INVESTOR RIGHTS AGREEMENT
Exhibit
10.4
This
INVESTOR RIGHTS AGREEMENT (this “Agreement”), dated as
of September 19, 2007, is entered into by and among NEPHROS,
INC., a Delaware corporation (the “Company”), LAMBDA
INVESTORS LLC, a Delaware limited liability company (“Lambda”),
and the other parties named on the signature pages to this Agreement or who
subsequently become a party to this Agreement in accordance with the terms
hereof (collectively, the “Covered Holders”).
WHEREAS,
to induce Lambda to make an investment in the Company, the Company and Covered
Holders have agreed to cause two individuals having reasonably appropriate
experience and background designated by Lambda from time to time (the “Lambda
Nominees”) to be elected to the Board of Directors of the Company (the
“Board”); and
WHEREAS,
the parties hereto desire to enter into this Agreement to provide for the
election of the Nominees and to address certain matters relating to the service
of the Lambda Nominees as members of the Board.
NOW
THEREFORE, in consideration of the foregoing and the covenants and
agreements contained in this Agreement, the sufficiency of which is hereby
acknowledged, the parties agree as follows:
1. Board
Representation.
(a) The
Company, Lambda and the Covered Holders shall take such corporate actions as
may
be required to ensure that the number of directors constituting the Board is
at
all times no greater than seven (7) or such greater number as Lambda shall
have
agreed to in writing, provided, that a unanimous written consent of the Board,
including the consent of the Lambda Nominees, shall constitute a writing for
such purposes, and provided further, that a writing shall not be required if
a
majority of the directors on the Board approve a resolution at a Board meeting
to increase the size of the Board and the Lambda Nominees vote in the
majority.
(b) Lambda
shall be entitled to (i) nominate the Lambda Nominees to the Board to serve
as
directors until their respective successor(s) are elected and qualified,
(ii) nominate each successor to the Lambda Nominees, provided that any
successor shall have reasonably appropriate experience and background, and
(iii)
direct the removal from the Board of any director nominated under the foregoing
clauses (i) or (ii).
(c) Each
nomination or any direction to remove from the Board any Lambda Nominee shall
be
made by delivering to the Company a notice signed by Lambda. As
promptly as practicable, but in any event within ten (10) days after delivery
of
such notice, the Company shall take or cause to be taken such corporate actions
as may be reasonably required to cause the election or removal proposed in
such
notice. Such corporate actions may include calling a meeting or
soliciting a written consent of the Board, or calling a meeting or soliciting
a
written consent of the stockholders of the Company.
(d) Upon
the
written request of Lambda, the Company and each Covered Holder shall take such
actions as may be reasonably required to cause the persons then serving on
the
Board
based
on
the nomination of Lambda to be appointed to the board of directors (or similar
governing body) of all direct and indirect subsidiaries of the
Company.
2. Voting
Agreement.
(a) Each
Covered Holder covenants and agrees to vote all common stock, par value $.001
per share of the Company (“Common Stock”), and any other capital stock or
other securities of the Company held by such Covered Holder that are entitled
to
vote in the election of the Board (“Voting Securities”) for the election
to the Board of the Lambda Nominees in accordance with Section 1(b) and
for the removal from the Board of the Lambda Nominees proposed to be removed
in
accordance with Section 1(b) and shall take all actions required on its
behalf to give effect to the agreements set forth in this Section
2. Each Covered Holder covenants and agrees not to vote any
Voting Securities for the removal of any Lambda Director except pursuant to
direction from Lambda pursuant to Section 1(b)(iii).
(b) Each
Covered Holder hereby grants to Lambda an irrevocable proxy, coupled with an
interest, authorizing Lambda to act as proxy of such Covered Holder, with full
powers of substitution and resubstitution, and hereby authorizes Lambda to
vote,
give consents and in all other ways act in such Covered Holder’s place with
respect to all Voting Securities held by such Covered Holder in connection
with
such Covered Holder’s agreements contained in this Section 2 to vote in
favor of or for the removal of the Lambda Nominees, which proxy shall be valid
and remain in effect until the termination of this Agreement.
3. Vacancies
and Removal.
(a) The
Lambda Nominees designated pursuant to Section 1(b) will be elected at
any annual or special meeting of the stockholders of the Company (or by written
consent in lieu of a meeting of the stockholders) and will serve until their
successors are duly elected and qualified or until their earlier resignation
or
removal.
(b) In
the
event a vacancy is created on the Board by reason of the death, removal or
resignation of any Lambda Nominee, Lambda shall be entitled to nominate a
successor Lambda Director having reasonably appropriate experience and
background and such vacancy shall be filled in accordance with the procedures
set forth in Section 1(c).
4. Meetings;
Expenses; Compensation; Insurance.
(a) The
Company shall convene meetings of the Board at least once every three
months. Upon any failure by the Company to convene any meeting
required by this paragraph, a Lambda Director shall be empowered to convene
such
meeting.
(b) The
Lambda Nominees shall be entitled to compensation and reimbursement for expenses
on the same terms as other directors of the Company who are not officers or
employees of the Company.
(c) The
Company shall maintain a directors’ and officers’ policy of insurance in the
amount of at least $7,000,000 per occurrence covering all
directors.
5. Business
Opportunities.
(a) In
anticipation of Lambda becoming, indirectly or directly, a substantial
stockholder of the Company, and in recognition of (i) the benefits to be derived
by the Company through its continued contractual, corporate and business
relations with Lambda (including the services of officers, directors, partners,
managers, employees or affiliates of Lambda (collectively, “Lambda
Persons”) as directors of the Company) and (ii) the difficulties attendant
to any director who desires and endeavors fully to satisfy such director’s
fiduciary duties, in determining the full scope of such duties in any particular
situation, the provisions of this Section 5 are set forth to regulate,
define and guide the conduct of certain affairs of the Company as they may
involve Lambda and any Lambda Persons, and the powers, rights, duties and
liabilities of the Company and its officers, directors and stockholders in
connection therewith.
(b) Except
as
Lambda may otherwise agree in writing, Lambda shall have the right to (i)
engage, directly or indirectly, in the same or similar business activities
or
lines of business as the Company and (ii) do business with any client,
competitor or customer of the Company, with the result that the Company shall
have no right in or to such activities or any proceeds or benefits therefrom,
and neither Lambda nor any Lambda Person (except as provided in Section
5(c)) shall be liable to the Company or its stockholders for breach of any
fiduciary duty by reason of any such activities of Lambda or of such Lambda
Person’s participation therein. A Lambda Person who is serving as an
officer or director of the Company may not, at the same time, serve as an
officer or director of any entity whose principal business activity is (i)
the
development or sale of medical devices for the treatment of end stage renal
disease or (ii) water filtration. In the event that Lambda or any
Lambda Person acquires knowledge of a potential transaction or matter that
may
be a corporate opportunity for both Lambda and the Company other than in the
case of a director-related opportunity, Lambda and such Lambda Person shall
have
no duty to communicate or present such corporate opportunity to the Company
and
the Company hereby renounces any interest or expectancy it may have in such
corporate opportunity, with the result that Lambda or such Lambda Person shall
not be liable to the Company or its stockholders for breach of any fiduciary
duty, including for breach of any fiduciary duty as a director or stockholder
of
the Company, by reason of the fact that Lambda pursues or acquires such
corporate opportunity for itself, directs such corporate opportunity to another
person or entity, or does not present such corporate opportunity to the
Company.
(c) In
the
event that a director of the Company who is a Lambda Person acquires knowledge
of a potential transaction or matter that may be a corporate opportunity for
both the Company and Lambda, such corporate opportunity shall belong to Lambda,
and the Company hereby renounces any interest or expectancy it may have in
such
corporate opportunity, unless such corporate opportunity is a director-related
opportunity, in which case such corporate opportunity shall belong to the
Company.
(d) For
the
purposes of this Section 5, “corporate opportunities” shall not
include any business opportunities that the Company is not financially or
contractually able to undertake, or that are, from their nature, not in the
line
of the Company’s business or are of no practical advantage to it or that are
ones in which the Company has no interest or reasonable
expectancy. For the purposes of this Section 5, a
“director-related opportunity” means a potential transaction or matter
that may be a corporate opportunity for both the Company and Lambda
where
knowledge
of such corporate opportunity is made known to a Lambda Person who is serving
as
a director of the Company as a result of his serving as a director of the
Company prior to (x) Lambda or any other Lambda Person acquiring knowledge
of such corporate opportunity, or (y) such Lambda Person acquiring knowledge
of
such corporate opportunity other than as a result of such Lambda Person’s
serving as a director.
(e) For
purposes of this Section 5 only, the “Company” shall mean the
Company and all corporations, partnerships, joint ventures, associations and
other entities in which the Company beneficially owns (directly or indirectly)
fifty percent (50%) or more of the outstanding voting stock, voting power or
similar voting interests.
(f) Neither
the Company nor any Covered Holder will take any action to approve any amendment
to the Certificate of Incorporation or Bylaws of the Company that is
inconsistent with any provision of this Section 5.
6. Joinder
Agreements; Transfers.
(a) Except
as
Lambda may otherwise agree in writing, the Company shall require each person
or
entity who subscribes for or otherwise purchases any newly issued capital stock
of the Company, securities convertible into or exchangeable for shares of
capital stock of the Company, and all options, warrants, and other rights to
purchase or otherwise acquire from the Company shares of such capital stock
(collectively, “Equity Securities”), other than Excluded Securities (as
defined below), after the date hereof, as a condition to the effectiveness
of
such subscription or purchase, to execute a joinder to this Agreement,
substantially in the form attached hereto as Exhibit A (the “Joinder
Agreement”), agreeing to be treated as a Covered Holder, whereupon such
Person shall be a party to and bound by the provisions of this
Agreement. For purposes of this paragraph, “Excluded
Securities” means (i) options granted to directors, officers, bona fide
consultants and employees of the Company issued pursuant to an employee benefit
plan of the Company and shares of capital stock at any time issuable upon the
exercise of such options, (ii) shares of capital stock issuable upon conversion
of the Company’s Series A 10% Secured Convertible Notes Due 2008 or Series B 10%
Secured Convertible Notes Due 2008, (iii) warrants issuable upon conversion
of
the Company’s Series A 10% Secured Convertible Notes Due 2008 and shares of
capital stock at any time issuable upon the exercise of such warrants,
(iv) shares of Common Stock issuable upon the exercise of options, warrants
or other securities exchangeable or exercisable for, or convertible into, shares
of capital stock that are outstanding as of the date hereof, (v) shares of
capital stock issued by the Company in an underwritten public offering and
(vi)
Equity Securities issued after the date hereof to give effect to any stock
dividend or distribution, stock split, reverse stock split or combination or
other similar pro rata recapitalization event affecting capital
stock.
(b) From
the
date hereof until two (2) regular annual meetings of stockholders of the Company
at which directors of the Company are elected have been conducted, no Covered
Holder shall sell, transfer, assign, pledge, hypothecate or otherwise dispose
of
any Equity Securities (each, a “Transfer”), and the Company shall not
record any such Transfer, unless and until the transferee (unless already
subject to this Agreement) executes and delivers to the Company a Joinder
Agreement, agreeing to be treated in the same manner as the Covered
Holder. Upon such Transfer and such execution and delivery, the
transferee shall be a party to
and
bound
by this Agreement with respect to the transferred Equity Securities in the
same
manner as the transferring Covered Holder. The provisions of this
Section 6(b) shall apply to all Equity Securities now owned or hereafter
acquired by a Covered Holder. Any Transfer of Equity Securities by a
Covered Holder not made in accordance with this Section 6(b) shall be
void ab initio. The provisions of this Section 6(b) shall not apply
to any sale of shares of Common Stock by a Covered Holder pursuant to an
effective registration statement or Rule 144.
7. Legend.
Each certificate representing Equity Securities held by a
Covered Person shall, in addition to any other legends otherwise required,
bear
a legend substantially in the following form:
“THE
SALE, TRANSFER, ASSIGNMENT, PLEDGE OR ENCUMBRANCE OF THE SECURITIES REPRESENTED
BY THIS CERTIFICATE AND THE OBLIGATIONS OF THE HOLDER OF SUCH SECURITIES IN
RESPECT OF THE ELECTION OF DIRECTORS ARE SUBJECT TO AN INVESTOR RIGHTS AGREEMENT
DATED AS OF SEPTEMBER ___, 2007 (AS IT MAY BE AMENDED, RESTATED OR OTHERWISE
MODIFIED FROM TIME TO TIME), AMONG NEPHROS, INC. AND CERTAIN HOLDERS OF ITS
OUTSTANDING CAPITAL STOCK. COPIES OF SUCH AGREEMENT MAY BE OBTAINED AT NO COST
BY WRITTEN REQUEST MADE BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE
SECRETARY OF NEPHROS, INC.
Each
Covered Holder hereby agrees to promptly deliver to the Company upon execution
of this Agreement any certificates representing Equity Securities for the
purpose of adding the foregoing legend to such certificates.
8. Termination. This
Agreement shall automatically terminate on the first day that the aggregate
number of shares of Common Stock held by Lambda or any Lambda Transferee (as
defined below), or issuable to Lambda or any Lambda Transferee upon the exercise
or conversion of Equity Securities held by Lambda or such Lambda Transferee
(whether or not then exercisable or convertible), represents less than ten
percent (10%) of the sum of the issued and outstanding shares of Common Stock
of
the Company plus the number of shares of Common Stock issuable to Lambda or
any
Lambda Transferee upon the exercise or conversion of Equity Securities held
by
Lambda (whether or not then exercisable or convertible). In addition,
Lambda may unilaterally terminate this Agreement at any time by giving written
notice of such termination to the Company. Upon the termination of
this Agreement, the Company shall give notice of such termination to Lambda
and
the Covered Holders and the Covered Holders shall be entitled, upon the
surrender of any certificates representing Equity Securities that bear the
legend set forth in Section 7, to receive a replacement certificate
representing such Equity Securities that does not bear such legend.
9. Representations
and Warranties. Each
of the Covered Holders hereby makes the following representations and warranties
to Lambda with respect solely to itself and not with respect to any other
Covered Holder:
(a) This
Agreement has been duly executed and delivered by each Covered Holder and
constitutes the legal, valid and binding obligation of each Covered Holder,
enforceable against such Covered Holder in accordance with its
terms.
(b) Neither
the execution, delivery nor performance of this Agreement by each Covered Holder
violates or conflicts with, creates (with or without the giving of notice or
the
lapse of time, or both) a default under or a lien or encumbrance upon any of
such Covered Holder’s assets or properties pursuant to, or requires the consent,
approval or order of any government or governmental agency or other person
or
entity under (i) any note, indenture, lease, license or other agreement to
which
such Covered Holder is a party or by which it or any of its assets or properties
is bound or (ii) any statute, law, rule, regulation or court decree binding
upon
or applicable to such Covered Holder or its assets or properties. If
such Covered Holder is not a natural person, the execution, delivery and
performance by such Holder of this Agreement, have been duly authorized by
all
necessary corporate or other action on behalf of such Covered Holder and such
execution, delivery and performance does not and will not constitute a breach
or
violation of, or default under, the charter or by-laws or equivalent governing
documents of such Holder.
10. Miscellaneous.
(a) This
Agreement, including the exhibits hereto, sets forth the entire understanding
of
the parties with respect to the subject matter hereof, supersedes all existing
agreements among them concerning such subject matter, and the provisions hereof
may be amended or waived, only by a written instrument duly executed by the
party to be charged; provided, that this Agreement may be amended by a written
instrument duly executed by the Company, Lambda and Covered Holders holding
a
majority of all shares of Common Stock then held by the Covered
Holders. Notwithstanding the foregoing, no such amendment,
modification, supplement, waiver, consent or departure shall distinguish between
Covered Holders or groups of Covered Holders unless any Covered Holder adversely
affected thereby shall have consented thereto in writing.
(b) Except
as
otherwise specifically provided herein, any notice or other communication
required or permitted to be given hereunder shall be in writing and shall be
mailed by certified mail, return receipt requested, or by Federal Express,
Express Mail or similar guaranteed overnight delivery or courier service or
delivered in person against receipt to the party to whom it is to be
given,
(i)if
to the
Company,
Nephros,
Inc.
0000
Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attn: President
(ii)
with
a copy to,
Xxxxxx
Xxxxx Xxxxxxxx & Xxxxxxx LLP
0000
Xxxxxx xx xxx Xxxxxxxx
Xxx
Xxxx,
Xxx Xxxx 00000
Attention: Xxxxxx
X. Xxxxxxxx, Esq.
(ii)
if
to any other party, at the address of such party set forth on the stock transfer
records of the Company or its transfer agent,
or
in any
case, to such other address as the party shall have furnished in writing in
accordance with the provisions of this Section 10(b). Any
notice given by means permitted by this Section 10(b) shall be deemed
given at the time of receipt thereof at the address specified in this Section
10(b).
(c) This
Agreement shall be binding upon and inure to the benefit of the parties and
their successors and permitted assigns. The Company may not assign this
Agreement or any rights or obligations hereunder without the prior written
consent of Lambda. Lambda may assign its rights, or a portion
thereof, to any person or entity to whom it Transfers Equity Securities,
provided that such transferee agrees in writing to be bound, with respect to
the
Transferred Equity Securities, by the provisions of this Agreement. A
person or entity to whom rights under this Agreement have been assigned by
Lambda (either simultaneous with or subsequent to a Transfer of Equity
Securities) is referred to herein as a “Lambda Transferee”; however, a
person or entity to whom Lambda has Transferred Equity Securities but has not
assigned rights under this Agreement shall not be treated as a Lambda
Transferee.
(d) The
headings in this Agreement are solely for convenience of reference and shall
be
given no effect in the construction or interpretation of this
Agreement.
(e) This
Agreement may be executed in any number of counterparts, each of which shall
be
deemed an original, but all of which together shall constitute one and the
same
instrument.
(f) This
Agreement shall be governed by and construed in accordance with the laws of
the
State of Delaware, without giving effect to principles governing conflicts
of
law that would defer to the substantive law of another
jurisdiction.
(g) In
the
event that any provision of this Agreement shall be determined to be illegal
or
unenforceable, that provision will be limited or eliminated to the minimum
extent necessary so that this Agreement shall otherwise remain in full force
and
effect and enforceable.
(h) This
Agreement does not create, and shall not be construed as creating, any rights
enforceable by any person not a party to this Agreement.
(i) Each
party hereto consents and submits to the exclusive jurisdiction of any state
court sitting in the County of New York or federal court sitting in the Southern
District of the State of New York in connection with any dispute arising out
of
or relating to this Agreement, and agrees that all suits, actions and
proceedings brought by such party hereunder shall be brought only in such
jurisdictions. Each party hereto waives any objection to the laying
of venue in such courts and any claim that any such action has been brought
in
an inconvenient forum. To the extent permitted by law, any judgment
in respect of a dispute arising out of or relating to this Agreement may be
enforced in any other jurisdiction within or outside the United States by suit
on the judgment, a certified copy of such judgment being conclusive evidence
of
the fact and amount of such judgment. Each party hereto agrees that
personal service of process may be effected by any of the means specified in
Section 10(b), addressed to such party. The foregoing shall
not limit the rights of any party to serve process in any other manner permitted
by law.
(j) In
addition to being entitled to exercise all rights provided herein or granted
by
law, including recovery of damages, Lambda will be entitled to specific
performance under this Agreement. The parties agree that monetary
damages may not be adequate compensation for any loss incurred by reason of
any
breach by the Company or any Covered Holder of its respective obligations
contained in this Agreement and hereby agree to waive and not to assert in
any
action for specific performance of any such obligation the defense that a remedy
at law would be adequate.
(k) In
the
event of any litigation or other proceeding concerning this Agreement or the
transactions contemplated hereby, including any such litigation or proceeding
with respect to the enforcement of this Agreement against any defaulting party,
the prevailing party in such litigation or proceeding shall be entitled to
reimbursement from the party opposing such prevailing party for all attorneys’
fees and costs incurred by such prevailing party in such litigation or
proceeding
[Signature
page follows immediately]
IN
WITNESS
WHEREOF, the parties hereto have executed this Investor Rights Agreement
on the date first written abobe.
NEPHROS,
INC.
By:/s/
Xxxxxx X.
Xxxxx
Name: Xxxxxx
X.
Xxxxx
Title:
President and Chief
Executive Officer
LAMBDA
INVESTORS
LLC
By:/s/
Xxxxxx
Xxxxx
Name:
Xxxxxx
Xxxxx
Title:
Vice
President
Purchaser:GPC 76, LLC
By:
SouthpawAssetManagementLP
By:/s/
Xxxxx
Xxxxx
Name:
Xxxxx
Xxxxx
Title:
Investment
Manager
Purchaser:
Xxxxx X.
Xxxxxxxxx
By:
/s/
Xxxxx X.
Xxxxxxxxx
Name:
Xxxxx X.
Xxxxxxxxx
Title:
Purchaser:
Enso
Global Equities Partnership LP
By:
/s/
Xxxxxx X.
Xxxx
Name:
Xxxxxx X.
Xxxx
Title:
Director of
GP
3V
Capital
Master Fund Ltd.
By:
3V
Capital Management LLC
By:/s/
Xxxxx X. Xxxxx
Name:
Xxxxx X.
Xxxxx
Title: Managing Member
Distressed/High Yield Trading Opportunities, Ltd.
By:
Eliteperformance
Fund, Ltd.
By: /s/ Xxxxx X.
Xxxxx
Name: Xxxxx X. Xxxxx
Title: Portfolio Manager
Southpaw
Credit Opportunity Master Fund LP
By:
Southpaw
GP LLC
By:
/s/
Xxxxx
Xxxxx
Name:
Xxxxx
Xxxxx
Title:
Managing
Member
Kudu
Partners,
L.P.
By:
/s/
Xxxxx X.
Xxxxxx
Name:
Xxxxx X.
Xxxxxx
Title:
Treasurer
LJHS
Company
By:
/s/
Xxxx X.
XxXxxx
Name:
Xxxx X.
XxXxxx
Title:
Agent
EXHIBIT
A
JOINDER
AGREEMENT
By
execution of this Joinder Agreement, the undersigned agrees to become a party
to
that certain Investor Rights Agreement, dated as of September ___, 2007, among
Nephros, Inc., and the other persons and entities that are parties thereto
(as
the same may be amended, restated or otherwise modified from time to
time). The undersigned shall have all the rights, and shall observe
all the obligations, applicable to a Covered Holder thereunder.
Name: __________________________
Address
for
with
copies
Notices:
to:
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
___________________________ ___________________________
