Exhibit 10.5
AMENDED AND RESTATED
STOCKHOLDER RIGHTS AGREEMENT
This Amended and Restated Stockholder Rights Agreement (the "Agreement") is
entered into as of August 30, 1999, by and among ▇▇▇▇▇▇-▇▇▇▇▇▇ Medical, Inc., a
Delaware corporation (the "Company"), and the parties listed on Schedule A
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hereto (the "Stockholders"). This Agreement amends and restates the Stockholder
Rights Agreement executed in conjunction with the sale and purchase of the
Company's Series B Preferred Stock on December 10, 1998 (the "Prior Agreement").
This Agreement is being executed in conjunction with the Company's Series C
Preferred Stock Purchase Agreement of even date herewith (the "Series C Purchase
Agreement").
In consideration of the mutual covenants set forth herein, the parties
agree as follows:
1. Certain Definitions. As used in this Agreement, the following terms
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shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
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other federal agency at the time administering the Securities Act.
"Common Holder" shall mean ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ or ▇▇▇▇▇ ▇▇▇▇▇, M.D., or
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their transferees, successor or assigns intended to be bound pursuant to the
terms of this Agreement.
"Common Stock" shall mean the Company's Common Stock, par value
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$0.001, and shares of Common Stock issued or issuable upon conversion of the
Company's Preferred Stock.
"Co-Sale Shares" shall mean shares of the Company's Common Stock now
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owned or subsequently acquired by a Common Holder.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
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amended.
"Holder" shall mean any holder of outstanding Registrable Securities.
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"Initiating Holders" shall mean any Holder or Holders of not less than
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forty percent (40%) of the then outstanding Registrable Securities.
"Major Holder" shall mean any holder of more than 250,000 shares of
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Registrable Securities, not including shares of Series A Preferred Stock.
"Preferred Holder" shall mean a holder of shares of the Company's (i)
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Preferred Stock and (ii) Common Stock issued or issuable upon conversion of the
Company's Preferred Stock.
"Registrable Securities" means (i) shares of Common Stock issued or
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issuable pursuant to the conversion of the Shares and (ii) shares of Common
Stock issued as a dividend or other distribution with respect to, or in exchange
or in replacement of, the Shares, excluding in all cases, however, any
Registrable Securities sold by a holder (y) pursuant to a registration statement
under this Agreement or (z) in a transaction in which his rights under this
Agreement are not transferred, including a transaction pursuant to a
registration statement under this Agreement.
The number of shares of "Registrable Securities then outstanding"
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shall be determined by 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.
The terms "register," "registered" and "registration" refer to a
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registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement by the Commission.
"Registration Expenses" shall mean all expenses incurred by the
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Company in complying with Sections 4.1 and 4.2 hereof and all expenses incurred
in complying with Section 4.9 hereof, including, without limitation, all
registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses, and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company and Selling Expenses).
"Restricted Securities" shall mean the securities of the Company
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required to bear the legend set forth in Section 6.1 hereof.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
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any similar federal statute, and the rules and regulations of the Commission
thereunder, all as the same shall be in affect at the time.
"Selling Expenses" shall mean all underwriting discounts and selling
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commissions applicable to the sale of Registrable Securities.
"Shares" shall mean the Series A Preferred Stock, Series B Preferred
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Stock and Series C Preferred Stock of the Company held by the Investors listed
on Schedule A.
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2. Rights of First Refusal.
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2.1 Restrictions on Transfer of Shares. All shares of capital stock
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of the Company now or hereafter owned by the Common Holders and all shares of
the capital stock and other securities of the Company or any successor received
by each Common Holder or his or her personal representatives, heirs, successors,
or assigns, as distributions on, splits or reverse splits of, in exchange for or
otherwise with respect to, such capital stock (the "Stock") shall not be sold,
except upon satisfaction of the conditions specified in this Section 2, and any
sale of the Stock other than in accordance with the terms hereof, is void and
transfers no right, title or interest in or to said Stock, or any of it, whether
now owned or hereafter acquired, to the purported buyer.
2.2 Transfer During Lifetime to Members of Family or Partners of a
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Partnership. A Common Holder may be permitted to transfer during his or her
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lifetime all or a part of the Stock
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by gift or to or for the benefit of his or her spouse, children or other issue
or to a trust for his or their benefit or, if the Common Holder is a partnership
or a corporation, by distribution to its partners or shareholders, respectively;
provided, however, that before such transfer is consummated, the transferee
shall first agree in writing to assume and be bound by the terms and provisions
of this Section 2.
2.3 Offer. Each Common Holder or any transferee bound hereby may sell
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any of the shares of Stock which may now or hereafter be owned by such Common
Holder, only if such Common Holder (the "Offeror"), shall have given to the
Company and the Major Holders a right of first refusal in accordance with the
following terms and conditions:
(a) Notice of Offer. The Offeror shall first give written notice
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(the "Offeror's Notice") by certified or registered mail to the Company, of the
proposed sale, giving the name and address of the proposed purchaser(s), the
number of shares of stock proposed to be sold (the "Offered Stock"), and the
terms and conditions of the proposed sale, accompanied by an offer to the
Company and the Major Holders to sell the Offered Stock at the price and on the
terms stated in the notice.
(b) Company's Option. Within twenty (20) days from and after the
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date of receipt of such notice by the Company (the "Company Record Date"), the
Company shall have the option to purchase all or any portion of the Offered
Stock at the price and upon the terms and conditions specified in the Offeror's
Notice. Within such twenty (20) day period, the Company shall give notice to the
Offeror, by certified or registered mail, of the number of shares it desires to
purchase and shall transmit the Offeror's Notice to the Major Holders and give
notice (the "Company Notice") to the Major Holders of the number of shares
available for purchase by such Major Holders, if any shares remain available
once the Company has exercised its purchase option.
(c) Major Holders' Option. Within ten (10) days from and after
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the date of receipt of the Company Notice, the Major Holders shall have the
option to purchase all or any portion of the Offered Stock not elected to be
purchased by the Company at the price and upon the terms and conditions
specified in the Offeror's Notice and subject to the pro rata calculation set
forth below. Within such ten (10) day period, the Major Holders shall give
notice to the Offeror, by certified or registered mail, of the number of shares
they desire to purchase.
(d) Pro Rata Calculation. Each Major Holder shall have the right
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to purchase that number of shares of Offered Stock equal to the product obtained
by multiplying the aggregate number of shares of Offered Stock less the number
of shares purchased by the Company pursuant to Subsection 2.3(b) by a fraction
(A) the numerator of which is the sum of (x) the number of shares of Common
Stock owned by such Major Holder, plus (y) the number of shares of Common Stock
issuable upon conversion of the Preferred Stock owned by such Major Holder at
the time of the Offeror's Notice; and (B) the denominator of which is the sum of
(a) the total number of shares of Common Stock owned by all Major Holders at the
time of the Offeror's Notice, plus (b) the number of shares of Common Stock
issuable upon conversion of Preferred Stock owned by all Major Holders
outstanding at the time of the Offeror's Notice.
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(e) Offeror's Rights. If the total number of shares of stock
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accepted by the Company and the Major Holders does not equal the number of
shares of Offered Stock, then the Offeror shall, subject to the provisions of
Section 5 below, be free to sell that portion of the Offered Stock not being
purchased by the Company or the Major Holders pursuant to this Section 2 to the
proposed purchaser, but only in accordance with the terms and conditions stated
in the original notice, and the purchaser shall take such shares of the Offered
Stock free of the provisions of this Agreement; provided, however, that in the
event the Offeror or any affiliate or associate (as defined in Rule 12b-2 under
the Securities Exchange Act of 1934, as amended) of the Offeror obtains direct
or indirect beneficial ownership of all or any portion of such Offered Stock
during the period in which this Agreement is in effect, then such shares shall,
at the time such shares are reacquired by the Offeror or any affiliate or
associate thereof, be once again subject to the provisions of this Agreement.
(f) Closing. Within sixty (60) days after the Company Record
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Date, the purchase and sale of any shares of Offered Stock which the Company and
the Major Holders are to purchase pursuant to the foregoing provisions shall be
closed at the principal office of the Company. The purchase price for Offered
Stock may be paid in cash in an amount equal to the present value of any
payments to be made over a period of time according to the terms of the offer,
or, if the terms specified in such offer state that payment is to be made in
property, in an amount equal to the fair market value of such property, as
conclusively determined in good faith by the Board of Directors of the Company
on the date of receipt of such offer. For purposes of any computation made
pursuant to the foregoing sentence, the present value of any amount to be paid
in the future shall be determined by discounting such amount to present value
using an interest rate of ten percent (10%). Notwithstanding the failure of the
selling Common Holder to deliver any certificate evidencing all or any portion
of the shares of Stock purchased pursuant hereto, upon tender by the Company or
the Major Holders of the purchase price for any such shares of Stock in
accordance with the terms of this Agreement, such shares of Stock and the
certificates representing same shall forthwith and without further action be
deemed to be transferred to the Company and the Major Holders, as the case may
be.
3. Right of First Refusal on Company Issuances.
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3.1 Right of First Refusal. The Company hereby grants to each Major
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Holder the right of first refusal to purchase, pro rata, all (or any part) of
New Securities (as defined in this Section 3.1) that the Company may, from time
to time propose to sell and issue. Such Major Holder's pro rata share, for
purposes of this right of first refusal, is the ratio of the number of shares of
Common Stock then owned or issuable upon conversion of the Preferred Stock of
the Company then owned by such Major Holder to the total number of shares of
Common Stock outstanding immediately prior to the issuance of the New
Securities, assuming full conversion of all outstanding shares of Preferred
Stock of the Company and exercise of all outstanding rights, options and
warrants to acquire, directly or indirectly, Common Stock of the Company. This
right of first refusal shall be subject to the following provisions:
(a) "New Securities" shall mean any capital stock of the
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Company, whether now authorized or not, and rights, options, or warrants to
purchase said capital stock, and
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securities of any type whatsoever that are, or may become, convertible into said
capital stock; provided, however, that "New Securities" does not include (i)
securities issued pursuant to the acquisition of another corporation by the
Company by merger, purchase of substantially all of the assets, or other
reorganization whereby the Company owns more than fifty percent (50%) of the
voting power of such corporation (provided that such acquisition by merger,
purchase of substantially all of the assets, or other reorganization is approved
pursuant to the Company's then-current Certificate of Incorporation); (ii) up to
4,700,000 shares (as presently constituted) of the Company's Common Stock (or
related options) issued to employees, officers, directors, consultants or
advisers of the Company pursuant to any employee stock offering, plan, or
arrangement approved by the Board of Directors; (iii) shares of the Company's
Common Stock or Preferred Stock issued in connection with any stock split, stock
dividend, or similar recapitalization by the Company; (iv) securities issued in
connection with equipment or debt financing or leases (including securities
issued in consideration of guarantees of such financing or leases) which are
approved by the Company's Board of Directors; (v) securities issued to vendors,
customers or coventurers or to other persons in similar commercial or corporate
partnering situations with the Company if such issuance is approved by the Board
of Directors; or (vi) warrants for the purchase of shares of the Company's
Common Stock or Preferred Stock which are currently outstanding or warrants to
lending or leasing institutions which are issued in the future pursuant to a
plan, agreement or arrangement approved by the Company's Board of Directors.
(b) In the event that the Company proposes to undertake an
issuance of New Securities, it shall give each Major Holder written notice of
its intention, describing the type of New Securities, the price, and the general
terms upon which the Company proposes to issue the same. Each Major Holder shall
have fifteen (15) days from the date of mailing of any such notice to agree to
purchase its pro rata share of such New Securities, in whole or in part, 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 Major Holder shall have a right of over allotment such that if
any Major Holder fails to exercise its right hereunder to purchase its full pro
rata portion of New Securities, the Company shall so notify the other Major
Holders who are purchasing their full pro rata portion, and such fully-
exercising Major Holders may purchase that portion of the Shares not subscribed
for on a pro rata basis, within five (5) days from the date of such notice.
(c) In the event that Major Holders fail to exercise in full the
right of first refusal within said fifteen (15) day period (plus five (5) day
period, if applicable) the Company shall have sixty (60) days thereafter to sell
or enter into an agreement providing for the closing of the sale of the New
Securities respecting which the Major Holders' rights were not exercised at a
price and upon general terms no more favorable to the purchasers thereon than
specified in the Company's notice. In the event the Company has not sold the New
Securities within such sixty (60) day period, the Company shall not thereafter
issue or sell any New Securities, without first offering such securities to the
Major Holders in the manner provided above.
(d) The right of first refusal granted under this Agreement
shall not apply to and shall expire upon the closing of the first firmly
underwritten public offering of Common Stock of the Company that is pursuant to
a registration statement filed with, and declared effective by, the
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Commission under the Securities Act, covering the offer and sale of Common Stock
to the public at a per share price (prior to underwriter commissions and
expenses) of at least five dollars ($5.00) (as shares are presently constituted)
and at an aggregate offering price (before deduction for underwriter commissions
and expenses) of not less than fifteen million dollars ($15,000,000) (a
"Qualified IPO").
(e) This right of first refusal is assignable only to an
affiliate of a Holder or in connection with a sale or transfer of Registrable
Securities where the assignee holds sufficient Registrable Securities to qualify
as a Major Holder after such transfer.
4. Registration Rights.
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4.1 Requested Registration. Prior to such time as the Company has
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effected three (3) registrations pursuant to this Section 4.1 and such
registrations have been declared or ordered effective, if the Company shall
receive from Initiating Holders a written request that the Company effect any
registration (other than a registration on Form S-3 or any related form of
registration statement) with respect to Registrable Securities representing at
least twenty percent (20%) of the outstanding Registrable Securities (or any
lesser percentage if the anticipated aggregate offering price to the public is
at least five million dollars ($5,000,000)), the Company will:
(a) promptly give written notice of the proposed registration to
all other Holders; and
(b) as soon as practicable but in any event within ninety (90)
days, use its diligent best efforts to effect such registration (including,
without limitation, the execution of an undertaking to file post-effective
amendments, appropriate qualification under applicable blue sky or other state
securities laws and appropriate compliance with applicable regulations issued
under the Securities Act) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request given within fifteen (15) days after
receipt of such written notice from the Company; provided that the Company shall
not be obligated to take any action to effect any such registration,
qualification or compliance pursuant to this Section 4.1:
(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, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the Securities Act;
(ii) Prior to the earlier of three (3) years after the date
of this Agreement or six (6) months following closing of the first underwritten
public offering of Common Stock of the Company for its own account pursuant to a
registration statement filed under to the Securities Act; or
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(iii) If at the time of the request to register Registrable
Securities the Company in good faith gives notice within thirty (30) days of
such request that it is engaged or has fixed plans to engage within sixty (60)
days of the time of the request in an initial firmly underwritten registered
public offering; provided, however, such notice may not be given more than once
in any six (6) month period.
Subject to the foregoing clauses (i) through (iii) and to Section 4.1(d),
the Company shall file a registration statement covering the Registrable
Securities so requested to be registered as soon as practicable after receipt of
the request of the Initiating Holders.
(c) Underwriting. If the Initiating Holders intend to distribute
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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
Section 4.1 and the Company shall include such information in the written notice
referred to in Section 4.1(a). The right of any Holder to registration pursuant
to Section 4.1 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 requested (unless otherwise mutually agreed by a
majority in interest of the Holders and such Holder) to the extent provided
herein.
The Company shall (together with all Holders proposing to distribute their
securities through such underwriting) enter into an underwriting agreement in
customary form with the underwriter or underwriters selected for such
underwriting by a majority in interest of the Initiating Holders with the
approval of the Company, which approval shall not be unreasonably withheld.
Notwithstanding any other provision of this Section 4.1, if the underwriter
determines that marketing factors require a limitation of the number of shares
to be underwritten and so advises the Initiating Holders in writing, then the
Initiating Holders shall so advise all Holders (except those Holders who have
indicated to the Company their decision not to distribute any of their
Registrable Securities through such underwriting) and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated among all such Holders in proportion, as nearly as
practicable, to the respective amounts of Registrable Securities owned 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 person may
elect to withdraw therefrom by written notice to the Company, the underwriter
and the Initiating Holders. The Registrable Securities and/or other securities
so withdrawn from such underwriting shall also be withdrawn from such
registration; provided, however, that, if by the withdrawal of such Registrable
Securities a greater number of Registrable Securities held by other Holders may
be included in such registration (up to the maximum of any limitation imposed by
the underwriters), then the Company shall offer to all Holders who have included
Registrable Securities in the registration the right to include additional
Registrable Securities in the same proportion used above in determining the
underwriter limitation; and, provided further that in the event that the
withdrawal of a Holder, and the subsequent inclusion of additional Registrable
Securities by other Holders, results in the offering of Shares representing less
than twenty percent (20%) of the Registrable Securities (or any lesser
percentage if the anticipated aggregate offering price to the public is less
than five million dollars
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($5,000,000)), the Company shall no longer be required to effect such
registration pursuant to this Section 4.1.
If the underwriter has not limited the number of Registrable Securities to
be underwritten, the Company may include securities for its own account or the
account of others in such registration if the underwriter so agrees and if the
number of Registrable Securities which would otherwise have been included in
such registration and underwriting will not thereby be limited.
(d) Delay of Registration. If the Company shall furnish to the
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Initiating 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 on or before the date filing would be
required and it is therefore essential to defer the filing of such registration
statement, then the Company may direct that such request for registration be
delayed for a period not in excess of ninety (90) days, such right to delay a
request to be exercised by the Company not more than once in any one-year
period.
4.2 Company Registration.
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(a) If at any time or from time to time, the Company shall
determine to register any of its Common Stock, for its own account or for the
account of others (other than the Holders), other than a registration relating
solely to employee benefit plans or a registration relating solely to a
Commission Rule 145 transaction or a registration on any registration form which
does not include substantially the same information as would be required to be
included in a registration statement covering the sale of Registrable
Securities, the Company will:
(i) promptly give to each Holder written notice thereof
(which shall include a list of the jurisdictions in which the Company intends to
attempt to qualify such securities under the applicable blue sky or other state
securities laws); and
(ii) subject to Section 4.2, below, include in such
registration (and any related qualification under blue sky laws or other
compliance), and in any underwriting involved therein, all the Registrable
Securities specified in a written request or requests, made within ten (10) days
after receipt of such written notice from the Company, by any Holder or Holders.
(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 4.2(a)(i). In such event the right of any Holder to
registration pursuant to Section 4.2 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) 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 4.2, 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 and shares of Common Stock to be included in the
registration and
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underwriting to (i) in the case of the first underwritten public offering of the
securities of the Company, any amount or no amount, as the underwriter may
determine, or (ii) in the case of any registration subsequent to the first
underwritten public offering of the securities of the Company, to not less than
thirty percent (30%) of the total securities covered by the registration. The
Company shall so advise all Holders (except those Holders who have indicated to
the Company their decision not to distribute any of their Registrable Securities
through such underwriting), and the number of shares of Registrable Securities
that may be included in the registration and underwriting shall be allocated
among all Holders in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities owned by the 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 any such underwriting, such person may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The securities so withdrawn from such underwriting shall also be
withdrawn from such registration; provided, however, that, if by the withdrawal
of such securities a greater number of Registrable Securities held by other
Holders may be included in such registration (up to the maximum of any
limitation imposed by the underwriters), then the Company shall offer to all
Holders who have included Registrable Securities in the registration the right
to include additional Registrable Securities in the same proportion used above
in determining the underwriter limitation.
4.3 Expenses of Registration. All Registration Expenses incurred in
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connection with any registration pursuant to Section 4.1, Section 4.2 or Section
4.9 hereunder shall be borne by the Company. All Selling Expenses incurred in
connection with any registrations hereunder, shall be borne by the Holders of
the Registrable Securities so registered pro-rata on the basis of the number of
shares so registered. The Company shall not, however, be required to pay for
expenses of any registration proceeding begun pursuant to Section 4.1, the
request of which has been subsequently withdrawn by the Initiating Holders
(unless the withdrawal is based upon material adverse information concerning the
Company of which the Initiating Holders were not aware at the time of such
request or unless the Holders of a majority of Registrable Securities agree to
forfeit their right to one requested registration pursuant to Section 4.1 in
which event such right shall be forfeited by all Holders), in which case such
expenses shall be borne by the holders of Registrable Securities requesting such
registration in proportion to the number of shares for which registration was
requested.
4.4 Registration Procedures. In the case of each registration,
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qualification or compliance effected by the Company pursuant to this Section 4,
the Company will keep each Holder advised in writing as to the initiation of
each registration, qualification and compliance and as to the completion
thereof. At its expense the Company will:
(a) Keep such registration, qualification or compliance
effective for a period of one hundred twenty (120) days or until the Holder or
Holders have completed the distribution described in the registration statement
relating thereto, whichever first occurs.
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(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 for the period set forth in
paragraph (a) above.
(c) Furnish to the Holders such number 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.
(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(s) 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 Securities 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 best efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of 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 letter dated as of 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.
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4.5 Indemnification.
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(a) The Company will indemnify each Holder, each of its
officers, directors, partners and legal counsel, and each person controlling
such Holder within the meaning of the Securities Act, with respect to which
registration, qualification or compliance has been effected pursuant to this
Section 4, against all claims, losses, damages and liabilities (or actions in
respect thereof) 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 the light of the circumstances under
which they were made, or (ii) any violation by the Company of any federal, state
or common law rule or regulation applicable to the Company in connection with
any such registration, qualification or compliance, and will reimburse each such
Holder, each of its officers, directors, partners and legal counsel, and each
person controlling such Holder, for any legal and any other expenses reasonably
incurred in connection with investigating or defending any such claim, loss,
damage, liability or action, as incurred, 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 based upon written information furnished to the Company by an
instrument duly executed by such Holder and stated to be specifically for use
therein or written information furnished by the Holder to the Company in
response to a request by the Company stating specifically that such information
will be used by the Company therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration,
qualification or compliance is being effected, indemnify the Company, each of
its directors and officers, each legal counsel and independent accountant of the
Company, each person who controls the Company within the meaning of the
Securities Act, and each other such Holder, each of its officers, directors, and
partners and each person controlling such Holder within the meaning of the
Securities Act, against all claims, losses, damages and liabilities (or actions
in respect thereof) arising out of or based on any untrue statement (or alleged
untrue statement) of a material fact contained in any such registration
statement, prospectus, offering circular or other similar 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 the
light of the circumstances under which they were made, and will reimburse the
Company, such Holders, such directors, officers, persons, or control persons for
any legal or any other expenses reasonably incurred in connection with
investigating or defending any such claim, loss, damage, liability or action, as
incurred, in each case to the extent, but only to the extent, that such untrue
statement (or alleged untrue statement) or omission (or alleged omission) is
made in such registration statement, prospectus, offering circular or other
document in reliance upon and in conformity with written information furnished
to the Company by an instrument duly executed by such Holder and stated to be
specifically for use therein or written information furnished by the Holder to
the Company in response to a request by the Company stating specifically that
such information will be used by the Company therein; provided, however, that
the obligations of such Holders hereunder shall be limited to an amount equal to
the net proceeds to each such Holder of Registrable Securities sold as
contemplated herein.
-11-
(c) Each party entitled to indemnification under this Section
4.5 (the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has received written notice of any claim as to which indemnity may be sought,
and shall permit the Indemnifying Party to assume the defense of any such claim
or any litigation resulting therefrom, provided that counsel for the
Indemnifying Party, who shall conduct the defense of such claim or litigation,
shall be approved by the Indemnified Party (whose approval shall not
unreasonably be withheld). The Indemnified Party may participate in such defense
at such party's expense; provided, however, that the Indemnifying Party shall
bear the expense of such defense of the Indemnified Party if representation of
both parties by the same counsel would be inappropriate due to actual or
potential conflicts of interest. The failure of any Indemnified Party to give
notice within a reasonable period of time as provided herein shall relieve the
Indemnifying Party of its obligations under this Section 4.5 only to the extent
that such failure to give notice shall materially adversely prejudice the
Indemnifying Party in the defense of any such claim or any such litigation. No
Indemnifying Party, in the defense of any such claim or litigation, shall,
except with the consent of each Indemnified Party, consent to entry of any
judgment or enter into any settlement which does not include as an unconditional
term thereof the giving by the claimant or plaintiff to such Indemnified Party
of a release from all liability in respect to such claim or litigation.
(d) If the indemnification provided for paragraphs (a) through
(c) of this Section 4.5 is unavailable or insufficient to hold harmless an
Indemnified Party under such paragraphs in respect of any losses, claims,
damages or liabilities or actions in respect thereof referred to therein, then
each Indemnifying Party shall in lieu of indemnifying such Indemnified Party
contribute to the amount paid or payable by such Indemnified Party as a result
of such losses, claims, damages, liabilities or actions in such proportion as
appropriate to reflect the relative fault of the Company, on the one hand, and
the underwriters and the Holder of such Registrable Securities, on the other, in
connection with the statements or omissions which resulted in such losses,
claims, damages, liabilities or actions as well as any other relevant equitable
considerations, including the failure to give any notice under paragraph (c).
The relative fault shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact relates to
information supplied by the Company, on the one hand, or the underwriters or the
Holders of such Registrable Securities, on the other, and to the parties'
relative intent, knowledge, access to information and opportunity to correct or
prevent such statement or omission. The Company and each of the Holders agrees
that it would not be just and equitable if contributions pursuant to this
paragraph were determined by pro rata allocation (even if all of the Holders of
such Registrable Securities were treated as one entity for such purpose) or by
any other method of allocation which did not take account of the equitable
considerations referred to above in this paragraph. The amount paid or payable
by an Indemnified Party as a result of the losses, claims, damages, liabilities
or action in respect thereof, referred to above in this paragraph, shall be
deemed to include any legal or other expenses reasonably incurred by such
Indemnified Party in connection with investigating or defending any such action
or claim. Notwithstanding the provisions of this paragraph, no Holder shall be
required to contribute any amount in excess of the lesser of (i) the proportion
that the public offering price of shares sold by such Holder under such
registration statement bears to the total public offering price of all
securities sold thereunder, but not to exceed the proceeds received by
-12-
such Holder for the sale of Registrable Securities covered by such registration
statement and (ii) the amount of any damages which they would have otherwise
been required to pay by reason of such untrue or alleged untrue statement or
omission. No person guilty of fraudulent misrepresentations (within the meaning
of Section 11(f) of the Securities Act), shall be entitled to contribution from
any person who is not guilty of such fraudulent misrepresentation.
(e) The obligations of the Company and Holders under this
Section 4.5 shall survive the completion of any offering of Registrable
Securities in a registration statement under this Section 4, and otherwise.
4.6 Information by Holder. Each Holder including securities of the
---------------------
Company in any registration shall furnish to the Company such information
regarding such Holder and the distribution proposed by such Holder as the
Company may request in writing and as shall be required in connection with any
registration, qualification or compliance referred to in this Section 4.
4.7 Rule 144 Reporting. With a view to making available the benefits
------------------
of certain rules and regulations of the Commission which may at any time permit
the sale of the Restricted Securities to the public without registration, after
such time as a public market exists for the Common Stock of the Company, the
Company agrees to:
(a) Use its best efforts to facilitate the sale of the
Restricted Securities to the public, without registration under the Securities
Act, pursuant to Rule 144 under the Securities Act, provided that this shall not
require the Company to file reports under the Securities Act and the Exchange
Act at anytime prior to the Company's being otherwise required to file such
reports.
(b) Make and keep public information available, as those terms
are understood and defined in Rule 144 under the Securities Act at all times
after ninety (90) days after the effective date of the first registration under
the Securities Act filed by the Company for an offering of its securities to the
general public;
(c) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act, (at any time after it has become subject to such reporting
requirements);
(d) So long as a Holder owns any Restricted Securities to
furnish to the Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time after ninety (90) days after the effective date of the first registration
statement filed by the Company for an offering of its securities to the general
public), and of the Securities Act and the Exchange 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
so filed by the Company as such Holder may reasonably request in availing itself
of any rule or regulation of the Commission allowing a Holder to sell any such
securities without registration.
-13-
4.8 "Market Stand-off" Agreement. Each Holder agrees not to sell or
---------------------------
otherwise transfer or dispose of any Common Stock (or other securities) of the
Company held by it for a period not to exceed one hundred eighty (180) days
following the effective date of a registration statement of the Company filed
under the Securities Act if so requested by the Company and underwriter of
Common Stock (or other securities) of the Company, provided that:
(a) such agreement shall apply only to the first underwritten
registered public offering of the Company; and
(b) all officers, directors and 5% stockholders of the Company
enter into similar agreements. The Company may impose stop-transfer instructions
with respect to the shares (or securities) subject to the foregoing restriction
until the end of such period.
4.9 Form S-3. The Company shall use its best efforts to qualify for
--------
registration on Form S-3 and to that end the Company shall register (whether or
not required by law to do so) its Common Stock under the Exchange Act within
twelve (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, in addition to the rights contained in the foregoing provisions
of this Section 4, the Holders of Registrable Securities shall have the right to
request registrations on Form S-3 thereafter under this Section 4.9 (such
requests shall be in a writing and shall state the number of shares of
Registrable Securities to be disposed of and the intended method of disposition
of such shares by such Holder or Holders), provided that the Company shall not
be required to effect a registration pursuant to this Section 4.9 unless the
Holder or Holders requesting registration propose to dispose of shares of
Registrable Securities which they reasonably anticipate will have an aggregate
disposition price (before deduction of underwriting discounts and expenses of
sale) of at least one million five hundred thousand dollars ($1,500,000),
provided further that the Company shall not be required to effect a registration
pursuant to this Section 4.9 if at the time of the request for a registration on
Form S-3 the Company in good faith gives notice within thirty (30) days of such
request that it is engaged or has fixed plans to engage within sixty (60) days
of the time of the request in a firmly underwritten registered public offering
(but such notice may not be given more than once in any six (6) month period),
provided further that the Company shall not be required to effect more than one
registration pursuant to this Section 4.9 in any twelve (12) month period.
The Company shall give notice to all Holders of Registrable Securities of
the receipt of a request for registration pursuant to this Section 4.9 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 promptly the registration of all shares of Registrable Securities on Form
S-3, as the case may be, to the extent requested by the Holder or Holders
thereof for purposes of disposition.
4.10 Transfer of Registration Rights. Except as otherwise provided
-------------------------------
herein, the rights contained in this Section 4 may be assigned or otherwise
conveyed to a transferee or assignee of Registrable Securities, who shall be
considered a "Holder" for purposes of this Section 4, provided that (i) such
transfer is effected in accordance with applicable federal and state securities
laws, (ii) such transferee or assignee becomes a party to this Agreement or
agrees in writing to be subject to the terms hereof to the same extent as if he
were an original purchaser hereunder and
-14-
(iii) such transferee or assignee (A) is a wholly owned subsidiary or
constituent partner (including limited partners) or affiliate of the
transferring Holder, or (B) acquires at least 20% of the Registrable Securities
(as shares are presently constituted) originally held by the transferring Holder
and, provided further, that the Company is given written notice by such Holder
at the time of or within a reasonable time after said transfer, stating the name
and address of said transferee or assignee and identifying the securities with
respect to which such registration rights are being assigned. For the purposes
of determining the number of shares of Registrable Securities held by a
transferee or assignee, the holdings of transferees and assignees of a
partnership who are partners or retired partners of such partnership (including
spouses and ancestors, lineal descendants and siblings of such partners or
spouses who acquire Registrable Securities by gift, will or intestate
succession) shall be aggregated together and with the partnership; 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
4.
4.11 Certain Limitations in Connection with Future Grants of
-------------------------------------------------------
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 a two-
thirds of the outstanding Registrable Securities, enter into any agreement with
any person or persons providing for the granting to such holder of registration
rights superior to those granted to Holders pursuant to this Section 4, or of
registration rights which might cause a reduction in the number of shares
includable by the Holders in any offering pursuant to Section 4.1 or in any
offering subject to Section 4.2.
4.12 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 4.
4.13 Amendment of Registration Rights. The registration rights
--------------------------------
provided in this Section may be amended with the written consent of the Company
and the holders of a two-thirds of the outstanding Registrable Securities. Any
amendment effected in accordance with this Section 4.14 shall be binding upon
each Holder and the Company.
5. Co-Sale Agreement.
-----------------
5.1 Notice. If any Common Holder proposes to sell Common Stock in one
------
or more related transactions (a "Selling Common Holder"), then such Selling
Common Holder shall promptly give written notice (the "Co-Sale Notice") to the
Major Holders at least twenty (20) days prior to the proposed closing of such
sale. The Co-Sale Notice shall describe in reasonable detail the proposed sale
including, without limitation, the number of Co-Sale Shares to be sold, the
nature of such sale, the consideration to be paid, and the name and address of
each prospective purchaser.
5.2 Participation. The Major Holders shall have the right,
-------------
exercisable upon written notice to the Selling Common Holder within ten (10)
days after receipt of the Co-Sale Notice, to participate in such sale on the
same terms and conditions specified in the Co-Sale Notice. To the extent any
Major Holder exercises such right of participation in accordance with the terms
-15-
and conditions set forth below, the number of Co-Sale Shares that the Selling
Common Holder may sell in the transaction shall be correspondingly reduced.
5.3 Pro Rata Calculation. Each Major Holder may sell all or any part
--------------------
of that number of shares of Common Stock equal to the product obtained by
multiplying the aggregate number of Co-Sale Shares covered by the Co-Sale Notice
by a fraction (i) the numerator of which is the sum of (A) the number of shares
of Common Stock owned by such Major Holder, plus (B) the number of shares of
Common Stock issuable upon conversion of Preferred Stock owned by such Major
Holder at the time of the sale; plus (C) the number of shares of Common Stock
issuable upon exercise of outstanding options or warrants held by such Major
Holder or the time of the sale; and (ii) the denominator of which is the total
number of shares of Common Stock held by the Major Holders and the Selling
Common Holder, including the number of shares of Common Stock issuable upon
conversion of the shares of Preferred Stock then owned by such Major Holders.
5.4 Delivery. Each Major Holder shall effect such Major Holder's
--------
participation in the sale by promptly delivering to the Selling Common Holder
one or more certificates, properly endorsed for transfer, which represent:
(a) the number of shares of Common Stock which such Major Holder
elects to sell; or
(b) that number of shares of Preferred Stock which is
convertible into the number of shares of Common Stock which such Major Holder
elects to sell; provided, however, that if the prospective purchaser objects to
the delivery of Preferred Stock in lieu of Common Stock, such Major Holder shall
convert such Preferred Stock into Common Stock and deliver Common Stock as
provided in Subsection 5.4(a) above. The Company agrees to make any such
conversion concurrent with the actual transfer of such shares to the purchaser.
5.5 Proceeds. The Selling Common Holder shall remit to each Major
--------
Holder that portion of the sale proceeds to which such Major Holder is entitled
by reason of such Major Holder's participation in such sale. To the extent that
any prospective purchaser or purchasers prohibits such assignment or otherwise
refuses to purchase shares or other securities from the Major Holders exercising
their rights of Co-Sale hereunder, the Selling Common Holder shall not sell to
such prospective purchaser or purchasers any Co-Sale Shares unless and until,
simultaneously with such sale, the Selling Common Holder shall purchase from the
Major Holders exercising their rights of co-sale hereunder all shares of Common
Stock or Preferred Stock (on an as-converted basis) as to which the Major
Holders have exercised their rights of co-sale hereunder on the same terms and
conditions as such selling Common Holder's shares are to be sold.
5.6 Non-Exclusive Rights. The exercise or non-exercise of any Major
--------------------
Holder's rights hereunder to participate in one or more sales of Co-Sale Shares
made by any Selling Common Holder shall not adversely affect such Major Holder's
right to participate in subsequent sales of Co-Sale Shares as provided in this
Agreement.
-16-
5.7 Sales by Selling Common Holders. To the extent that the Major
-------------------------------
Holders elect not to participate in the sale of the Co-Sale Shares subject to
the Co-Sale Notice, either by failure to deliver the written notice to a Selling
Common Holder within the period set forth in Subsection 5.2 above, or by
delivery of a notice electing not to participate or to participate in part only,
the Selling Common Holder may, not later than sixty (60) days following delivery
to the Major Holders of the Co-Sale Notice, enter into an agreement providing
for the closing of the sale of the Co-Sale Shares covered by the Co-Sale Notice
within thirty (30) days of such agreement on terms and conditions not more
favorable to the purchaser than those described in the Co-Sale Notice. Any
proposed sale on terms and conditions more favorable than those described in the
Co-Sale Notice, as well as any subsequent proposed sale of any of the Co-Sale
Shares by any Selling Common Holder, shall again be subject to the co-sale
rights of the Major Holders and shall require compliance by any Selling Common
Holder with the procedures described in this Section 5.
5.8 Exempt Transfers.
----------------
(a) The provisions of Subsections 5.1 through 5.7 shall not
apply to (A) any pledge of Co-Sale Shares made pursuant to a bona fide loan
transaction that creates a mere security interest; (B) any transfer to the
ancestors, descendants or spouse of the Common Holder or to trusts for the
benefit of the Common Holders or (C) any bona fide gift. All such Co-Sale Shares
sold or transferred under the above clauses shall remain "Co-Sale Shares"
hereunder, and any such pledgee, transferee or donee shall be treated as a
"Common Holder" for purposes of this Agreement.
(b) The provisions of Subsections 5.1 to 5.7 shall not apply to
the sale of any Co-Sale Shares (A) to the public pursuant to a registration
statement filed with, and declared effective by, the SEC under the Securities
Act, where the shares of Series C Preferred Stock have converted to Common Stock
or (B) to the Company pursuant to the repurchase provisions of any stock
restriction agreements between the Company and any Common Holder.
5.9 Prohibited Sales. Any attempt by a Selling Common Holder to sell
----------------
Co-Sale Shares in violation of this Section 5 shall be void and the Company
agrees it will not effect such a sale nor will it treat any alleged purchaser as
the holder of such shares without the written consent of all of the Major
Holders.
6. Restrictive Legends and Restrictions on Transfer.
------------------------------------------------
6.1 Restrictive Legends.
-------------------
(a) Each certificate representing shares of Common Stock and
Preferred Stock or any other securities issued in respect of such Common Stock
and Preferred Stock upon any stock split, stock dividend, recapitalization,
merger, consolidation, or similar event, shall (unless otherwise permitted by
the provisions of Section 6.2 be stamped or otherwise imprinted with legends in
substantially the following form (in addition to any legend required under
applicable state securities laws) now or hereafter owned by the Common Holders
or Preferred Holders shall be endorsed with the following legends:
-17-
THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES
REPRESENTED BY THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS
OF A CERTAIN STOCKHOLDER RIGHTS AGREEMENT BY AND BETWEEN THE
CORPORATION AND CERTAIN STOCKHOLDERS OF THE CORPORATION. COPIES OF
SUCH AGREEMENT MAY BE OBTAINED UPON REQUEST TO THE SECRETARY OF THE
CORPORATION.
THE SALE AND ISSUANCE OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933,
AS AMENDED (THE "ACT"), OR UNDER THE SECURITIES LAW OF ANY STATE OR
OTHER JURISDICTION. THESE SECURITIES HAVE BEEN ACQUIRED FOR INVESTMENT
AND NOT WITH A VIEW TO, OR IN CONNECTION WITH, THE DISTRIBUTION
THEREOF. THESE SECURITIES MAY NOT BE OFFERED, SOLD, PLEDGED, OR
TRANSFERRED UNLESS A REGISTRATION STATEMENT UNDER THE ACT IS IN EFFECT
AS TO THESE SECURITIES AND SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION OR THERE IS AN OPINION OF COUNSEL OR OTHER EVIDENCE,
SATISFACTORY TO THE CORPORATION THAT AN EXEMPTION THEREFROM IS
AVAILABLE AND THAT SUCH OFFER, SALE, PLEDGE, OR TRANSFER IS IN
COMPLIANCE WITH APPLICABLE SECURITIES LAWS OF ANY STATE OR OTHER
JURISDICTION.
(b) Each Common Holder and Preferred Holder agrees that the
Company may instruct its transfer agent to impose transfer restrictions on the
shares represented by certificates bearing the legends referred to in Section
6.1(a) above to enforce the provisions of this Agreement and the Company to
promptly do so.
6.2 Permitted Transfers. The Company shall be obligated to reissue
-------------------
promptly certificates without the second legend set forth in Section 6.1(a) at
the request of any Holder thereof if the holder shall have obtained an opinion
of counsel (which counsel may be counsel to the Company) reasonably acceptable
to the Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification or legend. Any
legend endorsed on an instrument pursuant to applicable state securities laws
and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by the Company of an order of the appropriate blue sky
authority authorizing such removal.
6.3 Notice of Proposed Transfers.
----------------------------
(a) In addition to the rights of co-sale under Section 5, prior
to any proposed transfer of any Restricted Securities, unless there is in effect
a registration statement under the Securities Act covering the proposed
transfer, the Holder or Common Holder thereof shall give written notice (the
"Notice") to the Company of such Holder's or Common Holder's intention to make
such transfer. If reasonably requested by the Company prior to the transfer
being effected, the Holder or Common Holder shall provide to the Company a
written opinion of legal counsel who
-18-
shall be reasonably satisfactory to the Company, addressed to the Company
and reasonably satisfactory in form and substance to the Company's counsel, to
the effect that the proposed transfer of the Restricted Securities may be
effected without registration under the Securities Act. It is agreed that the
Company will not require opinions of counsel for transactions made pursuant to
Rule 144 under the Securities Act except in unusual circumstances.
Notwithstanding the foregoing provisions of this paragraph, no such registration
statement or opinion of counsel shall be necessary for a transfer by a holder
which is (i) a partnership to its partners or retired partners in accordance
with partnership interests, (ii) a corporation to its shareholders, officers or
directors, affiliated entities or persons or (iii) an individual to a family
member or trust for the benefit of such Holder, Common Holder or a family
member, provided the transferee will be subject to the terms of this Section 6.3
to the same extent as if he were an original Holder or Common Holder hereunder.
Each certificate evidencing the Restricted Securities so transferred shall bear
the appropriate restrictive legends set forth in Section 6.1, except that such
certificate shall not bear the second restrictive legend set forth in Section
6.1(a) if in the opinion of counsel for the Company such legend is not required
in order to establish compliance with any provisions of the securities laws.
(b) Each Holder and Common Holder consents to the Company making
a notation on its records and giving instructions to any transfer agent of the
Restricted Securities in order to implement the restrictions on transfer
described in this Section.
7. Information Rights.
------------------
7.1 Financial Information. The Company will furnish the following
---------------------
information to each Major Holder:
(a) within twenty (20) days after the end of each monthly and
quarterly accounting period in each fiscal year,
(i) unaudited statements of income and of cash flow of the
Company for such monthly or quarterly period and for the period from the
beginning of such fiscal year to the end of such monthly period, which
statements will be prepared in accordance with United States generally accepted
accounting principles, consistently and uniformly applied and
(ii) balance sheets of the Company as of the end of such
monthly or quarterly period, which statements will be prepared in accordance
with United States generally accepted accounting principles, consistently and
uniformly applied.
(b) not less than thirty (30) days prior to the end of each
fiscal year, annual consolidated budgets prepared on a monthly basis for the
Company for the succeeding fiscal year, as approved by the Board of Directors
(displaying anticipated statements of income and cash flow and balance sheets
and containing a brief description by the Chief Executive Officer of the
Company's plans for the subsequent year);
(c) within ninety (90) days after the end of each fiscal year,
statements of income and retained earnings and cash flows of the Company for
such fiscal year, and a balance
-19-
sheet of the Company as of the end of such fiscal year, which statements shall
be prepared in accordance with United States generally accepted accounting
principles, consistently and uniformly applied, and accompanied by the
unqualified opinion of an accounting firm of recognized national standing.
7.2 Inspection Rights; Management Rights. The Company shall
------------------------------------
permit each Major Holder, 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 accountants, all at such reasonable times and as often as such Major
Holder may reasonably request.
7.3 Assignment of Rights to Information. The rights granted pursuant
-----------------------------------
to Sections 7.1 and 7.2 may not be assigned or otherwise conveyed by any Major
Holder or by any subsequent transferee of any such rights without the written
consent of the Company, which consent shall not be unreasonably withheld;
provided that the Company may refuse such written consent if the proposed
transferee is a competitor of the Company as determined by the Company's Board
of Directors; and provided further, that no such written consent shall be
required if the transfer is made to a party who is not a competitor of the
Company and who is a parent, subsidiary, affiliate, partner, shareholder,
officer or director or group member of any Major Holder.
7.4 Confidentiality. Each Major Holder agrees that it will keep
---------------
confidential and will not disclose or divulge any confidential, proprietary or
secret information which such Major Holder may obtain from the Company, and
which the Company has prominently marked "confidential", "proprietary" or
"secret" or has otherwise identified as being such, pursuant to financial
statements, reports and other materials submitted by the Company as required
hereunder, or pursuant to visitation or inspection rights granted hereunder
unless such information is or becomes known to the Major Holder from a source
other than the Company or is or becomes publicly known, or unless the Company
gives its written consent to the Major Holder's release of such information,
except that no such written consent shall be required (and Major Holder shall be
free to release such information) if such information is to be provided to an
Major Holder's counsel or accountant, or to an officer, director or general or
limited partner of an Major Holder or to employees of, or consultants to, an
Major Holder on a "need to know" basis, provided that the Major Holder shall
inform the recipient of the confidential nature of such information, and shall
instruct the recipient to treat the information as confidential.
8. Voting and Other Covenants.
--------------------------
8.1 Agreement to Vote. Each of the Preferred Holders and Common
-----------------
Holders (and their permitted assigns) hereby agrees to vote all shares of the
Company's stock now or hereafter owned by it, whether beneficially or otherwise,
at any regular or special meeting of stockholders of the Company, or, in lieu of
any such meeting, to give their written consent, as provided in this Section 8.
-20-
8.2 Election of Directors. During the term of this Agreement, the
---------------------
Preferred Holders and Common Holders agree that they shall vote all of their
respective shares of the Company's Preferred Stock or Common Stock, whether
beneficially or otherwise (the "Shares") in the following manner to elect
members to the Company's Board of Directors, as follows: (1) the Company's Chief
Executive Officer, (2) two people, who shall initially be ▇▇▇ ▇▇▇▇▇▇ and ▇▇▇▇
▇▇▇▇▇▇▇, who shall be determined by a vote of the holders of a majority of the
Series B Preferred Stock, (3) one person, who shall initially be ▇▇▇▇▇▇ ▇▇▇▇▇▇▇,
who shall be determined by a vote of the holders of a majority of the Series A
Preferred Stock and Common Stock, voting together as a single class, on an as-
converted basis, (4) one person, who shall initially be ▇▇▇▇▇ ▇▇▇▇, who shall be
determined by a vote of the holders of a majority of the Series C Preferred
Stock and (5) any additional seats shall be filled with people who shall be
outside independent directors (designated "At-Large directors"). Any At-Large
director shall be a nominee that is mutually acceptable to a majority in
interest of the holders of Common Stock and majority in interest of the holders
of Preferred Stock. Any vote taken to remove any director elected pursuant to
this Section 8, or to fill any vacancy created by the resignation of a director
elected pursuant to this Section 8, shall also be subject to the provisions of
this Section 8.
8.3 Successors in Interest. The provisions of Sections 8.1 and 8.2
----------------------
shall be binding upon the successors in interest of any of the Preferred Holders
and Common Holders. The Company shall not permit the transfer of any shares of
stock held by the Preferred Holders or Common Holders its books unless and until
the person to whom such security is transferred shall have executed a written
agreement pursuant to which such person becomes subject to the provisions of
this Section 8 and agrees to be bound by all the provisions hereof.
9. Miscellaneous.
-------------
9.1 Waiver of Right of First Refusal. Major Holders under the Prior
--------------------------------
Agreement hereby agree to waive their right of first refusal contained in
Section 3, above, in conjunction with the issuance of the Series C Preferred
Stock to which this Agreement relates.
9.2 Conditions to Exercise of Rights. Exercise of the Holders' rights
--------------------------------
under this Agreement shall be subject to and conditioned upon, and each Holder
and the Company shall use its or his best efforts to assist each Holder in,
compliance with applicable laws.
9.3 Repurchase Agreement. This Agreement is subject to, and shall in
--------------------
no manner limit the right of the Company to repurchase securities from a Founder
at cost pursuant to any stock restriction agreement or other agreement between
the Company and the Founder.
9.4 Governing Law. This Agreement shall be governed by and construed
-------------
in accordance with the laws of the State of California.
9.5 Amendment. Any provision may be amended and the observance
---------
thereof may waived (either generally or in a particular instance), only by the
written consent of the Company and Holders holding more than two-thirds in
interest of the Registrable Securities which are issued or issuable in respect
of Preferred Stock of the Company; provided, however, any amendment or waiver
-21-
of any provisions of Sections 2, 5 or 8 also requires the written consent of the
Common Holders holding more than fifty percent (50%) in interest of the Common
Stock held by Common Holders. Any amendment or waiver effected in accordance
with this paragraph shall be binding upon each Holder, Common Holder, its
successors and assigns, heirs, executors and the Company.
9.6 Assignment of Rights. This Agreement and the rights and
--------------------
obligations of the parties hereunder shall inure to benefit of and be binding
upon, their respective successors, assigns and legal representatives. The
provisions of Section 4.5 shall also inure to the benefit of each Indemnified
Party.
9.7 Term.
----
(a) Sections 2, 3, 5, 7 and 8 of this Agreement shall terminate
upon the earlier of (i) the closing of a firm commitment underwritten public
offering pursuant to an effective registration statement under the Securities
Act of 1933, as amended, covering the offer and sale of Common Stock for the
account of the Company and/or selling stockholders to the public at a per share
price of not less than $5.00 (as adjusted for stock splits, reverse stock splits
and the like effected alter the date of this Agreement) and resulting in
aggregate net proceeds to the Company or the selling stockholders (after
deducting underwriters' discounts and expenses relating to the issuance) of not
less than $15,000,000, and (ii) the closing of the Company's sale of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary.
(b) No Holder shall be entitled to exercise any rights provided
for in Section 4 of this Agreement after five (5) years following a firm
commitment offering of the type described in Section 9.6(a)(i).
9.8 Notices. Unless otherwise stated herein, all notices required or
-------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery to the party to be notified or five days after deposit in
the United States mail, by registered or certified mail, postage prepaid, or
otherwise delivered by hand, facsimile or messenger and properly addressed to
the party to be notified as set forth on the signature page hereof or at such
other address as such party may designate by ten (10) days' advance written
notice to the other parties hereto.
9.9 Severability. In the event one or more of the provisions of this
------------
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
9.10 Attorney Fees. In the event that any dispute among the parties to
-------------
this Agreement should result in litigation, the prevailing party in such dispute
shall be entitled to recover from the losing party all fees, costs and expenses
of enforcing any right of such prevailing party under or with respect to this
Agreement, including without limitation, such reasonable fees and
-22-
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals.
9.11 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original and enforceable against
the parties actually executing such counterpart, and all of which together shall
constitute one instrument.
9.12 Entire Agreement. This Agreement constitutes the entire agreement
----------------
between the parties relative to the specific subject matter hereof. Any previous
agreement among the parties relative to the specific subject matter hereof is
superseded by this Agreement.
-23-
The foregoing Stockholder's Rights Agreement is hereby executed as of the
date first above written.
Company:
▇▇▇▇▇▇-▇▇▇▇▇▇ MEDICAL, INC.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
-----------------------------------
Title: CEO
--------------------------------
Preferred Holder:
EXCELSIOR PRIVATE EQUITY FUND II, INC.
By: /s/ ▇▇▇▇▇ ▇. ▇▇▇▇
---------------------------------
Name: ▇▇▇▇▇ ▇. ▇▇▇▇
-------------------------------
Title: President and CEO
------------------------------
ONSET ENTERPRISE ASSOCIATES III, L.P.
By Managing Director
OEA III Management LLC
The General Partner of ONSET
Enterprise Associates III, L.P.
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇
U.S. VENTURE PARTNERS V, L.P.
USVP V INTERNATIONAL, L.P.
2180 ASSOCIATES FUND V, L.P.
USVP V ENTREPRENEUR PARTNERS, L.P.
By Presidio Management Group V, L.L.C.
Its General Partner
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
---------------------------------
▇▇▇▇▇ ▇▇▇▇▇▇▇▇
Managing Member
/s/ ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
/s/ ▇▇▇▇ ▇. ▇▇▇▇▇▇▇
------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
CMCA Profit sharing Plan, fbo ▇▇▇▇▇
▇▇▇▇▇▇
By:
-----------------------------------
Title:
--------------------------------
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Trustee of the
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Revocable Trust
dated 1-8-97, as amended
By:
-----------------------------------
Title:
--------------------------------
▇▇▇▇ Ventures, L.P.
By:
-----------------------------------
Title:
--------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ JTWROS
By:
-----------------------------------
Title:
--------------------------------
G.B.P. Partners, Ltd., a Colo. Ltd.
Partnership ▇▇▇▇▇▇. ▇▇▇▇▇, General
Partner
By:
-----------------------------------
Title:
--------------------------------
▇▇▇▇▇ & Co. Custodian, FBO ▇▇▇▇▇ ▇.
▇▇▇▇▇▇ SEP ▇▇▇
By: /s/ ▇▇▇▇▇ ▇▇▇▇▇▇
-----------------------------------
Title:
--------------------------------
▇. ▇▇▇▇▇▇ & ▇. ▇▇▇▇ & ▇. ▇▇▇▇▇ & ▇.
▇▇▇▇▇▇▇▇ & ▇. ▇▇▇▇▇ & ▇. ▇▇▇▇▇▇▇▇ TTEE
CARD MED PSP fbo ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
By:___________________________________
Title:________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇ Tr. and ▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇ Tr. of Family Trust dated
10-7-81
By:___________________________________
Title:________________________________
______________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇
Pension Trust for Staff
By:___________________________________
Title:________________________________
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇
______________________________________
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
______________________________________
R. ▇▇▇▇▇▇▇ ▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇
--------------------------------------
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. and ▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇, Trustees of the
▇▇▇▇▇▇▇▇ Family Trust, U/D/T August
By:
-----------------------------------
Title:
--------------------------------
--------------------------------------
▇▇▇▇ ▇. ▇▇▇▇▇
/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
WS Investment Company 98A
By:
-----------------------------------
Title:
--------------------------------
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Trustee of the
1994 ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Trust
By:___________________________________
Title:________________________________
▇▇▇▇▇ ▇. & ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Family
Trust
By:___________________________________
Title:________________________________
The ▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Family
Trust dated
2/7/77
By:___________________________________
Title:________________________________
Trustee, WSGR Retirement Plan, fbo
J. ▇▇▇▇▇ ▇▇▇▇▇▇▇
By:___________________________________
Title:________________________________
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, Inc.
Cust fbo ▇▇▇▇▇▇ ▇. ▇▇▇▇ ▇▇▇
By:___________________________________
Title:________________________________
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Trustee ▇▇▇▇▇▇▇▇ &
▇▇▇▇▇ ▇▇▇▇ 1979 Living Trust Dtd
5/14/79
By:___________________________________
Title:________________________________
______________________________________
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, or their successor(s) of
the ▇.▇. ▇▇▇▇▇▇▇▇▇ and ▇.▇. ▇▇▇▇▇▇▇▇▇
Family Trust Agreement, dtd 11/19/97
By:___________________________________
Title:________________________________
______________________________________
▇▇▇▇▇ ▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇ ▇▇▇▇▇▇
______________________________________
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and M. ▇▇▇▇ ▇▇▇▇▇
______________________________________
▇▇▇▇ ▇. ▇▇▇▇▇▇
Somnus Medical Technologies, Inc.
By:
-----------------------------------
Title:
--------------------------------
Common Holder:
/s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
--------------------------------------
▇▇▇▇▇ ▇▇▇▇▇, M.D.
THE TRAVELERS INSURANCE COMPANY
By: /s/ Jordan ▇. ▇▇▇▇▇▇▇
-----------------------------------
Print Name: Jordan ▇. ▇▇▇▇▇▇▇
---------------------------
Title: Vice President
--------------------------------
SCHEDULE A
----------
SCHEDULE OF STOCKHOLDERS
COMMON HOLDERS
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇▇▇, M.D.
PREFERRED HOLDERS
CMCA Profit sharing Plan, fbo ▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Trustee of the ▇▇▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ Revocable Trust dated 1-8-97, as amended
▇▇▇▇ Ventures, L.P.
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ and ▇▇▇▇▇ ▇▇▇ ▇▇▇▇▇▇▇▇
JTWROS
G.B.P. Partners, Ltd., a Colo. Ltd. Partnership ▇▇▇▇▇▇
▇. ▇▇▇▇▇, General Partner
▇▇▇▇▇ & Co. Custodian, FBO ▇▇▇▇▇ ▇. ▇▇▇▇▇▇ SEP
▇▇▇
▇. ▇▇▇▇▇▇ & ▇. ▇▇▇▇ & ▇. ▇▇▇▇▇ & ▇. ▇▇▇▇▇▇▇▇
& ▇. ▇▇▇▇▇ & ▇. ▇▇▇▇▇▇▇▇ TTEE CARD MED PSP
fbo ▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇ Tr. and ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇ Tr. of
Family Trust dated ▇▇-▇-▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇, M.D.
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇ and ▇▇▇▇ ▇. ▇▇▇▇ Pension Trust for
Staff
▇▇▇▇▇▇ ▇. ▇▇▇
▇▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇
R. ▇▇▇▇▇▇▇ ▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, ▇▇. and ▇▇▇▇ ▇▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇,
Trustees of the ▇▇▇▇▇▇▇▇ Family Trust, U/D/T August
▇▇▇▇ ▇. ▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇
WS Investment Company 98A
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ Trustee of the 1994 ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇ Trust
▇▇▇▇▇ ▇. & ▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, Family Trust
The ▇▇▇ and ▇▇▇▇▇▇ ▇▇▇▇▇▇▇ Family Trust dated 2/7/77
Trustee, WSGR Retirement Plan, fbo ▇. ▇▇▇▇▇
▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇▇▇▇▇ & Associates, Inc. Cust fbo ▇▇▇▇▇▇
▇. ▇▇▇▇ ▇▇▇
▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇, Trustee ▇▇▇▇▇▇▇▇ & ▇▇▇▇▇ ▇▇▇▇
1979 Living Trust Dtd 5/14/79
▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇ and ▇▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇,or
their successor(s) of the ▇.▇. ▇▇▇▇▇▇▇▇▇ and ▇.▇.
▇▇▇▇▇▇▇▇▇ Family Trust Agreement, dtd 11/19/97
▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
▇▇▇▇▇▇ ▇▇▇▇▇▇
▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇ and M. ▇▇▇▇ ▇▇▇▇▇
▇▇▇▇ ▇. ▇▇▇▇▇▇
Onset Enterprise Associates III, L.P.
U.S. Venture Partners V, L.P.
USVP V International, L.P.
2180 Associates Fund V, L.P.
USVP V Entrepreneur Partners, L.P.
▇▇▇▇ ▇. ▇▇▇▇▇▇▇
Somnus Medical Technologies, Inc.
Excelsior Private Equity Fund II, Inc.
▇▇▇▇▇▇ ▇▇▇▇▇▇▇▇
[Travelers Insurance Co.]