HEALTHOLOGY, INC.
INVESTOR'S RIGHTS AGREEMENT
March 1, 2000
Table of Contents
Page
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SECTION I.
Restrictions on Transferability; Registration Rights
1.1. Certain Definitions...................................................1
1.2. Demand Registration ..................................................3
1.3. Company Registration .................................................5
1.4. Expenses of Registration..............................................6
1.5. Registration Procedures...............................................6
1.6. Indemnification ......................................................8
1.7. Information by Holder.................................................9
1.8. Rule 144 Reporting...................................................10
1.9. Transfer of Registration Rights......................................10
1.10. Standoff Agreement...................................................11
SECTION II.
Preemptive Rights
2.1. Investor's Preemptive Rights for New Securities
Issued by the Company...............................................11
2.2. Assignment...........................................................13
2.3. Termination of Preemptive Rights.....................................13
SECTION III.
Affirmative Covenants of the Company
3.1. Financial Information................................................14
3.2. Financial Information Following a Public Offering....................14
3.3. Assignment of Rights to Financial Information........................15
3.4. Board of Directors...................................................15
3.5. Insurance............................................................15
3.6. Definition of Investor...............................................15
3.7. Reserved Employee Shares.............................................16
3.8. Voting Rights Regarding Election of Directors........................16
3.9. Election of Chief Medical Officer....................................16
3.10. Notification of Issuance of Securities...............................16
3.11. Termination of Certain Covenants.....................................17
3.12. 1998 Audit...........................................................17
SECTION IV.
Miscellaneous
4.1. Governing Law........................................................17
4.2. Third Parties........................................................17
4.3. Survival.............................................................17
4.4. Successors and Assigns...............................................17
4.5. Entire Agreement; Amendment..........................................17
4.6. Rights of Holders....................................................17
4.7. Notices, Etc.........................................................18
4.8. Delays or Omissions..................................................18
4.9. Counterparts.........................................................18
4.10. Severability of this Agreement.......................................18
4.11. Attorneys' Fees......................................................19
4.12. Further Assurances...................................................19
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INVESTOR'S RIGHTS AGREEMENT
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THIS INVESTOR'S RIGHTS AGREEMENT (the "Agreement") is entered into as
of the 1st day of March, 2000, by and between HEALTHOLOGY, INC., a Delaware
corporation (the "Company"), with principal offices located at ▇▇▇ ▇▇▇▇▇▇▇▇, ▇▇▇
▇▇▇▇, ▇▇ ▇▇▇▇▇ and Seal Holdings Corporation (the "Investor").
RECITALS
A. The Company and the Investor are entering into a Series A Preferred
Stock Purchase Agreement dated of even date herewith (the "Series A Agreement")
pursuant to which the Company shall sell, and the Investor shall acquire, shares
of the Company's Series A Preferred Stock (the "Series A Preferred").
B. The execution of this Agreement is a condition to the closing of the
transactions contemplated by the Series A Agreement.
C. The Investor and the Company desire that the transactions
contemplated by the Series A Agreement be consummated.
NOW, THEREFORE, in consideration of the mutual promises and covenants
hereinafter set forth, the parties agree as follows:
SECTION I.
Restrictions on Transferability; Registration Rights
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1.1. Certain Definitions. All capitalized terms used in this Agreement
and not defined herein shall have the meanings set forth in the Series A
Agreement. The following terms shall have the following respective meanings:
"Commission" shall mean the Securities and Exchange Commission or any
other federal agency at the time administering the Securities Act.
"Conversion Shares" shall mean the Common Stock issued or issuable upon
conversion of the Shares.
"Exchange Act" shall mean the Securities Exchange Act of 1934, as
amended, or any similar federal statute and the rules and regulations of the
Commission thereunder, all as the same shall be in effect at the time.
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"Holder" shall mean a holder of Registrable Securities, whether that
person is the Investor or any person holding Registrable Securities to whom the
rights under this Agreement have been transferred in accordance with Section 1.9
hereof.
"Initiating Holders" shall mean the Investor or transferees of the
Investor under Section 1.9 hereof who in the aggregate are Holders of not less
than fifty percent (50%) of the Registrable Securities then outstanding.
"Register", "registered" and "registration" shall refer to a
registration effected by preparing and filing a registration statement in
compliance with the Securities Act, and the declaration or ordering of the
effectiveness of such registration statement.
"Registration Expenses" shall mean all expenses incurred by the Company
in complying with Sections 1.2 and 1.3 hereof, including, without limitation,
all registration, qualification and filing fees, printing expenses, escrow fees,
fees and disbursements of counsel for the Company, blue sky fees and expenses
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).
"Registrable Securities" shall mean (i) the Conversion Shares; and (ii)
any Common Stock of the Company issued or issuable in respect of the Shares or
Conversion Shares or other securities issued or issuable with respect to the
Shares or Conversion Shares upon any stock split, stock dividend,
recapitalization, or similar event, or any Common Stock otherwise issued or
issuable with respect to the Shares or Conversion Shares (excluding any
securities issued pursuant to an acquisition); provided, however, that shares of
Common Stock or other securities shall only be treated as Registrable Securities
if and so long as they have not been sold to or through a broker or dealer or
underwriter in a public distribution or a public securities transaction.
"Restricted Securities" shall mean the securities of the Company
required to bear the legends referred to in Section 3.2 of the Stockholders'
Agreement.
"Securities Act" shall mean the Securities Act of 1933, as amended, or
any similar federal statute and the rules and regulations of the Commission
thereunder, all as the same shall be in effect at the time.
"Selling Expenses" shall mean all underwriting discounts, selling
commissions and stock transfer taxes applicable to the securities registered by
the Holders and all fees and disbursements of counsel for any Holder.
"Shares" shall mean the shares of Series A Preferred.
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1.2. Demand Registration.
(a) Request for Registration. As long as the Investor purchases
all 3,211,453 shares of Series A Preferred by the Second Closing Date after
satisfaction by the Company of all of the conditions to such Second Closing
Date, as set forth in the Series A Agreement, if at any time after the earlier
of six months following the Company's initial public offering and the date which
is three years from the Closing Date, Initiating Holders request (in writing)
that the Company file a Registration Statement for at least 50% (or in the event
of an underwritten offering such lesser percentage as may result from any
underwriter cutback pursuant to Section 1.2(b) hereof) of the then outstanding
Registrable Securities, provided that the reasonably anticipated aggregate
proceeds in a public offering would exceed $25.0 million if such offering would
constitute the initial public offering by the Company and $7.5 million in all
other cases (prior to Selling Expenses), the Company will:
(i) promptly give written notice of the proposed registration
to all other Holders; and
(ii) as soon as practicable, and in any event within sixty
(60) days of the receipt of such written request, 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 and any other governmental
requirements or regulations) as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Registrable
Securities as are specified in such request, together with all or such portion
of the Registrable Securities of any Holder or Holders joining in such request
as are specified in a written request received by the Company within thirty (30)
days after receipt of such written notice from the Company; provided, however,
that the Company shall not be obligated to take any action to effect any such
registration, qualification or compliance pursuant to this Section 1.2:
(1) 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;
(2) During the one hundred eighty (180) day period
following the effective date of the first public offering of the Common Stock
(or other securities) of the Company to the general public which is effected
pursuant to a registration statement filed with, and declared effective by, the
Commission under the Securities Act (the "Initial Public Offering");
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(3) If the Company shall deliver notice to the holders of
the Registrable Securities within thirty (30) days of any registration request
of its good faith intent to file a registration statement for the Initial Public
Offering within ninety (90) days, together with evidence reasonably satisfactory
to the holders of the Registrable Securities, that an underwriter has been
engaged in connection with such Initial Public Offering; provided that the
Company is actively employing in good faith all reasonable efforts to cause such
registration statement to become effective;
(4) After the Company has effected two (2) such
registrations pursuant to this subparagraph 1.2(a) and such registrations have
been declared or ordered effective and the Company has otherwise complied with
its obligations under Section 1.5 hereof with respect to such registrations;
(5) If the Company shall furnish to such Holders a
certificate, signed by the President of the Company, stating that in the good
faith judgment of the Board of Directors it would be seriously detrimental to
the Company or its shareholders for a registration statement to be filed in the
near future, then the Company's obligation to use its best efforts to register,
qualify or comply under this Section 1.2 shall be deferred for a period not to
exceed ninety (90) days from the date of receipt of written request from the
Initiating Holders; provided, however, that the Company may not utilize this
right more than once in any twelve (12) month period.
Subject to the foregoing clauses (1) through (5), the Company shall
file a registration statement covering the Registrable Securities so requested
to be registered as soon as practicable after receipt of the request or requests
of the Initiating Holders.
(b) Underwriting. In the event that a registration pursuant to
Section 1.2 is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as part of the notice given pursuant to
Section 1.2(a)(i). The right of any Holder to registration pursuant to Section
1.2 shall be conditioned upon such Holder's participation in the underwriting
arrangements required by this Section 1.2 and the inclusion of such Holder's
Registrable Securities in the underwriting, to the extent requested, to the
extent provided herein. Notwithstanding the foregoing, the Initiating Holders
seeking registration may (i) determine whether or not an offering pursuant to
this section will be underwritten and (ii) if underwritten, who the managing
underwriter will be.
The Company shall (together with all Holders proposing to distribute
their securities through such underwriting) enter into an underwriting agreement
in customary form with the managing underwriter selected for such underwriting
by the Initiating Holders. Notwithstanding any other provision of this Section
1.2, if the managing underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Company shall so advise all Holders of Registrable
Securities and the number of shares of Registrable Securities that may be
included in the registration and underwriting shall be allocated among all
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Holders thereof in proportion, as nearly as practicable, to the respective
amounts of Registrable Securities held by such Holders at the time of filing the
registration statement; provided, however, that the number of Registrable
Securities to be included in such underwriting shall not be reduced unless all
other securities are first entirely excluded from the underwriting. No
Registrable Securities excluded from the underwriting by reason of the
underwriter's marketing limitation shall be included in such registration. To
facilitate the allocation of shares in accordance with the above provisions, the
Company or the underwriters may round the number of shares allocated to any
Holder to the nearest 100 shares.
If any Holder of Registrable Securities disapproves of the terms of the
underwriting, such person may elect to withdraw therefrom by written notice to
the Company, the managing underwriter and the Initiating Holders. The
Registrable Securities and/or other securities so withdrawn shall also be
withdrawn from registration.
1.3. Company Registration.
(a) Notice of Registration. If, following the Company's initial
public offering, at any time or from time to time, the Company shall determine
to register any of its securities, either for its own account or the account of
a security holder or holders other than (i) a registration relating solely to
employee benefit plans, or (ii) a registration relating solely to a Commission
Rule 145 transaction, the Company will:
(i) promptly give to each Holder written notice thereof; and
(ii) 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 thirty (30) days after receipt of such written notice
from the Company by any Holder.
(b) Underwriting. If the registration of which the Company gives
notice is for a registered public offering involving an underwriting, the
Company shall so advise the Holders as a part of the written notice given
pursuant to Section 1.3(a)(i). In such event, the right of any Holder to
registration pursuant to Section 1.3 shall be conditioned upon such Holder's
participation in such underwriting and the inclusion of 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 and the other holders distributing their securities through such
underwriting) enter into an underwriting agreement in customary form with the
managing underwriter selected for such underwriting by the Company.
Notwithstanding any other provision of this Section 1.3, if the managing
underwriter determines that marketing factors require the elimination or a
limitation of the shares to be underwritten, the managing underwriter may choose
to eliminate or limit such shares. Any limit on the number of Registrable
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Securities to be included in the registration and underwriting, will be done so
on a pro rata basis based on the total number of securities (including, without
limitation, Registrable Securities) entitled to registration pursuant to
registration rights granted by the Company. 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 or other holder to the
nearest 100 shares. If any Holder or other holder disapproves of the terms of
any such underwriting, he or she may elect to withdraw therefrom by written
notice to the Company and the managing underwriter. Any securities excluded or
withdrawn from such underwriting shall be withdrawn from such registration.
(c) Right to Terminate Registration. The Company shall have the
right to terminate or withdraw any registration initiated by it under this
Section 1.3 prior to the effectiveness of such registration, whether or not any
Holder has elected to include securities in such registration.
1.4. Expenses of Registration. All Registration Expenses incurred in
connection with any registration pursuant to Sections 1.2 and 1.3 shall be borne
by the Company, provided that the Company shall not be required to pay the
Registration Expenses of any registration proceeding begun pursuant to Section
1.2, the request of which has been subsequently withdrawn by the Initiating
Holders, unless the Initiating Holders agree to forfeit their right to one
demand registration under Section 1.2. In such case as the Holders are
responsible for such Registration Expenses, (i) the Holders of Registrable
Securities to have been registered shall bear all such Registration Expenses pro
rata on the basis of the number of shares to have been registered, and (ii) the
Company shall be deemed not to have effected a registration pursuant to
subparagraph 1.2(a) of this Agreement. Notwithstanding the foregoing, however,
if at the time of the 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, then the Holders shall not be required
to pay any of said Registration Expenses. In such case, the Company shall be
deemed not to have effected a registration pursuant to subparagraph 1.2(a) of
this Agreement. Unless otherwise stated, all Selling Expenses relating to
securities registered on behalf of the Holders and all other registration
expenses incurred in connection with any registration pursuant to this Section 1
shall be borne by the Holders of the registered securities included in such
registration pro rata on the basis of the number of shares so registered.
1.5. Registration Procedures. In the case of each registration by the
Company pursuant to this Section 1, the Company will keep each Holder advised in
writing as to the initiation of each registration and as to the completion
thereof. At its expense the Company will:
(a) Prepare and file with the Commission a registration statement
(and amendments and supplements thereto) with respect to such securities and use
its best efforts to cause such registration statement (and amendments and
supplements thereto) to become and remain effective for at least one hundred
eighty (180) days or until the distribution described in the registration
statement has been completed;
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(b) Furnish to the Holders participating in such registration and
to the underwriters of the securities being registered such reasonable number of
copies of the registration statement, preliminary prospectus, final prospectus
and such other documents as such underwriters may reasonably request in order to
facilitate the public offering of such securities;
(c) Use commercially reasonable efforts to register and qualify
the securities covered by the 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 Act;
(d) In the event of any underwritten public offering, enter into
and perform all 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;
(e) Immediately 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 statement therein not misleading in light of the circumstances then
existing;
(f) Cause all such Registrable Securities registered pursuant
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed;
(g) Provide a transfer agent and registrar for all Registrable
Securities registered pursuant hereunder and a CUSIP number for all such
Registrable Securities, in each case not later than the effective date of such
registration; and
(h) Use commercially reasonable efforts to furnish, at the request
of any Holder requesting registration of Registrable Securities pursuant to this
Section 1, on the date that such Registrable Securities are delivered to the
underwriters for sale in connection with a registration pursuant to this Section
1, if such securities are being sold through underwriters, or, if such
securities are not being sold through underwriters, on the date that the
registration statement with respect to such securities becomes effective, (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 to the Holders requesting registration of Registrable Securities and
(ii) a 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, and to the Holders requesting
registration of Registrable Securities.
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1.6. Indemnification.
(a) The Company will indemnify each Holder of Registrable
Securities included in a registration pursuant to this Agreement, each of its
officers and directors and partners, and each person controlling such Holder
within the meaning of Section 15 of the Securities Act, with respect to each
registration effected pursuant to this Agreement, and each underwriter, if any,
and each person who controls any underwriter within the meaning of Section 15 of
the Securities Act, against all expenses, claims, losses, damages or liabilities
(or actions in respect thereof), including any of the foregoing incurred in
settlement of any litigation, commenced or threatened, arising out of or based
on any untrue statement (or alleged untrue statement) of a material fact
contained in any registration statement, prospectus, offering circular or other
document, or any amendment or supplement thereto, incident to any such
registration, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein, in light of the circumstances in which they were made, not misleading,
or any violation by the Company of the Securities Act, the Exchange Act, state
securities laws or any rule or regulation promulgated under such laws applicable
to the Company in connection with any such registration, and the Company will
reimburse each such Holder, each of its officers and directors and partners, and
each person controlling such Holder, each such underwriter and each person who
controls any such underwriter, for any legal and any other expenses reasonably
incurred in connection with investigating, preparing or defending any such
claim, loss, damage, liability or action, as such expenses are 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 or alleged untrue statement or omission, made
in reliance upon and in conformity with written information furnished to the
Company by an instrument duly executed by any Holder, controlling person or
underwriter and stated to be specifically for use therein.
(b) Each Holder will, if Registrable Securities held by such
Holder are included in the securities as to which such registration is being
effected, indemnify the Company, each of its directors and officers, each
underwriter, if any, of the Company's securities covered by such a registration
statement, each person who controls the Company or such underwriter within the
meaning of Section 15 of the Securities Act, and each other such Holder, each of
its officers, directors and partners and each person controlling such Holder
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within the meaning of Section 15 of the Securities Act, against all claims,
losses, damages and liabilities (or actions in respect thereof) arising out of
or based on any untrue statement (or alleged untrue statement) of a material
fact contained in any such registration statement, prospectus, offering circular
or other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading, and will reimburse the Company, such Holders, such
directors, officers, partners, persons, underwriters 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 such expenses
are 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. Notwithstanding the foregoing, the liability of
each Holder under this Section 1.6(b) shall be limited to an amount equal to the
net proceeds of the shares sold by such Holder, unless such liability arises out
of or is based on the willful misconduct by such Holder.
(c) Each party entitled to indemnification under this Section 1.6
(the "Indemnified Party") shall give notice to the party required to provide
indemnification (the "Indemnifying Party") promptly after such Indemnified Party
has actual knowledge of any claim as to which indemnity may be sought, and shall
permit the Indemnifying Party to assume the defense of any such claim or any
litigation resulting therefrom, provided that counsel for the Indemnifying
Party, who shall conduct the defense of such claim or litigation, shall be
approved by the Indemnified Party (whose approval shall not unreasonably be
withheld), and the Indemnified Party may participate in such defense at such
party's expense; 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 of any Indemnified Party to give notice as provided
herein shall not relieve the Indemnifying Party of its obligations under this
Section 1 unless the failure to give such notice is materially prejudicial to an
Indemnifying Party's ability to defend such action. 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.
1.7. Information by Holder. The Holder or Holders of Registrable
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders, the Registrable Securities held by
them and the distribution proposed by such Holder or Holders as the Company may
request in writing and as shall be required in connection with any registration,
qualification or compliance referred to in this Section 1.
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1.8. 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) Make and keep public information available, as those terms are
understood and defined in Rule 144 under the Securities Act, at all times after
the effective date that the Company becomes subject to the reporting
requirements of the Securities Act or the Exchange Act;
(b) File with the Commission in a timely manner all reports and
other documents required of the Company under the Securities Act and the
Exchange Act (at any time after it has become subject to such reporting
requirements); and
(c) So long as the Investor owns any Restricted Securities, to
furnish to the Investor 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 of the Company and other information in the possession of or
reasonably obtainable by the Company as the Investor may reasonably request in
availing itself of any rule or regulation of the Commission allowing the
Investor to sell any such securities without registration.
1.9. Transfer of Registration Rights. The rights to cause the Company
to register securities granted to the Investor under Sections 1.2 and 1.3 may be
assigned to a transferee or assignee in connection with any transfer or
assignment of Registrable Securities by the Investor (together with any
affiliate); provided that (a) such transfer may otherwise be effected in
accordance with applicable securities laws, (b) written notice of such
assignment is given to the Company, and (c) such transferee or assignee (i) is a
wholly-owned subsidiary or constituent partner (including limited partners,
retired partners, spouses and ancestors, lineal descendants and siblings of such
partners) (ii) is a family member or trust for the benefit of such Investor or
spouses (who acquire Registrable Securities by gift, will or intestate
succession) of such Investor, or (iii) acquires from such Investor at least
150,000 shares of Registrable Securities (as appropriately adjusted for stock
splits and the like).
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1.10. Standoff Agreement. Each Holder agrees in connection with the
initial public offering of the Company's securities (other than a registration
of securities in a Rule 145 transaction or with respect to an employee benefit
plan) that, upon request of the Company and its underwriters managing any
underwritten offering of the Company's securities to enter into an agreement,
not to sell, make any short sale of, loan, grant any option for the purchase of,
or otherwise dispose of any Registrable Securities (other than those included in
the registration) without the prior written consent of the Company and such
underwriters, as the case may be, for such period of time (not to exceed one
hundred eighty (180) days from the effective date of such registration) as may
be requested by the Company or such managing underwriters; provided, that (i)
the officers and directors of the Company who own stock of the Company also
agree to such restrictions and (ii) the holders of the Company's securities with
registration rights similar to those granted in Sections 1.2 and 1.3 herein also
agree to, or are bound by, such restrictions.
SECTION II.
Preemptive Rights
2.1. Investor's Preemptive Rights for New Securities Issued by the
Company.
(a) Preemptive Rights. The Company hereby grants to the Investor
the right of first offer to purchase its Pro Rata Portion of any New Securities
(as defined in subsection 2.1(b)) which the Company may, from time to time,
propose to sell and issue. The Investor's "Pro Rata Portion" for purposes of
this Section 2.1 is the ratio that (x) the sum of the number of shares of the
Company's Common Stock then held by such Investor and the number of shares of
the Company's Common Stock issuable upon conversion of the Preferred Stock then
held by such Investor bears to (y) the sum of the total number of shares of
Company's Common Stock then outstanding and the number of shares of the
Company's Common Stock issuable upon conversion of the then outstanding
securities then exercisable for or convertible into, directly or indirectly,
shares of Common Stock.
(b) Definition of New Securities. Except as set forth below, "New
Securities" shall mean any shares of capital stock of the Company, including,
without limitation, Common Stock and Preferred Stock, whether authorized or not,
and rights, options or warrants to purchase said shares of Common Stock or
Preferred Stock, and securities of any type whatsoever that are, or may become,
convertible into said shares of Common Stock or Preferred Stock. Notwithstanding
the foregoing, "New Securities" does not include (i) the Shares or the
Conversion Shares, (ii) securities offered to the public generally pursuant to a
registration statement under the Securities Act, (iii) securities issued
pursuant to the acquisition of another corporation by the Company by merger,
purchase of substantially all of the assets or shares or other reorganization
whereby the Company or its shareholders own not less than a majority of the
voting power of the surviving or successor corporation, (iv) up to 1,604,690
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shares of the Company's Common Stock or related options convertible into or
exercisable for such Common Stock issued to employees, doctors, officers and
directors of, and consultants to, the Company, pursuant to any arrangement
approved by the Board of Directors of the Company, provided that such number of
shares of Common Stock may be increased by a majority vote of the members of the
Compensation Committee (as reconstituted in accordance with Section 3.4 below)
of the Board of Directors after the Closing Date, (v) shares of the Company's
Common Stock or related options convertible into or exercisable for such Common
Stock issued to any bank, equipment lessor or other similar financial
institution if and to the extent that the transaction in which such sale or
grant is to be made is approved by a majority of the Company's Board of
Directors, including at least one of the Investor Directors (if the Investor has
a right to elect directors), as defined in the Stockholders' Agreement (vi)
shares of the Company's Common Stock issued (or options, warrants, or similar
rights issued) in connection with agreements to license technology or agreements
to provide sponsored research if and to the extent that such issuance is
approved by a majority of the members of the Company's Board of Directors,
including at least one of the Investor Directors (if the Investor has a right to
elect directors) (vii) stock issued pursuant to any rights or agreements,
including, without limitation, convertible securities, options and warrants,
provided that the Company shall have complied with the right of first offer
established by this Section 2.1 with respect to the initial sale or grant by the
Company of such rights or agreements, or (viii) stock issued in connection with
any stock split, stock dividend or recapitalization by the Company.
(c) Notice of Right. In the event the Company proposes to
undertake an issuance of New Securities, it shall give the Investor at least
thirty (30) days prior written notice (sixty (60) days prior written notice if
such transaction involves the sale and issuance of more than 25% of the
Company's equity securities) of its intention, describing the type of New
Securities and the price and terms upon which the Company proposes to issue the
same. The Investor shall have twenty (20) days from the date of receipt of any
such notice to agree to purchase shares of such New Securities (up to the amount
referred to in subsection 2.1(a)), for the price and upon the terms specified in
the notice, by giving written notice to the Company and stating therein the
quantity of New Securities to be purchased. Notwithstanding the foregoing, in
the event that the Company is to sell and issue more than 25% of its equity
securities in any one transaction, the Investor's Super-Voting Right, as defined
below, will remain in effect for a maximum of ninety (90) days following the
receipt of the notice relating to such sale.
(d) Exercise of Right. If the Investor exercises its right of
first refusal hereunder, the closing of the purchase of the New Securities with
respect to which such right has been exercised shall take place within sixty
(60) calendar days after the Investor gives notice of such exercise, which
period of time shall be extended in order to comply with applicable laws and
regulations. Upon exercise of such right of first refusal, the Company and the
Investor shall be legally obligated to consummate the purchase contemplated
thereby, subject to customary standard closing conditions, and shall use their
best efforts to secure any approvals required in connection therewith.
-12-
(e) Lapse and Reinstatement of Right. In the event the Investor
fails to exercise the right of first refusal provided in this Section 2.1 within
the period specified in 2.1(c) and 2.1(d), the Company shall have forty-five
(45) days thereafter to sell or enter into an agreement with the purchaser
thereof (pursuant to which the sale of New Securities covered thereby shall be
closed, if at all, within forty-five (45) days from the date of said agreement)
to sell the New Securities not elected to be purchased by the Investor at the
price and upon the terms no more favorable to the purchasers of such securities
than specified in the Company's notice. In the event the Company has not sold
the New Securities or entered into such an agreement to sell the New Securities
within said forty-five (45) day period (or sold and issued New Securities in
accordance with the foregoing within forty-five (45) days from the date of said
agreement), the Company shall not thereafter issue or sell any New Securities
without first offering such securities to the Investor in the manner provided
above.
(f) Valuation of Property. Should the purchase price specified in
the notice be payable in property other than cash or evidences of indebtedness,
the Investor shall have the right to pay the purchase price in the form of cash
equal in amount to the value of such property. If the Investor and the Company
cannot agree on such cash value within fifteen (15) days after the receipt of
notice, the valuation shall be made by an appraiser of recognized standing
selected by the Investor and the Company or, if they cannot agree on an
appraiser within twenty (20) days after the receipt of notice, each shall select
an appraiser of recognized standing and the two appraisers shall designate a
third appraiser of recognized standing, whose appraisal shall be determinative
of such value. The cost of such appraisal shall be shared equally by the
Investor and the Company. The Investor may elect, either before or after an
appraisal has been completed, to withdraw its offer to purchase New Securities,
in which event any costs associated with the selection and retention of
appraiser(s) shall be borne by Investor. If the time for the closing of the
purchase has expired but for the determination of the value of the purchase
price, then such closing shall be held on or prior to the fifth business day
after such valuation shall have been made pursuant to this subsection.
2.2. Assignment. The right of the Investor to purchase any part of the
New Securities may be assigned by the Investor to a third party who acquires at
least 1,000,000 shares of Restricted Securities (as adjusted for stock splits
and the like), provided that the Company receives written notice of such
assignment.
2.3. Termination of Preemptive Rights. The rights under Section 2.1 of
this Agreement shall terminate on and be of no further force or effect on the
date of the closing of a firmly underwritten public offering on Form S-1 or Form
SB-2 resulting in aggregate gross proceeds to the Company of at least
$20,000,000, before deduction of underwriters commissions and expenses and
reflecting a post-initial public offering valuation of the Company, on a pro
forma basis, of at least $60.0 million (a "Qualified Public Offering"), on which
the Company is required to file reports with the Commission pursuant to Section
13 or 15(d) of the Exchange Act.
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SECTION III.
Affirmative Covenants of the Company
------------------------------------
The Company hereby covenants and agrees as follows:
3.1. Financial Information. So long as the Investor owns at least 5% of
the Preferred Stock or is required to file SEC reports, the Company will furnish
to the Investor:
(a) As soon as practicable after the end of each fiscal year, and
in any event within sixty (60) days thereafter, audited financial statements,
certified as true and correct by the chief financial officer of the Company, of
the Company and its subsidiaries, if any, as of the end of such fiscal year,
prepared in accordance with generally accepted accounting principles
consistently applied and setting forth in comparative form the figures for the
previous fiscal year, all in reasonable detail and audited by independent public
accountants of national standing selected by the Company and reasonably
acceptable to the Investor (it being understood that each of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇ LLP
and any "Big Five" accounting firm shall be acceptable to the Investor) and a
statement showing the number of shares of each class and series of capital stock
and securities convertible into or exercisable for shares of capital stock
outstanding at the end of the period, the number of common shares issuable upon
conversion or exercise of any outstanding securities convertible or exercisable
for common shares and the exchange ratio or exercise price applicable thereto,
all in sufficient detail as to permit the Investor to calculate its percentage
equity ownership in the Company on a fully diluted basis; and
(b) As soon as practicable, but in any event within twenty-five
(25) days after the end of each of the first three (3) quarters of each fiscal
year of the Company, interim financial statements, certified as true and correct
by the chief financial officer of the Company, prepared in accordance with
generally accepted accounting principles consistently applied as of the end of
such fiscal quarter and a statement showing the number of shares of each class
and series of capital stock and securities convertible into or exercisable for
shares of capital stock outstanding at the end of the period, the number of
common shares issuable upon conversion or exercise of any outstanding securities
convertible or exercisable for common shares and the exchange ratio or exercise
price applicable thereto, all in sufficient detail as to permit the Investor to
calculate its percentage equity ownership in the Company on a fully diluted
basis.
3.2. Financial Information Following a Public Offering. Following the
Company's initial public offering, the Company will deliver or make available to
the Investor copies of the Company's 10-K's, 10-Q's, 8-K's and Annual Reports to
-14-
Shareholders promptly after such documents are filed with the Securities and
Exchange Commission. The Company shall use its best efforts to make such
information available to the Investor, and otherwise cooperate with the Investor
to assure that such information is received by the Investor in a time frame
which allows the Investor a reasonable opportunity to timely meet its filing
obligations under the Securities Act and the Exchange Act (without giving effect
to any potential extension periods that may be associated with such acts).
3.3. Assignment of Rights to Financial Information. The rights granted
pursuant to Section 3.1 may be assigned by the Investor to a third party who
acquires at least 1,000,000 shares of Restricted Securities (as adjusted for
stock splits and the like), provided that the Company receives written notice of
such assignment.
3.4. Board of Directors. The Company's Board of Directors shall provide
that the Investor shall have the right to elect two (2) directors; provided,
however, that the Investor shall no longer have the right to elect two (2)
directors in the event the Company shall satisfy all of the conditions precedent
to the Second Closing Date set forth in the Series A Agreement and the Investor
shall fail to purchase the remaining 2,211,453 shares of Series A Preferred
Stock on or prior to the Second Closing Date. If the Company issues $7.0 million
or more in equity to one investor, and that investor is only entitled to
designate one (1) director (or none), then the Investor will be entitled to
designate one (1) director. The directors designated by the Investor are
referred to as the "Investor Directors". At all times the Board of Directors
will have both a Compensation Committee and an Audit Committee. Except as
otherwise set forth in the Stockholders' Agreement, the Compensation Committee
will be comprised of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, MD, one outside director and one
Investor Directors (if applicable). The Audit Committee will be comprised
exclusively of outside directors and one (1) Investor Director (if applicable).
3.5. Insurance. As soon as practicable, the Company shall maintain key
man life insurance policies in the amount of $5,000,000 (if possible, but in no
event less than $1,000,000) on the life of ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, MD, $1,000,000
on the life of ▇▇▇▇▇▇▇ Caleb, M.D. and $1,000,000 on the life of ▇▇▇▇▇ ▇▇▇▇▇▇▇▇
naming the Company as beneficiary and shall use commercially reasonable efforts
to obtain and maintain directors and officers liability insurance as soon as
practicable in an amount and under such terms and with such insurer as is
reasonably acceptable to the Investor Directors (if applicable). ▇▇▇▇▇▇ ▇.
▇▇▇▇▇▇▇▇▇, MD, ▇▇▇▇▇▇▇ ▇. ▇▇▇▇▇, MD and ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇ will enter into
employment agreements with the Company satisfactory to the Investor.
3.6. Definition of Investor. For purposes of determining the amount of
shares held by an Investor, all entities affiliated with an Investor shall be
treated as a single investor.
-15-
3.7. Reserved Employee Shares. The 1,604,690 shares of Common Stock
reserved for employees, officers, directors of, doctors, and consultants to, the
Company (the "Employee Shares"), are to be issued from time to time under
restricted stock purchase agreements and the Company's stock plan as may be
determined and approved by the Board of Directors. Unless unanimously approved
by the Board of Directors, any additional options issued after the Closing Date
shall only be issued at a price equal to the fair market value at the time of
grant upon approval of a majority of the members of the Compensation Committee.
3.8. Voting Rights Regarding Election of Directors. As long as the
Investor and its Permitted Transferees hold all of the Series A Preferred Stock,
each share of Series A Preferred shall have the voting rights, with respect to
the election of directors, equivalent to such number of shares of Common Stock
as will guarantee that the Investor, only for the purpose of electing directors,
(i) shall have no less than 26% of the voting power of the outstanding capital
stock of the Company and (ii) will be the single largest such voting shareholder
(the "Super Voting Right"), unless, in either case, the Investor does not
exercise any preemptive rights it may have or the Company issues more than 25%
of its then outstanding equity in any transaction to a single person or entity.
Notwithstanding the foregoing, the Investor shall no longer have such
Super-Voting Right in the event the Company shall satisfy all of the conditions
precedent to the Second Closing Date set forth in the Series A Agreement and the
Investor shall fail to purchase the remaining 2,211,453 shares of Series A
Preferred Stock on or prior to the Second Closing Date. Notwithstanding anything
herein to the contrary, in the event that the Company fails to deliver to the
Investor by March 21, 2000 a binder or policy evidencing the Insurance and the
Investor does not purchase the remaining 2,211,453 Shares, then Investor shall
not have the Super-Voting Right as of June 26, 2000. This Super-Voting Right
will be assignable by the Investor to any transferee or purchaser of all of the
Shares owned by the Investor (whether pursuant to one or more closings, and, as
adjusted), but if and only if such rights are reasonably necessary for the
transferee not to be considered an Investment Company, as defined in the
Investment Company Act of 1940, as amended, and if a majority of the Board of
Directors approves such transfer, such approval not to be unreasonably withheld.
3.9. Election of Chief Medical Officer. ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, M.D. shall
have the right to approve the Board of Director's election of the first Chief
Medical Officer of the Company, such approval not to be unreasonably withheld.
3.10. Notification of Issuance of Securities. As long as the Investor
shall own at least one million (1,000,000) shares of Restricted Securities (as
adjusted for stock splits and the like), the Company shall give the Investor
notice of any discussions or negotiations that may reasonably lead to a
transaction involving the issuance of New Securities and will advise Investor of
the status of the negotiations or discussions, subject to confidentiality
requirements.
-16-
3.11. Termination of Certain Covenants. The covenants set forth in this
Section other than Section 3.2 hereof shall terminate on, and be of no further
force or effect after, the date of closing of a Qualified Public Offering on
which the Company is required to file reports with the Commission pursuant to
Section 13 or 15(d) of the Exchange Act.
3.12. 1998 Audit. Within thirty (30) days of the Closing Date, the
Company shall use its best efforts to deliver to the Investor audited financial
statements as of, and for the period ended, December 31, 1998, prepared by ▇▇▇▇▇
▇▇▇▇▇▇▇▇ LLP in accordance with generally accepted accounting principles
consistently applied.
SECTION IV.
Miscellaneous
-------------
4.1. Governing Law. This Agreement shall be governed in all respects by
the laws of the State of New York.
4.2. Third Parties. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto, and their
respective successors and assigns, any rights, remedies, obligations or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
4.3. Survival. The representations, warranties, covenants and
agreements made herein shall survive any investigation made by the Investor and
the closing of the transactions contemplated hereby. All statements as to
factual matters contained in any certificate or exhibit delivered by or on
behalf of the Company pursuant hereto shall be deemed to be the representations
and warranties of the Company hereunder as of such date of such certificate or
exhibit.
4.4. Successors and Assigns. Except as otherwise provided herein, the
provisions hereof shall inure to the benefit of, and be binding upon, the
successors, assigns, heirs, executors and administrators of the parties hereto.
4.5. Entire Agreement; Amendment. This Agreement and the other
documents delivered pursuant hereto constitute the full and entire understanding
and agreement among the parties with regard to the subjects hereof and thereof.
Neither this Agreement nor any term hereof may be amended, waived, discharged or
terminated other than by a written instrument signed by the party against whom
enforcement of any such amendment, waiver, discharge or termination is sought.
4.6. Rights of Holders. Each holder of Registrable Securities shall
have the absolute right to exercise or refrain from exercising any right or
rights that such holder may have by reason of this Agreement, including, without
-17-
limitation, the right to consent to the waiver or modification of any obligation
under this Agreement, and such holder shall not incur any liability to any other
holder of any securities of the Company as a result of exercising or refraining
from exercising any such right or rights.
4.7. Notices, Etc. All notices and other communications required or
permitted hereunder shall be in writing and shall be mailed by registered or
certified mail, postage prepaid, return receipt requested, or otherwise
delivered by hand or by messenger, addressed (a) if to the Investor, at such
Investor's address set forth on Exhibit A, or at such other address as the
Investor shall have furnished to the Company in writing, or (b) if to any other
holder of any Shares, at such address as such holder shall have furnished the
Company in writing, or, until any such holder so furnishes an address to the
Company, then to and at the address of the last holder of such Shares who has so
furnished an address to the Company, or (c) if to the Company, at its address
set forth on the first page of this Agreement addressed to the attention of the
Corporate Secretary, or at such other address as the Company shall have
furnished to the Investors. If notice is provided by mail, notice shall be
deemed to be given upon proper deposit with the United States mail.
4.8. Delays or Omissions. No delay or omission to exercise any right,
power or remedy accruing to the Company or any holder of any Shares under this
Agreement shall impair any such right, power or remedy of the Company or such
holder, nor shall it be construed to be a waiver of any such breach or default,
or an acquiescence therein, or of 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 the
Company or any holder of any breach or default under this Agreement, or any
waiver on the part of the Company or any holder 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 or as provided in this Agreement. All
remedies, either under this Agreement or by law or otherwise afforded to the
Company or any holder, shall be cumulative and not alternative.
4.9. Counterparts. This Agreement may be executed in any number of
counterparts, each of which may be executed by less than all parties hereto,
each of which shall be enforceable against the parties actually executing such
counterparts, and all of which together shall constitute one instrument.
4.10. Severability of this Agreement. In the event that any provision
of this Agreement becomes or is declared by a court of competent jurisdiction to
be illegal, unenforceable or void, this Agreement will continue in full force
and effect without said provision and the parties agree to replace such
provision with a valid and enforceable provision that will achieve, to the
extent possible, the economic, business and other purposes of such provisions;
provided that no such severability will be effective against a party if it
materially and adversely changes the economic benefits of this Agreement to such
party.
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4.11. Attorneys' 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
expenses of attorneys and accountants, which shall include, without limitation,
all fees, costs and expenses of appeals. This right is in addition to any remedy
available at law or in equity.
4.12. Further Assurances. The parties shall cooperate and take such
actions, and execute such other documents as either may reasonably request in
order to carry out the provisions or purposes of this Agreement.
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HEALTHOLOGY, INC. SERIES A INVESTOR:
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, MD
----------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇▇, MD SEAL HOLDINGS
President and Chief CORPORATION
Executive Officer
By: /s/ ▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, MD
------------------------------------
▇▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇▇, MD
President and Chief Executive Officer
EXHIBIT A
SERIES A INVESTOR SCHEDULE
No. of Shares of
Name Series A Preferred
3,211,453
SEAL Holdings Corporation
▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇ ▇▇▇▇▇▇▇
▇▇▇▇▇ ▇▇▇
▇▇▇▇ ▇▇▇▇▇▇▇▇▇▇, ▇▇ ▇▇▇▇▇