EXHIBIT 4.2
EXECUTION VERSION
ARBINET-THEXCHANGE, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
DATED AS OF MAY 30, 2003
ARBINET-THEXCHANGE, INC.
FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT
DATED AS OF MAY 30, 2003
THIS FOURTH AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (this
"Agreement") is made and entered into by and among ARBINET-THEXCHANGE, INC., a
Delaware corporation (the "Company"), those persons identified on the signature
pages hereto under the caption "Series D Holders" (the "Series D Holders"),
those persons identified on the signature pages hereto under the caption "Series
D-l Holders" (the "Series D-l Holders"), those persons identified on the
signature pages hereto under the caption "Series E Holders" (the "Series E
Holders"), those persons identified on the signature pages hereto under the
caption "Series E-l Holders" (the "Series E-l Holders"), those persons
identified on the signature pages hereto under the caption "Other Holders" (the
"Other Holders"), ▇▇▇▇ ▇▇▇▇▇▇▇▇▇ (the "Founder") and those other persons
identified on the signature pages hereto under the caption "Original Holders"
(the "Original Holders" and, together with the Series D Holders, the Series D-l
Holders, the Series E Holders, the Series E-l Holders, the Other Holders and any
assignee of the foregoing permitted under Sections 1.11 and 1.16(f) hereof, the
"Holders"). The Holders, the Founder and the Company are referred to herein,
collectively, as the "parties".
Recitals
WHEREAS, concurrently with the execution and delivery of this Agreement,
the Company and the Series E-l Holders are entering into that certain Securities
Purchase Agreement, dated as of May 30, 2003, by and among .the Company and the
parties thereto, whereby the Company, among other things, is issuing and
selling, and the Series E-1 Holders are purchasing, shares of the Company's
Series E-l Convertible Preferred Stock, par value $.001 per share (the "Series
E-l Stock");
WHEREAS, it is a condition precedent to the obligations of the Company and
the Series E-l Holders pursuant to the Purchase Agreement that the parties shall
have entered into this Agreement; and
WHEREAS, the parties to that certain Third Amended and Restated Investors'
Rights Agreement dated as of July 3, 2001 (the "Prior Agreement"), desire that
such agreement be amended and restated in its entirety in the form hereof;
NOW, THEREFORE, in consideration of the mutual promises and covenants set
forth herein, the parties hereto agree as follows:
1. Registration Rights.
1.01 Definitions. As used in this Agreement, the following terms shall have
the following respective meanings:
(a) "Common Stock" means the Company's common stock, par value $.001
per share.
(b) "Combined Holders" means the Holders and the Founder, as the case
may be.
(c) "Company" has the meaning set forth in the preamble.
(d) "Convertible Preferred Stock" means, collectively, the Series A
Stock, Series C Stock, Series D Stock, Series D-l Stock, Series E Stock and
Series E-l Stock.
(e) "Exchange Act" means the Securities Exchange Act of 1934, as
amended.
(f) "First Public Offering" has the meaning set forth in Section
1.02(a)(ii)(B).
(g) "Form S-3" means such form under the Securities Act as in effect
on the date hereof or any comparable 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.
(h) "Holders" has the meaning set forth in the preamble.
(i) "Initiating Holders" means the Holder(s) initiating a Registration
Request under Section 1.02(a) below.
(j) "majority in interest of the Initiating Holders" means Initiating
Holders holding a majority of the Registrable Securities held by all Initiating
Holders.
(k) "Original Holders" has the meaning set forth in the preamble.
(l) "Original Holder Request" means a request from Original Holders
who in the aggregate possess at least forty percent (40%) of the Registrable
Series A Securities outstanding as of the date of such request.
(m) "Other Holders" has the meaning set forth in the preamble.
(n) "Other Holder Request" means a request from Other Holders who in
the aggregate possess at least fifty percent (50%) of the Registrable Series C
Securities outstanding as of the date of such request.
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(o) "Person" means any individual, partnership, limited liability
company, joint venture, corporation, association, trust or any other entity or
organization.
(p) "Preferred. Stock" means the Convertible Preferred Stock and the
Series B Stock.
(q) "Prior Agreement" has the meaning set forth in the recitals.
(r) The terms "register", "registered" and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement or document by the
SEC.
(s) "Registrable Founder Securities" means (i) the Common Stock owned
by the Founder; (ii) any Common Stock of the Company issued or issuable upon the
conversion or exercise of any warrant, option, right or other security which is
issued to the Founder; and (iii) any Common Stock of the Company issued (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued) by way of a stock split, stock dividend, recapitalization,
merger or other distribution with respect to, or in exchange for, or in
replacement of, such Common Stock referred to in (i) and (ii) above.
(t) "Registrable Securities" means, collectively, the Registrable
Series A Securities, the Registrable Series C Securities, the Registrable Series
D Securities, the Registrable Series D-i Securities, the Registrable Series E
Securities, the Registrable Series E-l Securities and, except with respect to
Sections 1.02 and 1.03, the Registrable Founder Securities.
(u) "Registrable Series A Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series A Stock and the warrants issued
to the Original Holders pursuant to that certain Series A-2 Restructuring
Agreement between the Company and the Original Holders dated as of November 24,
1999 (the "Warrants"); and (ii) any Common Stock of the Company issued (or
issuable upon the conversion or exercise of any warrant, right or other security
which is issued) by way of a stock split, stock dividend, recapitalization,
merger or other distribution with respect to, or in exchange for, or in
replacement of, such Series A Stock, Warrant or Common Stock referred to in (i)
above, excluding in all cases, however, any Registrable Securities sold by a
Person in a transaction in which its rights under this Section 1 are not
assigned. A holder of Series A Stock need not convert such security into Common
Stock, prior to requesting registration hereunder but may make such a request in
contemplation of conversion of such Series A Stock into Common Stock prior to
the effectiveness of any such registration.
(v) "Registrable Series C Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series C Stock; and (ii) any Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued) by way of a stock split, stock
dividend, recapitalization.
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merger or other distribution with respect to, or in exchange for, or in
replacement of, such Series C Stock or Common Stock referred to in (i) above,
excluding in all cases, however, any Registrable Securities sold by a Person in
a transaction in which its rights under this Section 1 are not assigned. A
holder of Series C Stock need not convert such security into Common Stock prior
to requesting registration hereunder but may make such a request in
contemplation of conversion of such Series C Stock into Common Stock prior to
the effectiveness of any such registration.
(w) "Registrable Series D Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series D Stock; and (ii) any Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued) by way of a stock split, stock
dividend, recapitalization, merger or other distribution with respect to, or in
exchange for, or in replacement of, such Series D Stock or Common Stock referred
to in (i) above, excluding in all cases, however, any Registrable Securities
sold by a Person in a transaction in which its rights under this Section 1 are
not assigned. A holder of Series D Stock need not convert such security into
Common Stock prior to requesting registration hereunder but may make such a
request in contemplation of conversion of such Series D Stock into Common Stock
prior to the effectiveness of any such registration.
(x) "Registrable Series D-l Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series D-l Stock; and (ii) any Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued) by way of a stock split, stock
dividend, recapitalization, merger or other distribution with respect to, or in
exchange for, or in replacement of, such Series D-l Stock or Common Stock
referred to in (i) above, excluding in all cases, however, any Registrable
Securities sold by a Person in a transaction in which its rights under this
Section 1 are not assigned. A holder of Series D-l Stock need not convert such
security into Common Stock prior to requesting registration hereunder but may
make such a request in contemplation of conversion of such Series D-l Stock into
Common Stock prior to the effectiveness of any such registration.
(y) "Registrable Series E Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series E Stock; and (ii) any Common
Stock of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued) by way of a stock split, stock
dividend, recapitalization, merger or other distribution with respect to, or in
exchange for, or in replacement of, such Series E Stock or Common Stock referred
to in (i) above, excluding hi all cases, however, any Registrable Securities
sold by a Person in a transaction in which its rights under this Section 1 are
not assigned. A holder of Series E Stock need not convert such security into
Common Stock prior to requesting registration hereunder but may make such a
request in contemplation of conversion of such Series E Stock into Common Stock
prior to the effectiveness of any such registration.
(z) "Registrable Series E-l Securities" means (i) the Common Stock
issued or issuable upon conversion of the Series E-l Stock; and (ii) any Common
Stock
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of the Company issued (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued) by way of a stock split, stock
dividend, recapitalization, merger or other distribution with respect to, or in
exchange for, or in replacement of, such Series E-l Stock or Common Stock
referred to in (i) above, excluding in all cases, however, any Registrable
Securities sold by a Person in a transaction in which its rights under this
Section 1 are not assigned. A holder of Series E-l Stock need not convert such
security into Common Stock prior to requesting registration hereunder but may
make such a request in contemplation of conversion of such Series E-l Stock into
Common Stock prior to the effectiveness of any such registration.
(aa) The number of shares of "Registrable Securities then outstanding"
shall be 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.
(bb) "Registration Request" means either an Other Holder Request, an
Original Holder Request, a Series D/▇-▇ ▇▇▇▇▇▇ Request or a Series E/E-l Holder
Request.
(cc) "SEC" means the Securities and Exchange Commission.
(dd) "SEC Rule 145 Transaction" shall mean any transaction described
in Rule 145(a) promulgated under the Securities Act.
(ee) "Securities Act" means the Securities Act of 1933, as amended.
(ff) "Series A Stock" means the Series A-l Preferred Stock, par value
$.001 per share, of the Company.
(gg) "Series B Stock" means (i) the Series B Cumulative Redeemable
Senior Preferred Stock, par value $0.001 per share, of the Company, and (ii) the
Series ▇-▇ Cumulative Redeemable Senior Preferred Stock, par value $0.001 per
share, of the Company, collectively.
(hh) "Series C Stock" means (i) the Series C Cumulative Convertible
Senior Preferred Stock par value $0.001 per share, of the Company, and (ii) the
Series C-l Cumulative Convertible Senior Preferred Stock, par value $0.001 per
share, of the Company, collectively.
(ii) "Series D Holders" has the meaning set forth in the preamble.
(jj) "Series D Stock" means the Series D Convertible Preferred Stock,
par value $0.001 per share, of the Company.
(kk) "Series D-l Holders" has the meaning set forth in the preamble.
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(11) "Series D-l Stock" means the Series D-l Convertible Preferred
Stock, par value $0.001 per share, of the Company.
(mm) "Series D/▇-▇ ▇▇▇▇▇▇ Request" means a request from Series D
Holders and Series D-l Holders who in the aggregate possess at least fifty
percent (50%) of the Registrable Series D Securities and Registrable Series D-l
Securities, collectively, that are outstanding as of the date of such request.
Such request may be exercisable at any time after the earlier of (i) three (3)
years after the issuance of the Series E-l Stock or (ii) six (6) months after
the First Public Offering (as defined below).
(nn) "Series E/E-l Holder Request" means a request from Series E
Holders and Series E-l Holders who in the aggregate possess at least fifty
percent (50%) of the Registrable Series E Securities and the Registrable Series
E-l Securities, collectively, outstanding as of the date of such request. Such
request may be exercisable at any time after the earlier of (i) three (3) years
after the issuance of the Series E-l Stock or (ii) six (6) months after the
First Public Offering.
(oo) "Series E Holders" has the meaning set forth in the preamble.
(pp) "Series E Stock" means the Series E Convertible Preferred Stock,
par value $0.001 per share, of the Company.
(qq) "Series E-l Holders" has the meaning set forth in the preamble.
(rr) "Series E-l Stock" has the meaning set forth in the recitals.
(ss) "Violation" means any of the following statements, omissions or
violations: (i) any untrue statement or alleged untrue statement of a material
fact contained in a registration statement filed under this Agreement, including
any preliminary prospectus or final prospectus contained therein or any
amendments or supplements thereto or any documents filed under state securities
or "blue sky" laws in connection therewith, (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 Exchange Act, any
state securities law or any rule or regulation promulgated under the Securities
Act, the Exchange Act or any state securities law arising from, relating to or
in connection with the offer and sale of Registrable Securities in a
registration statement filed pursuant to this Agreement.
1.02 Requested Registration.
(a) Request for Registration. In case the Company shall receive a
written Registration Request that the Company file a registration statement
under the Securities Act with respect to shares of Registrable Securities, the
Company will:
(i) promptly give written notice of such request to all Holders
in accordance with Section 2.05 hereof; and
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(ii) subject to the limitations of Section 1.02(c), as soon as
practicable, use its best efforts to effect such registration under the
Securities Act (including, without limitation, appropriate qualification under
applicable blue sky or other state securities laws and appropriate compliance
with applicable regulations issued under the Securities Act and any other
governmental requirements or regulations) as may be so requested and as would
permit or facilitate the sale and distribution of all or such portion of such
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any Holder joining in such request
as are specified in a written request received by the Company within twenty (20)
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 1.02(a):
(A) In any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(B) Prior to the earlier of (i) May 30, 2006, or (ii)(A) in
the case of an Original Holder Request or Other Holder Request, one (1) year
after the effective date of the Company's first registered public offering of
its Common Stock (other than a registration 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) (such first registered
public offering being sometimes referred to herein as the "First Public
Offering") or (B) in the case of a Series D/▇-▇ ▇▇▇▇▇▇ Request or Series E/E-l
Holder Request, six (6) months after the effective date of the First Public
Offering;
(C) During the period starting with the date sixty (60) days
prior to the Company's good faith estimated date of filing of, and ending on the
date six (6) months immediately following the effective date of, any
registration statement pertaining to 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); provided, however, that the Company is acting in good
faith and using all reasonable efforts to cause such registration statement to
become effective;
(D) If such registration is requested pursuant to an
Original Holder Request under this Section 1.02, after the Company has effected
one (1) such registration which has been declared effective (an offering which
is not consummated shall not be counted for this purpose);
(E) If such registration is requested pursuant to an Other
Holder Request under this Section 1.02, after the Company has effected two (2)
such registrations which have been declared effective (an offering which is not
consummated shall not be counted for this purpose);
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(F) If such registration is requested pursuant to a Series
D/▇-▇ ▇▇▇▇▇▇ Request under this Section 1.02, after the Company has effected two
(2) such registrations which have been declared effective (an offering which is
not consummated shall not be counted for this purpose);
(G) If such registration is requested pursuant to a Series
E/E-l Holder Request under this Section 1.02, after the Company has effected two
(2) such registrations which have been declared effective (an offering which is
not consummated shall not be counted for this purpose); or
(H) If the Company shall furnish to such 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 (the "Board of
Directors") it would be seriously detrimental to the Company and its
stockholders for such registration statement to be filed at such time by reason
of a material pending transaction and it is therefore essential to defer the
filing of such registration statement, then the Company's obligation to use its
best efforts to register, qualify or comply under this Section 1.02(a) shall be
deferred for a period not to exceed ninety (90) days from the date of receipt of
a written Registration Request; provided, however, that the Company may not make
such certification more than once in any twelve (12) month period; provided
further, that the Company may not register shares for its own account or the
account of others during such ninety (90) day period.
Subject to the foregoing clauses (A) through (H) inclusive, the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of a Registration Request
and in any event within ninety (90) days after receipt of such request.
(b) Piggyback Registration Rights. If (but without any obligation to
do so) the Company proposes to register (including for this purpose a
registration effected by the Company for its stockholders pursuant to a
Registration Request or otherwise) any of its securities under the Securities
Act in connection with the public offering of such securities solely for cash
(other than a registration (i) with respect to the First Public Offering, (ii)
on Form S-8 or 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, (iii) with respect to an
employee benefit plan or (iv) solely in connection with a SEC Rule 145
Transaction), the Company shall, each such time, promptly give each Holder and
the Founder written notice of such registration together with a list of the
jurisdictions in which the Company intends to attempt to qualify such securities
under applicable state securities laws. Upon the written request of any Holder
or the Founder, as the case may be, given within twenty (20) business days after
delivery of such written notice by the Company in accordance with Section 2.05,
the Company shall, subject to the provisions of Sections 1.02(c), use its best
efforts to include in its registration and cause to be registered under the
Securities Act all of the Registrable Securities and Registrable Founder
Securities that any Holder or the Founder, as the case may be, has requested to
be registered.
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(c) Underwriting.
(i) If the Initiating Holders intend to distribute the
Registrable Securities covered by their Registration Request by means of an
underwriting, they shall so advise the Company as part of their Registration
Request made pursuant to Section 1.02(a) and the Company shall include such
information in the written notice referred to in Section 1.02(a)(i) above. The
Company, together with all Holders proposing to distribute their securities
through such underwriting, shall participate in the underwriting arrangements
required by this Section 1.02(c), and the inclusion of such Holders' Registrable
Securities in the underwriting to the extent requested shall be limited to the
extent provided herein.
(ii) In the event that a registration pursuant to Section 1.02(b)
or 1.03 is for a registered public offering involving an underwriting, the
Company shall so advise each Holder and the Founder as part of the notice given
pursuant hereto. In such event, the right of any such Holder or the Founder, as
the case may be, to registration pursuant to such Section shall be conditioned
upon such Holder's or Founder's, as the case may be, participation in the
underwriting arrangements required by this Section 1.02(c), and the inclusion of
such Holder's Registrable Securities or the Founder's Registrable Founder
Securities, as the case may be, in the underwriting to the extent requested
shall be limited to the extent provided herein.
(iii) The Company, together with all Holders and the Founder, as
the case may be, proposing to distribute their securities through such
underwriting, shall enter into an underwriting agreement in customary form with
the managing underwriter(s) selected for such underwriting by a majority in
interest of the Initiating Holders (in the case of a registration pursuant to
Section 1.02(a)) or the Company (in the case of a registration pursuant to
Section 1.02(b) or 1.03). The selection of the managing underwriter(s) by the
Company shall be reasonably acceptable to a majority in interest of the Persons
proposing to distribute securities through such underwriting. The selection of
the managing underwriter(s) by a majority in interest of the Initiating Holders
shall be reasonably acceptable to the Company.
(iv) Notwithstanding any other provision of this Section 1.02 or
Section 1.03, if the managing underwriter advises the Company in writing that in
such underwriter's or underwriters' good faith opinion the total number of
Registrable Securities and Registrable Founder Securities which the Company
and/or any Holder and/or the Founder, as the case may be, intend to include in
such offering is such as to affect adversely the success of such offering,
including the price at which such securities can be sold, then the Company shall
so advise all Holders of Registrable Securities and the Founder and the Company
will be required to include in such registration only the number of securities
which it is so advised should be included in such registration which shall be
allocated as follows: (x) in cases involving the registration for sale of
securities for the Company's own account in which "piggyback" registration
rights are exercised by Combined Holders pursuant to Section 1.02(b), securities
shall be registered in such offering in the following order of priority: (i)
first, the securities which the Company
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proposes to register (subject to reduction if applicable, as provided in the
following clause second), (ii) second, the Registrable Securities which have
been requested to be included in such registration by the Holders of Registrable
Securities pro rata based upon the aggregate amount of Registrable Securities
then held by such Holders (provided, however, that other than in connection with
the First Public Offering, (A) the number of Registrable Series E Securities and
Registrable Series E-l Securities included in such registration shall not be
reduced to less than 25% of the total number of securities included in such
registration and the number of securities which the Company proposes to register
in such offering shall be reduced to the extent necessary to assure that the
number of Registrable Series E Securities and Registrable Series E-l Securities
included in such registration shall not be reduced to less than that amount, and
such reduction shall not occur prior to the reduction in the number of
securities of the other Holders which the Company proposes to register in such
offering, (B) the number of Registrable Series D Securities and Registrable
Series D-l Securities included in such registration shall not be reduced to less
than 15% of the total number of securities included in such registration and the
number of securities which the Company proposes to register in such offering
shall be reduced to the extent necessary to assure that the number of
Registrable Series D Securities and Registrable Series D-l Securities included
in such registration shall not be reduced to less than that amount, and such
reduction shall not occur prior to the reduction in the number of securities of
the other Holders, other than Series E Holders and Series E-l Holders, which the
Company proposes to register in such offering and (C) the number of Registrable
Series C Securities included in such registration shall not be reduced to less
than 40% of the total number of securities included in such registration and the
number of securities which the Company proposes to register in such offering
shall be reduced to the extent necessary to assure that the number of
Registrable Series C Securities included in such registration shall not be
reduced to less than that amount) and (iii) third, provided that no securities
sought to be included by the Company and the Holders of Registrable Securities
have been excluded from such registration, the Registrable Founder Securities
which have been requested to be included in such registration by the Founder and
the securities of other persons entitled to exercise "piggyback" registration
rights pursuant to contractual commitments of the Company (pro rata based on the
respective numbers of securities sought to be registered by such persons); and
(y) in cases involving the registration for sale of securities for the account
of a Holder of Registrable Securities pursuant to Section 1.02(a) or 1.03
hereof, securities shall be registered in such offering in the following order
of priority: (i) first, the Registrable Securities which have been requested to
be included in such registration by the Initiating Holders thereof pro rata
based upon the aggregate amount of Registrable Securities then held by such
Initiating Holders, (ii) second, provided that no securities sought to be
included by such Initiating Holders of Registrable Securities have been excluded
from such registration, the Registrable Securities which have been requested to
be included in such registration by the Holders of Registrable Securities other
than the Initiating Holders of Registrable Securities and the securities of
other persons entitled to exercise "piggyback" registration rights pursuant to
contractual commitments of the Company (pro rata based on the respective numbers
of securities sought to be registered by such persons), (iii) third, provided
that no securities sought to be included by the Holders of Registrable
Securities have been excluded from such registration, the
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Registrable Founder Securities which have been requested to be included in Such
registration by the Founder and (iv) fourth, provided that no securities sought
to be included by the Holders of Registrable Securities entitled to participate
in such registration or the Founder, as the case may be, have been excluded from
such registration, the Company.
(v) Notwithstanding anything to the contrary herein, (a) no
reduction shall be made with respect to securities offered by the Company for
its own account in connection with the First Public Offering, (b) in any
offering subsequent to the First Public Offering, the securities registered by
the Holders of Registrable Series C Securities for their own account pursuant to
such offering may not be reduced below forty percent (40%) in the aggregate of
the shares included in such offering and (c) in any offering undertaken pursuant
to Section 1.02(a) or Section 1.03 hereof, no reduction in the securities to be
registered by any Combined Holder shall occur until all other securities have
been excluded from such offering.
(vi) Neither any Holder nor the Founder shall be required to make
any representations, warranties or indemnities except as they relate to such
Holder's or Founder's, as the case may be, ownership of shares and authority to
enter into the underwriting agreement and to such Holder's or Founder's, as the
case may be, intended method of distribution, and the liability of such Holder
and/or Founder, as the case may be, shall be limited to an amount equal to the
net proceeds from the offering received by such Holder and/or Founder, as the
case may be.
(vii) If, as a result of the provisions of this Section 1.02(c),
any Holder of Registrable Securities and/or the Founder shall not be entitled to
include all of its Registrable Securities or his Registrable Founder Securities,
as the case may be, in a "piggyback" registration that such Holder of
Registrable Securities and/or Founder, as the case may be, has requested to be
included, such Holder of Registrable Securities and/or Founder, as the case may
be, may elect to withdraw his request to include Registrable Securities or his
Registrable Founder Securities, as the case may be, in such registration.
(viii) If any Holder and/or Founder, as the case may be,
disapproves of the terms of the underwriting, such person may elect to withdraw
therefrom by written notice to the Company, the managing underwriter(s) and the
Initiating Holders. The Registrable Securities and/or other securities held by
such Holder and/or the Founder, as the case may be, affected shall be withdrawn
from registration, and such Registrable Securities and/or Registrable Founder
Securities, as the case may be, that are withdrawn pursuant to this Section
1.02(c)(viii) shall not be transferred in a public distribution prior to one
hundred eighty (180) days after the effective date of such registration, or such
other shorter period of time as the underwriters may require.
1.03 Form S-3 Registration. So long as the Company is qualified for the use
of Form S-3 and the size of the offering is no less than $500,000, in addition
to the rights contained in Section 1.02 hereof, the Holders and the Founder
shall have unlimited rights to request from time to time registrations on Form
S-3, except in connection with the First Public Offering. In the event the
Company receives from any Holder or the Founder
11
a 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 and Registrable Founder Securities owned by such Holder
or the Founder, as the case may be (such requests shall be in writing and shall
state the number of shares of Registrable Securities and/or Registrable Founder
Securities, as the case may be, to be disposed of and the intended method(s) of
disposition of such shares by such Holder or the Founder), the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders or the Founder, as the
case may be, in accordance with Section 2.05 hereof; and
(b) as soon as practicable, use its best efforts to 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 Holders' Registrable Securities or such portion of Registrable
Founder Securities, as the case may be, as are specified in such request,
together with all or such portion of the Registrable Securities and/or
Registrable Founder Securities, of any other Holder or the Founder, as the case
may be, joining in such request as are specified in a written request given
within fifteen (15) days after receipt of such written notice from the Company;
provided, however, that the Company shall not be obligated to effect any such
registration, qualification or compliance, pursuant to this Section 1.03: (i) 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 Five Hundred Thousand Dollars ($500,000); (ii) if the
Company shall furnish to the Holders and the Founder a certificate signed by the
President of the Company stating that in the good faith judgment of the Board of
Directors, it would be seriously detrimental to the Company and its stockholders
for such Form S-3 registration to be effected at such time by reason of a
material pending transaction and it is therefore essential to defer the filing
of such registration statement, in which event the Company shall have the right
to defer the filing of the Form S-3 registration statement for a period of not
more than ninety (90) days after receipt of the request of any such Holder or
the Founder under this Section 1.03; provided, however, that the Company shall
not utilize this right more than once in any twelve (12) month period; provided
further, that the Company shall not register shares for its own account or the
account of others during such ninety (90) day period; (iii) if the Company has,
within the six (6) month period immediately preceding the date of such request,
already effected one (1) registration on Form S-3 at the request of such Holders
or the Founder, which registration has been declared effective; or (iv) 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) Subject to the foregoing, the Company shall file and use its best
efforts to bring effective a registration statement covering the Registrable
Securities, Registrable Founder Securities and other securities so requested to
be registered as soon
12
as practicable after receipt of the request or requests of such Holders and/or
the Founder, as the case may be.
1.04 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) Promptly 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
Combined Holders of a majority in interest of the Registrable Securities being
registered thereunder, keep such registration statement effective for up to one
hundred eighty (180) days or until the Combined Holders have completed the
distribution referred to in such registration statement, whichever occurs first
(but in any event for at least any period required under the Securities Act);
provided that before filing such registration statement or any amendments or
supplements thereto, the Company will furnish to the Combined Holders
registering Registrable Securities thereunder, copies of all such documents
proposed to be filed.
(b) Promptly 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) Promptly furnish to the Combined Holders registering Registrable
Securities thereunder, such number of copies of such registration statement and
of each amendment and supplement thereto (in each case including all exhibits),
such number of copies of the prospectus contained in such registration statement
(including each preliminary prospectus and any summary prospectus) and any other
prospectus filed under Rule 424 under the Securities Act, in conformity with the
requirements of the Securities Act, and such other documents as such Combined
Holders may reasonably request in order to facilitate the disposition of
Registrable Securities owned by them.
(d) Use its best efforts to promptly register and qualify the
securities covered by such registration statement for offer and sale under such
other securities or "blue sky" laws of such states or jurisdictions as shall be
reasonably requested by the Combined Holders registering Registrable Securities
under such registration statement, provided that the Company shall not be
required in connection therewith or as a condition thereto (i) to qualify to do
business in any state or jurisdiction where it would not otherwise be required
to qualify but for the requirements of this clause (d), or (ii) to file a
general consent to service of process in any such state or jurisdiction.
(e) Use diligent efforts to cause all Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
Company's business or
13
operations to enable the seller or sellers thereof to consummate the disposition
of such Registrable Securities.
(f) 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 Combined Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(g) Notify each Combined Holder of Registrable Securities covered by
such registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in light of the circumstances then existing.
(h) Notify each Combined Holder of Registrable Securities covered by
such registration statement and such Combined Holder's underwriters, if any, and
confirm such advice in writing: (i) when the registration statement has become
effective, (ii) when any post-effective amendment to the registration statement
becomes effective and (iii) of any request by the SEC for any amendment or
supplement to the registration statement or prospectus or for additional
information.
(i) Notify each Combined Holder of Registrable Securities covered by
such registration statement if at any time the SEC should institute or threaten
to institute any proceedings for the purpose of issuing, or should issue, a stop
order suspending the effectiveness of the registration statement. Upon the
occurrence of any of the events mentioned in the preceding sentence, the Company
will use its best efforts to prevent the issuance of any such stop order or to
obtain the withdrawal thereof as soon as possible. The Company will advise each
Combined Holder of Registrable Securities promptly of any order or communication
of any public board, body or authority addressed to the Company suspending or
threatening to suspend the qualification of any Registrable Securities for sale
in any jurisdiction.
(j) Furnish, at the request of any Combined Holder requesting
registration of Registrable Securities pursuant to this Agreement, (i) on the
date that such Registrable Securities are delivered to the underwriters for sale
in connection with a registration pursuant to this Agreement, 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, an opinion, dated such date, of the
counsel representing the Company for the purposes of such registration, in form
and substance as is customarily given to underwriters in an underwritten public
offering, addressed to the underwriters, if any, and to the Combined Holders
requesting registration of Registrable Securities and (ii) on the date that the
registration statement with respect to such securities becomes effective, a
"comfort" letter dated such date, from the independent certified public
accountants of the Company, in
14
form and substance as is customarily given by independent certified public
accountants to underwriters in an underwritten public offering, addressed to the
underwriters, if any, and to the Combined Holders requesting registration of
Registrable Securities, and, if such securities are being sold through
underwriters, a reaffirmation of such letter on the date that such Registrable
Securities are delivered to the underwriters for sale.
(k) As soon as practicable after the effective date of the
registration statement, and in any event within sixteen (16) months thereafter,
have "made generally available to its security holders" (within the meaning of
Rule 158 under the Securities Act) an earning statement (which need not be
audited) covering a period of at least twelve (12) months beginning after the
effective date of the registration statement and otherwise complying with
Section 11(a) of the Securities Act.
(1) 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.
(m) 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.
1.05 Furnish Information. In connection with any action pursuant to this
Section 1, the selling Combined 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
effect the registration of such Combined Holder's Registrable Securities. In
that connection, each selling Combined Holder shall be required to represent to
the Company in writing that all such information which is given is both complete
and accurate in all material respects when made. If any registration statement
or comparable statement under the Securities Act refers to a Combined Holder or
any of its affiliates, by name or otherwise, as the holder of any securities of
the Company then, unless counsel to the Company advises the Company that the
Securities Act requires that such reference be included in any such statement,
each such Combined Holder shall have the right to require the deletion of such
reference to itself and its affiliates.
1.06 Definition of Expenses.
(a) "Registration Expenses" shall mean all expenses incurred by the
Company in complying with Sections 1.02, 1.03 and 1.04 hereof, including,
without limitation, all registration, filing and qualification fees,
underwriters' expense allowances, printing expenses, fees and disbursements of
counsel for the Company and one special counsel to the Combined Holders of
Registrable Securities (such counsel to be selected by the Initiating Holders,
in the case of a registration pursuant to Section 1.02(a); or in the case of a
registration pursuant to Section 1.02(b) or 1.03, jointly by the Holders of
Registrable Series E Securities and Registrable Series E-l Securities by a
Series E Majority Vote (as defined below), in the case of a registration in
which the Holders of Registrable Series E Securities or Holders of Registrable
Series E-l Securities
15
are participating, or by the Holders of Registrable Series C Securities, if the
Holders of Registrable Series E Securities and Holders of Registrable Series E-l
Securities are not participating in such offering, or by the Holders of
Registrable Series A Securities, if the Holders of Registrable Series E
Securities, Holders of Registrable Series E-l Securities and Holders of
Registrable Series C Securities are not participating in such offering, or
jointly, by the Holders of Registrable Series D Securities and Holders of
Registrable Series D-l Securities by a Series D Majority Vote (as defined
below), if the Holders of Registrable Series E Securities, Holders of
Registrable Series E-l Securities, Holders of Registrable Series C Securities
and Holders of Registrable Series A Securities are not participating in such
offering) blue sky fees and expenses for state qualifications or registrations,
and the expense of any audit of the Company's financial statements incident to
or required by any such registration (but excluding the compensation of regular
employees of the Company, which shall be paid in any event by the Company). For
purposes hereof, the term "Series E Majority Vote" shall mean a vote of not less
than 51% of Registrable Series E Securities and Registrable Series E-l
Securities participating in any registration pursuant to Sections 1.02 and 1.03
hereof, voting together as a class, and the term "Series D Majority Vote" shall
mean a vote of not less than 51% of Registrable Series D Securities and
Registrable Series D-l Securities participating in any registration pursuant to
Sections 1.02 and 1.03 hereof, voting together as a single class.
(b) "Selling Expenses" shall mean all underwriting discounts and
selling commissions applicable to the sale of the Registrable Securities in the
registration (other than fees and disbursements of the Company's counsel
included in Registration Expenses, and the fees of one special counsel to the
Combined Holders of Registrable Securities (such counsel to be selected by the
Initiating Holders, in the case of a registration pursuant to Section 1.02(a);
or in the case of a registration pursuant to Section 1.02(b) or 1.03, jointly by
the Holders of Registrable Series E Securities and the Holders of Registrable
Series E-l Securities by a Series E Majority Vote, in the case of a registration
in which the Holders of Registrable Series E Securities or the Holders of
Registrable Series E-l Securities are participating, or by the Holders of
Registrable Series C Securities, if the Holders of Registrable Series E
Securities and the Holders of Registrable Series E-l Securities are not
participating in such offering, or by the Holders of Registrable Series A
Securities, if the Holders of Registrable Series E Securities, the Holders of
Registrable Series E-l Securities and Holders of Registrable Series C Securities
are not participating in such offering, or jointly, by the Holders of
Registrable Series D Securities and Holders of Registrable Series D-l Securities
by a Series D Majority Vote, if the Holders of Registrable Series E Securities,
the Holders of Registrable Series E-l Securities, the Holders of Registrable
Series C Securities and the Holders of Registrable Series A Securities are not
participating in such offering) which fees and disbursements of counsel shall be
borne by the Company).
1.07 Expenses of Registration. The Company shall bear all Registration
Expenses incurred in connection with any registration, qualification or
compliance pursuant to Sections 1.02, 1.03 and 1.04, including the reasonable
legal expenses of up to $25,000 of one counsel for all selling Combined Holders.
All Selling Expenses shall be borne by the Combined Holders of the securities so
registered, pro rata on the basis of the
16
number of shares so registered; provided, however, that if in such registration,
the Company pays any Selling Expenses for any other security holders, the
Company will pay such expenses for all such Combined Holders.
1.08 Delay of Registration. No Combined Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as a result of any controversy that might arise with respect to the
interpretation or implementation of this Section 1.
1.09 Indemnification. In the event any Registrable Securities are included
in a registration statement under this Section 1:
(a) The Company will indemnify and hold harmless each Combined Holder
of Registrable Securities covered by such registration statement, its heirs,
personal representatives and assigns, each of such Combined Holder's partners,
each of such Combined Holder's, and each of such Combined Holder's partners',
officers, directors, stockholders or other equity owners, employees and
affiliates, any underwriter (as defined in the Securities Act) for such Combined
Holder and each Person, if any, who controls such Combined Holder or underwriter
within the meaning of the Securities Act or the Exchange Act against any losses,
claims, damages or liabilities (joint or several) to which they may become
subject under the Securities Act, the Exchange Act or other federal or state
law, insofar as such losses, claims, damages or liabilities (or actions in
respect thereof) arise out of or are based upon a Violation; and the Company
will pay to each such indemnified party, as incurred, any legal or other
expenses reasonably incurred by them in connection with investigating or
defending any such loss, claim, damage, liability, or action; provided, however,
that the indemnity agreement contained in this Section 1.09(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 or delayed), nor shall the Company be
liable in any such case to a particular indemnified party 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 the
registration related to such Violation by such indemnified party. The indemnity
provided for in this Section 1.09(a) shall remain in full force and effect
regardless of any investigation made by or on behalf of such indemnified party
and shall survive transfer of any securities of the Company by such indemnified
party.
(b) Each Combined Holder of Registrable Securities covered by a
registration statement will indemnify and hold harmless the Company, each of its
directors, each of its officers who has signed such registration statement, each
Person, if any, who controls the Company within the meaning of the Securities
Act, any underwriter (within the meaning of the Securities Act) for the Company,
any Person who controls such underwriter, any other Combined Holder selling
securities pursuant to such registration statement and any controlling Person of
any such underwriter or such other Combined Holder, against any losses, claims,
damages or liabilities (joint or several) to
17
which any of the foregoing Persons may become subject, under the Securities Act,
the Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are based
upon any Violation, in each case to the extent (and only to the extent) that
such Violation occurs in reliance upon and in conformity with written
information furnished by such Combined Holder expressly for use in connection
with such registration; and each such Combined Holder will pay, as incurred, any
legal or other expenses reasonably incurred by any Person intended to be
indemnified pursuant to this Section 1.09(b), in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 1.09(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 such
Combined Holder, which consent shall not be unreasonably withheld or delayed.
Notwithstanding the foregoing, in no event shall the liability of any Combined
Holder under this Section 1.09(b) exceed the net proceeds from the offering
received by such Combined Holder in such registration.
(c) Promptly after receipt by an indemnified party under this Section
1.09 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 1.09, 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, acting reasonably; provided, however, that an
indemnified party shall have the right to retain its own counsel, with the
reasonable fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to notify an indemnifying party within a
reasonable time of the commencement of any such action, to the extent
prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.09, but the omission so to notify the indemnifying party will not relieve it
of any liability that it may have to any indemnified party otherwise than under
this Section 1.09. An indemnifying party may settle any action or claim under
this Section 1.09 at any time without the consent of the indemnified party so
long as such settlement involves no cost, liability or restriction to the
indemnified party and includes an unconditional release of the indemnified party
from all liability with respect to such claim or action.
(d) The obligations of the Company and Combined Holders under this
Section 1.09 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Agreement, and otherwise.
(e) Any indemnity agreements contained herein shall be in addition to
any other rights to indemnification or contribution which any indemnified party
may have
18
pursuant to law or contract and shall remain operative and in full force and
effect regardless of any investigation made or omitted by or on behalf of any
indemnified party.
(f) If the indemnification provided for in this Section 1.09 is held
by a court of competent jurisdiction to be unavailable, then the indemnifying
party shall contribute to the amount paid or payable by the indemnified party as
a result of such losses, claims, damages, liabilities or expenses (i) in such
proportion as is appropriate to reflect the relative benefits received by the
indemnifying party on the one hand and the indemnified party on the other
(taking into consideration, among other things, the fact that the provision of
the registration rights and indemnification hereunder was a material inducement
to the Combined Holders to purchase Registrable Securities held by such Combined
Holder) or (ii) if the allocation provided by clause (i) above is not permitted
by applicable law or provides a lesser sum to the indemnified party than the
amount hereinafter calculated, in such proportion as is appropriate to reflect
not only the relative benefits received by the indemnifying party on the one
hand and the indemnified party on the other (taking into consideration, among
other things, the fact that the provision of the registration rights and
indemnification hereunder is or was a material inducement to the Combined
Holders to purchase Registrable Securities held by such Combined Holder) but
also the relative fault of the indemnifying party and the indemnified party as
well as any other relevant equitable considerations. The relative fault shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission or alleged omission to state
a material fact relates to information supplied by or on behalf of the
indemnifying party or the indemnified party and the parties' relative intent,
knowledge, access to information and opportunity to correct or prevent such
untrue statement or omission. No Person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be entitled to
contribution from any Person who was not guilty of such fraudulent
misrepresentation. Notwithstanding anything to the contrary in this Section
1.09, no Combined Holder shall be required, pursuant to this Section 1.09, to
contribute any amount in excess of the net proceeds received by such
indemnifying party from the sale of securities in the offering to which the
losses, claims, damages, liabilities or expenses of the indemnified party
relate.
1.10 Reports Under the Exchange Act. With a view to making available to the
Combined Holders the benefits of Rule 144 promulgated under the Securities Act
and any other rule or regulation of the SEC that may at any time permit such
Combined Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(a) use its best efforts to make and keep public information
available, as those terms are understood and defined in Rule 144 promulgated
under the Securities Act, at all times after the effective date of the First
Public Offering;
(b) take such action, including the voluntary registration of its
Common Stock under Section 12 of the Exchange Act, as is necessary to enable the
Combined Holders to utilize Form S-3 for the sale of their Registrable
Securities, such
19
action to be taken as soon as practicable after the end of the fiscal year in
which the First Public Offering is declared effective or such earlier date as
may be required by any stock exchange or quotation system upon which the
Company's Common Stock maybe traded;
(c) file with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act;
and
(d) furnish to any such Combined Holder, so long as such Combined
Holder owns any Registrable Securities, forthwith upon request (i) a written
statement by the Company that it has complied with the reporting requirements of
Rule 144 promulgated under the Securities Act (at any time after the effective
date of the First Public Offering) and the Securities Act and the Exchange Act
(at any time after it has become subject to such reporting requirements) or that
it qualifies as a registrant whose securities may be resold pursuant to Form S-3
(at any time 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
order to permit any such Combined Holder to avail itself of any rule or
regulation of the SEC or any state securities authority which permits the
selling of any such securities without registration or pursuant to such form.
1.11 Assignment of Registration Rights. The rights to cause the Company to
register Registrable Securities pursuant to this Section 1 may be assigned, in
whole or in part, by (a) an Original Holder or Other Holder to a transferee or
assignee of such securities: (i) if such transferee or assignee was a Holder of
Registrable Securities hereunder prior to such transfer, (ii) if such transfer
is made in connection with the transfer of not less than 25% of the Registrable
Securities held by such Holder on the date hereof, (iii) if such transferee or
assignee acquires at least five percent (5%) of the then outstanding Registrable
Securities, (iv) in connection with a transfer of shares to an affiliate of such
Holder or (v) in connection with a distribution by such Holder, to any partner,
former partner, member, former member, stockholder or former stockholder or the
estate of any such Person, or (b) a Series D Holder, Series ▇-▇ ▇▇▇▇▇▇, Series E
Holder or Series E-l Holder to any transferee or assignee of such securities,
provided the Company is, within a reasonable time after such transfer, furnished
with written notice of the name and address of such transferee or assignee and
the securities with respect to which such registration rights are being
assigned; provided, however, that, in each such case, such assignment shall be
effective only if immediately following such transfer the transferee executes a
joinder agreement, which indicates that the assignee is bound by the terms and
conditions of this Agreement, such transfer of any Registrable Securities is
lawful under all applicable securities laws and which category of Holders such
assignee shall be as a result of such assignment. Except as specifically
permitted in the preceding sentence, neither this Agreement nor any Combined
Holder's rights or privileges under this Agreement can be assigned or
transferred, in whole or in part, without the prior written consent of the other
parties hereto. 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 (i) a partnership who are partners or retired
partners of such partnership (including spouses and ancestors, lineal
descendants and siblings of such
20
partners or spouses who acquire Registrable Securities by gift, will or
intestate succession) or (ii) a corporation or limited liability company which
is a parent or subsidiary of such entity, shall be aggregated together and with
the partnership or other entity, as the case may be.
1.12 No Other Registration Rights; Limitations on Subsequent Registration
Rights. The Company, the Holders, to the actual knowledge of each such Holder,
and the Founder, without any investigation, represent and warrant to the
Combined Holders that, upon the execution of this Agreement by all of the
parties hereto, no "registration rights" relating to securities of the Company
will exist on the date hereof other than pursuant to this Agreement and pursuant
to the outstanding warrant agreements and registration rights agreement set
forth on Exhibit A attached hereto. From and after the date of this Agreement,
the Company shall not, without the prior written consent of each of (w) the
Other Holders holding a majority of the Registrable Series C Securities then
outstanding, (x) the Original Holders holding a majority of the Registrable
Series A Securities then outstanding, (y) the Series D Holders and Series D-l
Holders holding a majority of the Registrable Series D Securities and
Registrable Series D-l Securities then outstanding, voting together as a class,
and (z) the Series E Holders and Series E-l Holders holding a majority of the
Registrable Series E Securities and Registrable Series E-l Securities then
outstanding, voting together as a class, 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 this Agreement, 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 such holder's
securities will not reduce the amount of the Registrable Securities of any
Combined Holder which is included therein; (b) to demand a registration of any
securities of the Company; or (c) otherwise be in conflict with the terms of
this Agreement. Furthermore, the Company shall not enter into any agreement with
any holder or prospective holder of any securities of the Company which would
allow such holder or prospective holder to.have registration rights that are
equal or superior to the registration rights of the Series E Holders and the
Series E-l Holders.
1.13 "Market Stand-off Agreement. Each Combined Holder agrees that, in
connection with any underwritten public offering of the Company's Common Stock,
it shall not, if requested by the Company and the underwriters managing such
underwritten offering of the Company's Common Stock, sell, make any short sale
of, loan, grant any option for the purchase of, or otherwise transfer or dispose
of (other than to donees, affiliates or partners who agree to be similarly
bound) any Registrable Securities (other than those shares of Common Stock
included in the registration or other securities acquired in open market
transactions after the completion of the Company's public offering) without the
prior written consent of the Company or such underwriters, as the case may be,
for such period of time (not to exceed ninety (90) days) from the effective date
of such registration as may be requested by the underwriters consistent with
then prevailing market practices. The foregoing provisions of this Section 1.13
shall only be applicable to a Combined Holder if all beneficial owners of 1% or
more of the Company's Common Stock (on an as-converted basis) and each officer
and director of
21
the Company enter into similar agreements. Notwithstanding the foregoing, (i)
the Series D-l Holders and their affiliates which purchased Series E Stock in
conjunction with the Company's offering thereof in an amount equal to eighty
percent (80%) or more of the amount invested by such persons in Series D Stock,
and (ii) EnerTech Capital Partners and its affiliates, shall not be obligated to
comply with this Section 1.13 in connection with any offering of the Company's
Common Stock after the First Public Offering.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Combined Holder (and the shares of securities of every other person subject to
the foregoing restriction) until the end of such period.
1.14 Termination of the Company's Obligations. Notwithstanding any contrary
provision of this Section 1, the Company shall not be required to effect any
registrations under the Securities Act or under any state securities laws on
behalf of any Combined Holder or Combined Holders if, in the opinion of counsel
to the Company (which counsel shall be reasonably acceptable to such Combined
Holder or Combined Holders), the offering or transfer by such Combined Holder or
Combined Holders in the manner proposed (including, without limitation, the
number of shares proposed to be offered or transferred, the time of sale and the
method of offering or transfer) is exempt from the registration requirements of
the Securities Act, without regard to the volume limitations of Rule 144
promulgated thereunder, and the securities laws of applicable states and the
Company consents to such transfer, if required.
1.15 Information Rights.
(a) Delivery of Financial Statements.
The Company shall deliver to each Combined Holder, if and for so
long as such Combined Holder holds shares of Series E Stock and Series E-l Stock
with an aggregate purchase price of at least $2,000,000 or owns at least 3% of
the outstanding Registrable Securities:
(i) As soon as available, but in any event not later than
forty-five (45) days after the end of each month, the unaudited consolidated
balance sheet as at the end of such month of the Company and its subsidiaries
and the related unaudited consolidated statements of operations, stockholders'
equity and cash flows for such month and for the elapsed period in such fiscal
year, all in reasonable detail, and stating in comparative form the figures as
of the end of and for the comparable period of the preceding fiscal year and
budgeted figures for the period. All such financial statements shall be complete
and correct in all material respects, and shall be accompanied by a certificate
of the President, Chief Financial Officer or Chief Administrative Officer of the
Company to such effect.
(ii) As soon as available, but in any event not later than
forty-five (45) days after the end of each fiscal quarter, the unaudited
consolidated balance sheet of the Company and its subsidiaries as at the end of
such fiscal quarter and the
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related unaudited consolidated statements of operations, stockholders' equity
and cash flows of the Company and its subsidiaries for such fiscal quarter, all
in reasonable detail and stating in comparative form the figures as at the end
of and for such quarter in the previous fiscal year and budgeted figures for the
period. All such financial statements shall be complete and correct in all
material respects and prepared in reasonable detail and in accordance with
generally accepted accounting principles applied, except as stated therein, on a
consistent basis throughout the periods reflected therein (except that such
financial statements may omit footnotes and may be subject to normal year end
adjustments which are not, in the aggregate, material), and shall be accompanied
by a certificate of the President, Chief Financial Officer or Chief
Administrative Officer of the Company to such effect.
(iii) As soon as available, but in any event within ninety (90)
days after the end of each fiscal year of the Company, the audited consolidated
and unaudited consolidating balance sheet of the Company and its subsidiaries as
at the end of such fiscal year and the related audited consolidated statements
and unaudited consolidating statements of operations, stockholders' equity and
cash flows of the Company and its subsidiaries for such fiscal quarter, all in
reasonable detail and stating in comparative form the figures as at the end of
and for such quarter in the previous fiscal year and budgeted figures for the
fiscal year accompanied by an opinion of a "big five" accounting firm selected
by the Company with respect to the consolidated statements, which opinion shall
state that such accounting firm's audit was conducted in accordance with
generally accepted auditing standards and, accordingly, included such tests of
accounting records and such other auditing procedures as were considered
necessary under the circumstances and which opinion shall not be subject to any
qualification resulting from a limit on the scope of the examination of the
financial statements or the underlying data or which could be eliminated by
changes in the financial statements or the notes thereto or by the creation of
or increase in a reserve or a decreased carrying value of assets, as such
standards may change from time to time. All such financial statements shall be
complete and correct in all material respects and prepared in reasonable detail
and in accordance with generally accepted accounting principles applied, except
as stated therein, on a consistent basis throughout the periods reflected
therein.
(iv) As soon as available, but in any event not later than
forty-five (45) days prior to the end of each fiscal year of the Company, the
financial plan of the Company for the next succeeding fiscal year to be
submitted to the Board of Directors for approval, including but not limited to,
at minimum, assumptions with respect to (a) revenues, (b) customers and
contracts, (c) operating costs and (d) capital expenditures and cash flow and
balance sheet projections and operating budget, calculated monthly, comparisons
to comparable periods in the prior year and any updates or revisions as soon as
available.
(v) Within twenty (20) days after receipt, copies of all
notifications received by the Company relating to (i) material defaults, alleged
or actual,
23
of any provisions of any loans or leases to which the Company is a party and
(ii) material litigation commenced by or against the Company.
(vi) With reasonable promptness, such other information and data
relating to the financial condition, business, prospects or corporate affairs of
the Company as a Combined Holder deems reasonably necessary or may from time to
time reasonably request.
The Company shall further deliver to the Combined Holders such
other notices, information and data with respect to the Company as the Company
delivers to the holders of its capital stock in their capacity as holders of
capital stock at the same time it delivers such items to such holders. The
information provided pursuant to this Section 1.15 shall be used by each
Combined Holder solely in furtherance of its interests as a stockholder in the
Company and each Combined Holder shall strictly maintain the confidentiality of
all information pertaining to the Company obtained under this Section 1.15(a).
(b) Inspection Rights. Each Combined Holder owning shares of Series E
Stock and Series E-l Stock with an aggregate purchase price of at least
$2,000,000 or owning at least 3% of the outstanding Registrable Securities, or
any authorized representative thereof, shall have the right to (i) visit and
inspect any of the properties of the Company and any of its subsidiaries, (ii)
examine their respective corporate and financial records (and make copies
thereof or extracts therefrom), (iii) to discuss the business, affairs, finances
and accounts of the Company or any of its subsidiaries with its officers,
directors, key employees and accountants and (iv) to review such information as
is reasonably requested all at such reasonable times and as often as may be
reasonably requested.
(c) Termination of Information Covenants. The covenants set forth in
this Section 1.15 shall terminate and be of no further force or effect
immediately upon the closing of the First Public Offering.
1.16 Right of First Offer, (a) The Company hereby grants to each Holder the
right of first offer to purchase a pro rata share of any New Securities (as
defined below) that the Company may, from time to time, propose to sell and
issue. Each Holder shall have a right of over-allotment such that if any Holder
fails to exercise its right hereunder to purchase its entire pro rata share of
the New Securities, the other Holders may purchase the non-purchasing Holder's
shares on a pro rata basis to the extent they have elected to purchase New
Securities in excess of their pro rata share. Each such Holder's pro rata share,
for purposes of this right of first offer, is the ratio of (X) the number of
shares of Common Stock (assuming conversion of all outstanding Convertible
Preferred Stock) owned by such Holder to (Y) the total number of shares of
Common Stock then outstanding (assuming conversion of all outstanding
Convertible Preferred Stock and the exercise of all outstanding options,
warrants and other rights to purchase Common Stock of the Company). This right
of first offer shall be subject to the following provisions:
24
(i) "New Securities" shall mean any Common Stock or Preferred
Stock of the Company whether or not authorized on the date hereof, or rights,
options, or warrants to purchase such Common Stock or Preferred Stock, or
securities of any type whatsoever that are. or may become, convertible into or
exercisable for said Common Stock or Preferred Stock; provided, however, that
"New Securities" does not include the following:
(A) shares of Common Stock issuable to officers, directors,
employees, advisors and consultants of the Company pursuant to stock, option and
employee purchase plans or arrangements approved by the Board of Directors, up
to a maximum of 59,014,933 shares of Common Stock (as such number may be
appropriately adjusted for stock splits, stock combinations, stock dividends,
recapitalizations, reclassifications and the like);
(B) 2,719,848 shares of Common Stock and 6,146,098 shares of
Preferred Stock, in each case issuable pursuant to outstanding warrants (as
adjusted for stock splits, stock dividends, combinations, recapitalizations and
similar events from and after the date of issuance of such warrants);
(C) shares of Common Stock issuable upon conversion or
exercise of the Company's currently outstanding Convertible Preferred Stock;
(D) securities of the Company offered to the public pursuant
to a bona fide public offering;
(E) securities of the Company issued pursuant to the bona
fide acquisition of another corporation by the Company or by another corporation
of the Company whether by merger, consolidation, purchase or sale of
substantially all of the assets or securities, exchange of securities or other
reorganization whereby the Company owns not less than fifty-one percent (51%) of
the voting power of such other corporation or such other corporation owns not
less than fifty-one percent (51%) of the voting power of the Company;
(F) shares of Common Stock or Preferred Stock issued in
connection with any stock split, stock dividend, or recapitalization by the
Company;
(G) shares of Common Stock or Preferred Stock issued in
connection with lease lines, bank financing or other similar financing
transactions that are approved by the Board of Directors; or
(H) up to 43,000,000 shares of Series E-l Stock (as adjusted
for stock splits, stock dividends, combinations, recapitalizations and similar
events), and any shares of Common Stock issuable upon conversion thereof.
(b) In the event that the Company proposes to undertake an issuance of
New Securities, it shall give each Holder written notice of its intention,
describing the type of New Securities, the price, and the general terms upon
which the Company
25
proposes to issue the same (the "Company's Notice"). Each such Holder shall have
ten (10) business days from the date such notice is given to agree to purchase
up to its pro rata share of such New Securities at the price and upon the terms
specified in the notice by giving written notice to the Company and stating
therein the quantity of New Securities to be purchased. In the event that a
Holder does not elect to purchase its entire pro rata share (a
"Non-Participating Holder"), then each Holder purchasing such New Securities
shall have ten (10) business days to elect to purchase, on a pro rata basis as
between such participating purchasers, each Non-Participating Holder's pro rata
share not purchased by such Non-Participating Holder.
(c) The Company shall have ninety (90) days thereafter to sell any New
Securities not acquired by the Holders at a price and upon general terms no more
favorable to the purchasers thereof than specified in the Company's Notice, In
the event the Company has not sold the New Securities within such ninety (90)
day period, the Company shall not thereafter issue or sell any New Securities
without first offering such New Securities to the Holders in the manner provided
above.
(d) The right of first offer described in this Section 1.16 shall
terminate and be of no further force or effect upon the consummation of a firm
commitment underwritten public offering of Common Stock yielding gross proceeds
to the Company of not less than $25,000,000 and based upon a valuation of the
Company immediately prior to such offering of not less than $255,000,000 (a
"Qualified Public Offering").
(e) This right of first offer shall not apply to the Founder or any
Holder which no longer owns any shares of Preferred Stock or Common Stock
issuable upon conversion thereof as of the date of the Company's Notice referred
to above.
(f) This right of first offer may be assigned by each Holder (i) upon
sale or transfer by such Holder to a transferee of at least twenty-five percent
(25%) of such Holder's securities owned as of the date hereof; or (ii) to
partners, members, shareholders, subsidiaries and affiliates of such Holder in
connection with the transfer to such transferees of the securities of the
Company; provided that the Company is given written notice by such Holder
promptly after such transfer, stating the name and address of said transferee,
and that any transferee executes a joinder agreement, which indicates that the
assignee is subject to the obligations of such Holder hereunder and indicates
which category of Holders such assignee shall be as a result of such assignment.
2. General Provisions.
2.01 Further Assurances. Each party agrees to cooperate fully with the
other parties and to execute such further instruments, documents and agreements
and to give such further written assurances, as may be reasonably requested by
any other party to better evidence and reflect the transactions described herein
and contemplated hereby, and to effect the intents and purposes of this
Agreement.
26
2.02 Changes in Registrable Securities. If, and as often as, there are any
changes in the Registrable Securities by way of stock split, stock dividend,
combination or reclassification, or through merger, consolidation,
reorganization or recapitalization, or by any other means, appropriate
adjustment shall be made in the provisions of this Agreement, as may be
required, so that the rights and privileges granted hereby shall continue with
respect to the Registrable Securities as so changed. Without limiting the
generality of the foregoing, the Company will require any successor by merger or
consolidation to assume and agree to be bound by the terms of this Agreement, as
a condition to any such merger or consolidation.
2.03 Rights Cumulative. Each and all of the various rights, powers and
remedies of the parties hereto shall be considered to be cumulative with and in
addition to any other rights, powers and remedies which such parties may have at
law or in equity in the event of the breach of any of the terms of this
Agreement. The exercise or partial exercise of any right, power or remedy shall
neither constitute the exclusive election thereof nor the waiver of any other
right, power or remedy available to such party.
2.04 Pronouns. All pronouns and any variations thereof shall be deemed to
refer to the masculine, feminine or neuter, singular or plural, as the identity
of the person, persons, entity or entities may require.
2.05 Notices. All notices, consents or demands of any kind which any party
to this Agreement may be required or may desire to serve on any other party
hereto in connection with this Agreement shall be in writing and may be
delivered by personal service or overnight courier, by telex or facsimile
transfer, or by registered or certified mail, return receipt requested,
deposited in the United States mail with first-class postage thereon fully
prepaid, addressed: (i) if to the Company, attention: Secretary at its then
current principal executive office address; or (ii) if to any other party to
this Agreement, at the address on the signature page hereof or such other
address as such party shall have notified the Company is its latest address in
accordance with this Section 2,05. Service of any such notice or demand so made
by mail shall be deemed complete on the date of actual delivery as shown by the
addressee's registry or certification receipt or at the expiration of five (5)
business days after the date of mailing, whichever is earlier. Any party hereto
may from time to time by notice in writing served upon the Company as aforesaid,
designate a different mailing address or a different person to which such
notices or demands are thereafter to be addressed or delivered.
2.06 Captions. Captions are provided herein for convenience only and they
form no part of this Agreement and are not to serve as a basis for
interpretation or construction of this Agreement, nor as evidence of the
intention of the parties hereto.
2.07 Severability. The provisions of this Agreement are severable. The
invalidity, in whole or in part, of any provision of this Agreement shall not
affect the validity or enforceability of any other of its provisions. If one or
more provisions hereof shall be so declared invalid or unenforceable, the
remaining provisions shall remain in full force and effect and shall be
construed in the broadest possible manner to effectuate the purposes hereof. The
parties further agree to replace such void or unenforceable
27
provisions of this Agreement with valid and enforceable provisions which will
achieve, to the extent possible, the economic, business and other purposes of
the void or unenforceable provisions.
2.08 Attorneys' Fees. In any action at law or in equity to enforce any of
the provisions or rights under this Agreement, the unsuccessful party to such
litigation, as determined by the court in a final judgment or decree, shall pay
the successful party all reasonable costs, expenses and attorneys' fees incurred
by the successful party (including, without limitation, costs, expenses and fees
on any appeal) with respect to such action.
2.09 Counterparts. This Agreement may be executed in separate counterparts,
each of which shall be deemed an original, and when executed, separately or
together, shall constitute a single original instrument, effective in the same
manner as if the parties hereto had executed one and the same instrument.
2.10 Waiver. Any party hereto may, as to itself, by a writing signed by an
authorized representative of such party: (i) extend the time for the performance
of any of the obligations of another party; (ii) waive any inaccuracies in
representations and warranties made by another party contained in this Agreement
or in any documents delivered pursuant hereto; (iii) waive compliance by another
party with any of the covenants contained in this Agreement or the performance
of any obligations of such other party; or (iv) waive the fulfillment of any
condition that is precedent to the performance by such party of any of its
obligations under this Agreement. No waiver of any term, provision or condition
of this Agreement, whether by conduct or otherwise, in any one or more
instances, shall be deemed to be, or be construed as, a further or continuing
waiver of any such term, provision or condition or as a waiver of any other
term, provision or condition of this Agreement.
2.11 Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons (including entities or persons under
common investment management or common control) shall be aggregated together for
the purpose of determining the availability of any rights under this Agreement.
2.12 Entire Agreement. This Agreement (together with its Exhibits and the
other documents referred to herein) is intended by the parties hereto to be the
final expression of their agreement and constitutes and embodies the entire
agreement and understanding of the parties with regard to the subject matter
hereof and is a complete and exclusive statement of the terms and conditions
thereof, and shall supersede any and all prior correspondence, conversations,
negotiations, agreements or understandings relating to the same subject. Without
limitation of the foregoing, the parties hereto acknowledge and agree that the
Prior Agreement has been superseded in its entirety by this Agreement and that
the Prior Agreement is of no further force or effect.
2.13 Choice of Law. It is the intention of the parties that the internal
laws of the State of New York, as such laws are applied to agreements between
New York
28
residents entered into and to be performed entirely within New York, shall
govern this Agreement in all respects, whether or not all parties hereto are
residents of New York.
2.14 Binding on Heirs,,Successors and Assigns. This Agreement and all of
its terms, conditions and covenants are intended to be fully effective and
binding, to the extent permitted by law, on the heirs, executors,
administrators, successors and permitted assigns of the parties hereto.
2.15 Survival. The respective representations and warranties given by each
of the parties, as contained herein shall survive without regard to any
investigation made by any party. All statements as to factual matters contained
in any certificates, exhibits or other instruments delivered by or on behalf of
any party pursuant to the terms hereto or in connection with the transactions
contemplated hereby shall be deemed, for all purposes, to constitute
representations and warranties by such party under the terms of this Agreement
given as of the date of such certificate or instrument.
2.16 Confidentiality. Each party hereto agrees that, except with the prior
written permission of the other parties, it shall at all times keep confidential
and not divulge, furnish or make accessible to anyone any confidential
information, knowledge or data concerning or relating to the business or
financial affairs of the other parties to which such party has been or shall
become privy by reason of this Agreement, except as required by law or under
applicable rules of any self regulatory organization under the Exchange Act. The
parties hereto further agree that there shall be no press release or other
public statement issued by any party relating to this Agreement or the
transactions contemplated hereby, unless the parties otherwise agree in writing
and except as required by law, or by applicable rules of any self regulatory
organization under the Exchange Act.
2.17 Amendment. Any provision of this Agreement may be amended (including
but not limited to the admission of additional Holders) or the observance
thereof may be waived upon the written consent of the Company and the written
consent of Holders and the Founder who hold a majority of the aggregate shares
held by the Holders and the Founder of each of the following classes or series
of the Company's capital stock: (i) Series A Stock (voting as a class), (ii)
Series B Stock (voting together as a class), (iii) Series C Stock (voting
together as a class), (iv) Series D Stock and Series D-l Stock (voting together
as a class) and (v) Series E Stock and Series E-l Stock (voting together as a
separate class); provided, that Section 1.13 may not be amended with respect to
any Combined Holder without such Combined Holder's written consent. Any
amendment or waiver effected in accordance with this Section 2.17 shall be
binding upon each Combined Holder of any Registrable Securities then outstanding
(including securities into which such securities are convertible), each future
Combined Holder of all such Registrable Securities, and the Company.
2.18 Joinder Agreement. Persons who are holders under the warrant
agreements set forth on Exhibit A attached hereto or Persons who subject to
Section 1.12 subsequent to the date hereof obtain "registration rights" pursuant
to one or more agreements in compliance with this Agreement may execute a
joinder agreement
29
whereby such Person shall enjoy the benefits of the "registration rights"
contained in this Agreement to the extent and only to the extent agreed to in
the underlying agreement and shall comply with the related obligations of this
Agreement. Parties who have "registration rights" with respect to Preferred
Stock shall be treated in the joined provisions of this Agreement as a holder of
the same series of Preferred Stock. Parties who have "registration rights" with
respect to Common Stock shall be treated in the joined provisions of this
Agreement as a Founder.
[Signature pages follow]
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