Qualmark Corporation Investor Rights Agreement
Qualmark Corporation
This Investor Rights Agreement (the “Agreement”) is entered into as of the 21st day
of December 2007 by and among QualMark Corporation, a Colorado corporation (the “Company”) and the
investors listed on Exhibit A attached hereto (each an “Investor” and collectively the
“Investors”).
Recitals
Whereas, the Investors are the purchasers of shares of the Company’s Common Stock, no
par value, (the “Shares”) pursuant to that certain Stock and Warrant Purchase Agreement (the
“Purchase Agreement”) of even date herewith (the “Financing”);
Whereas, the obligations in the Purchase Agreement are conditioned upon the execution
and delivery of this Agreement by the Company and the Investors; and
Whereas, in connection with the consummation of the Financing, the parties desire to
enter into this Agreement in order to grant registration rights, information rights and other
rights to the Investors as set forth below.
Agreement
Now, Therefore, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the parties agree
hereto as follows:
1. GENERAL.
1.1 Definitions. As used in this Agreement the following terms shall have the following
respective meanings:
(a) “Affiliate” means, with respect to an Investor, an “affiliate,” as defined in Rule 405 of
Regulation C of the Securities Act, of such Investor.
(b) “Charter” means the Company’s Articles of Incorporation, as such may be amended from time
to time.
(c) “Exchange Act” means the Securities Exchange Act of 1934, as amended.
(d) “Form SB-2” means such form under the Securities Act as in effect on the date hereof or
any successor or similar registration form under the Securities Act subsequently adopted by the SEC
that permits inclusion or incorporation of substantial information by reference to other documents
filed by the Company with the SEC.
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(e) “Holder” means any person owning of record Common Stock of the Company.
(f) “Register,” “registered,” and “registration” refer to a registration effected by preparing
and filing a registration statement in compliance with the Securities Act, and the declaration or
ordering of effectiveness of such registration statement or document.
(g) “Registration Expenses” shall mean all expenses other than Selling Expenses incurred by
the Company in complying with Sections 2.2 and 2.3 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of counsel for the Company,
blue sky fees and expenses and the expense of any special audits incident to or required by any
such registration (but excluding the compensation of regular employees of the Company which shall
be paid in any event by the Company).
(h) “SEC” means the United States Securities and Exchange Commission.
(i) “Securities Act” shall mean the Securities Act of 1933, as amended.
(j) “Selling Expenses” shall mean all transfer taxes, underwriting discounts and selling
commissions applicable to the sale.
(k) “Shares” shall mean the Company’s Common Stock held by the Investors and their permitted
assigns.
(l) “Special Registration Statement” shall mean (i) a registration statement relating to any
employee benefit plan or (ii) with respect to any corporate reorganization or transaction under
Rule 145 of the Securities Act, any registration statements related to the issuance or resale of
securities issued in such a transaction.
2. REGISTRATION.
2.1 Restrictions on Transfer.
(a) Each certificate representing Shares shall be stamped or otherwise imprinted with legends
substantially similar to the following (in addition to any legend required under applicable state
securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE
SECURITIES ACT OF 1933 (THE “ACT”) AND MAY NOT BE OFFERED, SOLD OR
OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED UNLESS AND
UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT
SUCH REGISTRATION IS NOT REQUIRED.
2.
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND
CONDITIONS OF A CERTAIN INVESTOR RIGHTS AGREEMENT BY AND BETWEEN THE
STOCKHOLDER AND THE COMPANY. COPIES OF SUCH AGREEMENT MAY BE
OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.
(b) The Company shall be obligated to reissue promptly unlegended certificates at the request
of an Investor thereof if the Investor shall have obtained an opinion of counsel (which counsel may
be counsel to the Company) reasonably acceptable to the Company to the effect that the securities
proposed to be disposed of may lawfully be so disposed of without registration, qualification and
legend.
(c) Any legend endorsed on an instrument pursuant to applicable state securities laws and the
stop-transfer instructions with respect to such securities shall be removed upon receipt by the
Company of an order of the appropriate blue sky authority authorizing such removal.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company shall receive a written
request from the Investors that the Company file a registration statement under the Securities Act
covering the registration of the Shares, then the Company shall, as soon as reasonably possible,
file a Form SB-2 with the SEC registering the Shares.
(b) The Company shall not be obligated to effect any such registration, qualification or
compliance pursuant to this Section 2.2:
(i) if Form SB-2 is not available for such offering by the Investors;
(ii) if the Investors propose to sell Shares and such other securities (if any) at an
aggregate price to the public of less than $50,000;
(iii) if within thirty (30) days of receipt of a written request from Investors pursuant to
this Section 2.2, the Company gives notice to Investors of the Company’s intention to make a public
offering within ninety (90) days, other than pursuant to a Special Registration Statement;
(iv) during the period starting with the date of filing of, and ending on the date one hundred
eighty (180) days following the effective date of, any other registration statement filed by the
Company in regard to the Shares;
(v) if the Company shall furnish to the Investors a certificate signed by the Chairman of the
Board of Directors of the Company stating that, in the good faith judgment of the Board of
Directors of the Company, it would be seriously detrimental to the Company and its stockholders for
such Form SB-2 registration to be effected at such time, in which event the
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Company shall have the right to defer the filing of the Form SB-2 registration statement for a
period of not more than ninety (90) days after receipt of the request of the Investors under this
Section 2.2; provided that such right to delay a request shall be exercised by the Company not more
than once in any twelve (12) month period;
(vi) if the Company has, within the twelve (12) month period preceding the date of such
request, already effected two (2) registrations on Form SB-2 for the Investors pursuant to this
Section 2.2 and such registrations have been declared or ordered effective; or
(vii) 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 a Form SB-2 registration statement
covering the Shares as soon as practicable after receipt of the requests of the Investors.
(d) The Company shall use its best efforts to cause a Registration Statement on Form SB-2
relating to the resale of the Shares to be deemed effective within one hundred eighty (180) days
from the date of this Agreement.
2.3 Piggyback Registrations. The Company shall notify Investors in writing at least twenty
(20) business days prior to the filing of any registration statement under the Securities Act for
purposes of a public offering of securities of the Company (including, without limitation,
registration statements relating to secondary offerings of securities of the Company, but excluding
Special Registration Statements) and will afford the Investors an opportunity to include in such
registration statement all or part of the Shares. If Investors desire to include in any such
registration statement all or any part of the Shares, within fifteen (15) business days after the
above-described notice from the Company, they will so notify the Company in writing. Such notice
shall state the intended method of disposition of the Shares. If Investors decide not to include
all of its Shares in any registration statement thereafter filed by the Company, Investors shall
nevertheless continue to have the right to include any Shares in any subsequent registration
statement or registration statements as may be filed by the Company with respect to offerings of
its securities, all upon the terms and conditions set forth herein.
(a) Underwriting. If the registration statement under which the Company gives notice under
this Section 2.3 is for an underwritten offering, the Company shall so advise the Investors. In
such event, the right of the Investors to be included in a registration pursuant to this
Section 2.3 shall be conditioned upon the Investors’ participation in such underwriting and the
inclusion of the Shares in the underwriting to the extent provided herein. The Investors, if they
propose to distribute the Shares through such underwriting, shall enter into an underwriting
agreement in customary form with the underwriter or underwriters selected for such underwriting by
the Company. Notwithstanding any other provision of this Agreement, if the underwriter determines
in good faith that marketing factors require a limitation of the number of shares to be
underwritten, the number of shares that may be included in the underwriting shall be allocated,
first, to the Company; second, to the Investors; and third, to any stockholder of the Company
(other than Investors) on a pro rata basis; provided, however, that no such reduction shall reduce
the amount of securities of the Investors included in the registration below thirty percent (30%)
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of the total amount of securities included in such registration, unless such offering does not
include shares of any other selling stockholders, in which event any or all of the Shares may be
excluded in accordance with the immediately preceding clause. In no event will shares of any other
selling stockholder be included in such registration that would reduce the number of shares which
may be included by Investors without the written consent of Investors. If Investors disapprove of
the terms of any such underwriting, Investors may elect to withdraw therefrom by written notice to
the Company and the underwriter, delivered at least ten (10) business days prior to the effective
date of the registration statement. Any Shares excluded or withdrawn from such underwriting shall
be excluded and withdrawn from the registration.
(b) Right to Terminate Registration. The Company shall have the right to terminate or
withdraw any registration initiated by it under this Section 2.3 prior to the effectiveness of such
registration whether or not Investors have elected to include securities in such registration. The
Registration Expenses of such withdrawn registration shall be borne by the Company in accordance
with Section 2.4 hereof.
2.4 Expenses of Registration. Except as specifically provided herein, all Registration
Expenses incurred in connection with any registration, qualification or compliance pursuant to
Sections 2.2 or 2.3 herein shall be borne by the Company. All Selling Expenses incurred in
connection with any registrations hereunder, shall be borne by the holders of the securities so
registered, including the Investors, pro rata on the basis of the number of shares so registered.
The Company shall not, however, be required to pay for expenses of any registration proceeding
begun pursuant to Section 2.2, the request of which has been subsequently withdrawn by the
Investors unless the withdrawal is based upon material adverse information concerning the Company
of which the Investors was not aware at the time of such request.
2.5 Obligations of the Company. Whenever required to effect the registration of any Shares,
the Company shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with respect to such Shares and use
all commercially reasonable best efforts to cause such registration statement to become effective,
and, upon the request of the Investors, keep such registration statement effective for up to thirty
(30) days or, if earlier, until the Investors have completed the distribution related thereto;
provided, however, that such thirty (30)-day period shall be extended for a period of time equal to
the period the Investors refrain from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company. Notwithstanding
the foregoing, at any time, upon written notice to the Investors and for a period not to exceed
sixty (60) days thereafter (the “Suspension Period”), the Company may delay the filing or
effectiveness of any registration statement or suspend the use or effectiveness of any registration
statement (and the Investors hereby agree not to offer or sell any Shares pursuant to such
registration statement during the Suspension Period) if the Company’s Board of Directors, upon the
written advice of counsel, reasonably believes that the Company may, in the absence of such delay
or suspension hereunder, be required under state or federal securities laws to disclose any
corporate development the disclosure of which could reasonably be expected to have a material
adverse effect upon the Company, its stockholders, a potentially significant transaction or event
involving the Company, or any negotiations, discussions, or proposals directly relating thereto.
In the event that the Company shall exercise its right to delay
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or suspend the filing or effectiveness of a registration hereunder, the applicable time period
during which the registration statement is to remain effective shall be extended by a period of
time equal to the duration of the Suspension Period (and any extension of the Suspension Period
pursuant to the following sentence). Upon advance notice to Investors, the Company may extend the
Suspension Period for one additional consecutive period not to exceed sixty (60) days, if prior any
such extension, the Company has solicited and received written consent to such extension from the
Investors, which consent shall not be unreasonably withheld. If so directed by the Company,
Investors shall use commercially reasonable best efforts to deliver to the Company (at the
Company’s expense) all copies, other than permanent file copies then in Investors’ possession, of
the prospectus relating to such Shares current at the time of receipt of such notice. The Company
shall not be required to file, cause to become effective or maintain the effectiveness of any
registration statement other than a registration statement on Form SB-2 that contemplates a
distribution of securities on a delayed or continuous basis pursuant to Rule 415 under the
Securities Act.
(b) Prepare and file with the SEC such amendments and supplements to such registration
statement and the prospectus used in connection with such registration statement as may be
necessary to comply with the provisions of the Securities Act with respect to the disposition of
all securities covered by such registration statement for the period set forth in subsection (a)
above.
(c) Furnish to the Investors such number of copies of a prospectus, including a preliminary
prospectus, in conformity with the requirements of the Securities Act, and such other documents as
it may reasonably request in order to facilitate the disposition of Shares owned by Investors.
(d) Use its best efforts to register and qualify the securities covered by such registration
statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Investors; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions except as may be required by the Securities Act.
(e) In the event of any underwritten public offering, enter into and perform its obligations
under an underwriting agreement, in usual and customary form, with the managing underwriter(s) of
such offering. Investors shall also enter into and perform their obligations under such an
agreement.
(f) Notify Investors at any time when a prospectus relating to the Shares is required to be
delivered under the Securities Act of the happening of any event as a result of which the
prospectus included in such registration statement, as then in effect, includes an untrue statement
of a material fact or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances then existing. As
promptly as practicable thereafter, the Company will prepare and file with the SEC, and furnish
without charge to the Investors and managing underwriter(s), if any, an amendment or supplement to
such registration statement or prospectus in order to cause such registration statement or
prospectus not to include any untrue statement of a material fact or omit to state a
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material fact required to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing and will furnish such copies thereof as
the Investors or any underwriters may reasonably request.
(g) Use its reasonable efforts to furnish, on the date that such Shares are delivered to the
underwriters for sale, if such securities are being sold through underwriters, (i) an opinion,
dated as of such date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in an underwritten
public offering, addressed to the underwriters, if any, and (ii) a letter, dated as of such date,
from the independent certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
(h) Cause all such Shares registered pursuant hereunder to be listed on each securities
exchange on which similar securities issued by the Company are then listed or to be included for
trading on any inter-dealer quotation system on which similar securities issued by the Company are
then included.
(i) Provide a transfer agent and registrar for all Shares registered pursuant hereunder and a
CUSIP number for all such Shares, in each case not later than the effective date of such
registration.
2.6 Delay of Registration; Furnishing Information.
(a) The Investors shall not have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that might arise with
respect to the interpretation or implementation of this Section 2.
(b) It shall be a condition precedent to the obligations of the Company to take any action
pursuant to Sections 2.2 or 2.3 that the Investors shall furnish to the Company such information
regarding itself, the Shares and the intended method of disposition of such securities as shall
reasonably be required to effect the registration of the Share
2.7 Indemnification. In the event any Shares are included in a registration statement under
Sections 2.2 or 2.3:
(a) To the extent permitted by law, the Company will indemnify and hold harmless the
Investors, the partners, members, officers and directors of the Investors, any underwriter (as
defined in the Securities Act) for Investors and each person, if any, who controls the Investors or
underwriter within the meaning of the Securities Act or the Exchange Act, against any expenses,
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 expenses,
losses, claims, damages or liabilities (or actions in respect thereof) arise out of or are based
upon any of the following statements, omissions or violations (collectively a “Violation”) by the
Company: (i) any untrue statement or alleged untrue statement of a material fact contained in such
registration statement or incorporated by reference therein, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission
or alleged omission to state therein a material fact required to be stated
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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 in connection with the offering covered by such registration statement; and the
Company will reimburse the Investors, partner, member, officer, director, underwriter or
controlling person for 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 2.7(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 for any such loss, claim, damage, liability or
action to the extent that it arises out of or is based upon a Violation that occurs in reliance
upon and in conformity with written information furnished expressly for use in connection with such
registration by such Investor, partner, member, officer, director, underwriter or controlling
person of the Investor.
(b) To the extent permitted by law, the Investors will, if the Shares are included in the
securities as to which such registration, qualifications or compliance is being effected, indemnify
and hold harmless the Company, each of its directors, its officers and each person, if any, who
controls the Company within the meaning of the Securities Act, any underwriter and any other Holder
selling securities under such registration statement or any of such other Holder’s partners,
members, directors or officers or any person who controls such Holder, against any losses, claims,
damages or liabilities (joint or several) to which the Company or any such director, officer,
controlling person, underwriter or other such Holder, or partner, member, director, officer or
controlling person of such other Holder may become subject under the Securities Act, the Exchange
Act or other federal or state law, insofar as such expenses, losses, claims, damages or liabilities
(or actions in respect thereto) arise out of or are based upon any of the following statements:
(i) any untrue statement or alleged untrue statement of a material fact contained in such
registration statement or incorporated by reference therein, including any preliminary prospectus
or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission
or alleged omission to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged violation by the
Company of the Securities Act (collectively, an “Investor Violation”), in each case to the extent
(and only to the extent) that such Investor Violation occurs in reliance upon and in conformity
with written information furnished by Investors under an instrument duly executed by Investors and
stated to be specifically for use in connection with such registration; and Investors will
reimburse any legal or other expenses reasonably incurred by the Company or any such director,
officer, controlling person, underwriter or other Holder, or partner, member, officer, director or
controlling person of such other Holder in connection with investigating or defending any such
loss, claim, damage, liability or action if it is judicially determined that there was such an
Investor Violation; provided, however, that the indemnity agreement contained in this
Section 2.7(b) shall not apply to amounts paid in settlement of any such loss, claim, damage,
liability or action if such settlement is effected without the consent of the Investors, which
consent shall not be unreasonably withheld or delayed; provided further, that in no event shall any
indemnity under this Section 2.7 exceed the net proceeds from the offering received by such Holder.
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(c) Promptly after receipt by an indemnified party under this Section 2.7 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 the indemnifying party under this Section 2.7,
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,
to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however,
that an indemnified party shall have the right to retain its own counsel, with the fees and
expenses to be paid by the indemnifying party, if representation of such indemnified party by the
counsel retained by the indemnifying party would be inappropriate due to actual or potential
differing interests between such indemnified party and any other party represented by such counsel
in such proceeding. The failure to deliver written notice to the indemnifying party within a
reasonable time of the commencement of any such action, if materially prejudicial to its ability to
defend such action, shall relieve indemnifying party of any liability to the indemnified party
under this Section 2.7, but the omission to deliver written notice to the indemnifying party will
not relieve it of any liability that it may have to any indemnified party otherwise than under this
Section 2.7.
(d) If the indemnification provided for in this Section 2.7 is held by a court of competent
jurisdiction to be unavailable to an indemnified party with respect to any losses, claims, damages
or liabilities referred to herein, the indemnifying party, in lieu of indemnifying such indemnified
party thereunder, shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or liability in such
proportion as is appropriate to reflect the relative fault of the indemnifying party on the one
hand and of the indemnified party on the other in connection with the Violation(s) or Investor
Violation(s) that resulted in such loss, claim, damage or liability, as well as any other relevant
equitable considerations. The relative fault of the indemnifying party and of the indemnified
party shall be determined by a court of law by reference to, among other things, whether the untrue
or alleged untrue statement of a material fact or the omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and the parties’
relative intent, knowledge, access to information and opportunity to correct or prevent such
statement or omission; provided that in no event shall any contribution by a Holder hereunder
exceed the net proceeds from the offering received by such Holder less any amounts paid pursuant to
Section 2.7(b) above.
(e) The obligations of the Company and the Investors under this Section 2.7 shall survive
completion of any offering of Shares in a registration statement and the termination of this
Agreement. The indemnifying party, in the defense of any such claim or litigation, shall not,
except with the consent of each indemnified party, consent to entry of any judgment or enter into
any settlement that does not include as an unconditional term thereof the giving by the claimant or
plaintiff to such indemnified party of a release from all liability in respect to such claim or
litigation.
2.8 Assignment of Registration Rights. The rights to cause the Company to register the Shares
pursuant to this Section 2 may be assigned by Investors to their owners or former owners in
accordance with ownership interests or to an entity affiliated by common control (or other related
entity or fund) with Investors; provided, however, (i) the Investors shall, within ten (10) days
after such transfer, furnish to the Company written notice of the name and address of
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such transferee or assignee and the securities with respect to which such registration rights
are being assigned and (ii) such transferee shall agree to be subject to all restrictions set forth
in this Agreement.
2.9 Amendment of Registration Rights. Any provision of this Section 2 may be amended and the
observance thereof may be waived (either generally or in a particular instance and either
retroactively or prospectively), only with the written consent of the Company and the Investors.
Any amendment or waiver effected in accordance with this Section 2.9 shall be binding upon
Investors and the Company.
2.10 Limitation on Subsequent Registration Rights. After the date of this Agreement, the
Company shall not, without the prior written consent of the Investors, enter into any agreement
with any holder or prospective holder of any securities of the Company that would grant such holder
registration rights senior to those granted to the Investors hereunder, other than the right to a
Special Registration Statement.
2.11 Agreement to Furnish Information. If requested by the Company or the representative of
the underwriters of Common Stock (or other securities) of the Company, Investors shall provide,
within ten (10) days of such request, such non-confidential information as may be required by the
Company or such representative in connection with the completion of any public offering of the
Company’s securities pursuant to a registration statement filed under the Securities Act (other
than a Special Registration Statement). Investors agree that any transferee of any shares of
Shares shall agree to be bound by Sections 2.11.
2.12 Rule 144 Reporting. With a view to making available to the Investors the benefits of
certain rules and regulations of the SEC that may permit the sale of the Shares to the public
without registration, or pursuant to a registration on Form SB-2, the Company agrees to use its
best efforts to:
(a) Make and keep public information available, as those terms are understood and defined in
SEC Rule 144 or any similar or analogous rule promulgated under the Securities Act, at all times;
(b) File with the SEC, in a timely manner, all reports and other documents required of the
Company under the Exchange Act; and
(c) So long as Investors own any Shares, furnish to Investors forthwith upon request: a
written statement by the Company as to its compliance with the reporting requirements of said Rule
144 of the Securities Act, and of the Exchange Act; a copy of the most recent annual or quarterly
report of the Company filed with the SEC; and such other reports and documents as Investors may
reasonably request in connection with availing themselves of any rule or regulation of the SEC
allowing it to sell any such securities without registration.
3. COVENANTS OF THE COMPANY.
3.1 Basic Financial Information and Reporting.
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(a) The Company will maintain true books and records of account in which full and correct
entries will be made of all its business transactions pursuant to a system of accounting
established and administered in accordance with generally accepted accounting principles
consistently applied (except as noted therein or as disclosed to the recipients thereof), and will
set aside on its books all such proper accruals and reserves as shall be required under generally
accepted accounting principles consistently applied.
(b) As soon as practicable after the end of each fiscal year of the Company, and in any event
within one hundred twenty (120) days thereafter, the Company will furnish Investors a balance sheet
of the Company, as at the end of such fiscal year, and a statement of income and a statement of
cash flows of the Company, for such year, all prepared in accordance with generally accepted
accounting principles consistently applied (except as noted therein or as disclosed to the
recipients thereof) and setting forth in each case in comparative form the figures for the previous
fiscal year, all in reasonable detail.
3.2 Inspection Rights. Investors shall have the right to visit and inspect any of the
properties of the Company or any of its subsidiaries, and to discuss the affairs, finances and
accounts of the Company or any of its subsidiaries with its officers, and to review such
information as is reasonably requested all at such reasonable times and as often as may be
reasonably requested; provided, however, that the Company shall not be obligated under this
Section 3.2 with respect to a competitor of the Company or with respect to information which the
Board of Directors determines in good faith is confidential or attorney-client privileged and
should not, therefore, be disclosed.
3.3 Confidentiality of Records. Investors agree to use the same degree of care as Investors
use to protect their own confidential information to keep confidential any information furnished to
them that the Company identifies as being confidential or proprietary (so long as such information
is not in the public domain), except that Investors may disclose such proprietary or confidential
information (i) to any partner, manager (in the event of a limited liability company), subsidiary
or parent of the Investors for the purpose of evaluating their investment in the Company as long as
such partner, manager, subsidiary or parent is advised of the confidentiality provisions of this
Section 3.3; (ii) at such time as it enters the public domain through no act of the Investors;
(iii) that is communicated to it free of any obligation of confidentiality; or (iv) that is
developed by the Investors or their agents independently of and without reference to any
confidential information communicated by the Company.
4. MISCELLANEOUS.
4.1 Governing Law. This Agreement shall be governed by and construed under the laws of the
State of Colorado in all respects as such laws are applied to agreements among Colorado residents
entered into and performed entirely within Colorado. The parties agree that any action brought by
either party under or in relation to this Agreement, including without limitation to interpret or
enforce any provision of this Agreement, shall be brought in, and each party agrees to and does
hereby submit to the jurisdiction and venue of, any state or federal court located in the County of
Denver, Colorado.
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4.2 Successors and Assigns. Except as otherwise expressly provided herein, the provisions
hereof shall inure to the benefit of, and be binding upon, the parties hereto and their respective
successors, assigns, heirs, executors, and administrators and shall inure to the benefit of and be
enforceable by each person who shall be a holder of Shares from time to time; provided, however,
that prior to the receipt by the Company of adequate written notice of the transfer of any Shares
specifying the full name and address of the transferee, the Company may deem and treat the person
listed as the holder of such shares in its records as the absolute owner and holder of such shares
for all purposes, including the payment of dividends or any redemption price.
4.3 Entire Agreement. This Agreement, the exhibits and Schedules hereto, the Purchase
Agreement and the other documents delivered pursuant thereto constitute the full and entire
understanding and agreement between the parties with regard to the subjects hereof and no party
shall be liable or bound to any other in any manner by any oral or written representations,
warranties, covenants and agreements except as specifically set forth herein and therein. Except
as set forth in the Purchase Agreement and the other documents delivered pursuant thereto, each
party expressly represents and warrants that it is not relying on any oral or written
representations, warranties, covenants or agreements outside of this Agreement.
4.4 Severability. In the event one or more of the provisions of this Agreement should, for
any reason, be held to be invalid, illegal or unenforceable in any respect, such invalidity,
illegality, or unenforceability shall not affect any other provisions of this Agreement, and this
Agreement shall be construed as if such invalid, illegal or unenforceable provision had never been
contained herein.
4.5 Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be amended or modified, either
prospectively or retrospectively and either in general or with respect to any particular matter,
only upon the written consent of the Company and the Investors. Any such amendment shall be
binding on all parties hereto.
(b) Except as otherwise expressly provided, the obligations of the Company and the rights of
the Investors under this Agreement may be waived, either prospectively or retrospectively and
either in general or with respect to any particular matter, only with the written consent of the
Investors. Any such waiver shall be binding on all parties hereto.
4.6 Delays or Omissions. It is agreed that no delay or omission to exercise any right, power,
or remedy accruing to any party, upon any breach, default or noncompliance by another party under
this Agreement shall impair any such right, power, or remedy, nor shall it be construed to be a
waiver of any such breach, default or noncompliance, or any acquiescence therein, or of any similar
breach, default or noncompliance thereafter occurring. Subject to the terms of Section 4.5 above,
it is further agreed that any waiver, permit, consent, or approval of any kind or character on any
party’s part of any breach, default or noncompliance under this Agreement or any waiver on such
party’s part of any provisions or conditions of this Agreement must be in writing and shall be
effective only to the extent specifically set forth in such writing.
12.
All remedies, either under this Agreement, by law, or otherwise afforded to any party, shall
be cumulative and not alternative.
4.7 Notices. All notices required or permitted hereunder shall be in writing and shall be
deemed effectively given: (a) upon personal delivery to the party to be notified, (b) when sent by
confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if
not, then on the next business day, (c) five (5) business days after having been sent by registered
or certified mail, return receipt requested, postage prepaid, or (d) one (1) business day after
deposit with a nationally recognized overnight courier, specifying next day delivery, with written
verification of receipt. All communications shall be sent to the party to be notified at the
address as set forth on the signature pages hereof or at such other address or electronic mail
address as such party may designate by ten (10) days advance written notice to the other parties
hereto.
4.8 Attorneys’ Fees. In the event that any suit or action is instituted under or in relation
to this Agreement, including without limitation to enforce any provision in this Agreement, the
prevailing party in such dispute shall be entitled to recover from the losing party all fees, costs
and expenses of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and expenses of attorneys and
accountants, which shall include, without limitation, all fees, costs and expenses of appeals.
4.9 Titles and Subtitles. The titles of the sections and subsections of this Agreement are
for convenience of reference only and are not to be considered in construing this Agreement.
4.10 Counterparts. This Agreement may be executed and delivered (including by fax or
electronic transmission) in any number of counterparts, each of which shall be an original, but all
of which together shall constitute one instrument.
4.11 Pronouns. All pronouns contained herein, and any variations thereof, shall be deemed to
refer to the masculine, feminine or neutral, singular or plural, as to the identity of the parties
hereto may require.
[The remainder of this page is intentionally left blank.]
13.
In Witness Whereof, the parties hereto have executed this Investor rights
Agreement as of the date set forth in the first paragraph hereof.
| COMPANY: | INVESTORS: | |||||||
| Qualmark Corporation | THE ▇▇▇▇▇ PARTNERSHIP III, SBIC, LP | |||||||
By: |
||||||||
| By: | ||||||||
| Address: | Name: ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | |||||||
| Title: Manager of its General Partner | ||||||||
| ▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ | ||||||||
INVESTOR RIGHTS AGREEMENT
SIGNATURE PAGE
SIGNATURE PAGE
EXHIBIT A
| NUMBER OF | NUMBER OF | PURCHASE | ||||||||||
| NAME AND ADDRESS | SHARES | WARRANTS | PRICE | |||||||||
▇▇▇▇▇▇▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ |
130,208 | 130,208 | $ | 100,000 | ||||||||
The ▇▇▇▇▇ Partnership III, SBIC, LP |
||||||||||||
▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇ |
651,042 | 651,042 | $ | 500,000 | ||||||||
Total |
781,250 | 781,250 | $ | 600,000 | ||||||||
Exhibit A to Investor Rights Agreement