Investor Rights
CATAPULSE INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
December 16, 1999
TABLE OF CONTENTS
Page
1. Certain Definitions 2
2. Restrictions on Transferability 4
3. Restrictive Legend 4
4. Notice of Proposed Transfers 5
5. Registration 6
5.1 Requested Registration 6
5.2 Company Registration 8
5.3 Registration on Form S-3 9
5.4 Subsequent Registration Rights 10
5.5 Expenses of Registration 10
5.6 Registration Procedures 10
5.7 Indemnification 11
5.8 Information by Holder 13
5.9 Rule 144 Reporting 13
5.10 Termination of Registration Rights 13
6. Financial Information Rights 14
7. Lock-Up Agreement 15
8. Right of First Refusal 16
9. Employment, Confidential Information and Invention
Assignment Agreements 18
10. Transfer of Rights 18
11. Amendment 19
12. Governing Law 19
13. Entire Agreement 19
14. Notices, etc 19
15. Counterparts 20
16. Aggregation of Stock 20
CATAPULSE INC.
AMENDED AND RESTATED INVESTOR RIGHTS AGREEMENT
This Amended and Restated Investor Rights Agreement (this
"Agreement") is made effective as of December 16, 1999 by and among
CataPULSE Inc., a Delaware corporation (the "Company"), the holder of
the Company's Series A Preferred Stock ("Series A Preferred") and the
purchasers of the Company's Series B Preferred Stock ("Series B
Preferred") set forth on Exhibit A hereto (the "Purchasers").
RECITALS
A. The Company has granted to the holders of the Series A
Preferred (the "Existing Holders") registration and certain other rights
under the Investor's Rights Agreement dated December 3, 1999 (the "Prior
Agreement").
B. The Company and the Purchasers are parties to the Series B
Preferred Stock Purchase Agreement dated December 16, 1999 (the
"Purchase Agreement"), whereby the Company will sell, and the Purchasers
will buy, Series B Preferred Stock of the Company.
C. The obligations of the Company and the Purchasers under the
Purchase Agreement are conditioned, among other things, upon the
execution and delivery of this Agreement by the Company, the Purchasers
and the Existing Holders.
D. The Company desires to grant to the Purchasers, and the
Purchasers desire to be granted, the rights created herein.
AGREEMENT
NOW, THEREFORE, in consideration of the mutual promises and
covenants herein, the receipt and sufficiency are hereby acknowledged,
the Existing Holders agree that the Prior Agreement shall be superceded,
and the parties hereto agree as follows:
1. Certain Definitions. As used in this Agreement, the
following terms shall have the following respective meanings:
"Commission" means the Securities and Exchange Commission or
any other federal agency at the time administering the Securities Act.
"Common Stock" means the common stock of the Company, par
value $.001 per share.
"Conversion Stock" means the Company's Common Stock issued
or issuable pursuant to conversion of the Preferred Stock.
"Exchange Act" means the Securities Exchange Act of 1934,
as amended, or any similar federal rule or statute and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Holder" means (i) any purchaser holding Registrable
Securities and (ii) any person holding Registrable Securities to whom
the rights under this Agreement have been transferred in accordance with
Section 11 hereof.
"Initiating Holders" means any Holder or Holders who, in the
aggregate, hold not less than 30% of the Registrable Securities then
outstanding.
"Preferred Stock" shall mean the Series A Preferred and the
Series B Preferred.
"Qualified Initial Public Offering" shall mean the Company's
initial public offering pursuant to an effective registration statement
under the Securities Act covering the offer and sale of the Company's
Common Stock to the public with gross proceeds to the Company of not
less than $20,000,000.
"Registrable Securities" means (i) the Conversion Stock and
(ii) any Common Stock of the Company issued or issuable in respect of
any of the foregoing upon any stock split, stock dividend,
recapitalization or similar event; provided, however, that securities
shall only be treated as Registrable Securities if and so long as (x)
they have not been registered or sold to or through a broker or dealer
or underwriter in a public distribution or a public securities
transaction and (y) the registration rights with respect to such
securities have not terminated pursuant to Section 5.10.
The terms "register," "registered" and "registration" refer
to a registration effected by preparing and filing a registration
statement in compliance with the Securities Act, and the declaration or
ordering of the effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses, except as
otherwise stated below, incurred by the Company in complying with
Sections 5.1, 5.2 and 5.3 hereof, including without limitation, all
registration, qualification and filing fees, printing expenses, escrow
fees, fees and disbursements of counsel for the Company, blue sky fees
and expenses, the expense of any special audits incident to or required
by any such registration (but excluding the compensation of regular
employees of the Company which shall be paid in any event by the
Company). Registration Expenses shall also include the fees and
disbursements for one special counsel to the selling stockholders, not
to exceed $15,000 per registration. Registration Expenses shall
specifically exclude Seller's Expenses.
"Restricted Securities" shall mean the securities of the
Company required to bear the legends set forth in Section 3 hereof.
"Rule 144" and "Rule 145" shall mean Rules 144 and 145,
respectively, promulgated under the Securities Act, or any similar
federal rules thereunder, all as the same shall be in effect at the
time.
"Securities Act" shall mean the Securities Act of 1933, as
amended, or any similar federal rule or statute and the rules and
regulations of the Commission thereunder, all as the same shall be in
effect at the time.
"Selling Expenses" shall mean all underwriting discounts,
selling commissions and stock transfer taxes applicable to the
securities registered by the Holders and, except as set forth in the
definition of Registration Expenses above, all fees and disbursements of
counsel for any Holder.
2. Restrictions on Transferability. The Preferred Stock, the
Conversion Stock and any other securities issued in respect of such
stock upon any stock split, stock dividend, recapitalization, merger or
similar event, shall not be sold, assigned, transferred or pledged
except upon the conditions specified in this Agreement, which conditions
are intended to ensure compliance with the provisions of the Securities
Act. Each Holder or transferee will cause any proposed purchaser,
assignee, transferee or pledgee of any such shares held by the Holder or
transferee to agree to take and hold such securities subject to the
restrictions and upon the conditions specified in this Agreement.
3. Restrictive Legend. Each certificate representing the
Preferred Stock, the Conversion Stock or any other securities issued in
respect of such stock upon any stock split, stock dividend,
recapitalization, merger or similar event, shall (unless otherwise
permitted by the provisions of Section 4 below) be stamped or otherwise
imprinted with legends in substantially the following form (in addition
to any legends required by agreement or by applicable state securities
laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED (THE "ACT"). SUCH SECURITIES MAY NOT BE
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE
ACT IS IN EFFECT AS TO SUCH TRANSFER OR IN THE OPINION
OF COUNSEL FOR THE COMPANY, SUCH TRANSFER MAY BE MADE
PURSUANT TO RULE 144 OR REGISTRATION UNDER THE ACT IS
OTHERWISE UNNECESSARY IN ORDER FOR SUCH TRANSFER TO
COMPLY WITH THE ACT.
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT
TO A LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE
EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE
COMPANY FILED UNDER THE SECURITIES ACT OF 1933, AS
AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE
ISSUER AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY
OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF
THE ISSUER. SUCH LOCK-UP PERIOD IS BINDING ON
TRANSFEREES OF THESE SHARES.
Each Holder consents to the Company making a notation on its
records and giving stop transfer instructions to any transfer agent of
its capital stock in order to implement the restrictions on transfer
established in this Agreement.
4. Notice of Proposed Transfers. The holder of each
certificate representing Restricted Securities by acceptance thereof
agrees to comply in all respects with the provisions of this Section 4.
Without in any way limiting the immediately preceding sentence, no
sale, assignment, transfer or pledge of Restricted Securities shall be
made by any holder thereof to any person unless such person shall first
agree in writing to be bound by the restrictions of this Agreement.
Prior to any proposed sale, assignment, transfer or pledge of any
Restricted Securities, unless there is in effect a registration
statement under the Securities Act covering the proposed transfer, the
holder thereof shall give written notice to the Company of such holder's
intention to effect such transfer, sale, assignment or pledge. Each
such notice shall describe the manner and circumstances of the proposed
transfer, sale, assignment or pledge in sufficient detail, and, if
requested by the Company, the holder shall also provide, at such
holder's expense, either (i) a written opinion of legal counsel who
shall be, and whose legal opinion shall be, reasonably satisfactory to
the Company addressed to the Company, to the effect that the proposed
transfer of the Restricted Securities may be effected without
registration under the Securities Act, or (ii) a "no action" letter from
the Commission to the effect that the transfer of such securities
without registration will not result in a recommendation by the staff of
the Commission that action be taken with respect thereto, whereupon the
holder of such Restricted Securities shall be entitled to transfer such
Restricted Securities in accordance with the terms of the notice
delivered by the holder to the Company; provided, however, that the
Company shall not request an opinion of counsel or "no action" letter
with respect to (i) a transfer not involving a change in beneficial
ownership, (ii) a transaction involving the distribution without
consideration of Restricted Securities by the holder to its constituent
partners or members in proportion to their ownership interests in the
holder, or (iii) a transaction involving the transfer without
consideration of Restricted Securities by an individual holder during
such holder's lifetime by way of gift or on death by will or intestacy.
Each certificate evidencing the Restricted Securities transferred as
above provided shall bear, except if such transfer is made pursuant to
Rule 144, the appropriate restrictive legend set forth in Section 3
above, except that such certificate shall not bear such restrictive
legend if in the opinion of counsel for such holder and counsel for the
Company such legend is not required in order to establish compliance
with any provision of the Securities Act. Notwithstanding the
foregoing, each holder of Restricted Securities agrees that it will not
request that a transfer of the Restricted Securities be made or that the
legend set forth in Section 3 be removed from the certificate
representing the Restricted Securities, solely in reliance on Rule
144(k), if as a result thereof the Company would be rendered subject to
the reporting requirements of the Exchange Act.
5. Registration.
5.1 Requested Registration.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company
effect any registration with respect to shares of Registrable
Securities, the Company will:
(i) promptly give written notice of the
proposed registration to all other Holders; and
(ii) as soon as practicable, use commercially
reasonable efforts to effect such registration as part of a firm
commitment underwritten public offering with underwriters reasonably
acceptable to the Initiating Holders and the Company (including, without
limitation, appropriate qualification under applicable state securities
laws and appropriate compliance with applicable regulations issued under
the Securities Act and any other governmental requirements or
regulations) as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such
portion of the Registrable Securities of any Holder or Holders joining
in such request by delivering a written notice to such effect to the
Company within twenty days after the date of such written notice from
the Company.
Notwithstanding the foregoing, the Company
shall not be obligated to take any action to effect or complete any such
registration pursuant to this Section 5.1:
(A) Prior to the earlier of (i) six
months after the effective date of the Company's first registered public
offering of its Common Stock or (ii) January 1, 2003;
(B) Unless the requested registration
would have an aggregate offering price of all Registrable Securities
sought to be registered by all Holders exceeding $10,000,000;
(C) Following the filing of, and for 180
days immediately following the effective date of, any registration
statement pertaining to securities of the Company (other than a
registration of securities in a Rule 145 transaction or with respect to
an employee benefit plan), provided that the Company is actively
employing in good faith commercially reasonable efforts to cause such
registration statement to become effective;
(D) After the Company has effected one
registration pursuant to this Section 5.1(a);
(E) If the Initiating Holders are able
to request a registration on Form S-3 pursuant to Section 5.3 hereof;
(F) If the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
(i) giving notice of its bona fide intention to effect the filing of a
registration statement with the Commission, or (ii) stating that in the
good faith judgment of the Board of Directors it would be seriously
detrimental to the Company or its stockholders for a registration
statement to be filed in the near future. In such case, the Company's
obligation to use its commercially reasonable efforts to register,
qualify or comply under this Section 5.1(a) shall be deferred one or
more times for a period not to exceed 120 days from the receipt of the
request to file such registration by such Initiating Holder or Holders,
provided that the Company may not exercise this deferral right more than
once per twelve-month period.
Subject to the foregoing clauses (A) through
(F), the Company shall file a registration statement covering the
Registrable Securities so requested to be registered as soon as
practicable after receipt of the request or requests of the Initiating
Holders.
(b) Underwriting. In the event of a registration
pursuant to Section 5.1, the Company shall advise the Holders as part of
the notice given pursuant to Section 5.1(a)(i) that the right of any
Holder to registration pursuant to Section 5.1 shall be conditioned upon
such Holder's participation in the underwriting arrangements required by
this Section 5.1, and the inclusion of such Holder's Registrable
Securities in the underwriting to the extent requested shall be limited
to the extent provided herein.
The Company shall, together with all Holders
proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the managing
underwriter selected for such underwriting by a majority in interest of
the Initiating Holders, but subject to the Company's reasonable
approval. Notwithstanding any other provision of this Section 5.1, if
the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration (i) in the case of the Company's initial public offering,
to zero, and (ii) in the case of any other offering, to an amount no
less than 30% of all shares requested to be included in such offering.
The Company shall so advise all Holders requesting to be included in the
registration and underwriting, and the number of shares of Registrable
Securities that may be included in the registration and underwriting
shall be allocated among all Holders requesting to be included in the
registration and underwriting in proportion, as nearly as practicable,
to the respective amounts of Registrable Securities held by them at the
time of filing the registration statement. No Registrable Securities
excluded from the underwriting by reason of the underwriter's marketing
limitation shall be included in such registration. To facilitate the
allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to
any Holder to the nearest 100 shares. If any Holder of Registrable
Securities disapproves of the terms of the underwriting, such person may
elect to withdraw therefrom by written notice to the Company.
5.2 Company Registration.
(a) Notice of Registration. If at any time or from
time to time the Company shall determine to register any of its equity
securities, either for its own account or the account of a Holder or
other holders, other than (i) a registration relating solely to employee
benefit plans, (ii) a registration relating solely to a Rule 145
transaction, or (iii) a registration in which the only equity security
being registered is capital stock issuable upon conversion of
convertible debt securities which are also being registered, the Company
will:
(i) promptly give to each Holder written
notice thereof; and
(ii) include in such registration (and any
related qualifications including compliance with Blue Sky laws), and in
any underwriting involved therein, all the Registrable Securities
specified in a written request or requests, made within ten days after
the date of such written notice from the Company, by any Holder.
(b) Underwriting. If the registration of which the
Company gives notice is for a registered public offering involving an
underwriting, the Company shall so advise the Holders as a part of the
written notice given pursuant to Section 5.2(a)(i). In such event, the
right of any Holder to registration pursuant to Section 5.2 shall be
conditioned upon such Holder's participation in such underwriting and
the inclusion of Registrable Securities in the underwriting shall be
limited to the extent provided herein.
All Holders proposing to distribute their
securities through such underwriting shall (together with the Company
and the other Holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form
with the managing underwriter selected for such underwriting by the
Company. Notwithstanding any other provision of this Section 5.2, if
the managing underwriter determines that marketing factors require a
limitation of the number of shares to be underwritten, the managing
underwriter may limit the Registrable Securities to be included in such
registration (i) in the case of the Company's initial public offering,
to zero, and (ii) in the case of any other offering, to an amount no
less than 30% of all shares to be included in such offering. The
Company shall so advise all Holders requesting to be included in the
registration and underwriting, and the number of shares of Registrable
Securities that may be included in the registration and underwriting
shall be allocated among all the Holders requesting to be included in
the registration and underwriting in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities held by
them at the time of filing the registration statement. To facilitate
the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to
any Holder to the nearest 100 shares. If any Holder disapproves of the
terms of any such underwriting, such person may elect to withdraw
therefrom by written notice to the Company.
(c) Right to Terminate Registration. The Company
shall have the right to terminate or withdraw any registration initiated
by it under this Section 5.2 prior to the effectiveness of such
registration whether or not any Holder has elected to include securities
in such registration.
5.3 Registration on Form S-3.
(a) Request for Registration. In case the Company
shall receive from Initiating Holders a written request that the Company
file a registration statement on Form S-3 (or any successor form to Form
S-3) for a public offering of shares of the Registrable Securities the
aggregate price to the public of which, net of underwriting discounts
and commissions, would exceed $1,000,000, and the Company is a
registrant entitled to use Form S-3 to register the Registrable
Securities for such an offering, the Company shall use commercially
reasonable efforts to cause such Registrable Securities to be registered
for the offering on such form and to cause such Registrable Securities
to be qualified in such jurisdictions as such Holder or Holders may
reasonably request; provided, however, that the Company shall not be
required to effect more than one registration pursuant to this Section
5.3 in any twelve-month period. If such offer is to be an underwritten
offer, the underwriters must be acceptable to the Company. The Company
shall inform the other Holders of the proposed registration and offer
them the opportunity to participate. In the event the registration is
proposed to be part of a firm commitment underwritten public offering,
the substantive provisions of Section 5.1(b) shall be applicable to each
such registration initiated under this Section 5.3.
(b) Notwithstanding the foregoing, the Company shall
not be obligated to take any action pursuant to this Section 5.3:
(i) Following the filing of, and for 180 days
immediately following the effective date of, any registration statement
pertaining to securities of the Company (other than a registration of
securities in a Rule 145 transaction or with respect to an employee
benefit plan), provided that the Company is actively employing in good
faith commercially reasonable efforts to cause such registration
statement to become effective;
(ii) Within twelve months after the Company has
effected such a registration pursuant to this Section 5.3(a), and such
registration has been declared or ordered effective; or
(iii) If the Company shall furnish to the
Initiating Holders a certificate signed by the President of the Company
(i) giving notice of its bonafide intention to effect the filing of a
registration statement with the Commission, or (ii) stating that, in the
good faith judgment of the Board of Directors, it would be seriously
detrimental to the Company or its stockholders for a registration
statement to be filed in the near future, then the Company's obligation
to use its commercially reasonable efforts to file a registration
statement shall be deferred one or more times for a period not to exceed
120 days from the receipt of the request to file such registration by
such Initiating Holder or Holders, provided that the Company may not
exercise this deferral right more than once per twelve-month period.
5.4 Subsequent Registration Rights.
(a) Without the consent of any holder of Registrable
Securities hereunder, the Company may grant to any holder of securities
of the Company registration rights inferior to those granted hereunder.
(b) The Company shall not enter into any agreement
granting any holder or prospective holder of any securities of the
Company registration rights superior to or on a pari passu basis with
the rights granted the Purchasers hereunder without the written consent
of the holders of 75% of the Registrable Securities.
5.5 Expenses of Registration. All Registration Expenses
incurred in connection with (i) two registrations pursuant to Section
5.1, (ii) all registrations pursuant to Section 5.2, and (iii) all
registrations pursuant to Section 5.3, shall be borne by the Company.
Notwithstanding the foregoing, in the event that Initiating Holders
cause the Company to begin a registration pursuant to Section 5.1, and
the request for such registration is subsequently withdrawn by the
Initiating Holders or such registration is not completed due to failure
to meet the net proceeds requirement set forth in such section or is
otherwise not successfully completed due to no fault of the Company, all
Holders shall be deemed to have forfeited their right to one
registration under Section 5.1 unless the Initiating Holders pay for, or
reimburse the Company for, the Registration Expenses incurred in
connection with such withdrawn or incomplete registration. Unless
otherwise stated, all Selling Expenses relating to securities registered
on behalf of the Holders and all other registration expenses shall be
borne by the Holders of such securities pro rata on the basis of the
number of shares so registered or proposed to be so registered.
5.6 Registration Procedures. In the case of each
registration effected by the Company pursuant to this Agreement, the
Company will keep each Holder advised in writing as to the initiation of
such registration and as to the completion thereof. The Company will:
(a) prepare and file with the Commission a
registration statement and such amendments and supplements as may be
necessary and use commercially reasonable efforts to cause such
registration statement to become and remain effective for at least 90
days or until the distribution described in the registration statement
has been completed, whichever first occurs;
(b) furnish to the Holders participating in such
registration and to the underwriters of the securities being registered
such reasonable number of copies of the registration statement,
preliminary prospectus, final prospectus and such other documents as
such underwriters may reasonably request in order to facilitate the
public offering of such securities;
(c) use all reasonable 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;
(d) in the event of any underwritten public
offering, enter into and perform its obligations under an underwriting
agreement, in usual and customary form, with the managing underwriter of
such offering;
(e) notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus
relating thereto is required to be delivered under the Act or the
happening of any event as a result of which the prospectus included in
such registration statement, as then in effect, includes an untrue
statement of a material fact or omits to state a material fact required
to be stated therein or necessary to make the statements therein not
misleading in the light of the circumstances then existing;
(f) cause all such Registrable Securities registered
pursuant hereunder to be listed on each securities exchange on which
similar securities issued by the Company are then listed; and
(g) provide a transfer agent and registrar for all
Registrable Securities registered pursuant hereunder and a CUSIP number
for all such Registrable Securities, in each case not later than the
effective date of such registration.
5.7 Indemnification.
(a) The Company will indemnify each Holder, each of
its officers and directors and partners, and each person controlling
such Holder within the meaning of Section 15 of the Securities Act, with
respect to which registration has been effected pursuant to this
Agreement, against all expenses, claims, losses, damages or liabilities
(or actions in respect thereof), including any of the foregoing incurred
in settlement of any litigation, commenced or threatened, arising out of
or based on any untrue statement (or alleged untrue statement) of a
material fact contained in any registration statement, prospectus,
offering circular or other document, or any amendment or supplement
thereto, incident to any such registration, or based on any omission (or
alleged omission) to state therein a material fact required to be stated
therein or necessary to make the statements therein, in light of the
circumstances in which they were made, not misleading, or any violation
by the Company of the Securities Act, the Exchange Act, state securities
laws or any rule or regulation promulgated under such laws applicable to
the Company in connection with any such registration, and the Company
will reimburse each such Holder, each of its officers and directors, and
each person controlling such Holder, for any legal and any other
expenses reasonably incurred, as such expenses are incurred, in
connection with investigating, preparing or defending any such claim,
loss, damage, liability or action, provided that the Company will not be
liable in any such case to the extent that any such claim, loss, damage,
liability or expense arises out of or is based on any untrue statement
or omission or alleged untrue statement or omission, made in reliance
upon and in conformity with written information furnished to the Company
by an instrument duly executed by such Holder or controlling person, and
stated to be specifically for use therein; provided, however, that the
foregoing indemnity agreement is subject to the condition that, insofar
as it relates to any such untrue statement, alleged untrue statement,
omission or alleged omission made in a preliminary prospectus on file
with the Commission at the time the registration statement becomes
effective or the amended prospectus is filed with the Commission
pursuant to Rule 424(b) (the "Final Prospectus"), such indemnity
agreement shall not inure to the benefit of any Holder, if a copy of the
Final Prospectus was not furnished to the person asserting the loss,
liability, claim or damage at or prior to the time such action is
required by the Securities Act, and if the Final Prospectus would have
cured the defect giving rise to the loss, liability, claim or damage.
(b) Each Holder will, if Registrable Securities held
by such Holder are included in the securities as to which such
registration is being effected, indemnify the Company, each of its
directors and officers, other holders of the Company's securities
covered by such registration statement, each person who controls the
Company within the meaning of Section 15 of the Securities Act, and each
other such Holder, each of its officers and directors and each person
controlling such Holder within the meaning of Section 15 of the
Securities Act, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on any untrue
statement (or alleged untrue statement) of a material fact contained in
any such registration statement, prospectus, offering circular or other
document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the
statements therein not misleading, or any violation by the Holder of the
Securities Act, the Exchange Act, state securities laws or any rule or
regulation promulgated under such laws applicable to the Holder, and
will reimburse the Company, such other Holders, such directors,
officers, persons, underwriters or control persons for any legal or any
other expenses reasonably incurred, as such expenses are incurred, in
connection with investigating or defending any such claim, loss, damage,
liability or action, but in the case of the Company or the other Holders
or their officers, directors or controlling persons, only to the extent
that such untrue statement (or alleged untrue statement) or omission (or
alleged omission) is made in such registration statement, prospectus,
offering circular or other document in reliance upon and in conformity
with information furnished to the Company by such Holder.
Notwithstanding the foregoing, the liability of each Holder under this
subsection 5.7(b) shall be limited in an amount equal to the initial
public offering price of the shares sold by such Holder, unless such
liability arises out of or is based on willful misconduct or fraud by
such Holder.
(c) Each party entitled to indemnification under
this Section 5.7 (the "Indemnified Party") shall give notice to the
party required to provide indemnification (the "Indemnifying Party")
promptly after such Indemnified Party has actual knowledge of any claim
as to which indemnity may be sought, and shall permit the Indemnifying
Party to assume the defense of any such claim or any litigation
resulting therefrom, provided that counsel for the Indemnifying Party,
who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably
be withheld), and the Indemnified Party may participate in such defense
at such party's expense, and provided further that the failure of any
Indemnified Party to give notice as provided herein shall not relieve
the Indemnifying Party of its obligations under this Agreement unless
the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action and provided further,
that the Indemnifying Party shall not assume the defense for matters as
to which there is a conflict of interest or there are separate and
different defenses. No Indemnifying Party, in the defense of any such
claim or litigation, shall, except with the consent of each Indemnified
Party (whose consent shall not be unreasonably withheld), consent to
entry of any judgment or enter into any settlement which does not
include as an unconditional term thereof the giving by the claimant or
plaintiff to such Indemnified Party of a release from all liability in
respect to such claim or litigation.
(d) Notwithstanding the foregoing, to the extent
that the provisions on indemnification and contribution contained on 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.
5.8 Information by Holder. The Holder or Holders of
Registrable Securities included in any registration shall furnish to the
Company such information regarding such Holder or Holders, the
Registrable Securities held by them and the distribution proposed by
such Holder or Holders as the Company may request in writing and as
shall be required in connection with any registration referred to in
this Agreement.
5.9 Rule 144 Reporting. With a view to making available
the benefits of certain rules and regulations of the Commission which
may at any time permit the sale of the Restricted Securities to the
public without registration, after such time as a public market exists
for the Common Stock of the Company, the Company agrees to use
commercially reasonable efforts to:
(a) Make and keep public information available, as
those terms are understood and defined in Rule 144 under the Securities
Act, at all times after the effective date that the Company becomes
subject to the reporting requirements of the Securities Act or the
Exchange Act;
(b) File with the Commission in a timely manner all
reports and other documents required of the Company under the Securities
Act and the Exchange Act (at any time after it has become subject to
such reporting requirements); and
(c) So long as a Holder owns any Restricted
Securities, to furnish to the Holder forthwith upon request a written
statement by the Company as to its compliance with the reporting
requirements of said Rule 144 (at any time after 90 days after the
effective date of the first registration statement filed by the Company
for an offering of its securities to the general public), a copy of the
most recent annual or quarterly report of the Company, and such other
reports and documents of the Company and other information in the
possession of or reasonably obtainable by the Company as the Holder may
reasonably request in availing itself of any rule or regulation of the
Commission allowing the Holder to sell any such securities without
registration.
5.10 Termination of Registration Rights. The rights
granted pursuant to Sections 5.1, 5.2 and 5.3 of this Agreement shall
terminate as to any Holder upon the earlier of (i) the date five years
after the effective date of the Company's initial public offering and
(ii) the date such Holder is able to immediately sell all shares of
Registrable Securities held or entitled to be held upon conversion by
such Holder under Rule 144 during any 90-day period.
6. Financial Information Rights.
(a) The Company will provide the following documents
to each Purchaser who continues to hold at least 10,000,000 shares of
Preferred Stock and/or Conversion Stock (as adjusted for
recapitalizations, stock combinations, stock dividends, stock splits and
the like):
(i) As soon as practicable after the end of
each fiscal year, and in any event within 90 days after the end of each
such fiscal year, consolidated balance sheets of the Company and its
subsidiaries, if any, as of the end of such fiscal year, and
consolidated statements of operations and consolidated statements of
cash flows and stockholders' equity of the Company and its subsidiaries,
if any, for such year, prepared in accordance with generally accepted
accounting principles and setting forth in each case in comparative form
the figures for the previous fiscal year, all in reasonable detail and
audited by independent public accountants selected by the Company, a
capitalization table in reasonable detail for such fiscal year for the
upcoming fiscal year to be in reasonable detail and broken down on a
monthly basis;
(ii) As soon as practicable after the end of
the first, second and third quarterly accounting periods in each fiscal
year of the Company and in any event within 60 days thereafter, a
consolidated balance sheet of the Company and its subsidiaries, if any,
as of the end of each such quarterly period, and consolidated statements
of operations and consolidated statements of cash flows of the Company
and its subsidiaries, if any, for such period and for the current fiscal
year to date, prepared in accordance with generally accepted accounting
principles (other than accompanying notes), subject to changes resulting
from year-end audit adjustments, in reasonable detail and signed by the
principal financial or accounting officer of the Company, and a
capitalization table in reasonable detail for such quarterly period, and
such other documents generally distributed or made available to the
Company's stockholders; provided, however, that the Company shall not be
obligated to provide information which it deems in good faith to be
proprietary or confidential;
(iii) As soon as practicable after the end of
each month of each fiscal year of the Company and in any event within 60
days thereafter, a consolidated balance sheet of the Company and its
subsidiaries, if any, as of the end of each such monthly period, and a
consolidated statement of operations of the Company and its
subsidiaries, if any, for such period and for the current fiscal year to
date, prepared in accordance with generally accepted accounting
principles (other than accompanying notes), subject to changes resulting
from year-end audit adjustments;
(iv) Such other documents generally distributed
or made available to the Company's stockholders; provided, however, that
the Company shall not be obligated to provide information which it deems
in good faith to be proprietary or confidential.
(b) For purposes of determining the minimum holdings
pursuant to this Section 6, any Purchaser which is a partnership or
limited liability company shall be deemed to hold any Preferred Stock
originally purchased by such Purchaser and subsequently distributed to
constituent partners or members of such Purchaser, but which have not
been resold by such partners or members. If the partnership or limited
liability company is still in existence, the Company may satisfy any
obligation to distribute reports to individual partners of the
partnership or members of a limited liability company by delivering a
single copy of each report to the partnership or limited liability
company as agent for the constituent partners or members.
(c) Each Purchaser or transferee of rights under
this Section 6 acknowledges and agrees that any information obtained
pursuant to this Section 6 which may be considered nonpublic information
will be maintained in confidence by such Purchaser or transferee and
will not be utilized by such Purchaser or transferee in connection with
purchases or sales of the Company's securities except in compliance with
applicable state and Federal securities laws.
(d) The covenants of the Company set forth in this
Section 6 shall terminate and be of no further force or effect upon the
earliest to occur of (i) the closing of a Qualified Initial Public
Offering; or (ii) the sale of all or substantially all of the assets of
the Company or the acquisition of the Company by another entity by means
of merger or consolidation resulting in the exchange of the outstanding
shares of the Company for securities or consideration issued, or caused
to be issued, by the acquiring corporation or its subsidiary, unless the
stockholders of the Company hold at least 50% of the voting power of the
surviving corporation in such a transaction.
7. Lock-Up Agreement. Each Purchaser, Holder and transferee
hereby agrees that, in connection with the initial public offering of
the Common Stock of the Company under the Securities Act for the account
of the Company, if so requested by the Company or any representative of
the underwriters (the "Managing Underwriter"), such Purchaser, Holder or
transferee shall not (i) lend, offer, pledge, sell, contract to sell,
sell any option or contract to purchase, purchase any option or contract
to sell, grant any option, right or warrant to purchase, or otherwise
transfer or dispose of, directly or indirectly, any shares of Common
Stock or any securities convertible into or exercisable or exchangeable
for Common Stock (whether such shares or any such securities are then
owned by the Holder or are thereafter acquired), or (ii) enter into any
swap or other arrangement that transfers to another, in whole or in
part, any of the economic consequences of ownership of the Common Stock,
whether any such transaction described in clause (i) or (ii) above is to
be settled by delivery of Common stock or such other securities, in cash
or otherwise, during the period specified by the Company's Board of
Directors at the request of the Managing Underwriter (the "Market
Standoff Period"), with such period not to exceed 180 days following the
effective date of a registration statement of the Company filed under
the Securities Act pursuant to such offering. The Company may impose
stop-transfer instructions with respect to securities subject to the
foregoing restrictions until the end of such Market Standoff Period.
The foregoing provisions of this Section 7 shall apply only to the
Company's initial public offering of equity securities, shall not apply
to the sale of any shares to an underwriter pursuant to an underwriting
agreement, and shall only be applicable to the Holders if all officers
and directors and greater than five percent (5%) shareholders of the
Company enter into similar agreements. The underwriters in connection
with the Company's initial public offering are intended third party
beneficiaries of this Section 7 and shall have the right, power and
authority to enforce the provisions hereof as though they were a party
hereto.
8. Right of First Refusal.
(a) The Company hereby grants to each Purchaser the
right of first refusal to purchase its Pro Rata Share of New Securities
(as defined in this Section 8) which the Company may, from time to time,
propose to sell and issue. A "Pro Rata Share," for purposes of this
right of first refusal, equals the proportion that the total number of
shares of Common Stock then held by such Purchaser plus the number of
shares of Common Stock issuable upon conversion of the Preferred Stock
then held by such Purchaser bears to the sum of the total number of
shares of Common Stock then outstanding plus the number of shares of
Common Stock issuable upon exercise or conversion of all then
outstanding securities exercisable for or convertible into, directly or
indirectly, Common Stock.
(b) Except as set forth below, "New Securities"
shall mean any shares of capital stock of the Company, including Common
Stock and any series of preferred stock, whether now authorized or not,
and rights, options or warrants to purchase said shares of Common Stock
or preferred stock, and securities of any type whatsoever that are, or
may become, convertible into or exchangeable for said shares of Common
Stock or preferred stock. Notwithstanding the foregoing, "New
Securities" does not include stock issued and issuable: (i) upon
conversion of shares of Preferred Stock; (ii) to an employee, consultant
or director pursuant to stock option, stock grant, stock purchase or
similar plans and arrangements approved by the Board of Directors; (iii)
to an equipment lessor, bank, financial institution or similar entity in
a transaction approved by the Board of Directors, the principal purpose
of which is other than the raising of capital; (iv) as a dividend or
other distribution; (v) in a Qualified Initial Public Offering; (vi) in
a merger or acquisition that is approved by the Board of Directors;
(vii) pursuant to any transaction approved by the Board of Directors
primarily for the purpose of (A) a joint venture, technology licensing
or research and development activity, (B) distribution or manufacture of
the Company's products or services, or (C) any other transaction
involving corporate partners that is primarily for purposes other than
raising capital; (viii) if the holders of 75% of the then outstanding
Registrable Securities agree in writing that such shares shall not
constitute New Securities; or (ix) upon exercise or conversion of
securities with respect to which the Purchasers previously had an
opportunity to exercise the right of first refusal pursuant to this
Section 8.
(c) In the event the Company proposes to undertake
an issuance of New Securities, it shall give each Purchaser written
notice of its intention, describing the amount and type of New
Securities, and the price and terms upon which the Company proposes to
issue the same. Each Purchaser shall have ten days from the date of
receipt of any such notice to agree to purchase up to its respective Pro
Rata Share of such New Securities for the price and upon the terms
specified in the notice by giving written notice to the Company and
stating therein the quantity of New Securities to be purchased.
(d) Beginning ten days after the notice given
pursuant to Section 8(c) above, the Company shall have 180 days to sell
the New Securities not elected or eligible to be purchased by Purchasers
at the price and upon the terms no more favorable to the purchasers of
such securities than specified in the Company's notice. In the event
the Company has not sold all of the New Securities within said 180-day
period, the Company shall not thereafter issue or sell any New
Securities without first offering such securities in the manner provided
above.
(e) The provisions of this Section 8 will terminate
and be of no further force or effect upon the earlier to occur of: (i)
the closing of a Qualified Initial Public Offering, or (ii) the sale of
all or substantially all of the assets of the Company or the acquisition
of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company for
securities or consideration issued, or caused to be issued, by the
acquiring corporation or its subsidiary, unless the stockholders of the
Company hold at least 50% of the voting power of the surviving
corporation in such a transaction.
9. Voting Agreement.
9.1 The Board of Directors of the Company shall consist of
two (2) Series A Directors (as defined below), one (1) Series B Director
(as defined below), one (1) Management Director (as defined below), and
three (3) Outside Directors (as defined below).
9.2 Subject to the other provisions of this Agreement, at
any election of directors of the Company, the members of the Board of
Directors shall be nominated as follows: (i) for so long as pursuant to
the Amended and Restated Certificate of Incorporation of the Company the
holders of the Series A Preferred are entitled to elect 2 members of the
Board of Directors, the holder of the Series A Preferred shall have the
right to nominate two directors of the Company (each a "Series A
Director"); (ii) for so long as pursuant to the Amended and Restated
Certificate of Incorporation of the Company the holders of the Series B
Preferred are entitled to elect 1 member of the Board of Directors, the
holders of the Series B Preferred shall have the right to nominate one
director of the Company (a "Series B Director"); (iii) the Chief
Executive Officer of the Company shall be nominated as a director of the
Company (the "Management Director"); and (iv) the remaining directors
shall be nominated by the Series A Directors, Series B Director and
Management Director (the "Outside Directors"); and, (v) if a
renomination or vacancy occurs or exists on the Board of Directors at
any time, including but not limited to a vacancy because of the death,
disability, retirement, resignation or removal of any director for cause
or otherwise, then the person(s) who nominated the director whose
position has become vacant, shall have the sole right to nominate an
individual to fill such vacancy.
9.3 Each Holder agrees that it will vote all its Shares in
such manner as may be necessary to elect (and maintain in office), as
members of the Board of Directors of the Company, all of the nominees
selected pursuant to Section 9.1(b). The Company shall promptly give
each of the Holders written notice of any change in composition of the
Company's Board of Directors and of any proposal to remove or elect a
new director. In any election of directors pursuant to this Agreement,
the Holders shall vote their shares of Preferred Stock and Conversion
Stock in a manner sufficient to elect to the Company's Board of
Directors the individuals to be elected thereto as provided in this
Agreement, utilizing cumulative voting, if and to the extent necessary
to do so.
9.4 The members of the Board of Directors are subject to
removal as follows:
(a) Any Management Director may be removed from
office only upon the determination of the Chief Executive Officer of the
Company that the Management Director should no longer serve as such, and
upon such determination, the Holders shall vote their voting stock to
remove such Management Director.
(b) Any Series A Director may be removed from office
only upon the determination of the holders of the Series A Preferred
that the Series A Director should no longer serve as such, and upon such
determination, the Holders shall vote their voting stock to remove such
Series A Director.
(c) Any Series B Director may be removed from office
only upon the determination of the holders of Series B Preferred that
the Series B Director should no longer serve as such, and upon such
determination, the Holders shall vote their voting stock to remove such
Series B Director.
(d) Any Outside Director may be removed from office
only upon the determination of the Series A Directors, Series B Director
and the Management Director that the Outside Director should no longer
serve as such, and upon such determination, the Holders shall vote their
voting stock to remove such Outside Director.
(e) The provisions of this Section 9 shall be binding
upon the successors in interest to any of the shares of Preferred Stock
or Conversion Stock. The Company shall not permit the transfer of any
of such shares on its books or issue new certificates representing any
of such shares unless and until the person(s) to whom such shares are to
be transferred shall have executed a written agreement, pursuant to
which such person becomes a party to this Section 9, and agrees to be
bound by all the provisions hereof as if such person was a party
hereunder.
9.5 The terms of this Section 9 shall terminate and shall
be of no further force and effect upon a Qualified Initial Public
Offering.
10. Employment, Confidential Information and Invention
Assignment Agreements. The Company will maintain a policy requiring
each person now or hereafter employed by it or any subsidiary with
access to confidential information to enter into an Employment,
Confidential Information and Invention Assignment Agreement
substantially in a form approved by the Board of Directors.
11. Transfer of Rights. The rights granted under Sections 5, 6
and 8 of this Agreement may be assigned to any transferee or assignee,
other than a competitor or potential competitor of the Company (as
determined in good faith by the Company's Board of Directors) in
connection with any transfer or assignment of Registrable Securities by
the Holder, provided that: (i) such transfer is otherwise effected in
accordance with applicable securities laws and the terms of this
Agreement; (ii) such assignee or transferee acquires at least the lesser
of (A) 5,000,000 shares (as adjusted for stock splits, stock dividends,
stock combinations and the like) of Registrable Securities (including
Preferred Stock convertible into Registrable Securities) or (B) twenty
percent (20%) of the shares of Registrable Securities (as adjusted for
stock splits, stock dividends, stock combinations and the like)
initially acquired by the transferring Holder pursuant to the Purchase
Agreement (including Preferred Stock convertible into Registrable
Securities), (iii) written notice is promptly given to the Company; and
(iv) such transferee or assignee agrees to be bound by the provisions of
this Agreement. Notwithstanding the foregoing, the rights granted to
the Purchasers hereunder may be assigned without compliance with item
(ii) above to any constituent partner or member of a Purchaser which is
a partnership or limited liability company, or to an affiliate (as such
term is defined in Rule 405 of the Securities Act) of a Purchaser which
is a corporation, partnership or limited liability company.
12. Amendment. Except as otherwise provided herein, additional
parties may be added to this Agreement, any provision of this Agreement
may be amended or the observance thereof may be waived (either generally
or in a particular instance and either retroactively or prospectively),
only with the written consent of the Company and the Holders of 75% of
the Registrable Securities then outstanding. Any amendment or waiver
effected in accordance with Section 5.4 or Section 11, as applicable,
shall be binding upon each Purchaser, Holder of Registrable Securities
at the time outstanding, each future holder of any of such securities,
and the Company.
13. Governing Law. This Agreement shall be governed in all
respects by the internal laws of the State of California without regard
to conflict of laws provisions.
14. Entire Agreement. This Agreement constitutes the full and
entire understanding and Agreement among the parties regarding the
matters set forth herein. Except as otherwise expressly provided
herein, the provisions hereof shall inure to the benefit of, and be
binding upon the successors, assigns, heirs, executors and
administrators of the parties hereto.
15. Notices, etc. All notices and other communications required
or permitted hereunder shall be in writing and shall be mailed by First
Class, registered or certified mail, postage prepaid, or otherwise
delivered by facsimile transmission, by hand or by messenger, addressed:
(a) if to the Purchasers, to;
(b) if to the Company, to:
CataPULSE Inc.
00000 Xxxxxxxxx Xxxx
Xxxxxxxxx, XX 00000
Attn: Xxxx X. Xxxx
or at such other address as the Company shall have furnished to the
Purchaser, with a copy to:
Xxxxxx Xxxxxxx Xxxxxxxx & Xxxxxx
000 Xxxx Xxxx Xxxx
Xxxx Xxxx, Xxxxxxxxxx 00000-0000
Attn: Xxxxxxxxx X. Xxxxxx, Esq.
Fax: (000) 000-0000
Each such notice or other communication shall for all
purposes of this Agreement be treated as effective or having been given
when delivered if delivered personally, if sent by facsimile, the first
business day after the date of confirmation that the facsimile has been
successfully transmitted to the facsimile number for the party notified,
or, if sent by mail, at the earlier of its receipt or 72 hours after the
same has been deposited in a regularly maintained receptacle for the
deposit of the United States mail, addressed and mailed as aforesaid.
16. Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be an original and all of which
together shall constitute one instrument.
17. Aggregation of Stock. All shares of the Preferred Stock
held or acquired by affiliated entities or persons shall be aggregated
together for the purpose of determining the availability of any rights
of the holders thereof under this Agreement.
