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EXHIBIT 10.3
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INTERNET SECURITY SYSTEMS, INC.
AMENDED AND RESTATED
RIGHTS AGREEMENT
FEBRUARY 14, 1997
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TABLE OF CONTENTS
PAGE
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Section 1 - Certain Definitions............................................... -1-
Section 2 - Piggyback Rights.................................................. -2-
2.1 Notice of Registration...................................... -2-
2.2 Underwriting................................................ -3-
2.3 Right to Terminate Registration............................. -3-
Section 3 - Demand Registration............................................... -4-
3.1 Demand Registration......................................... -4-
3.2 Underwritten Public Offering................................ -5-
3.3 Rights of Key Management Holders............................ -5-
3.4 Inclusion of Additional Shares.............................. -5-
3.5 Termination of Demand Rights................................ -6-
Section 4 - Form S-3 Registration............................................. -6-
4.1 Registrations on Form S-3................................... -6-
Section 5 - Obligations of Company............................................ -7-
Section 6 - Expenses of Registration.......................................... -8-
Section 7 - Indemnification................................................... -8-
7.1 The Company................................................. -8-
7.2 Holders..................................................... -9-
7.3 Key Management Holders...................................... -9-
7.4 Defense of Claims........................................... -10-
Section 8 - Rule 000 Xxxxxxxxx................................................ -00-
Xxxxxxx 0 - Xxxxxxxx Agreement................................................ -11-
Section 10 - Limitations on Subsequent Registration Rights.................... -11-
Section 11 - Information Rights............................................... -12-
11.1 Delivery of Financial Statements............................ -12-
11.2 Inspection.................................................. -12-
11.3 Termination of Information and Inspection Covenants......... -12-
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TABLE OF CONTENTS
(CONTINUED)
PAGE
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Section 12 - Additional Covenants............................................. -13-
12.1 Confidentiality............................................. -13-
12.2 Independent Accountants..................................... -13-
12.3 Internal Revenue Codess.1202................................ -13-
Section 13 - Termination of Rights............................................ -14-
Section 14 - Miscellaneous.................................................... -14-
14.1 Assignment.................................................. -14-
14.2 Governing Law............................................... -14-
14.3 Counterparts................................................ -14-
14.4 Titles and Subtitles........................................ -14-
14.5 Notices..................................................... -14-
14.6 Attorney's Fees............................................. -15-
14.7 Amendments and Waivers...................................... -15-
14.8 Severability................................................ -15-
14.9 Delays or Omissions......................................... -15-
14.10 Entire Agreement............................................ -16-
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AMENDED AND RESTATED RIGHTS AGREEMENT
THIS AMENDED AND RESTATED RIGHTS AGREEMENT (the "AGREEMENT") is
entered into as of February 14, 1997, by and among Internet Security Systems,
Inc., a Georgia corporation (the "COMPANY"), and those shareholders of the
Company listed on Exhibit A hereto (the "Key Management Holders") and the
purchasers listed on the signature page hereof (each a "PREFERRED HOLDER" and
together the "PREFERRED HOLDERS").
RECITALS
A. The Company, Greylock Equity Limited Partnership, Sigma Associates
III, L.P., Sigma Investors III, L.P., Sigma Partners III, L.P. and Xxxx X. Xxxxx
desire to amend and restate that certain Rights Agreement dated as of February
2, 1996 and as amended February 15, 1996, by and among them (the "Prior
Agreement") and allow Xxxxxxx Xxxxxxx Xxxxxxxx & Xxxxx, AT & T Ventures and the
Key Management Holders to become a party to the amended and restated agreement.
B. The Preferred Holders have purchased or will purchase shares of
Series A Preferred Stock and Series B Preferred Stock (the "PREFERRED STOCK");
all or certain of which shares of Series B Preferred Stock are being purchased
pursuant to the terms of a Series B Preferred Stock Purchase Agreement dated of
even date herewith (the "PURCHASE AGREEMENT").
C. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Purchase Agreement.
D. The Company desires to enter into this Agreement and grant the
Preferred Holders the rights contained herein in order to fulfill such
condition.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties amend and restate the Prior Agreement in its
entirety and agree as follows:
SECTION 1
CERTAIN DEFINITIONS
Certain Definitions. As used in this Agreement, the following terms
shall have the following respective meanings:
1.1 "EMPLOYEE REGISTRABLE SECURITIES" means (i) the shares of the
Common Stock of the Company held by the Key Management Holders and (ii) any
other shares of the Common Stock of the Company issued as a dividend or other
distribution with respect to such shares.
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1.2 "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as
amended, and the rules and regulations of the SEC promulgated thereunder, all as
the same shall be in effect at that time.
1.3 "INITIAL PUBLIC OFFERING" or "IPO" means the Company's sale of its
Common Stock in a bona fide, firm commitment underwriting pursuant to a
registration statement under the Securities Act.
1.4 The terms "REGISTER", "REGISTERED" and "REGISTRATION" refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act (as defined below), and the declaration or
ordering of the effectiveness of such registration statement.
1.5 "REGISTRABLE SECURITIES" means (i) the shares of Common Stock of
the Company issuable or issued upon conversion of the Preferred Stock of the
Company (the "SHARES"), and (ii) any other shares of the Company's Common Stock
issued as (or issuable upon conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to or exchange for or replacement of the Shares, excluding in all cases,
however, any Registrable Securities sold by a person in a transaction in which a
Preferred Holder's rights under this Agreement are not assigned; provided,
however, that Registrable Securities shall only be treated as Registrable
Securities if and so long as, they have not been (A) sold to or through a broker
or dealer or underwriter in a public distribution or a public securities
transaction or (B) sold in a transaction exempt from the registration and
prospectus delivery requirements of the Securities Act under Section 4(1)
thereof so that all transfer restrictions and restrictive legends with respect
thereto are removed upon the consummation of such sale.
1.6 "SECURITIES ACT" shall mean the Securities Act of 1933, as amended,
and the rules and regulations of the SEC promulgated thereunder, all as the same
shall be in effect at the time.
1.7 "SEC" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
SECTION 2
PIGGYBACK RIGHTS
2.1 Notice of Registration. If at any time or from time to time, the
Company shall determine to register any of its securities for its own account in
an underwritten public offering, the Company will:
(i) promptly give to the Preferred Holders and Key Management
Holders written notice thereof; and
(ii) include in such registration (and any related
qualification under blue sky laws or other compliance), and underwriting, all
the Registrable Securities and Employee
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Registrable Securities (subject to cutback as set forth in Section 2.2)
specified in a written request or requests made within thirty (30) days after
receipt of such written notice from the Company by any Preferred Holder or Key
Management Holder.
2.2 Underwriting. The right of any Preferred Holder or Key Management
Holder to registration pursuant to this Section 2 shall be conditioned upon such
Preferred Holder's or Key Management Holder's participation in such underwriting
and the inclusion of Registrable Securities or Employee Registrable Securities
in the underwriting to the extent provided herein. If any Preferred Holder or
Key Management Holder proposes to distribute its securities through such
underwriting, such Preferred Holder or Key Management Holder shall (together
with the Company and any other holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 2, if the managing
underwriter determines that marketing factors require a limitation of the number
of shares to be underwritten, the managing underwriter may limit to 40% the
Registrable Securities and may limit or exclude the Employee Registerable
Securities to be included in such registration (except with respect to the
Company's IPO, in which case all Registrable Securities may be excluded). The
Company shall so advise the Preferred Holders and Key Management Holders and the
other holders distributing their securities through such underwriting pursuant
to piggyback registration rights similar to this Section 2, and the number of
shares of Registrable Securities and Employee Registrable Securities and other
securities that may be included in the registration and underwriting shall be
allocated among the Preferred Holders and Key Management Holders in proportion,
as nearly as practicable, to the respective amounts of Registrable Securities
and Employee Registrable Securities held by such Preferred Holders and Key
Management Holders at the time of filing the registration statement; provided,
however, that no person who is not a Preferred Holder under this Agreement shall
be granted registration rights or be entitled to have shares included in such
underwriting unless all of the Registrable Securities which the Preferred
Holders have requested to be included in such underwriting have been so
included. If any Preferred Holder or Key Management Holder disapproves of the
terms of any such underwriting, he or she may elect to withdraw therefrom by
written notice to the Company and the managing underwriter, and such Preferred
Holder or Key Management Holder shall be deemed to have withdrawn if such
Preferred Holder or Key Management Holder fails to execute underwriting
documents requested by the managing underwriter within the time period requested
for execution of such documents. Any securities excluded or withdrawn from such
underwriting shall be withdrawn from such registration, and shall not be
transferred in a public distribution prior to one hundred eighty (180) days
after the effective date of the registration statement relating thereto.
2.3 Right to Terminate Registration. The Company shall have the right
to terminate or withdraw any registration initiated by it under this Section 2
prior to the effectiveness of such registration, whether or not any Preferred
Holder or Key Management Holder has elected to include securities in such
registration.
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SECTION 3
DEMAND REGISTRATION
3.1 Demand Registration. During the period commencing six (6) months
after the Company's Initial Public Offering and until this Agreement terminates,
Preferred Holders shall be entitled to have the Company effect two (2) demand
registrations of Registrable Securities then owned by such Preferred Holders
requesting such registration. A request for such registration (a "REGISTRATION
REQUEST") must be made in writing and must be made by the holders of at least
thirty percent (30%) of the Common Stock issued or issuable upon the conversion
of the then outstanding Preferred Stock, which stock must have an offering value
of at least $2,500,000. The Company shall use its best efforts to cause the
Registrable Securities specified in such Registration Request to be registered
as soon as reasonably practicable so as to permit the sale thereof, and in
connection therewith shall prepare and file a registration statement with the
SEC under the Securities Act to effect such registration. Such registration
statement shall contain such required information pursuant to the rules and
regulations promulgated under the Securities Act and such additional information
as deemed necessary by the managing underwriter or if there is no managing
underwriter, as deemed necessary by mutual agreement between the Preferred
Holders requesting registration and the Company. Such Registration Request shall
(i) specify the number of shares intended to be offered and sold; (ii) express
the present intention of the requesting Preferred Holders to offer or cause the
offering of such shares for distribution; (iii) describe the nature or method of
the proposed offer and sale thereof; and (iv) contain the undertaking of the
requesting Preferred Holders to provide all such information and materials and
take all such action as may be required in order to permit the Company to comply
with all applicable requirements of the SEC and to obtain any desired
acceleration of the effective date of such registration statement.
Notwithstanding the foregoing, if the Company shall furnish to the requesting
Preferred Holders a certificate signed by a duly authorized officer of the
Company stating that in the good faith judgment of the Board of Directors of the
Company it would be seriously detrimental to the Company for such registration
statement to be filed on or before the date filing would be required, then the
Company shall be entitled to postpone filing of the registration statement for
up to one hundred twenty (120) days; provided, however, that the Company shall
be entitled to issue such a certificate only one (1) time in any given 12 month
period. If a registration has become effective but is withdrawn before
completion of the offering contemplated thereby because of adverse business
developments at the Company that were not known to the requesting Preferred
Holders when they requested that the Company initiate such registration
proceedings, such registration shall not count as one of the two registrations
referred to in the first sentence of this Section. If a registration is filed on
behalf of Preferred Holders and such registration is withdrawn at the request of
the Preferred Holders of at least fifty percent (50%) of the Registrable
Securities requesting registration for any reason other than adverse business
developments at the Company that were not known to the requesting Preferred
Holders, such registration will count as one of the two registrations referred
to in the first sentence of this section.
3.2 Underwritten Public Offering. If requested, and provided that the
underwriter or underwriters are of recognized national standing and reasonably
satisfactory to the Company, the Company shall enter into an underwriting
agreement with such underwriters containing
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representations, warranties, indemnities and agreements then customarily
included by an issuer in underwriting agreements with respect to secondary
distributions. The Company shall not cause the registration under the Securities
Act of any other shares of its Common Stock to become effective (other than
registration of an employee stock plan, or registration in connection with any
Rule 145 or similar transaction) during the effectiveness of a registration
requested hereunder for an underwritten public offering if, in the judgment of
the underwriter or underwriters, marketing factors would adversely affect the
price of the Registrable Securities subject to such underwritten registration.
3.3 Rights of Key Management Holders. If the Preferred Holders shall
cause the Company to effect a demand registration pursuant to this Section 3,
then the Key Management Holders may request in writing that all or part of the
Employee Registrable Securities held thereby be included in such demand
registration. The right of any Key Management Holder to registration pursuant to
this Section 3.3 shall be conditioned upon such Key Management Holder's
participation in such underwriting and the inclusion of the Employee Registrable
Securities in the underwriting to the extent provided herein. If any Key
Management Holder proposes to distribute its securities through such
underwriting, such key Management Holder shall (together with the Preferred
Holders, the Company and any other holders distributing their securities through
such underwriting) enter into an underwriting agreement in customary form with
the managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 3, if the managing
underwriter and the Board of Directors of the Company determine that marketing
factors require a limitation of the number of shares to be underwritten, the
managing underwriter may limit or exclude the Employee Registrable Securities to
be included in such registration. The Company shall so advise the Key Management
Holder, and the number of shares of Employee Registrable Securities that may be
included in the registration and underwriting shall be allocated among the Key
Management Holder and any other participating Key Management Holders in
proportion, as nearly as practicable, to the respective amounts of Employee
Registrable Securities held by such Key Management Holder and other securities
held by other Key Management Holders at the time of filing the registration
statement; provided, however, that the Employee Registrable Securities held by
all such Key Management Holders shall be subordinate to all Registrable
Securities held by the Preferred Holders and shall be excluded from such
registration prior to the exclusion of any Registrable Securities held by the
Preferred Holders.
3.4 Inclusion of Additional Shares. The Company may include in a
registration pursuant to this Section 3 securities for its own account and by
other third parties, in amounts as determined by the Company's Board of
Directors. To the extent the Company includes securities for its own account or
held by other parties in such registration statement, the Company shall take all
actions it deems necessary or advisable in order to ensure that security holders
of the Company, whether or not holding contractual registration rights, shall
not have the right to exclude from any registration initiated pursuant to this
Section 3 any Registrable Securities or Employee Registrable Securities with
respect to which any Preferred Holder or Key Management Holder, as the case may
be, has requested registration. If requested, and provided the underwriter or
underwriters are reasonably satisfactory to the Company, the Company shall
(together with all
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officers, directors and other third parties proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the representative of the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 3.4, if the representative advises the stockholders registering shares
of Common Stock in writing that marketing factors require a limitation on the
number of shares to be underwritten, the securities of the Company, securities
held by officers or directors of the Company (excluding such Registrable
Securities or Employee Registrable Securities held by any Preferred Holder or
Key Management Holder, as the case may be, subject to such registration) and the
securities held by other third parties shall be excluded from the underwriting
by reason of the underwriter's marketing limitation to the extent so required by
such limitation. No securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. If
any officer, director or other stockholder (including Preferred Holders and Key
Management Holders) who has requested inclusion in such registration as provided
above disapproves of the terms of the underwriting, such person may elect to
withdraw therefrom by written notice to the Company, the underwriter and the
Preferred Holders and Key Management Holders requesting registration.
3.5 Termination of Demand Rights. The rights of any Preferred Holder
and Key Management Holder to receive notice and to participate in a registration
pursuant to the terms of this Section 3 shall terminate at such time as (i) such
Preferred Holder or Key Management Holder could sell all of Registrable
Securities or Employee Registrable Securities held by such Preferred Holder or
Key Management Holder in any one three-month period under the terms of Rule
144(k) under the Securities Act and (ii) the Company has consummated an Initial
Public Offering.
SECTION 4
FORM S-3 REGISTRATION
4.1 Registrations on Form S-3. Preferred Holders shall be entitled to
request an unlimited number of registrations of Registrable Securities then
owned by such requesting Preferred Holder on a Form S-3 registration statement
under the Securities Act (a "SHELF REGISTRATION"); provided, however, that no
more than one (1) such registration shall be effected in any twelve (12) month
period (an "S-3 REGISTRATION REQUEST"). The S-3 Registration Request must be
made in writing and the S-3 Registration Request shall (i) specify the number of
shares intended to be offered and sold; (ii) express the present intention of
the requesting Preferred Holders to offer or cause the offering of such shares
for distribution; (iii) describe the nature or method of the proposed offer and
sale thereof and (iv) contain the undertaking of the requesting Preferred
Holders to provide all such information and materials and take all such action
as may be required in order to permit the Company to comply with all applicable
requirements of the SEC and to obtain any desired acceleration of the effective
date of such registration statement. The Company shall, as soon as practicable,
file a Shelf Registration and proceed to obtain all such qualifications and
compliance as may be so requested and as would permit or facilitate the sale and
distribution of all or such portion of the requesting Preferred Holder's
Registrable
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Securities as are specified in the S-3 Registration Request, within 30 days
after receipt of such written notice by the Company; provided, however, that the
Company shall not be obligated to effect any such registration, qualification or
compliance, pursuant to this Section 4 if (i) Form S-3 is not available for such
offering by the requesting Preferred Holders; (ii) the requesting Preferred
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 gross price to the
public of less than $2,000,000; (iii) the Company shall furnish to Holders a
certificate signed by the President of the Company stating that in the good
faith judgment of the Board of Directors of the Company, it would be seriously
detrimental to the Company and its stockholders for such Shelf Registration to
be effected at such time, in which event the Company shall have the right to
defer the filing of the Form S-3 registration statement for a period of not more
than one hundred twenty (120) days after receipt of the request of any Preferred
Holder under this Section 4; provided, however, that the Company shall not
utilize this right more than once in any twelve (12) month period; or (iv) the
Company has, within the twelve (12) month period preceding the date of such
request, already effected a registration on Form S-3 for any Preferred Holder
pursuant to this Section 4.
SECTION 5
OBLIGATIONS OF COMPANY
Whenever the Company is required by the provisions of this Agreement to
use its best efforts to effect the registration of the Registrable Securities or
Employee Registrable Securities, the Company shall (i) prepare and, as soon as
possible, file with the SEC a registration statement with respect to the
Registrable Securities or Employee Registrable Securities, and use its best
efforts to cause such registration statement to become effective and to remain
effective until the earlier of the sale of the Registrable Securities or
Employee Registrable Securities so registered or ninety (90) days subsequent to
the effective date of such registration; (ii) prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection therewith as may be necessary to make and to keep such
registration statement effective and to comply with the provisions of the
Securities Act with respect to the sale or other disposition of all securities
proposed to be registered in such registration statement until the earlier of
the sale of the Registrable Securities or Employee Registrable Securities so
registered or ninety (90) days subsequent to the effective date of such
registration statement, (iii) furnish to any Preferred Holder or Key Management
Holder such number of copies of any prospectus (including any preliminary
prospectus and any amended or supplemented prospectus), in conformity with the
requirement of the Securities Act, as such Preferred Holder or Key Management
Holder may reasonably request in order to effect the offering and sale of the
Registrable Securities or Employee Registrable Securities to be offered and
sold, but only while the Company shall be required under the provisions hereof
to cause the registration statement to remain current; (iv) use its commercially
reasonable efforts to register or qualify the Registrable Securities or Employee
Registrable Securities covered by such registration statement under the
securities or blue sky laws of such states as the Preferred Holder or Key
Management Holder shall reasonably request, maintain any such registration or
qualification current until the earlier of the sale of the
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Registrable Securities or Employee Registrable Securities so registered or
ninety (90) days subsequent to the effective date of the registration statement,
and take any and all other actions either necessary or advisable to enable
Preferred Holders or Key Management Holders to consummate the public sale or
other disposition of the Registrable Securities or Employee Registrable
Securities in jurisdictions where such Preferred Holders or Key Management
Holders desire to effect such sales or other disposition; and (v) take all such
other actions either necessary or desirable to permit the Registrable Securities
or Employee Registrable Securities held by a Preferred Holder or Key Management
Holder to be registered and disposed of in accordance with the method of
disposition described herein.
SECTION 6
EXPENSES OF REGISTRATION
The Company shall pay all of the reasonable out-of-pocket expenses
incurred in connection with any registration statements that are initiated
pursuant to this Agreement, including, without limitation, all SEC and blue sky
registration and filing fees, printing expenses, transfer agent and registrar
fees, the fees and disbursements of the Company's outside counsel and
independent accountants including expenses incurred in connection with any
special audits incidental to or required by such registration. The Company shall
also be required to pay the expenses of one special counsel to represent all
Preferred Holders and Key Management Holders to be selected by a majority of the
Preferred Holders and Key Management Holders participating in the Registration.
Any underwriting discounts, fees and disbursements of counsel to the Preferred
Holders and the Key Management Holders, selling commissions and stock transfer
taxes applicable to the Registrable Securities registered on behalf of Preferred
Holders and Key Management Holders shall be borne by holder of the Registrable
Securities or Employee Registrable Securities included in such registration.
SECTION 7
INDEMNIFICATION
7.1 The Company. The Company will indemnify the Preferred Holders and
Key Management Holders and each person controlling the Preferred Holders and Key
Management Holders within the meaning of Section 15 of the Securities Act, and
each underwriter if any, of the Company's securities, with respect to any
registration, qualification or compliance which has been effected pursuant to
this Agreement, against all expenses, claims, losses, damages or liabilities (or
actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, qualification or compliance, or based on any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein, in light of the circumstances in which
they were made, not misleading, or any violation
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by the Company of any rule or regulation promulgated under the Securities Act
applicable to the Company in connection with any such registration,
qualification or compliance, and the Company will reimburse the Preferred
Holders and Key Management Holders and each person controlling the Preferred
Holders and Key Management Holders, and each underwriter, if any, for any legal
and any other expenses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability or action,
provided that the Company will not be liable in any such case to the extent that
any such claim, loss, damage, liability or expense arises out of or is based on
any untrue statement or omission or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by such Preferred Holder or Key Management Holder or controlling person
or underwriter seeking indemnification.
7.2 Holders. Each Preferred Holder will, if Registrable Securities held
by such Preferred Holder are included in the securities as to which such
registration, qualification or compliance is being effected (the "INDEMNIFYING
HOLDER"), indemnify the Company, each of its directors and officers, each Key
Management Holder and each underwriter, if any, of the Company's securities
covered by such registration statement and each person who controls the Company
or a Key Management Holder within the meaning of Section 15 of the Securities
Act, against all claims, losses, damages and liabilities (or actions in respect
thereof) arising out of or based on any untrue statement (or alleged untrue
statement) of a material fact contained in any such registration statement,
prospectus, offering circular or other document, or any omission (or alleged
omission) to state therein a material fact required to be stated therein or
necessary to make the statements therein not misleading, and will reimburse the
Company, such directors, officers or control persons, Key Management Holders or
underwriters for any legal or any other expenses reasonably incurred in
connection with investigating or defending any such claim, loss, damage,
liability or action, in each case to the extent, but only to the extent, that
such untrue statement (or alleged untrue statement) or omission (or alleged
omission) is made in such registration statement, prospectus, offering circular
or other document in reliance upon and in conformity with written information
furnished to the Company by such Indemnifying Holder, provided that in no event
shall any indemnity under this Section 7.2 exceed the gross proceeds of the
offering received by such Indemnifying Holder.
7.3 Key Management Holders. Each Key Management Holder will, if
Employee Registrable Securities held by such Key Management Holder are included
in the securities as to which such registration, qualification or compliance is
being effected (the "EMPLOYEE INDEMNIFYING HOLDER"), indemnify the Company, each
of its directors and officers, each Preferred Holder and each underwriter, if
any, of the Company's securities covered by such registration statement and each
person who controls the Company within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other document, or any omission (or
alleged omission) to state therein a material fact required to be stated therein
or necessary to make the statements therein not misleading, and will reimburse
the Company, such directors, officers, control persons, Preferred Holders or
underwriters for any
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legal or any other expenses reasonably incurred in connection with investigating
or defending any such claim, loss, damage, liability or action, in each case to
the extent, but only to the extent, that such untrue statement (or alleged
untrue statement) or omission (or alleged omission) is made in such registration
statement, prospectus, offering circular or other document in reliance upon and
in conformity with written information furnished to the Company by such Employee
Indemnifying Holder, provided that in no event shall any indemnity under this
Section 7.3 exceed the gross proceeds of the offering received by such Employee
Indemnifying Holder.
7.4 Defense of Claims. Each party entitled to indemnification under
this Section 7 (the "INDEMNIFIED PARTY") shall give notice to the party required
to provide indemnification (the "INDEMNIFYING PARTY") promptly after such
Indemnified Party has actual knowledge of any claim as to which indemnity may be
sought, and shall permit the Indemnifying Party to assume the defense of any
such claim or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld), and the Indemnified Party may participate in such
defense at such party's expense; provided, however, that the Indemnifying Party
shall pay such expense if representation of the Indemnified Party by counsel
retained by the Indemnifying Party would be inappropriate due to actual or
potential differing interests between the Indemnified Party and any other party
represented by such counsel in such proceeding, and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 7 unless
the failure to give such notice is materially prejudicial to an Indemnifying
Party's ability to defend such action. No Indemnifying Party, in the defense of
any such claim or litigation shall, except with the consent of each Indemnified
Party, consent to entry of any judgment or enter into any settlement which 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. No Indemnifying Party shall be required to
indemnify any Indemnified Party with respect to any settlement entered into
without such Indemnifying Party's prior consent.
SECTION 8
RULE 144 REPORTING
With a view to making available the benefits of certain rules and
regulations of the SEC which may at any time permit the sale of the Registrable
Securities to the public without registration, the Company agrees to use its
best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times from
and after ninety (90) days following the effective date of the IPO;
(b) File with the SEC in a timely manner all reports and other
documents required of the Company under the Securities Act and the Exchange Act
at any time after it has become subject to such reporting requirements; and
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(c) So long as a Preferred Holder owns any Registrable Securities,
furnish to such Preferred Holder forthwith upon request a written statement by
the Company as to its compliance with the reporting requirements of said Rule
144 (at any time from and after ninety (90) days following the effective date of
the first registration statement filed by the Company for an offering of its
securities to the general public), and of the Securities Act and the Exchange
Act (at any time after it has become subject to such reporting requirements), a
copy of the most recent annual or quarterly report of the Company, and such
other reports and documents of the Company, and such other reports and documents
so filed as a Preferred Holder may reasonably request in availing itself of any
rule or regulation of the SEC allowing such Preferred Holder to sell any such
securities without registration.
SECTION 9
STANDOFF AGREEMENT
In connection with the Company's Initial Public Offering, if requested
by the Company and the managing underwriter, each Preferred Holder and Key
Management Holder agrees that such Preferred Holder or Key Management Holder
will not, directly or indirectly, sell, make any short sale of, loan, grant any
option for the purchase of, or otherwise dispose of any Common Stock of the
Company (other than those included in the Initial Public Offering, if any)
without the prior written consent of the Company or the underwriters for such
period of time (not to exceed one hundred and eighty (180) days) as may be
requested by the Company and the managing underwriter, provided that all
executive officers and directors of the Company enter into similar agreements.
SECTION 10
LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS
From and after the date of this Agreement, the Company shall not,
without the prior written consent of Preferred Holder(s) of at least a majority
of the outstanding Registrable Securities, enter into any agreement with any
holder or prospective holder of any securities of the Company giving such holder
or prospective holder any registration rights the terms of which are more
favorable than the registration rights granted to Preferred Holders hereunder or
to require the Company to effect a registration earlier than the date on which
Preferred Holders can first require a registration under Section 3.1.
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SECTION 11
INFORMATION RIGHTS
11.1 Delivery of Financial Statements.
(a) The Company shall deliver to each Preferred Holder, as
soon as practicable, but in any event within ninety (90) days after the end of
each fiscal year of the Company, an income statement for such fiscal year, a
balance sheet of the Company as of the end of such year, and a schedule as to
the sources and applications of funds for such year, such year-end financial
reports to be in reasonable detail, prepared in accordance with generally
accepted accounting principles, and audited and certified by independent public
accountants of nationally recognized standing selected by the Company.
(b) The Company shall deliver to each Preferred Holder:
(i) within thirty (30) days after the end of each month
and forty-five (45) days after the end of each quarter, an unaudited income
statement and schedule as to the sources and applications of funds and balance
sheet and comparison to budget for and as of the end of such month or quarter,
as the case may be, in reasonable detail;
(ii) as soon as practicable, but in any event thirty (30)
days prior to the end of each fiscal year, a budget and business plan for the
next fiscal year, prepared on a monthly basis, including balance sheets and
sources and applications of funds statements for such months and, as soon as
prepared, any other budgets or revised budgets prepared by the Company; and
(iii) such other information relating to the financial
conditions, business, prospects or corporate affairs of the Company as each
Preferred Holder; or any assignee of such Preferred Holder may from time to time
request; provided, however, that the Company shall not be obligated to provide
information which it deems in good faith to be proprietary.
11.2 Inspection. The Company shall permit each Preferred Holder, at
such Preferred Holder's expense, to visit and inspect the Company's properties,
to examine its books of account and records and to discuss the Company's
affairs, finances and accounts with its officers, all at such reasonable times
as may be requested by such Preferred Holder; provided, however, that the
Company shall not be obligated pursuant to this Section 11.2 to provide access
to any information which it reasonably considers to be a trade secret or similar
confidential information.
11.3 Termination of Information and Inspection Covenants. The covenants
set forth in Sections 11.1 and 11.2 shall terminate as to each Preferred Holder
and be of no further force or effect immediately upon the consummation of an
Initial Public Offering.
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SECTION 12
ADDITIONAL COVENANTS
12.1 Confidentiality. Each of the Preferred Holders agrees to keep
confidential and not to disclose to persons other than its employees,
professional consultants and advisors any information concerning the Company
which is confidential or proprietary ("CONFIDENTIAL INFORMATION"), except as
otherwise required by law. No Confidential Information shall be used or
disclosed by a Preferred Holder for any purpose except in connection with the
transactions contemplated by the Purchase Agreement and the agreements executed
and delivered in connection with the Purchase Agreement and in the enforcement
of its rights thereunder. Each Preferred Holder shall use the same level of care
with the Confidential Information as it uses with its own confidential
information. Notwithstanding the foregoing, the restrictions set forth in this
Section 12.1 shall not be applicable to any information that is publicly
available, any information independently developed by a Preferred Holder or its
professional consultants, any information known to a Preferred Holder or its
professional consultants before the disclosure thereof by the Company, or any
information disclosed to a Preferred Holder by a person without any
confidentiality duty to the Company.
12.2 Independent Accountants. Until the consummation of the Company's
Initial Public Offering, the Company will retain independent public accountants
of recognized national standing who shall certify the Company's financial
statements at the end of each fiscal year. In the event the services of the
independent public accountants so selected, or any firm of independent public
accountants hereafter employed by the Company, are terminated, the Company will
promptly thereafter engage another firm of independent public accountants of
recognized national standing.
12.3 Internal Revenue Code ss.1202. The Company shall furnish to each
Preferred Holder, and shall use reasonable commercial efforts to make such
filings with the Internal Revenue Service, as shall from time to time be
required pursuant to Section 1202(d)(1) of the Code. In addition, the Company
agrees that it will not make any purchases of its stock within the meaning of
and which would exceed the limitation contained in Section 1202(c)(3)(B) of the
Code with respect to the Preferred Stock, unless such purchases have been
consented to by holders a majority of the Preferred Stock or are required by
contractual obligations entered into prior to the Closing. Any such information
provided to the Preferred Holders under this Section 12.3 shall not be disclosed
by any Preferred Holder to any party except as required and solely in order for
such Preferred Holder to claim any benefits under Section 1202 of the Code.
SECTION 13
TERMINATION OF RIGHTS
Unless otherwise specified herein, this Agreement shall terminate on
the fifth (5th) anniversary of the date of the Company's Initial Public
Offering. Upon termination, no party shall have any further obligation or
liability hereunder.
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SECTION 14
MISCELLANEOUS
14.1 Assignment. The rights to cause the Company to register securities
granted to the Preferred Holders or Key Management Holders by the Company under
this Agreement may be transferred or assigned by the Preferred Holders or Key
Management Holders; provided that the Company is given written notice at the
time of or within a reasonable time after said transfer or assignment, stating
the name and address of the transferee or assignee and identifying the
securities with respect to which such registration rights are being transferred
or assigned, and, provided further, that the transferee or assignee of such
rights assumes the obligations of such Preferred Holder under this Agreement.
Subject to the preceding sentence, this Agreement shall be binding upon and
shall inure to the benefit of the parties hereto and their respective successors
and assigns. Any transferee or assignee shall thereafter be treated as a
Preferred Holder or Key Management Holder, subject to the limitations herein.
Until the Company receives actual notice of any transfer or assignment, it shall
be entitled to rely on the then existing list of Preferred Holders and Key
Management Holders and the failure to notify the Company of any transfer or
assignment shall not affect the validity of a notice properly given by the
Company to the Preferred Holders and Key Management Holders pursuant to lists
maintained by the Company.
14.2 Governing Law. This Agreement shall be governed by and construed
under the laws of the State of California as applied to agreements entered into
solely between residents of and to be performed entirely within, such state.
14.3 Counterparts. This Agreement may be executed in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
14.4 Titles and Subtitles. The titles and subtitles used in this
Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
14.5 Notices.
(a) All notices, requests, demands and other communications
under this Agreement or in connection herewith shall be given to or made upon
the Preferred Holder at the addresses set forth in the Company's records with a
copy to Wilson, Sonsini, Xxxxxxxx & Xxxxxx, P.C. at 000 Xxxx Xxxx Xxxx, Xxxx
Xxxx, Xxxxxxxxxx 00000, attention: Xxxxxx X. Xxxxxxx, and, if to the Company,
to: Internet Security Systems, Inc., 00 Xxxxxxxxx Xxxxxx Xxxx, Xxxxx 000,
Xxxxxxx, Xxxxxxx 00000, with a copy to Xxxxxxx, Xxxxxxx & Xxxxxxxx LLP, 000
Xxxxxxxx Xxxxxx, Xxxxx 0000, Xxxxxx, Xxxxx 00000, attention: Xxxxxxx X. Xxxxxxx.
(b) All notices, requests, demands and other communications
given or made in accordance with the provisions of this Agreement shall be in
writing, and shall be sent by airmail, return receipt requested, or by facsimile
with confirmation of receipt, and shall be deemed to be given or made when
receipt is so confirmed.
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(c) Any party may, by written notice to the other, alter its
address or respondent, and such notice shall be considered to have been given
three (3) days after the airmailing or faxing thereof.
14.6 Attorney's Fees. If any action at law or in equity (including
arbitration) is necessary to enforce or interpret the terms of this Agreement,
the prevailing party shall be entitled to reasonable attorney's fees costs and
necessary disbursements in addition to any other relief to which such party may
be entitled.
14.7 Amendments and Waivers. Any term of this Agreement may be amended
with the written consent of the Company and the holders of at least sixty-six
and two-thirds percent (66 2/3%) of the outstanding Registrable Securities;
provided, however, that the holders of at least fifty-one percent (51%) of the
Employee Registrable Securities held by Key Management Holders who are still
employed by the Company is required if the registration rights of such Key
Management Holders will be materially and adversely affected by such amendment.
Any amendment or waiver effected in accordance with this Section 14.7 shall be
binding upon the Preferred Holders, Key Management Holders and each transferee
of the Registrable Securities, each future holder of all such Registrable
Securities, and the Company.
14.8 Severability. If one or more provisions of this Agreement are held
to be unenforceable under applicable law, portions of such provisions, or such
provisions in their entirety, to the extent necessary, shall be severed from
this Agreement, and the balance of the Agreement shall be interpreted as if such
provision were so excluded and shall be enforceable in accordance with its
terms.
14.9 Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to any party to this Agreement, upon any breach or
default of the other party, shall impair any such right, power or remedy of such
non-breaching party nor shall it be construed to be a waiver of any such breach
or default, or an acquiescence therein, or of any similar breach or default
thereafter occurring; nor shall any waiver of any single breach or default be
deemed a waiver of any other breach or default theretofore or thereafter
occurring. Any waiver, permit, consent or approval of any kind or character on
the part of any party of any breach or default under this Agreement, or any
waiver on the part of any party of any provisions or conditions of this
Agreement, must be made in writing and shall be effective only to the extent
specifically set forth in such writing. All remedies, either under this
Agreement, or by law or otherwise afforded to any Preferred Holder or Key
Management Holder, shall be cumulative and not alternative.
14.10 Entire Agreement. This Agreement and the documents referred to
herein constitute the entire agreement between the parties hereto pertaining to
the subject matter hereof and any other written or oral agreements between the
parties hereto are expressly canceled.
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IN WITNESS WHEREOF, the parties hereto have executed this Agreement of
the day and year first above written.
COMPANY: PREFERRED HOLDERS:
INTERNET SECURITY SYSTEMS, INC. AT & T VENTURE FUND II, L.P.
By: By:
---------------------------- ----------------------------------------
Name: Xxxxxxx X. Xxxxxx
Name: Title: General Partner
--------------------------
Title:
-------------------------
GREYLOCK EQUITY LIMITED
PARTNERSHIP
KEY MANAGMENT HOLDERS:
By: Greylock Equity GP Limited Partnership
Its General Partner
-------------------------------
Xxxxxxxxxxx Xxxxx By:
-----------------------------------------
General Partner
-------------------------------
Xxxxxx Xxxxxx
--------------------------------------------
Xxxx X. Xxxxx, Xx.
-------------------------------
Xxxxx XxXxxxxxxx
XXXXXXX XXXXXXX XXXXXXXX & XXXXX
By: KPCB VIII Associates
-------------------------------
Xxxxx X'Xxxxxx
By:
-----------------------------------------
Name:
Title:
***RIGHTS AGREEMENT***
20
KPCB INFORMATION SCIENCES
ZAIBATSU FUND II
By: KPCB VII Associates
By:
-----------------------------------------
Name:
Title:
KPCB JAVA FUND
By: KPCB VIII Associates
By:
-----------------------------------------
Name:
Title:
SIGMA ASSOCIATES, III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
SIGMA INVESTORS III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
SIGMA PARTNERS III, L.P.
By: Sigma Management III, L.P.
By:
-----------------------------------------
General Partner
***RIGHTS AGREEMENT***
21
VENTURE FUND I, L.P.
By:
-----------------------------------------
Name:
Title:
***RIGHTS AGREEMENT***
