Exhibit 10.8
SECOND AMENDED AND RESTATED
INVESTORS' RIGHTS AGREEMENT
SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT dated as of
November 30, 1999 (the "Agreement") by and among (i) InFlow, Inc., a Delaware
corporation (the "Company"), and (ii) the investors listed on the signature
pages attached hereto, each of which is herein referred to as an "Investor."
The Amended and Restated Investors' Rights Agreement dated October 28, 1999
between the Company and certain of the Investors is hereby amended and restated
in its entirety.
1. Registration Rights.
The Company covenants and agrees as follows:
1.1 Definitions.
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For purposes of this Section 1:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Form S-3" means such form under the Act as in effect on
the date hereof or any registration form under the Act subsequently adopted by
the SEC which permits inclusion or incorporation of substantial information by
reference to other documents filed by the Company with the SEC.
(c) The term "Holder" means any person owning or having the right to
acquire Registrable Securities or any assignee thereof in accordance with
Section 1.13 hereof.
(d) The term "Initiating Holders" means one or more holders of
Registrable Securities representing, in the case of a registration other than a
registration on Form S-3, not less than 25% of the Registrable Securities then
outstanding and, in the case of a registration on Form S-3, not less than 10% of
the Registrable Securities then outstanding.
(e) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) The term "Person" shall mean a natural person, partnership,
limited liability company, corporation, trust, or unincorporated organization or
association, company, firm, joint venture or other business entity, or a
government or governmental agency or instrumentality or political subdivision
thereof.
(g) The term "Preferred Stock" shall mean, collectively, the Company's
Series A Preferred Stock, $.001 par value, and Series B Preferred Stock, $.001
par value.
(h) The term "register", "registered," and "registration" refer to a
registration effected by preparing and filing a registration statement or
similar document in compliance with
the Act, and the declaration or ordering of effectiveness of such registration
statement or document.
(i) The term "Registrable Securities" means (i) the shares of the
Company's Common Stock, $.001 par value ("Common Stock"), issuable or issued
upon conversion of the Preferred Stock, (ii) the 3,060,000 shares of Common
Stock (the "Management Stock") issued to Art Zeile, Xxxx Xxxx and Xxxxxxx Xxxxx;
provided, however, that such shares of Management Stock shall not be deemed
Registrable Securities and such Persons shall not be deemed Holders for the
purposes of Section 1.2, 1.3 and 3.7 hereof or for purposes of the definition of
Initiating Holders, and (iii) any Common Stock issued as (or issuable upon the
conversion or exercise of any warrant, right or other security which is issued
as) a dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in (i) and (ii) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under this Section 1 are not assigned.
(j) The number of shares of "Registrable Securities then outstanding"
shall be determined by the number of shares of Common Stock outstanding which
are, and the number of shares of Common Stock issuable pursuant to then
exercisable or convertible securities (including the Preferred Stock) which are,
Registrable Securities.
(k) The term "SEC" shall mean the Securities and Exchange Commission.
1.2 Request for Registration.
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(a) If the Company shall receive at any time after the earlier of (i)
April 1, 2006 or (ii) six (6) months after the effective date of the first
registration statement for a public offering of securities of the Company (other
than a registration statement relating either to the sale of securities to
employees of the Company pursuant to a stock option, stock purchase or similar
plan or a SEC Rule 145 transaction), a written request from the Initiating
Holders that the Company file a registration statement under the Act covering
the registration of at least twenty percent (20%) of the Registrable Securities
then outstanding (or a lesser percentage if the anticipated aggregate offering
price, net of underwriting discounts and commissions, would exceed $10,000,000)
then the Company shall:
(i) within ten (10) days of the receipt thereof, give written
notice of such request to all Holders; and
(ii) file as soon as practicable, and in any event within 60 days
of the receipt of such request, a registration statement in form and
scope sufficient to permit under the Act and any other applicable law
and regulations the disposition of all Registrable Securities which
the Holders request to be registered in accordance with the method or
methods of distribution specified in such request, subject to the
limitations of Section 1.2(b), within twenty (20) days of the mailing
of such notice by the Company in accordance with Section 3.5.
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(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to Section 1.2(a)
and the Company shall include such information in the written notice referred to
in Section 1.2(a). The underwriter will be selected by a majority in interest
of the Initiating Holders and shall be reasonably acceptable to the Company. In
such event, the right of any Holder to include Registrable Securities in such
registration shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting (unless otherwise mutually agreed by a majority in interest of the
Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in Section 1.4(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 1.2, if the underwriter advises the Initiating Holders in writing that
in its good faith view marketing factors require a limitation of the number of
shares to be underwritten, then the Company shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the Company will exclude from such registration (i) first, securities held
by any Person who does not have any contractual rights to cause the Company to
register such securities, (ii) second, securities held by any Person with such
contractual rights other than those granted in this Agreement and (iii) third,
shares held by all Holders, including the Initiating Holders, of Registrable
Securities with such contractual rights granted in this Agreement, pro rata
among the Holders of such shares on the basis of the respective numbers of
shares of Common Stock requested to be included in such registration. If at
least eighty percent (80%) of the Registrable Securities requested to be
registered by the Initiating Holders are not included in such registration, then
the Initiating Holders may request that the Company effect an additional
registration under the Securities Act of all or part of the Initiating Holders'
Registrable Securities in accordance with the provisions of this Section 1.2,
and the Company shall effect such additional registration at its sole expense.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 1.2, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would
(because of the existence of, or in anticipation of, any acquisition, financing
activity, or other transaction involving the Company, or the unavailability for
reasons beyond the Company's control of any required financial statements,
disclosure of information which is in its best interest not to publicly
disclose, or any other event or condition of similar significance to the
Company) be seriously detrimental to the Company and its stockholders for such
registration statement to be filed and it is therefore essential to defer the
filing of such registration statement, the Company shall have the right to defer
taking action with respect to such filing for a period of not more than 90 days
after receipt of the request of the Initiating Holders; provided, however, that
the Company may not utilize this right more than once in any twelve-month
period.
(d) A demand registration requested pursuant to this Section 1.2 shall
not be deemed to have been effected unless the registration statement relating
thereto (i) has become effective under the Act and any of the Registrable
Securities of the Initiating Holders included in such registration have actually
been sold thereunder, and (ii) has remained effective for a period
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of at least 120 days (or such shorter period in which all Registrable Securities
included in such registration have actually been sold thereunder); provided that
if after any registration statement requested pursuant to this Section 1.2
becomes effective (i) such registration statement is interfered with by any stop
order, injunction or other order or requirement of the Commission or other
governmental agency or court solely due to the actions or omissions to act of
the Company and (ii) less than fifty percent (50%) of the Registrable Securities
included in such registration have been sold thereunder, such registration
statement shall not be included as a registration which may be requested
pursuant to this Section 1.2 and shall be at the sole expense of the Company.
(e) In addition, the Company shall not be obligated to effect, or to
take any action to effect, any registration pursuant to this Section 1.2:
(i) After the Company has effected four registrations pursuant to
this Section 1.2 and such registrations have been declared or ordered
effective and have remained effective for at least 120 consecutive
days; or
(ii) During the period starting with the date 90 days prior to
the Company's good faith estimate of the date of filing of, and ending
on a date 180 days after the effective date of, a Company-initiated
registration statement in connection with a bona fide firm commitment
underwritten registration for securities to be offered for the
Company's own account (the "Intended Registration") ; provided that
the Company is actively employing in good faith all reasonable efforts
to cause the Intended Registration to become effective and provided
further that the Company gives notice to all Holders upon commencement
of such period. The Holders shall be entitled to exercise their
rights pursuant to Section 1.4 hereof with respect to an Intended
Registration. An Intended Registration shall not be deemed to be a
demand registration of the Holders pursuant to this Section 1.2.
1.3 S-3 Registration.
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In case the Company shall receive from the Initiating Holders a written
request or requests that the Company effect a registration on Form S-3 and any
related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holders, the Company will:
(a) promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders; and
(b) as soon as practicable, and in any event within 30 days of the
receipt of such notice, file a registration statement on Form S-3, or a post-
effective amendment thereto and effect all other qualifications and compliances
as may be so requested and as would permit or facilitate the sale and
distribution (through market transactions using brokers, in a firm commitment
underwriting, in negotiated transactions or otherwise) of all or such portion of
such Holder's or Holders' Registrable Securities as are specified in such
request, together with all or such portion of the Registrable Securities of any
other Holder or Holders joining in such request as are specified in a written
request given within 15 days after receipt of such written notice from
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the Company; provided, however, that the Company shall not be obligated to
effect any such registration, qualification or compliance, pursuant to this
Section 1.3: (i) if Form S-3 is not available for such offering by the Holders;
(ii) if the Holders, together with the holders of any other securities of the
Company entitled to inclusion in such registration, propose to sell Registrable
Securities and such other securities (if any) at an aggregate price to the
public (net of any underwriters' discounts or commissions) of less than
$2,500,000; (iii) if the Company shall furnish to the Holders a certificate
signed by the President of the Company stating that in the good faith judgment
of the Board of Directors of the Company, it would be (because of the existence
of, or in anticipation of, any acquisition, financing activity, or other
transaction involving the Company, or the unavailability for reasons beyond the
Company's control of any required financial statements, disclosure of
information which is in its best interest not to publicly disclose, or any other
event or condition of similar significance to the Company) seriously detrimental
to the Company and its shareholders for such Form S-3 Registration to be
effected at such time, in which event the Company shall have the right to defer
the filing of the Form S-3 registration statement for a period of not more than
60 days after receipt of the request of the Holder or Holders under this Section
1.3; provided, however, that the Company shall not utilize this right more than
once in any twelve month period; (iv) if the Company has, within the twelve (12)
month period preceding the date of such request, already effected two
registrations on Form S-3 for the Holders pursuant to this Section 1.3; or (v)
in any particular jurisdiction in which the Company would be required to qualify
to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a registration
statement covering the Registrable Securities and other securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Holders and shall keep it continuously effective for a period of not less
than 120 days or, if shorter, until such Registrable Securities have been sold
pursuant thereto.
1.4 Company Registration.
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If (but without any obligation to do so) the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Act in connection with the public offering of such securities solely for
cash (other than a registration relating solely to the sale of securities to
participants in a Company stock plan, a registration on any form which does not
include substantially the same information as would be required to be included
in a registration statement covering the sale of the Registrable Securities or a
registration in which the only Common Stock being registered is Common Stock
issuable upon conversion of debt securities which are also being registered),
the Company shall, at such time, promptly give each Holder written notice of
such registration. Upon the written request of each Holder given within twenty
(20) days after mailing of such notice by the Company in accordance with Section
3.5, the Company shall, subject to the provisions of Section 1.9, cause to be
registered under the Act all of the Registrable Securities that each such Holder
has requested to be registered. Notwithstanding the foregoing, the Company has
no obligation to register any shares pursuant to this Section 1.4 and may
withdraw any such registration at any time.
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1.5 Obligations of the Company.
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Whenever required under this Section 1 to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as reasonably
possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best efforts to cause such
registration statement to become effective, and, upon the request of the Holders
of a majority of the Registrable Securities registered thereunder, keep such
registration statement effective for a period of up to one hundred twenty (120)
days or until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a post-
effective amendment which (I) includes any prospectus required by Section
10(a)(3) of the Act or (II) reflects facts or events representing a material or
fundamental change in the information set forth in the registration statement,
the incorporation by reference of information required to be included in (I) and
(II) above to be contained in periodic reports filed pursuant to Section 13 or
15(d) of the 1934 Act in the registration statement.
(b) Prepare and file with the SEC such amendments, supplements and
post-effective amendments to such registration statement and the prospectus used
in connection with such registration statement as may be necessary to comply
with the provisions of the Act with respect to the disposition of all securities
covered by such registration statement.
(c) Furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions, and do any and all other
acts and things which may be necessary or advisable to enable such Holders or
underwriter to consummate the disposition in each such jurisdiction of such
Registrable Securities.
(e) use its best efforts to cause the Registrable Securities covered
by such registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary by virtue of the
business and operations of the Company to
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enable the Holder or Holders thereof to consummate the disposition of such
Registrable Securities;
(f) immediately notify the managing underwriter, if any, and each
Holder of such Registrable Securities at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening of
any event which comes to the Company's attention if as a result of such event
the prospectus included in such registration statement contains an untrue
statement of a material fact or omits to state any material fact required to be
stated therein or necessary to make the statements therein not misleading and
the Company shall promptly prepare and furnish to such Holder a supplement or
amendment to such prospectus so that, as thereafter delivered to the purchasers
of such Registrable Securities, such prospectus shall not contain an untrue
statement of a material fact or omit to state any material fact required to be
stated therein or necessary to make the statements therein not misleading;
(g) use its best efforts to cause all such Registrable Securities
covered by the registration statement to be listed on a national securities
exchange and on each securities exchange on which similar securities issued by
the Company are then listed, and enter into such customary agreements including
a listing application and indemnification agreement in customary form (provided
that the applicable listing requirements are satisfied), and to provide a
transfer agent and registrar for such Registrable Securities covered by such
registration statement no later than the effective date of such registration
statement;
(h) enter into such customary agreements (including an underwriting
agreement in customary form) and take all such other actions as the Initiating
Holders or the underwriters retained by such Holders, if any, reasonably request
in order to expedite or facilitate the disposition of such Registrable
Securities, including customary indemnification;
(i) make available for inspection during normal business hours by any
Holder of Registrable Securities covered by such registration statement, any
underwriter participating in any disposition pursuant to such registration
statement, and any attorney, accountant or other agent retained by any such
Holder or underwriter (collectively, the "Inspectors"), all financial and other
records, pertinent corporate documents and properties of the Company and its
subsidiaries (collectively, "Records"), if any, as shall be reasonably necessary
to enable them to exercise their due diligence responsibility, and cause the
Company's and its subsidiaries' officers, directors and employees to supply all
information and respond to all inquiries reasonably requested by any such
Inspector in connection with such registration statement. Notwithstanding the
foregoing, the Company shall have no obligation to disclose any Records to the
Inspectors in the event the Company determines that such disclosure is
reasonably likely to have an adverse effect on the Company's ability to assert
the existence of an attorney-client privilege with respect thereto;
(j) use its best efforts to obtain a "comfort" letter from the
Company's independent public accountants in customary form and covering such
matters of the type customarily covered by "comfort" letters as the Holders of a
majority (by number of shares) of the Registrable Securities being sold
reasonably request, and provided that such request is reasonable in the
underwriter's point of view;
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(k) use its best efforts to obtain an obtain an opinion of counsel
from the Company's counsel in customary form and covering such matters of the
type customarily covered in opinions of counsel in connection with such
transactions; and
(l) comply, and continue to comply during the period that such
registration statement is effective under the Securities Act, in all material
respects with the Securities Act and the Securities Exchange Act of 1934 and
with all applicable rules and regulations of the Commission with respect to the
disposition of all securities covered by such registration statement, and make
available to its security holders, as soon as reasonably practicable, an
earnings statement covering the period of at least twelve (12) months, but not
more than eighteen (18) months, beginning with the first full calendar month
after the effective date of such registration statement, which earnings
statement shall satisfy the provisions of Section 11(a) of the Securities Act,
and not file any amendment or supplement to such registration statement or
prospectus to which Holder shall have reasonably objected on the grounds that
such amendment or supplement does not comply in all material respects with the
requirements of the Securities Act, having been furnished with a copy thereof at
least five (5) business days prior to the filing thereof.
Each Holder of Registrable Securities agrees that, upon receipt of any notice
from the Company of the happening of any event of the kind described in Section
1.5(f) hereof, such Holder shall discontinue disposition of Registrable
Securities pursuant to the registration statement covering such Registrable
Securities until such Holder's receipt of the copies of the supplemented or
amended prospectus contemplated by Section 1.5(f) hereof, and, if so directed by
the Company, such Holder shall deliver to the Company (at the Company's expense)
all copies (including, without limitation, any and all drafts), other than
permanent file copies, then in such Holder's possession, of the prospectus
covering such Registrable Securities current at the time of receipt of such
notice. In the event the Company shall give any such notice, the period
mentioned in Section 1.5(a) hereof shall be extended by the greater of (i) ten
(10) business days or (ii) the number of days during the period from and
including the date of the giving of such notice pursuant to Section 1.5(f)
hereof to and including the date when each Holder of Registrable Securities
covered by such registration statement shall have received the copies of the
supplemented or amended prospectus contemplated by Section 1.5(f) hereof.
1.6 Furnish Information.
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(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 1 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 1.2 or Section 1.3 if, due to the
operation of Section 1.6(a), the number of shares or the anticipated aggregate
offering price of the Registrable Securities to be included in the registration
does not equal or exceed the number of share or the anticipated
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aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in Section 1.2(a) or Section 1.3(b),
as applicable.
1.7 Expenses of Demand Registration.
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All expenses (other than underwriting discounts and commissions) incurred in
connection with up to two registrations, filings or qualifications pursuant to
Section 1.2 hereof, including (without limitation) all registration, filing and
qualification fees, printers' and accounting fees, fees and disbursements of
counsel for the Company, and fees and disbursements of one counsel for the
selling Holders, shall be borne by the Company; provided, however, that the
Company shall not be required to pay for any expenses of any registration
proceeding begun pursuant to Section 1.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to be registered (in which case all participating holders
shall bear such expenses), unless the Holders of a majority of the Registrable
Securities agree to forfeit their right to one demand registration pursuant to
Section 1.2.
1.8 Expenses of Company Registration and Form S-3 Registrations.
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The Company shall bear and pay all expenses incurred in connection with any
registration, filing or qualification of Registrable Securities with respect to
the registrations pursuant to Sections 1.3 and 1.4 for each Holder, including
(without limitation) all registration, filing, and qualification fees, printers
and accounting fees relating or apportionable thereto and the fees and
disbursements of counsel for the Company in its capacity as counsel to the
selling Holders hereunder; if Company counsel does not make itself available for
this purpose, the Company will pay the reasonable fees and disbursements of one
counsel for the selling Holders selected by them, but excluding underwriting
discounts and commissions relating to Registrable Securities.
1.9 Underwriting Requirements.
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In connection with any offering involving an underwriting of shares of the
Company's capital stock, the Company shall not be required under Sections 1.3
and 1.4 to include any of the Holders' securities in such underwriting unless
they accept the terms of the underwriting as agreed upon between the Company and
the underwriters selected by it (or by other persons entitled to select the
underwriters), and then only in such quantity as the underwriters determine in
their sole discretion will not jeopardize the success of the offering by the
Company. If the total amount of securities, including Registrable Securities,
requested by stockholders to be included in such offering pursuant to Sections
1.3 and 1.4 exceeds the amount of securities sold (other than by the Company in
the case of a registration under Section 1.4) that the underwriters determine in
their sole discretion is compatible with the success of the offering, then the
Company shall exclude from such registration (i) first, securities held by any
Person who does not have any contractual rights to cause the Company to register
such securities, (ii) second, securities held by any Person with such
contractual rights other than those granted in this Agreement, (iii) third, any
Management Stock included in the underwriting, and (iv) fourth, shares held by
any Person with such contractual rights granted in this Agreement, pro rata
among the Holders of such shares on the basis of the respective numbers of
shares of Common Stock requested to be included in such registration, but in no
event shall the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included in such offering, unless such offering is the initial public offering
of the Company's securities.
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1.10 Delay of Registration.
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No Holder shall have any right to obtain or seek an injunction restraining or
otherwise delaying any such registration as the result of any controversy that
might arise with respect to the interpretation or implementation of this Section
1.
1.11 Indemnification.
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In the event any Registrable Securities are included in a registration
statement under this Section 1:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, its directors, officers and partners, any underwriter
(as defined in the Act) for such Holder and each person, if any, who controls
such Holder or underwriter within the meaning of the Act or the 1934 Act,
against any losses, claims, damages, liabilities (joint or several) or expenses
to which they may become subject under the Act or the 1934 Act, insofar as such
losses, claims, damages, liabilities or expenses (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations (collectively a "Violation"): (i) any untrue statement or alleged
untrue statement of a material fact contained in such registration statement,
including any preliminary prospectus or final prospectus contained therein or
any amendments or supplements thereto, (ii) the omission or alleged omission to
state therein a material fact required to be stated therein, or necessary to
make the statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Act, the 1934 Act, or any rule or regulation
promulgated under the Act or the 1934 Act; and the Company will pay to each such
Holder, director, officer, partner, underwriter or controlling person, any legal
or other expenses reasonably incurred by them in connection with investigating
or defending any such loss, claim, damage, liability, or action; provided,
however, that the indemnity agreement contained in this Section 1.11(a) shall
not apply to amounts paid in settlement of any such loss, claim, damage,
liability, or action if such settlement is effected without the consent of the
Company (which consent shall not be unreasonably withheld), nor shall the
Company be liable in any such case for any such loss, claim, damage, liability,
or action to the extent that it arises out of or is based upon a Violation which
occurs in reliance upon and in conformity with written information furnished
expressly for use in connection with such registration by any such Holder,
underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will indemnify
and hold harmless the Company, each of its directors, each of its officers who
has signed the registration statement, each person, if any, who controls the
Company within the meaning of the Act, any underwriter, any other Holder selling
securities in such registration statement and any controlling person of any such
underwriter or other Holder, against any losses, claims, damages, or liabilities
(joint or several) to which any of the foregoing persons may become subject,
under the Act or the 1934 Act, insofar as such losses, claims, damages, or
liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay any legal or other expenses reasonably incurred by
any person intended to be indemnified pursuant to this Section 1.11(b), in
connection with investigating or defending any such loss, claim, damage,
liability, or action; provided, however, that the indemnity agreement contained
in this Section 1.11(b) shall not apply to amounts paid in settlement of any
such loss, claim, damage, liability or action if such settlement is effected
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without the consent of the Holder, which consent shall not be unreasonably
withheld; provided, that, in no event shall any indemnity under this Section
1.11(b) exceed the gross proceeds from the offering received by such Holder.
(c) Promptly after receipt by an indemnified party under this Section
1.11 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 1.11, deliver to the
indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential 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 prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
1.11, 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 1.11.
(d) If the indemnification provided for in this Section 1.11 is held by
a court of competent jurisdiction to be unavailable to an indemnified party with
respect to any loss, liability, claim, damage, or expense referred to therein,
then the indemnifying party, in lieu of indemnifying such indemnified party
hereunder, shall contribute to the amount paid or payable by such indemnified
party as a result of such loss, liability, claim, damage, or expense in such
proportion as is appropriate to reflect the relative fault of the indemnifying
party on the one hand and of the indemnified party on the other in connection
with the statements or omissions that resulted in such loss, liability, claim,
damage, or expense as well as any other relevant equitable considerations. The
relative fault of the indemnifying party and of the indemnified party shall be
determined by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties' relative intent, knowledge, access to information, and
opportunity to correct or prevent such statement or omission.
(e) Notwithstanding the foregoing, to the extent that the provisions
on indemnification and contribution contained in the underwriting agreement
entered into in connection with the underwritten public offering are in conflict
with the foregoing provisions, the provisions in the underwriting agreement
shall control.
(f) The obligations of the Company and Holders under this Section 1.11
shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 1, and otherwise.
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1.12 Reports Under Securities Exchange Act of 1934.
---------------------------------------------
With a view to making available to the Holders the benefits of Rule 144
promulgated under the Act and any other rule or regulation of the SEC that may
at any time permit a Holder to sell securities of the Company to the public
without registration or pursuant to a registration on Form S-3, the Company
agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(b) file with the SEC in a timely manner all reports and other
documents required of the Company under the Act and the 1934 Act; and
(c) furnish to any Holder, so long as the Holder owns any Registrable
Securities, forthwith upon request (i) a written statement by the Company that
it has complied with the reporting requirements of SEC Rule 144 (at any time
after ninety (90) days after the effective date of the first registration
statement filed by the Company), the Act and the 1934 Act (at any time after it
has become subject to such reporting requirements), or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), (ii) a copy of the most recent annual or quarterly
report of the Company and such other reports and documents so filed by the
Company, and (iii) such other information as may be reasonably requested in
availing any Holder of any rule or regulation of the SEC (including Rule 144A)
which permits the selling of any such securities without registration or
pursuant to such form.
1.13 Assignment of Registration Rights.
---------------------------------
The rights to cause the Company to register Registrable Securities pursuant to
this Section 1 may be assigned (but only with all related obligations) by a
Holder to a transferee or assignee of such securities, provided: (a) the
Company is, within a reasonable time after such transfer, furnished with written
notice of the name and address of such transferee or assignee and the securities
with respect to which such registration rights are being assigned; (b) such
transferee or assignee agrees in writing to be bound by and subject to the terms
and conditions of this Agreement, including without limitation the provisions of
Section 1.15 below; and (c) such assignment shall be effective only if
immediately following such transfer either (x) the Common Stock is neither
listed on a national securities exchange nor traded in the NASDAQ National
Market System or (y) the further disposition of such securities by the
transferee or assignee is restricted under the Act.
1.14 Limitations on Subsequent Registration Rights.
---------------------------------------------
From and after the date of this Agreement, the Company shall not, without the
prior written consent of the Holders of a majority of the outstanding
Registrable Securities, enter into any agreement with any holder or prospective
holder of any securities of the Company which would allow such holder or
prospective holder (a) registration rights which are superior to the
registration rights granted pursuant to this Agreement, (b) registration rights
which are pari passu with the registration rights granted pursuant to Sections
1.2, 1.3 and 1.4 of this Agreement, (c) to include such securities in any
registration filed under Section 1.2 or Section 1.3, unless under the terms of
such agreement, such holder or prospective holder may include such securities in
any such registration only to the extent that the inclusion of such securities
will not reduce the amount of
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the Registrable Securities included by the Holders in such registration, or (d)
to make a demand registration which could result in such registration statement
being declared effective prior to the earlier of six months after either of the
dates set forth in Section 1.2(a) or within one hundred eighty (180) days of the
effective date of any registration effected pursuant to Section 1.2.
1.15 "Market Stand-Off" Agreement.
----------------------------
(a) Each Investor hereby agrees that, during the period of duration specified
by the managing underwriter of Common Stock or other equity securities of
the Company, following the date of the first sale of such securities to the
public pursuant to a registration statement of the Company filed under the
Act, it shall not, to the extent requested by such underwriter, directly or
indirectly sell, offer to sell, contract to sell (including, without
limitation, any short sale), grant any option to purchase or otherwise
transfer or dispose of (other than to donees who agree to be similarly
bound) any securities of the Company held by it at any time during such
period except Common Stock included in such registration; provided,
however, that such market stand-off time period shall not exceed 180 days
in the case of the Company's initial public offering or 90 days in any
subsequent registration and in any event shall not exceed the stand-off
period applicable to holders of Management Stock. In order to enforce the
foregoing covenant, the Company may impose stop-transfer instructions with
respect to the Registrable Securities of each Investor (and the shares or
securities of every other person subject to the foregoing restriction)
until the end of such period. Notwithstanding the foregoing, the
obligations described in this Section 1.15 shall not apply to a
registration relating solely to employee benefit plans on Form S-l or Form
S-8 or similar forms which may be promulgated in the future, or a
registration relating solely to a Commission Rule 145 transaction on Form
S-4 or similar forms which may be promulgated in the future.
1.16 Termination of Registration Rights.
----------------------------------
(a) No Holder shall be entitled to exercise any right provided for in
this Section 1 (other than Section 1.3) after five (5) years following the
consummation of the sale of securities pursuant to a registration statement
filed by the Company under the Act in connection with the initial firm
commitment underwritten offering of its Common Stock to the general public.
(b) In addition, the right of any Holder to request registration or
inclusion in any registration pursuant to Section 1.4 shall terminate on the
first date following the Company's initial public offering of Common Stock on
which both (i) all shares of Registrable Securities held or entitled to be held
upon conversion by such Holder may immediately be sold under Rule 144 during the
following 90-day period, and (ii) the Common Stock is either listed on a
national securities exchange or traded in the NASDAQ National Market System.
2. Covenants of the Company.
2.1 Delivery of Financial Statements.
--------------------------------
The Company shall deliver to each Investor (or, in the case of items referred
to in clauses (e) and (f) of this Section 2.1, to each Investor holding
securities representing 10.0% or more of the fully-diluted Common Stock
determined on an as-converted basis (a "Qualified Holder"); Notwithstanding the
foregoing, as long as First Union Capital Partners, Inc., Meritage Private
Equity Fund, L.P., Meritage Private Equity
13
Parallel Fund, L.P., Meritage Entrepreneurs Fund, L.P., X.X. Xxxxxx Investment
Corporation, Sixty Wall Street SBIC Fund, L.P., General Electric Capital
Corporation or Xxxxxxxx, Xxxxxx & Xxxxx II, L.P. own securities representing at
least fifty percent (50%) of the securities of the Company held by such Investor
as of the date of this Agreement, the Company shall deliver to such Investor the
items referred to in clauses 2.1(e) and (f)):
(a) as soon as practicable, but in any event within ninety (90) days
after the end of each fiscal year of the Company, an income statement for such
fiscal year, a balance sheet of the Company and statement of stockholder's
equity as of the end of such fiscal year, and a statement of cash flows for such
fiscal year, such year-end financial reports to be in reasonable detail,
prepared in accordance with generally accepted accounting principles ("gaap"),
and audited and certified by independent public accountants of nationally
recognized standing selected by the Company;
(b) as soon as practicable, but in any event within forty-five (45)
days after the end of each of the first three (3) quarters of each fiscal year
of the Company, an unaudited balance sheet and statements of income and cash
flows for and as of the end of such fiscal quarter;
(c) within thirty (30) days of the end of each month, an unaudited
balance sheet and statements of income and cash flows for and as of the end of
such month, in reasonable detail; and
(d) with respect to the financial statements called for in subsections
(b) and (c) of this Section 2.1, an instrument executed by the Chief Financial
Officer or President of the Company and certifying that such financial
statements were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to normal year-end
audit adjustment.
(e) 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 statements of
income and cash flows for such months and, as soon as prepared, any other
budgets or revised budgets prepared by the Company; and
(f) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as such Investor may
from time to time reasonably request; provided, however, that the Company shall
be allowed a reasonable time to process such request and shall not be obligated
under this or any other provision of Section 2.1 to provide information which it
deems in good faith to be a trade secret or similar confidential information.
2.2 Inspection.
----------
The Company shall permit each Qualified Holder, at such Investor's expense, to
visit and inspect the Company's properties, to examine its books of account and
records and to discuss the Company's affairs, finances and accounts with its
officers, all at such reasonable times as may be requested by the Investor;
provided, however, that the Company shall not be obligated pursuant to this
Section 2.2 to provide access to any information which it reasonably considers
to be a trade secret or similar confidential information.
14
2.3 Termination of Information and Inspection Covenants.
---------------------------------------------------
The covenants set forth in Sections 2.1 and Section 2.2 shall terminate as to
Investors and be of no further force or effect when the sale of securities
pursuant to a registration statement filed by the Company under the Act in
connection with the firm commitment underwritten offering of its securities to
the general public is consummated or when the Company first becomes subject to
the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act,
whichever event shall first occur.
2.4 Regulatory Compliance. In the event that (i) First Union Capital
---------------------
Partners, Inc., (ii) Sixty Wall Street SBIC Fund, L.P. or (iii) X.X. Xxxxxx
Investment Corporation (each, an "SBIC") determines that, by reason of any
future federal or state rule, regulation, guideline, order, interpretive
release, ruling, request or directive relating to Small Business Investment
Companies under the Small Business Investment Act of 1958 (having the force of
law and where the failure to comply therewith would be unlawful)(collectively, a
"Regulatory Requirement"), it is effectively restricted or prohibited from
holding the shares of Series A or Series B Preferred Stock (or any capital stock
distributable to such SBIC in any merger, reorganization, readjustment or other
reclassification or exchange with respect to the Company or any successor
thereof) or otherwise realize upon or receive the benefits intended under the
Series A or Series B Agreements, and following such SBIC's respective exercise
of its reasonable best efforts to overcome such Regulatory Requirement, the
Company, the Company's Board of Directors and the other shareholders of the
Company shall make all reasonable efforts to take such action as such SBIC may
reasonably deem necessary to permit such Investor to comply with such Regulatory
Requirement. Such action to be taken may include the Company's authorization or
creation of one or more new classes of interests and the modification or
amendment of the Series A Agreement or the Series B Agreement or the other
agreements executed in connection therewith; and, if compliance with such
Regulatory Requirement cannot be satisfied by such efforts, such SBIC shall be
allowed to sell or exchange, convey, dispose or otherwise transfer
(collectively, "Transfer") all or part of its shares of the Company's capital
stock as necessary to comply with such Regulatory Requirement without such
Transfer being subject to any co-sale rights or rights of first refusal by any
other shareholder of the Company or any other Person (including the Company)
under the Stockholders' Agreement of even date herewith among the Company and
certain stockholders of the Company. Each SBIC shall give written notice to the
Company of any such determination and the action or action necessary to comply
with such Regulatory Requirement, and the Company, the Company's Board of
Directors and the shareholders of the Company shall take all steps necessary to
comply with such determination as expeditiously as possible.
2.5 Key Man Insurance. The Company agrees to obtain within 30 days after
-----------------
the date of this Agreement, and thereafter maintain so long as such persons
serve as executive officers of the Company, "key man" life insurance in the
amount of $2,500,000 on each of Art Zeile and Xxxx Xxxx with the Company as the
sole beneficiary of such insurance.
3. Miscellaneous.
3.1 Successors and Assigns.
----------------------
Except as otherwise provided herein, the terms and conditions of this
Agreement shall inure to the benefit of and be binding upon the respective
15
successors and assigns of the parties (including transferees of any shares of
Registrable Securities). Nothing in this Agreement, express or implied, is
intended to confer upon any party other than the parties hereto or their
respective successors and assigns any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
in this Agreement.
3.2 Governing Law.
-------------
This Agreement shall be governed by and construed under the laws of the State
of Colorado as applied to agreements among Colorado residents entered into and
to be performed entirely within Colorado.
3.3 Counterparts.
------------
This Agreement may be executed in two or more counterparts, each of which
shall be deemed an original, but all of which together shall constitute one and
the same instrument.
3.4 Titles and Subtitles.
--------------------
The titles and subtitles used in this Agreement are used for convenience only
and are not to be considered in construing or interpreting this Agreement.
3.5 Notices.
-------
All notices required or permitted hereunder shall be in writing and
shall be deemed effectively given: (i) upon personal delivery to the party to be
notified, (ii) when sent by confirmed facsimile if sent during normal business
hours of the recipient, if not, then on the next business day; or (iii) one day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the address as set forth on the signature page hereof or at such other
address as such party may designate by ten days advance written notice to the
other parties hereto.
3.6 Expenses.
--------
If any action at law or in equity is necessary to enforce or interpret the
terms of this Agreement, the prevailing party shall be entitled to reasonable
attorneys' fees, costs and necessary disbursements in addition to any other
relief to which such party may be entitled.
3.7 Amendments and Waivers.
----------------------
Any term of this Agreement may be amended and the observance of any term of
this Agreement may be waived (either generally or in a particular instance and
either retroactively or prospectively), only with the written consent of the
Company and the holders of at least seventy-five percent (75%) of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company.
3.8 Severability.
------------
If one or more provisions of this Agreement are held to be unenforceable under
applicable law, such provision shall be excluded from this Agreement and the
balance of the Agreement shall be interpreted as if such provision were so
excluded and shall be enforceable in accordance with its terms.
3.9 Aggregation of Stock.
--------------------
All shares of Registrable Securities held or acquired by affiliated entities
or persons shall be aggregated together for the purpose of determining the
availability of any rights under this Agreement.
16
3.10 Entire Agreement; Amendment; Waiver.
-----------------------------------
This Agreement (including the Exhibits hereto, if any) constitutes the full
and entire understanding and agreement between the parties with regard to the
subjects hereof and thereof.
17
IN WITNESS WHEREOF, the parties have executed this Agreement as of the date
first above written.
INFLOW, INC.
By: /s/ Art Zeile
___________________________________
Art Zeile
President and Chief Executive Officer
Address: 0000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
INVESTORS:
MERITAGE PRIVATE EQUITY FUND, L.P.
MERITAGE PRIVATE EQUITY PARALLEL FUND, L.P.
MERITAGE ENTREPRENEURS FUND, L.P.
By Meritage Investment Partners, LLC
General Partner
By: /s/ X. Xxxxxxx Xxxxxxxxxx, Jr.
___________________________________
X. Xxxxxxx Xxxxxxxxxx, Jr.
Managing Member
Address: 0000 Xxxxxxx Xxxxxx
Xxxxx 000
Xxxxxx, XX 00000
FIRST UNION CAPITAL PARTNERS, INC.
By: /s/ X. Xxxxx Xxxxxxx III
___________________________________
X. Xxxxx Xxxxxxx III
Senior Vice President
Address: 000 Xxxxx Xxxxxxx Xxxxxx
Xxxxxxxxx, XX 00000-0000
00
XXXXX XXXX XXXXXX SBIC FUND, L.P.,
by Sixty Wall Street SBIC Corporation, its General
Partner
By: __________________________________
Its: __________________________________
Address: 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
X.X. XXXXXX INVESTMENT CORPORATION
By: __________________________________
Its: __________________________________
Address: 000 Xxxxxxxxxx Xxxxxx, 00xx Xxxxx
Xxx Xxxxxxxxx, XX 00000
GENERAL ELECTRIC CAPITAL CORPORATION
By: /s/ Xxxxx X. Xxxxxxxxx
___________________________________
Xxxxx X. Xxxxxxxxx
Manager of Operations
Address: 000 Xxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
19
XXXXXXXX, XXXXXX AND XXXXX II, X.X.
Xxxxxxxx, Xxxxxx & Xxxxx LLC,
General Partner
By: /s/ Xxxxx Van Genderen
--------------------------------
Xxxxx Van Genderen, Partner
Address: Republic Plaza
000 00xx Xxxxxx
Xxxxx 0000
Xxxxxx, XX 00000
/s/ Art Zeile
-------------------------------------
Art Zeile
/s/ Xxxx Xxxx
-------------------------------------
Xxxx Xxxx
20
