RESTORE MEDICAL, INC. INVESTORS’ RIGHTS AGREEMENT January 28, 2004

Exhibit 4.2

RESTORE MEDICAL, INC.

INVESTORS’ RIGHTS AGREEMENT

January 28, 2004

TABLE OF CONTENTS


	Page
1. REGISTRATION RIGHTS		1
1.1 Definitions		1
1.2 Request for Registration		2
1.3 Company Registration		4
1.4 Form S-3 Registration		6
1.5 Obligations of the Company		7
1.6 Information from Holder		8
1.7 Expenses of Registration		8
1.8 Delay of Registration		9
1.9 Indemnification		9
1.10 Reports Under the 1934 Act		12
1.11 Assignment of Registration Rights		12
1.12 Limitations on Subsequent Registration Rights		13
1.13 “Market Stand-Off’ Agreement		13
1.14 Termination of Registration Rights		14
1.15 Black-Out Period		14

2. COVENANTS OF THE COMPANY		15
2.1 Delivery of Financial Statements		15
2.2 Inspection		15
2.3 Termination of Information and Inspection Covenants		16
2.4 Right of First Offer		16
2.5 Proprietary Information and Inventions Agreements		17
2.6 Compensation and Audit Committees		18
2.7 Director and Officer Liability Insurance		18
2.8 Qualified Small Business Stock		18

3. BOARD OF DIRECTORS		18
3.1 Articles of Incorporation		18
3.2 Agreement to Vote		19
3.3 Board Size		19
3.4 Election of Directors		19
3.5 Removal; Vacancies		21
3.6 Legend		21
3.7 No Liability for Election of Recommended Directors		21
3.8 Termination of Voting Provisions		21
3.9 Board Observation Rights		21

4. DRAG-ALONG RIGHTS		22

5. LIMITED POWER OF ATTORNEY		23

6. PAY-TO-PLAY FINANCING		24


	Page
7. REORGANIZATION OF THE COMPANY		24

8. ADDITIONAL COVENANTS		24
8.1 Required Financing		24
8.2 Consent to Pay-to-Play		25
8.3 Investors’ Rights Agreement		25

9. MISCELLANEOUS		25
9.1 Successors and Assigns		25
9.2 Governing Law		25
9.3 Counterparts		25
9.4 Titles and Subtitles		26
9.5 Notices		26
9.6 Expenses		26
9.7 Entire Agreement; Amendments and Waivers		26
9.8 Severability		27
9.9 Aggregation of Stock		27
9.10 Restrictions of Transfer		27
9.11 Massachusetts Business Trusts		28

INVESTORS’ RIGHTS AGREEMENT

THIS INVESTORS’ RIGHTS AGREEMENT (the “Agreement”) is made as of the 28`h day of January, 2004, by and among Restore Medical, Inc., a Minnesota corporation (the “Company”), the investors and certain other shareholders of the Company listed on Schedule A hereto, each of which is herein referred to as an “Investor,” and the holders of the Company’s capital stock listed on Schedule B hereto, each of whom is herein referred to as a “Founder”

RECITALS

WHEREAS, the Company and certain Investors are parties to the Series C and Series C-1 Preferred Stock and Warrant Purchase Agreement of even date herewith (the “Series C/C-1 Agreement”); and

WHEREAS, in order to induce such Investors to purchase Series C Preferred Stock and Series C-1 Preferred Stock (collectively, the “Series C Preferred”) and invest funds in the Company pursuant to the Series C/C-1 Agreement, the Investors, the Founders and the Company hereby desire to enter into this Agreement.

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:

1. Registration Rights. The Company covenants and agrees as follows:

1.1 Definitions. For purposes of this Section 1:

(a) The term “Act” means the Securities Act of 1933, as amended.

(b) The term “Common Stock” means the Company’s Common Stock, par value $.01 per share.

(c) The term “Form S-3” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

(d) The term “Holder” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof.

(e) The term “Initial Offering” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.

(f) The term “1934 Act” means the Securities Exchange Act of 1934, as amended.

(g) The term “Preferred Stock” means the Company’s Series A Preferred Stock, Series B Preferred Stock and Series C Preferred Stock, each with a par value of $.01 per share.

(h) The terms “register,” “registered,” and “registration” refer to a registration effected by preparing and filing a registration statement or similar document in compliance with the Act, and the declaration or ordering of effectiveness of such registration statement or document.

(i) The term “Registrable Securities” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock and (ii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned.

(j) The number of shares of “Registrable Securities” outstanding shall be determined by the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.

(k) The term “Rule 144” shall mean Rule 144 under the Act.

(l) The term “Rule 144(k)” shall mean subsection (k) of Rule 144 under the Act.

(m) The term “SEC” shall mean the Securities and Exchange Commission.

1.2 Request for Registration.

(a) Subject to the conditions of this Section 1.2, if the Company shall receive at any time after six (6) months after the effective date of the Initial Offering, a written request from the Holders of fifty-one percent (51%) or more of the Registrable Securities then outstanding (for purposes of this Section 1.2, the “Initiating Holders”) that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $10,000,000, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use all commercially reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 1.2(a); provided, however, that only one such request may be made by Holders during any twelve (12) month period.

(b) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2 and the Company shall include such information in the written notice referred to in Section 1.2(a). In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by a majority in interest of the Initiating Holders and such Holder) to the extent provided herein. All Holders proposing to distribute their securities through such underwriting shall 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 (which underwriter or underwriters shall be reasonably acceptable to the Company). Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation on the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities pro rata based on the number of Registrable Securities held by all such Holders (including the Initiating Holders). In no event shall any Registrable Securities be excluded from such underwriting unless all other securities are first excluded. Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

(c) Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 1.2:

(i) in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or

(ii) after the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective; or

(iii) during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date one hundred eighty (180) days following the effective date of a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such registration statement to become effective; or

(iv) if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or

(v) if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board 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 effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than one hundred twenty (120) days after receipt of the request of the Initiating Holders, provided that such right shall be exercised by the Company not more than once in any twelve (12) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such one hundred twenty (120) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered).

1.3 Company Registration.

(a) If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than a registration relating solely to the initial public offering of the Company’s securities, the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration. Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 9.5, the Company shall, subject to the provisions of Section 1.3(c), use all commercially reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder requests to be registered.

(b) 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. The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof.

(c) Underwriting Requirements. In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with such underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company. If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering. In no event shall any Registrable Securities held by holders that purchased shares of Series C Preferred Stock pursuant to the Series C/C-1 Agreement be excluded from such offering unless all other stockholders’ securities (including, without limitation, the holders of Series C-1 Preferred Stock) have been first excluded. In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually be agreed to by all such selling Holders. Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below thirty percent (30%) of the total amount of securities included in such offering, unless such offering is the initial public offering of the Company’s securities, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included in such offering. For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, mutual fund, business trust, partnership or corporation, the affiliated venture capital funds, mutual funds, business trusts, partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be based upon the aggregate

amount of Registrable Securities owned by all such related entities and individuals.

1.4 Form S-3 Registration. In case the Company shall receive from Holders of Registrable Securities (for purposes of this Section 1.4, the “Initiating Holders”) a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:

(a) promptly give written notice of the proposed registration, and any related qualification or compliance, to all other Holders; and

(b) use all commercially reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other 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, however, that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this section 1.4:

(i) if Form S-3 is not available for such offering by the Holders;

(ii) if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell less than 100,000 Registrable Securities (as adjusted for stock splits, stock dividends, combinations or the like);

(iii) if the Company has, within the twelve (12) month period preceding the date of such request, already effected two registrations on Form S-3 for the Holders pursuant to this Section 1.4;

(iv) in any particular jurisdiction in which the Company would be required to qualify to do business or to execute a general consent to service of process in effecting such registration, qualification or compliance;

(v) during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date one hundred eighty (180) days following the effective date of, any registration statement pertaining to securities of the Company, provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such registration statement to become effective; or

(vi) if the Company shall furnish to the Initiating Holders a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board 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 effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, provided that such right shall be exercised by the Company not more than once in any twelve (12) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such ninety (90) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered).

(c) If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.4 and the Company shall include such information in the written notice referred to in Section 1.4(a). The provisions of Section 1.2(b) shall be applicable to such request (with the substitution of Section 1.4 for references to Section 1.2).

(d) Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders. Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Sections 1.2.

1.5 Obligations of the Company. Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

(a) prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed;

(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 Act with respect to the disposition of all securities covered by such registration statement;

(c) furnish to the Holders such number of copies of a prospectus, including a preliminary prospectus, in conformity with the requirements of the Act, and such other documents as they may reasonably request in order to facilitate the disposition of Registrable Securities owned by them;

(d) use all commercially reasonable efforts to register and qualify the securities covered by such registration statement under such other securities or Blue Sky laws of such jurisdictions as shall be reasonably requested by the Holders, provided that the Company shall not be required in connection therewith or as a condition thereto to qualify to do business or to file a general consent to service of process in any such states or jurisdictions;

(e) in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

(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 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) cause all such Registrable Securities registered pursuant to this Section 1 to be listed on a national exchange or trading system and on each securities exchange and trading system on which similar securities issued by the Company are then listed; and

(h) 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.

1.6 Information from Holder. It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.

1.7 Expenses of Registration. All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including (without limitation) all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel

for the Company and the reasonable fees and disbursements of one counsel for the selling Holders shall be borne by the Company. Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders of a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), unless, in the case of a registration requested under Section 1.2, the Holders of a majority of the Registrable Securities requested to be included in such registration agree to forfeit their right to one demand registration pursuant to Section 1.2 and provided, however, that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2 and 1.4.

1.8 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 1.

1.9 Indemnification. In the event any Registrable Securities are included in a registration statement under this Section 1:

(a) To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, officers, directors, trustees and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “Violation”): (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus or final prospectus contained therein or any amendments or supplements thereto, (ii) the omission or alleged omission to state in such registration statement a material fact required to be stated therein, or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, and the Company will reimburse each such Holder, underwriter, controlling person or other aforementioned person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred;

provided, however, that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling person or other aforementioned person; provided further, however, that the foregoing indemnity agreement with respect to any preliminary prospectus shall not inure to the benefit of any Holder or underwriter or other aforementioned person, or any person controlling such Holder or underwriter, from whom the person asserting any such losses, claims, damages or liabilities purchased shares in the offering, if a copy of the most current prospectus was not sent or given by or on behalf of such Holder or underwriter or other aforementioned person to such person, if required by law to have been so delivered, at or prior to the written confirmation of the sale of the shares to such person, and if the prospectus (as so amended or supplemented) would have cured the defect giving rise to such loss, claim, damage or liability.

(b) To the extent permitted by law, each selling Holder will indemnify and hold harmless, severally and not jointly, the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out, of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any — person intended to be indemnified pursuant to this subsection 1.9(b) for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided, however, that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this subsection 1.9(b) exceed the net proceeds from the offering received by such Holder.

(c) Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any

governmental action), such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided, however, that an indemnified party (together with all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding. The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this Section 1.9 to the extent of such prejudice, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.

(d) If the indemnification provided for in this Section 1:9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion’ as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided, however, that no contribution by any Holder, when combined with any amounts paid by such Holder pursuant to Section 1.9(b), shall exceed the net proceeds from the offering received by such Holder. The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

(e) Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

(f) The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1 and otherwise.

1.10 Reports Under the 1934 Act. With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to use commercially reasonable efforts to:

(a) make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the Initial Offering;

(b) file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

(c) furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company, and (iii) such other information as may be reasonably requested to avail any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

1.11 Assignment of Registration Rights. The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is a subsidiary, parent, partner, limited partner, retired partner, affiliated venture capital fund, affiliated mutual fund, affiliated business trust or stockholder of a Holder, (ii) is a Holder’s family member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least 25,000 shares of Registrable Securities (subject to appropriate adjustment for stock splits, stock dividends, combinations or the like), provided: (a) the Company is, within ten (10) days after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 1.13 below; (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act; and (d) such transferee is not a direct competitor of the Company, as determined in the good faith judgment of the Board of Directors, at the time of such transfer.

1.12 Limitations on Subsequent Registration Rights. From and after the date of this Agreement, the Company shall not, without the prior written consent of the holders of a majority of the Registrable Securities held by holders of the Company’s Series C Preferred Stock, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include any of such securities in any registration filed under Section 1.2, Section 1.3 or Section 1.4 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities.

1.13 “Market Stand-Off’ Agreement.

(a) Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final prospectus relating to the Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock held immediately prior to the effectiveness of the Registration Statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise. The foregoing provisions of this Section 1.13 shall apply only to the Company’s initial offering of equity securities, shall not apply to the sale of any shares to an underwriter pursuant to an underwriting agreement, and shall only be applicable to the Holders if all officers, directors and greater than two percent (2%) stockholders of the Company enter into similar agreements and such restrictions are not waived as to them. The underwriters in connection with the Company’s Initial Offering are intended third-party beneficiaries of this Section 1.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto. Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Offering that are consistent with this Section 1.13 or that are necessary to give further effect thereto. Any discretionary waiver or termination of the restrictions of any or all of such agreements by the Company or the underwriters shall apply to all Holders subject to such agreements pro rata based on the number of shares subject to such agreements.

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.

(b) Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 1.13):

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

1.14 Termination of Registration Rights. No Holder shall be entitled to exercise any right provided for in this Section 1 (i) after five (5) years following the consummation of the Initial Offering, (ii) as to any Holder, such earlier time after the Initial Offering at which such Holder (A) can sell all shares held by it in compliance with Rule 144(k) or (B) all Registrable Securities held by such Holder (together with any affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3)-month period without registration in compliance with Rule 144 or (iii) after the consummation of a Liquidation Event, as that term is defined in the Company’s Amended and Restated Articles of Incorporation (as amended from time to time) (the “Restated Articles”).

1.15 Black-Out Period.

(a) Following the effectiveness of any registration statement and the filings with any state securities commissions, the Company shall be entitled to postpone or suspend, for a reasonable period of time, sales of Registrable Securities under such registration statement or any such filings upon written notice to the Holders that the Company has determined that such sales would in the good faith judgment of the Board of Directors of the Company (a) materially adversely impair the consummation of any pending or proposed material offering or sale of any class of securities by the Company or (b) require disclosure of material nonpublic information that, if disclosed at such time, would be materially harmful to the interest of the Company and its shareholders; provided, however, that during any such period all executive officers and directors of the Company are also prohibited from selling securities of the Company (or any security of any of the Company’s subsidiaries or affiliates). The Holder may recommence effecting sales of the Registrable Securities pursuant to the registration statement or such filings following further notice to such effect from the Company, such notice to be given by the Company not later than five (5) business days after the conclusion of the reason for the postponement or suspension. The Company shall use its best efforts to limit the length of any such period of suspended sales and

shall use its best efforts to correct, amend or update any incomplete or misleading registration statement.

(b) In the event of the suspension of effectiveness of any registration statement or other filings pursuant to this Section 1.15, the applicable time period during which such registration statement or other filing is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement or filing was suspended.

2. Covenants of the Company.

2.1 Delivery of Financial Statements. So long as any shares of Preferred Stock (as adjusted for stock splits, stock dividends, combinations or the like) remain outstanding, the Company shall deliver to each Investor (or transferee of an Investor) that holds at least 350,000 shares of Registrable Securities (as adjusted for stock splits, stock dividends, combinations or the like) (a “Major Investor”):

(a) as soon as practicable, but in any event within ninety (90) days after the end of each fiscal year of the Company, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“GAAP”), and audited and certified by independent public accountants of nationally recognized standing selected by the Company;

(b) as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter.

(c) within forty-five (45) days of the end of each month, an unaudited income statement and statement of cash flows and balance sheet for and as of the end of such month, in reasonable detail; and

(d) as soon as practicable, but in any event at least thirty (30) days prior to the end of each fiscal year, a capital and operating budget and business plan for the next fiscal year, prepared on a monthly basis, including balance sheets, income statements and statements of cash flows for such months and, as soon as prepared, any other budgets or revised budgets prepared by the Company.

2.2 Inspection. The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided, however, that the Company shall not be obligated pursuant to this Section 2..2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

2.3 Termination of Information and Inspection Covenants. The covenants set forth in Sections 2.1 and 2.2 shall terminate and be of no further force or effect upon the earlier to occur of (i) the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public, (ii) when the Company first becomes subject to the periodic reporting requirements of Sections 13 or 15(d) of the 1934 Act, whichever event shall first occur or (iii) the consummation of a Liquidation Event, as that term is defined in the Restated Articles.

2.4 Right of First Offer. Subject to the terms and conditions specified in this Section 2.4, the Company hereby grants to each Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined). For purposes of this Section 2.4, the term “Investor” includes any general partners and affiliates of an Investor. An Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and affiliates in such proportions as it deems appropriate.

Subject to Section 8.1 hereof, each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, its capital stock (“Shares”), the Company shall first make an offering of such Shares to each Investor in accordance with the following provisions:

(a) The Company shall deliver a notice in accordance with Section 3.5 (“Notice”) to the Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered and (iii) the price and terms upon which it proposes to offer such Shares.

(b) By written notification received by the Company within twenty (20) calendar days after the giving of Notice, each Investor may elect to purchase, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the product of the number of Shares times the fraction obtained by dividing (i) the sum of the total number of shares of (A) Common Stock issuable or issued upon conversion of the Preferred Stock then held by such Investor and (B) Common Stock issuable upon exercise of any options or warrants then held by such Investor by (ii) the sum of the total number of shares of (A) Common Stock, (B) Common Stock issuable upon the conversion of the Preferred Stock and (C) Common Stock issuable upon any exercise of any options or warrants then outstanding.

(c) If all Shares that Investors are entitled to obtain pursuant to subsection 2.4(b) are not elected to be obtained as provided in subsection 2.4(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.4(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice. If the Company does not enter into an agreement for the sale of the Shares within such period, or if such is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived

and such Shares shall not be offered unless first reoffered to the Investors in accordance herewith.

(d) The right of first offer in this Section 2.4 shall not be applicable to (i) the issuance or sale of 1,740,575 shares of Common Stock (or options therefor) to employees, directors, consultants and other service providers for the primary purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Company’s Board of Directors; (ii) the issuance of securities pursuant to a bona fide, firmly underwritten public offering of shares of Common Stock registered under the Act, (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the issuance and sale of Series C Preferred Stock pursuant to the Series C/C-1 Agreement, or (vi) the issuance of warrants to purchase up to an aggregate of 200,000 shares of Common Stock with a per share exercise price equal to at least the fair market value as of the date of issue, as determined in good faith by the corporation’s Board of Directors (and the Common Stock issuable upon conversion thereof) in connection with the incurrence of indebtedness for money borrowed up to an aggregate of $5,000,000 from recognized commercial lending institutions. In addition to the foregoing, the right of first offer in this Section 2.4 shall not be applicable with respect to any Investor in any subsequent offering of Shares if (i) at the time of such offering, the Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) of the Act and (ii) such offering of Shares is otherwise being offered only to accredited investors.

(e) The rights provided in this Section 2.4 may not be assigned or transferred by any Investor except in connection with a transfer of Series C Preferred Stock or Series C-1 Preferred Stock permitted under, and made in full compliance with, Section 3.7 of the Series C/C-1 Agreement; provided, however, that, notwithstanding the foregoing, in no event shall an Investor assign or transfer such rights to a competitor of the Company (as determined in good faith by the Board of Directors of the Company).

(f) The covenants set forth in this Section 2.4 shall terminate and be of no further force or effect upon the consummation of (i) the Company’s sale of its Common Stock or other securities pursuant to a Qualified Public Offering, as that term is defined in the Restated Articles or (ii) a Liquidation Event, as that term is defined in the Restated Articles.

2.5 Proprietary Information and Inventions Agreements. The Company shall require all employees and consultants with access to confidential information to execute and deliver a proprietary information and inventions agreement or a consulting agreement, as applicable, in substantially the form approved by the Company’s Board of Directors.

2.6 Compensation and Audit Committees. The Board of Directors shall create and maintain a Compensation Committee and an Audit Committee, both of which shall include the Series B Director and, if so desired by the holders of at least a majority of the outstanding shares of Series C Preferred Stock, the Series C Director (as defined below) designated by Bessemer (as defined below).

2.7 Director and Officer Liability Insurance. To the extent that such coverage is available on commercially reasonable terms (as determined in the good faith judgment of the Board of Directors), the Company shall purchase and at all times maintain director and officer liability insurance with coverage limits customary for similarly situated companies.

2.8 Qualified Small Business Stock.

(a) The Company shall not make any purchases of its stock or take other actions which would jeopardize the status of the Series C Preferred as “qualified small business stock” under Section 1202 of the Internal Revenue Code.

(b) The Company will use commercially reasonable efforts to comply with any applicable filing and reporting requirements of Section 1202 of the internal Revenue Code, as amended or as may be amended from time to time, and any regulations promulgated thereunder; provided, however, that “reasonable efforts” as used in this Section 2.8(b) shall not be construed to require the Company to operate its business in a manner which would adversely affect its business, limit its future prospects or alter the timing or resource allocation related to its planned operations or financing activities.

3. Board of Directors.

3.1 Articles of Incorporation. (a) The Restated Articles provide that (a) holders of shares of Common Stock, voting together as a class, shall elect one (1) member of the Board of Directors (the “Common Director”), (b) holders of shares of the Company’s Series A Preferred Stock, voting together as a class, shall elect one (1) member of the Board of Directors (the “Series A Director”), (c) holders of shares of Series B Preferred Stock, voting together as a class, shall elect one (1) member of the Board of Directors (the “Series B Director”), (d) holders of shares of Series C Preferred Stock and Series C-1 Preferred Stock, voting together as a single class, shall elect two (2) members of the Board of Directors (the “Initial Series C Directors”), (e) the holders of shares of Common Stock and Series A Preferred Stock, voting together as a single class and not as separate series and on an as-converted to Common Stock basis, shall be entitled to elect one (1) member of the Board of Directors (the “Mutual Director”), and (f) holders of shares of Preferred Stock, voting together as a single class and not as separate series and on an as-converted to Common Stock basis, shall be entitled to elect one (1) member of the Board of Directors (the “Independent Director”).

(b) The Restated Articles also provide that upon the vote of a majority of the then outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock (voting together as a single class and not as separate series), the holders of such shares of Series C Preferred Stock and Series C-1 Preferred Stock shall be entitled to elect an additional two (2) directors of this corporation at any election of directors (the “Additional Series C Directors”).

3.2 Agreement to Vote. Each Investor, as a holder of Preferred Stock and/or Common Stock, hereby agrees on behalf of itself and any transferee or assignee of any such shares of Preferred Stock or Common Stock, to hold all of the shares of Preferred Stock or Common Stock registered in its name (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution of such Preferred Stock or Common Stock, and any other voting securities of the Company subsequently acquired by such Investor) (hereinafter collectively referred to as the “Investor Shares”) subject to, and to vote the Investor Shares at a regular or special meeting of stockholders (or by written consent) in accordance with, the provisions of this Agreement. Each Founder, as a holder of Common Stock (or options therefor) and/or Preferred Stock of the Company, hereby agrees on behalf of himself or herself and any transferee or assignee of any such shares of Common Stock or Preferred Stock, to hold all of such shares of Common Stock and Preferred Stock and any other securities of the Company acquired by such Founder in the future (and any securities of the Company issued with respect to, upon conversion of, or in exchange or substitution for such securities) (the “Founder Shares”) subject to, and to vote the Founder Shares at a regular or special meeting of stockholders (or by written consent) in accordance with, the provisions of this Agreement.

3.3 Board Size. The holders of Investor Shares and Founder Shares shall vote at a regular or special meeting of stockholders (or by written consent) such shares that they own (or as to which they have voting power) to ensure that the size of the Board of Directors shall be set and remain at nine (9) directors; provided, however, that such Board of Directors, size may be subsequently increased or decreased pursuant to an amendment of this Agreement in accordance with Section 9.7 hereof.

3.4 Election of Directors.

(a) In any election of directors of the Company to elect the Common Director, the parties holding shares of Common Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Common Stock then owned by them (or as to which they then have voting power) as may be necessary to elect the Company’s then-serving chief executive officer as a member of the Company’s Board of Directors.

(b) In any election of directors of the Company to elect the Series A Director, the parties holding shares of Series A Preferred Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Series A Preferred Stock then owned by them (or as to which

they then have voting power) as may be necessary to elect one (1) director nominated by Venturi I, LLC.

(c) In any election of directors of the Company to elect the Series B Director, the parties holding shares of Series B Preferred Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Series B Preferred Stock then owned by them (or as to which they then have voting power) as may be necessary to elect one (1) director nominated by MPM Capital or its affiliated funds (“MPM” ).

(d) In any election of directors of the Company to elect the Initial Series C Directors, the parties holding shares of Series C Preferred Stock and/or Series C1 Preferred Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Series C Preferred Stock and Series C-1 Preferred Stock then owned by them (or as to which they then have voting power) as may be necessary to (i) elect one (1) director nominated by Bessemer Venture Partners or its affiliated funds (“Bessemer”), which director shall not be affiliated with MPM, and (ii) elect one (1) director nominated by MPM.

(e) In any election of directors of the Company to elect the Mutual Director, the parties holding shares of Common Stock and/or Series A Preferred Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Common Stock and Series A Preferred Stock then owned by them (or as to which they then have voting power) as may be necessary to elect one (1) director, which director shall not be affiliated with the Company, the Investors or the Founders.

(f) In any election of directors of the Company to elect the Independent Director, the Investors and the Founders shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Preferred Stock of the Company then owned by them (or as to which they then have voting power) as may be necessary to elect the Independent Director, which director shall be not be affiliated with the Company, the Investors or the Founders.

(g) In any election of directors of the Company to elect the Additional Series C Directors, the parties holding shares of Series C Preferred Stock and/or Series C-1 Preferred Stock shall each vote at any regular or special meeting of stockholders (or by written consent) such number of shares of Series C Preferred Stock and Series C-1 Preferred Stock then owned by them (or as to which they then have voting power) as may be necessary to (i) elect one (1) director nominated by the holders of a majority of the then outstanding shares of Series C Preferred Stock (voting together as a single class), and (ii) one (1) director nominated by the holders of a majority of the then outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock (voting together as a single class and not as separate series).

3.5 Removal; Vacancies. Any director of the Company may be removed from the Board of Directors in the manner allowed by law and the Restated Articles and Bylaws, but with respect to a director designated pursuant to Sections 3.4(a), 3.4(b), 3.4(c), 3.4(d)(i), 3.4(d)(ii), 3.4(e), 3.4(g)(i) and 3.4(g)(ii) above, only upon the vote or written consent of the stockholders entitled to designate such director. Vacancies on the Company’s Board of Directors shall be filled in accordance with the provisions set forth in the immediately preceding sentence.

3.6 Legend. Each certificate representing any Investor Shares or Founder Shares shall be endorsed by the Company with a legend reading substantially as follows:

“THE SHARES EVIDENCED HEREBY ARE SUBJECT TO AN INVESTORS’ RIGHTS AGREEMENT (A COPY OF WHICH MAY BE OBTAINED UPON WRITTEN REQUEST FROM THE ISSUER), AND BY ACCEPTING ANY INTEREST IN SUCH SHARES THE PERSON ACCEPTING SUCH INTEREST SHALL BE DEEMED TO AGREE TO AND SHALL BECOME BOUND BY ALL THE PROVISIONS OF SAID INVESTORS’ RIGHTS AGREEMENT.”

3.7 No Liability for Election of Recommended Directors. Neither the Company, the Founders, the Investors, nor any officer, director, stockholder, partner, employee or agent of any such party, makes any representation or warranty as to the fitness or competence of the nominee of any party hereunder to serve on the Company’s Board of Directors by virtue of such party’s execution of this Agreement or by the act of such party in voting for such nominee pursuant to this Agreement.

3.8 Termination of Voting Provisions. The provisions of this Section 3 (other than Section 3.1) shall terminate and be of no further force or effect upon (a) the consummation of the Company’s sale of its Common Stock or other securities pursuant to a registration statement under the Act (other than a registration statement relating either to sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction), or (b) the consummation of a Liquidation Event, as that term is defined in the Restated Articles.

3.9 Board Observation Rights. For so long as Bessemer Venture Partners, NGEN and General Electric Pension Trust hold any shares of Series C Preferred Stock, each such Investor shall be entitled to have one observer at each board meeting and such observer shall be entitled to receive notice of and information regarding each meeting of the Company’s Board of Directors. Any such observer will be entitled to attend any meeting of the Company’s Board of Directors or, if a meeting is held by telephone conference, to participate therein by telephone. Any such observer shall have all rights of a director other than voting rights, including, without limitation, the right to reimbursement of the Investor’s reasonable out-of-pocket expenses incurred in the exercise of such Investor’s board observation rights.

4. Drag-Along Rights.

4.1 Notwithstanding anything to the contrary in this Agreement or otherwise (including, without limitation, any special voting rights of the holders of shares of Series A, Series B or Series C-1 Preferred Stock set forth in the Restated Articles, beginning eighteen (18) months after the first closing under the Series C/C-1 Agreement (the “Initial Series C Closing”), if Investors and their affiliates (other than MPM and its affiliates and their transferees) holding a majority of the outstanding shares of Series C Preferred Stock (excluding shares of Series C-1 Preferred Stock), voting as a separate class (the “Dragging Stockholders”), approve a sale of greater than 90% of the Company’s outstanding shares of capital stock, on an as-converted basis, whether by way of merger, consolidation, sale of stock, or otherwise, or the sale of all or substantially all of the assets of the Company to a bona fide third party purchaser (an “Approved Sale”), then the Dragging Stockholders may require (the “Drag Along Right”) each other Investor and each Founder (solely in its capacity as a shareholder of the Company) (each a “Non-Participating Stockholder”) to sell, or cause to be sold, all shares of the Company’s capital stock held by such Non-Participating Stockholder in the Approved Sale; provided that, to the extent such Drag Along Right is being exercised prior to the date that is thirty-six (36) months following the Initial Series C Closing, the Non-Participating Stockholders’ obligations under this Section 4 shall be contingent on the Company’s Board of Directors approving the terms of such Approved Sale. Without limiting the foregoing, in the event the Dragging Stockholders are exercising the Drag Along Right pursuant to and in accordance with the terms and conditions set forth in the immediately preceding sentence, the Dragging Stockholders may require the Non-Participating Stockholders to consent to, vote in favor of, and raise no objection against, such Approved Sale, and, as applicable, if such Approved Sale is structured as a merger or consolidation, or a sale of all or substantially all of the assets of the Company, waive any dissenters’ rights, appraisal rights or similar rights in connection with such merger, consolidation or asset sale. Subject to Section 4.2 below, the terms and conditions of any such Approved Sale applicable to the Series C Preferred Stock and the Series C-1 Preferred Stock shall be identical in all material respects.

4.2 In the event of any Approved Sale in which the Drag Along Right is exercised, the proceeds from such Approved Sale shall be allocated among Investors based upon the per share amount that would be received by such Investor as provided in the Restated Articles, as if the assets of the Company had been sold for the aggregate consideration to be received in the Approved Sale, and the proceeds distributed to Investors in accordance with the provisions of Article III, Section B(2).

4.3 In the event the Dragging Stockholders desire to exercise their Drag Along Right, such Dragging Stockholders shall deliver to the Company and the Non Participating Stockholders written notice (the “Drag Notice”) setting forth the consideration per Share to be paid by such bona fide third-party purchaser and the other terms and conditions of the Approved Sale. Within ten (10) business days following the receipt of the Drag Notice, each of the Non Participating Stockholders (solely in its capacity as a shareholder of the Company) shall deliver to such Dragging Stockholders (i) in the case of an Approved Sale that involves the sale of shares of the Company’s

capital stock, a certificate or certificates evidencing the shares of capital stock of the Company held by such Non Participating Stockholder, and an appropriate assignment separate from the certificate duly executed in a proper form to effect the transfer of such shares from the Non Participating Stockholders on the books and records of the Company pursuant to the terms of the Approved Sale and/or (ii) such other instruments, documents or agreements as may be required to effect the Approved Sale. Each Non Participating Stockholder (solely in its capacity as a shareholder of the Company) hereby grants to the Chairman of the Board of Directors a limited special power-of-attorney (as further described in Section 5 hereof) authorizing the Chairman of the Board of Directors to (i) effect the transfer of all such Non Participating Stockholder’s shares of the Company’s capital stock (and related transactions) pursuant to the terms of this Section 4 and the terms of such Approved Sale and/or (ii) consent to and/or vote in favor of such Approved Sale and waive any dissenters’ rights, appraisal rights or similar rights in connection with such Approved Sale. In the event that any Non Participating Stockholder shall fail to deliver such certificate(s), assignment separate from the certificate or other instruments, documents or agreements to the Dragging Stockholders exercising a Drag Along Right, then the Company shall cause a notation to be made on its books and records to reflect that the Shares of such Non Participating Stockholder are bound by the provisions of this Section 4, and the transfer of such shares of the Company’s capital stock may be effected in accordance with this Section 4 without such Non Participating Stockholder’s consent or surrender of its shares of the Company’s capital stock. In addition, in the event the Dragging. Stockholders exercise their Drag Along Right in accordance with the terms of this Section 4, the Non Participating Stockholders shall be required to make only such representations, warranties and indemnities as are made by the Dragging Stockholders.

5. Limited Power of Attorney. Each Investor and each Founder (other than the Dragging Stockholders exercising their duly authorized Drag Along Right) (a “Granting Stockholder”), hereby constitutes the Chairman of the Board of Directors, with full power of substitution and resubstitution, its true and lawful attorney-in-fact for such Granting Stockholder and in such Granting Stockholder’s name, place and stead and for such Granting Stockholder’s use and benefit, to sign, execute, certify, acknowledge, swear to, file, deliver and record any and all agreements, certificates, instruments and other documents necessary in connection with the Dragging Stockholders exercising their duly authorized Drag Along Right for the purposes of effectuating such Drag Along Right. Each Granting Stockholder authorizes each such attorney-in-fact full power and authority to do and perform each and every act or thing whatsoever requisite to be done in connection with the foregoing as fully as such Granting Stockholder might or could do so personally, and hereby ratifying and confirming all that any such attorney-in-fact shall lawfully do or cause to be done by virtue thereof or hereof. This power of attorney is a special power of attorney coupled with an interest and is irrevocable, may be exercised by any such attorney-in-fact by listing the Granting Stockholder executing any agreement, certificate, instrument or other document with the single signature of any such attorney-in-fact acting as attorney-in-fact for such Granting Stockholder, shall survive the death, disability or cessation of existence of an Investor and shall survive the delivery of an assignment by a Granting Stockholder of the whole or a portion of the Granting Stockholder’s shares of the Company’s capital stock.

6. Pay-to-Play Financing. Subject to Section 8.2, each Investor and each Founder agrees (solely in its capacity as a shareholder of the Company) that it shall take all actions reasonably necessary to consummate a Pay-to-Play Financing (as defined in Article III, Section (B)(4)(m)(i) of the Restated Articles), including, without limitation, consenting to or voting in favor of any amendment to the Restated Articles required in order to consummate such Pay-to-Play Financing. This provision shall in no way be interpreted to create a requirement that any Investor participate in any such Pay-to-Play Financing.

7. Reorganization of the Company. The Company agrees that it will use its reasonable best efforts to reorganize the Company as a Delaware corporation with the same capitalization and series and classes of shares, in each case having the same terms as existed immediately prior to such reorganization (the “Reorganization”), within ninety (90) days of the date hereof. In connection therewith, each Investor and each Founder (solely in its capacity as a shareholder of the Company) agrees to take all actions reasonably necessary to consummate the Reorganization, including, without limitation, consenting to or voting in favor of such actions as are reasonably necessary to effect the Reorganization. In connection with the consummation of the Reorganization, the Company, if requested by a member of the Board of Directors, will enter into an indemnification agreement with such member substantially in the form attached hereto as Exhibit A.

8. Additional Covenants.

8.1 Required Financing. If at any time after the date hereof, the Company’s aggregate available cash and cash equivalents (as set forth on the financial statements of the Company identified in Section 2.1 hereof) are less than:

(a) $5 million but in excess of $2 million, the Company agrees that it will use its reasonable best efforts to (x) seek to raise additional debt and/or equity capital of not less than $6 million or (y) seek offers from bona fide third party purchasers to acquire the Company (whether by merger, stock sale, asset sale or otherwise); and

(b) $2 million, the Company and each Investor and each Founder agrees (solely in its capacity as a shareholder of the Company) that Investors and their affiliates (other than MPM and its affiliates or their respective transferees) holding a majority of the outstanding shares of Series C Preferred Stock shall have the right to compel a Required Financing. For the purposes of this section a “Required Financing” shall mean an equity financing of the Company on terms and conditions (including, without limitation, pricing, dividends, liquidation preference, conversion price, anti-dilution rights and special voting rights) proposed by Investors and their affiliates (other than MPM and its affiliates or their respective transferees) holding a majority of the outstanding shares of Series C Preferred Stock.

Notwithstanding anything to the contrary (including, without limitation, Section 2.4 hereof), in the event that Investors and their affiliates (other than MPM and its affiliates or their respective transferees) holding a majority of the outstanding shares of Series C

Preferred Stock compel a Required Financing, each holder of Preferred Stock and each holder of Common Stock shall have the right to participate in such Required Financing on a pro rata, as converted basis (the “Participation Right”). In furtherance of the foregoing, for the purposes of Article III, Section (B)(4)(m)(i) of the Restated Articles, each holder of Preferred Stock agrees that the Participation Right shall be deemed to be included in the right of first offer set forth in Section 2.4 hereof. In addition, each Investor and each Founder (solely in its capacity as a shareholder of the Company) agrees that it shall take all actions reasonably necessary to consummate such Required Financing, including, without limitation, consenting to or voting in favor of any amendment to the Restated Articles required in order to consummate such Required Financing. This provision shall in no way be interpreted to create a requirement that any Investor or Founder participate in any such Required Financing.

8.2 Consent to Pay-to-Play. Notwithstanding anything to the contrary (including, without limitation, any provision of the Restated Articles), the Company agrees that so long as at least 1,200,000 shares of Series C Preferred Stock remain outstanding (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like), the Company shall not (by amendment, merger, consolidation or otherwise) without first obtaining the approval (by vote or written consent, as provided by law) of the holders of a majority of the then outstanding shares of Series C Preferred Stock not held by MPM or any of its affiliates or their respective transferees (as adjusted for any stock splits, stock dividends, combinations, subdivisions, recapitalizations or the like) consummate any Pay-to-Play Financing (as defined in Article III, Section (B)(4)(m)(i) of the Restated Articles as in effect on the date hereof).

8.3 Investors’ Rights Agreement. As a result of a typographical error, the date of the Agreement referred to in the Restated Articles is January 23, 2004. The Company and each party hereto agrees that for all purposes, this Agreement shall be the agreement referred to in the Articles as “the Investors’ Rights Agreement dated as of January 23, 2004”.

9. Miscellaneous.

9.1 Successors and Assigns. Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities). Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

9.2 Governing Law. This Agreement shall be interpreted under the laws of the State of Minnesota without reference to Minnesota conflicts of law provisions.

9.3 Counterparts. This Agreement may be executed in two or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one and the same instrument.

9.4 Titles and Subtitles. The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

9.5 Notices. All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given: (i) upon personal delivery to the party to be notified, (ii) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (iii) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (iv) one (1) day after deposit with a nationally recognized overnight courier, specifying next day delivery, with written verification of receipt. All communications shall be sent to the respective parties at the addresses set forth on the signature pages attached hereto (or at such other addresses as shall be specified by notice given in accordance with this Section 9.5).

9.6 Expenses. If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

9.7 Entire Agreement; Amendments and Waivers. This Agreement (including the Exhibits hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof Any term of this Agreement (other than Section 2.1, Section 2.2, Section 2.3, Section 3, Section 4 and Section 5) may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, the holders of a majority of the Registrable Securities and the holders of at least a majority of the issued and outstanding shares of Series C Preferred Stock. The provisions of Section 2.1, Section 2.2 and Section 2.3 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company, the holders of a majority of the Registrable Securities that are held by Major Investors, and the holders of at least a majority of the issued and outstanding shares of Series C Preferred Stock. The provisions of Section 3 may be amended and the observance of any term hereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the holders of a majority of the then outstanding voting securities held by the Investors; provided, however, that notwithstanding the foregoing, (a) the provisions of Section 3.4(b) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Venturi I, LLC, (b) the provisions of Section 3.4(c) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of MPM, (c) the provisions of Section 3.4(d)(i) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Bessemer, (d) the provisions of Section 3.4(d)(ii) may be amended and the observance of any term thereof

may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of MPM, (e) the provisions of Section 3.4(e) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the holders of a majority of the outstanding voting securities held by the holders of shares of Common Stock and Series A Preferred Stock (voting together as a single class and not as separate series and on an as-converted to Common Stock basis), (f) the provisions of Section 3.4(g)(i) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of holders of a majority of the outstanding shares of Series C Preferred Stock, (g) the provisions of Section 3.4(g)(ii) may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the holders of a majority of the then outstanding shares of Series C Preferred Stock and Series C-1 Preferred Stock (voting together as a single class and not as separate series) and (h) the provisions of Section 3.9 may be amended and the observance of any term thereof may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of Bessemer, NGEN and General Electric Pension Trust. The provisions of Section 4, Section 5, Section 6 and Section 7 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively, as applicable) only with the written consent of the Company, and the holders of at least a majority of the issued and outstanding shares of Series C Preferred Stock; provided, however, that such provisions may not be amended or waived in such a way as to add to the obligations of any Non Participating Stockholder without the consent of such Non Participating Stockholder. The provisions of Section 8 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively, as applicable) only with the written consent of the Company, and the holders of at least a majority of the issued and outstanding shares of Series C Preferred Stock (other than MPM and its affiliates or their transferees); provided, however, that such provisions may not be amended or waived in such a way as to add to the obligations of any Investor or Founder without the consent of such Investor or Founder. Any amendment or waiver effected in accordance with this paragraph shall be binding upon all the parties hereto.

9.8 Severability. If one or more provisions of this Agreement are held to be unenforceable under applicable law, such provision(s) shall be excluded from this Agreement and the balance of the Agreement shall be interpreted as if such provision(s) were so excluded and shall be enforceable in accordance with its terms.

9.9 Aggregation of Stock. All shares of Registrable Securities held or acquired by affiliated entities (including affiliated venture capital funds) or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

9.10 Restrictions of Transfer. In addition to, and not in limitation of the rights of an Investor to transfer its rights hereunder, an Investor’s rights and obligations hereunder may be transferred to any of such Investor’s “affiliates,” as that term is defined

under the Securities Act (and which, in the case of ▇▇▇▇▇▇, shall include any fund or account managed or advised by ▇▇▇▇▇▇ Investment Management, LLC, TH ▇▇▇, ▇▇▇▇▇▇ Capital Management, LLC or their respective affiliates), so long as such affiliate is an “accredited investor” (within the meaning of Regulation D under the Securities Act); provided that the prospective transferee agrees in writing to be subject to the terms hereof to the same extent as if he, she or it were an original Investor hereunder.

9.11 Massachusetts Business Trusts. A copy of the Agreement and Declaration of Trust of each ▇▇▇▇▇▇ fund or series investment company (each, a “Fund”) that is a Massachusetts business trust is on file with the Secretary of State of the Commonwealth of Massachusetts, and notice is hereby given that this Agreement is executed on behalf of such Fund by the Trustees of the relevant Fund as Trustees, and not individually, and that the obligations of this Agreement are not binding upon any of the Trustees, officers or shareholders of the Fund individually but are binding only upon the assets and property of such Fund.

IN WITNESS WHEREOF, the parties have executed this Investors’ Rights Agreement as of the date first above written.


RESTORE MEDICAL, INC.

By:	/s/ ▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇

	Name:	▇▇▇▇▇ ▇. ▇▇▇▇▇▇▇
	Title:	President and Chief Executive
		Officer

Address:		▇▇▇▇ ▇▇▇▇▇▇ ▇▇▇▇
		▇▇. ▇▇▇▇, ▇▇ ▇▇▇▇▇