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Exhibit
10.4
INVESTOR RIGHTS AGREEMENT
This
INVESTOR RIGHTS AGREEMENT (this “
Agreement ”), dated as of September 19, 2007, is
entered into by and among NEPHROS, INC. , a
Delaware corporation (the “ Company ”),
LAMBDA INVESTORS LLC , a Delaware limited
liability company (“ Lambda ”), and the
other parties named on the signature pages to this Agreement
or who subsequently become a party to this Agreement in
accordance with the terms hereof (collectively, the “
Covered Holders ”).
WHEREAS , to induce Lambda to make an investment in the
Company, the Company and Covered Holders have agreed to cause two
individuals having reasonably appropriate experience and background
designated by Lambda from time to time (the “ Lambda
Nominees ”) to be elected to the Board of Directors of
the Company (the “ Board ”); and
WHEREAS , the parties hereto desire to enter into this
Agreement to provide for the election of the Nominees and to
address certain matters relating to the service of the Lambda
Nominees as members of the Board.
NOW THEREFORE , in consideration of the foregoing and the
covenants and agreements contained in this Agreement, the
sufficiency of which is hereby acknowledged, the parties agree as
follows:
1.
Board Representation .
(a)
The
Company, Lambda and the Covered Holders shall take such corporate
actions as may be required to ensure that the number of directors
constituting the Board is at all times no greater than seven (7) or
such greater number as Lambda shall have agreed to in writing,
provided, that a unanimous written consent of the Board, including
the consent of the Lambda Nominees, shall constitute a writing for
such purposes, and provided further, that a writing shall not be
required if a majority of the directors on the Board approve a
resolution at a Board meeting to increase the size of the Board and
the Lambda Nominees vote in the majority.
(b)
Lambda
shall be entitled to (i) nominate the Lambda Nominees to the Board
to serve as directors until their respective successor(s) are
elected and qualified, (ii) nominate each successor to the
Lambda Nominees, provided that any successor shall have reasonably
appropriate experience and background, and (iii) direct the removal
from the Board of any director nominated under the foregoing
clauses (i) or (ii).
(c)
Each
nomination or any direction to remove from the Board any Lambda
Nominee shall be made by delivering to the Company a notice signed
by Lambda. As promptly as practicable, but in any event
within ten (10) days after delivery of such notice, the Company
shall take or cause to be taken such corporate actions as may be
reasonably required to cause the election or removal proposed in
such notice. Such corporate actions may include calling
a meeting or soliciting a written consent of the Board, or calling
a meeting or soliciting a written consent of the stockholders of
the Company.
(d)
Upon
the written request of Lambda, the Company and each Covered Holder
shall take such actions as may be reasonably required to cause the
persons then serving on the Board
based
on the nomination of Lambda to be appointed to the board of
directors (or similar governing body) of all direct and indirect
subsidiaries of the Company.
2.
Voting Agreement .
(a)
Each
Covered Holder covenants and agrees to vote all common stock, par
value $.001 per share of the Company (“ Common Stock
”), and any other capital stock or other securities of the
Company held by such Covered Holder that are entitled to vote in
the election of the Board (“ Voting Securities
”) for the election to the Board of the Lambda Nominees in
accordance with Section 1(b) and for the removal from the
Board of the Lambda Nominees proposed to be removed in accordance
with Section 1(b) and shall take all actions required on its
behalf to give effect to the agreements set forth in this
Section 2 . Each Covered Holder covenants and
agrees not to vote any Voting Securities for the removal of any
Lambda Director except pursuant to direction from Lambda pursuant
to Section 1(b)(iii) .
(b)
Each
Covered Holder hereby grants to Lambda an irrevocable proxy,
coupled with an interest, authorizing Lambda to act as proxy of
such Covered Holder, with full powers of substitution and
resubstitution, and hereby authorizes Lambda to vote, give consents
and in all other ways act in such Covered Holder’s place with
respect to all Voting Securities held by such Covered Holder in
connection with such Covered Holder’s agreements contained in
this Section 2 to vote in favor of or for the removal of the
Lambda Nominees, which proxy shall be valid and remain in effect
until the termination of this Agreement.
3.
Vacancies and Removal .
(a)
The
Lambda Nominees designated pursuant to Section 1(b) will be
elected at any annual or special meeting of the stockholders of the
Company (or by written consent in lieu of a meeting of the
stockholders) and will serve until their successors are duly
elected and qualified or until their earlier resignation or
removal.
(b)
In
the event a vacancy is created on the Board by reason of the death,
removal or resignation of any Lambda Nominee, Lambda shall be
entitled to nominate a successor Lambda Director having reasonably
appropriate experience and background and such vacancy shall be
filled in accordance with the procedures set forth in Section
1(c) .
4.
Meetings; Expenses; Compensation; Insurance
.
(a)
The
Company shall convene meetings of the Board at least once every
three months. Upon any failure by the Company to convene
any meeting required by this paragraph, a Lambda Director shall be
empowered to convene such meeting.
(b)
The
Lambda Nominees shall be entitled to compensation and reimbursement
for expenses on the same terms as other directors of the Company
who are not officers or employees of the Company.
(c)
The
Company shall maintain a directors’ and officers’
policy of insurance in the amount of at least $7,000,000 per
occurrence covering all directors.
5.
Business Opportunities .
(a)
In
anticipation of Lambda becoming, indirectly or directly, a
substantial stockholder of the Company, and in recognition of (i)
the benefits to be derived by the Company through its continued
contractual, corporate and business relations with Lambda
(including the services of officers, directors, partners, managers,
employees or affiliates of Lambda (collectively, “ Lambda
Persons ”) as directors of the Company) and (ii) the
difficulties attendant to any director who desires and endeavors
fully to satisfy such director’s fiduciary duties, in
determining the full scope of such duties in any particular
situation, the provisions of this Section 5 are set forth to
regulate, define and guide the conduct of certain affairs of the
Company as they may involve Lambda and any Lambda Persons, and the
powers, rights, duties and liabilities of the Company and its
officers, directors and stockholders in connection
therewith.
(b)
Except
as Lambda may otherwise agree in writing, Lambda shall have the
right to (i) engage, directly or indirectly, in the same or similar
business activities or lines of business as the Company and (ii) do
business with any client, competitor or customer of the Company,
with the result that the Company shall have no right in or to such
activities or any proceeds or benefits therefrom, and neither
Lambda nor any Lambda Person (except as provided in Section
5(c) ) shall be liable to the Company or its stockholders for
breach of any fiduciary duty by reason of any such activities of
Lambda or of such Lambda Person’s participation
therein. A Lambda Person who is serving as an officer or
director of the Company may not, at the same time, serve as an
officer or director of any entity whose principal business activity
is (i) the development or sale of medical devices for the treatment
of end stage renal disease or (ii) water filtration. In
the event that Lambda or any Lambda Person acquires knowledge of a
potential transaction or matter that may be a corporate opportunity
for both Lambda and the Company other than in the case of a
director-related opportunity, Lambda and such Lambda Person shall
have no duty to communicate or present such corporate opportunity
to the Company and the Company hereby renounces any interest or
expectancy it may have in such corporate opportunity, with the
result that Lambda or such Lambda Person shall not be liable to the
Company or its stockholders for breach of any fiduciary duty,
including for breach of any fiduciary duty as a director or
stockholder of the Company, by reason of the fact that Lambda
pursues or acquires such corporate opportunity for itself, directs
such corporate opportunity to another person or entity, or does not
present such corporate opportunity to the Company.
(c)
In
the event that a director of the Company who is a Lambda Person
acquires knowledge of a potential transaction or matter that may be
a corporate opportunity for both the Company and Lambda, such
corporate opportunity shall belong to Lambda, and the Company
hereby renounces any interest or expectancy it may have in such
corporate opportunity, unless such corporate opportunity is a
director-related opportunity, in which case such corporate
opportunity shall belong to the Company.
(d)
For
the purposes of this Section 5 , “ corporate
opportunities ” shall not include any business
opportunities that the Company is not financially or contractually
able to undertake, or that are, from their nature, not in the line
of the Company’s business or are of no practical advantage to
it or that are ones in which the Company has no interest or
reasonable expectancy. For the purposes of this
Section 5 , a “ director-related opportunity
” means a potential transaction or matter that may be a
corporate opportunity for both the Company and Lambda
where
knowledge
of such corporate opportunity is made known to a Lambda Person who
is serving as a director of the Company as a result of his serving
as a director of the Company prior to (x) Lambda or any other
Lambda Person acquiring knowledge of such corporate opportunity, or
(y) such Lambda Person acquiring knowledge of such corporate
opportunity other than as a result of such Lambda Person’s
serving as a director.
(e)
For
purposes of this Section 5 only, the “ Company
” shall mean the Company and all corporations, partnerships,
joint ventures, associations and other entities in which the
Company beneficially owns (directly or indirectly) fifty percent
(50%) or more of the outstanding voting stock, voting power or
similar voting interests.
(f)
Neither
the Company n
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