TELOCITY, INC.
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
This SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT (the
"Agreement") is entered into as of December 13, 1999, by and among Telocity,
Inc., a California corporation (the "Company"), the undersigned purchasers of
Series C Preferred Stock of the Company (individually, an "Investor" and
collectively, the "Investors")), the existing holders of Investor Rights of the
Company by virtue of their purchase of Series A Preferred Stock and Series B
Preferred Stock of the Company and parties to that, certain Amended and Restated
Investors' Rights Agreement (the "Rights Agreement"), dated as of February 16,
1999 ("Existing Holders") and, with respect to Section 5 below, the undersigned
holders of Common Stock of the Company, Peter D. Olson, Thomas Obenhuber,
Michael Solomon, Matthew J. Stepovich and Kevin Grundy (collectively, the
"Founders"). This Agreement is being entered into pursuant to Section 5.1(h) of
that certain Series C Preferred Stock Purchase Agreement of even date herewith
between the Company and the Investors (the "Purchase Agreement"). By this
Agreement, the Company, the Existing Holders and the Founders desire to, and by
signing below do, amend and restate the Rights Agreement, and with the
Investors, desire to set forth certain registration and other rights of the
parties as set forth below.
NOW THEREFORE, in consideration of the foregoing and of the mutual
promises and covenants contained herein, the parties mutually agree as follows:
1. Registration; Restrictions on Transfers.
1.1 Definitions. As used in this Agreement the following
terms shall have the following respective meanings:
"Holder" means any person owning or having the right to acquire
Registrable Securities, including Existing Holders and Investors , or any
assignee of record thereof in accordance with Section 1.11 hereof.
"Initial Offering" shall mean the Company's initial public offering
registered under the Securities Act, which shall be a Qualifying Offering (as
such term is defined in the Company's Articles of Incorporation).
"Initiating Holders" means any Holder or Holders holding 10% or greater
of the aggregate number of the Registrable Securities then outstanding.
"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
effectiveness of such registration statement or document.
"Registrable Securities" means (i) Common Stock of the Company issued
or issuable upon conversion of the Shares; and (ii) any Common Stock of the
Company issued as (or 1
3
issuable upon the conversion or exercise of any warrant, right or other security
which is issued as) a dividend or other distribution with respect to, or in
exchange for or in replacement of, the Shares. Notwithstanding the foregoing,
Registrable Securities shall not include any securities sold by a person to the
public either pursuant to a registration statement or Rule 144 or sold in a
private transaction in which the transferor's rights under Section 2 of this
Agreement are not assigned or, as to any Holder, if the Registrable Securities
held by such Holder may be sold immediately pursuant to Rule 144 withoutrestriction.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities or may be received upon conversion of
other Registrable Securities and either (1) are then issued and outstanding or
(2) are issuable pursuant to then exercisable or convertible securities.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 1.3 and 1.6 hereof, including, without limitation,
all registration, filing and qualification fees, printing expenses, fees and
disbursements of counsel of the Company and one special counsel to the
Investors, 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 theCompany).
"Securities Act" shall mean the Securities Act of 1933, as amended.
"Selling Expenses" shall mean all underwriting discounts and selling
commissions applicable to the sale.
"Shares" shall mean the Company's Series C Preferred Stock, Series B
Preferred Stock and Series A Preferred Stock.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor registration form under the Securities Act
subsequently adopted by the SEC which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the SEC.
"SEC" or "Commission" means the Securities and Exchange Commission.
1.2 Restrictions on Transfer.
1.2.1 Each of the Holders agrees not to make any
disposition of all or any portion of the Shares (or the Common Stock of the
Company issuable upon the conversion thereof) unless and until the transferee
has agreed in writing for the benefit of the Company to be bound by the terms of
this Agreement and:
(a) There is then in effect a registration
statement under the Securities Act covering such proposed disposition and such
disposition is made in accordance with such registration statement; or
2
4
(b) (i) Such Holder shall have notified the
Company of the proposed disposition and the name and address of the transferee,
and (ii) if reasonably requested by the Company, such Holder shall have
furnished the Company with an opinion of counsel, reasonably satisfactory to the
Company, that such disposition will not require registration of such shares
under the Securities Act. It is agreed that the Company will not unreasonably
require opinions of counsel for transactions made pursuant to Rule 144.
(c) Notwithstanding the provisions of
paragraphs (a) and (b) above, no such registration statement or opinion of
counsel shall be necessary for a transfer by a Holder (i) which is a
partnership, to its partners, funds administered by any such partner, or retired
partners in accordance with partnership interests, (ii) to its members and any
affiliates of such members, (iii) which is a corporation, to its affiliates,
(iv) to any charitable donee or (v) to such Holder's family member or trust for
the benefit of an individual Holder, provided the transferee agrees in writing
to be subject to the terms of this Agreement to the same extent as if he were an
original Holder hereunder. For purposes of this Agreement, "affiliate," with
respect to any person, means any other person that controls, is controlled by,
is under common control or investment discretion with such person.
1.2.2 Each certificate representing Shares or
Registrable Securities shall (unless otherwise permitted by the provisions of
the Agreement) be stamped or otherwise imprinted with a legend as follows (in
addition to any legend required under applicable state securities laws or as
provided elsewhere in the Agreement):
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, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL
REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL OR BASED ON
OTHER WRITTEN EVIDENCE IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO
THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR
HYPOTHECATION IS IN COMPLIANCE THEREWITH.
1.2.3 The Company shall be obligated to reissue
promptly unlegended certificates at the request of any holder thereof if the
holder shall have obtained an opinion of counsel (which counsel may be counsel
to the Company) reasonably satisfactory to the Company to the effect that the
securities proposed to be disposed of may lawfully be so disposed of without
registration, qualification or legend.
1.2.4 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 or an
opinion of counsel (which counsel may be counsel to the Company) reasonably
satisfactory to the Company to the effect that the securities may be distributed
lawfully without such legend. 3
5
1.3 Demand Registration.
1.3.1 Request for Registration. In case the
Company shall receive from Initiating Holders a written request that the Company
effect any registration, qualification or compliance with respect to at least
10% of the aggregate number of Registrable Securities then outstanding, provided
that the anticipated aggregate offering price of such registration,
qualification or compliance, net of standard underwriting discounts, would
exceed $5,000,000, the Company will:
(i) promptly give written notice of
the proposed registration, qualification or compliance to all other Holders; and
(ii) as soon as practicable, use its
best efforts to effect all such registrations, qualifications and compliances
(including, without limitation, the execution of an undertaking to file
post-effective amendments, appropriate qualifications under the applicable blue
sky or other state securities laws and appropriate compliance with exemptive
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 Initiating
Holder's or Initiating Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
Holder or Holders joining in such request as are specified in a written request
given within 30 days after receipt of such written notice from the Company;
provided that the Company shall not be obligated to take any action to effect
such registration, qualification or compliance pursuant to this Section 1.3:
(a) at any time prior to the earlier of
February 16, 2002 or six (6) months after the Company's Initial Offering;
(b) in any particular jurisdiction in which
the Company would be required to execute a general qualification or compliance
unless the Company is already subject to service in such jurisdiction and except
as required by the Securities Act; or
(c) after the Company has effected four (4)
such registrations pursuant to this Section 1.3.1 and such registrations have
been declared or ordered effective.
Subject to the foregoing clauses (a) through (c), the
Company shall file a registration statement covering the Registrable Securities
so requested to be registered as soon as practical, but in any event within 90
days, after receipt of the request or requests of the Initiating Holders;
provided, however, that if the Company shall furnish to such holders within ten
(10) days of its receipt of the request for registration 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
shareholders for such registration to be filed at the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, the Company shall have the right to defer the offering for a period
of not more than ninety (90) days after receipt of the request for registration;
provided, however, that this right cannot be exercised more than once in any
twelve month period.
4
6
1.4 Piggyback Registrations. The Company shall notify all
Holders of Registrable Securities in writing at least thirty (30) 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, but not limited
to, registration statements relating to secondary offerings of securities of the
Company, but excluding registration statements relating to employee benefit
plans and corporate reorganizations) and will afford each such Holder an
opportunity to include in such registration statement all or part of such
Registrable Securities held by such Holder, provided, that such notice shall not
obligate the Company to file such registration statement. Each Holder desiring
to include in any such registration statement all or any part of the Registrable
Securities held by it shall, within twenty (20) days after receipt of the
above-described notice from the Company, so notify the Company in writing. Such
notice shall state the intended method of disposition of the Registrable
Securities by such Holder. If a Holder decides not to include all of its
Registrable Securities in any registration statement thereafter filed by the
Company, such Holder shall nevertheless continue to have the right to include
any Registrable Securities in any subsequent registration statement or
registration statements as may be filed by the Company with respect to offerings
of its securities, all upon the terms and conditions set forth herein.
1.5 Underwriting. If the registration statement under
which the Company gives notice under Section 1.4 is for an underwritten offering
of the Common Stock of the Company, the Company shall so advise the Holders of
Registrable Securities. In such event, the right of any such Holder to be
included in a registration pursuant to this Section shall be conditioned upon
such Holder's participation in such underwriting and the inclusion of such
Holder's Registrable Securities in the underwriting to the extent provided
herein. All Holders proposing to distribute their Registrable Securities through
such underwriting shall enter into an underwriting agreement in customary form
with the underwriter or underwriters selected by the Company for such
underwriting. Notwithstanding any other provision of the 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, in the case of a registration
statement filed pursuant to a request under Section 1.4, first to the Company
and next to the Holders participating in such registration on a pro rata basis
based on the total number of Registrable Securities held by such Holders, or, in
the case of a registration statement filed pursuant to a request under Section
1.3, to all of the Holders participating in such registration on a pro rata
basis based on the total number of Registrable Securities held by such Holders;
provided, however, in no event shall any shares which are not Registrable
Securities be included in any registration in which the number of Registrable
Securities to be sold in such registration have been limited pursuant to this
Section 1.5, unless the inclusion of such shares has been approved by the
holders of three quarters (3/4) of the Registrable Securities and provided,
further that in no event shall the limitation on the number of shares included
in such registration by the Holders exercising rights under Section 1.4 be
reduced below fifty percent (50%) of the total number of securities included in
such registration, unless such registration is the Company's Initial Offering,
in which case the selling Holders may be excluded if the underwriter makes the
determination described above and no other shareholder's securities are included
in the registration. No such reduction shall reduce the securities being offered
by the Company for its own account to be included in the registration and
underwriting in the Initial Offering. 5
7
1.6 Form S-3. In case the Company shall receive a written
request or requests from Holders of 10% of Registrable Securities then
outstanding that the Company effect a registration on Form S-3 or any successor
form to S-3 and any related qualification or compliance with respect to all or a
part of the Registrable Securities owned by such Holder, the Company will,
provided that it is able to utilize a Form S-3:
1.6.1 promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders
of Registrable Securities; and
1.6.2 at any time after 180 days following the
effective date of the Initial Offering and after 90 days following the effective
date of any subsequent registered underwritten offering of the Company's Common
Stock to the general public, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
twenty (20) 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 1.6: (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 $1,000,000, (ii) if the Company shall furnish to the Holders
a certificate signed by the President or 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
shareholders for such registration to be effected at such time, in which event
the Company shall have the right to defer the filing of the registration
statement for a period of not more than sixty (60) days after receipt of the
request of the Holder or Holders under this Section 1.6.2, provided that such
right shall not be exercised more than once in any twelve month period, (iii) if
the Company has, within the six (6) month period preceding the date of such
request, already effected one (1) registration for the Holders pursuant to this
Section 1.6, 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. In
addition, the Company shall not be required to effect a registration pursuant to
this Section if within thirty (30) days receipt of a written request from
Holders pursuant to this Section, the Company gives notice to the Holders of the
Company's good faith intention to make a public offering of the Company's Common
Stock within sixty (60) days of such request and the Holders shall be provided
with piggyback registration rights for such registration pursuant to Section 1.4
hereof (and may actually sell Shares thereunder) and provided that such Company
notice shall not be given more than once in a twelve month period.
1.6.3 Subject to the foregoing, the Company shall
file such registration statement as is then available to the Company covering
the Registrable Securities and other securities so requested to be registered as
soon as practicable, but in any event not later than thirty (30) days after
receipt of the request or requests of the Holders. 6
8
1.7 Expenses of Registration. All Registration Expenses
incurred in connection with any registration under this Section 1 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 pro rata on the basis of the number of shares of such Holders so
registered. The Company shall not, however, be required to pay for the
Registration Expenses of any registration proceeding begun pursuant to Section
1.3 or Section 1.6, the request of which has been subsequently withdrawn by the
Initiating Holders unless (a) the withdrawal is based upon material adverse
information concerning the Company or a public offering of the Company of which
the Initiating Holders were not aware at the time of such request or that arose
or developed after the date of such request or (b) the Holders of a majority of
Registrable Securities agree to forfeit their right to one requested
registration pursuant to Section 1.3 or Section 1.6 in which event such right
shall be forfeited by all Holders). If the Holders are required to pay the
Registration Expenses, such expenses shall be borne solely by those holders of
securities (including Registrable Securities) who withdraw such request for
registration in proportion to the number of shares for which registration wasrequested.
1.8 Obligations of the Company. Whenever required to
effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
1.8.1 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, unless otherwise
requested by the Holders of a majority of the Registrable Securities registered
thereunder, keep such registration statement effective for up to ninety (90)days.
1.8.2 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.
1.8.3 Furnish to the Holders such number of copies
of a prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.
1.8.4 Use its best efforts to register and qualify
the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders, provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states orjurisdictions.
1.8.5 In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter(s) of such
offering. Each Holder participating in such underwriting shall also enter into
and perform its obligations under such an agreement. 7
9
1.8.6 Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact or
omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing.
1.8.7 Furnish, at the request of a majority of the
Holders participating in the registration, on the date that such Registrable
Securities are delivered to the underwriters for sale, if such securities are
being sold through underwriters, or, if such securities are not being sold
through underwriters, on the date that the registration statement with respect
to such securities becomes effective, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to a majority in interest of the
Holders requesting registration, addressed to the underwriters, if any, and to
the Holders requesting registration of Registrable Securities and (ii) a letter
dated as of such date, from the independent certified public accountants of the
Company, in form and substance as is customarily given by independent certified
public accountants to underwriters in an underwritten public offering and
reasonably satisfactory to a majority in interest of the Holders requesting
registration, addressed to the underwriters, if any, and to the Holders
requesting registration of Registrable Securities.
1.9 Delay of Registration; Furnishing Information.
1.9.2 It shall be a condition precedent to the
obligations of the Company to register the Registrable Securities of any selling
Holder that such selling Holder shall have furnished to the Company such
information regarding itself, the Registrable Securities held by it and the
intended method of disposition of such securities as shall be reasonably
required to effect the registration of their Registrable Securities within a
reasonable period after having received a written request from the Company for
such information.
1.10 Indemnification. In the event any Registrable
Securities are included in a registration statement under Sections 1.3, 1.4 or1.6:
1.10.1 To the extent permitted by law, the Company
will indemnify and hold harmless each Holder, the partners, affiliates,
officers, directors, representatives, agents and legal counsel of each Holder,
any underwriter (as defined in the Securities Act) for such Holder and each
person, if any, who controls such Holder or underwriter within the meaning of
the Securities Act or the Securities Exchange Act of 1934, as amended, (the
"1934 Act"), against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the 1934 Act
or other federal or state law, insofar as such losses, claims, damages or
liabilities (or actions in respect 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, including
any preliminary prospectus or final prospectus contained therein 8
10
or any amendments or supplements thereto, (ii) the omission or alleged omission
to state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act, the 1934 Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the 1934 Act or any state securities law in connection with the offering covered
by such registration statement; and the Company will reimburse each such Holder,
partner, affiliate, officer, director, representative, agent, legal counsel,
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 as such expenses are incurred; provided
however, that the indemnity agreement contained in this Section 1.10.1 shall not
apply to amounts paid in settlement of any such loss, claim, damage, liability
or action if such settlement is effected without the consent of the Company
(which consent shall not be unreasonably withheld), nor shall the Company be
liable in any such case for any such loss, claim, damage, liability or action to
the extent that it arises out of or is based upon a Violation which occurs in
reliance upon and in conformity with written information furnished expressly for
use in connection with such registration by such Holder, partner, affiliate,
officer, director, underwriter or controlling person of such Holder.
1.10.2 To the extent permitted by law, each selling
Holder will indemnify and hold harmless the Company, each of its directors, each
of its officers, each person, if any, who controls the Company within the
meaning of the Securities Act, any underwriter and any other Holder selling
securities under such registration statement or any of such other Holder's
partners, directors or officers or any person who controls such Holder, 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, director, officer or controlling person of such other
Holder may become subject under the Securities Act, the 1934 Act or other
federal or state law, insofar as such losses, claims, damages or liabilities (or
actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information expressly furnished by
such Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company or
any such director, officer, controlling person, underwriter or other Holder, or
partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage,
liability or action; provided, however, that the indemnity agreement contained
in this Section 1.10.2 shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided further, that in no event shall any indemnity under this Section 1.10
exceed the net proceeds from the offering received by such Holder.
1.10.3 Promptly after receipt by an indemnified
party under this Section 1.10 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section
1.10, deliver to the indemnifying party a written notice of the commencement
thereof and the indemnifying party shall have the right to participate in, and,to 9
11
the extent the indemnifying party so desires, jointly with any other
indemnifying party similarly noticed, to assume the defense thereof with counsel
mutually satisfactory to the parties; provided, however, that an indemnified
party shall 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 material 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 such indemnifying party of any
liability to the indemnified party under this Section 1.10 to the extent
materially prejudicial, but the omission so to deliver written notice to the
indemnifying party will not relieve it of any liability that it may have to any
indemnified party otherwise than under this Section 1.10.
1.10.4 If the indemnification provided for in this
Section 1.10 is held by a court of competent jurisdiction to be unavailable to
an indemnified party with respect to any 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) 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 Violation 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 under this Section 1.10.4 exceed the net proceeds received from the
offering by such Holder.
1.10.5 The foregoing indemnity agreements of the
Company and Holders are subject to the condition that, insofar as they relate to
any Violation made in a preliminary prospectus but eliminated or remedied in the
amended prospectus on file with the SEC at the time the registration statement
in question becomes effective or the amended prospectus filed with the SEC
pursuant to SEC Rule 424(b) (the "Final Prospectus"), such indemnity agreement
shall not inure to the benefit of any person if a copy of the Final Prospectus
was furnished in a timely manner to the indemnified party and was not furnished
to the person asserting the loss, liability, claim or damage at or prior to the
time such action is required by the Securities Act.
1.10.6 The obligations of the Company and Holders
under this Section 1.10 shall survive the completion of any offering of
Registrable Securities in a registration statement and the termination of thisAgreement.
1.11 Assignment of Registration Rights. The rights to
cause the Company to register Registrable Securities pursuant to this Section 1
may be assigned by a Holder to a transferee or assignee of Registrable
Securities; provided, however, that no such transferee or assignee shall be
entitled to registration rights under Sections 1.3 or 1.6 hereof unless itacquires 10
12
at least two hundred fifty thousand (250,000) shares of Registrable Securities
(as adjusted for stock splits and combinations) and the Company shall, within a
reasonable time, be 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. Notwithstanding the foregoing, rights to
cause the Company to register securities may be assigned to any subsidiary,
parent, affiliate, partner or retired partner of a Holder, any family member or
trust for the benefit of any individual Holder or any entity affiliated with the
Holder by common ownership.
1.12 Amendment of Registration Rights. Any provision of
this Section 1 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 Holders of
at least two-thirds (2/3) of the Registrable Securities. Any amendment or waiver
effected in accordance with this Section 1.12 shall be binding upon each Holder
and the Company. By acceptance of any benefits under this Section 1, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
1.13 "Market Stand-Off" Agreement. If requested by the
Company and an underwriter of Common Stock (or other securities) of the Company,
a Holder shall not sell or otherwise transfer or dispose of any Common Stock (or
other securities) of the Company held by such Holder (other than those included
in the registration) for a period specified by the underwriters not to exceed
one hundred eighty (180) days following the effective date of a registration
statement of the Company filed under the Securities Act relating to the Initial
Offering, provided that all officers and directors of the Company and
shareholders and optionholders of 1% or more of the Company's outstanding shares
enter into similar agreements, provided, further, that such market stand-off
shall be memorialized in a letter agreement containing customary terms and
conditions. The obligations described in this Section 1.13 shall apply solely to
a registration relating to the Initial Offering. The Company may impose
stop-transfer instructions with respect to the shares (or securities) subject to
the foregoing restriction until the end of said one hundred eighty (180) day
period; provided that the underwriter of the Initial Offering has not released
such Holder from such market stand-off.
1.14 Termination of Registration Rights. All registration
rights granted under this Section 1 shall terminate and be of no further force
and effect seven (7) years after the date following the closing of the Company's
Initial Offering or, as to any Holder, if the Registrable Securities held by
such Holder may be sold immediately pursuant to Rule 144 without restriction.
1.15 Reports Under the 1934 Act. With a view to making
available to the 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 a Holder to sell securities of the Company to the public without
registration, the Company agrees to:
(i) make and keep public information available,
as those terms are understood and defined in SEC Rule 144, at all times after
the effective date of the first registration statement filed by the Company for
the offering of its securities to the general public; 11
13
(ii) file with the SEC in a timely manner all reports
and other documents required of the Company under the Securities Act and the
1934 Act; and
(iii) furnish to any Holder, so long as the Holder
owns any Registrable Securities, forthwith upon request (i) a written statement
by the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act and the 1934 Act (at any time after it has become
subject to such reporting requirements), and (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.
2. Covenants of the Company.
2.1 Financial Information and Reporting.
2.1.1 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, and will set aside on its books all such proper accruals
and reserves as shall be required under generally accepted accounting principles
consistently applied.
2.1.2 The Company will furnish to each Holder as
soon as practicable after the end of each fiscal year of the Company, and in any
event within 90 days thereafter, a consolidated balance sheet of the Company, as
at the end of such fiscal year, and a consolidated statement of income and a
consolidated statement of cash flows of the Company, for such year, all prepared
in accordance with generally accepted accounting principles and setting forth in
each case in comparative form the figures for the previous fiscal year, all in
reasonable detail. Such financial statements shall be audited and accompanied by
a report and opinion thereon by independent public accountants of national
standing selected by the Company's Board of Directors.
2.1.3 The Company will furnish to each Holder
within thirty (30) days after the end of each month, an unaudited balance sheet
and statements of income and cash flows, prepared in accordance with generally
accepted accounting principles, with the exception that no notes need be
attached to such statements and year-end audit adjustments may not have beenmade.
2.1.4 The Company will furnish to each Holder
forty-five (45) days prior to the beginning of each fiscal year, the Company's
annual operating plan for the succeeding fiscal year.
2.1.5 Notwithstanding anything to the contrary
stated in this Section 2.1, the Company shall not be obligated to provide
financial information to any Holder (i) if such Holder and its affiliates do not
continue to hold at least an aggregate of 500,000 Shares or at least 500,000
shares of Common Stock of the Company issued or issuable upon conversion of the
Shares, or (ii) upon the closing of the Initial Offering. For purposes of
calculating the number of shares held by a Holder for purposes of this Section
2.1.5, all shares held by Holders who are 12
14
affiliates (as such term is defined in Rule 405 promulgated under the Securities
Act) shall be aggregated.
2.1.6. Upon the reasonable request of any Holder,
who owns together with its affiliates at least an aggregate of 500,000 Shares or
at least 500,000 shares of Common Stock of the Company issued or issuable upon
conversion of the Shares, the Company shall provide to such Holder (i)
reasonable access during regular business hours to the management of the Company
for the purpose of discussing matters related to the Company and (ii)
information regarding the Company and its operations.
2.2 Reservation of Common Stock. The Company will at all
times reserve and keep available, solely for issuance and delivery upon the
conversion of the Shares, all Common Stock of the Company issuable from time to
time upon such conversion.
2.3 Right to Observe. The Company will furnish to holders
of Series B Preferred Stock, who, with their affiliates, hold at least 750,000
Shares, notice of, and permit the attendance at, all meetings of the Board of
Directors of the Company, or any committee thereof. Such holders of Series B
Preferred Stock shall be entitled to attend such meetings as non-voting
observers. The Company will furnish to GE Capital Equity Investments, Inc. ("GE
Capital"), for so long as it or any of its affiliates continues to hold at least
250,000 Shares, notice of, and permit its attendance at, all meetings of the
Board of Directors of the Company, or any committee thereof. GE Capital shall be
entitled to attend such meetings as non-voting observers. Notwithstanding the
foregoing, GE Capital agrees not to disclose confidential matters discussed at
the Board meeting and the Company shall have the right to exclude such
representative if the Company and the Company's counsel reasonably believe it is
necessary to protect the attorney-client privilege or the Company's interests.
This Section 2.3, other than the first sentence hereof, may not be amended
without the written consent of GE Capital.
2.4 Termination of Covenants. All covenants of the
Company contained in Sections 2.1 and 2.2 of this Agreement shall expire and
terminate as to each Holder immediately after the Company's Initial Offering.
3. Rights of First Refusal.
3.1 Subsequent Offerings. Each Holder shall have a right
of first refusal to purchase up to its pro rata share of all Equity Securities,
as defined below, that the Company may, from time to time, propose to sell and
issue after the date of this Agreement. Each Holder's pro rata share, for
purposes of this right of first refusal, is equal to the ratio of (a) the number
of Shares (including all shares of Common Stock of the Company issued or
issuable upon conversion of the Shares or options or warrants for Shares) of
which such Holder is deemed to be a holder immediately prior to the issuance of
such Equity Securities to (b) the total number of shares of stock then
outstanding (including all shares of Common Stock of the Company issued or
issuable upon conversion of the Shares and other convertible securities and upon
the exercise of outstanding and options and warrants). The Company shall
promptly, in writing, inform each Holder that elects to purchase all the shares
available to it (a "Fully-Exercising Holder") of any other Holder's failure to
do likewise. During the ten (10) day period commencing after such 13
15
information is given, each Fully-Exercising Holder may elect to purchase that
portion of the Shares for which Holders were entitled to subscribe but which
were not subscribed for by the Holders that is equal to a fraction of the
unsubscribed shares. The numerator of such fraction shall be the number of
equity securities of the Company (assuming conversion of all such securities to
Common Stock of the Company) owned by a Fully-Exercising Holder and the
denominator of which shall be the total number of equity securities (assuming
the conversion of all such securities to Common Stock of the Company) owned by
all Fully-Exercising Holders who wish to purchase some of the unsubscribed
shares. The term "Equity Securities" shall mean any stock or similar security of
the Company or any security convertible, with or without consideration, into any
stock or similar security, except that the term "Equity Securities" shall not
refer to securities specified in Section 3.5 below. For purposes of determining
each Holder's pro rata share, all entities that are affiliates (as such term is
defined in Rule 405 promulgated under the Securities Act) shall be aggregated
and any such affiliated entities may purchase some or all of the shares
available to such affiliated entities pursuant to this Section 3.1.
3.2 Exercise of Rights. If the Company proposes to issue
any Equity Securities, it shall give each Holder written notice of its
intention, describing the Equity Securities, the price and the terms and
conditions upon which the Company proposes to issue the same. Each Holder shall
have thirty (30) days from the giving of such notice to agree to purchase up to
its pro rata share of the Equity Securities for the price and upon the terms and
conditions specified in the notice by giving written notice to the Company and
stating therein the quantity of Equity Securities to be purchased.
Notwithstanding the foregoing, the Company shall not be required to offer or
sell such Equity Securities to such Holders if such issuance would cause the
Company to be in violation of applicable federal securities laws by virtue of
such offer or sale. In the event that the price, terms or conditions of such
proposed issuance becomes less favorable to the Company, the Company shall
re-offer such Equity Securities to each Holder in accordance with this Section3.
3.3 Termination of Rights of First Refusal. The rights of
first refusal established by this Section 3 shall terminate (i) immediately
prior to the closing of the Initial Offering or (ii) upon conversion of all of
the Shares into Common Stock of the Company.
3.4 Transfer of Rights of First Refusal. The rights of
first refusal of the Holders under this Section 3 may be transferred to any
constituent partner or affiliate of the Holders, to any successor in interest to
all or substantially all the assets of such Holder, or to any transferee or
assignee who holds at least two hundred fifty thousand (250,000) shares (as
adjusted for stock splits, combinations and the like) of Registrable Securities,
provided that such transferee or assignee agrees in writing to be bound by the
provisions of this Agreement. Notwithstanding the foregoing, rights to cause the
Company to register securities may be assigned to any subsidiary, parent,
partner, member or retired partner of a Holder, any family member or trust for
the benefit of any individual Holder or any affiliate (as such term is defined
in Rule 405 promulgated under the Securities Act) of any such Holder.
3.5 Excluded Securities. The rights of first refusal
established by this Section shall have no application to any of the following: 14
16
3.5.1 Up to 13,950,000 shares of Common Stock of
the Company (and/or options, warrants or other Common Stock of the Company
purchase rights issued pursuant to such options, warrants or other rights)
issued or to be issued to employees, officers or directors of, or consultants or
advisors to the Company or any subsidiary, pursuant to stock purchase or stock
option plans or other arrangements that are approved by the Board of Directors,
including the director elected by the holders of shares of Series C PreferredStock;
3.5.2 stock issued pursuant to any rights,
agreements, options or warrants outstanding as of the date of this Agreement and
stock issued pursuant to any such rights, agreements, options or warrants
granted after the date of this Agreement, provided that the rights of first
refusal established by this Section 3 applied with respect to the initial sale
or grant by the Company of such rights, agreements, options or warrants;
3.5.3 any Equity Securities issued pursuant to a
merger, consolidation, acquisition (including technology acquisitions) or
similar business combination;
3.5.4 any Equity Securities that are issued by the
Company as part of an underwritten public offering, except as set forth in
Section 4 below;
3.5.5 shares of Common Stock of the Company issued
in connection with any stock split, stock dividend or recapitalization by the
Company approved by the Company's Board of Directors, including the director
elected by the holders of shares of Series C Preferred Stock;
3.5.6 shares of Common Stock of the Company issued
upon conversion of the Preferred Stock of the Company;
3.5.7 any Equity Securities issued pursuant to any
equipment leases, commercial loans, or debt financings approved by the Company's
Board of Directors, including the director elected by the holders of shares of
Series C Preferred Stock; and
3.5.8 any Equity Securities issued in connection
with strategic transactions involving the Company and other entities, including
joint ventures, manufacturing, marketing or distribution arrangement or
technology transfer or development arrangement, approved by the Company's Board
of Directors, including the director elected by the holders of shares of Series
C Preferred Stock.
4. Company's Initial Offering. In the event of the Company's
Initial Offering and subject to all applicable rules, requirements and
restrictions of the SEC and the National Association of Securities Dealers, Inc.
(the "NASD"), the Company will use reasonable efforts to allow the Investors
(including any fund with the same or an affiliated general partner of an
Investor or any affiliate of an Investor or any designee of an Investor ) to
purchase in any directed share program associated with the Initial Offering;
provided, however the Company will have the right to allocate the remaining
shares offered in the Initial Offering as the Company determines, in its sole
discretion, is in the best interest of the Company and, provided further that,
if the underwriter advises the Company that allowing the Investors to
participate in the 15
17
Initial Offering may reduce the marketability of the offering or otherwise
adversely affect the Company then the Company shall not be required to take any
action in connection with this Section 4. In connection with any potential
purchase under this Section 4, the Investors agree to take all action that the
Company or its counsel reasonably deems necessary, appropriate or desirable in
connection with such potential purchase, including without limitation prompt
notice of whether each Investor desires to participate in the Initial Offering
if offered the opportunity by the Company. This Section 4 does not constitute an
offer to sell, or a solicitation of an offer to buy any securities of the
Company nor shall this Section 4 be construed as granting a right to purchase
such securities to the Investors or any other person.
5. Agreements Between Holders and Founders.
5.1 Right of First Refusal and Co-Sale.
5.1.1 The Right of First Refusal. If at any time
one or more of the Founders propose to sell or otherwise transfer any Common
Shares (as defined in Section 5.1.5 below) to parties other than the Holders (on
a pro rata basis) in a transaction (a "Transaction") not registered under the
Securities Act, then such Founder (a "Selling Founder") shall first promptly
notify the Holders of its intention to do so pursuant to Section 5.1.3. Each
Holder shall have a right of first refusal to purchase its pro rata share of all
Common Shares proposed to be sold by any Selling Founder after such Selling
Founder first offers such Common Shares to the Company pursuant to existing
agreements containing such right. The Selling Founder shall promptly, in
writing, inform each Fully-Exercising Holder of any other Holder's failure to
exercise its right of first refusal. During the ten (10) day period commencing
after such information is given, each Fully-Exercising Holder may elect to
purchase that portion of the Common Shares for which the Holders were entitled
to subscribe but which were not subscribed for by the Holders that is equal to a
fraction of the unsubscribed shares. The numerator of such fraction shall be the
number of equity securities of the Company (assuming conversion of all such
securities to Common Stock) owned by a Fully-Exercising Holder and the
denominator of which shall be the total number of equity securities (assuming
the conversion of all such securities to Common Stock) owned by all
Fully-Exercising Holders who wish to purchase some of the unsubscribed shares.
For purposes of determining each Holder's pro rata share, all affiliates shall
be aggregated and any of such affiliates may sell some or all of the shares
available to such affiliates pursuant to this Section 5.1.1.
5.1.2 The Right of Co-Sale. If the Company and any
Holders have waived or failed to timely exercise their Rights of First Refusal
as to all or any part of the Common Shares proposed to be sold by a Selling
Founder, then each Holder that has not exercised its Right of First Refusal
shall have a Right of Co-Sale as set forth in this Section 5.1.2. Any Holder
which notifies such Founder in writing within thirty (30) days after receipt of
the notification from such Founder referred to in Section 5.1.3 shall have the
opportunity to sell up to a pro rata portion of the Common Shares which the
Founder proposes to sell to such third party in the Transaction. In such
instance, the Selling Founder shall assign so much of his interest in the
proposed agreement of sale as the Selling Founder shall be entitled to and shall
request hereunder, and the Holder shall assume such part of the obligations of
the Selling 16
18
Founder under such agreement as shall relate to the sale of the securities by
the Selling Founder. For the purposes of this Section 5.1.2, the "pro rata
portion" which the Holder shall be entitled to sell shall be an amount of Common
Shares equal to a fraction of the total amount of Common Shares proposed to be
sold to such third party. The numerator of such fraction shall be the number of
equity securities of the Company (assuming the conversion of all such securities
to Common Stock) owned by Holder and the denominator shall be the total number
of equity securities (assuming the conversion of all such securities to Common
Stock) owned by all participating Selling Founders and the other Holders
proposing to sell shares in the Transaction (individually a "Selling Holder" and
collectively the "Selling Holders"). Each Holder shall notify the Selling
Founder whether it elects to sell an amount equal to or less than its pro rata
share of the Common Shares so offered. The Selling Founder shall promptly, in
writing, inform each Selling Holder of any other Selling Holder's failure to
exercise its right of co-sale in full. During the ten (10) day period commencing
after such information is given, each Selling Holder may elect to sell that
portion of the Common Shares for which the Selling Holders were entitled to sell
but which were not sold by the Selling Holders that is equal to their pro rata
portion of the unsold shares. Each Holder shall be entitled to apportion Common
Shares to be sold among its partners, members, or affiliates, provided that such
Holder notifies the Selling Founder and the Company of such allocation, and
provided that such allocation does not preclude the Company's reliance on any
exemption from the registration provisions of the Securities Act or the
applicable qualifications provisions. For purposes of this Section 5.1., the
stock of the Company shall be arithmetically adjusted for stock dividends, stock
splits, recapitalizations and the like.
5.1.3 Notice. Prior to any sale by a Founder of
any Common Shares, the Founder shall notify each Holder, in writing, of his
intention to sell such securities (the "Offered Securities"), setting forth in
reasonable detail the general terms under which he proposed to make such sale
including the number of Common Shares to be sold or transferred, the nature of
the sale or transfer, the consideration to be paid and the identity of the
Holder. Within thirty (30) days after receipt of such notice, any Holder which
desires to exercise its rights under this Section 5.1 shall notify the Founder
of its desire to do so. Each Holder shall be entitled to apportion Offered
Securities to be sold or purchased among its partners and affiliates, provided
that such Holder notifies the Founder of such intention to do so.
5.1.4 Failure to Notify. If within thirty (30)
days after the Founder gives his aforesaid notice to the Holders, the Holders do
not notify the Founder that they desire to sell or purchase all of their pro
rata portions of the Common Shares described in such notice for the price and on
the terms and conditions set forth therein, then the Founder may sell during the
90-day period thereafter such Common Shares as to which the Holders do not elect
to sell or purchase. Any such sale or purchase shall be made only to persons
identified in the Founder's notice and at the same price and upon the same terms
and conditions as those set forth in the notice. In the event the Founder has
not sold the Common Shares or entered into an agreement to sell the Common
Shares within such 90-day period set forth in Section 5.1.3, the Founder shall
not thereafter sell any Common Shares without first notifying the Holders in the
manner provided above. 17
19
5.1.5 Definition. The term "Common Shares" shall
mean all shares of Common Stock of the Company owned or subsequently acquired by
a Founder and all shares of Common Stock of the Company issuable upon exercise
or conversion of any exercisable or convertible securities held or subsequently
acquired by Founder.
5.1.6 Limitations to Rights of Co-Sale and First
Refusal. Notwithstanding the provisions of this Section 5.1:
(a) a Founder may sell or otherwise
assign, without consideration, Common Shares to any or all of his ancestors,
descendants, spouse, or members of his immediate family, or to a custodian,
trustee (including a trustee of a voting trust), executor, or other fiduciary
for the account of his ancestors, descendants, spouse, or members of his
immediate family without compliance with this Section 5.1, provided that each
such transferee or assignee, prior to the completion of the sale, transfer, or
assignment, shall have executed documents assuming the obligations of such
Founder under this Agreement with respect to the transferred securities;
(b) the Company may exercise in full its
rights to repurchase unvested Common Stock of the Company issued pursuant to
stock purchase or option agreements entered into between the Company and the
Founders without compliance with this Section 5.1;
(c) a Founder may sell, transfer or pledge
up to ten percent (10%), in the aggregate, of the Common Stock of the Company
held by such Founder as of the date hereof without compliance with this Section
5.1, except that such Founder shall give the Company detailed notice of such
sale at least ten (10) days prior to the consummation of such sale and such
transferee shall agree to assume the obligations of transferor as providedherein;
(d) a Founder may sell the Common Stock of
the Company held by such Founder in connection with the Initial Offering without
compliance with this Section 5.1, so long as the Holders are also permitted to
sell in the Initial Offering the same proportion of their Registrable Securities
as the maximum proportion of the Common Stock of any Founder that such Founder
is permitted to sell.
5.2 Board of Directors. So long as at least 1,000,000
Shares are issued and outstanding, the Founders and the Holders agree to vote
all shares held by them by written consent or a duly held meeting of
shareholders in favor of each of (i) any two (2) representatives of the holders
of Series A Preferred Stock (the "Series A Designees") to serve as nominees to
the Company's Board of Directors, who, as of the date hereof, are Andrew S.
Rappaport and David Cowan, and (ii) any two (2) representatives of the holders
of Series C Preferred Stock (the "Series C Designees") to serve as nominees to
the Company's Board of Directors, of which one (1) member shall be appointed by
NBCi, who initially shall be Edmond Sanctis, and one (1) member shall be
appointed by NBC upon the earlier of (A) the closing of the Initial Offering or
(B) one year after the date hereof; provided that at such time NBC owns,
directly or indirectly, all of the shares of Series C Preferred Stock (or Common
Stock into which such Series C Preferred Stock is converted) that it acquires
pursuant to this Agreement. Until such time that 18
20
NBC is allowed to appoint one member of the Board of Directors, there shall
remain one vacancy on the Board of Directors. NBC shall continue to have the
right to elect a director until such time as it no longer holds at least 66% of
the shares of Series C Preferred Stock that it acquires pursuant to the Purchase
Agreement. The Founders and Holders agree to vote all shares held by them by
written consent or a duly held meeting of shareholders in favor of each of any
two (2) repre
