EXHIBIT 10.7
POZEN INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is entered into as of
March 24, 2000, by and among POZEN Inc., a Delaware corporation (the "Company"),
the holders of the Company's Series E Preferred Stock listed on Exhibit A
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attached hereto (the "Investors"), certain other holders of capital stock of the
Company listed on Exhibit A-1 attached hereto (the "Other Holders") and those
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persons listed on Exhibit B attached hereto (each individually a "Common Holder"
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and, collectively, the "Common Holders").
WHEREAS, in connection with the issuance and sale of shares of Company's
Series E Preferred Stock (the "Series E Stock") to the Investors pursuant to
that certain Series E Preferred Stock Purchase Agreement, dated as of the date
hereof, by and between the Company and the Investors (the "Series E Agreement"),
the Company desires to provide the Investors certain rights with respect to
registration of the shares of stock held by them and certain other rights with
respect to such shares as an inducement to the Investors to purchase shares of
the Series E Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants and
conditions contained herein, the Company, the Investors and the Common Holders
hereby agree as follows.
Section 1.
RESTRICTIONS ON TRANSFER
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1.1 Restrictive Legend. Each certificate representing (i) the Series E
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Stock, (ii) the Common Stock of the Company (the "Common Stock") issued upon
conversion of the Series E Stock, and (iii) any other securities issued in
respect of the Series E Stock or Common Stock issued upon conversion of the
Series E Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 1.1. or Section 1.2 below) be stamped or otherwise
imprinted with a legend in substantially the following form (in addition to any
legend required under applicable state securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE STATE
SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT AND NOT
WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT BE SOLD, MORTGAGED,
PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE
REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER THE SECURITIES ACT OF
1933, AS AMENDED, AND ANY APPLICABLE STATE SECURITIES LAWS, OR THE
AVAILABILITY OF AN EXEMPTION FROM THE REGISTRATION PROVISIONS OF THE
SECURITIES ACT OF 1933, AS AMENDED, AND APPLICABLE STATE SECURITIES LAWS.
COPIES OF THE
STOCK PURCHASE AGREEMENT AND INVESTOR RIGHTS AGREEMENT PROVIDING FOR
RESTRICTIONS ON TRANSFER OF THESE SECURITIES MAY BE OBTAINED UPON WRITTEN
REQUEST BY THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
Each Holder (as defined below) consents to the Company's making a notation
on its records and giving instructions to any transfer agent of the Series E
Stock or the Common Stock in order to implement the restrictions on transfer
established in this Section 1. Such legend shall be removed by the Company from
any certificate at such time as the holder of the shares represented by the
certificate satisfies the requirements of Rule 144(k) under the Securities Act
of 1933, as amended (the "1933 Act"), provided that Rule 144(k) as then in
effect does not differ substantially from Rule 144(k) as in effect as of the
date of this Agreement, and provided further that the Company has received from
the Holder a written representation that (i) such Holder is not an affiliate of
the Company and has not been an affiliate during the preceding three months,
(ii) such Holder has beneficially owned the shares represented by the
certificate for a period of at least two years, (iii) such Holder otherwise
satisfies the requirements of Rule 144(k) as then in effect with respect to such
shares, and (iv) such Holder will submit the certificate for any such shares to
the Company for reapplication of the legend at such time as the holder becomes
an affiliate of the Company or otherwise ceases to satisfy the requirements of
Rule 144(k) as then in effect.
1.2 Notice of Proposed Transfers. The holder of each certificate
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representing Registrable Securities (as defined below) by acceptance thereof
agrees to comply in all respects with the provisions of this Section 1.2. Prior
to any proposed sale, assignment, transfer or pledge of any Registrable
Securities, unless there is in effect a registration statement under the 1933
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 shall be accompanied at such holder's expense by either (i) a
written opinion of legal counsel who shall, and whose legal opinion shall, be
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Registrable Securities may be effected without
registration under the 1933 Act or (ii) a "no action" letter from the SEC to the
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Securities and Exchange Commission (the
"SEC") that action be taken with respect thereto, whereupon the holder of such
Registrable Securities shall be entitled to transfer such Registrable Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action"
letter (a) in any transaction in compliance with Rule 144, or (b) in any
transaction in which an Investor that is a partnership, limited liability
company or corporation distributes Series E Stock or Common Stock issuable upon
conversion thereof after six months after the purchase of such securities
hereunder solely to partners, members or stockholders (as the case may be)
thereof for no consideration, provided that each transferee agrees in writing to
be subject to the terms of this Section 1.2. Each certificate evidencing the
Registrable 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 1.1 above, except that such certificate shall not
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bear such restrictive legend if in the opinion of counsel for such holder and
the Company such legend is not required in order to establish compliance with
any provisions of the 1933 Act.
Section 2.
REGISTRATION RIGHTS
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The Company hereby grants to each of the Holders (as defined below) the
registration rights set forth in this Section 2, with respect to the Registrable
Securities (as defined below) owned by such Holders. The Company and the
Holders agree that the registration rights provided herein set forth the sole
and entire agreement, and supersede any prior agreement, between the Company and
the Holders with respect to registration rights for the Company's securities.
2.1 Certain Definitions. As used in this Section 2:
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(a) The terms "register," "registered" and "registration" refer to a
registration effected by filing with the SEC a registration statement (the
"Registration Statement") in compliance with the 1933 Act, and the declaration
or ordering by the SEC of the effectiveness of such Registration Statement.
(b) The term "Registrable Securities" means (i) Common Stock issued or
issuable upon conversion of the shares of Series E Stock held by Investors or
any transferee as permitted by Section 2.8 hereof, and (ii) any Common Stock
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security that is issued as) a dividend or other distribution with respect
to, or in exchange or in replacement of, such Registrable Securities; provided,
however, that shares of Common Stock or other securities shall only be treated
as Registrable Securities if and so long as (A) they have not been sold to or
through a broker or dealer or underwriter in a public distribution or a public
securities transaction, (B) they have not been sold in a transaction exempt from
the registration and prospectus delivery requirements of the 1933 Act under
Section 4(1) thereof so that all transfer restrictions and restrictive legends
with respect thereto are removed upon the consummation of such sale, and (C) the
registration rights associated with such securities have not been terminated
pursuant to Section 2.16 hereof.
(c) The term "Holder" (collectively, "Holders") means each Investor
and any transferee, as permitted by Section 2.8 hereof, holding Registrable
Securities, securities exercisable or convertible into Registrable Securities or
securities exercisable for securities convertible into Registrable Securities.
(d) The term "Initiating Holders" means any Holder or Holders of at
least fifty percent (50%) of the Registrable Securities then outstanding and not
registered at the time of any request for registration made pursuant to Section
2.2 of this Agreement.
2.2 Demand Registration.
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(a) Demand for Registration. If the Company shall receive from
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Initiating Holders a written demand that the Company effect any registration (a
"Demand Registration") (other than a registration on Form S-3 or any related
form of registration statement, such a request being provided for under Section
2.9 hereof), the Company will:
(i) promptly (but in any event within 10 days) give written
notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such registration as soon as
practicable and as will permit or facilitate the sale and distribution of all or
such portion of such Initiating Holders' Registrable Securities as are specified
in such demand, together with all or such portion of the Registrable Securities
of any Holder or Holders joining in such demand as are specified in a written
demand received by the Company within 15 days after such written notice is
given, provided that the Company shall not be obligated to take any action to
effect any such registration pursuant to this Section 2.2:
(A) in any particular jurisdiction in which the Company
would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the 1933 Act;
(B) after the Company has effected two (2) such
registrations pursuant to this Section 2.2 and the sales of the shares of Common
Stock under such registrations have closed;
(C) if the Company shall furnish to such Holders a
certificate signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors of the Company it would be seriously
detrimental to the Company and its stockholders for such Registration Statement
to be filed at the date filing would be required, in which case the Company
shall have an additional period or periods of not more than 90 days within which
to file such Registration Statement; provided, however, that the Company shall
not use this right to delay the filing for more than 180 days in the aggregate
in any 12-month period; or
(D) prior to the earlier of (1) the second anniversary of
the date of this Agreement or (2) the date 180 days after the effective date of
the initial public offering of the Company's securities.
(b) Underwriting. If reasonably required to maintain an orderly
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market in the Common Stock, the Holders shall distribute the Registrable
Securities covered by their demand by means of an underwriting. If the
Initiating Holders intend to distribute the Registrable Securities covered by
their demand by means of an underwriting, they shall so advise the Company as
part of their demand made pursuant to this Section 2.2, including the identity
of the managing underwriter; and the Company shall include such information in
the written notice referred to in Section 2.2(a)(i). In such event, the right of
any Holder to registration pursuant to this Section 2.2 shall be conditioned
upon such Holder's participation in such underwriting and
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the inclusion of such Holder's Registrable Securities in the underwriting to the
extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders of Registrable Securities that have
requested to participate in such offering, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated pro rata among such Holders thereof in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities held by such
Holders 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.
If any Holder disapproves of the terms of the underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company, the underwriter
and the Initiating Holders. The Registrable Securities so withdrawn shall also
be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account (or for
the account of other stockholders) in such registration if the underwriter so
agrees and if the number of Registrable Securities would not thereby be limited.
2.3 Piggyback Registration.
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(a) Company Registration. If at any time or from time to time the
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Company shall determine to register any of its securities, either for its own
account or for the account of security holders, other than a registration
relating solely to employee benefit plans, a registration on Form S-4 relating
solely to an SEC Rule 145 transaction or a registration pursuant to Section 2.2
or 2.9 hereof, the Company will:
(i) promptly (but in any event within 10 days) give to each
Holder written notice thereof; and
(ii) include in such registration (and any related qualification
under state securities laws or other compliance), and in any underwriting
involved therein, all the Registrable Securities specified in a written request
or requests, made within 15 days after receipt of such written notice from the
Company, by any Holder or Holders, except as set forth in Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by the Company.
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(b) Underwriting. If the registration of which the Company gives
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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 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities through
such underwriting shall, together with the Company and the other parties
distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting subject to the terms of this Section
2.3. The Company shall so advise all holders of the Company's securities that
would otherwise be registered and underwritten pursuant hereto, and the number
of shares of such securities, including Registrable Securities, that may be
included in the registration and underwriting shall be allocated in the
following manner: shares, other than Registrable Securities and other securities
that have contractual rights with respect to registration similar to those
provided for in this Section 2.3, requested to be included in such registration
by stockholders shall be excluded; if a limitation on the number of shares is
still required, securities, other than the Registrable Securities, that have
contractual rights with respect to registration shall be reduced in proportion,
as nearly as practicable, to the amounts of such securities with such
contractual rights held by each such holder at the time of filing the
Registration Statement; and after excluding all such securities, if a limitation
on the number of shares is still required, the number of Registrable Securities
that may be included shall be reduced in proportion, or as nearly as
practicable, to the amounts of Registrable Securities held by each such holder
at the time of filing the Registration Statement. For purposes of any such
underwriter cutback, all Registrable Securities and other securities held by any
holder that is a partnership, limited liability company or corporation shall
also include any Registrable Securities held by the partners, retired partners,
members, stockholders or affiliated entities of such holder, or the estates and
family members of any such partners, retired partners, members and any trusts
for the benefit of any of the foregoing persons, and such holder and other
persons shall be deemed to be a single "selling holder," and any pro rata
reduction with respect to such "selling holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling holder", as defined in this sentence.
No securities excluded from the underwriting by reason of the underwriters
marketing limitation shall be included in such registration. Nothing in this
Section 2.3(b) is intended to diminish the number of securities to be included
by the Company in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may elect to
withdraw therefrom by written notice to the Company and the underwriter. The
Registrable Securities so withdrawn shall also be withdrawn from registration.
(c) Right to Terminate Registration. The Company shall have the right
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to
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terminate or withdraw any registration initiated by it under this Section 2.3
prior to the effectiveness of such registration whether or not any Holder has
elected to include securities in such registration.
2.4 Expenses of Registration. All expenses incurred in connection with
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all registrations effected pursuant to Sections 2.2, 2.3 and 2.9, including
without limitation all registration, filing and qualification fees (including
state securities law fees and expenses), printing expenses, escrow fees, fees
and disbursements of counsel for the Company and expenses of any special audits
incidental to or required by such registration shall be borne by the Company;
provided, however, that the Company shall not be required to pay stock transfer
taxes or underwriters' discounts or selling commissions relating to Registrable
Securities; provided, further, that the Company shall not be required to pay for
any expenses of any registration pursuant to Section 2.9 after the Company has
effected three (3) registrations pursuant to Section 2.9, in which event the
Holders of Registrable Securities to be registered shall bear all such expenses
pro rata on the basis of Registrable Securities to be registered; and provided,
further that only in connection with any registration effected pursuant to
Section 2.2, the Company shall be obligated to pay the legal expenses of one
legal counsel designated by the Investors participating in the registration in
an amount not to exceed $25,000 per registration. Notwithstanding anything to
the contrary above, the Company shall not be required to pay for any expenses of
any registration proceeding under Section 2.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to have been registered, in which event the Holders of
Registrable Securities to have been registered shall bear all such expenses pro
rata on the basis of the Registrable Securities to have been registered.
Notwithstanding the preceding sentence, however, if at the time of the
withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this Section 2 to
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effect the registration of any Registrable Securities, the Company shall, as
expeditiously as reasonably possible:
(a) prepare and file with the SEC a Registration Statement with
respect to such Registrable Securities and use its diligent efforts to cause
such Registration Statement to become effective, and keep such Registration
Statement effective for the lesser of 180 days or until the Holder or Holders
have completed the distribution relating thereto provided however that the
Company shall have the right to terminate such Registration Statement, or to
place a stop-transfer order with respect to the shares for which registration
has been requested thereunder, upon notice to the participating Holders to the
extent necessary, in the sole discretion of the Company upon the advice of
counsel, to avoid any requirement that the Company disclose material, nonpublic
information, the disclosure of which would be seriously detrimental to the
Company and its stockholders.
(b) prepare and file with the SEC such amendments and supplements to
such
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Registration Statement and the prospectus used in connection with such
Registration Statement as may be necessary to keep such Registration Statement
effective and to comply with the provisions of the 1933 Act with respect to the
disposition of all securities covered by such registration statement.
(c) furnish to the Holders such numbers of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
1933 Act, and such other documents as they may reasonably request in order to
facilitate the disposition of Registrable Securities owned by them.
(d) use its diligent efforts to register or otherwise qualify the
securities covered by such Registration Statement under such other securities
laws of such states and other jurisdictions as shall be reasonably requested by
the Holders or the managing underwriter, 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.
(e) 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. Each Holder participating
in such underwriting shall also enter into and perform its obligations under
such an agreement.
(f) 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 1933 Act, of 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.
(g) use its diligent efforts to list the Registrable Securities
covered by such Registration Statement with any securities exchange on which the
Common Stock is then listed.
(h) make available for inspection by each Holder including Registrable
Securities in such registration, any underwriter participating in any
distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
(i) cooperate with Holders including Registrable Securities in such
registration and the managing underwriters, if any, to facilitate the timely
preparation and delivery of certificates representing Registrable Securities to
be sold, such certificates to be in such denominations and registered in such
names as such Holders or the managing underwriters may request at least two
business days prior to any sale of Registrable Securities.
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(j) permit any Holder, which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
(k) use its best efforts (if the offering is underwritten) to furnish,
at the request of any Holder, on the date that Restricted Securities are
delivered to the underwriters for sale pursuant to such registration: (i) an
opinion dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such Holder, stating
that such Registration Statement has become effective under the 1933 Act and
that (A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the 1933 Act, (B) the
Registration Statement, the related prospectus, and each amendment or supplement
thereof, comply as to form in all material respects with the requirements of the
1933 Act and the applicable rules and regulations of the Securities and Exchange
Commission thereunder (except that such counsel need express no opinion as to
financial statements, the notes thereto, and the financial schedules and other
financial and statistical data contained therein) and (C) to such other effects
as may reasonably be requested by counsel for the underwriters or by such Holder
or its counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the 1933 Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to the registration in respect of which such letter is being given
as such underwriters or Holder may reasonably request.
2.6 Indemnification.
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(a) The Company will, and does hereby undertake to, indemnify and hold
harmless each Holder of Registrable Securities, each of such Holder's officers,
directors, managers, partners, members and agents, and each person controlling
such Holder, with respect to any registration, qualification or compliance
effected pursuant to this Section 2, and each underwriter, if any, and each
person who controls any underwriter, of the Registrable Securities held by or
issuable to such Holder, against all claims, losses, damages and liabilities (or
actions in respect thereto) to which they may become subject under the 1933 Act,
the Securities Exchange Act of 1934, as amended (the "1934 Act"), or other
federal or state law arising out of or based on (i) any untrue statement (or
alleged untrue statement) of a material fact contained in any prospectus,
offering circular or other similar document (including any related Registration
Statement, notification, or the like) incident to any such registration,
qualification or compliance, or based on any omission (or alleged omission) to
state therein a material fact required to be stated therein or necessary to make
the statements therein not misleading in light of the circumstances in which
they were made, (ii) any violation or alleged violation by the Company
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of any federal, state or common law rule or regulation applicable to the Company
in connection with any such registration, qualification or compliance, or (iii)
any failure to register or qualify Registrable Securities in any state where the
Company or its agents have affirmatively undertaken or agreed in writing that
the Company (the undertaking of any underwriter chosen by the Company being
attributed to the Company) will undertake such registration or qualification on
behalf of the Holders of such Registrable Securities (provided that in such
instance the Company shall not be so liable if it has undertaken its best
efforts to so register or qualify such Registrable Securities) and will
reimburse, as incurred, each such Holder, each such underwriter and each such
director, manager, officer, partner, member, agent and controlling person, for
any legal and any other expenses reasonably incurred in connection with
investigating 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 made in conformity with written information
furnished to the Company by an instrument duly executed by such Holder or
underwriter and stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
directors, managers, partners, members and agents and each person controlling
such other Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on (i) any failure of such
Holder or its agents or representatives to comply with the prospectus delivery
requirements of the 1933 Act or any other applicable securities or Blue Sky law,
or (ii) 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 in light of the circumstances in which they were made,
and will reimburse, as incurred, the Company, each such underwriter, each such
other Holder, and each such director, officer, manager, partner, member and
controlling person of the foregoing, for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of each Holder hereunder (unless such
Holder's liability hereunder is based upon such Holder's willful misconduct as
determined by the nonappealable final decision of a court) shall be limited to
the proportion of any such claim, loss, damage or liability that is equal to the
proportion that the public offering price of the shares sold by such Holder
under such Registration Statement bears to the total public offering price of
all securities sold thereunder, but in any event not to exceed the net proceeds
received by such Holder from the sale of securities under such Registration
Statement. It is understood and agreed that the indemnification obligations of
each Holder pursuant to any underwriting
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agreement entered into in connection with any Registration Statement shall be
limited to the obligations contained in this subsection 2.6(b).
(c) Each party entitled to indemnification under this Section 2.6 (the
"Indemnified Party") shall give notice to the party required to provide such
indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, 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 subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
An Indemnifying Party, in the defense of any such claim or litigation, may,
without the consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement that includes as an unconditional term thereof the
giving by the claimant or plaintiff therein, to such Indemnified Party, of a
release from all liability with respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to joint
liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.6; then, and in each such case,
the Company and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of the securities
offered by such Holder pursuant to the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement,
and the Company will be responsible for the remaining portion (without prejudice
as to the Company's right to contributions from any other responsible parties);
provided, however, that, in any case, (A) no such Holder will be required to
contribute any amount in excess of the public offering price of all securities
offered by it pursuant to such Registration Statement, after deduction of
underwriting discounts and commissions (unless such Holder's liability hereunder
is based upon such Holder's willful misconduct as determined by the
nonappealable final decision of a court); and (B) no person or entity guilty of
fraudulent misrepresentation (within the meaning of Section 11 (f) of the 0000
Xxx) will be entitled to contribution from any person or entity who was not
guilty of such fraudulent misrepresentation.
11
(e) The indemnities provided in this Section 2.6 shall survive the
transfer of any Registrable Securities by such Holder.
2.7 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 and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 2.
2.8 Transfer of Rights. The rights contained in Section 2 hereof may be
------------------
assigned or otherwise conveyed to transferees or assignees of Registrable
Securities, who shall be considered a "Holder" for purposes hereof, provided
that such transfer is effected in compliance with Section 1.2 hereof and such
transfer is a "Permitted Transfer" as defined herein.
(b) For purposes of this Agreement, a "Permitted Transfer" shall mean:
(i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a stockholder that
is a partnership, limited liability company or corporation to any of its
partners, members or stockholders (as the case may be), retired partners,
members or stockholders, or to the estate of any of its partners, members or
stockholders; (iii) transaction involving distribution without consideration by
a stockholder that is a corporation to any of its stockholders; (iv) transfers
by any stockholder who is an individual to a trust for the benefit of such
stockholder or his family; (v) a transfer in which the transferee acquires at
least 50,000 shares of Registrable Securities, subject to adjustments for
combinations, consolidations, recapitalizations, stock splits, stock dividends
and the like; or (vi) transfers by gift, will or intestate succession to the
spouse, lineal descendants or ancestors of any stockholder or spouse of a
stockholder.
2.9 Form S-3. The Company shall use its diligent efforts to qualify for
--------
registration on Form S-3 and to that end the Company shall register the Common
Stock under the 1934 Act within 12 months following the effective date of the
first registration of any securities of the Company on Form S-1. After the
Company has qualified for the use of Form S-3, the Holders of Registrable
Securities shall have the right to request registrations on Form S-3 thereafter
under this Section 2.9. The Company shall give notice to all Holders of
Registrable Securities of the receipt of a request for registration pursuant to
this Section 2.9 and shall provide a reasonable opportunity for other Holders to
participate in the registration. Subject to the foregoing, the Company will use
its best efforts to effect as soon as practicable the registration of all shares
of Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders thereof for purposes of disposition; provided, however, that the Company
shall not be obligated to effect any such registration (A) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public of less than
$2,500,000 or (B) at any time when the Company has effected one (1) registration
pursuant to this Section 2.9 in the previous six (6) months. Notwithstanding
the foregoing, nothing herein shall restrict, prohibit or limit in any way a
Holder's ability to exercise its registration rights under Sections 2.2 or 2.3
hereof. The Company shall have no obligation to take any action to effect any
registration pursuant to this Section 2.9 for any of the reasons set forth in
Section 2.2(a)(ii)(A) or (C), (which
12
shall be deemed to apply to the obligations under this Section 2.9 with equal
force). In addition, any registration pursuant to this Section 2.9 shall be
subject to the provisions of Section 2.2(b), which shall be deemed to apply to
the obligations under this Section 2.9 with equal force, except that any
reference therein to Section 2.2 or a subsection thereof shall, for these
purposes only, be deemed to be a reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain or
---------------------
seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least 75% of the Registrable Securities then outstanding
and not registered, enter into any agreement with any holder or prospective
holder of any securities of the Company that would allow such holder or
prospective holder to (i) require the Company to effect a registration or (ii)
include any securities in any registration filed under Section 2.2, 2.3 or 2.9
hereof, unless, under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such securities will not diminish the amount of
Registrable Securities that are included in such registration.
2.12 Rule 144 Reporting. With a view to making available to the Holders
------------------
the benefits of certain rules and regulations of the SEC that may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its diligent efforts to:
(a) Make and keep current public information available, within the
meaning of SEC Rule 144 or any similar or analogous rule promulgated under the
1933 Act, at all times after it has become subject to the reporting requirements
of the 1934 Act;
(b) File with the SEC, in a timely manner, all reports and other
documents required of the Company under the 1933 Act and 1934 Act (after it has
become subject to such reporting requirements);
(c) So long as a Holder owns any Registrable Securities, furnish to
such 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
commencing 90 days after the effective date of the first registration filed by
the Company for an offering of its securities to the general public), the 1933
Act and the 1934 Act (at any time after it has become subject to such reporting
requirements); a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a Holder may reasonably request
in availing itself of any rule or regulation of the SEC allowing it to sell any
such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One Percent
----------------------------
Stockholder," as defined below, hereby agrees that during a period, not to
exceed 180 days, following the effective date of the initial, effective
registration statement of the Company filed under the 1933 Act, it shall not, to
the extent requested by the Company and any underwriter, sell, pledge, transfer,
make any short sale of, loan, grant any option for the purchase of, or
13
otherwise transfer or dispose of (other than to donees who agree to be similarly
bound or, subject to underwriter approval, for Holders that are entities, to
such Holders' members or partners (as applicable) who agree to be similarly
bound, or other than any sales under such registration statement) any Common
Stock held by it at any time during such period except Common Stock included in
such registration; provided, however, that all other "One Percent Stockholders"
with registration rights (whether or not pursuant to this Agreement) and all
officers and directors of the Company enter into similar agreements and such
agreement shall be applicable only to the first such registration statement of
the Company that covers Common Stock (or other securities) to be sold on its
behalf to the public in an underwritten offering.
For purposes of this Section 2.13, the term "One Percent Stockholder" shall
mean a stockholder of the Company who holds at least one percent of the
outstanding Common Stock of the Company (assuming conversion of all outstanding
Series E Stock of the Company and all other convertible securities of the
Company).
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.14 Amendment of Registration Rights. Any provision of this Section 2
---------------------------------
may be amended and 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 at least 66 2/3% of the
Registrable Securities then outstanding and not registered. Any amendment or
wavier effected in accordance with this Section shall be binding upon each
Holder, each future Holder of Registrable Securities and the Company.
2.15 Inclusion of Stock Held by Common Holders. In connection with any
-----------------------------------------
registration effected pursuant to Section 2.3 hereof, the Common Holders shall
be entitled to include in such registration (on the same terms and conditions as
Holders selling their Registrable Securities in such registration) shares of
Common Stock held by such Common Holders; provided that any limitation by the
underwriter on the number of shares to be underwritten in connection with such
registration shall first be applied to the shares so included by such Common
Holders, as provided in Section 2.3(b), and provided further that each such
Common Holder's right to include shares of Common Stock in a registration
pursuant to this Section 2.15 is contingent upon such Common Holder's execution
of an indemnification and hold harmless agreement substantially in accordance
with Section 2.6(b) and an agreement to be bound by all other applicable
restrictions contained in this Section 2.
2.16 Termination of Rights. The rights of any particular Holder to cause
---------------------
the Company to register securities under Section 2.2, 2.3 or 2.9 hereof shall
terminate as to any Holder on the earlier of (a) the date (and during such
period) that such Holder is able to dispose of all of its Registrable Securities
in any 90-day period pursuant to SEC Rule 144 (or any similar or analogous rule
promulgated under the 1933 Act), or (b) the third anniversary of the closing of
the Company's initial public offering of stock.
Section 3.
14
RIGHT OF FIRST REFUSAL;
-----------------------
RIGHT OF CO-SALE
----------------
3.1 Certain Definitions. As used in this Section 3:
-------------------
(a) The term "New Securities" shall mean any capital stock of the
Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include: (i) the Series E Stock; (ii) securities issuable upon
conversion of or with respect to Series E Stock or up to 6,402,102 shares (which
number shall be appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events) issuable upon conversion of any other
preferred stock or equity or debt security of the Company issued on or prior to
the date hereof; (iii) up to [1,165,278] shares of Common Stock (which number
shall be appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events), and options, warrants or rights
convertible into such Common Stock, issued or issuable to employees, consultants
or directors of the Company pursuant to any incentive agreement or arrangement
approved by the Board of Directors of the Company; (iv) up to 112,500 shares
(which number shall be appropriately adjusted for any stock splits, stock
dividends, recapitalizations or similar events) of capital stock or securities
exercisable for or convertible into such capital stock issued in connection with
any equipment leases or borrowings, direct or indirect, from financial or other
institutions regularly engaged in such business; (v) up to 349,999 shares (which
number shall be appropriately adjusted for any stock splits, stock dividends,
recapitalizations or similar events) issuable upon exercise of warrants to
purchase the Company's preferred stock; or (vi) securities issued pursuant to
any stock dividend, stock split, combination or other reclassification by the
Company of any of its capital stock.
(b) The term "Pro Rata Share" means the ratio (A) the numerator of
which is the number of shares of Common Stock held by such Holder, or issuable
to such Holder upon the conversion or exercise of all securities convertible
into or exercisable for Common Stock of the Company held by such Holder, on the
date of the written notice pursuant to Section 3.2 hereof, and (B) the
denominator of which is (i) with respect to the right of first refusal set forth
in Section 3.2, the number of shares of Common Stock outstanding, assuming for
this purpose conversion or exercise of all securities convertible into or
exercisable for Common Stock of the Company or (ii) with respect to the right of
co-sale set forth in Section 3.3, the number of shares of Common Stock held by
or issuable to all Holders who intend to exercise co-sale rights with respect to
such sale and by the Common Holder desiring to sell or transfer Common Stock
pursuant to Section 3.3.
3.2 Right of First Refusal. The Company hereby grants to each Holder,
----------------------
subject to the terms and conditions specified in this Section 3.2, the right of
first refusal to purchase, on the terms and conditions set forth in the
Company's notice pursuant to this Section 3.2, up to its Pro Rata Share of all
New Securities that the Company may, from time to time, propose to sell and
issue. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice (the "Election Notice") of
its intention, describing the type of
15
New Securities, the price and the general terms upon which the Company proposes
to issue the same. Each Holder shall have 15 days from the date of any such
notice to exercise its right of first refusal under this Section 3.2 for the
price and upon the general terms specified in the notice by giving written
notice to the Company and stating therein the quantity of New Securities to be
purchased. Each Holder shall also have the option, exercisable by so specifying
in the Election Notice, to purchase such Holder's pro rata portion of any
remaining New Securities not purchased by other Holders, in which case the
Holders exercising such further option shall be deemed to have elected to
purchase such Holder's pro rata portion of such remaining New Securities, up to
an aggregate maximum number of New Securities which such Holder shall have
specified in the Election Notice. The Company shall have 90 days after the 15-
day period described in this Section 3.2 to sell all such New Securities
respecting which the Holders' rights of first refusal hereunder were not
exercised, at a price and upon terms no more favorable in any material respect
to the purchasers thereof than specified in the Company's notice. In the event
the Company has not sold all such New Securities within such 90-day period, the
Company shall not thereafter issue or sell any New Securities without first
notifying the Investors in the manner provided herein.
3.3 Right of Co-Sale. If at any time a Common Holder or Other Holder
----------------
desires (or is required) to sell or transfer in any manner any shares of capital
stock of the Company or securities convertible or exercisable into capital stock
of the Company pursuant to the terms of a bona fide offer received from a third
party (the "Buyer"), each Holder shall have the right to require, as a condition
to such sale or transfer, that the Buyer purchase from such Holder at the same
price per share and on the same terms and conditions as involved in such sale or
disposition by such Common Holder or Other Holder that percentage of the number
of shares of capital stock proposed to be acquired by the Buyer from such Common
Holder or Other Holder (the "Offered Shares") equal to such Holder's Pro Rata
Share. Each Holder shall act upon the Buyer's offer to buy within twenty (20)
days after receipt of the written notice delivered by such Common Holder or
Other Holder to the Company and each Holder that fully describes the offer. In
the event that one or more Holders shall elect to participate in such sale or
transfer, each such Holder shall communicate in writing such election to such
Common Holder or Other Holder.
3.4 Expiration of Right. The rights of first refusal and rights of co-
-------------------
sale granted under this Section 3 shall not apply to, and shall expire upon, the
closing of a Qualified Public Offering (as defined in Section 4.4 below).
3.5 No Waiver. The exercise or non-exercise by a Holder of its or his
---------
rights under this Section 3 shall not adversely affect its right to exercise
such rights in connection with future transfers or sales.
Section 4.
COMPANY COVENANTS
-----------------
The Company hereby covenants and agrees as follows:
4.1 Financial Information.
---------------------
16
(a) So long as any Investor or any subsidiary, affiliate or partner of
such Investor shall own at least 50,000 shares of Investor Stock or any shares
of Common Stock issued upon conversion thereof, subject to adjustment for
combinations, consolidations, recapitalizations, stock splits, stock dividends
and the like, the Company will furnish each Holder, subject to Section 4.1(b)
below, the following reports:
(i) As soon as practicable after the end of each fiscal year,
and in any event within 90 days thereafter, (1) audited consolidated balance
sheets of the Company and its subsidiaries, if any, as at the end of such fiscal
year, and audited consolidated statements of income and losses, stockholders'
equity and cash flows of the Company and its subsidiaries, if any, for such
fiscal 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, if any, all in reasonable detail and accompanied by a
report and opinion thereon by independent auditors selected by the Company's
Board of Directors; and (2) a copy of such auditors' management letter prepared
in connection therewith, if any, (as soon as such management letter is
available, which may be greater than the aforesaid 90-day period);
(ii) As soon as practicable after the end of each of the first
three quarters of the fiscal year, but in any event within 30 days after the end
of each such quarter, the unaudited consolidated balance sheets of the Company
and its subsidiaries, if any, as of the end of such quarter, and its unaudited
consolidated statements of income and losses, stockholders' equity and cash
flows for such quarter, setting forth in each case in comparative form the
figures for the corresponding period of the preceding fiscal year and such
quarter's operating budget, all in reasonable detail and prepared in accordance
with generally accepted accounting principles, except that such financial
statements may not contain notes and will be subject to year-end adjustment, and
certified by the principal financial or accounting officer of the Company. Such
quarterly report shall include a narrative, summary description of the Company's
operations for such quarter, indicating whether the Company is materially in
compliance with this Agreement and other material agreements and discussing any
material variances from the Company's operating plan;
(iii) Within 30 days prior to the end of each fiscal year, an
operating budget, prepared on a quarterly basis, for the succeeding fiscal year;
and
(iv) With reasonable promptness, such other information
respecting the business, properties or the condition or operations, financial or
other, of the Company or any subsidiary as any Holder may from time to time
reasonably request.
(b) The Company shall not be obligated pursuant to this Section 4.1 to
provide financial information to any person whom the Company reasonably believes
is a competitor of the Company.
(c) The rights granted pursuant to this Section 4.1 may be assigned or
otherwise conveyed by any Investor or by any subsequent transferee of any such
rights, provided that the Company is given prior written notice of any such
proposed assignment or conveyance;
17
and provided further that the Company may refuse to permit such assignment or
conveyance if the proposed transferee is reasonably believed by the Company to
be a competitor of the Company.
4.2 Inspection. The Company shall permit each Investor and each
----------
transferee in a Permitted Transfer (as defined in Section 2.8(b) hereof)
(provided such transfer is effected in compliance with Section 1.2 hereof), its
attorney or its other representative to visit and inspect the Company's
properties, to examine the Company's books of account and other records, to make
copies or extracts therefrom and to discuss the Company's affairs, finances and
accounts with its officers, management, employees and independent auditors all
at such reasonable times and as often as such Investor or transferee may
reasonably request; provided, however, that the Company shall not be obligated
pursuant to this Section 4.2 to provide trade secrets or confidential
information or to provide information to any person whom the Company reasonably
believes is a competitor of the Company; provided, further, that such Investor
shall bear any costs or expenses of such investigations or inquiries.
4.3 Additional Affirmative Covenants. Without limiting any other covenant
--------------------------------
or provision hereof, the Company covenants and agrees that, so long as at least
50,000 shares of Series E Stock remain outstanding, it will, and will cause each
subsidiary (to the extent applicable thereto) of the Company, if and when such
subsidiary exists, to:
(a) Payment of Taxes. Pay, and cause each subsidiary to pay, and
----------------
discharge all taxes, assessments and governmental charges or levies imposed upon
it or upon its income, profits or business, or upon any properties belonging to
it, prior to the date on which penalties attach thereto, and all lawful claims
that, if unpaid, might become a lien or charge upon any properties of the
Company or any subsidiary, provided that neither the Company nor any subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim that is
being contested in good faith and by appropriate proceedings if the Company or
any subsidiary shall have set aside on its books sufficient reserves, if any,
with respect thereto;
(b) Payment of Trade Debt. Pay, and cause each subsidiary to pay,
---------------------
when due, or in conformity with customary trade terms but not later than ninety
(90) days from the due date, all lease obligations, all trade debt, and all
other indebtedness incident to the operations of the Company or its
subsidiaries, except such as are being contested in good faith and by proper
proceedings if the Company or subsidiary concerned shall have set aside on its
books sufficient reserves, if any, with respect thereto;
(c) Maintenance of Insurance. Maintain, and cause each subsidiary to
------------------------
maintain, insurance with responsible and reputable insurance companies or
associations in such amounts and covering such risks as is customarily carried
by companies engaged in similar businesses and owning similar properties in the
same general areas in which the Company or such subsidiary operates;
(d) Preservation of Corporate Existence. Preserve and maintain, and,
-----------------------------------
unless the Company reasonably deems it not to be in its best interests, cause
each subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its
18
incorporation, and qualify and remain qualified, and cause each subsidiary to
qualify and remain qualified, as a foreign corporation in each jurisdiction in
which such qualification is necessary or desirable in view of its business and
operations or the ownership or lease of its properties, except when the failure
to be so qualified would not have a material adverse effect on the Company and
its subsidiaries taken as a whole; provided that nothing in this Section 4.3(d)
shall prohibit the Company or any of its subsidiaries from engaging in a
corporate transaction in connection with the acquisition of another corporation
or business entity by the Company or one or more of its wholly owned
subsidiaries by merger, consolidation, share exchange, purchase of substantially
all the assets or other reorganization whereby the stockholders of the Company
immediately prior to the transaction own in the aggregate more than 50% of the
voting power of the Company or other surviving entity after the transaction;
(e) Intellectual Property. Secure, preserve and maintain, and cause
---------------------
each subsidiary to secure, preserve and maintain, all licenses and other rights
to use patents, processes, licenses, permits, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or used by it to
the extent necessary to the conduct of its business or the business of any
subsidiary;
(f) Compliance with Laws. Comply, and cause each subsidiary to
--------------------
comply, with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority, noncompliance with which could materially
adversely affect its business or condition, financial or otherwise;
(g) Records and Books of Account. Keep, and cause each subsidiary to
----------------------------
keep, adequate records and books of account in which complete entries will be
made in accordance with generally accepted accounting principles consistently
applied, reflecting all financial transactions of the Company and any
subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, returns of merchandise, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made;
(h) Maintenance of Properties. Maintain and preserve, and cause each
-------------------------
subsidiary to maintain and preserve, all of its properties and assets necessary
for the proper conduct of its business, in good repair, working order and
condition, ordinary wear and tear excepted;
(i) Regulatory Compliance. Comply, and cause each subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension,
employee benefit plans, or employee contribution plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or to the
Internal Revenue Code of 1986, as amended (the "Code"), and comply, and cause
each subsidiary to comply, in all other material respects with the provisions of
ERISA and the Code, and the rules and regulations thereunder, which are
applicable to any such plan; provided further that neither the Company nor any
subsidiary will permit any event or condition to exist that would permit any
such plan to be terminated under circumstances that would cause any material
lien provided for in section 4068 of ERISA to attach to the assets of the
Company or any subsidiary;
19
(j) Financings. Promptly, fully and in detail, inform the Board of
----------
Directors of any discussions, offers or contracts relating to possible
financings of any nature for the Company, whether initiated by the Company or
any other person, except for arrangements with trade creditors in the ordinary
course of business;
(k) Nature of Business. Continue to conduct its business without
------------------
material change from the nature of the business as conducted or contemplated as
of the date of this Agreement or enter into material transactions not in the
ordinary course of business, except as approved by the Board of Directors; and
(l) Employee Agreements. Cause its future employees to execute a
-------------------
nondisclosure, assignment of inventions and non-competition agreement in the
form attached as Exhibit D to the Series E Agreement.
---------
4.4 Expiration of Covenants. The covenants set forth in this Section 4
-----------------------
shall expire and be of no further force or effect upon the effectiveness of a
Qualified Public Offering (as defined below). A "Qualified Public Offering"
shall mean an effective registration statement for the sale of the Company's
shares of Common Stock in a firm commitment underwritten public offering
registered under the 1933 Act generating proceeds (before deducting
underwriters' commissions and discounts) to the Company of $40,000,000 or more
and the price per share to the public is not less than 150% of the Series E
purchase price per share, subject to adjustment for stock splits, stock
dividends and the like (other that a registration relating solely to employee
benefit plans or to a transaction under Rule 145 under the 1933 Act or any
successor rule thereto). After such time, the Investors shall be entitled to
receive such annual and quarterly reports as the Company shall distribute to its
stockholders generally.
Section 5.
OBSERVATION RIGHTS
------------------
Until such time as the Company shall have consummated a Qualified Public
Offering (as defined in Section 4.4 hereof), the Investors shall have the right
to appoint one (1) observer to the Board of Directors of the Company, as
designated by Canaan Partners, who initially shall be Xx. Xxxx Xxxxxxx. Such
observer will be allowed to participate in all discussions of the Board of
Directors but will not be a voting member of the Board of Directors. The
Company shall reimburse the observer appointed by the Investors for reasonable
expenses incurred to attend meetings of the Board of Directors.
Section 6.
PROHIBITED TRANSFERS
--------------------
Until the closing of a Qualified Public Offering or the closing of a
transaction that results in liquidation rights for the Series E Preferred under
the Company's Certificate of Incorporation, no Common Holder may sell, pledge or
otherwise transfer more than 10% of such Common
20
Holder's shares of the Company held at the Closing of the Series E Agreement
without the written consent of 66 2/3% of the shares (on an as-converted basis)
held by the Investors. Notwithstanding the previous provision, transfers to the
following persons (each a "Permitted Transferee") do not require consent of the
Investors: (i) a member of the Common Holder's immediate family (defined to
include his parents, children and lineal descent (whether by birth or adoption),
spouse, siblings and the children of siblings (whether by birth or adoptions))
or (ii) a trust or family limited partnership established by the Common Holder
for the benefit of himself or his immediate family (each such Transfer a
"Permitted Transfer"). No Permitted Transfer shall be effective unless and until
the Permitted Transferee shall have executed such documentation, in form and
substance satisfactory to the Company, evidencing agreement by the Permitted
Transferee to be bound by the provisions of this Agreement.
Section 7.
MISCELLANEOUS
-------------
7.1 Governing Law. This Agreement shall be governed by, and construed and
-------------
interpreted in accordance with the laws of the State of Delaware as applied to
agreements among Delaware residents made and to be performed entirely within the
State of Delaware.
7.2 Successors and Assigns. 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.
7.3 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement among the parties with regard to the subjects
hereof. Nothing in this Agreement, express or implied, is intended to confer
upon any party, other than the parties hereto and their successors and assigns,
any rights, remedies, obligations or liabilities under or by reason of this
Agreement, except as expressly provided herein.
7.4 Severability. Any invalidity, illegality or limitation of the
------------
enforceability with respect to any Holder of any one or more of the provisions
of this Agreement, or any part thereof, whether arising by reason of the law of
any such person's domicile or otherwise, shall in no way affect or impair the
validity, legality or enforceability of this Agreement with respect to any other
Holder. In case any provision of this Agreement shall be invalid, illegal or
unenforceable, it shall to the extent practicable, be modified so as to make it
valid, legal and enforceable and to retain as nearly as practicable the intent
of the parties, and the validity, legality, and enforceability of the remaining
provisions shall not in any way be affected or impaired thereby.
7.5 Amendment and Waiver. Except as otherwise expressly provided herein,
--------------------
any term of this Agreement may be amended and the observance of any term of this
Agreement may be waived (either generally or in a particular instance, either
retroactively or prospectively and either for a specified period of time or
indefinitely) with the written consent of the Company and the Investors, or
their transferees holding at least 66 2/3% of the shares of Series E Stock,
voting together as a single group (treated as if converted at the conversion
rate then in effect and
21
including, for such purposes shares of Common Stock into which any shares of
Series E Stock shall have been converted that are held by a Holder); provided,
however, that no such amendment or waiver shall reduce the aforesaid percentage
of Series E Stock and Common Stock issued upon conversion thereof, the holders
of which are required to consent to any waiver or supplemental agreement,
without the consent of the holders of all of such Series E Stock and Common
Stock; provided, further, that any amendment to Section 2.15 (or to Section 2.3
that would affect the rights under Section 2.15) shall also require the consent
of the holders of at least a majority of the shares of Common Stock issued to,
or issuable upon exercise of options held by, the Common Holders; and provided
further, that no amendment to Section 5 hereof shall be effective without the
written consent of the Company and the Investors, or their transferees, holding
at least 75% of the shares of Series E Stock, voting together as a single group
(treated as if converted at the conversion rate then in effect and including,
for such purposes shares of Common Stock into which any shares of Series E Stock
shall have been converted that are held by a Holder). Any amendment or waiver
effected in accordance with this Section 7.5 shall be binding upon each Common
Holder, each Investor and each transferee of the Registrable Securities. Upon
the effectuation of each such amendment or waiver, the Company shall promptly
give written notice thereof to the Investors and Common Holders who have not
previously consented thereto in writing. Notwithstanding anything to the
contrary in this Section 7.5, the Company shall be entitled to include
additional purchasers of its Series E Stock pursuant to the Series E Agreement
as parties to this Agreement, and to treat such purchasers as "Investors" and
"Holders" hereunder, by amending Exhibit A attached hereto and providing such
---------
Exhibit A, as amended, to the other parties to this Agreement.
---------
7.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company, the Investors, or any transferees upon
any breach, default or noncompliance of the Investors or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default or
noncompliance, or any acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement or
any waiver on the Company's or the Investors' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
7.7 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return receipt
requested, postage prepaid, addressed: (a) if to the Company, at:
POZEN Inc.
0000 Xxxxxxxxxx Xxxxx, Xxxxx 000
Xxxxxx Xxxx, Xxxxx Xxxxxxxx 00000
Attention: Xxxx X. Xxxxxxxxx
22
Phone: (000) 000-0000
Fax: (000) 000-0000
With a copy to:
Xxxx X. Xxxxxxxxx, Esq.
Xxxxxxxxx & Xxxxx PLLC
0000 Xxxxxxx Xxxx Xxxx, Xxxxx 000
Xxxxxxx, Xxxxx Xxxxxxxx 00000
Phone: (000) 000-0000
Fax: (000) 000-0000
or at such other address as the Company shall have furnished to the Investors in
writing, and
(b) if to the Investors, at the addresses of such Investors specified on
Exhibit A hereto, or at such other addresses as the Investors shall have
---------
furnished to the Company in writing.
(c) if to a Common Holder other than the Investors, at such Common
Holder's address as shall have been furnished to the Company in writing.
7.8 Titles and Subtitles. The titles of the sections and subsections of
--------------------
this Agreement are for convenience of reference only and are not to be
considered in construing this Agreement.
7.9 Counterparts. 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 instrument.
[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
23
IN WITNESS WHEREOF, this Investor Rights Agreement has been duly executed
and delivered by the parties as of the date first above written.
COMPANY:
POZEN INC.
By: /s/ Xxxx X. Xxxxxxxxx
--------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: President and CEO
INVESTORS:
CANAAN EQUITY II L.P.
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Xxxxx X. Xxxx
--------------------------------
Name: Xxxxx X. Xxxx
Title: Member/Manager
CANAAN EQUITY II L.P. (QP)
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Xxxxx X. Xxxx
--------------------------------
Name: Xxxxx X. Xxxx
Title: Member/Manager
CANAAN EQUITY II ENTREPRENEURS LLC
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Xxxxx X. Xxxx
--------------------------------
Name: Xxxxx X. Xxxx
Title: Member/Manager
/s/ Xxxx Xxxxxxx
--------------------------------------
Xxxx Xxxxxxx
24
CLEVELAND CLINIC FOUNDATION
By: /s/ Xxxx Xxxxxx
----------------------------------
Name: Xxxx X. Xxxxxx
Title: Chief Financial Officer
/s/ Xxxxx Xxxxxxxxx
----------------------------------------
Xxxxx Xxxxxxxxx
/s/ Xxxxxx Xxxxxx
----------------------------------------
Xxxxxx Xxxxxx
VECTOR LATER-STAGE EQUITY FUND II, L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By /s/ Xxxxxxx Xxxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Managing Director
VECTOR LATER-STAGE EQUITY FUND II (Q.P.), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By /s/ Xxxxxxx Xxxxxxxx
------------------------------------
Name: Xxxxxxx Xxxxxxxx
Title: Managing Director
25
BANK XXX XXXXX & CIE AG
By: /s/ X. Xxxx
----------------------------------
Name: X. Xxxx
Title: Authorized Officer
By: /s/ M. Angst
----------------------------------
Name: M. Angst
Title: Assistant Vice President
/s/ Xxxxxxx Xxxxxxx Xxxxxx
---------------------------------------
Xxxxxxx Xxxxxxx Xxxxxx
UNITED OPPORTUNITIES FUND, LLC
By: United Management Company, LLC
Its: Managing Member
By: /s/ Xxxxxx X. Xxxxxx
----------------------------------
Name: Xxxxxx X. Xxxxxx
Title: Executive Vice President and Assistant
Treasurer
ALIMENTARIA INTERNATIONAL INC.
By: /s/ Xxxxxxx Xxxxxx
----------------------------------
Name: Xxxxxxx Xxxxxx
---------------------------
Title: Power-of-Attorney
NEW MEDICAL TECHNOLOGIES AG
By: /s/ Xxxxx X. Xxxxxx
----------------------------------
Name: Xx. Xxxxx X. Xxxxxx
Title: Attorney in Fact
/s/ Xxxxxxx X. Xxxxxxxxxx
---------------------------------------
Xxxxxxx X. Xxxxxxxxxx
26
The undersigned hereby executes this Agreement solely
for the purpose of agreeing to the provisions of
Section 3 hereof:
MEDGROWTH, S.A.
By: /s/ Xxxx
----------------------------------
Xxxx
By: /s/ Xxxxxx Xxxxxxxxx
----------------------------------
Xxxxxx Xxxxxxxxx
27
COMMON HOLDERS:
/s/ Xxxxxx X. Xxxxxx, Xx.
---------------------------------------
Xxxxxx X. Xxxxxx, Xx.
/s/ Xxxxx X. Xxxx
---------------------------------------
Xxxxx X. Xxxx
SILVER HILL INVESTMENTS, LLC
By: /s/ Xxxx X. Xxxxxxxxx
----------------------------------
Name: Xxxx X. Xxxxxxxxx
Title: Manager
-------------------------------
28
EXHIBIT A
---------
Schedule of Investors
---------------------
Schedule of Investors
---------------------
Name and Address
----------------
Canaan Equity II L.P.
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Canaan Equity II L.P. (QP)
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Canaan Equity II Entrepreneurs LLC
000 Xxxxxxxx Xxxxxx
Xxxxxxxx, XX 00000
Xxxx Xxxxxxx
00000 Xxxxxx
Xxxxxx Xxxx, XX 00000
Cleveland Clinic Foundation
Xx. Xxxxx Xxxxxxxx
0000 Xxxxxx Xxxxxx, X-00
Xxxxxxxxx, XX 00000
Xxxxx Xxxxxxxxx
00 Xxxxx Xxxxxx Xxxx
Xxx Xxxx, XX 00000
Xxxxxx Xxxxxx
00 Xxxxxx Xx. #0
Xxxxxx XX 00000
Vector Later-Stage Equity Fund II, L.P.
0000 Xxxx Xxxx Xxxx, 0x Xxxxx
Xxxxxxxxx, XX 00000
Vector Later-Stage Equity Fund II (Q.P.), L.P.
0000 Xxxx Xxxx Xxxx, 0x Xxxxx
Xxxxxxxxx, XX 00000
29
Bank xxx Xxxxx & Cie AG
Stellvertretender Direcktor
Xxxxxxxxxxxxxxxx 0
Xxxxxxxx
XX-0000 Xxxxxx
XXXXXXXXXXX
Xxxxxxx Xxxxxxx Xxxxxx
000X Xxxxxxxx Xxxx
Xxxxxxxx XXX 0000 Xxxxxxxxx
United Opportunities Fund, LLC
0000 Xxxxxxx Xxxxxx
Xxxxxxx, XX 00000
Alimentaria International Inc
Xxxxxxx Xxxxxx
Xx xxx Xxxxxxxx 0
0000 Xxxxxxxx
Xxxxxxxxxxx
MVI Medical Venture Investments Limited
c/o NMT Management AG
Xx. Xxxxx X. Xxxxxx
Xxxxxxxxxxxxxxxxxx 00
XX-0000 Xxxxx
Xxxxxxxxxxx
Xxxxxxx X. Xxxxxxxxxx
0000 Xxxxxxxxx Xxxxx
Xxxxxx Xxxx, XX 00000
30
EXHIBIT A-1
-----------
Other Holders
-------------
Name and Address
----------------
MEDGROWTH, S.A.
Xx. Xxxxxx Xxxxxxxxxx
Bellevue Asset Management XX
Xxxxxxxxxxx 0
XX-0000 Xxx
Xxxxxxxxxxx
31
EXHIBIT B
---------
Schedule of Common Holders
--------------------------
Xxxxxx X. Xxxxxx, Xx.
Xxxxx X. Xxxx
Silver Hill Investments, LLC
32
