause to be maintained the
term life insurance required by this Section 2.5 hereof, except as otherwise
13
decided in accordance with policies adopted by the Company's Board of Directors.
Such policies shall name the Company as loss payee and shall not be cancelable
by the Company without prior approval of the holders of a majority of the Series
A Preferred Stock.
2.6 Board Representation. If ▇▇▇▇ ▇▇▇▇▇▇▇▇ shall cease to be the
--------------------
Board representative for the holders of Series A Preferred Stock, the holders of
a majority of the Series A Preferred Stock shall nominate three potential Board
candidates (who may also be representatives of the Sprout Group) and the Chief
Executive Officer of the Company shall select one of the three candidates to
serve on the Board as the representative of the Series A Preferred Stock.
2.7 Positive Covenants. So long as not less than thirty percent (30%)
------------------
of the Series A Preferred Stock is still outstanding, the Company covenants and
agrees to:
(a) furnish to the Investors prompt written notice of all actions,
suits and proceedings before any governmental authority or arbitrator pending
(of which the Company has notice), or to the best of the Company's knowledge,
threatened in writing against the Company or any of its subsidiaries which (i)
if adversely determined would involve an aggregate liability of $500,000 or
more, or (ii) otherwise may materially adversely affect the operations,
properties, business or condition (financial or otherwise) of the Company or
purport to affect the legality, validity or enforceability of this Agreement or
any of the Notes; and
(b) furnish to the Investors prompt written notice of any event (of
which the Company has notice) which in the opinion of Company management has
resulted in a material adverse change in the business, results of operations or
condition (financial or otherwise) of the Company;
(c) within one month of Closing, file a permit for and therafter
diligently act to effect a rescission offer under California or any other state
law, as necessary, for any options granted prior to the Closing;
(d) adopt and obtain a permit for a stock option plan for future
grants in substantially the form provided to counsel for the Investors.
(e) solicit the agreement of all employees and consultants to the
terms Proprietary Information and Inventions Agreement in the forms provided to
counsel for the Investors.
2.8 Negative Covenants. So long as not less than thirty percent (30%)
------------------
of the Series A Preferred Stock is still outstanding, the Company covenants and
agrees that, unless otherwise agreed in writing by the holders of a majority of
the outstanding Series A Preferred Stock (the "Major Investors"):
(a) The Company shall not liquidate, wind-up or dissolve itself (or
suffer any liquidation or dissolution).
(b) The Company shall not purchase or redeem any shares of Common
Stock, Preferred Stock, or shares of any other class of stock of the Company,
other than pursuant to Section 7.13 of the Series A Preferred Stock Agreement of
even date herewith, the Right of First Refusal and Co-Sale Agreement of even
date herewith, agreements with employees, consultants
14
or existing shareholders of the Company other than ▇▇▇▇▇▇ ▇▇▇▇ or ▇▇▇▇ ▇▇▇▇▇▇
entered into pursuant to employee benefit plans approved by the Board of
Directors, or declare or pay any dividends on Common Stock and Preferred Stock
or shares of any other class of stock of the Company (other than dividends
payable solely in Common Stock).
(c) The Company shall not grant options or warrants to purchase any
securities of the Company, provided however, that this prohibition shall not be
applicable to (i) to the issuance or sale of up to an aggregate of 825,000
shares of Common Stock (or options therefor) to the Company's employees,
directors, officers or consultants for the primary purpose of soliciting or
retaining their employment, (ii) to or after consummation of a bona fide, firmly
underwritten public offering of shares of common stock, registered under the Act
pursuant to a registration statement on Form S-1, at an offering price of at
least $12.50 per share (appropriately adjusted for any stock split, dividend,
combination or other recapitalization) and $20,000,000 in the aggregate, or
(iii) the issuance of securities in connection with a bona fide business
acquisition of or by the Company, whether by merger, consolidation, sale of
assets, sale ore exchange of stock or otherwise..
(d) The Company shall not enter into any transaction or agreement
with any shareholder, employee, officer or directors of the Company or member of
his or her immediate family.
2.9 Termination of Certain Covenants. The covenants set forth
--------------------------------
in Sections 2.4, 2.5, 2.6, 2.7 and 2.8 shall terminate and be of no further
force or effect upon the consummation of the sale of securities pursuant to a
registration statement filed by the Company under the Act in connection with the
firm commitment underwritten offering of its securities to the general public.
3. Miscellaneous.
-------------
3.1 Successors and Assigns. Except as otherwise provided herein,
----------------------
the terms and conditions of this Agreement shall inure to the benefit of and be
binding upon the respective successors and assigns of the parties (including
transferees of any shares of Registrable Securities). Nothing in this Agreement,
express or implied, is intended to confer upon any party other than the parties
hereto or their respective successors and assigns any rights, remedies,
obligations, or liabilities under or by reason of this Agreement, except as
expressly provided in this Agreement.
3.2 Governing Law. This Agreement shall be governed by and
-------------
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
3.3 Counterparts. This Agreement may be executed in two or more
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
3.4 Titles and Subtitles. The titles and subtitles used in this
--------------------
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
15
3.5 Notices. Unless otherwise provided, any notice required or
-------
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
3.6 Expenses. If any action at law or in equity is necessary
--------
to enforce or interpret the terms of this Agreement, the prevailing party shall
be entitled to reasonable attorneys' fees, costs and necessary disbursements in
addition to any other relief to which such party may be entitled.
3.7 Amendments and Waivers. Any term of this Agreement may be
----------------------
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this paragraph shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
3.8 Severability. If one or more provisions of this Agreement are
------------
held to be unenforceable under applicable law, such provision shall be excluded
from this Agreement and the balance of the Agreement shall be interpreted as if
such provision were so excluded and shall be enforceable in accordance with its
terms.
3.9 Aggregation of Stock. All shares of Registrable Securities
--------------------
held or acquired by affiliated entities or persons shall be aggregated together
for the purpose of determining the availability of any rights under this
Agreement.
3.10 Entire Agreement; Amendment; Waiver. This Agreement (including
-----------------------------------
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
16
IN WITNESS WHEREOF, the parties have executed this Investors' Rights
Agreement as of the date first above written.
▇▇▇▇, ▇▇▇▇▇▇ & ASSOCIATES, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇, President
Address: ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇▇, ▇▇▇▇▇ ▇▇▇
▇▇▇ ▇▇▇▇, ▇▇ ▇▇▇▇▇
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇
DLJ CAPITAL CORPORATION
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Attorney in Fact
SPROUT GROWTH II, L.P.
By: /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Attorney in Fact
19
SPROUT CEO FUND, L.P.
By: DLJ Capital Corporation,
General Partner
By /s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
-------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
Attorney in Fact
20
SCHEDULE A
----------
Investor Series A Preferred Stock Purchase Price
-------- ------------------------ --------------
SPROUT GROWTH II, L.P. 1,433,628 $8,960,175.00
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
DLJ CAPITAL CORPORATION 145,998 912,487.50
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
SPROUT CEO FUND, L.P. 20,374 127,337.50
▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ▇▇▇▇ ------ ----------
▇▇▇▇▇▇▇▇ ▇, ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇ ▇▇▇▇, ▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇
1,600,000 $10,000,000.00
21