EXHIBIT 4.4
INVESTORS' RIGHTS AGREEMENT
THIS INVESTORS' RIGHTS AGREEMENT (the "Agreement") is made as of the
28th day of January, 2005, by and between PacificHealth Laboratories, Inc., a
Delaware corporation (the "Company"), Hormel Health Labs, LLC ("Investor") and
any Additional Investor (as defined in the Purchase Agreement) that becomes a
party to this Agreement by executing and delivering to the Company a counterpart
signature page hereto (which such person shall thereupon be deemed an "Investor"
for all purposes of this Agreement).
RECITALS
WHEREAS, the Company and the Investors are parties to the Series A
Preferred Stock Purchase Agreement of even date herewith (the "Purchase
Agreement"); and
WHEREAS, in order to induce the Company to enter into the Purchase
Agreement and to induce the Investors to invest funds in the Company pursuant to
the Purchase Agreement, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock issuable to the Investors, to receive certain
information from the Company, to participate in future equity offerings by the
Company and certain other matters as set forth in this Agreement;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. Definitions. For purposes of this Agreement:
1.1. The term "Affiliate" shall mean with respect to any
individual, corporation, partnership, association, trust, or any other entity
(in each case, a "Person"), any Person which, directly or indirectly, controls,
is controlled by or is under common control with such Person, including, without
limitation any general partner, officer or director of such Person and any
venture capital fund now or hereafter existing which is controlled by or under
common control with one or more general partners or shares the same management
company with such Person.
1.2. The term "Common Stock" shall mean shares of the
Company's common stock, par value $0.01 per share.
1.3. The term "Exchange Act" shall mean the Securities
Exchange Act of 1934, as amended, and the rules and regulations promulgated
thereunder.
1.4. The term "Form S-3" means such form under the Securities
Act as in effect on the date hereof or any registration form under the
Securities Act subsequently adopted by the SEC which permits inclusion or
incorporation of substantial information by reference to other documents filed
by the Company with the SEC.
1.5. The term "GAAP" shall mean generally accepted accounting
principles.
1.6. The term "Holder" shall mean any Person owning or having
the right to acquire Registrable Securities or any assignee thereof in
accordance with Section 2.12 hereof.
1.7. The Term "Immediate Family Member" shall mean a child,
stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling,
mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law, or
sister-in-law, including adoptive relationships, of a person referred to herein.
1.8. The term "Initiating Holders" means, collectively, any
Holders who properly initiate a registration request under this Agreement.
1.9. The term "Key Employee" means any executive-level
employee (including division director and Vice President level positions) as
well as any employee who either alone or in concert with others develops,
invents, programs or designs any Company Intellectual Property (as defined in
Section 2.8 of the Purchase Agreement)
1.10. Intentionally Left Blank.
1.11. The term "New Securities" shall mean equity securities
of the Company, whether now authorized or not, or rights, options, or warrants
to purchase said equity securities, or securities of any type whatsoever that
are, or may become, convertible into or exchangeable into or exercisable for
said equity securities (collectively "New Securities").
1.12. The term "Preferred Stock" shall mean, collectively,
shares of the Company's Series A Preferred Stock.
1.13. The term "register," "registered," and "registration"
refer to a registration effected by preparing and filing a registration
statement or similar document in compliance with the Securities Act, and the
declaration or ordering of effectiveness of such registration statement or
document.
1.14. The term "Registrable Securities" means (i) the Common
Stock issuable or issued upon conversion of the Series A Preferred Stock ( and
(ii) any Common Stock of the Company issued as (or issuable upon the conversion
or exercise of any warrant, right or other security which is issued as) a
dividend or other distribution with respect to, or in exchange for or in
replacement of the shares referenced in clause (i) above, excluding in all
cases, however, any Registrable Securities sold by a person in a transaction in
which his rights under Section 2 hereof are not assigned or any shares for which
registration rights have terminated pursuant to Section 2.14 of this Agreement.
1.15. The term "Registrable Securities then outstanding" means
the number of shares determined by adding the number of shares of Common Stock
outstanding which are, and the number of shares of Common Stock issuable
pursuant to then exercisable or convertible securities which are, Registrable
Securities.
1.16. The term "SEC" means the Securities and Exchange
Commission.
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1.17. The term "SEC Rule 144" means Rule 144 promulgated by
the SEC under the Securities Act.
1.18. The term "SEC Rule 144(k)" means Rule 144(k) promulgated
by the SEC under the Securities Act.
1.19. The term "SEC Rule 145" means Rule 145 promulgated by
the SEC under the Securities Act.
1.20. The term "Securities Act" means the Securities Act of
1933, as amended, and the rules and regulations promulgated thereunder.
1.21. The term "Series A Preferred Stock" means shares of the
Company's Series A Preferred Stock, par value $0.01 per share.
1.22. The term "Violation" means losses, claims, damages, or
liabilities (joint or several) to which a party hereto may become subject under
the Securities Act, the Exchange Act or other federal or state law, insofar as
such losses, claims, damages, or liabilities (or actions in respect thereof)
arise out of or are based upon any of the following statements, omissions or
violations: (i) any untrue statement or alleged untrue statement of a material
fact contained in such registration statement, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state therein a
material fact required to be stated therein, or necessary to make the statements
therein not misleading, or (iii) any violation or alleged violation by any other
party hereto, of the Securities Act, the Exchange Act, any state securities law
or any rule or regulation promulgated under the Securities Act, the Exchange Act
or any state securities law.
2. Registration Rights. The Company covenants and agrees as follows:
2.1. Request for Registration.
(a) If the Company shall receive at any time after the
date of this Agreement a written request from the Holders of 50% of the
Registrable Securities then outstanding that the Company file a registration
statement under the Securities Act covering the registration for resale of the
Registrable Securities if the anticipated aggregate offering price, net of
underwriting discounts and commissions, would equal or exceed $1,000,000, then
the Company shall:
(i) within ten (10) days of the receipt thereof,
give written notice of such request to all Holders;
(ii) as soon as practicable, and in any event
within 45 days of the receipt of such request, file a registration statement
under the Securities Act covering all Registrable Securities which the Holders
request to be registered, subject to the limitations of subsection 2.1(b),
within twenty (20) days of the mailing of such notice by the Company in
accordance with Section 5.5; and
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(iii) use its best efforts to cause such
registration statement to be declared effective by the SEC as soon as
practicable but in no event later than 120 days after such request.
(b) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as a part of their request made pursuant to
subsection 2.1(a) and the Company shall include such information in the written
notice referred to in subsection 2.1(a). The underwriter will be selected by the
Initiating Holders subject only to the reasonable approval of the Company. In
such event, the right of any Holder to include such Holder's Registrable
Securities in such registration shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein. All
Holders proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 2.3(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2.1, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders of Registrable Securities,
including the Initiating Holders, in proportion (as nearly as practicable) to
the number of Registrable Securities of the Company owned by each Holder;
provided, however, that the number of shares of Registrable Securities held by
the Holders to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting. 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.
(c) The Company shall not be obligated to effect, or to
take any action to effect, any registration
(i) pursuant to this Section 2.1:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act;
(ii) After the Company has effected one
registration pursuant to this Section 2.1 and such registration has been
declared or ordered effective;
(iii) If the Initiating Holders propose to dispose
of shares of Registrable Securities that may be immediately registered on Form
S-3 pursuant to a request made pursuant to Section 2.11 below; or
(iv) If the Registrable Securities to be included
in the registration statement could be sold without restriction under SEC Rule
144 within a three-month
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day period and the Company is currently subject to the periodic reporting
requirements of Sections 12(b),12(g) or 15(d) of the Exchange Act, or
(v) If the Registrable Securities to be included
in the registration statement could be sold without restriction under SEC Rule
144(k) and the Company is currently subject to the periodic reporting
requirements of Sections 12(b), 12(g) or 15(d) of the Exchange Act, or
(ii) pursuant to any other provision of this Agreement:
(i) In any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, unless the Company is already subject to service in
such jurisdiction and except as may be required under the Securities Act; or
(ii) If the Registrable Securities to be included
in the registration statement could be sold without restriction under SEC Rule
144(k) within a ninety (90) day period and the Company is currently subject to
the periodic reporting requirements of Sections 12(b), 12(g) or 15(d) of the
Exchange Act.
(d) Notwithstanding the foregoing, if the Company shall
furnish to Holders requesting a registration statement pursuant to this Section
2.1 a certificate signed by the Chief Executive Officer of the Company stating
that in the good faith judgment of the Board of Directors of the Company it
would be materially detrimental to the Company and its stockholders for such
registration statement to become effective or to remain effective as long as
such registration statement would otherwise be required to remain effective
because such action (x) would materially interfere with a significant
acquisition, corporate reorganization or other similar transaction involving the
Company, (y) would require premature disclosure of material information that the
Company has a bona fide business purpose for preserving as confidential or (z)
would render the Company unable to comply with requirements under the Securities
Act or Exchange Act, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than ninety (90) days after
receipt of the request of the Initiating Holders; provided, however, that the
Company may not utilize this right more than once in any twelve-month period and
provided further that the Company shall not register any securities for the
account of itself or any other stockholder during such one hundred twenty (120)
day period other than a registration statement relating either to the sale of
securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction, a registration on any
form that does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities, or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities that are
also being registered).
A registration statement shall not be counted until such time as such
registration statement has been declared effective by the SEC (unless the
Initiating Holders withdraw their request for such registration other than as a
result of information concerning the business or financial condition of the
Company which is made known to the Investors after the date on which such
registration was requested and elect not to pay the registration expenses
therefor
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pursuant to Section 2.5). A registration statement shall not be counted if, as a
result of an exercise of the underwriter's cut-back provisions, fewer than 50%
of the total number of Registrable Securities that Holders have requested to be
included in such registration statement are actually included.
2.2. Company Registration. If the Company proposes to register
(including for this purpose a registration effected by the Company for
stockholders other than the Holders) any of its stock or other securities under
the Securities Act in connection with the public offering of such securities
solely for cash (other than a registration statement relating either to the sale
of securities to employees of the Company pursuant to a stock option, stock
purchase or similar plan or an SEC Rule 145 transaction, a registration on any
form which does not include substantially the same information as would be
required to be included in a registration statement covering the sale of the
Registrable Securities or a registration in which the only Common Stock being
registered is Common Stock issuable upon conversion of debt securities which are
also being registered), the Company shall, at such time, promptly give each
Holder written notice of such registration. Upon the written request of each
Holder given within twenty (20) days after mailing of such notice by the Company
in accordance with Section 5.5, the Company shall, subject to the provisions of
Section 2.7, cause to be registered under the Securities Act all of the
Registrable Securities that each such Holder has requested to be registered. The
Company shall have the right to terminate or withdraw any registration initiated
by it under this Section 2.2 prior to the effectiveness of such registration
whether or not any Holder has elected to include securities in such
registration. The expenses of such withdrawn registration shall be borne by the
Company in accordance with Section 2.6 hereof.
2.3. Obligations of the Company. Whenever required under this
Section 2 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible,
(a) prepare and file with the SEC a registration
statement with respect to such Registrable Securities and use its reasonable
best efforts to cause such registration statement to become effective, and,
except for registrations solely under Section 2.2, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective for a period of up to one hundred eighty
(180) days or, if earlier, until the distribution contemplated in the
Registration Statement has been completed; provided, however, that (i) such
180-day period shall be extended for a period of time equal to the period the
Holder refrains from selling any securities included in such registration at the
request of an underwriter of Common Stock (or other securities) of the Company;
and (ii) in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, subject to
compliance with applicable SEC rules, such 180-day period shall be extended for
up to one year, if necessary, to keep the registration statement effective until
all such Registrable Securities are sold;
(b) prepare and file with the SEC such amendments and
supplements to such registration statement and the prospectus used in connection
with such registration statement as may be necessary to comply with the
provisions of the Securities Act with respect to the disposition of all
securities covered by such registration statement;
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(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the Securities 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 reasonable best efforts to register and
qualify the securities covered by such registration statement under such other
securities or Blue Sky laws of such jurisdictions as shall be reasonably
requested by the Holders; provided that the Company shall not be required in
connection therewith or as a condition thereto to qualify to do business or to
file a general consent to service of process in any such states or
jurisdictions, unless the Company is already subject to service in such
jurisdiction and except as may be required by the Securities Act;
(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) cause all such Registrable Securities registered
pursuant to this Agreement hereunder to be listed on a national securities
exchange or trading system and each securities exchange and trading system on
which similar securities issued by the Company are then listed;
(g) use its reasonable best efforts to furnish, at the
request of any Holder requesting registration of Registrable Securities pursuant
to this Section 2, on the date on which such Registrable Securities are sold to
the underwriter, (i) an opinion, dated such date, of the counsel representing
the Company for the purposes of such registration, in form and substance as is
customarily given to underwriters in an underwritten public offering, addressed
to the underwriters, if any, and (ii) a "comfort" letter dated such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants to
underwriters in an underwritten public offering, addressed to the underwriters,
if any.
2.4. Furnish Information. (a)It shall be a condition precedent
to the obligations of the Company to take any action pursuant to this Section 2
with respect to the Registrable Securities of any selling Holder that such
Holder shall furnish to the Company such information regarding itself, the
Registrable Securities held by it, and the intended method of disposition of
such securities as shall be reasonably required to effect the registration of
such Holder's Registrable Securities.
2.5. Expenses of Demand Registration. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.1, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company;
provided, however, that the Company shall not be required to pay for any
expenses of any registration proceeding begun pursuant to Section 2.1 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities
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to be registered (in which case all participating Holders shall bear such
expenses pro rata based upon the number of Registrable Securities that were to
be included in the withdrawn registration), unless the Holders of a majority of
the Registrable Securities agree to forfeit their right to one demand
registration pursuant to Section 2.1; provided further, however, that if at the
time of such withdrawal, the Holders have learned of a material adverse change
in the condition, business, or prospects of the Company from that known to the
Holders at the time of their request and have withdrawn the request with
reasonable promptness after learning of such information, then the Holders shall
not be required to pay any of such expenses and shall retain their rights
pursuant to Section 2.1.
2.6. Expenses of Company Registration. The Company shall bear
and pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.2 hereof for each Holder (which right may be assigned as
provided in Section 2.12 hereof), including (without limitation) all
registration, filing, and qualification fees, printers and accounting fees
relating or apportionable thereto, but excluding underwriting discounts and
commissions relating to Registrable Securities.
2.7. Underwriting Requirements. In connection with any
offering involving an underwriting of shares of the Company's capital stock
pursuant to Section 2.2, the Company shall not be required to include any of the
Holders' securities in such underwriting unless they accept the terms of the
underwriting as agreed upon between the Company and its underwriters, and then
only in such quantity as the underwriters determine in their sole discretion
will not jeopardize the success of the offering by the Company. If the total
number of securities, including Registrable Securities, requested by
stockholders to be included in such offering exceeds the amount of securities to
be sold other than by the Company that the underwriters determine in their
reasonable discretion is compatible with the success of the offering, then the
Company shall be required to include in the offering only that number of such
securities, including Registrable Securities, which the underwriters and the
Company determine in their sole discretion will not jeopardize the success of
the offering. In no event shall any Registrable Securities be excluded from such
offering unless all other securities held by officers, directors or greater than
5% stockholders (as determined in accordance with Rule 13d-1 of the Exchange
Act) also having registration rights are also reduced on a pro rata basis along
with the holders of the Registrable Securities. In the event that the
underwriters determine that less than all of the Registrable Securities
requested to be registered can be included in such offering, then the
Registrable Securities that are included in such offering shall be apportioned
pro rata among the selling Holders based on the number of Registrable Securities
held by all selling Holders or in such other proportions as shall mutually be
agreed to by all such selling Holders. Notwithstanding the foregoing, in no
event shall ( the amount of securities of the selling Holders included in the
offering be reduced below twenty percent (20%) of the total amount of securities
included in such offering. For purposes of the preceding parenthetical
concerning apportionment, for any selling stockholder which is a Holder of
Registrable Securities and which is an investment fund, partnership, limited
liability company or corporation, the partners, members, retired partners,
retired members, stockholders and Affiliates of such Holder, or the estates and
family members of any such partners, retired partners, members and retired
members and any trusts for the benefit of any of the foregoing persons shall be
deemed to be a single "selling Holder", and any pro-rata reduction with respect
to such "selling Holder" shall be based
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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.
2.8. Delay of Registration. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any registration
pursuant to this Agreement as the result of any controversy that might arise
with respect to the interpretation or implementation of this Section 2.
2.9. Indemnification. In the event any Registrable Securities
are included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will
indemnify and hold harmless each Holder, the partners, members, officers,
directors and stockholders of each Holder, legal counsel and accountants for
each Holder, any underwriter (as defined in the Securities Act) for such Holder
and each person, if any, who controls such Holder or underwriter within the
meaning of the Securities Act or the Exchange Act, against any Violation and the
Company will pay to each such Holder, underwriter, controlling person or other
aforementioned person, any legal or other expenses reasonably incurred by them
in connection with investigating or defending any such loss, claim, damage,
liability, or action as such expenses are incurred; provided, however, that the
indemnity agreement contained in this subsection 2.9(a) shall not apply to
amounts paid in settlement of any such loss, claim, damage, liability, or action
if such settlement is effected without the consent of the Company (which consent
shall not be unreasonably withheld), nor shall the Company be liable in any such
case for any such loss, claim, damage, liability, or action to the extent that
it arises out of or is based upon a Violation which occurs in reliance upon and
in conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter, controlling person or
other aforementioned person.
(b) To the extent permitted by law, each selling Holder
will severally and not jointly indemnify and hold harmless the Company, each of
its directors, each of its officers who has signed the registration statement,
each person, if any, who controls the Company within the meaning of the
Securities Act, legal counsel and accountants for the Company, any underwriter,
any other Holder selling securities in such registration statement and any
controlling person of any such underwriter or other Holder, against any losses,
claims, damages, or liabilities (joint or several) to which any of the foregoing
persons may become subject, under the Securities Act, the Exchange Act or other
federal or state law, insofar as such losses, claims, damages, or liabilities
(or actions in respect thereto) arise out of or are based upon any Violation, in
each case to the extent (and only to the extent) that such Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder expressly for use in connection with such registration; and each such
Holder will pay, any legal or other expenses reasonably incurred by any person
intended to be indemnified pursuant to this subsection 2.9(b), in connection
with investigating or defending any such loss, claim, damage, liability, or
action; provided, however, that the indemnity agreement contained in this
subsection 2.9(b) shall not apply to amounts paid in settlement of any such
loss, claim, damage, liability or action if such settlement is effected without
the consent of the Holder, which consent shall not be unreasonably withheld;
provided, further, that, in no event shall any indemnity under
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this subsection 2.9(b) exceed the net proceeds from the offering received by
such Holder, except in the case of fraud or willful misconduct by such Holder.
(c) Promptly after receipt by an indemnified party under
this Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.9.
(d) In order to provide for just and equitable
contribution to joint liability under the Securities 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 2.9 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 2.9 provides
for indemnification in such case, or (ii) contribution under the Securities Act
may be required on the part of any such selling Holder or any such controlling
person in circumstances for which indemnification is provided under this Section
2.9, then, and in each such case, the Company and such Holder will contribute to
the aggregate losses, claims, damages or liabilities to which they may be
subject (after contribution from others) in such proportion as is appropriate to
reflect the relative fault of the indemnifying party on the one hand and of the
indemnified party on the other in connection with the statements or omissions
that resulted in such loss, liability, claim, damage, or expense as well as any
other relevant equitable considerations. The relative fault of the indemnifying
party and of the indemnified party shall be determined by reference to, among
other things, whether the untrue or alleged untrue statement of a material fact
or the omission or alleged omission to state a material fact relates to
information supplied by the indemnifying party or by the indemnified party and
the parties' relative intent, knowledge, access to information, and opportunity
to correct or prevent such statement or omission; provided however, that, in any
such case, (I) no such Holder will be required to contribute any amount in
excess of the public offering price of all such Registrable Securities offered
and sold by such Holder pursuant to such registration statement, and (II) no
person or entity guilty of fraudulent misrepresentation (within the meaning of
Section 11(f) of the Securities Act) will be entitled to contribution from any
person or entity who was not guilty of such fraudulent misrepresentation;
provided further, that in no event shall a Holder's
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liability pursuant to this Section 2.9(d), when combined with the amounts paid
or payable by such holder pursuant to Section 2.9(b), exceed the proceeds from
the offering (net of any underwriting discounts or commissions) received by such
Holder, except in the case of willful fraud by such Holder.
(e) Notwithstanding the foregoing, to the extent that
the provisions on indemnification and contribution contained in the underwriting
agreement entered into in connection with the underwritten public offering are
in conflict with the foregoing provisions, the provisions in the underwriting
agreement shall control.
(f) Unless otherwise superceded by an underwriting
agreement entered into in connection with the underwritten public offering, the
obligations of the Company and Holders under this Section 2.9 shall survive the
completion of any offering of Registrable Securities in a registration statement
under this Section 2, and otherwise and shall survive the termination of this
Agreement.
2.10. Reports Under Exchange Act. With a view to making
available to the Holders the benefits of Sec Rule 144 promulgated under the
Securities Act and any other rule or regulation of the SEC that may at any time
permit a Holder to sell securities of the Company to the public without
registration or pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those
terms are understood and defined in SEC Rule 144, so long as the Company is
subject to the periodic reporting requirements under Sections 13 or 15(d) of the
Exchange Act;
(b) file with the SEC in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act; and
(c) furnish to any Holder, so long as the Holder owns
any Registrable Securities, forthwith upon request (i) a written statement by
the Company that it has complied with the reporting requirements of SEC Rule
144, the Securities Act and the Exchange Act, or that it qualifies as a
registrant whose securities may be resold pursuant to Form S-3 (at any time
after it so qualifies), and (ii) such other information as may be reasonably
requested in availing any Holder of any rule or regulation of the SEC which
permits the selling of any such securities without registration or pursuant to
such form.
2.11. Form S-3 Registration. In case the Company shall receive
from Holders of at least 25% of all Registrable Securities then outstanding a
written request or requests that the Company effect a registration on Form S-3
and any related qualification or compliance with respect to all or a part of the
Registrable Securities owned by such Holder or Holders, the Company will:
(a) promptly give written notice of the proposed
registration, and any related qualification or compliance, to all other Holders;
and
(b) as soon as practicable, effect such registration and
all such qualifications and compliances as may be reasonably requested and as
would permit or facilitate
11
the sale and distribution of all or such portion of such Holder's or Holders'
Registrable Securities as are specified in such request, together with all or
such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within 15
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to effect any such registration,
qualification or compliance, pursuant to this Section 2.11: (1) if Form S-3 is
not then available for such offering by the Holders; (2) if the Holders,
together with the holders of any other securities of the Company entitled to
inclusion in such registration, propose to sell Registrable Securities and such
other securities (if any) at an aggregate price to the public (net of any
underwriters' discounts or commissions) of less than $1 million; (3) if the
Company shall furnish to the Holders a certificate signed by the President of
the Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be materially detrimental to the Company and its
stockholders for such Form S-3 Registration to be effected at such time, in
which event the Company shall have the right to defer the filing of the Form S-3
registration statement for a period of not more than 90 days after receipt of
the request of the Holder or Holders under this Section 2.11; provided, however,
that the Company shall not utilize this right more than once in any twelve month
period and provided further that the Company shall not register any securities
for the account of itself or any other stockholder during such sixty day period
(other than a registration relating solely to the sale of securities of
participants in a Company stock plan, a registration relating to a corporate
reorganization or transaction under Rule 145 of the Securities Act, a
registration on any form that does not include substantially the same
information as would be required to be included in a registration statement
covering the sale of the Registrable Securities, or a registration in which the
only Common Stock being registered is Common Stock issuable upon conversion of
debt securities that are also being registered); (4) if the Company has, within
the twelve (12) month period preceding the date of such request, already
effected two registrations on Form S-3 for the Holders pursuant to this Section
2.11; or (5) in any particular jurisdiction in which the Company would be
required to qualify to do business or to execute a general consent to service of
process in effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 2.11, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the Company, but excluding any
underwriters' discounts or commissions associated with Registrable Securities,
shall be borne by the Company. Registrations effected pursuant to this Section
2.11 shall not be counted as demands for registration or registrations effected
pursuant to Sections 2.1.
(d) If the Initiating Holders intend to distribute the
Registrable Securities covered by their request by means of an underwriting,
they shall so advise the Company as part of their request made pursuant to this
Section 2.11 and the Company shall include such information in the written
notice referred to in Section 2.11(a). The provisions of Section 2.1(b) shall be
applicable to such request (with the substitution of Section 2.11 for references
to Section 2.1).
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2.12. Assignment of Registration Rights. The rights to cause
the Company to register Registrable Securities pursuant to this Section 2 may be
assigned (but only with all related obligations) by a Holder to a transferee or
assignee of such securities that (i) is a subsidiary, Affiliate, parent,
partner, member, limited partner, retired partner, retired member or stockholder
of a Holder, (ii) is a Holder's family member or trust for the benefit of an
individual Holder, or (iii), after such assignment or transfer, holds at least
250,000 shares of Registrable Securities (subject to appropriate adjustment for
stock splits, stock dividends, combinations and other recapitalizations),
provided: (a) the Company is, within a reasonable time after such transfer,
furnished with written notice of the name and address of such transferee or
assignee and the securities with respect to which such registration rights are
being assigned; (b) such transferee or assignee agrees in writing to be bound by
and subject to the terms and conditions of this Agreement, including without
limitation the provisions of Section 2.14 below; and (c) such assignment shall
be effective only if immediately following such transfer the further disposition
of such securities by the transferee or assignee is restricted under the
Securities Act. For the purposes of determining the number of shares of
Registrable Securities held by a transferee or assignee, the holdings of
transferee or assignee (i) that is a subsidiary, parent, partner, limited
partner, retired partner, member, retired member or stockholder of a Holder;
(ii) that is an Affiliate of the Holder, which means with respect to a limited
liability company or a limited liability partnership, a fund or entity managed
by the same manager or managing member or general partner or management company
or by an entity controlling, controlled by, or under common control with such
manager or managing member or general partner or management company, (iii) who
is a Holder's Immediate Family Member, or (iv) that is a trust for the benefit
of an individual Holder or such Holder's Immediate Family Member, shall be
aggregated together and with those of the assigning Holder; provided that all
assignees and transferees who would not qualify individually for assignment of
registration rights shall have a single attorney-in-fact for the purpose of
exercising any rights, receiving notices or taking any action under this Section
2.
2.13. Limitations on Subsequent Registration Rights. From and
after the date of this Agreement, the Company shall not, without the prior
written consent of the Holders of a majority of the Registrable Securities then
outstanding, enter into any agreement with any holder or prospective holder of
any securities of the Company which would allow such holder or prospective
holder (a) to include such securities in any registration unless under the terms
of such agreement, such holder or prospective holder may include such securities
in any such registration only to the extent that the inclusion of such
securities will not reduce the amount of the Registrable Securities of the
Holders that are included or (b) to demand registration of any securities held
by such holder or prospective holder.
2.14. Termination of Registration Rights.
(a) No Holder shall be entitled to exercise any right
provided for in this Section 2 after three (3) years following the date hereof.
(b) The rights set forth in this Section 2 shall
terminate (i) upon a Deemed Liquidation Event, as such term is defined in the
Company's Certificate of Incorporation and (ii) as to any Holder upon the
earlier of, when the Registrable Securities held by such Holder (together with
any Affiliate of such Holder with whom such Holder must
13
aggregate its sales under SEC Rule 144) could be sold without restriction under
(x) SEC Rule 144 within a three-month period or (y) Rule 144(k).
3. Right of First Offer.
3.1. Right of First Offer. Subject to the terms and conditions
specified in this Section 3.1, and applicable securities laws, in the event the
Company proposes to offer or sell any New Securities, the Company shall first
make an offering of such New Securities to each Investor in accordance with the
following provisions of this Section 3.1. An Investor shall be entitled to
apportion the right of first offer hereby granted it among itself and its
partners, members and Affiliates in such proportions as it deems appropriate.
(a) The Company shall deliver a notice, in accordance
with the provisions of Section 5.5 hereof, (the "Offer Notice") to each of the
Investors stating (i) its bona fide intention to offer such New Securities, (ii)
the number of such New Securities to be offered, and (iii) the price and terms,
if any, upon which it proposes to offer such New Securities.
(b) By written notification received by the Company,
within twenty (20) calendar days after mailing of the Offer Notice, each of the
Investors may elect to purchase or obtain, at the price and on the terms
specified in the Offer Notice, up to that portion of such New Securities which
equals the proportion that the number of shares of Common Stock issued and held,
or issuable upon conversion of the Series A Preferred Stock (and any other
securities convertible into, or otherwise exercisable or exchangeable for,
shares of Common Stock) then held, by such Investor bears to the total number of
shares of Common Stock of the Company then outstanding (assuming full conversion
and exercise of all convertible or exercisable securities). The Company shall
promptly, in writing, inform each Investor that elects to purchase all the
shares available to it (each, a "Fully-Exercising Investor") of any other
Investor's failure to do likewise. During the ten (10) day period commencing
after receipt of such information, each Fully-Exercising Investor shall be
entitled to obtain that portion of the New Securities for which Investors were
entitled to subscribe but which were not subscribed for by the Investors which
is equal to the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion of Series A Preferred Stock then held, by such
Fully-Exercising Investor bears to the total number of shares of Common Stock
issued and held, or issuable upon conversion of the Series A Preferred Stock
then held, by all Fully-Exercising Investors who wish to purchase such
unsubscribed shares.
(c) If all New Securities referred to in the Offer
Notice are not elected to be purchased or obtained as provided in Section 3.1(b)
hereof, the Company may, during the ninety (90) day period following the
expiration of the period provided in Section 3.1(b) hereof, offer the remaining
unsubscribed portion of such New Securities (collectively, the "Refused
Securities") to any person or persons at a price not less than, and upon terms
no more favorable to the offeree than, those specified in the Offer Notice. If
the Company does not enter into an agreement for the sale of the New Securities
within such period, or if such agreement is not consummated within thirty (30)
days of the execution thereof, or 90 days after the Offer Notice, whichever is
later, the right provided hereunder shall be deemed to be revived and such New
Securities shall not be offered unless first reoffered to the Investors in
accordance with this Section 3.1.
14
(d) The right of first offer in this Section 3.1 shall
not be applicable to: (i) securities issuable upon conversion of any of the
Series A Preferred, or as a dividend or distribution on the Series A Preferred;
(ii) securities issued upon the conversion of any debenture, warrant, option, or
other convertible security; (iii) Common Stock issuable upon a stock split,
stock dividend, or any subdivision of shares of Common Stock; (iv) shares of
Common Stock (or options to purchase such shares of Common Stock) issued or
issuable to employees or directors of, or consultants to, the Company pursuant
to any plan approved by the Company's Board of Directors, (v) the issuance of
securities in connection with a bona fide business acquisition of or by the
Company, whether by merger, consolidation, sale of assets, sale or exchange of
stock or otherwise, approved by the Board of Directors; (vi) shares of Common
Stock issuable in connection with lease lines, bank financing or other similar
transactions that are primarily of a non-equity financing nature and are
approved by the Board of Directors; and (vii) securities issued in connection
with joint ventures, strategic alliances or other agreements or arrangements
primarily intended for business or commercial purposes.
(e) The right of first offer set forth in this Section
3.1 may not be assigned or transferred except that (i) such right is assignable
by each Investor to any Affiliate of such Investor, and (ii) such right is
assignable by any Investor to any other Investor. Notwithstanding the foregoing,
the right of first offer set forth in this Section 3.1 shall terminate with
respect to any Investor who fails to purchase, in any transaction subject to
this Section 3.1, all of such Investor's pro rata amount of the New Securities
allocated (or if less than such Investor's pro rata amount is offered by the
Company, such lesser amount so offered) to such Investor pursuant to this
Section 3.1. Following any such termination, such Investor shall no longer be
deemed a "Investor" for any purpose of this Section 3.1
(f) In lieu of complying with the provisions of this
Section 3.1, the Company may elect to give notice to the Investors within thirty
(30) days after the issuance of New Securities. Such notice shall describe the
type, price and terms of the New Securities. Each Investor shall have twenty
(20) days from the date of receipt of such notice to elect to purchase up to the
number of New Securities that would, if purchased by such Investor, maintain
such Investor's percentage ownership position, calculated as set forth in
Section 3.1(b) prior to giving effect to the issuance of such New Securities.
The closing of such sale shall occur within sixty (60) days of the date of
notice to the Investors.
3.2. Termination. The provisions of this Section 3 shall
terminate three (3) years after the date of this Agreement or earlier upon a
Deemed Liquidation Event, as such term is defined in the Company's Certificate
of Incorporation or upon a change of control resulting from the transfer to a
third party of more the 50% of the outstanding voting power at such time.
4. Additional Covenants.
4.1. Director Designees. While at least 50% of the Series A
Preferred is outstanding, an Investor holding at least 50% of the Series A
Preferred is entitled to designate an individual to be nominated by the Board of
Directors, subject to such individual satisfying the requirements of an
independent director as set forth in the Securities Exchange Act of 1934, as
15
amended, and other applicable requirements of the exchange or quotation system
upon which the Company's common stock is listed or quoted.
5. Miscellaneous.
5.1. Transfers, Successors and Assigns. Subject to paragraph
3.1(e) of this Agreement, the terms and conditions of this Agreement shall inure
to the benefit of and be binding upon the respective successors and assigns of
the parties. Nothing in this Agreement, express or implied, is intended to
confer upon any party other than the parties hereto or their respective
successors and assigns any rights, remedies, obligations, or liabilities under
or by reason of this Agreement, except as expressly provided in this Agreement.
5.2. Governing Law. This Agreement shall be governed by and
construed in accordance with the General Corporation Law of the State of
Delaware as to matters within the scope thereof, and as to all other matters
shall be governed by and construed in accordance with the internal laws of the
state of New Jersey, without regard to its principles of conflicts of laws.
5.3. Counterparts. This Agreement may be executed in two or
more counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument. This Agreement may also
be executed and delivered by facsimile signature and in two or more
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one and the same instrument.
5.4. Titles and Subtitles. The titles and subtitles used in
this Agreement are used for convenience only and are not to be considered in
construing or interpreting this Agreement.
5.5. Notices. All notices and other communications given or
made pursuant to this Agreement shall be in writing and shall be deemed
effectively given: (a) upon personal delivery to the party to be notified, (b)
when sent by confirmed electronic mail or facsimile if sent during normal
business hours of the recipient, and if not so confirmed, then on the next
business day, (c) five (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) day
after deposit with a nationally recognized overnight courier, specifying next
day delivery, with written verification of receipt. All communications shall be
sent to the respective parties at their address as set forth on the signature
page or Schedule A hereto, or to such email address, facsimile number or address
as subsequently modified by written notice given in accordance with this Section
5.5. If notice is given to the Company, a copy shall also be sent to Xxxx X.
Xxxxxx, Xxxxxx Xxxxxxx Xxxxxx & Xxxxxxx, LLC, 0000 Xxxxxx Xxxxxx, Xxxxx Xxxxx,
Xxxxxxxxxxxx, Xxxxxxxxxxxx 00000.
5.6 Costs of Enforcement. If any Party to this Agreement seeks
to enforce its rights under this Agreement by legal proceedings, the
non-prevailing Party shall pay all costs and expenses incurred by the prevailing
Party, including, without limitation, all reasonable attorneys' fees.
5.7 Amendments and Waivers. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or
16
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the holders of a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this paragraph shall be binding upon each holder of any
Registrable Securities then outstanding, each future holder of all such
Registrable Securities, and the Company. Notwithstanding the foregoing, this
Agreement may not be amended or terminated and the observance of any term
hereunder may not be waived with respect to any Investor without the written
consent of such Investor, unless such amendment, termination or waiver applies
to all Investors in the same fashion (it being agreed that a waiver of the
provisions of Section 4 with respect to a particular transaction shall be deemed
to apply to all Investors in the same fashion if such waiver does so by its
terms, notwithstanding the fact that certain Investors may nonetheless, by
agreement with the Company, purchase securities in such transaction). The
Company shall give prompt written notice of any amendment or termination hereof
or waiver hereunder to any party hereto that did not consent in writing to such
amendment, termination or waiver. Any amendment, termination or waiver effected
in accordance with this Section 5.7 shall be binding on all parties hereto, even
if they do not execute such consent. No waivers of or exceptions to any term,
condition or provision of this Agreement, in any one or more instances, shall be
deemed to be, or construed as, a further or continuing waiver of any such term,
condition or provision.
5.8 Severability. The invalidity of unenforceability of any
provision hereof shall in no way affect the validity or enforceability of any
other provision.
5.9 Aggregation of Stock. All shares of Registrable Securities
held or acquired by Affiliates shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.
5.10 Entire Agreement. This Agreement (including the Exhibits
hereto, if any) constitutes the full and entire understanding and agreement
between the parties with respect to the subject matter hereof, and any other
written or oral agreement relating to the subject matter hereof existing between
the parties are expressly canceled.
5.11 Transfers of Rights. Each Investor hereto hereby agrees
that it will not, and may, not assign any of its rights and obligations
hereunder, unless such rights and obligations are assigned by such Investor to
(a) any person or entity to which Registrable Securities are transferred by such
Investor, or (b) to any Affiliate of such Investor, and, in each case, such
transferee shall be deemed an "Investor" for purposes of this Agreement;
provided that such assignment of rights shall be contingent upon the transferee
providing a written instrument to the Company notifying the Company of such
transfer and assignment and agreeing in writing to be bound by the terms of this
Agreement.
5.12 Dispute Resolution. Any unresolved controversy or claim
arising out of or relating to this Agreement, except as (i) otherwise provided
in this Agreement, or (ii) any such controversies or claims arising out of
either party's intellectual property rights for which a provisional remedy or
equitable relief is sought, shall be submitted to arbitration by one arbitrator
mutually agreed upon by the parties, and if no agreement can be reached within
30 days after names of potential arbitrators have been proposed by the American
Arbitration Association (the "AAA"), then by one arbitrator having reasonable
experience in corporate
17
finance transactions of the type provided for in this Agreement and who is
chosen by the AAA. The arbitration shall take place in Newark, New Jersey, in
accordance with the AAA rules then in effect, and judgment upon any award
rendered in such arbitration will be binding and may be entered in any court
having jurisdiction thereof. There shall be limited discovery prior to the
arbitration hearing as follows: (a) exchange of witness lists and copies of
documentary evidence and documents relating to or arising out of the issues to
be arbitrated, (b) depositions of all party witnesses and (c) such other
depositions as may be allowed by the arbitrators upon a showing of good cause.
Depositions shall be conducted in accordance with the New Jersey Code of Civil
Procedure, the arbitrator shall be required to provide in writing to the parties
the basis for the award or order of such arbitrator, and a court reporter shall
record all hearings, with such record constituting the official transcript of
such proceedings. The prevailing party shall be entitled to reasonable
attorney's fees, costs, and necessary disbursements in addition to any other
relief to which such party may be entitled. Each of the parties to this
Agreement consents to personal jurisdiction for any equitable action sought in
the U.S. District Court for the District of New Jersey or any court of the State
of New Jersey having subject matter jurisdiction.
5.13 Delays or Omissions. No delay or omission to exercise any
right, power or remedy accruing to any party under this Agreement, upon any
breach or default of any other party under this Agreement, shall impair any such
right, power or remedy of such non-breaching or non-defaulting party nor shall
it be construed to be a waiver of any such breach or default, or an acquiescence
therein, or of or in any similar breach or default thereafter occurring; nor
shall any waiver of any single breach or default be deemed a waiver of any other
breach or default theretofore or thereafter occurring. Any waiver, permit,
consent or approval of any kind or character on the part of any party of any
breach or default under this Agreement, or any waiver on the part of any party
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. All
remedies, either under this Agreement or by law or otherwise afforded to any
party, shall be cumulative and not alternative.
[Remainder of Page Intentionally Left Blank]
18
IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
PacificHealth Laboratories, Inc.
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
Address: ____________________________________
INVESTOR:
Hormel Health Labs, LLC
By: ____________________________________
Name: ____________________________________
Title: ____________________________________
Address: ____________________________________
19
