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EXHIBIT 10.11
POZEN INC.
INVESTOR RIGHTS AGREEMENT
This Investor Rights Agreement (the "Agreement") is entered into as of
August 28, 2000, by and among POZEN Inc., a Delaware corporation (the
"Company"), the holders of the Company's Series F Preferred Stock listed on
Exhibit A attached hereto (the "Investors"), certain other holders of capital
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stock of the Company listed on Exhibit A-1 attached hereto (the "Other Holders")
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and those persons listed on Exhibit B attached hereto (each individually a
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"Common Holder" and, collectively, the "Common Holders").
WHEREAS, in connection with the issuance and sale of shares of
Company's Series F Preferred Stock (the "Series F Stock") to the Investors
pursuant to that certain Series F Preferred Stock Purchase Agreement, dated as
of the date hereof, by and between the Company and the Investors (the "Series F
Agreement"), the Company desires to provide the Investors certain rights with
respect to registration of the shares of stock held by them and certain other
rights with respect to such shares as an inducement to the Investors to purchase
shares of the Series F Stock;
NOW, THEREFORE, in consideration of the mutual agreements, covenants
and conditions contained herein, the Company, the Investors and the Common
Holders hereby agree as follows.
Section 1.
RESTRICTIONS ON TRANSFER
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1.1 Restrictive Legend. Each certificate representing (i) the Series F
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Stock, (ii) the Common Stock of the Company (the "Common Stock") issued upon
conversion of the Series F Stock, and (iii) any other securities issued in
respect of the Series F Stock or Common Stock issued upon conversion of the
Series F Stock upon any stock split, stock dividend, recapitalization, merger,
consolidation or similar event, shall (unless otherwise permitted by the
provisions of this Section 1.1. or Section 1.2 below) be stamped or otherwise
imprinted with a legend in substantially the following form (in addition to any
legend required under applicable securities laws).
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN
REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR APPLICABLE
STATE SECURITIES LAWS. THESE SECURITIES HAVE BEEN ACQUIRED FOR
INVESTMENT AND NOT WITH A VIEW TO DISTRIBUTION OR RESALE, AND MAY NOT
BE SOLD, MORTGAGED, PLEDGED, HYPOTHECATED OR OTHERWISE TRANSFERRED
WITHOUT AN EFFECTIVE REGISTRATION STATEMENT FOR SUCH SECURITIES UNDER
THE SECURITIES ACT OF 1933, AS AMENDED, AND ANY APPLICABLE STATE
SECURITIES LAWS, OR THE AVAILABILITY OF AN EXEMPTION FROM THE
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REGISTRATION PROVISIONS OF THE SECURITIES ACT OF 1933, AS AMENDED, AND
APPLICABLE STATE SECURITIES LAWS. COPIES OF THE STOCK PURCHASE
AGREEMENT AND INVESTOR RIGHTS AGREEMENT PROVIDING FOR RESTRICTIONS ON
TRANSFER OF THESE SECURITIES MAY BE OBTAINED UPON WRITTEN REQUEST BY
THE HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION."
Each Holder (as defined below) consents to the Company's making a
notation on its records and giving instructions to any transfer agent of the
Series F Stock or the Common Stock in order to implement the restrictions on
transfer established in this Section 1. Such legend shall be removed by the
Company from any certificate at such time as the holder of the shares
represented by the certificate satisfies the requirements of Rule 144(k) under
the Securities Act of 1933, as amended (the "1933 Act"), provided that Rule
144(k) as then in effect does not differ substantially from Rule 144(k) as in
effect as of the date of this Agreement, and provided further that the Company
has received from the Holder a written representation that (i) such Holder is
not an affiliate of the Company and has not been an affiliate during the
preceding three months, (ii) such Holder has beneficially owned the shares
represented by the certificate for a period of at least two years, (iii) such
Holder otherwise satisfies the requirements of Rule 144(k) as then in effect
with respect to such shares, and (iv) such Holder will submit the certificate
for any such shares to the Company for reapplication of the legend at such time
as the holder becomes an affiliate of the Company or otherwise ceases to satisfy
the requirements of Rule 144(k) as then in effect.
1.2 Notice of Proposed Transfers. The holder of each certificate
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representing Registrable Securities (as defined below) by acceptance thereof
agrees to comply in all respects with the provisions of this Section 1.2. Prior
to any proposed sale, assignment, transfer or pledge of any Registrable
Securities, unless there is in effect a registration statement under the 1933
Act covering the proposed transfer, the holder thereof shall give written notice
to the Company of such holder's intention to effect such transfer, sale,
assignment or pledge. Each such notice shall describe the manner and
circumstances of the proposed transfer, sale, assignment or pledge in sufficient
detail, and shall be accompanied at such holder's expense by either (i) a
written opinion of legal counsel who shall, and whose legal opinion shall, be
reasonably satisfactory to the Company addressed to the Company, to the effect
that the proposed transfer of the Registrable Securities may be effected without
registration under the 1933 Act or (ii) a "no action" letter from the SEC to the
effect that the transfer of such securities without registration will not result
in a recommendation by the staff of the Securities and Exchange Commission (the
"SEC") that action be taken with respect thereto, whereupon the holder of such
Registrable Securities shall be entitled to transfer such Registrable Securities
in accordance with the terms of the notice delivered by the holder to the
Company. The Company will not require such a legal opinion or "no action" letter
(a) in any transaction in compliance with Rule 144, or (b) in any transaction in
which an Investor that is a partnership, limited liability company or
corporation distributes Series F Stock or Common Stock issuable upon conversion
thereof after six months after the purchase of such securities hereunder solely
to partners, members or stockholders (as the case may be) thereof for no
consideration, provided that each transferee agrees in writing to be subject to
the terms of this Section 1.2. Each certificate evidencing the Registrable
Securities
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transferred as above provided shall bear, except if such transfer is made
pursuant to Rule 144, the appropriate restrictive legend set forth in Section
1.1 above, except that such certificate shall not bear such restrictive legend
if in the opinion of counsel for such holder and the Company such legend is not
required in order to establish compliance with any provisions of the 1933 Act.
Section 2.
REGISTRATION RIGHTS
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The Company hereby grants to each of the Holders (as defined below) the
registration rights set forth in this Section 2, with respect to the Registrable
Securities (as defined below) owned by such Holders. The Company and the Holders
agree that the registration rights provided herein set forth the sole and entire
agreement, and supersede any prior agreement, between the Company and the
Holders with respect to registration rights for the Series F Stock held by the
Holders.
2.1 Certain Definitions. As used in this Section 2:
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(a) The terms "register," "registered" and "registration"
refer to a registration effected by filing with the SEC a registration statement
(the "Registration Statement") in compliance with the 1933 Act, and the
declaration or ordering by the SEC of the effectiveness of such Registration
Statement.
(b) The term "Registrable Securities" means (i) Common
Stock issued or issuable upon conversion of the shares of Series F Stock held by
Investors or any transferee as permitted by Section 2.8 hereof, and (ii) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange or in replacement of, such
Registrable Securities; provided, however, that shares of Common Stock or other
securities shall only be treated as Registrable Securities if and so long as (A)
they have not been sold to or through a broker or dealer or underwriter in a
public distribution or a public securities transaction, (B) they have not been
sold in a transaction exempt from the registration and prospectus delivery
requirements of the 1933 Act under Section 4(1) thereof so that all transfer
restrictions and restrictive legends with respect thereto are removed upon the
consummation of such sale, and (C) the registration rights associated with such
securities have not been terminated pursuant to Section 2.16 hereof.
(c) The term "Holder" (collectively, "Holders") means each
Investor and any transferee, as permitted by Section 2.8 hereof, holding
Registrable Securities, securities exercisable or convertible into Registrable
Securities or securities exercisable for securities convertible into Registrable
Securities.
(d) The term "Initiating Holders" means any Holder or
Holders of at least fifty percent (50%) of the Registrable Securities then
outstanding and not registered at the time of any request for registration made
pursuant to Section 2.2 of this Agreement.
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2.2 Demand Registration.
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(a) Demand for Registration. If the Company shall receive
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from Initiating Holders a written demand that the Company effect any
registration (a "Demand Registration") (other than a registration on Form S-3 or
any related form of registration statement, such a request being provided for
under Section 2.9 hereof), the Company will:
(i) promptly (but in any event within 10 days) give
written notice of the proposed registration to all other Holders; and
(ii) use its best efforts to effect such registration
as soon as practicable and as will permit or facilitate the sale and
distribution of all or such portion of such Initiating Holders' Registrable
Securities as are specified in such demand, together with all or such portion of
the Registrable Securities of any Holder or Holders joining in such demand as
are specified in a written demand received by the Company within 15 days after
such written notice is given, provided that the Company shall not be obligated
to take any action to effect any such registration pursuant to this Section 2.2:
(A) in any particular jurisdiction in which the
Company would be required to execute a general consent to service of process in
effecting such registration, qualification or compliance unless the Company is
already subject to service in such jurisdiction and except as may be required by
the 1933 Act;
(B) after the Company has effected two (2) such
registrations pursuant to this Section 2.2 and the sales of the shares of Common
Stock under such registrations have closed;
(C) if the Company shall furnish to such
Holders a certificate signed by the President of the Company, stating that in
the good faith judgment of the Board of Directors of the Company it would be
seriously detrimental to the Company and its stockholders for such Registration
Statement to be filed at the date filing would be required, in which case the
Company shall have an additional period or periods of not more than 90 days
within which to file such Registration Statement; provided, however, that the
Company shall not use this right to delay the filing for more than 180 days in
the aggregate in any 12-month period; or
(D) prior to the earlier of (1) the second
anniversary of the date of this Agreement or (2) the date 180 days after the
effective date of the initial public offering of the Company's securities.
(b) Underwriting. If reasonably required to maintain
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an orderly market in the Common Stock, the Holders shall distribute the
Registrable Securities covered by their demand by means of an underwriting. If
the Initiating Holders intend to distribute the Registrable Securities covered
by their demand by means of an underwriting, they shall so advise the Company as
part of their demand made pursuant to this Section 2.2, including the identity
of the managing underwriter; and the Company shall include such information in
the written notice referred to in Section 2.2(a)(i). In such event, the right of
any Holder to registration pursuant to
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this Section 2.2 shall be conditioned upon such Holder's participation in such
underwriting and the inclusion of such Holder's Registrable Securities in the
underwriting to the extent provided herein.
The Company shall, together with all holders of capital stock of the
Company proposing to distribute their securities through such underwriting,
enter into an underwriting agreement in customary form with the underwriter or
underwriters selected by a majority-in-interest of the Initiating Holders and
reasonably satisfactory to the Company. Notwithstanding any other provision of
this Section 2.2, if the underwriter shall advise the Company that marketing
factors (including, without limitation, an adverse effect on the per share
offering price) require a limitation of the number of shares to be underwritten,
then the Company shall so advise all Holders of Registrable Securities that have
requested to participate in such offering, and the number of shares of
Registrable Securities that may be included in the registration and underwriting
shall be allocated pro rata among such Holders thereof in proportion, as nearly
as practicable, to the respective amounts of Registrable Securities held by such
Holders at the time of filing the Registration Statement. No Registrable
Securities excluded from the underwriting by reason of the underwriter's
marketing limitation shall be included in such registration.
If any Holder disapproves of the terms of the underwriting, such Holder
may elect to withdraw therefrom by written notice to the Company, the
underwriter and the Initiating Holders. The Registrable Securities so withdrawn
shall also be withdrawn from registration.
If the underwriter has not limited the number of Registrable Securities
to be underwritten, the Company may include securities for its own account (or
for the account of other stockholders) in such registration if the underwriter
so agrees and if the number of Registrable Securities would not thereby be
limited.
2.3 Piggyback Registration.
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(a) Company Registration. If at any time or from time to time
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the Company shall determine to register any of its securities, either for its
own account or for the account of security holders, other than a registration
relating solely to employee benefit plans, a registration on Form S-4 relating
solely to an SEC Rule 145 transaction or a registration pursuant to Section 2.2
or 2.9 hereof, the Company will:
(i) promptly (but in any event within 10 days) give to
each Holder written notice thereof; and
(ii) include in such registration (and any related
qualification under state securities laws or other compliance), and in any
underwriting involved therein, all the Registrable Securities specified in a
written request or requests, made within 15 days after receipt of such written
notice from the Company, by any Holder or Holders, except as set forth in
Section 2.3(b) below.
Such Registrable Securities shall only be included to the extent that
inclusion will not diminish the number of securities included by the Company.
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(b) Underwriting. If the registration of which the Company
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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 2.3(a)(i). In such event the right of any Holder to
registration pursuant to this Section 2.3 shall be conditioned upon such
Holder's participation in such underwriting and the inclusion of such Holder's
Registrable Securities in the underwriting to the extent provided herein.
All Holders proposing to distribute their Registrable Securities
through such underwriting shall, together with the Company and the other parties
distributing their securities through such underwriting, enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting by the Company. Notwithstanding any other
provision of this Section 2.3, if the underwriter determines that marketing
factors require a limitation of the number of shares to be underwritten, the
underwriter may limit the number of Registrable Securities to be included in the
registration and underwriting, or may exclude Registrable Securities entirely
from such registration and underwriting subject to the terms of this Section
2.3. The Company shall so advise all holders of the Company's securities that
would otherwise be registered and underwritten pursuant hereto, and the number
of shares of such securities, including Registrable Securities, that may be
included in the registration and underwriting shall be allocated in the
following manner: shares, other than Registrable Securities and other securities
that have contractual rights with respect to registration similar to those
provided for in this Section 2.3, requested to be included in such registration
by stockholders shall be excluded; if a limitation on the number of shares is
still required, securities, other than the Registrable Securities, that have
contractual rights with respect to registration shall be reduced in proportion,
as nearly as practicable, to the amounts of such securities with such
contractual rights held by each such holder at the time of filing the
Registration Statement; and after excluding all such securities, if a limitation
on the number of shares is still required, the number of Registrable Securities
that may be included shall be reduced in proportion, or as nearly as
practicable, to the amounts of Registrable Securities held by each such holder
at the time of filing the Registration Statement. For purposes of any such
underwriter cutback, all Registrable Securities and other securities held by any
holder that is a partnership, limited liability company or corporation shall
also include any Registrable Securities held by the partners, retired partners,
members, stockholders or affiliated entities of such holder, or the estates and
family members of any such partners, retired partners, members and any trusts
for the benefit of any of the foregoing persons, and such holder and other
persons shall be deemed to be a single "selling holder," and any pro rata
reduction with respect to such "selling holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "selling holder", as defined in this sentence.
No securities excluded from the underwriting by reason of the underwriters
marketing limitation shall be included in such registration. Nothing in this
Section 2.3(b) is intended to diminish the number of securities to be included
by the Company in the underwriting.
If any Holder disapproves of the terms of the underwriting, it may
elect to withdraw therefrom by written notice to the Company and the
underwriter. The Registrable Securities so withdrawn shall also be withdrawn
from registration.
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(c) Right to Terminate Registration. The Company shall have
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the right to terminate or withdraw any registration initiated by it under this
Section 2.3 prior to the effectiveness of such registration whether or not any
Holder has elected to include securities in such registration.
2.3A Prior Preferred Rights. Notwithstanding any provisions of
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Sections 2.2 or 2.3 to the contrary, the holders of the Company's Series E
Preferred Stock and Series D Preferred Stock shall be entitled, on a pari passu
basis with the Holders, to include such holders' Registrable Securities (as
defined for each such holders in the Investor Rights Agreements dated March 24,
2000 and July 28, 1999, respectively, by and among the Company and such holders)
in any registration effected pursuant to Section 2.2 and Section 2.3 above.
2.4 Expenses of Registration. All expenses incurred in connection
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with all registrations effected pursuant to Sections 2.2, 2.3 and 2.9, including
without limitation all registration, filing and qualification fees (including
state securities law fees and expenses), printing expenses, escrow fees, fees
and disbursements of counsel for the Company and expenses of any special audits
incidental to or required by such registration shall be borne by the Company;
provided, however, that the Company shall not be required to pay stock transfer
taxes or underwriters' discounts or selling commissions relating to Registrable
Securities; provided, further, that the Company shall not be required to pay for
any expenses of any registration pursuant to Section 2.9 after the Company has
effected three (3) registrations pursuant to Section 2.9, in which event the
Holders of Registrable Securities to be registered shall bear all such expenses
pro rata on the basis of Registrable Securities to be registered; and provided,
further that only in connection with any registration effected pursuant to
Section 2.2, the Company shall be obligated to pay the legal expenses of one
legal counsel designated by the Investors participating in the registration in
an amount not to exceed $25,000 per registration. Notwithstanding anything to
the contrary above, the Company shall not be required to pay for any expenses of
any registration proceeding under Section 2.2 if the registration request is
subsequently withdrawn at the request of the Holders of a majority of the
Registrable Securities to have been registered, in which event the Holders of
Registrable Securities to have been registered shall bear all such expenses pro
rata on the basis of the Registrable Securities to have been registered.
Notwithstanding the preceding sentence, however, if at the time of the
withdrawal, the Holders have learned of a materially adverse change in the
condition, business or prospects of the Company from that known to the Holders
at the time of their request, then the Holders shall not be required to pay any
of said expenses and shall retain their rights pursuant to Section 2.2.
2.5 Obligations of the Company. Whenever required under this
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Section 2 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) prepare and file with the SEC a Registration Statement
with respect to such Registrable Securities and use its diligent efforts to
cause such Registration Statement to become effective, and keep such
Registration Statement effective for the lesser of 180 days or until the Holder
or Holders have completed the distribution relating thereto provided however
that the Company shall have the right to terminate such Registration Statement,
or to place a
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stop-transfer order with respect to the shares for which registration has been
requested thereunder, upon notice to the participating Holders to the extent
necessary, in the sole discretion of the Company upon the advice of counsel, to
avoid any requirement that the Company disclose material, nonpublic information,
the disclosure of which would be seriously detrimental to the Company and its
stockholders.
(b) prepare and file with the SEC such amendments and
supplements to such Registration Statement and the prospectus used in connection
with such Registration Statement as may be necessary to keep such Registration
Statement effective and to comply with the provisions of the 1933 Act with
respect to the disposition of all securities covered by such registration
statement.
(c) furnish to the Holders such numbers of copies of a
prospectus, including a preliminary prospectus, in conformity with the
requirements of the 1933 Act, and such other documents as they may reasonably
request in order to facilitate the disposition of Registrable Securities owned
by them.
(d) use its diligent efforts to register or otherwise qualify
the securities covered by such Registration Statement under such other
securities laws of such states and other jurisdictions as shall be reasonably
requested by the Holders or the managing underwriter, provided that the Company
shall not be required in connection therewith or as a condition thereto to
qualify to do business or to file a general consent to service of process in any
such states or jurisdictions.
(e) in the event of any underwritten public offering, enter
into and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) notify each Holder of Registrable Securities covered by
such Registration Statement, at any time when a prospectus relating thereto is
required to be delivered under the 1933 Act, of the happening of any event as a
result of which the prospectus included in such Registration Statement, as then
in effect, includes an untrue statement of a material fact or omits to state a
material fact required to be stated therein or necessary to make the statements
therein not misleading in the light of the circumstances then existing.
(g) use its diligent efforts to list the Registrable
Securities covered by such Registration Statement with any securities exchange
on which the Common Stock is then listed.
(h) make available for inspection by each Holder including
Registrable Securities in such registration, any underwriter participating in
any distribution pursuant to such registration, and any attorney, accountant or
other agent retained by such Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the Company, as such
parties may reasonably request, and cause the Company's officers, directors and
employees to supply all information reasonably requested by any such Holder,
underwriter, attorney, accountant or agent in connection with such Registration
Statement.
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(i) cooperate with Holders including Registrable Securities in
such registration and the managing underwriters, if any, to facilitate the
timely preparation and delivery of certificates representing Registrable
Securities to be sold, such certificates to be in such denominations and
registered in such names as such Holders or the managing underwriters may
request at least two business days prior to any sale of Registrable Securities.
(j) permit any Holder, which Holder, in the sole and exclusive
judgment, exercised in good faith, of such Holder, might be deemed to be a
controlling person of the Company, to participate in good faith in the
preparation of such Registration Statement and to require the insertion therein
of material, furnished to the Company in writing, that in the reasonable
judgment of such Holder and its counsel should be included.
(k) use its best efforts (if the offering is underwritten) to
furnish, at the request of any Holder, on the date that Restricted Securities
are delivered to the underwriters for sale pursuant to such registration: (i) an
opinion dated such date of counsel representing the Company for the purposes of
such registration, addressed to the underwriters and to such Holder, stating
that such Registration Statement has become effective under the 1933 Act and
that (A) to the best knowledge of such counsel, no stop order suspending the
effectiveness thereof has been issued and no proceedings for that purpose have
been instituted or are pending or contemplated under the 1933 Act, (B) the
Registration Statement, the related prospectus, and each amendment or supplement
thereof, comply as to form in all material respects with the requirements of the
1933 Act and the applicable rules and regulations of the Securities and Exchange
Commission thereunder (except that such counsel need express no opinion as to
financial statements, the notes thereto, and the financial schedules and other
financial and statistical data contained therein) and (C) to such other effects
as may reasonably be requested by counsel for the underwriters or by such Holder
or its counsel and (ii) a letter dated such date from the independent public
accountants retained by the Company, addressed to the underwriters, stating that
they are independent public accountants within the meaning of the 1933 Act and
that, in the opinion of such accountants, the financial statements of the
Company included in the registration statement or the prospectus, or any
amendment or supplement thereof, comply as to form in all material respects with
the applicable accounting requirements of the 1933 Act, and such letter shall
additionally cover such other financial matters (including information as to the
period ending no more than five business days prior to the date of such letter)
with respect to the registration in respect of which such letter is being given
as such underwriters or Holder may reasonably request.
2.6 Indemnification.
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(a) The Company will, and does hereby undertake to, indemnify
and hold harmless each Holder of Registrable Securities, each of such Holder's
officers, directors, managers, partners, members and agents, and each person
controlling such Holder, with respect to any registration, qualification or
compliance effected pursuant to this Section 2, and each underwriter, if any,
and each person who controls any underwriter, of the Registrable Securities held
by or issuable to such Holder, against all claims, losses, damages and
liabilities (or actions in respect thereto) to which they may become subject
under the 1933 Act, the Securities
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Exchange Act of 1934, as amended (the "1934 Act"), or other federal or state law
arising out of or based on (i) any untrue statement (or alleged untrue
statement) of a material fact contained in any prospectus, offering circular or
other similar document (including any related Registration Statement,
notification, or the like) incident to any such registration, qualification or
compliance, or based on any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
(ii) any violation or alleged violation by the Company of any federal, state or
common law rule or regulation applicable to the Company in connection with any
such registration, qualification or compliance, or (iii) any failure to register
or qualify Registrable Securities in any state where the Company or its agents
have affirmatively undertaken or agreed in writing that the Company (the
undertaking of any underwriter chosen by the Company being attributed to the
Company) will undertake such registration or qualification on behalf of the
Holders of such Registrable Securities (provided that in such instance the
Company shall not be so liable if it has undertaken its best efforts to so
register or qualify such Registrable Securities) and will reimburse, as
incurred, each such Holder, each such underwriter and each such director,
manager, officer, partner, member, agent and controlling person, for any legal
and any other expenses reasonably incurred in connection with investigating or
defending any such claim, loss, damage, liability or action; provided that the
Company will not be liable in any such case to the extent that any such claim,
loss, damage, liability or expense arises out of or is based on any untrue
statement or omission made in conformity with written information furnished to
the Company by an instrument duly executed by such Holder or underwriter and
stated to be specifically for use therein.
(b) Each Holder will, and if Registrable Securities held by or
issuable to such Holder are included in such registration, qualification or
compliance pursuant to this Section 2, does hereby undertake to indemnify and
hold harmless the Company, each of its directors and officers, and each person
controlling the Company, each underwriter, if any, and each person who controls
any underwriter, of the Company's securities covered by such a Registration
Statement, and each other Holder, each of such other Holder's officers,
directors, managers, partners, members and agents and each person controlling
such other Holder, against all claims, losses, damages and liabilities (or
actions in respect thereof) arising out of or based on (i) any failure of such
Holder or its agents or representatives to comply with the prospectus delivery
requirements of the 1933 Act or any other applicable securities or Blue Sky law,
or (ii) any untrue statement (or alleged untrue statement) of a material fact
contained in any such Registration Statement, prospectus, offering circular or
other document, or any omission (or alleged omission) to state therein a
material fact required to be stated therein or necessary to make the statements
therein not misleading in light of the circumstances in which they were made,
and will reimburse, as incurred, the Company, each such underwriter, each such
other Holder, and each such director, officer, manager, partner, member and
controlling person of the foregoing, for any legal or any other expenses
reasonably incurred in connection with investigating or defending any such
claim, loss, damage, liability or action, in each case to the extent, but only
to the extent, that such untrue statement (or alleged untrue statement) or
omission (or alleged omission) was made in such Registration Statement,
prospectus, offering circular or other document, in reliance upon and in
conformity with written information furnished to the Company by an instrument
duly executed by such Holder and stated to be specifically for use therein;
provided, however, that the liability of each Holder hereunder (unless
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such Holder's liability hereunder is based upon such Holder's willful misconduct
as determined by the nonappealable final decision of a court) shall be limited
to the proportion of any such claim, loss, damage or liability that is equal to
the proportion that the public offering price of the shares sold by such Holder
under such Registration Statement bears to the total public offering price of
all securities sold thereunder, but in any event not to exceed the net proceeds
received by such Holder from the sale of securities under such Registration
Statement. It is understood and agreed that the indemnification obligations of
each Holder pursuant to any underwriting agreement entered into in connection
with any Registration Statement shall be limited to the obligations contained in
this subsection 2.6(b).
(c) Each party entitled to indemnification under this Section
2.6 (the "Indemnified Party") shall give notice to the party required to provide
such indemnification (the "Indemnifying Party") of any claim as to which
indemnification may be sought promptly after such Indemnified Party has actual
knowledge thereof, and shall permit the Indemnifying Party to assume the defense
of any such claim or any litigation resulting therefrom; provided that counsel
for the Indemnifying Party, who shall conduct the defense of such claim or
litigation, shall be subject to approval by the Indemnified Party (whose
approval shall not be unreasonably withheld) and the Indemnified Party may
participate in such defense at the Indemnifying Party's expense if
representation of such Indemnified Party would be inappropriate due to actual or
potential differing interests between such Indemnified Party and any other party
represented by such counsel in such proceeding; and provided further that the
failure of any Indemnified Party to give notice as provided herein shall not
relieve the Indemnifying Party of its obligations under this Section 2, except
to the extent that such failure to give notice shall materially adversely affect
the Indemnifying Party in the defense of any such claim or any such litigation.
An Indemnifying Party, in the defense of any such claim or litigation, may,
without the consent of each Indemnified Party, consent to entry of any judgment
or enter into any settlement that includes as an unconditional term thereof the
giving by the claimant or plaintiff therein, to such Indemnified Party, of a
release from all liability with respect to such claim or litigation.
(d) In order to provide for just and equitable contribution to
joint liability under the 1933 Act in any case in which either (i) any Holder
exercising rights under this Agreement, or any controlling person of any such
Holder, makes a claim for indemnification pursuant to this Section 2.6 but it is
judicially determined (by the entry of a final judgment or decree by a court of
competent jurisdiction and the expiration of time to appeal or the denial of the
last right of appeal) that such indemnification may not be enforced in such case
notwithstanding the fact that this Section 2.6 provides for indemnification in
such case, or (ii) contribution under the 1933 Act may be required on the part
of any such Holder or any such controlling person in circumstances for which
indemnification is provided under this Section 2.6; then, and in each such case,
the Company and such Holder will contribute to the aggregate claims, losses,
damages or liabilities to which they may be subject (after contribution from
others) in such proportion so that such Holder is responsible for the portion
represented by the percentage that the public offering price of the securities
offered by such Holder pursuant to the Registration Statement bears to the
public offering price of all securities offered by such Registration Statement,
and the Company will be responsible for the remaining portion (without prejudice
as to the Company's right to contributions from any other responsible parties);
provided, however, that, in any case, (A) no such Holder will be required to
contribute any
11
<PAGE>
amount in excess of the public offering price of all securities offered by it
pursuant to such Registration Statement, after deduction of underwriting
discounts and commissions (unless such Holder's liability hereunder is based
upon such Holder's willful misconduct as determined by the nonappealable final
decision of a court); and (B) no person or entity guilty of fraudulent
misrepresentation (within the meaning of Section 11 (f) of the 1933 Act) will be
entitled to contribution from any person or entity who was not guilty of such
fraudulent misrepresentation.
(e) The indemnities provided in this Section 2.6 shall survive
the transfer of any Registrable Securities by such Holder.
2.7 Information by Holder. The Holder or Holders of Registrable
---------------------
Securities included in any registration shall furnish to the Company such
information regarding such Holder or Holders and the distribution proposed by
such Holder or Holders as the Company may reasonably request in writing and as
shall be required in connection with any registration, qualification or
compliance referred to in this Section 2.
2.8 Transfer of Rights.
------------------
(a) The rights contained in Section 2 hereof may be assigned or
otherwise conveyed to transferees or assignees of Registrable Securities, who
shall be considered a "Holder" for purposes hereof, provided that such transfer
is effected in compliance with Section 1.2 hereof and such transfer is a
"Permitted Transfer" as defined herein.
(b) For purposes of this Section, a "Permitted Transfer" shall
mean: (i) a transaction not involving a change in beneficial ownership; (ii)
transactions involving distribution without consideration by a stockholder that
is a partnership, limited liability company or corporation to any of its
partners, members or stockholders (as the case may be), retired partners,
members or stockholders, or to the estate of any of its partners, members or
stockholders; (iii) transaction involving distribution without consideration by
a stockholder that is a corporation to any of its stockholders; (iv) transfers
by any stockholder who is an individual to a trust for the benefit of such
stockholder or his family; (v) a transfer in which the transferee acquires at
least 50,000 shares of Registrable Securities, subject to adjustments for
combinations, consolidations, recapitalizations, stock splits, stock dividends
and the like; or (vi) transfers by gift, will or intestate succession to the
spouse, lineal descendants or ancestors of any stockholder or spouse of a
stockholder.
2.9 Form S-3. The Company shall use its diligent efforts to qualify
--------
for registration on Form S-3 and to that end the Company shall register the
Common Stock under the 1934 Act within 12 months following the effective date of
the first registration of any securities of the Company on Form S-1. After the
Company has qualified for the use of Form S-3, the Holders of Registrable
Securities shall have the right to request registrations on Form S-3 thereafter
under this Section 2.9. The Company shall give notice to all Holders of
Registrable Securities of the receipt of a request for registration pursuant to
this Section 2.9 and shall provide a reasonable opportunity for other Holders to
participate in the registration. Subject to the foregoing, the Company will use
its best efforts to effect as soon as practicable the registration of all shares
of Registrable Securities on Form S-3 to the extent requested by the Holder or
Holders
12
<PAGE>
thereof for purposes of disposition; provided, however, that the Company shall
not be obligated to effect any such registration (A) if the Holders, together
with the holders of any other securities of the Company entitled to inclusion in
such registration, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $2,500,000
or (B) at any time when the Company has effected one (1) registration pursuant
to this Section 2.9 in the previous six (6) months. Notwithstanding the
foregoing, nothing herein shall restrict, prohibit or limit in any way a
Holder's ability to exercise its registration rights under Sections 2.2 or 2.3
hereof. The Company shall have no obligation to take any action to effect any
registration pursuant to this Section 2.9 for any of the reasons set forth in
Section 2.2(a)(ii)(A) or (C), (which shall be deemed to apply to the obligations
under this Section 2.9 with equal force). In addition, any registration pursuant
to this Section 2.9 shall be subject to the provisions of Section 2.2(b), which
shall be deemed to apply to the obligations under this Section 2.9 with equal
force, except that any reference therein to Section 2.2 or a subsection thereof
shall, for these purposes only, be deemed to be a reference to this Section 2.9.
2.10 Delay of Registration. No Holder shall have any right to obtain
---------------------
or seek an injunction restraining or otherwise delaying any such registration as
the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 2.
2.11 Limitations on Subsequent Registration Rights. From and after the
---------------------------------------------
date of this Agreement, the Company shall not, without the prior written consent
of the Holders of at least 75% of the Registrable Securities then outstanding
and not registered, enter into any agreement with any holder or prospective
holder of any securities of the Company that would allow such holder or
prospective holder to (i) require the Company to effect a registration or (ii)
include any securities in any registration filed under Section 2.2, 2.3 or 2.9
hereof, unless, under the terms of such agreement, such holder or prospective
holder may include such securities in any such registration only to the extent
that the inclusion of such securities will not diminish the amount of
Registrable Securities that are included in such registration.
2.12 Rule 144 Reporting. With a view to making available to the
------------------
Holders the benefits of certain rules and regulations of the SEC that may permit
the sale of the Registrable Securities to the public without registration, the
Company agrees to use its diligent efforts to:
(a) Make and keep current public information available, within
the meaning of SEC Rule 144 or any similar or analogous rule promulgated under
the 1933 Act, at all times after it has become subject to the reporting
requirements of the 1934 Act;
(b) File with the SEC, in a timely manner, all reports and
other documents required of the Company under the 1933 Act and 1934 Act (after
it has become subject to such reporting requirements);
(c) So long as a Holder owns any Registrable Securities,
furnish to such Holder forthwith upon request a written statement by the Company
as to its compliance with the reporting requirements of said Rule 144 (at any
time commencing 90 days after the effective date of the first registration filed
by the Company for an offering of its securities to the general public), the
1933 Act and the 1934 Act (at any time after it has become subject to such
reporting
13
<PAGE>
requirements); a copy of the most recent annual or quarterly report of the
Company; and such other reports and documents as a Holder may reasonably request
in availing itself of any rule or regulation of the SEC allowing it to sell any
such securities without registration.
2.13 "Market Stand-Off" Agreement. Each Holder that is a "One Percent
----------------------------
Stockholder," as defined below, hereby agrees that during a period, not to
exceed 180 days, following the effective date of the initial, effective
registration statement of the Company filed under the 1933 Act, it shall not, to
the extent requested by the Company and any underwriter, sell, pledge, transfer,
make any short sale of, loan, grant any option for the purchase of, or otherwise
transfer or dispose of (other than to donees who agree to be similarly bound or,
subject to underwriter approval, for Holders that are entities, to such Holders'
members or partners (as applicable) who agree to be similarly bound, or other
than any sales under such registration statement) any Common Stock held by it at
any time during such period except Common Stock included in such registration;
provided, however, that all other "One Percent Stockholders" with registration
rights (whether or not pursuant to this Agreement) and all officers and
directors of the Company enter into similar agreements and such agreement shall
be applicable only to the first such registration statement of the Company that
covers Common Stock (or other securities) to be sold on its behalf to the public
in an underwritten offering.
For purposes of this Section 2.13, the term "One Percent Stockholder"
shall mean a stockholder of the Company who holds at least one percent of the
outstanding Common Stock of the Company (assuming conversion of all outstanding
Series F Stock of the Company and all other convertible securities of the
Company).
In order to enforce the foregoing covenant, the Company may impose stop
transfer instructions with respect to the Registrable Securities of each Holder
(and the shares or securities of every other person subject to the foregoing
restriction) until the end of such period.
2.14 Amendment of Registration Rights. Any provision of this Section
--------------------------------
2 may be amended and the observance thereof may be waived (either generally or
in a particular instance and either retroactively or prospectively), only with
the written consent of the Company and the Holders of at least 66 2/3% of the
Registrable Securities then outstanding and not registered. Any amendment or
wavier effected in accordance with this Section shall be binding upon each
Holder, each future Holder of Registrable Securities and the Company.
2.15 Inclusion of Stock Held by Common Holders. In connection with
-----------------------------------------
any registration effected pursuant to Section 2.3 hereof, the Common Holders
shall be entitled to include in such registration (on the same terms and
conditions as Holders selling their Registrable Securities in such registration)
shares of Common Stock held by such Common Holders; provided that any limitation
by the underwriter on the number of shares to be underwritten in connection with
such registration shall first be applied to the shares so included by such
Common Holders, as provided in Section 2.3(b), and provided further that each
such Common Holder's right to include shares of Common Stock in a registration
pursuant to this Section 2.15 is contingent upon such Common Holder's execution
of an indemnification and hold harmless agreement substantially in accordance
with Section 2.6(b) and an agreement to be bound by all other applicable
restrictions contained in this Section 2.
14
<PAGE>
2.16 Termination of Rights. The rights of any particular Holder to
---------------------
cause the Company to register securities under Section 2.2, 2.3 or 2.9 hereof
shall terminate as to any Holder on the earlier of (a) the date (and during such
period) that such Holder is able to dispose of all of its Registrable Securities
in any 90-day period pursuant to SEC Rule 144 (or any similar or analogous rule
promulgated under the 1933 Act), or (b) the third anniversary of the closing of
the Company's initial public offering of stock.
Section 3.
RIGHT OF FIRST REFUSAL;
-----------------------
RIGHT OF CO-SALE
----------------
3.1 Certain Definitions. As used in this Section 3:
-------------------
(a) The term "New Securities" shall mean any capital stock of
the Company, whether now authorized or not, and rights, options or warrants to
purchase capital stock, and securities of any type whatsoever that are, or may
become, convertible into capital stock; provided that the term "New Securities"
does not include: (i) the Series F Stock; (ii) securities issuable upon
conversion of or with respect to Series F Stock, or up to 8,992,029 shares
(which number shall be appropriately adjusted for any stock splits, stock
dividends, recapitalizations, conversion price adjustments or similar events)
issuable upon conversion of any other preferred stock or equity or debt security
of the Company issued on or prior to the date hereof; (iii) up to 1,146,628
shares of Common Stock (which number shall be appropriately adjusted for any
stock splits, stock dividends, recapitalizations or similar events), and
options, warrants or rights convertible into such Common Stock, issued or
issuable to employees, consultants or directors of the Company pursuant to any
incentive agreement or arrangement approved by the Board of Directors of the
Company; (iv) up to 112,500 shares (which number shall be appropriately adjusted
for any stock splits, stock dividends, recapitalizations or similar events) of
capital stock or securities exercisable for or convertible into such capital
stock issued in connection with any equipment leases or borrowings, direct or
indirect, from financial or other institutions regularly engaged in such
business; (v) up to 349,999 shares (which number shall be appropriately adjusted
for any stock splits, stock dividends, recapitalizations or similar events)
issuable upon exercise of warrants to purchase the Company's preferred stock; or
(vi) securities issued pursuant to any stock dividend, stock split, combination
or other reclassification by the Company of any of its capital stock.
(b) The term "Pro Rata Share" means the ratio (A) the numerator
of which is the number of shares of Common Stock held by such Holder, or
issuable to such Holder upon the conversion or exercise of all securities
convertible into or exercisable for Common Stock of the Company held by such
Holder, on the date of the written notice pursuant to Section 3.2 hereof, and
(B) the denominator of which is (i) with respect to the right of first refusal
set forth in Section 3.2, the number of shares of Common Stock outstanding,
assuming for this purpose conversion or exercise of all securities convertible
into or exercisable for Common Stock of the Company or (ii) with respect to the
right of co-sale set forth in Section 3.3, the number of shares of Common Stock
held by or issuable to all Holders who intend to exercise co-sale rights with
15
<PAGE>
respect to such sale and by the Common Holder desiring to sell or transfer
Common Stock pursuant to Section 3.3.
3.2 Right of First Refusal. The Company hereby grants to each Holder,
----------------------
subject to the terms and conditions specified in this Section 3.2, the right of
first refusal to purchase, on the terms and conditions set forth in the
Company's notice pursuant to this Section 3.2, up to its Pro Rata Share of all
New Securities that the Company may, from time to time, propose to sell and
issue. In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Holder written notice (the "Election Notice") of
its intention, describing the type of New Securities, the price and the general
terms upon which the Company proposes to issue the same. Each Holder shall have
15 days from the date of any such notice to exercise its right of first refusal
under this Section 3.2 for the price and upon the general terms specified in the
notice by giving written notice to the Company and stating therein the quantity
of New Securities to be purchased. Each Holder shall also have the option,
exercisable by so specifying in the Election Notice, to purchase such Holder's
pro rata portion of any remaining New Securities not purchased by other Holders,
in which case the Holders exercising such further option shall be deemed to have
elected to purchase such Holder's pro rata portion of such remaining New
Securities, up to an aggregate maximum number of New Securities which such
Holder shall have specified in the Election Notice. The Company shall have 90
days after the 15-day period described in this Section 3.2 to sell all such New
Securities respecting which the Holders' rights of first refusal hereunder were
not exercised, at a price and upon terms no more favorable in any material
respect to the purchasers thereof than specified in the Company's notice. In the
event the Company has not sold all such New Securities within such 90-day
period, the Company shall not thereafter issue or sell any New Securities
without first notifying the Investors in the manner provided herein.
3.3 Right of Co-Sale. If at any time a Common Holder or Other Holder
----------------
desires (or is required) to sell or transfer in any manner any shares of capital
stock of the Company or securities convertible or exercisable into capital stock
of the Company pursuant to the terms of a bona fide offer received from a third
party (the "Buyer"), each Holder shall have the right to require, as a condition
to such sale or transfer, that the Buyer purchase from such Holder at the same
price per share and on the same terms and conditions as involved in such sale or
disposition by such Common Holder or Other Holder that percentage of the number
of shares of capital stock proposed to be acquired by the Buyer from such Common
Holder or Other Holder (the "Offered Shares") equal to such Holder's Pro Rata
Share. Each Holder shall act upon the Buyer's offer to buy within twenty (20)
days after receipt of the written notice delivered by such Common Holder or
Other Holder to the Company and each Holder that fully describes the offer. In
the event that one or more Holders shall elect to participate in such sale or
transfer, each such Holder shall communicate in writing such election to such
Common Holder or Other Holder.
3.4 Expiration of Right. The rights of first refusal and rights of
-------------------
co-sale granted under this Section 3 shall not apply to, and shall expire upon,
the closing of a Qualified Public Offering (as defined in Section 4.4 below).
16
<PAGE>
3.5 No Waiver. The exercise or non-exercise by a Holder of its or his
---------
rights under this Section 3 shall not adversely affect its right to exercise
such rights in connection with future transfers or sales.
Section 4.
COMPANY COVENANTS
-----------------
The Company hereby covenants and agrees as follows:
4.1 Financial Information.
---------------------
(a) So long as any Investor or any subsidiary, affiliate or
partner of such Investor shall own at least 50,000 shares of Investor Stock or
any shares of Common Stock issued upon conversion thereof, subject to adjustment
for combinations, consolidations, recapitalizations, stock splits, stock
dividends and the like, the Company will furnish each Holder, subject to Section
4.1(b) below, the following reports:
(i) As soon as practicable after the end of each fiscal
year, and in any event within 90 days thereafter, (1) audited consolidated
balance sheets of the Company and its subsidiaries, if any, as at the end of
such fiscal year, and audited consolidated statements of income and losses,
stockholders' equity and cash flows of the Company and its subsidiaries, if any,
for such fiscal year, prepared in accordance with generally accepted accounting
principles and setting forth in each case in comparative form the figures for
the previous fiscal year, if any, all in reasonable detail and accompanied by a
report and opinion thereon by independent auditors selected by the Company's
Board of Directors; and (2) a copy of such auditors' management letter prepared
in connection therewith, if any, (as soon as such management letter is
available, which may be greater than the aforesaid 90-day period);
(ii) As soon as practicable after the end of each of the
first three quarters of the fiscal year, but in any event within 30 days after
the end of each such quarter, the unaudited consolidated balance sheets of the
Company and its subsidiaries, if any, as of the end of such quarter, and its
unaudited consolidated statements of income and losses, stockholders' equity and
cash flows for such quarter, setting forth in each case in comparative form the
figures for the corresponding period of the preceding fiscal year and such
quarter's operating budget, all in reasonable detail and prepared in accordance
with generally accepted accounting principles, except that such financial
statements may not contain notes and will be subject to year-end adjustment, and
certified by the principal financial or accounting officer of the Company. Such
quarterly report shall include a narrative, summary description of the Company's
operations for such quarter, indicating whether the Company is materially in
compliance with this Agreement and other material agreements and discussing any
material variances from the Company's operating plan;
(iii) Within 30 days prior to the end of each fiscal year,
an operating budget, prepared on a quarterly basis, for the succeeding fiscal
year; and
17
<PAGE>
(iv) With reasonable promptness, such other information
respecting the business, properties or the condition or operations, financial or
other, of the Company or any subsidiary as any Holder may from time to time
reasonably request.
(b) The Company shall not be obligated pursuant to this Section
4.1 to provide financial information to any person whom the Company reasonably
believes is a competitor of the Company.
(c) The rights granted pursuant to this Section 4.1 may be
assigned or otherwise conveyed by any Investor or by any subsequent transferee
of any such rights, provided that the Company is given prior written notice of
any such proposed assignment or conveyance; and provided further that the
Company may refuse to permit such assignment or conveyance if the proposed
transferee is reasonably believed by the Company to be a competitor of the
Company.
4.2 Inspection. The Company shall permit each Investor and each
----------
transferee in a Permitted Transfer (as defined in Section 2.8(b) hereof)
(provided such transfer is effected in compliance with Section 1.2 hereof), its
attorney or its other representative to visit and inspect the Company's
properties, to examine the Company's books of account and other records, to make
copies or extracts therefrom and to discuss the Company's affairs, finances and
accounts with its officers, management, employees and independent auditors all
at such reasonable times and as often as such Investor or transferee may
reasonably request; provided, however, that the Company shall not be obligated
pursuant to this Section 4.2 to provide trade secrets or confidential
information or to provide information to any person whom the Company reasonably
believes is a competitor of the Company; provided, further, that such Investor
shall bear any costs or expenses of such investigations or inquiries.
4.3 Additional Affirmative Covenants. Without limiting any other
--------------------------------
covenant or provision hereof, the Company covenants and agrees that, so long as
at least 50,000 shares of Series F Stock remain outstanding, it will, and will
cause each subsidiary (to the extent applicable thereto) of the Company, if and
when such subsidiary exists, to:
(a) Payment of Taxes. Pay, and cause each subsidiary to pay, and
----------------
discharge all taxes, assessments and governmental charges or levies imposed upon
it or upon its income, profits or business, or upon any properties belonging to
it, prior to the date on which penalties attach thereto, and all lawful claims
that, if unpaid, might become a lien or charge upon any properties of the
Company or any subsidiary, provided that neither the Company nor any subsidiary
shall be required to pay any such tax, assessment, charge, levy or claim that is
being contested in good faith and by appropriate proceedings if the Company or
any subsidiary shall have set aside on its books sufficient reserves, if any,
with respect thereto;
(b) Payment of Trade Debt. Pay, and cause each subsidiary to
---------------------
pay, when due, or in conformity with customary trade terms but not later than
ninety (90) days from the due date, all lease obligations, all trade debt, and
all other indebtedness incident to the operations of the Company or its
subsidiaries, except such as are being contested in good faith and by proper
18
<PAGE>
proceedings if the Company or subsidiary concerned shall have set aside on its
books sufficient reserves, if any, with respect thereto;
(c) Maintenance of Insurance. Maintain, and cause each
------------------------
subsidiary to maintain, insurance with responsible and reputable insurance
companies or associations in such amounts and covering such risks as is
customarily carried by companies engaged in similar businesses and owning
similar properties in the same general areas in which the Company or such
subsidiary operates;
(d) Preservation of Corporate Existence. Preserve and maintain,
-----------------------------------
and, unless the Company reasonably deems it not to be in its best interests,
cause each subsidiary to preserve and maintain, its corporate existence, rights,
franchises and privileges in the jurisdiction of its incorporation, and qualify
and remain qualified, and cause each subsidiary to qualify and remain qualified,
as a foreign corporation in each jurisdiction in which such qualification is
necessary or desirable in view of its business and operations or the ownership
or lease of its properties, except when the failure to be so qualified would not
have a material adverse effect on the Company and its subsidiaries taken as a
whole; provided that nothing in this Section 4.3(d) shall prohibit the Company
or any of its subsidiaries from engaging in a corporate transaction in
connection with the acquisition of another corporation or business entity by the
Company or one or more of its wholly owned subsidiaries by merger,
consolidation, share exchange, purchase of substantially all the assets or other
reorganization whereby the stockholders of the Company immediately prior to the
transaction own in the aggregate more than 50% of the voting power of the
Company or other surviving entity after the transaction;
(e) Intellectual Property. Secure, preserve and maintain, and
---------------------
cause each subsidiary to secure, preserve and maintain, all licenses and other
rights to use patents, processes, licenses, permits, trademarks, trade names,
inventions, intellectual property rights or copyrights owned or used by it to
the extent necessary to the conduct of its business or the business of any
subsidiary;
(f) Compliance with Laws. Comply, and cause each subsidiary to
--------------------
comply, with the requirements of all applicable laws, rules, regulations and
orders of any governmental authority, noncompliance with which could materially
adversely affect its business or condition, financial or otherwise;
(g) Records and Books of Account. Keep, and cause each
----------------------------
subsidiary to keep, adequate records and books of account in which complete
entries will be made in accordance with generally accepted accounting principles
consistently applied, reflecting all financial transactions of the Company and
any subsidiary, and in which, for each fiscal year, all proper reserves for
depreciation, depletion, returns of merchandise, obsolescence, amortization,
taxes, bad debts and other purposes in connection with its business shall be
made;
(h) Maintenance of Properties. Maintain and preserve, and cause
-------------------------
each subsidiary to maintain and preserve, all of its properties and assets
necessary for the proper conduct of its business, in good repair, working order
and condition, ordinary wear and tear excepted;
19
<PAGE>
(i) Regulatory Compliance. Comply, and cause each subsidiary to
---------------------
comply, with all minimum funding requirements applicable to any pension,
employee benefit plans, or employee contribution plans that are subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"), or to the
Internal Revenue Code of 1986, as amended (the "Code"), and comply, and cause
each subsidiary to comply, in all other material respects with the provisions of
ERISA and the Code, and the rules and regulations thereunder, which are
applicable to any such plan; provided further that neither the Company nor any
subsidiary will permit any event or condition to exist that would permit any
such plan to be terminated under circumstances that would cause any material
lien provided for in section 4068 of ERISA to attach to the assets of the
Company or any subsidiary;
(j) Financings. Promptly, fully and in detail, inform the Board
----------
of Directors of any discussions, offers or contracts relating to possible
financings of any nature for the Company, whether initiated by the Company or
any other person, except for arrangements with trade creditors in the ordinary
course of business;
(k) Nature of Business. Continue to conduct its business without
------------------
material change from the nature of the business as conducted or contemplated as
of the date of this Agreement or enter into material transactions not in the
ordinary course of business, except as approved by the Board of Directors; and
(l) Employee Agreements. Cause its future employees to execute a
-------------------
nondisclosure, assignment of inventions and non-competition agreement in the
form attached as Exhibit D to the Series F Agreement.
---------
4.4 Expiration of Covenants. The covenants set forth in this Section
-----------------------
4 shall expire and be of no further force or effect upon the effectiveness of a
Qualified Public Offering (as defined below). A "Qualified Public Offering"
shall mean an effective registration statement for the sale of the Company's
shares of Common Stock in a firm commitment underwritten public offering
registered under the 1933 Act generating proceeds (before deducting
underwriters' commissions and discounts) to the Company of $40,000,000 or more
and the price per share to the public is not less than 150% of the Series F
purchase price per share, subject to adjustment for stock splits, stock
dividends and the like (other that a registration relating solely to employee
benefit plans or to a transaction under Rule 145 under the 1933 Act or any
successor rule thereto). After such time, the Investors shall be entitled to
receive such annual and quarterly reports as the Company shall distribute to its
stockholders generally.
Section 5.
OBSERVATION RIGHTS
------------------
Until such time as the Company shall have consummated a Qualified Public
Offering (as defined in Section 4.4 hereof), the Investors shall have the right
to appoint one (1) observer to the Board of Directors of the Company, as
designated by Vector Later-Stage Equity Fund II, L.P. and Vector Later-Stage
Equity Fund II (Q.P.), L.P., who initially shall be Barclay Phillips. Such
20
<PAGE>
observer will be allowed to participate in all discussions of the Board of
Directors but will not be a voting member of the Board of Directors. The Company
shall reimburse the observer appointed by the Investors for reasonable expenses
incurred to attend meetings of the Board of Directors.
Section 6.
PROHIBITED TRANSFERS
--------------------
Until the closing of a Qualified Public Offering or the closing of a
transaction that results in liquidation rights for the Series F Preferred under
the Company's Certificate of Incorporation, no Common Holder may sell, pledge or
otherwise transfer more than 10% of such Common Holder's shares of the Company
held at the Closing of the Series F Agreement without the written consent of 66
2/3% of the shares (on an as-converted basis) held by the Investors.
Notwithstanding the previous provision, transfers to the following persons (each
a "Permitted Transferee") do not require consent of the Investors: (i) a member
of the Common Holder's immediate family (defined to include his parents,
children and lineal descent (whether by birth or adoption), spouse, siblings and
the children of siblings (whether by birth or adoptions)) or (ii) a trust or
family limited partnership established by the Common Holder for the benefit of
himself or his immediate family (each such Transfer a "Permitted Transfer"). No
Permitted Transfer shall be effective unless and until the Permitted Transferee
shall have executed such documentation, in form and substance satisfactory to
the Company, evidencing agreement by the Permitted Transferee to be bound by the
provisions of this Agreement.
Section 7.
MISCELLANEOUS
-------------
7.1 Governing Law. This Agreement shall be governed by, and construed
-------------
and interpreted in accordance with the laws of the State of Delaware as applied
to agreements among Delaware residents made and to be performed entirely within
the State of Delaware.
7.2 Successors and Assigns. Except as otherwise expressly provided
----------------------
herein, the provisions hereof shall inure to the benefit of, and be binding
upon, the successors, assigns, heirs, executors and administrators of the
parties hereto.
7.3 Entire Agreement. This Agreement constitutes the full and entire
----------------
understanding and agreement among the parties with regard to the subjects hereof
with respect to the Series F Stock and any securities issued or issuable in
respect of the Series F Stock. Nothing in this Agreement, express or implied, is
intended to confer upon any party, other than the parties hereto and their
successors and assigns, any rights, remedies, obligations or liabilities under
or by reason of this Agreement, except as expressly provided herein.
7.4 Severability. Any invalidity, illegality or limitation of the
------------
enforceability with respect to any Holder of any one or more of the provisions
of this Agreement, or any part thereof,
21
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whether arising by reason of the law of any such person's domicile or otherwise,
shall in no way affect or impair the validity, legality or enforceability of
this Agreement with respect to any other Holder. In case any provision of this
Agreement shall be invalid, illegal or unenforceable, it shall to the extent
practicable, be modified so as to make it valid, legal and enforceable and to
retain as nearly as practicable the intent of the parties, and the validity,
legality, and enforceability of the remaining provisions shall not in any way be
affected or impaired thereby.
7.5 Amendment and Waiver. Except as otherwise expressly provided
--------------------
herein, any term of this Agreement may be amended and the observance of any term
of this Agreement may be waived (either generally or in a particular instance,
either retroactively or prospectively and either for a specified period of time
or indefinitely) with the written consent of the Company and the Investors, or
their transferees holding at least 66 2/3% of the shares of Series F Stock,
voting together as a single group (treated as if converted at the conversion
rate then in effect and including, for such purposes shares of Common Stock into
which any shares of Series F Stock shall have been converted that are held by a
Holder); provided, however, that no such amendment or waiver shall reduce the
aforesaid percentage of Series F Stock and Common Stock issued upon conversion
thereof, the holders of which are required to consent to any waiver or
supplemental agreement, without the consent of the holders of all of such Series
F Stock and Common Stock; provided, further, that any amendment to Section 2.15
(or to Section 2.3 that would affect the rights under Section 2.15) shall also
require the consent of the holders of at least a majority of the shares of
Common Stock issued to, or issuable upon exercise of options held by, the Common
Holders; and provided further, that no amendment to Section 2.3A hereof shall be
effective without the written consent of the Company and the holders of at least
75% of the shares of Series D Preferred Stock and the Series E Preferred Stock,
voting together as a single group (treated as if converted at the conversion
rate then in effect and including, for such purposes, shares of Common Stock
into which any shares of Series D Preferred Stock and Series E Preferred Stock
shall have been converted that are held by any such holder); and provided
further, that no amendment to Section 5 hereof shall be effective without the
written consent of the Company and the Investors, or their transferees, holding
at least 75% of the shares of Series F Stock, voting together as a single group
(treated as if converted at the conversion rate then in effect and including,
for such purposes, shares of Common Stock into which any shares of Series F
Stock shall have been converted that are held by a Holder). Any amendment or
waiver effected in accordance with this Section 7.5 shall be binding upon each
Common Holder, each Investor and each transferee of the Registrable Securities.
Upon the effectuation of each such amendment or waiver, the Company shall
promptly give written notice thereof to the Investors and Common Holders who
have not previously consented thereto in writing. Notwithstanding anything to
the contrary in this Section 7.5, the Company shall be entitled to include
additional purchasers of its Series F Stock pursuant to the Series F Agreement
as parties to this Agreement, and to treat such purchasers as "Investors" and
"Holders" hereunder, by amending Exhibit A attached hereto and providing such
---------
Exhibit A, as amended, to the other parties to this Agreement.
---------
7.6 Delays or Omissions. No delay or omission to exercise any right,
-------------------
power or remedy accruing to the Company, the Investors, or any transferees upon
any breach, default or noncompliance of the Investors or any transferee or the
Company under this Agreement, shall impair any such right, power or remedy, nor
shall it be construed to be a waiver of any such breach, default
22
<PAGE>
or noncompliance, or any acquiescence therein, or of any similar breach, default
or noncompliance thereafter occurring. It is further agreed that any waiver,
permit, consent or approval of any kind or character on the part of the Company
or the Investors of any breach, default or noncompliance under this Agreement or
any waiver on the Company's or the Investors' part of any provisions or
conditions of this Agreement must be in writing and shall be effective only to
the extent specifically set forth in such writing and that all remedies, either
under this Agreement, by law, or otherwise afforded to the Company and the
Investors, shall be cumulative and not alternative.
7.7 Notices, etc. All notices and other communications required or
------------
permitted hereunder shall be in writing and shall be deemed effectively given
upon personal delivery or upon confirmed delivery by facsimile or telecopy, or
on the fifth day (or the tenth day if to a party with an address outside of the
United States) following mailing by registered or certified mail, return receipt
requested, postage prepaid, addressed: (a) if to the Company, at:
POZEN Inc.
6330 Quadrangle Drive, Suite 240
Chapel Hill, North Carolina 27514
Attention: John E. Barnhardt
Phone: (919) 490-0012
Fax: (919) 490-5552
With a copy to:
Fred D. Hutchison, Esq.
Hutchison & Mason PLLC
3110 Edwards Mill Road, Suite 100
Raleigh, North Carolina 27612
Phone: (919) 829-9600
Fax: (919) 829-9696
or at such other address as the Company shall have furnished to the Investors in
writing, and
(b) if to the Investors, at the addresses of such Investors specified
on Exhibit A hereto, or at such other addresses as the Investors shall have
---------
furnished to the Company in writing.
(c) if to a Common Holder other than the Investors, at such Common
Holder's address as shall have been furnished to the Company in writing.
7.8 Titles and Subtitles. The titles of the sections and
--------------------
subsections of this Agreement are for convenience of reference only and are not
to be considered in construing this Agreement.
7.9 Counterparts. This Agreement may be executed in any number of
------------
counterparts, each of which shall be deemed an original, but all of which
together shall constitute one instrument.
23
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[REMAINDER OF PAGE INTENTIONALLY LEFT BLANK]
24
<PAGE>
IN WITNESS WHEREOF, this Investor Rights Agreement has been duly
executed and delivered by the parties as of the date first above written.
COMPANY:
POZEN INC.
By: /s/ John R. Plachetka
------------------------------------------
John R. Plachetka
President and Chief Executive Officer
INVESTORS:
ALIMENTARIA INTERNATIONAL INC.
By: /s/ Georges Muller
------------------------------------------
Name: Georges Muller
Title: Power of Attorney
CANAAN EQUITY II L.P.
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Harry T. Rein
------------------------------------------
Name: Harry T. Rein
Title: Member/Manager
CANAAN EQUITY II L.P. (QP)
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Harry T. Rein
------------------------------------------
Name: Harry T. Rein
Title: Member/Manager
25
<PAGE>
CANAAN EQUITY II ENTREPRENEURS LLC
By: CANAAN EQUITY PARTNERS II LLC
By: /s/ Harry T. Rein
------------------------------------------
Name: Harry T. Rein
Title: Member/Manager
MVI MEDICAL VENTURE INVESTMENTS LIMITED
By: /s/ L. R. Alioth
------------------------------------------
Name: L. R. Alioth
Title: Attorney in Fact
By: /s/ J. F. Geigy
------------------------------------------
Name: J. F. Geigy
Title: Attorney in Fact
OCTAVIAN NOMINEES
By: /s/ Robert Sinclair
------------------------------------------
Name: Robert Sinclair
Title: Director
UNITED OPPORTUNITIES FUND, LLC
By: United Management Company, LLC
By: /s/ Lois A. Clarke
------------------------------------------
Name: Lois A. Clarke
Title: President and Managing Director
26
<PAGE>
VECTOR LATER-STAGE EQUITY FUND II, L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Barclay A. Phillips
------------------------------------------
Name: Barclay A. Phillips
Title: Managing Director
VECTOR LATER-STAGE EQUITY FUND II (Q.P.), L.P.
By: VECTOR FUND MANAGEMENT II, L.L.C.
Its: General Partner
By: /s/ Barclay A. Phillips
------------------------------------------
Name: Barclay A. Phillips
Title: Managing Director
27
<PAGE>
The undersigned hereby executes this Agreement
solely for the purpose of agreeing to the
provisions of Section 3 hereof:
MEDGROWTH, S.A.
By: /s/ Hans Jorg Graf
-----------------------------------------
Name: Hans Jorg Graf
Title:
By: /s/ Cyrill Zimmermann
-----------------------------------------
Name: Cyrill Zimmermann
Title:
28
<PAGE>
COMMON HOLDERS:
/s/ Peter J. Wise
------------------------------------------------
Peter J. Wise
SILVER HILL INVESTMENTS, LLC
By: /s/ John R. Plachetka
-------------------------------------------
John R. Plachetka
President
29
<PAGE>
EXHIBIT A
---------
Schedule of Investors
---------------------
Schedule of Investors
---------------------
Name and Address
----------------
Alimentaria International, Inc.
Av. de Montebenon 2
CH-1002 Lausanne
SWITZERLAND
Canaan Equity II L.P.
Canaan Equity II L.P. (QP)
Canaan Equity II Entrepreneurs LLC
105 Rowayton Avenue
Rowayton, CT 06853
MVI Medical Venture Investments Limited
c/o New Medical Technologies AG
Elisabethenstrasse 23
CH-4051 Basel
SWITZERLAND
Octavian Nominees Limited
c/o RIT Capital Partners
15 St. James Place
London SW1A 1NW
UNITED KINGDOM
United Opportunities Fund, LLC
c/o The United Company
1005 Glenway Avenue
Bristol, VA 24203-1280
Vector Later-Stage Equity Fund II, L.P.
Vector Later-Stage Equity Fund II (Q.P.), L.P.
1751 Lake Cook Road, Third Floor
Deerfield, IL 60015
30
<PAGE>
EXHIBIT A-1
-----------
Other Holders
-------------
Name and Address
----------------
MEDGROWTH, S.A.
Dr. Cyrill Zimmermann
Bellevue Asset Management AG
Grafenauweg 4
CH-6301 Zug
Switzerland
31
<PAGE>
EXHIBIT B
---------
Schedule of Common Holders
--------------------------
Peter J. Wise
Silver Hill Investments, LLC
32
