Exhibit 10.23
HYDRO MED SCIENCES, INC.
INVESTOR RIGHTS AGREEMENT
December 27, 2001
TABLE OF CONTENTS
PAGE
SECTION 1. GENERAL..................................................1
1.1 Definitions..............................................1
SECTION 2. RESTRICTIONS ON TRANSFER; REGISTRATION...................3
2.1 Restrictions on Transfer.................................3
2.2 Demand Registration......................................5
2.3 Piggyback Registrations..................................6
2.4 Form S-2 and S-3 Registration............................7
2.5 Expenses of Registration.................................9
2.6 Obligations of the Company...............................9
2.7 Termination of Registration Rights......................10
2.8 Delay of Registration; Furnishing Information...........10
2.9 Indemnification.........................................11
2.10 Assignment of Registration Rights.......................13
2.11 Amendment of Registration Rights........................13
2.12 Limitation on Subsequent Registration Rights............13
2.13 "Market Stand-Off" Agreement............................14
2.14 Agreement to Furnish Information........................14
2.15 Rule 144 Reporting......................................14
SECTION 3. COVENANTS...............................................14
3.1 Basic Financial Information and Reporting...............14
3.2 Inspection Rights.......................................15
3.3 Confidentiality of Records..............................15
3.4 Reservation of Common Stock.............................16
3.5 Stock Vesting...........................................16
3.6 Special Relationship of Prospective Employees...........16
3.7 Directors' Liability and Indemnification................16
3.8 Reimbursement of Expenses...............................16
3.9 Qualified Small Business................................16
3.10 Election of Directors...................................16
3.11 Voting Rights of Common Stock Investors.................17
3.12 Observer Rights.........................................17
3.13 Termination of Covenants................................18
SECTION 4. PREEMPTIVE RIGHTS.......................................18
4.1 Subsequent Offerings....................................18
4.2 Exercise of Preemptive Rights...........................18
4.3 Termination and Waiver of Preemptive Right..............19
4.4 Transfer of Preemptive Rights...........................19
4.5 Excluded Securities.....................................19
SECTION 5. MISCELLANEOUS...........................................20
5.1 Governing Law...........................................20
5.2 Survival................................................20
5.3 Successors and Assigns..................................20
5.4 Entire Agreement........................................20
5.5 Severability............................................20
5.6 Amendment and Waiver....................................20
5.7 Delays or Omissions.....................................21
5.8 Notices.................................................21
5.9 Attorneys' Fees.........................................21
5.10 Titles and Subtitles....................................21
5.11 Additional Investors....................................21
5.12 Counterparts............................................22
HYDRO MED SCIENCES, INC.
INVESTOR RIGHTS AGREEMENT
THIS INVESTOR RIGHTS AGREEMENT (this "Agreement") is entered into as of
December 27, 2001, by and among HYDRO MED SCIENCES, INC., a Delaware corporation
(the "Company"), the stockholders of the Company listed as "Common Stock
Investors" on Exhibit A hereto (collectively, the "Common Stock Investors", and
each individually, a "Common Stock Investor"), and the investors listed as the
"Series A Investors" on Exhibit A hereto (the "Series A Investors" and, together
with the Common Stock Investor, the "Investors").
RECITALS
The Series A Investors are purchasing shares of the Company's Series A
Convertible Preferred Stock pursuant to that certain Stock Purchase Agreement
(the "Purchase Agreement") of even date herewith (the "Financing").
The obligations in the Purchase Agreement are conditioned upon the
execution and delivery of this Agreement.
In connection with the consummation of the Financing, the parties desire to
enter into this Agreement in order to grant registration, information rights and
other rights to the Investors as set forth below.
AGREEMENT
In consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties agree hereto as follows:
1. GENERAL.
1.1. Definitions. As used in this Agreement the following terms shall
have the following respective meanings:
"Board of Directors" means the Company's Board of Directors.
"Certificate" means the Company's Restated Certificate of Incorporation,
as filed with the Delaware Secretary of State on December __, 2001.
"Common Stock" means the Company's common stock, par value $.001 per
share.
"Equity Securities" means (i) any Common Stock, Preferred Stock, or
other security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, Preferred Stock, or other security
(including any option to purchase such a convertible security), (iii) any
security carrying any warrant or right to subscribe to or purchase any Common
Stock, Preferred Stock, or other security, or (iv) any such warrant or right.
"Exchange Act" means the Securities Exchange Act of 1934, as amended.
"Form S-2" means such form under the Securities Act as in effect on the
date hereof or any successor or similar registration form under the Securities
Act subsequently adopted by the SEC which permits inclusion or incorporation of
certain information by reference to other documents filed by the Company with
the SEC.
"Form S-3" means such form under the Securities Act as in effect on the
date hereof or any successor or similar registration form under the Securities
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.
"GP Strategies" means GP Strategies Corporation, a Delaware corporation.
"Holder" means any person owning of record Registrable Securities, or
securities convertible into Registrable Securities, that have not been sold to
the public or any assignee of record of such Registrable Securities or
securities in accordance with Section 2.10 hereof.
"Initial Offering" means the Company's first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.
"Note Repayment Date" means the date on which (a) the holders of the
Notes exchange all or a portion of the Notes for shares of Common Stock, (b) the
holders of the Notes convert all or part of the Notes into stock of GP
Strategies, (c) the outstanding principal under the Notes is repaid, or (d) the
times for conversion and exchange of the Notes has expired.
"Notes" means the 6% Convertible Exchangeable Subordinated Notes due
2003 issued by GP Strategies pursuant to the Note Agreement dated June 30, 2000,
between GP Strategies and the holders of such Notes.
"Preferred Stock" means the Company's preferred stock, par value $.001
per share.
"Qualifying IPO" means a "Qualifying Public Offering" as defined in the
Certificate.
"Register," "registered," and "registration" refer to a registration
effected by preparing and filing a registration statement in compliance with the
Securities Act, and the declaration or ordering of effectiveness of such
registration statement or document.
"Registrable Securities" means (a) Common Stock of the Company issued or
issuable upon conversion of the Shares, (b) for purposes of Section 2.3 and 2.4
only (and to the extent such provisions relate to Section 2.3 or 2.4, Sections
2.5, 2.6, 2.9, 2.10, 2.11, 1.12, and 2.15), subsequent to the Note Repayment
Date, Common Stock owned by GP Strategies or transferred by GP Strategies to
holders of the Notes, respectively, and (c) any Common Stock of the Company
issued as (or issuable upon the conversion or exercise of any warrant, right or
other security which is issued as) a dividend or other distribution with respect
to, or in exchange for or in replacement of, such above-described securities.
Notwithstanding the foregoing, Registrable Securities shall not include any
securities sold by a person to the public either pursuant to a registration
statement or Rule 144 or sold in a private transaction in which the transferor's
rights under Section 2 of this Agreement are not assigned.
"Registrable Securities then outstanding" shall be the number of shares
determined by calculating the total number of shares of the Company's Common
Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or convertible
securities, excluding any Registrable Securities as to which the rights under
Section 2 have terminated pursuant to Section 2.7.
"Registration Expenses" mean all expenses incurred by the Company in
complying with Sections 2.2, 2.3 and 2.4 hereof, including, without limitation,
all registration and filing fees, printing expenses, fees and disbursements of
counsel for the Company, reasonable fees and disbursements of a single special
counsel for the Holders, blue sky fees and expenses and the expense of any
special audits incident to or required by any such registration (but excluding
the compensation of regular employees of the Company which shall be paid in any
event by the Company).
"SEC" or "Commission" means the Securities and Exchange Commission.
"Securities Act" means the Securities Act of 1933, as amended.
"Selling Expenses" mean all underwriting discounts and selling
commissions applicable to the sale.
"Series A Convertible Preferred Stock" means shares of the Company's
Preferred Stock designated as Series A Convertible Preferred Stock, par value
$.001 per share.
"Shares" mean (i) Series A Convertible Preferred Stock issued pursuant
to the Purchase Agreement held by the Series A Investors hereto and their
permitted assigns and (ii) for purposes of Section 2.3 and 2.4 only 4 (and to
the extent such provisions relate to Section 2.3 or 2.4, Sections 2.5, 2.6, 2.9,
2.10, 2.11, 1.12, and 2.15), subsequent to the Note Repayment Date, shares of
Common Stock held by GP Strategies or transferred by GP Strategies to holders of
the Notes, respectively, or their permitted assigns.
"Special Registration Statement" means a registration statement relating
to any employee benefit plan or with respect to any corporate reorganization or
other transaction under Rule 145 of the Securities Act.
2. RESTRICTIONS ON TRANSFER; REGISTRATION.
2.1. Restrictions on Transfer.
(a) Each Holder agrees not to make any disposition of all or any portion
of the Shares or Registrable Securities unless and until:
(i) There is then in effect a registration statements under the
Securities Act covering such proposed disposition and such disposition is made
in accordance with such registration statement; or
(ii) (A) The transferee has agreed in writing to be bound by the
terms of this Agreement, (B) such Holder shall have notified the Company of the
proposed disposition and shall have furnished the Company with a detailed
statement of the circumstances surrounding the proposed disposition, and (C) if
reasonably requested by the Company, such Holder shall have furnished the
Company with an opinion of counsel, reasonably satisfactory to the Company, that
such disposition will not require registration of such shares under the
Securities Act. It is agreed that the Company will not require opinions of
counsel for transactions made pursuant to Rule 144 except in unusual
circumstances.
Notwithstanding the provisions of paragraphs (i) and (ii) above, no such
registration statement, detailed statement or opinion of counsel shall be
necessary for a transfer by a party hereto which is (A) a partnership to its
partners or former partners in accordance with partnership interests, (B) a
corporation to its shareholders in accordance with their interest in the
corporation, (C) a limited liability company to its members or former members in
accordance with their interest in the limited liability company, (D) to the
party's family member or trust for the benefit of an individual party, (E) an
entity which is controlled by, controls or is under common control with the
transferor (an "Affiliate"), or (F) a Common Stock Investor to another Common
Stock Investor or then current employees of the Company; provided that in each
case the transferee will be subject to the terms of this Agreement to the same
extent as if he, she or it were an original party hereunder.
(b) Each certificate representing Shares or Registrable Securities shall
(unless otherwise permitted by the provisions of the Agreement) be stamped or
otherwise imprinted with a legend substantially similar to the following (in
addition to any legend required under applicable state securities laws or under
any other agreement):
THE SHARES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED
UNDER THE SECURITIES ACT OF 1933, AS AMENDED, OR THE STATE SECURITIES
OR BLUE SKY LAWS OF ANY JURISDICTION. SUCH SHARES MAY NOT BE SOLD,
OFFERED FOR SALE, PLEDGED OR TRANSFERRED IN THE ABSENCE OF AN EFFECTIVE
REGISTRATION STATEMENT AS TO THE SECURITIES UNDER SAID ACT AND
SECURITIES LAWS OR AN OPINION OF COUNSEL SATISFACTORY TO THE
CORPORATION THAT SUCH REGISTRATION IS NOT REQUIRED. COPIES OF THE
AGREEMENTS COVERING THE PURCHASE OF THESE SHARES AND RESTRICTING THEIR
TRANSFER MAY BE OBTAINED AT NO COST BY WRITTEN REQUEST MADE BY THE
HOLDER OF RECORD OF THIS CERTIFICATE TO THE SECRETARY OF THE
CORPORATION AT THE PRINCIPAL EXECUTIVE OFFICES OF THE CORPORATION.
(c) If such Shares or Registrable Securities are actually disposed of,
the Company shall be obligated to reissue promptly certificates without the
foregoing legend at the request of any holder thereof if the holder shall have
obtained an opinion of counsel (which counsel may be counsel to the Company)
reasonably acceptable to the Company to the effect that the securities proposed
to be disposed of may lawfully be so disposed of without registration,
qualification, or legend.
2.2 Demand Registration.
(a) Subject to the conditions of this Section 2.2, if the Company shall
receive a written request from a Holder or Holders of at least 50% of the
Registrable Securities then outstanding (the "Initiating Holders") that the
Company file a registration statement under the Securities Act covering the
registration of a majority of the Registrable Securities owned by such
Initiating Holders, then the Company shall, within 30 days of receipt thereof,
give written notice of such request to all Holders and, subject to the
limitations of this Section 2.2, use its commercially reasonable efforts to file
a registration statement under the Securities Act with the Commission covering
all Registrable Securities that the Holders request to be registered.
(b) If the Initiating Holders intend to distribute the Registrable
Securities covered by their request by means of an underwriting, they shall so
advise the Company as a part of their request made pursuant to this Section 2.2
and the Company shall include such information in the written notice referred to
in Section 2.2(a), as applicable. 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 to the extent provided
herein. All Holders proposing to distribute their securities through such
underwriting shall enter into an underwriting agreement in customary form with
the underwriter or underwriters selected for such underwriting by the Company
(which underwriter or underwriters shall be reasonably acceptable to a majority
in interest of the Initiating Holders). Notwithstanding any other provision of
this Section 2.2, if the underwriter advises the Company that marketing factors
require a limitation of the number of securities to be underwritten (including
Registrable Securities) then the Company shall so advise all Holders of
Registrable Securities that would otherwise be underwritten pursuant hereto, and
the number of shares that may be included in the underwriting shall be allocated
first to the Holders who are holders of Series A Convertible Preferred Stock (or
shares of Common Stock issued upon conversion thereof) on a pro rata basis based
on the total number of Registrable Securities held by such Holders; provided,
however, that the number of shares of Registrable Securities to be included in
such underwriting and registration shall not be reduced unless all other
securities of the Company are first entirely excluded from the underwriting and
registration. Any Registrable Securities excluded or withdrawn from such
underwriting shall be withdrawn from the registration.
(c) The Company shall not be required to effect a registration pursuant
to this Section 2.2:
(1) prior to the earlier of (A) six months following the Initial
Offering, and (B) December 31, 2004;
(2) after the Company has effected two (2) registrations pursuant to
this Section 2.2(a), and such registrations have been declared or ordered
effective;
(3) during the period starting with the date of filing of, and
ending on the date 90 days following the effective date of, any registration
statement (other than a Special Registration Statement) of the Company;
(4) if within 30 days of receipt of a written request from
Initiating Holders pursuant to Section 2.2(a), the Company gives notice to the
Holders of the Company's intention to make its Initial Offering within 90 days;
(5) if the Company shall furnish to the Initiating Holders, a
certificate signed by the Chairman of the Board of Directors stating that in the
good faith judgment of the Board of Directors, it would be seriously detrimental
to the Company and its stockholders for such registration statement to be
effected at such time, in which event the Company shall have the right to defer
such filing for a period of not more than 120 days after receipt of the request
of the Initiating Holders; provided that such right to delay a request shall be
exercised by the Company not more than once in any twelve-month period; or
(6) 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 2.4 below.
2.3 Piggyback Registrations. The Company shall notify all Holders of
Registrable Securities in writing at least 20 days prior to the filing of any
registration statement under the Securities Act for purposes of a public
offering of securities of the Company (including, but not limited to,
registration statements relating to secondary offerings of securities of the
Company, but excluding Special Registration Statements) and will afford each
such Holder an opportunity to include in such registration statement all or part
of such Registrable Securities held by such Holder. Each Holder desiring to
include in any such registration statement all or any part of the Registrable
Securities held by it shall, within 15 days after the above-described notice
from the Company, so notify the Company in writing. Such notice shall state the
intended method of disposition of the Registrable Securities by such Holder. If
a Holder decides not to include all of its Registrable Securities in any
registration statement thereafter filed by the Company, such Holder shall
nevertheless continue to have the right to include any Registrable Securities in
any subsequent registration statement or registration statements as may be filed
by the Company with respect to offerings of its securities, all upon the terms
and conditions set forth herein.
(a) Underwriting. If the registration statement under which the Company
gives notice under this Section 2.3 is for an underwritten offering, the Company
shall so advise the Holders of Registrable Securities. In such event, the right
of any such Holder to be included in a 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 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 the
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Company; second, to the Holders who are holders of Series A Convertible
Preferred Stock (or shares of Common Stock issued upon conversion thereof) on a
pro rata basis based on the total number of Registrable Securities held by such
Holders; and third, to the Holders who are holders of Common Stock (issued
otherwise than upon conversion of Series A Convertible Preferred Stock) on a pro
rata basis based on the total number of Registrable Securities held by such
Holders; provided, however, that the number of shares of Registrable Securities
to be included in such underwriting and registration shall not be reduced unless
all other securities of the Company (other than securities being offered by the
Company and the Holders) are first entirely excluded from the underwriting and
registration. If any Holder disapproves of the terms of any such underwriting,
such Holder may elect to withdraw therefrom by written notice to the Company and
the underwriter, delivered at least ten business days prior to the effective
date of the registration statement. Any Registrable Securities excluded or
withdrawn from such underwriting shall be excluded and withdrawn from the
registration. For any Holder that is a partnership or corporation, the partners,
retired partners, stockholders and Affiliates of such Holder, or the estates and
family members of any such partners and retired partners and any trusts for the
benefit of any of the foregoing person shall be deemed to be a single "Holder,"
and any pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
(b) Right to Terminate Registration. The Company shall have 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. The Registration Expenses of
such withdrawn registration shall be borne by the Company in accordance with
Section 2.5 hereof.
2.4. Form S-2 and S-3 Registration. In case the Company shall receive
from a Holder or Holders of at least 50% of the Registrable Securities then
outstanding a written request or requests that the Company effect a registration
on Form S-2 or Form S-3 (or any successor to such forms) or any similar
short-form registration statement 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 of Registrable
Securities; and
(b) as soon as practicable, use its best efforts to file such
registration statement as may be so requested and as would permit or facilitate
the sale and distribution of all or such portion of such Holder's Registrable
Securities as are 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 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 2.4:
(i) if Form S-2 or Form S-3 or their equivalent successor forms, if
any, as the case may be, is not available for such offering by the Holders, or
(ii) if the Company shall furnish to the Holders a certificate
signed by the Chairman of the Board of Directors stating that in the good faith
judgment of the Board of Directors, it would be seriously detrimental to the
Company and its stockholders for such Form S-2 or 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 registration statement for a period of not more than 90 days
after receipt of the request of the Holder or Holders under this Section 2.4;
provided, that such right to delay a request shall be exercised by the Company
not more than once in any twelve-month period, or
(iii) 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; or
(iv) if the Holders, together with the holders of any other
securities of the Company entitled to inclusion in such Form S-2 or Form S-3
registration statement, propose to sell Registrable Securities and such other
securities (if any) at an aggregate price to the public of less than $3,000,000;
or
(v) if the Company has filed a registration statement at the request
of Holders under this Section 2.4 within the preceding six months.
(c) Subject to the foregoing, the Company shall file a Form S-2 or
Form S-3 registration statement, as the case may be, 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.
Registrations effected pursuant to this Section 2.4 shall not be counted as
demands for registration or registrations effected pursuant to Sections 2.2 or
2.3, respectively.
(d) If the registration statement under which the Company gives
notice under this Section 2.4 is for an underwritten offering, the Company shall
so advise the Holders of Registrable Securities. In such event, the right of any
such Holder to be included in a registration pursuant to this Section 2.4 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 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
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting shall be allocated, first, to
the Holders who are holders of Series A Convertible Preferred Stock (or shares
of Common Stock issued upon conversion thereof) on a pro rata basis based on the
total number of Registrable Securities held by such Holders; and second, to the
Holders who are holders of Common Stock Issued other than upon conversion of the
Series A Convertible Preferred Stock) on a pro rata basis based on the total
number of Registrable Securities held by such Holders; provided, however, that
the number of shares of Registrable Securities to be included in such
underwriting and registration shall not be reduced unless all other securities
of the Company (other than securities being offered by the Company and the
Holders) are first entirely excluded from the underwriting and registration. If
any Holder disapproves of the terms of any such underwriting, such Holder may
elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten 10 business days prior to the effective date
of the registration statement. Any Registrable Securities excluded or withdrawn
from such underwriting shall be excluded and withdrawn from the registration.
For any Holder which is a partnership or corporation, the partners, retired
partners, stockholders and Affiliates of such Holder, or the estates and family
members of any such partners and retired partners and any trusts for the benefit
of any of the foregoing person shall be deemed to be a single "Holder," and any
pro rata reduction with respect to such "Holder" shall be based upon the
aggregate amount of shares carrying registration rights owned by all entities
and individuals included in such "Holder," as defined in this sentence.
2.5. Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 2.2 or any registration under
Section 2.3 or Section 2.4 herein shall be borne by the Company. All Selling
Expenses incurred in connection with any registrations hereunder, shall be borne
by the holders of the securities so registered pro rata on the basis of the
number of shares so registered and sold.
2.6. Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, as expeditiously
as reasonably possible:
(a) Prepare and file with the SEC a registration statement with
respect to such Registrable Securities and use all reasonable efforts to cause
such registration statement to become effective, and, upon the request of the
Holders of a majority of the Registrable Securities registered thereunder, keep
such registration statement effective (i) in the case of any registration under
Section 2.2, for up to 120 days or, if earlier, until the Holder or Holders have
completed the distribution related thereto and (ii) in the case of any
registration under Section 2.4, indefinitely or, if earlier, until the Holder or
Holders have completed the distribution related thereto.
(b) Prepare and file with the SEC such amendments and supplements to
such registration statement and the prospectus used in connection with such
registration statement as may be necessary to comply with the provisions of the
Securities Act with respect to the disposition of all securities covered by such
registration statement for the period set forth in paragraph (a) above.
(c) Furnish to the Holders such number of copies of a prospectus,
including a preliminary prospectus, in conformity with the requirements of the
Securities Act, and such other documents as they may reasonably request in order
to facilitate the disposition of Registrable Securities owned by them.
(d) Use its reasonable efforts to register and qualify the
securities covered by such registration statement under such other securities or
Blue Sky laws of such jurisdictions as shall be reasonably requested by the
Holders; provided that the Company shall not be required in connection therewith
or as a condition thereto to qualify to do business or to file a general consent
to service of process in any such states or jurisdictions.
(e) In the event of any underwritten public offering, enter into and
perform its obligations under an underwriting agreement, in usual and customary
form, with the managing underwriter(s) of such offering. Each Holder
participating in such underwriting shall also enter into and perform its
obligations under such an agreement.
(f) Notify each Holder of Registrable Securities covered by such
registration statement at any time when a prospectus relating thereto is
required to be delivered under the Securities Act of the happening of any event
as a result of which the prospectus included in such registration statement, as
then in effect, includes an untrue statement of a material fact or omits to
state a material fact required to be stated therein or necessary to make the
statements therein not misleading in the light of the circumstances then
existing. The Company will use reasonable efforts to amend or supplement such
prospectus in order to cause such prospectus not to include any untrue statement
of a material fact or omit 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 reasonable efforts to furnish, on the date that such
Registrable Securities are delivered to the underwriters for sale, if such
securities are being sold through underwriters, (i) an opinion, dated as of such
date, of the counsel representing the Company for the purposes of such
registration, in form and substance as is customarily given to underwriters in
an underwritten public offering, addressed to the underwriters, if any, and (ii)
a letter dated as of such date, from the independent certified public
accountants of the Company, in form and substance as is customarily given by
independent certified public accountants to underwriters in an underwritten
public offering addressed to the underwriters.
(h) Use reasonable efforts to cause all such Registrable Securities
to be listed on each securities exchange on which similar securities issued by
the Company are then listed and to be qualified for trading on each system on
which securities issued by the Company are from time to time qualified.
(i) Use its reasonable efforts to provide a transfer agent and
registrar for all such Registrable Securities not later than the effective date
of such registration statement and thereafter maintain such transfer agent and
registrar.
(j) Use its reasonable efforts to provide a CUSIP number for all
Registrable Securities, not later than the effective date of the applicable
registration statement.
2.7. Termination of Registration Rights. All registration rights granted
under Sections 2.2, 2.3, and 2.4 shall terminate and be of no further force and
effect with respect to any Holder when all Registrable Securities held by and
issuable to such Holder (and its affiliates, partners, former partners, members
and former members) may be sold under Rule 144 during any 90-day period.
2.8. Delay of Registration; Furnishing Information.
(a) 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.
(b) It shall be a condition precedent to the obligations of the Company
to take any action pursuant to Section 2.2, 2.3, or 2.4 that the selling Holders
shall furnish to the Company such information regarding themselves, the
Registrable Securities held by them and the intended method of disposition of
such securities as shall be required to effect the registration of their
Registrable Securities.
2.9. Indemnification. In the event any Registrable Securities are included
in a registration statement under Section 2.2, 2.3, or 2.4:
(a) To the extent permitted by law, the Company will indemnify and hold
harmless each Holder, the partners, members, officers and directors of each
Holder, any underwriter (as defined in the Securities Act) for such Holder and
each person, if any, who controls such Holder or underwriter within the meaning
of the Securities Act or the Exchange Act, against any losses, claims, damages
or liabilities (joint or several) to which they may become subject under the
Securities Act, the Exchange 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") by the Company: (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 therein 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 Securities Act, the Exchange Act, any state
securities law or any rule or regulation promulgated under the Securities Act,
the Exchange Act or any state securities law in connection with the offering
covered by such registration statement; and the Company will pay as incurred to
each such Holder, partner, officer, director, underwriter or controlling person
for any legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action;
provided however, that the indemnity agreement contained in this Section 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 such Holder, partner, member,
officer, director, underwriter or controlling person of such Holder; and
provided, further, that such indemnity shall not apply with respect to any
untrue statement or alleged untrue statement or omission or alleged omission in
any preliminary or final prospectus if the prospectus (as amended or
supplemented), as provided to the person claiming indemnification prior to the
time the Company made the sale to the person making the claim of a Violation,
did not contain such statement or alleged statement or omission or alleged
omission
(b) To the extent permitted by law, each Holder will, if Registrable
Securities held by such Holder are included in the securities as to which such
registration qualifications or compliance is being effected, indemnify and hold
harmless the Company, each of its directors, its officers and each person, if
any, who controls the Company within the meaning of the Securities Act, any
underwriter and any other Holder selling securities under such registration
statement or any of such other Holder's partners, directors or officers or any
person who controls such Holder, against any losses, claims, damages or
liabilities (joint or several) to which the Company or any such director,
officer, controlling person, underwriter or other such Holder, or partner,
director, officer or controlling person of such other Holder may become subject
under the Securities Act, the Exchange Act or other federal or state law,
insofar as such losses, claims, damages or liabilities (or actions in respect
thereto) arise out of or are based upon any Violation, in each case to the
extent (and only to the extent) that such Violation occurs in reliance upon and
in conformity with written information furnished by such Holder in writing
expressly for use in connection with such registration; and each such Holder
will pay as incurred any legal or other expenses reasonably incurred by the
Company or any such director, officer, controlling person, underwriter or other
Holder, or partner, officer, director or controlling person of such other Holder
in connection with investigating or defending any such loss, claim, damage,
liability or action if it is judicially determined that there was such a
Violation; provided, however, that the indemnity agreement contained in this
Section 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 further, that in no event shall any indemnity under this Section 2.9
exceed the net 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 shall
have the right to retain its own 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 materially 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 losses, claims, damages or liabilities referred to herein, the
indemnifying party, in lieu of indemnifying such indemnified party thereunder,
shall to the extent permitted by applicable law contribute to the amount paid or
payable by such indemnified party as a result of such loss, claim, damage or
liability 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 Violation(s) that resulted in such loss, claim, damage or
liability, as well as any other relevant equitable considerations. The relative
fault of the indemnifying party and of the indemnified party shall be determined
by a court of law 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;
provided, that in no event shall any contribution by a Holder hereunder exceed
the net proceeds from the offering received by such Holder.
(e) The obligations of the Company and Holders under this Section 2.9
shall survive completion of any offering of Registrable Securities in a
registration statement and the termination of this Agreement. No Indemnifying
Party, in the defense of any such claim or litigation, shall, except with the
consent of each Indemnified Party, consent to entry of any judgment or enter
into any settlement which does not include as an unconditional term thereof the
giving by the claimant or plaintiff to such Indemnified Party of a release from
all liability in respect to such claim or litigation.
2.10. Assignment of Registration Rights.
(a) The rights to cause the Company to register Registrable Securities
pursuant to this Section 2 may be assigned by a Holder to a transferee or
assignee of Registrable Securities which (i) is a subsidiary, parent, Affiliate,
general partner, limited partner, retired partner, member, retired member or
shareholder of a Holder, (ii) is a Holder's family member or trust for the
benefit of an individual Holder or (iii) acquires at least 100,000 shares of
such Holder's Registrable Securities (as adjusted for any stock dividend,
combination, splits, reorganization, and the like); provided, however, (A) the
transferor shall, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (B) such transferee shall agree to be subject to all restrictions
set forth in this Agreement.
(b) Notwithstanding anything to the contrary contained in this Section
2.10, no assignment under Section 2.10(a) shall be valid if the transferee of
the Registrable Securities of a Holder is determined in good faith by the Board
of Directors to be a direct competitor of the Company.
2.11. 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 a majority of the
Registrable Securities then outstanding. Any amendment or waiver effected in
accordance with this Section 2.11 shall be binding upon each Holder and the
Company. By acceptance of any benefits under this Section 2, Holders of
Registrable Securities hereby agree to be bound by the provisions hereunder.
2.12. Limitation on Subsequent Registration Rights. Other than as provided
in Section 5.11, after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of at least a majority of the
Registrable Securities then outstanding, enter into any agreement with any
holder or prospective holder of any securities of the Company that would grant
such holder registration rights pari passu or senior to those granted to the
Holders hereunder.
2.13. "Market Stand-Off" Agreement. Each Holder hereby agrees that such
Holder shall not sell, transfer, make any short sale of, grant any option for
the purchase of, or enter into any hedging or similar transaction with the same
economic effect as a sale, any Common Stock (or other securities) of the Company
held by such Holder (other than those included in the registration) for a period
specified by the representative of the underwriters of Common Stock (or other
securities) of the Company not to exceed 180 days following the effective date
of a registration statement of the Company filed under the Securities Act;
provided that such agreement shall apply only to the Company's Initial Offering.
2.14. Agreement to Furnish Information. Each Holder agrees to execute and
deliver such other agreements as may be reasonably requested by the Company or
the underwriter which are consistent with the foregoing or which are necessary
to give further effect thereto. In addition, if requested by the Company or the
representative of the underwriters of Common Stock (or other securities) of the
Company, each Holder shall provide, within ten (10) days of such request, such
information as may be required by the Company or such representative in
connection with the completion of any public offering of the Company's
securities pursuant to a registration statement filed under the Securities Act.
2.15. Rule 144 Reporting. With a view to making available to the Holders
the benefits of certain rules and regulations of the SEC which may permit the
sale of the Registrable Securities to the public without registration, the
Company agrees to use its best efforts to:
(a) Make and keep public information available, as those terms are
understood and defined in SEC Rule 144 or any similar or analogous rule
promulgated under the Securities Act, at all times after the effective date of
the first registration filed by the Company for an 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 Exchange Act; and
(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 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report of
the Company; and such other reports and documents 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.
3. COVENANTS.
3.1. Basic Financial Information and Reporting.
(a) The Company will maintain true books and records of account in which
full and correct entries will be made of all its business transactions pursuant
to a system of accounting established and administered in accordance with
generally accepted accounting principles consistently applied, and will set
aside on its books all such proper accruals and reserves as shall be required
under generally accepted accounting principles consistently applied.
(b) As long as shares of Series A Convertible Preferred Stock and/or
Registrable Securities issued therefor are outstanding, the Company shall
deliver or provide to each Series A Investor (so long as such Investor continues
to hold 10% of the Shares originally purchased by said Series A Investor and/or
Registrable Securities issued therefor) of each respective class, and as long as
GP Strategies holds at least 10% of the outstanding Common Stock, the Company
shall deliver and provide to GP Strategies:
(i) Within 90 days after the end of each fiscal year of the Company,
a balance sheet of the Company, as at the end of such fiscal year, and a
statement of income and a statement of cash flows of the Company, for such year,
all audited and prepared in accordance with generally accepted accounting
principles consistently applied and setting forth in each case in comparative
form the figures for the previous fiscal year, all in reasonable detail. Such
financial statements shall be accompanied by a report and opinion thereon by
independent public accountants of national standing selected by the Board of
Directors; and
(ii) (A) At least 30 days prior to the beginning of each fiscal
year, an annual budget and operating plans for such fiscal year (and as soon as
available, any subsequent revisions thereto); and (B) within 20 days after the
end of each quarter, a balance sheet of the Company as of the end of each such
quarter, and a statement of income and a statement of cash flows of the Company
for such quarter and for the current fiscal year to date, prepared in accordance
with generally accepted accounting principles consistently applied, with the
exception that no notes need be attached to such statements and year-end audit
adjustments may not have been made.
3.2. Inspection Rights. As long as Series A Convertible Preferred and/or
Registrable Securities issued therefor are outstanding, each Series A Investor
(so long as such Investor continues to hold 10% of the Shares originally
purchased by said Investor and/or Registrable Securities issued therefor), and
as long as GP Strategies holds at least 10% of the outstanding Common Stock, GP
Strategies, after giving reasonable advance notice to the Company, shall have
the right during normal business hours to visit and inspect any of the
properties of the Company or any of its subsidiaries, and to discuss the
affairs, finances and accounts of the Company or any of its subsidiaries with
its officers, and to review such information as is reasonably requested all at
such reasonable times and as often as may be reasonably requested; provided,
however, that the Company shall not be obligated under this Section 3.2 with
respect to a direct competitor of the Company or with respect to information
which the Board of Directors determines in good faith is confidential and should
not, therefore, be disclosed.
3.3. Confidentiality of Records. Each Investor agrees to use, and to use
its reasonable commercial efforts to insure that its authorized representatives
use, the same degree of care as such Investor uses to protect its own
confidential information to keep confidential any information furnished to it
which the Company identifies as being confidential or proprietary (so long as
such information is not in the public domain), except that such Investor may
disclose such proprietary or confidential information to any partner, Affiliate,
subsidiary or parent of such Investor for the purpose of evaluating its
investment in the Company as long as such partner, subsidiary or parent is
advised of and agrees to abide by the confidentiality provisions of this Section
3.3.
3.4. Reservation of Common Stock. The Company will at all times reserve and
keep available, solely for issuance and delivery upon the conversion of the
Shares, all Common Stock issuable from time to time upon such conversion.
3.5. Stock Vesting. Except as otherwise provided by the Board of Directors,
all stock options and other stock equivalents issued by the Company after the
date of this Agreement to employees, directors, consultants and other service
providers of the Company shall be subject to vesting as follows: (a) 25% of such
stock shall vest at the end of the first year following the date of issuance,
and (b) 75% of such stock shall vest on a monthly basis over the remaining three
years. With respect to any shares of stock purchased by any such person, except
as otherwise provided by the Board of Directors, the Company will enter into an
agreement in connection with each such issuance of stock to an employee,
director or consultant of the Company that provides that upon the termination of
the employment or service of such employee, director or consultant, with or
without cause with respect to any unvested shares or options owned or held by an
employee, director or consultant of the Company, such unvested shares or options
shall be forfeited to the Company or its assignee.
3.6. Special Relationships of Prospective Employees. The Company shall not
hire or contract for the services, directly or indirectly, whether as an
employee, independent contractor, consultant or in any other capacity, of any
person who is a spouse, sibling, parent, child, or other family member of a
current officer, director, employee, independent contractor or consultant to the
Company without the unanimous consent of the Board of Directors of the Company.
3.7. Directors' Liability and Indemnification. The Company's Certificate of
Incorporation and Bylaws shall provide (a) for elimination of the liability of
directors to the maximum extent permitted by law and (b) for indemnification of
directors for acts on behalf of the Company to the maximum extent permitted by
law.
3.8. Reimbursement of Expenses. The Company shall reimburse each
nonemployee member of the Board of Directors for all reasonable and customary
actual expenses incurred in connection with their service as a member of the
Board of Directors, including without limitation all actual travel and lodging
expenses incurred in connection with the attendance by any such member at a
meeting of the Board of Directors or any committee thereof.
3.9. Qualified Small Business. The Company will use its best efforts to
comply with the reporting and recordkeeping requirements of Section 1202 of the
Internal Revenue Code of 1986, as amended, any regulations promulgated
thereunder and any similar state laws and regulations, and agrees not to
repurchase any stock of the Company if such repurchase would cause the Shares
not to so qualify as "Qualified Small Business Stock."
3.10. Election of Directors.
(a) In any election of directors of the Company, the Investors shall
vote at any regular meeting or special meeting of stockholders of the Company
(or by written consent) such number of shares of voting capital stock then owned
by them (or as to which they then have voting power) as may be necessary to
elect the following individuals to the Board of Directors:
(i) One director nominated by the Series A Investors, voting as a
separate class, and who shall initially be James C. Gale;
(ii) One director nominated by the Common Stock Investors;
(iii) Three directors who have relevant industry experience and are
not employees of the Company or GP Strategies, nominated by mutual agreement of
(i) the Common Stock Investors and (ii) the Series A Investors (the "Outside
Directors"); and
(iv) The President and Chief Executive Officer of the Company.
(b) The director nominated by the Series A Investors may be removed by,
and shall not be removed except by, the vote of the holders of record of a
majority of the outstanding shares of Series A Convertible Preferred Stock,
voting together as a single class, at a meeting of the holders of shares of
Series A Convertible Preferred Stock called for such purpose. The director
nominated by the Common Stock Investors may be removed by, and shall not be
removed except by, the vote of the holders of record of a majority of the
outstanding shares of Common Stock, voting together as a single class, at a
meeting of the holders of shares of Common Stock called for such purpose.
3.11. Voting Rights of Common Stock Investors. Except as otherwise
specifically provided in this Agreement, on all matters submitted to a vote of
the stockholders of the Company, the Common Stock Investors shall vote at any
regular meeting or special meeting of stockholders of the Company (or by written
consent) such number of shares of voting capital stock then owned by them (or as
to which they then have voting power) in the same manner as the holders of a
majority of the Series A Investors, except for the following corporate actions
("Restricted Actions"):
(a) Any Acquisition or Transfer (each as defined in the Certificate);
(b) The liquidation and dissolution or winding up of the Company;
(c) Any amendment to the Certificate of Incorporation of the Company
that would change the rights, preferences, or privileges of the Series A
Convertible Preferred Stock; or
(d) Any reclassification of the Series A Convertible Preferred Stock,
the exchange of any shares of the Series A Convertible Preferred Stock for any
other debt or equity security of the Company, or the redemption or repurchase by
the Company of any shares of Series A Convertible Preferred Stock.
In addition to any other vote or consent required herein or by law, the
vote or written consent of the holders of at least a majority of the outstanding
Common Stock, voting together as a separate class, shall be necessary for
effecting or validating any of the Restricted Actions.
3.12. Observer Rights. As long as SMH Hydro Med LLC or Wheatley MedTech
Partners L.P., respectively, hold any Shares, the Company shall, if such
Investors do not otherwise have a representative on the Board of Directors,
invite a representative of each such Investor to attend all meetings of its
Board of Directors and the committees of the Board of Directors in a nonvoting
observer capacity and, in this respect, shall give such representative copies of
all notices, minutes, consents, and other materials that it provides to its
directors; provided, however, that such representative shall agree to hold in
confidence and trust and to act in a fiduciary manner with respect to all
information so provided; and, provided further, that the Company reserves the
right to withhold any information and to exclude such representative from any
meeting or portion thereof if access to such information or attendance at such
meeting could adversely affect the attorney-client privilege between the Company
and its counsel.
3.13. Termination of Covenants. All covenants of the Company contained in
Section 3 of this Agreement shall expire and terminate as to each Investor upon
the earlier of (a) the effective date of the registration statement pertaining
to a Qualifying IPO, or (b) upon (i) the acquisition of the Company by another
entity by means of any transaction or series of related transactions, including,
without limitation, any reorganization, merger or consolidation but, excluding
any merger effected exclusively for the purpose of changing the domicile of the
Company or (ii) a sale of all or substantially all of the assets of the Company
(a "Change in Control"); provided that in the event that the Company's
stockholders of record as constituted immediately prior to any such transaction
(on a fully diluted basis) will, immediately after such transaction (by virtue
of securities issued as consideration for the Company's acquisition or sale or
otherwise), hold at least 50% of the voting power of the surviving or acquiring
entity, such transaction shall not be deemed to constitute a Change in Control.
4. PREEMPTIVE RIGHTS.
4.1. Subsequent Offerings. In the event the Company issues and sells Equity
Securities (as defined below) other than the Equity Securities excluded by
Section 4.6 hereof, each Investor shall have a preemptive right to purchase such
number of shares of Equity Securities necessary for such Investor to maintain
its percentage ownership position in the Company on an as converted basis. Each
Investor's preemptive share is equal to the ratio of (a) the number of shares of
the Company's Common Stock (including all shares of Common Stock issued or
issuable upon conversion of the Series A Convertible Preferred Stock) of which
such Investor is deemed to be a holder immediately prior to the issuance of such
Equity Securities to (b) the total number of shares of the Company's outstanding
Common Stock (including all shares of Common Stock issued or issuable upon
conversion of the Series A Convertible Preferred Stock or other security of the
Company or upon the exercise of any outstanding warrants, options, or rights to
subscribe to or purchase any Common Stock, Preferred Stock, or other security)
immediately prior to the issuance of the Equity Securities.
4.2. Exercise of Preemptive Rights. If the Company issues any Equity
Securities, it shall give each Investor written notice of such issuance,
describing the Equity Securities and the price and the terms and conditions upon
which the Company issued the same and shall provide each Investor with access to
any information regarding such offering and the Company. Each Investor shall
have 45 days from the giving of such notice to exercise its preemptive right to
purchase Equity Securities for the price and upon the terms and conditions
specified in the notice by giving written notice to the Company and stating
therein the quantity of Equity Securities to be purchased. Notwithstanding the
foregoing, the Company shall not be required to offer or sell such Equity
Securities to any Investor who would cause the Company to be in violation of
applicable federal securities laws by virtue of such offer or sale.
4.3. Termination and Waiver of Preemptive Rights. The preemptive rights
established by this Section 4 shall terminate following the Company's Qualifying
IPO.
4.4. Transfer of Preemptive Rights. The preemptive rights of each Investor
under this Section 4 may be transferred to the same parties, subject to the same
restrictions, as any transfer of registration rights pursuant to Section 2.10.
4.5. Excluded Securities. The preemptive rights established by this Section
4 shall have no application to any of the following Equity Securities:
(a) Up to 2,500,000 shares (as may be adjusted for any stock dividend,
combinations, splits, recapitalizations and the like) of Common Stock (and/or
options, warrants or other Common Stock purchase rights issued pursuant to such
options, warrants or other rights) issued or to be issued after the date hereof
to employees, officers or directors of, or consultants or advisors to the
Company or any subsidiary, pursuant to stock purchase or stock option plans or
other arrangements that are approved by the Board of Directors;
(b) capital stock of the Company issued pursuant to any rights or
agreements outstanding as of the date of this Agreement, options and warrants
outstanding as of the date of this Agreement, and capital stock issued pursuant
to or upon the exercise of any such rights or agreements granted after the date
of this Agreement; provided that in the case of rights or agreements granted
after the date of this Agreement, such rights or agreements were approved by the
Board of Directors, including representatives designated by the holders of the
Series A Convertible Preferred Stock;
(c) shares of Common Stock issued in connection with any stock split,
dividend, combination, distribution, or recapitalization;
(d) shares of Common Stock issued in connection with any merger,
consolidation, acquisition, or similar business combination approved by the
Board of Directors;
(e) shares of Common Stock issued upon conversion of the Shares;
(f) any Equity Securities issued pursuant to any equipment leasing or
loan arrangement, or debt financing from a bank or similar financial or lending
institution approved by the Board of Directors; and
(g) any Equity Securities issued in connection with strategic
transactions involving the Company and other entities, including (i) joint
ventures, manufacturing, marketing or distribution arrangements or (ii)
technology transfer or development arrangements; provided that such strategic
transactions and the issuance of shares therein, has been approved by the Board
of Directors.
5. MISCELLANEOUS.
5.1. Governing Law. This Agreement shall be governed by and construed under
the laws of the State of Delaware, without regard to principals of conflict of
laws.
5.2. Survival. The representations, warranties, covenants, and agreements
made herein shall survive any investigation made by any Holder and the closing
of the transactions contemplated hereby. All statements as to factual matters
contained in any certificate or other instrument delivered by or on behalf of
the Company pursuant hereto in connection with the transactions contemplated
hereby shall be deemed to be representations and warranties by the Company
hereunder solely as of the date of such certificate or instrument.
5.3. 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
and shall inure to the benefit of and be enforceable by each person who shall be
a holder of Registrable Securities from time to time; provided, however, that
prior to the receipt by the Company of adequate written notice of the transfer
of any Registrable Securities specifying the full name and address of the
transferee, the Company may deem and treat the person listed as the holder of
such shares in its records as the absolute owner and holder of such shares for
all purposes, including the payment of dividends or any redemption price.
5.4. Entire Agreement. This Agreement, the Exhibits and Schedules hereto,
the Purchase Agreement and the other documents delivered pursuant thereto
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and no party shall be liable or bound to any
other in any manner by any representations, warranties, covenants and agreements
except as specifically set forth herein and therein.
5.5. Severability. In the event one or more of the provisions of this
Agreement should, for any reason, be held to be invalid, illegal or
unenforceable in any respect, such invalidity, illegality, or unenforceability
shall not affect any other provisions of this Agreement, and this Agreement
shall be construed as if such invalid, illegal or unenforceable provision had
never been contained herein.
5.6. Amendment and Waiver.
(a) Except as otherwise expressly provided, this Agreement may be
amended or modified only upon the written consent of the Company and the Holders
of at least a majority of the Registrable Securities.
(b) Except as otherwise expressly provided, the obligations of the
Company and the rights of the Holders under this Agreement may be waived only
with the written consent of the Holders of at least a majority of the
Registrable Securities.
(c) Notwithstanding the foregoing, this Agreement may be amended
with only the written consent of the Company to include additional purchasers of
Series A Convertible Preferred Stock as "Series A Investors," "Holders," and
parties hereto.
(d) For the purposes of determining the number of Holder or
Investors entitled to vote or exercise any rights hereunder, the Company shall
be entitled to rely solely on the list of record holders of its stock as
maintained by or on behalf of the Company.
5.7. Delays or Omissions. It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any Holder, upon any breach,
default or noncompliance of 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 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
any Holder's part of any breach, default or noncompliance under the Agreement or
any waiver on such Holder's 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. All remedies, either under this
Agreement, by law, or otherwise afforded to Holders, shall be cumulative and not
alternative.
5.8. Notices. All notices required or permitted hereunder shall be in
writing and shall be deemed effectively given: (a) upon personal delivery to the
party to be notified, (b) when sent by confirmed electronic mail or facsimile if
sent during normal business hours of the recipient; if not, then on the next
business day, (c) five days after having been sent by registered or certified
mail, return receipt requested, postage prepaid, or (d) one day after deposit
with a nationally recognized overnight courier, specifying next day delivery,
with written verification of receipt. All communications shall be sent to the
party to be notified at the address as set forth on the signature pages hereof
or Exhibit A hereto or at such other address as such party may designate by ten
days advance written notice to the other parties hereto.
5.9. Attorneys' Fees. In the event that any suit or action is instituted to
enforce any provision in this Agreement, the prevailing party in such dispute
shall be entitled to recover from the losing party all reasonable fees, costs
and expenses of enforcing any right of such prevailing party under or with
respect to this Agreement, including without limitation, such reasonable fees
and expenses of attorneys and accountants, which shall include, without
limitation, all fees, costs and expenses of appeals.
5.10. 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.
5.11. Additional Investors. Notwithstanding anything to the contrary
contained herein, if the Company shall issue additional shares of its Preferred
Stock pursuant to the Purchase Agreement, any purchaser of such shares of
Preferred Stock may become a party to this Agreement by executing and delivering
an additional counterpart signature page to this Agreement and shall be deemed
an "Investor" hereunder.
5.12. Counterparts. This Agreement may be executed in any number of
counterparts, each of which shall be an original, but all of which together
shall constitute one instrument.
5.13. Joinder of Spouses. The undersigned spouses of each Investor, if
applicable, join in the execution and delivery of this Agreement for the express
purpose of binding any interest he or she may have in the Shares or Common
Stock.
[THIS SPACE INTENTIONALLY LEFT BLANK]
IN WITNESS WHEREOF, the parties hereto have executed this INVESTOR
RIGHTS AGREEMENT as of the date set forth in the first paragraph hereof.
COMPANY: INVESTORS:
HYDRO MED SCIENCES, INC. SMH HYDRO MED LLC
By: By:
Name: David S. Tierney Name: James C. Gale
Title: President Title: Manager
CORPORATE OPPORTUNITIES FUND, L.P.
By: SMM Corporate Management, LLC,
General Partner
By:
Name: James C. Gale
Title: Manager
CORPORATE OPPORTUNITIES FUND
(INSTITUTIONAL), L.P.
By: SMM Corporate Management, LLC,
General Partner
By:
Name: James C. Gale
Title: Manager
WHEATLEY MEDTECH PARTNERS L.P.
By: Wheatley MedTech Partners LLC,
General Partner
By:
Name:__________________________
Title:___________________________
GP STRATEGIES CORPORATION
By:
Name:____________________________
Title:_____________________________