Management Rights Agreement

Management Rights Letter



Re: Management Rights

Ladies and Gentlemen:

This letter will confirm our agreement effective as of the Investor's purchase of [NUMBER OF PURCHASED SHARES] shares of [DESCRIPTION OF PURCHASED STOCK] of [COMPANY NAME] (the "Company"), that the Investor will, in addition to any rights to non-public financial information, inspection rights, and other rights specifically provided to all investors in the current financing, be entitled to the following contractual management rights. (Capitalized terms not otherwise defined in the body of this letter are defined in section 14 (Definitions).)

1. Financial Information Rights

1.1. Delivery of Information. The Company shall deliver to the Investor

(a) as soon as available and in any event within [45] days after the end of each of the first three quarters of each fiscal year of the Company,

(i) consolidated balance sheets of the Company and its subsidiaries as of the end of that period, and

(ii) consolidated statements of income and cash flows of the Company, and its subsidiaries for the period then ended,

prepared in conformity with GAAP, and subject to the absence of footnotes and to year-end adjustment,

(b) as soon as available and in any event within [90] days after the end of each fiscal year of the Company,

(i) a consolidated balance sheet of the Company and its subsidiaries as of the end of such year, and

(ii) consolidated statements of income and cash flows of the Company and its subsidiaries for the year then ended,

prepared in conformity with GAAP, together with an auditor's report of a firm of established national reputation, and

(c) as soon as available, the reports, if any, that the Company is required by law or under the terms of any outstanding indebtedness to prepare in accordance with section 13 or 15(d) of the Securities Exchange Act of 1934, as amended.

1.2. Qualification. If the Company is required to deliver the reports referred to in section 1.1(c), the Company will not be required to deliver to the Investor the information described in sections 1.1(a) and (b).

2. Board Rights. The Investor is entitled to appoint at least [one] member to the Company's Board of Directors (the "Board") in accordance with the Investors' Rights Agreement and the Company's Certificate of Incorporation.

3. Advisory Rights. If the Investor is not represented on the Board, the Investor will be entitled to consult with and advise management on significant business issues (including management's proposed annual operating plans). Management will meet with Investor regularly during each year at the Company's offices at mutually agreeable times for this purpose and to review the progress made in achieving its plans. The Company will give due consideration to any advice the Investor gives or any proposals the Investor makes.

4. Board Information Rights. If the Investor is not represented on the Board, the Investor will be entitled to receive the same information as is provided to members of the Board and the boards of its subsidiaries.

5. Advance Notice Rights. The Company will also give the Investor reasonable advance written notice of any significant new initiatives or material changes to existing operating plans of the Company and its subsidiaries and will afford the Investor adequate time to meet with management to consult before implementing these initiatives or changes.

6. Attendance Rights

6.1. Attendance and Copies. If the Investor is not represented on the Board, the Company

(a) shall invite a Representative to attend all meetings of the Board in a non-voting observer capacity, and

(b) shall give him or her copies of all notices, minutes, consents, and other material that the Company provides to its directors.

6.2. Possible Exclusion. The Investor's Representative may, however, be excluded from access to any material or meeting if the Board determines in good faith, upon advice of counsel, that this exclusion is reasonably necessary to preserve attorney-client privilege, to protect highly confidential proprietary information, or for other similar reasons.

6.3. Address to Board. Upon reasonable notice and at a scheduled meeting of the Board or such other time as the Board may determine, the Investor's representative may address the Board to raise any Investor concerns regarding significant business issues facing the Company.

7. Inspection Rights

7.1. Inspection. The Company shall, upon reasonable notice from the Investor, provide access to its offices during normal business hours to examine the Company's books and records, inspect its facilities, and request information. The Company shall cooperate with the Investor in its inspection, except that the Investor has no right, and the Company may deny access, to highly confidential proprietary information and facilities.

7.2. Conduct of Inspection. The Investor shall conduct any inspection in a manner so as not to unreasonably disrupt the Company's business. The Investor shall restrict the scope, manner, and duration of any inspection to that reasonably necessary to achieve its purpose.

8. Confidentiality

8.1. Confidentiality Obligations. While this letter is in effect and for a period of [two] years thereafter, the Investor shall hold all Confidential Information in confidence in accordance with the terms of this letter.

8.2. Use Solely for Purpose. The Investor shall use the Confidential Information solely for the purpose of managing its investment in the Company.

8.3. Permitted Disclosure. The Investor may disclose Confidential Information to its Representatives but only

(a) to the extent necessary to carry out the purpose of managing its investment in the Company, and

(b) if the Investor first informs them of, and directs them to maintain, its confidential nature in accordance with the terms of this letter.

8.4. Required Disclosure. The Investor may disclose Confidential Information to a third party if it is required to do so by law but only if, before that disclosure, the Investor, to the extent permitted by law,

(a) gives the Company notice to allow it a reasonable opportunity to either seek a protective order or other appropriate remedy or waive the Investor's compliance with this section,

(b) reasonably cooperates with the Company[, at the Company's expense,] in its reasonable efforts to obtain a protective order or other appropriate remedy,

(c) discloses only that portion of the Confidential Information that[, having consulted with its counsel,] it is legally required to disclose, and

(d) uses reasonable efforts to obtain reliable written assurance from the third party that the Confidential Information will be kept confidential.

9. Venture Capital Investments

9.1. Qualification of Investment. The rights granted under this letter are intended to satisfy the requirement of management rights for purposes of qualifying the Investor's ownership interests in the Company as a "venture capital investment" for purposes of the Regulations, to the extent that those ownership interests may be interests in operating companies (other than venture capital operating companies), within the meaning of the Regulations.

9.2. Required Changes to Letter. If the Investor reasonably concludes that the rights granted under this letter need to be altered to preserve its qualification as a "venture capital operating company" as defined in Regulations or otherwise to ensure that the Investor's assets are not considered "plan assets" for purposes of the Employee Retirement Income Security Act of 1974, as amended, the Company will agree to the necessary amendments to this letter, but only if the proposed changes would not result in a material adverse effect on the Company's operation or business.

10. Restructuring. If the Company engages in a restructuring or similar transaction not otherwise described in the definition of "Merger" below, any resulting entity or entities will be bound by this letter in the same manner as the Company.

11. No Assumption of Liability. The Investor will not, by reason of the rights granted to it under this letter, become subject to any liability relating to the management and affairs of the Company or otherwise be or become responsible for any of the Company's debts or other obligations.

12. Transfer to Affiliate. The Investor may transfer the rights granted to it under this letter to any other investment vehicle managed by an affiliate of the Investor to whom it transfers any of the Company's securities. the Company shall, in that case,

(a) provide each transferee with management rights substantially similar to those provided to Investor under this letter agreement, if those rights would facilitate the transferee's ability to meet or comply with any regulatory or legal requirement or standard (including such rights as are necessary to cause the investment by the transferee to constitute a "venture capital investment"),

(b) provide the transferee with such other rights as may be reasonably necessary for the transferee to comply with any other regulatory scheme that may apply to it, and

(c) subject to any applicable restrictions on transfer, take any actions reasonably necessary to facilitate the sale or transfer of the Investor's stock to the transferee.

13. Termination. The Investor's rights under this letter will terminate immediately upon the occurrence of any of the following:

(a) when less than [MINIMUM NUMBER OF SHARES] shares of the Company's stock are held by the Investor or its affiliates,

(b) the consummation of the sale of the Company's securities under a registration statement filed by the Company under the Securities Act of 1933, as amended, in connection with the firm commitment underwritten offering of its securities to the general public, or

(c) the consummation of a Merger.

14. Definitions. In this letter, in addition to the other defined terms, the following terms have the following meanings:

14.1. "Confidential Information" means all material non-public information, written or oral, relating to the Company disclosed or made available to the Investor, directly or indirectly, through any means of communication to the Investor or any of its Representatives.

14.2. "GAAP" means generally accepted accounting principles in the United States applied on a consistent basis.

14.3. "Investors' Rights Agreement" means the Investors' Rights Agreement, dated the same day as this letter, between the Company, the Investor and other investors.

14.4. "Merger" means a merger or consolidation of the Company that is done

(a) for independent business reasons unrelated to extinguishing stockholder rights, or

(b) for purposes other than

(i) the reincorporation of the Company in a different state, or

(ii) the formation of a holding company that will be owned exclusively by the Company's stockholders and will hold all of the outstanding shares of capital stock of the Company's successor.

14.5. "Plan Asset Regulations" means the regulations issued by the United States Department of Labor at Section 2510.3-101 of Part 2510 of Chapter XXV, Title 29 of the United States Code of Federal Regulations.

14.6. "Representative" means each director, officer, shareholder, partner, employee, agent, or professional advisor, and any other authorized representative.

14.7. "Selected Courts" means, collectively, the federal and state courts located in the State of [New York] in [New York] County.

15. General

15.1. Entire Agreement. This letter contains all the terms agreed to by the parties relating to its subject matter. It replaces all previous discussions, understandings, and agreements.

15.2. Amendment. This letter may only be amended by a written document signed by both parties.

15.3. Assignment. Except as provided in section 13 (Transfer to Affiliate), neither party may assign this letter or any of their rights or obligations under this letter without the prior written consent of the other party.

15.4. Remedies Cumulative. The rights and remedies available to a party under this letter are cumulative and in addition to, not exclusive of or in substitution for, any rights or remedies otherwise available to that party.

15.5. Severability. If any part of this letter is declared unenforceable or invalid, the remainder will continue to be valid and enforceable.

15.6. Waiver. A party's failure or neglect to enforce any of rights under this letter will not be deemed to be a waiver of that party's rights.

15.7. Equitable Relief. Each of the parties acknowledges that its breach or threatened breach of any its obligations under section 8 (Confidentiality) would not be susceptible to adequate relief by way of monetary damages only. Accordingly, the non-breaching party may, in that case, apply to court for any applicable equitable remedies (including injunctive relief), without the need to post any security.

15.8. Governing Law. This letter will be governed by and construed in accordance with the laws of the State of [GOVERNING LAW STATE], without regard to its conflict of laws rules.

15.9. Waiver of Jury Trial. Each party irrevocably waives its rights to trial by jury in any action or proceeding arising out of or relating to this letter or the transactions relating to its subject matter.

15.10. Attorney Fees. If either party brings legal action to enforce its rights under this letter, the prevailing party will be entitled to recover its expenses (including reasonable attorneys' fees) incurred in connection with the action and any appeal.

15.11. Consent to Jurisdiction. The parties hereby irrevocably and unconditionally

(a) consent to submit to the exclusive jurisdiction of the Selected Courts for any action or proceeding arising out of or relating to this letter, and agree not to commence any action or proceeding relating to this letter except in the Selected Courts, although a party may commence an action or proceeding in a court other than a Selected Court but only for the purpose of enforcing an order or judgment issued by one of the Selected Courts,

(b) consent to service of any process or other document in any action or proceeding made by registered first-class mail, postage prepaid, return receipt requested or by nationally recognized courier guaranteeing overnight delivery and agree that service of the process or other document will be effective service for any action or proceeding brought against it in a Selected Court, although this does not affect either party's right to serve process in any other manner permitted by law,

(c) waive any objection to the laying of venue of any action or proceeding arising out of this letter in the Selected Courts, and

(d) waive and agree not to plead or claim in any Selected Court that an action or proceeding brought in any Selected Court has been brought in an inconvenient forum.

15.12. Interpretation

(a) Statutes, etc. Unless specified otherwise, any reference in this letter to a statute includes the rules and policies made under that statute and any provision that amends, supplements, supersedes, or replaces that statute or those rules or policies.

(b) Number and Gender. Unless the context requires otherwise, words importing the singular number include the plural and vice versa, words importing gender include all genders.

(c) Headings. The headings used in this letter and its division into articles, sections, and other subdivisions do not affect its interpretation.

(d) Internal References. References in this letter to articles, sections, and other subdivisions are to those parts of this letter.

15.13. Counterparts. This letter may be signed in any number of counterparts, each of which is an original and all of which taken together form one single document.

15.14. Effective Date. This letter is effective as of the date shown at the top of the first page, even if any signatures are made after that date.

Very truly yours,





Agreed and Accepted: