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Exhibit 4.2
INVESTORS' RIGHTS AGREEMENT
This Investors' Rights Agreement (this "Agreement") is made as of the
2nd day of December 1997, by and between OMP Acquisition Corporation, a
California corporation (the "Company), Mandarin Partners LLC ("Mandarin") and
Zein and Samar Obagi Family Trust ("Obagi"). Mandarin and Obagi are referred to
collectively as the "Investors".
RECITALS
WHEREAS, the Company and the Investors are parties to certain stock
purchase agreements of even date herewith (collectively, the "Purchase
Agreements");
WHEREAS, in order to induce the Company to enter into the Purchase
Agreements and to induce the Investors to invest funds in the Company pursuant
to the Purchase Agreements, the Investors and the Company hereby agree that this
Agreement shall govern the rights of the Investors to cause the Company to
register shares of Common Stock issued or issuable to the Investors and certain
other matters as set forth herein;
NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS:
1. DEFINITIONS. For purposes of this Agreement:
(a) The term "Act" means the Securities Act of 1933, as amended.
(b) The term "Co-Sale Stock" means any shares of the Company's
capital stock now owned or subsequently acquired by any Investor.
(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 which 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 8.2 hereof.
(e) The term "1934 Act" shall mean the Securities Exchange Act of
1934, as amended.
(f) The term "register", "registered," and "registration" refer to
a registration effected by preparing and filing a registration statement or
similar document in compliance with the Act, and the declaration or ordering of
effectiveness of such registration statement or document.
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(g) The term "Registrable Securities" means (i) any common stock
("Common Stock") of the Company held or hereafter acquired by a Holder and (ii)
any capital stock held or hereafter acquired by a Holder which Capital stock is
convertible into Common Stock, excluding in all cases, however, any Registrable
Securities sold by a person in a transaction in which his rights under Section
2 are not assigned.
(h) The number of shares of "Registrable Securities then
outstanding" shall be determined by the number of shares of Common Stock then
outstanding which are Registrable Securities.
(i) The term "SEC" shall mean the Securities and Exchange
Commission.
2. REGISTRATION RIGHTS. The Company covenants and agrees as
follows:
2.1 REQUEST FOR REGISTRATION.
(a) If the Company shall receive at any time at least three (3)
months after the effective date of the first registration statement for a public
offering of securities of the Company (other than a registration statement
relating either to the sale of securities to employees of the Company pursuant
to a stock option, stock purchase or similar plan or a SEC Rule 145
transaction), a written request from the Holders of a majority of the
Registrable Securities then outstanding that the Company file a registration
statement under the Act covering the registration of at least fifty percent
(50%) of the Registrable Securities then outstanding (or a lesser percent if the
anticipated aggregate offering price, net of underwriting discounts and
commissions, would exceed $7,500,000), then the Company shall:
(i) within ten (10) days of the receipt thereof, give
written notice of such request to all Holders; and
(ii) effect as soon as practicable, and in any event
within sixty (60) days of the receipt of such request, the registration under
the Act of all Registrable Securities which the Holders request to be
registered, subject to the limitations of subsection 2.1(b), within twenty (20)
days of the mailing of such notice by the Company in accordance with Section
5.7.
(b) If the Holders initiating the registration request hereunder
("Initiating Holders") intend to distribute the Registrable Securities covered
by their request by means of an underwriting, they shall so advise the Company
as a part of their request made pursuant to subsection 2.1(a) and the Company
shall include such information in the written notice referred to in subsection
2.1(a). The underwriter will be selected by the Company and shall be reasonably
acceptable to a majority in interest of the Initiating Holders. 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
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Initiating Holders and such Holder) to the extent provided herein. All Holders
proposing to distribute their securities through such underwriting shall
(together with the Company as provided in subsection 2.3(e)) enter into an
underwriting agreement in customary form with the underwriter or underwriters
selected for such underwriting. Notwithstanding any other provision of this
Section 2.1, if the underwriter advises the Initiating Holders in writing that
marketing factors require a limitation of the number of shares to be
underwritten, then the Initiating Holders shall so advise all Holders of
Registrable Securities which would otherwise be underwritten pursuant hereto,
and the number of shares of Registrable Securities that may be included in the
underwriting shall be allocated among all Holders thereof, including the
Initiating Holders, in proportion (as nearly as practicable) to the amount of
Registrable Securities of the Company owned by each Holder; provided, however,
that the number of shares of Registrable Securities to be included in such
underwriting shall not be reduced unless all other securities are first entirely
excluded from the underwriting.
(c) Notwithstanding the foregoing, if the Company shall furnish to
Holders requesting a registration statement pursuant to this Section 2.1, a
certificate signed by the Chief Executive Officer of the Company stating that in
the good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such registration
statement to be filed and it is therefore essential to defer the filing of such
registration statement, the Company shall have the right to defer taking action
with respect to such filing for a period of not more than 120 days after receipt
of the request of the Initiating Holders.
(d) In addition, the Company shall not be obligated to effect, or
to take any action to effect, any registration pursuant to this Section 2.1:
(i) After the Company has effected two (2) registrations
pursuant to this Section 2.1 and such registrations have been declared or
ordered effective;
(ii) During the period starting with the date sixty (60)
days prior to the Company's good faith estimate of the date of filing of, and
ending on a date one hundred eighty (180) days after the effective date of, a
registration subject to Section 2.2 hereof; provided that the Company is
actively employing in good faith all reasonable efforts to cause such
registration statement to become effective; or
(iii) If the Initiating Holders propose to dispose of
shares of Registrable Securities that may be immediately registered on Form S-3
pursuant to a request made pursuant to Section 2.11 below.
2.2 COMPANY REGISTRATION. If (but without any obligation to do so)
the Company proposes to register (including for this purpose a registration
effected by the Company for shareholders other than the Holders) any of its
stock or other securities under the Act in connection with the public offering
of such securities solely for cash (other than a registration relating solely to
the sale of securities to participants in a Company stock plan, a registration
on any form which does not include substantially the same information as would
be required to be
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included in a registration statement covering the sale of the Registrable
Securities, or a registration in which the only Common Stock being registered is
Common Stock issuable upon conversion of debt securities which are also being
registered), the Company shall, at such time, promptly give each Holder written
notice of such registration. Upon the written request of each Holder given
within twenty (20) days after mailing of such notice by the Company in
accordance with Section 8.7, the Company shall, subject to the provisions of
Section 2.7, cause to be registered under the Act all of the Registrable
Securities that each such Holder has requested to be registered.
2.3 OBLIGATIONS OF THE COMPANY. Whenever required under this
Section 2 to effect the registration of any Registrable Securities, the Company
shall, as expeditiously as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use its best 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 until the distribution contemplated in the Registration Statement has
been completed; provided, however, that (i) such 120-day period shall be
extended for a period of time equal to the period the Holder refrains from
selling any securities included in such registration at the request of an
underwriter of Common Stock (or other securities) of the Company; and (ii) in
the case of any registration of Registrable Securities on Form S-3 which are
intended to be offered on a continuous or delayed basis, such 120-day period
shall be extended, if necessary, to keep the registration statement effective
until all such Registrable Securities are sold, provided that Rule 415, or any
successor rule under the Act, permits an offering on a continuous or delayed
basis, and provided further that applicable rules under the Act governing the
obligation to file a post-effective amendment permit, in lieu of filing a
post-effective amendment which (I) includes any prospectus required by
Section 10(a)(3) of the Act or (II) reflects facts or events representing a
material or fundamental change in the information set forth in the
registration statement, the incorporation by reference of information
required to be included in (I) and (II) above to be contained in periodic
reports filed pursuant to Section 13 or 15(d) of the 1934 Act in the
registration statement.
(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 numbers 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.
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(d) Use its best efforts to register and qualify the securities
covered by such registration statement under such other securities or Blue Sky
laws of such jurisdictions as shall be reasonably requested by the Holders;
provided that the Company shall not be required in connection therewith or as a
condition thereto to qualify to do business or to file a general consent to
service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into
and perform its obligations under an underwriting agreement, in usual and
customary form, with the managing underwriter 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 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
hereunder to be listed on each securities exchange on which similar securities
issued by the Company are then listed.
(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.
2.4 FURNISH INFORMATION.
(a) It shall be a condition precedent to the obligations of the
Company to take any action pursuant to this Section 2 with respect to the
Registrable Securities of any selling Holder that such Holder shall furnish to
the Company such information regarding itself, the Registrable Securities held
by it, and the intended method of disposition of such securities as shall be
required to effect the registration of such Holder's Registrable Securities.
(b) The Company shall have no obligation with respect to any
registration requested pursuant to Section 2.1 or Section 2.11 if, due to the
operation of subsection 2.4(a), the number of shares or the anticipated
aggregate offering price of the Registrable Securities to be included in the
registration does not equal or exceed the number of shares or the anticipated
aggregate offering price required to originally trigger the Company's obligation
to initiate such registration as specified in subsection 2.1(a) or subsection
2.11(b)(2), whichever is applicable.
2.5 EXPENSES OF DEMAND REGISTRATION. All expenses other than
underwriting discounts and commissions incurred in connection with
registrations, filings or qualifications pursuant to Section 2.1, including
(without limitation) all registration, filing and qualification fees, printers'
and accounting fees, fees and disbursements of counsel for the Company
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(including fees and disbursements of counsel for the Company in its capacity as
counsel to the selling Holders hereunder; if Company counsel does not make
itself available for this purpose, the Company will pay the reasonable fees and
disbursements of one counsel for the selling Holders) shall be borne by the
Company; provided, however, that the Company shall not be required to pay for
any expenses of any registration proceeding begun pursuant to Section 2.1 if the
registration request is subsequently withdrawn at the request of the Holders of
a majority of the Registrable Securities to be registered (in which case all
Participating Holders shall bear such expenses), unless the Holders of a
majority of the Registrable Securities agree to forfeit their right to one
demand registration pursuant to Section 2.1.
2.6 EXPENSES OF COMPANY REGISTRATION. The Company shall bear and
pay all expenses incurred in connection with any registration, filing or
qualification of Registrable Securities with respect to the registrations
pursuant to Section 2.2 for each Holder (which right may be assigned as provided
in Section 8.2), including (without limitation) all registration, filing, and
qualification fees, printers and accounting fees relating or apportionable
thereto and the fees and disbursements of counsel for the Company in its
capacity as counsel to the selling Holders hereunder; if Company counsel does
not make itself available for this purpose, the Company will pay the reasonable
fees and disbursements of one counsel for the selling Holders selected by them,
but excluding underwriting discounts and commissions relating to Registrable
Securities.
2.7 UNDERWRITING REQUIREMENTS. In connection with any offering
involving an underwriting of shares of the Company's capital stock, the Company
shall not be required under Section 2.2 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 it (or by
other persons entitled to select the 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 shareholders 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, which the underwriters determine in their sole
discretion will not jeopardize the success of the offering (the securities so
included to be apportioned pro rata among the selling shareholders according to
the total amount of securities entitled to be included therein owned by each
selling shareholder or in such other proportions as shall mutually be agreed to
by such selling shareholders) but in no event shall (i) the amount of securities
of the selling shareholders included in the offering be reduced below twenty
percent (20%) 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 shareholders may be excluded if the underwriters make
the determination described above and no other shareholder's securities are
included or (ii) notwithstanding (i) above, any shares being sold by a
shareholder exercising a demand registration right similar to that granted in
Section 2.1 be excluded from such offering. For purposes of the preceding
parenthetical concerning apportionment, for any selling shareholder which is a
holder of Registrable Securities and which is a partnership or corporation, the
partners, retired partners and shareholders of such Holder,
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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 shareholder", and any pro-rata reduction with respect to such
"selling shareholder" shall be based upon the aggregate amount of shares
carrying registration rights owned by all entities and individuals included in
such "selling shareholder", as defined in this sentence.
2.8 DELAY OF REGISTRATION. No Holder shall have any right to
obtain or seek an injunction restraining or otherwise delaying any such
registration as the result of any controversy that might arise with respect to
the interpretation or implementation of this Section 1.
2.9 INDEMNIFICATION. In the event any Registrable Securities are
included in a registration statement under this Section 2:
(a) To the extent permitted by law, the Company will indemnify and
hold harmless each Holder, 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 or other federal or state law, insofar as such losses, claims,
damages, or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(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 herein 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 law or
any rule or regulation promulgated under the Act, the 1934 Act or any state
securities law; and the Company will pay to each such Holder, underwriter or
controlling person, as incurred, any legal or other expenses reasonably incurred
by them in connection with investigating or defending any such loss, claim,
damage, liability, or action; provided, however, that the indemnity agreement
contained in this subsection 2.9(a) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability, or action if such
settlement is effected without the consent of the Company (which consent shall
not be unreasonably withheld), nor shall the Company be liable in any such case
for any such loss, claim, damage, liability, or action to the extent that it
arises out of or is based upon a Violation which occurs in reliance upon and in
conformity with written information furnished expressly for use in connection
with such registration by any such Holder, underwriter or controlling person.
(b) To the extent permitted by law, each selling Holder will
indemnify and hold harmless the Company, each of its directors, each of its
officers who has signed the registration statement, each person, if any, who
controls the Company within the meaning of the Act, 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 or other federal or state law,
insofar as such losses, claims, damages, or
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liabilities (or actions in respect thereto) arise out of or are based upon any
Violation, in each case to the extent (and only to the extent) that such
Violation occurs in reliance upon and in conformity with written information
furnished by such Holder expressly for use in connection with such registration;
and each such Holder will pay, as incurred, any legal or other expenses
reasonably incurred by any person intended to be indemnified pursuant to this
subsection 2.9(b), in connection with investigating or defending any such loss,
claim, damage, liability, or action; provided, however, that the indemnity
agreement contained in this subsection 2.9(b) shall not apply to amounts paid in
settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent shall
not be unreasonably withheld; provided, that, in no event shall any indemnity
under this subsection 2.9(b) exceed the gross proceeds from the offering
received by such Holder.
(c) Promptly after receipt by an indemnified party under this
Section 2.9 of notice of the commencement of any action (including any
governmental action), such indemnified party will, if a claim in respect thereof
is to be made against any indemnifying party under this Section 2.9, deliver to
the indemnifying party a written notice of the commencement thereof and the
indemnifying party shall have the right to participate in, and, to the extent
the indemnifying party so desires, jointly with any other indemnifying party
similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however, that an indemnified party
(together with all other indemnified parties which may be represented without
conflict by one counsel) shall have the right to retain one separate counsel,
with the fees and expenses to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by such
counsel in such proceeding. The failure to deliver written notice to the
indemnifying party within a reasonable time of the commencement of any such
action, if prejudicial to its ability to defend such action, shall relieve such
indemnifying party of any liability to the indemnified party under this Section
2.9, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 2.9.
(d) If the indemnification provided for in this Section 2.9 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
therein, 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 of the indemnified party on the other in
connection with the statements or omissions that resulted in such loss,
liability, claim, damage, or expense as well as any other relevant equitable
considerations. The relative fault of the indemnifying party and of the
indemnified party shall be determined by reference to, among other things,
whether the untrue or alleged untrue statement of a material fact or the
omission 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.
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(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
2.9 shall survive the completion of any offering of Registrable Securities in a
registration statement under this Section 2, and otherwise.
2.10 REPORTS UNDER SECURITIES EXCHANGE ACT OF 1934. With a view to
making available to the Holders the benefits of Rule 144 promulgated under the
Act and any other rule or regulation of the SEC that may at any time permit a
Holder to sell securities of the Company to the public without registration or
pursuant to a registration on Form S-3, the Company agrees to:
(a) make and keep public information available, as those terms are
understood and defined in SEC Rule 144, at all times after ninety (90) days
after the effective date of the first registration statement filed by the
Company for the offering of its securities to the general public;
(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 SEC Rule 144
(at any time after ninety (90) days 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 in availing any Holder of any rule or regulation of the
SEC which permits the selling of any such securities without registration or
pursuant to such form.
2.11 FORM S-3 REGISTRATION. In case the Company shall receive from
any Holder or 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 will:
(a) promptly give written notice of the proposed registration, and
any related qualification or compliance, to all other Holders; and
(b) as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder's or
Holders' Registrable Securities as are
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specified in such request, together with all or such portion of the Registrable
Securities of any other Holder or Holders joining in such request as are
specified in a written request given within 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 2.11: (1) if Form S-3 is not available for such
offering by the Holders; (2) if the Holders, together with the holders of any
other securities of the Company entitled to inclusion in such registration,
propose to sell Registrable Securities and such other securities (if any) at an
aggregate price to the public (net of any underwriters' discounts or
commissions) of less than $1,000,000; (3) if the Company shall furnish to the
Holders a certificate signed by the President of the Company stating that in the
good faith judgment of the Board of Directors of the Company, it would be
seriously detrimental to the Company and its shareholders for such Form S-3
Registration to be effected at such time, in which event the Company shall have
the right to defer the filing of the Form S-3 registration statement for a
period of not more than sixty (60) days after receipt of the request of the
Holder or Holders under this Section 2.11; (4) if the Company has, within the
twelve (12) month period preceding the date of such request, already effected
one registration on Form S-3 for the Holders pursuant to this Section 2.11; or
(5) in any particular jurisdiction in which the Company would be required to
qualify to do business or to execute a general consent to service of process in
effecting such registration, qualification or compliance.
(c) Subject to the foregoing, the Company shall file a
registration statement covering the Registrable Securities and other securities
so requested to be registered as soon as practicable after receipt of the
request or requests of the Holders. All expenses incurred in connection with a
registration requested pursuant to Section 2.11, including (without limitation)
all registration, filing, qualification, printer's and accounting fees and the
reasonable fees and disbursements of counsel for the selling Holder or Holders
and counsel for the Company, but excluding any underwriters' discounts or
commissions associated with Registrable Securities, shall be borne pro rata by
the Holder or Holders participating in the Form S-3 Registration. Registrations
effected pursuant to this Section 2.11 shall not be counted as demands for
registration or registrations effected pursuant to Sections 2.1 or 2.2,
respectively.
2.12 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 outstanding Registrable Securities,
enter into any agreement with any holder or prospective holder of any securities
of the Company which would allow such holder or prospective holder (a) to
include such securities in any registration filed under Section 2.1 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 his securities will not reduce the amount of the Registrable
Securities of the Holders which is included or (b) to make a demand registration
which could result in such registration statement being declared effective prior
to the earlier of either of the dates set forth in subsection 2.1(a) or within
one hundred twenty (120) days of the effective date of any registration effected
pursuant to Section 2.1.
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2.13 "MARKET STAND-OFF" AGREEMENT. Each Investor hereby agrees
that, during the period of duration specified by the Company and an
underwriter of common stock or other securities of the Company, following the
effective date of a registration statement of the Company filed under the
Act, it shall not, to the extent requested by the Company and such
underwriter, directly or indirectly sell, offer to sell, contract to sell
(including, without limitation, any short sale), grant any option to purchase
or otherwise transfer or dispose of (other than to donees who agree to be
similarly bound) any securities of the Company held by it at any time during
such period except common stock included in such registration; provided,
however, that:
(a) such agreement shall be applicable only to the first two such
registration statements of the Company which covers common stock (or other
securities) to be sold on its behalf to the public in an underwritten offering;
(b) all officers and directors of the Company and all other
persons with registration rights (whether or not pursuant to this Agreement)
enter into similar agreements; and
(c) such market stand-off time period shall not exceed one hundred
eighty (180) days.
In order to enforce the foregoing covenant, the Company may impose
stop-transfer instructions with respect to the Registrable Securities of each
Investor (and the shares or securities of every other person subject to the
foregoing restriction) until the end of such period.
Notwithstanding the foregoing, the obligations described in this
Section 2.13 shall not apply to a registration relating solely to employee
benefit plans on Form S-1 or Form S-8 or similar forms which may be
promulgated in the future, or a registration relating solely to a Commission
Rule 145 transaction on Form S-14 or Form S-15 or similar forms which may be
promulgated in the future.
2.14 TERMINATION OF REGISTRATION RIGHTS.
(a) No Holder shall be entitled to exercise any right provided for
in this Section 1 after three (3) years following the consummation of the sale
of securities pursuant to a registration statement filed by the Company under
the Act in connection with the initial firm commitment underwritten offering of
its securities to the general public.
(b) In addition, the right of any Holder to request registration
or inclusion in any registration pursuant to Section 2.2 shall terminate on the
closing of the first Company-initiated registered public offering of Common
Stock of the Company if all shares of Registrable Securities held or entitled to
be held upon conversion by such Holder may immediately be sold under Rule 144
during any 90-day period, or on such date after the closing of the first
Company-initiated registered public offering of Common Stock of the Company as
all shares of Registrable Securities held or entitled to be held upon conversion
by such Holder may
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immediately be sold under Rule 144 during any 90-day period; provided, however,
that the provisions of this Section 2.14(b) shall not apply to any Holder who
owns more than two percent (2%) of the Company's outstanding stock until such
time as such Holder owns less than two percent (2%) of the outstanding stock of
the Company.
3. COVENANTS OF THE COMPANY.
3.1 DELIVERY OF FINANCIAL STATEMENTS. The Company shall deliver to
each 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 shareholder's
equity as of the end of such year, and a cash flow statement 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, a cash flow statement for
such fiscal quarter and an unaudited balance sheet as of the end of such fiscal
quarter;
(c) as soon as practicable, but in any event thirty (30) days
prior to the end of each fiscal year, a budget and business plan for the next
fiscal year, prepared on a monthly basis, including income statements, balance
sheets, and cash flow statements for such months and, as soon as prepared, any
other budgets or revised budgets prepared by the Company;
(d) with respect to the financial statements called for in
subsection (b) of this Section 3.1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with gaap consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by gaap) and fairly present the financial condition of the Company and
its results of operation for the period specified, subject to year-end audit
adjustment;
(e) such other information relating to the financial condition,
business, prospects or corporate affairs of the Company as the Investor or any
assignee of the Investor may from time to time request, provided, however, that
the Company shall not be obligated under this subsection (e) or any other
subsection of Section 3.1 to provide information which it deems in good faith to
be a trade secret or similar confidential information.
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3.2 INSPECTION. The Company shall permit each Investor, at such
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 Investor; provided, however, that the Company shall not be obligated
pursuant to this Section 3.2 to provide access to any information which it
reasonably considers to be a trade secret or similar confidential information.
4. CO-SALE RIGHTS.
4.1 SALES BY MANDARIN.
(a) If Mandarin proposes to sell or transfer any shares of Co-Sale
Stock in one or more related transactions, then Mandarin shall promptly give
written notice (the "Notice") to the Company and Obagi at least twenty (20) days
prior to the closing of such sale or transfer. The Notice shall describe in
reasonable detail the proposed sale or transfer including, without limitation,
the class, series and number of shares of Co-Sale Stock to be sold or
transferred, the nature of such sale or transfer, the consideration to be paid,
and the name and address of each prospective purchaser or transferee. In the
event that the sale or transfer is being made pursuant to the provisions or
Sections 4.1 or 4.2 hereof, the Notice shall state under which Section of this
Agreement the sale or transfer is being made.
(b) Obagi shall have the right, exercisable upon written notice to
Mandarin within fifteen (15) days after receipt of the Notice, to participate in
such sale of Co-Sale Stock on the same terms and conditions; provided, that
Obagi owns shares of the same class or classes as the Co-Sale Stock identified
in the Notice. The parties acknowledge that the Series A Preferred Stock and the
Series B Preferred of the Company are of the same class of stock and are to be
treated as such for the purposes of this Section 4.
(c) Obagi may sell all or any part of that number of shares of
Co-Sale Stock, of the same class and/or series as that identified in the Notice,
equal to the product obtained by multiplying (i) the aggregate number of shares
of Co-Sale Stock covered by the Notice by (ii) a fraction the numerator of which
is the number of shares of Co-Sale Stock of the same class and/or series
identified in the Notice owned by Obagi at the time of the sale or transfer and
the denominator of which is the total number of shares of Co-Sale Stock of the
same class and/or series identified in the Notice owned by Mandarin and Obagi at
the time of the sale or transfer.
(d) Obagi shall effect its participation in the sale by promptly
delivering to Mandarin for transfer to the prospective purchaser one or more
certificates, properly endorsed for transfer, which represent the type and
number of shares of Co-Sale Stock which Obagi elects to sell.
(e) The stock certificate or certificates that Obagi delivers to
Mandarin pursuant to Section 4.1(d) shall be transferred to the prospective
purchaser in consummation of the sale of the Co-Sale Stock pursuant to the
terms and conditions specified in the Notice, and Mandarin shall concurrently
therewith remit to Obagi that portion of the sale proceeds to which
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Obagi is entitled by reason of its participation in such sale. To the extent
that any prospective purchaser or purchasers prohibits such assignment or
otherwise refuses to purchase shares or other securities from Obagi, Mandarin
shall not sell to such prospective purchaser or purchasers any Co-Sale Stock
unless and until, simultaneously with such sale, Mandarin shall purchase such
shares from Obagi for the same consideration and on the same terms and
conditions as the proposed transfer described in the Notice.
(f) The exercise or non-exercise of the rights of Obagi to
participate in one or more sales of Co-Sale Stock made by Mandarin shall not
adversely affect Obagi's rights to participate in subsequent sales of Co-Sale
Stock subject to Section 4.1(a).
(g) If Obagi does not elect to participate in the sale of the
Co-Sale Stock subject to the Notice, Mandarin may, not later than ninety (90)
days following delivery to the Company and Obagi of the Notice, conclude a
transfer of not less than all of the Co-Sale Stock covered by the Notice on
terms and conditions not more favorable to the transferor than those described
in the Notice. Any proposed transfer on terms and conditions more favorable than
those described in the Notice, as well as any subsequent proposed transfer of
any of the Co-Sale Stock by Mandarin, shall again be subject to the co-sale
rights of Obagi and shall require compliance by Mandarin with the procedures
described in this Section 4.1.
4.2 EXEMPT TRANSFERS.
(a) Notwithstanding the foregoing, the co-sale rights of Obagi
shall not apply to (i) any pledge of Co-Sale Stock made pursuant to a bona
fide loan transaction that creates a mere security interest, (ii) any bona fide
gift or charitable donation or (iii) any distribution to the members of
Mandarin; provided that (A) Mandarin shall inform Obagi of such pledge,
transfer, gift, donation or distribution prior to effecting it and (B) the
pledgee, transferee, donee or distributee shall furnish Obagi with a written
agreement to be bound by and comply with all provisions of Section 4 of this
Agreement Such transferred Co-Sale Stock shall remain "Co-Sale Stock"
hereunder, and such pledgee, transferee or donee shall be treated as "Mandarin"
for purposes of this Agreement.
(b) Notwithstanding the foregoing, the provisions of Section 4
shall not apply to the sale of any Co-Sale Stock (i) to the public pursuant to a
registration statement filed with, and declared effective by, the Securities and
Exchange Commission under the Act or (ii) to the Company.
4.3 PROHIBITED TRANSFERS.
(a) In the event Mandarin should sell any Co-Sale Stock in
contravention of the co-sale rights of Obagi under this Agreement (a "Prohibited
Transfer"), Obagi in addition to such other remedies as may be available at
law, in equity or hereunder, shall have the put option provided below, and
Mandarin shall be bound by the applicable provisions of such option.
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(b) In the event of a Prohibited Transfer, Obagi shall have the
right to sell to Mandarin the type and number of shares of Co-Sale Stock
equal to the number of shares Obagi would have been entitled to transfer to
the purchaser under Section 4.1 hereof had the Prohibited Transfer been
effected pursuant to and in compliance with the terms hereof. Such sale shall
be made on the following terms and conditions:
(i) The price per share at which the shares are to be
sold to Mandarin shall be equal to the price per share paid by the purchaser to
Mandarin in the Prohibited Transfer.
(ii) Within thirty (30) days after the later of the dates
on which the Obagi (A) received notice of the Prohibited Transfer or (B)
otherwise become aware of the Prohibited Transfer, Obagi shall, if exercising
the option created hereby, deliver to Mandarin the certificate or certificates
representing shares to be sold, each certificate to be properly endorsed for
transfer.
(iii) Mandarin shall, upon receipt of the certificate or
certificates for the shares to be sold by Obagi, pursuant to this Section 4.3,
pay the aggregate purchase price therefor, in cash or by other means acceptable
to Obagi.
(iv) Notwithstanding the foregoing, any attempt by
Mandarin to transfer Co-Sale Stock in violation of Section 4 hereof shall be
void and the Company agrees it will not effect such a transfer nor will it treat
any alleged transferee as the holder of such shares without the written consent
of Obagi.
5. PARTICIPATION IN CERTAIN TRANSACTIONS.
5.1 APPROVED SALE. If, at any time prior to the termination of
this Agreement, the Company's Board of Directors (acting in accordance with its
fiduciary duties) and the holders of a majority of the Co-Sale Stock shall
approve a sale of a majority of the stock or substantially all of the assets of
the Company (each, an "Approved Sale"), then subject to Section 5.2 below: (i)
Obagi shall consent to and raise no objection against the Approved Sale; (ii)
if the Approved Sale is structured in whole or in part as a merger or
consolidation, or a sale of all or substantially all assets, Obagi shall waive
any dissenter's rights, appraisal rights or similar rights in connection with
such merger, consolidation or asset sale; (iii) if the Approved Sale is
structured in whole or part as a sale of securities, Obagi agrees to sell its
respective securities on the terms and conditions approved by the Company's
shareholders in connection with the consummation of the Approved
Sale, including the execution of such agreements and such instruments and other
actions reasonably necessary to provide the representations, warranties,
indemnities, covenants, conditions, escrow agreements and other provisions and
agreements relating to such Approved Sale, and effectuate the allocation and
distribution of the aggregate consideration upon the Approved Sale.
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5.2 CONDITIONS TO OBAGI'S OBLIGATIONS. The obligations of Obagi
with respect to an Approved Sale are subject to the satisfaction of the
following conditions: (i) if any holder of a class and series of stock held by
Obagi is given an option as to the form and amount of consideration to be
received, Obagi will be given the same option; and (ii) Obagi's maximum
indemnification liability pursuant to the Approved Sale shall not exceed the
amount of proceeds received by Obagi from such Approved Sale.
5.3 APPROVED SALE EXPENSES. Obagi shall bear its pro-rata share
(based upon the number of shares sold) of the reasonable out-of-pocket costs of
an sale of Co-Sale Stock pursuant to an Approved Sale to the extent such costs
are incurred for the benefit of all holders of Co-Sale Stock and are not
otherwise paid by the Company or the acquiring party.
6. RESTRICTIONS ON TRANSFER.
6.1 Obagi shall be prohibited from selling or otherwise
transferring any shares of Registrable Securities or Co-Sale Stock issued or
issuable to it or from selling or otherwise transferring any right to acquire
such securities to any party other than Mandarin at any time prior to the
earlier of (i) the closing of a firm commitment underwritten public offering
pursuant to an effective registration statement under the Act covering the offer
and sale of the Company's Common Stock at an aggregate offering price of not
less than $7,500,000, (ii) the closing of the Company's sale of all or
substantially all of its assets or the acquisition of the Company by another
entity by means of merger or consolidation resulting in the exchange of the
outstanding shares of the Company's capital stock for securities or
consideration issued, or caused to be issued, by the acquiring entity or its
subsidiary or (iii) the tenth anniversary of the date of this Agreement
(provided that in the case of clause (iii) hereof, after such tenth anniversary
Obagi may sell or otherwise transfer such Registered Securities or Co-Sale Stock
only in compliance with Section 6.2 below).
6.2 If an event specified in clause (i) or (ii) of Section 6.1
shall have not yet occurred as of the tenth anniversary of the date of this
Agreement and Obagi desires to sell or otherwise transfer any such Registrable
Securities or Co-Sale Stock (the "Target Stock") at any time after such tenth
anniversary, then Obagi shall promptly deliver to the Company and Mandarin
written notice of the intended disposition and the terms and conditions
thereof, including the identity of any proposed purchaser and the price per
share of the securities to be so disposed (the "Offer Notice"). Thereafter, the
Company and Mandarin or either of them may elect to purchase any or all of the
Target Stock on the terms and conditions set forth in the Offer Notice, such
purchase to occur within twenty (20) business days after receipt by the Company
and Mandarin of the Offer Notice (the "Wait Period"). The Company and Mandarin
shall each negotiate in good faith in determining any allocation between them of
the Target Stock offered in the Offer Notice. If the Company and Mandarin or
either of them have not purchased all such Target Stock prior to expiration of
the Wait Period, the Company's and Mandarin's right to purchase any Target Stock
not so purchased by them shall lapse, expire and be of no further effect. Any
Target Stock not purchased by the Company or by Mandarin which is thereafter
transferred by Obagi to a third party shall be subject to the provisions of
Sections 5 and 6, and
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such transferee shall, as a condition precedent to such transfer, agree to be
bound by the provisions of Sections 5 and 6 and shall be treated as "Obagi" for
the purposes of Sections 5 and 6.
7. REPURCHASE OBLIGATIONS.
7.1 In the event Zein Obagi, M.D.'s employment with the Company
is terminated under that certain Employment Agreement of even date herewith
by and between Zein Obagi, M.D. and the Company (the "Employment Agreement")
on any ground articulated in Sections 6(b)(i) (but only if such employment is
terminated due to Zein Obagi, M.D.'s failure to devote at least 20 hours per
week of his business time and attention to the business of OMP as an employee
thereof), 6(b)(ii), 6(b)(iii), 6(b)(iv) or 6(b)(vi) of such Employment
Agreement, then the Company may, in its sole discretion, elect to repurchase
any shares of Common Stock held by Obagi at the then fair market value per
share of such stock IF the Company also repurchases any and all Series B
Preferred Stock of the Company held by Obagi at a price per share equal to
the original price per share paid by Obagi for such shares plus an amount
equal to any accrued and unpaid dividends associated with each such share,
and in such event Obagi agrees to so sell such Common Stock and Series B
Preferred Stock to the Company. The amount to be paid by the Company for each
share of Common Stock and Series B Preferred Stock shall be adjusted to give
effect to any stock splits, reverse stock splits or recapitalizations
effecting such shares.
7.2 The fair market value of Obagi's Common Stock for the
purposes of Section 7.1 shall be determined as follows: each of Obagi and the
Company shall promptly pick a third party independent appraisal firm of
national recognition and each such appraisal firm shall promptly value the
Common Stock to be so repurchased. If the aggregate valuations of such stock
by such two appraisal firms are within ten percent (10%) of each other, the
value of such stock shall be the average of such appraisal valuations. If
such valuations are not within ten percent (10%) of each other, then such two
appraisal firms shall promptly choose a third appraisal firm of national
recognition and such third appraisal firm shall promptly determine the
aggregate valuation of such stock, such valuation to be binding on the
parties. The Company shall bear the costs of such appraisals.
8. MISCELLANEOUS.
8.1 LEGEND. In addition to any legends required by applicable
federal and state securities laws, certificates representing Registrable
Securities and/or Co-Sale Stock shall be endorsed with the following legend:
"THE SECURITIES REPRESENTED BY THIS CERTIFICATE AND THE SALE, PLEDGE,
HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY THIS
CERTIFICATE ARE SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN
INVESTORS' RIGHTS AGREEMENT BY AND BETWEEN THE SHAREHOLDER, THE COMPANY
AND CERTAIN HOLDERS OF STOCK OF THE CORPORATION. COPIES OF
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SUCH AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF
THE CORPORATION."
Mandarin agrees that the Company may instruct its transfer agent to
impose transfer restrictions on the shares represented by certificates bearing
the legend referred to in this Section 8.1 to enforce the provisions of this
Agreement and the Company agrees to promptly do so. The legend shall be removed
upon termination of this Agreement.
8.2 ASSIGNMENT OF RIGHTS. The rights provided by this Agreement
may be assigned (but only with all related obligations) by a Holder or Investor
to a transferee or assignee of all or part of such Investor's or Holder's
Registrable Securities and/or Co-Sale Stock, provided: (a) the Company is,
within a reasonable time after such transfer, furnished with written notice of
the name and address of such transferee or assignee and the securities with
respect to which such rights are being assigned; (b) such transferee or assignee
agrees in writing to be bound by and subject to the terms and conditions of this
Agreement, including without limitation the provisions of Section 2.13 above;
and (c) such assignment shall be effective only if immediately following such
transfer the further disposition of such securities by the transferee or
assignee is restricted under the Act. For the purposes of determining the number
of shares of Registrable Securities and/or Co-Sale Stock held by a transferee or
assignee, the holdings of transferees and assignees of a partnership who are
partners or retired partners of such partnership (including spouses and
ancestors, lineal descendants and siblings of such partners or spouses who
acquire Registrable Securities and/or Co-Sale Stock by gift, will or intestate
succession) shall be aggregated together and with the partnership; provided that
all assignees and transferees who would not qualify individually for assignment
of rights pursuant to this Agreement shall have a single attorney-in-fact for
the purpose of exercising any rights, receiving notices or taking any action
under this Agreement.
8.3 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.
8.4 TERM. The provisions set forth in Sections 3 through 6 of this
Agreement shall terminate upon the earlier of (i) the closing of a firm
commitment underwritten public offering pursuant to an effective registration
statement under the Act covering the offer and sale of the Company's Common
Stock at an aggregate offering price of not less than $7,500,000 and (ii) the
closing of the Company's sale of all or substantially all of its assets or the
acquisition of the Company by another entity by means of merger or consolidation
resulting in the exchange of the outstanding shares of the Company's capital
stock for securities or consideration issued, or caused to be issued, by the
acquiring entity or its subsidiary. The provisions set forth in Section 2 of
this Agreement shall terminate in the manner set forth in Section 2.14 above.
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8.5 GOVERNING LAW. This Agreement shall be governed by and
construed under the laws of the State of California as applied to agreements
among California residents entered into and to be performed entirely within
California.
8.6 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.
8.7 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.
8.8 NOTICES. Unless otherwise provided, any notice required or
permitted under this Agreement shall be given in writing and shall be deemed
effectively given upon personal delivery to the party to be notified or upon
deposit with the United States Post Office, by registered or certified mail,
postage prepaid and addressed to the party to be notified at the address
indicated for such party on the signature page hereof, or at such other address
as such party may designate by ten (10) days' advance written notice to the
other parties.
8.9 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.
8.10 AMENDMENTS AND WAIVERS. Any term of this Agreement may be
amended and the observance of any term of this Agreement may be waived (either
generally or in a particular instance and either retroactively or
prospectively), only with the written consent of the Company and the holders of
a majority of the Registrable Securities then outstanding. Any amendment or
waiver effected in accordance with this Section shall be binding upon each
holder of any Registrable Securities then outstanding, each future holder of all
such Registrable Securities, and the Company.
8.11 SEVERABILITY . If one or more provisions of this Agreement
are held to be unenforceable under applicable law, such provision shall be
excluded from this Agreement and the balance of the Agreement shall be
interpreted as if such provision were so excluded and shall be enforceable in
accordance with its terms.
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8.12 AGGREGATION OF STOCK. All shares of Registrable Securities and
Co-Sale Stock held or acquired by affiliated entities or persons shall be
aggregated together for the purpose of determining the availability of any
rights under this Agreement.
8.13 ENTIRE AGREEMENT; AMENDMENT; WAIVER. This Agreement (including
the Exhibits hereto, if any) constitutes the full and entire understanding and
agreement between the parties with regard to the subjects hereof and thereof.
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IN WITNESS WHEREOF, the parties have executed this Agreement as of
the date first above written.
THE COMPANY:
OMP ACQUISITION CORPORATION
By: /s/ Ian G. Walker
------------------------------------
Ian G. Walker, Vice President
Address: c/o Polar Vision
625 Alaska Avenue
Torrance, California 90503
INVESTORS:
MANDARIN PARTNERS LLC
By its Manager: Mandarin Management
Partners, Inc.
By: /s/ Peter P. Tong
------------------------------------
Name: Peter P. Tong
----------------------------------
Its: President
-----------------------------------
Address: c/o Polar Vision
-------------------------------
625 Alaska Avenue,
Torrance, CA 90503
-------------------------------
ZEIN AND SAMAR OBAGI FAMILY TRUST
By:/s/ Zein Obagi
------------------------------------
Zein Obagi, Trustee
Address: c/o Zein Obagi, M.D.
9033 Wilshire Boulevard
Beverly Hills, California 90211
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