INVESTOR RIGHTS AGREEMENT

Exhibit 4.3

 

INVESTOR RIGHTS AGREEMENT

among

SEATTLE GENETICS, INC

and

THE INVESTORS NAMED HEREIN

Dated as of July 8, 2003

 

TABLE OF CONTENTS

 

 

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INVESTOR RIGHTS AGREEMENT dated as of July 8, 2003, among SEATTLE GENETICS, INC. , a Delaware corporation (the “ Company ”), and the INVESTORS of the Company listed on Schedule I hereto, and their permitted assigns (collectively, the “ Investors ”).

WHEREAS , the Company proposes to issue up to an aggregate of 1,640,000 shares of its Series A Convertible Preferred Stock, par value $0.001 per shares (the “ Series A Preferred Stock ”) and warrants (the “ Warrants ”) to purchase up to 2,050,000 shares of common stock, par value $0.001 per share (the “ Common Stock ”), pursuant to a Securities Purchase Agreement dated as of May 12, 2003 (the “ Purchase Agreement ”) among the Company and the Investors.

WHEREAS , as a condition of entering into the Purchase Agreement, the Investors have requested that the Company extend to them certain registration rights, information rights and other rights, and the Company desires to extend such rights, on terms set forth below.

NOW, THEREFORE , in consideration of the mutual covenants and agreements contained in this Agreement, the sufficiency of which is hereby acknowledged, the parties agree as follows:

ARTICLE I

DEFINITIONS; RULES OF CONSTRUCTION

 

1.1	Definitions .

Capitalized terms used in this Agreement and not defined herein have the meanings ascribed to them in the Purchase Agreement. The following capitalized terms used in this Agreement have the meanings ascribed to them below:

“ Accountants ” has the meaning ascribed to it in Section 3.2(a)(iii) .

“ BBI ” means collectively, Baker/Tisch Investments, L.P., Baker Bros. Investments, L.P., Baker Bros. Investments II, L.P., Baker Biotech Fund I, L.P., Baker Biotech Fund II, L.P., Baker Biotech Fund II (Z), L.P. and/or any other entity controlled by, controlling or under common control with any of the preceding Persons at such time, to the extent such Persons hold shares of Series A Preferred Stock, Warrants or Common Stock issued upon conversion of the Series A Preferred Stock or exercise of the Warrants.

“ BBI Director ” has the meaning ascribed to it in Section 2.1(b)(ii) .

“ Board ” means the board of directors of the Company.

“ BAVP ” means BAVP, L.P.

 

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“ Bylaws ” means the Bylaws of the Company, as amended, modified, supplemented or restated and in effect from time to time.

“ Common Stock ” has the meaning ascribed to it in the Recitals.

“ Common Stock Equivalents ” means all shares of Common Stock outstanding and all shares of Common Stock issuable (without regard to any present restrictions on such issuance) upon the conversion, exchange or exercise of all Securities of the Company that are convertible, exchangeable or exercisable for Common Stock.

“ Company ” has the meaning ascribed to it in the Caption and shall include any Subsidiary of the Company.

“ Document(s) ” means, individually or collectively, this Agreement, the Purchase Agreement, the Certificate of Designations, the Warrants, the Option Agreement, the Regulatory Sideletter and all other documents executed in connection with this transaction.

“ Equity Incentive Plans ” means, collectively, the Company’s 1998 Stock Option Plan, the 2000 Directors’ Stock Option Plan and the 2000 Employee Stock Purchase Plan, in each case, as amended, and any stock option, issuance, appreciation rights or other equity incentive plan for the independent directors, officers, and full time employees of, and consultants to, the Company which plan has been approved by the Board.

“ Excluded Investors ” means BAVP and T.Rowe.

“ GAAP ” means generally accepted accounting principles in the United States, as in effect from time to time, consistently applied.

“ JPMP Director ” has the meaning ascribed to it in Section 2.1(b)(i) .

“ JPMP Entities ” means, collectively, J.P. Morgan Partners (BHCA), L.P., JPMP Global, J.P. Morgan Partners Global Investors (Cayman), L.P., J.P. Morgan Partners Global Investors A, L.P., J.P. Morgan Partners Global Investors (Cayman) II, L.P. and/or any other entity controlled by, controlling or under common control with any of the preceding Persons at such time, including any entity controlled by JPMP Master Fund Manager, L.P., or any Affiliate thereof, or any entity managed or advised by J.P. Morgan Partners, LLC, JPMP Capital Corp. or any Affiliate thereof, to the extent such Persons hold shares of Series A Preferred Stock or Warrants, or Common Stock issuable upon conversion or exercise thereof.

“ JPMP Global ” means J.P. Morgan Partners Global Investors, L.P.

“ Information ” has the meaning ascribed to it in Section 4.4(a)(ix) .

“ Inspectors ” has the meaning ascribed to it in Section 4.4(a)(ix) .

“ Investors’ Counsel ” has the meaning ascribed to such term in Section 4.4(a)(ii) .

 

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“ Material Sale ” means (i) the sale (in one or a series of related transactions) of all or substantially all of the Company’s assets to a Person or a group of Persons acting in concert (including, without limitation, the sale of a division of the Company or such assets of the Company that would materially change the nature or composition of the Company’s business lines), (ii) the sale or transfer (in one or a series of related transactions) of a majority of the outstanding capital stock of the Company, to one Person or a group of Persons acting in concert, or (iii) the merger or consolidation of the Company with or into another Person that is not an Affiliate of the Company, in each case in clauses (ii) and (iii) above under circumstances in which the holders of a majority in voting power of the outstanding capital stock of the Company immediately prior to such transaction own less than a majority in voting power of the outstanding capital stock of the Company, or the surviving or resulting corporation or acquirer, as the case may be, immediately following such transaction; provided , however , that a debt or equity financing where (x) the Company is the surviving corporation and (y) individuals who served as members of the Board immediately prior to such financing constitute at least three-fourths (3/4) of the members of the Board (rounded up to the nearest whole number) after such financing, shall not be deemed a Material Sale. A sale (or multiple related sales) of one or more Subsidiaries (whether by way of merger, consolidation, reorganization or sale of all or substantially all assets or securities) which constitutes all or substantially all of the consolidated assets of the Company shall be deemed a Material Sale.

“ Material Transaction ” means any material transaction in which the Company or any of its Subsidiaries proposes to engage or is engaged, including a purchase or sale of assets or securities, financing, merger, consolidation, tender offer or any other transaction that would require disclosure pursuant to the Exchange Act, and with respect to which the Board has determined in good faith that compliance with this Agreement may reasonably be expected to either materially interfere with the Company’s or such Subsidiary’s ability to consummate such transaction in a timely fashion or require the Company to disclose material, non-public information prior to such time as it would otherwise be required to be disclosed.

“ NASD ” has the meaning ascribed to it in Section 4.4(a)(xiv) .

“ NMS ” has the meaning ascribed to it in Section 4.4(a)(xiv) .

“ Observer ” has the meaning ascribed to it in Section 2.1(f) .

“ Other Shares ” means at any time those shares of Common Stock that do not constitute Primary Shares or Registrable Shares.

“ Preferred Directors ” has the meaning ascribed to it in Section 2.1(b)(ii) .

“ Preferred Stock ” means, collectively, the Series A Preferred Stock and any other class or series of Preferred Stock issued by the Company in accordance with the Restated Certificate or any certificate of designations and this Agreement.

“ Primary Shares ” means, at any time, the authorized but unissued shares of Common Stock or Common Stock held by the Company in its treasury.

 

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“ Prospectus ” means the prospectus included in a Registration Statement, including any prospectus subject to completion, and any such prospectus as amended or supplemented by any prospectus supplement with respect to the terms of the offering of any portion of the Registrable Shares and, in each case, by all other amendments and supplements to such prospectus, including post-effective amendments, and in each case including all material incorporated by reference therein.

“ Public Offering ” means the closing of a public offering of Common Stock solely for cash pursuant to a Registration Statement declared effective under the Securities Act, except that a Public Offering shall not include an offering of securities to be issued as consideration in connection with a business acquisition pursuant to Rule 145 of the Securities Act, an offering of securities issuable pursuant to an Equity Incentive Plan, a registration in which the only stock being registered is Common Stock issuable upon conversion of debt securities which are also being registered or any registration on any form which does not include substantially the same information as would be required to be included in a registration statement covering the sale of Registrable Securities hereunder.

“ Public Sale ” means any sale, occurring simultaneously with or after a Public Offering, of Securities to the public pursuant to an offering registered under the Securities Act or to the public through a broker, dealer or market maker (pursuant to the provisions of Rule 144 or otherwise).

“ Purchase Agreement ” has the meaning ascribed to it in the Recitals.

“ Records ” has the meaning ascribed to it in Section 4.4(a)(ix) .

“ Registrable Shares ” means, at any time, (a) Common Stock issued or issuable upon conversion of the Series A Preferred Stock held, or hereafter acquired, by the Investors and their permitted assigns, (b) Common Stock issued or issuable upon exercise of the Warrants held, or hereafter acquired, by the Investors and their permitted assigns, and (c) any Common Stock 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 Shares shall not include any Securities sold by a Person to the public pursuant to a Registration Statement which has been declared effective, or Rule 144 or sold in a private transaction in which the Transferor’s rights under Article IV of this Agreement are not assigned, in each case where the restrictive legends and transfer restrictions with respect to Common Stock are removed and the Common Stock in the hands of the purchaser is freely transferable without any restriction or registration under the Securities Act in any public or private transaction.

“ Registration Statement ” means any registration statement of the Company which covers any of the Registrable Shares, and all amendments and supplements to any such Registration Statement, including post-effective amendments, in each case including the Prospectus contained therein, all exhibits thereto and all material incorporated by reference therein.

“ Representative ” of a Person shall be construed broadly and shall include such Person’s partners, officers, directors, employees, agents, counsel, accountants and other representatives.

 

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“ Requisite Investors ” means those Investors who hold in the aggregate at least sixty-six and two-thirds percent (66 2/3%) of the outstanding Series A Preferred Stock (including Common Stock issued upon conversion thereof) held by all Investors at the time of determination; provided , however , that in the event such determination is in connection with the required registration of Registrable Shares as set forth in Sections 4.1 hereof, Requisite Investors means those Investors who hold in the aggregate in excess of thirty-three and one-third percent (33 1/3%) of the then outstanding Series A Preferred Stock held by the Investors; provided , further , however , that in the event such determination is in connection with the required registration of Registrable Shares as set forth in Sections 4.3 hereof, Requisite Investors means those Investors who hold in the aggregate in excess of thirty-three and one-third percent (33 1/3%) of the then outstanding Series A Preferred Stock (including Common Stock issued upon conversion thereof) held by the Investors. In any situation where consent from or approval of the Requisite Investors is required, the Company may select the Investors constituting the Requisite Investors in its discretion and the requirement shall be deemed satisfied so long as the consent or approval is received from Investors who hold the requisite percentage of Series A Preferred Stock (including Common Stock issued upon conversion thereof) called for herein. In such case the Company shall promptly provide notice of such consent or approval to each of the Investors.

“ Restated Certificate ” means the Fourth Amended and Restated Certificate of Incorporation of the Company, as amended and in effect at the time of determination, including any certificates of designations filed with the Secretary of State of the State of Delaware pursuant to the terms thereof.

“ Rule 144 ” means Rule 144 (including Rule 144(k)) and all other subdivisions thereof) promulgated by the Commission under the Securities Act, as such rule may be amended from time to time, or any similar or successor rule then in force.

“ Section 2.1 Notice ” has the meaning set forth in Section 2.1(c) .

“ Series A Preferred Stock ” has the meaning ascribed to it in the Recitals.

“ Stock ” means the Preferred Stock, the Common Stock and any and all other capital stock or other equity Securities (including, without limitation, derivative Securities therefor) of the Company.

“ Suspension Period ” has the meaning ascribed to it in Sections 4.8 .

“ T.Rowe ” means T. Rowe Price Health Sciences Fund, Inc.

“ Transfer ” of Securities shall be construed broadly and shall include any issuance, sale, assignment, transfer, participation, gift, bequest, distribution, or other disposition thereof, or any pledge or hypothecation thereof, placement of a Lien thereon or grant of a security interest therein or other encumbrance thereon, in each case whether voluntary or involuntary or by operation of law or otherwise. “ Transferor ” means a Person engaging in a Transfer of Securities, and “ Transferee ” means a Person acquiring Securities through a Transfer.

“ Warrants ” has the meaning ascribed to it in the Recitals.

 

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1.2	Rules of Construction .

The term this “ Agreement ” means this agreement together with all schedules and exhibits hereto, as the same may from time to time be amended, modified, supplemented or restated in accordance with the terms hereof. The use in this Agreement of the term “including” means “including, without limitation.” The words “ herein ,” “ hereof ,” “ hereunder ” and other words of similar import refer to this Agreement as a whole, including the schedules and exhibits, as the same may from time to time be amended, modified, supplemented or restated, and not to any particular section, subsection, paragraph, subparagraph or clause contained in this Agreement. All references to sections, schedules and exhibits mean the sections of this Agreement and the schedules and exhibits attached to this Agreement, except where otherwise stated. The title of and the section and paragraph headings in this Agreement are for convenience of reference only and shall not govern or affect the interpretation of any of the terms or provisions of this Agreement. The use herein of the masculine, feminine or neuter forms shall also denote the other forms, as in each case the context may require or permit. Where specific language is used to clarify by example a general statement contained herein, such specific language shall not be deemed to modify, limit or restrict in any manner the construction of the general statement to which it relates. The language used in this Agreement has been chosen by the parties to express their mutual intent, and no rule of strict construction shall be applied against any party. Unless expressly provided otherwise, the measure of a period of one month or year for purposes of this Agreement shall be that date of the following month or year corresponding to the starting date, provided that if no corresponding date exists, the measure shall be that date of the following month or year corresponding to the next day following the starting date. For example, one month following February 18 is March 18, and one month following March 31 is May 1.

ARTICLE II

BOARD OF DIRECTORS

 

2.1	Election of Board Members .

(a) The number of directors constituting the Board, as fixed from time to time by the Board in accordance with the Bylaws, shall be nine (9). Notwithstanding any provision in the Bylaws, the number of directors constituting the Board shall not be increased to greater than eleven (11) without the prior written consent of the Requisite Investors for so long as both JPMP Global and BBI are entitled to designate a Preferred Director.

(b) At each annual meeting of the holders of any class of Stock, and at each special meeting of the holders of any class of Stock called for the purpose of electing directors of the Company, and at any time at which holders of any class of Stock shall have the right to, or shall, vote for or consent in writing to the election of directors of the Company, then, and in each such event, the Investors (other than the Excluded Investors) shall vote all of the shares of Series A Preferred Stock owned by them or their Affiliates, and their respective Transferees shall so vote for, or consent in writing with respect to such shares in favor of, the election of two

 

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individuals to serve as directors to the Board pursuant to Article III(A)(3)(a) of the Certificate of Designations determined as follows:

(i) one individual designated by JPMP Global (the “ JPMP Director ”), for so long as the JPMP Entities collectively own at least fifty percent (50%) of the Series A Preferred Stock (or Common Stock issued upon conversion thereof) that they acquired on the Closing Date; and

(ii) one individual designated by BBI (the “ BBI Director ” and together with the JPMP Director, the “ Preferred Directors ”), for so long as BBI owns at least fifty percent (50%) of the Series A Preferred Stock (or Common Stock issued upon conversion thereof) that it acquired on the Closing Date;

provided , however , that, in the event that JPMP Global or BBI shall no longer have the right to designate an individual for election to the Board pursuant to clause (i) or (ii) above, respectively, the Board shall, upon the expiration of the term of the JPMP Director or BBI Director, as applicable, and for all times thereafter, be entitled to (x) fill the vacancy created thereby in accordance with the Bylaws, or (y) reduce the number of directors constituting the Board by eliminating the seat previously reserved for the JPMP Director or BBI Director as the case may be. The Company agrees to nominate for election to the Board as the JPMP Director and the BBI Director, or for the filling of any vacancies on the Board created by such nominees, the persons designated by JPMP Global or BBI, as applicable, pursuant to this Section 2.1 . The parties hereby agree that, effective immediately after the Closing, Srinivas Akkaraju shall be added as a member of the Board as the JPMP Director and Felix Baker shall be added as a member of the Board as the BBI Director. The obligation of each Investor to vote its shares as directed by this Section 2.1(b) (to the extent such obligation exists hereunder) shall cease, without any further action on the part of the Investors or the Company, at such time as neither JPMP Global nor BBI are entitled to designate a director pursuant to clause (i) or (ii) above.

(c) The Company shall give at least 30 days prior written notice of the date of the earliest estimated proposed mailing of proxy materials for election of directors of the Company. JPMP Global and BBI shall, within 10 Business Days of receipt of such notice from the Company, give written notice (a “ Section 2.1 Notice ”) to the Company of the name of each individual that JPMP Global and BBI intend to nominate for election or reelection to the Board and all information relating to each such individual that is required to be disclosed in any solicitation of proxies for election of directors, or as otherwise required, in each case pursuant to Regulation 14A under the Exchange Act (including such individual’s written consent to being named in the proxy statement as a nominee and to serving as a director if elected). At the request of the Board, any individual so nominated for election as a director shall furnish to the Secretary of the Company that information required to be set forth in the Section 2.1 Notice.

(d) Subject to the next sentence, the Investors (other than the Excluded Investors) shall vote their shares of Series A Preferred Stock (i) to remove any director whose removal is required by the party or parties with the power to designate such director and (ii) to fill any vacancy created by the removal, resignation or death of a director, in each case for the election of a new director designated and approved, in accordance with the provisions of this Section 2.1 ; provided , however , that the obligation of each Investor to vote its shares as directed by this Section 2.1(d) (to the extent such obligation exists hereunder) shall cease, without any

 

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further action on the part of the Investors or the Company, at such time as neither JPMP Global nor BBI are entitled to designate a director pursuant to Sections 2.1(b)(i) or (ii)  above. Each of the JPMP Director and the BBI Director shall only be removed by JPMP Global or BBI, respectively. At all times, the person serving as the JPMP Director or the BBI Director shall be either (i) an employee of one of the JPMP Entities or BBI, respectively, holding the position of “Principal” or any position senior thereto, or (ii) a person reasonably acceptable to a majority of the other members of the Board of Directors, provided , however , that in the case of clause (ii) such person must be qualified to serve as a member of the board of directors of a publicly traded company. Vacancies on the Board shall be filled within 30 days of the date such vacancy is created or immediately before the first action to be taken by the Board after the date such vacancy is created; provided , however , that if a vacancy on the Board is a result of JPMP Global or BBI no longer having the right to designate a director pursuant to Section 2.1(b) above, the Board may elect to reduce the number of directors constituting the Board by eliminating the seat previously reserved for the JPMP Director or BBI Director, as the case may be.

(e) The directors to be elected pursuant to this Section 2.1 shall serve for terms extending from the date of their election and qualification until their successors shall have been elected and qualified in accordance with this Section 2.1 .

(f) JPMP Global and BBI shall have the right to have that number of representatives (each such representative, an “ Observer ”) determined as hereinafter provided present at all meetings of the Board. Such right shall from time to time be exercisable by delivery to the Company of written notice from the Requisite Investors specifying the names of such Observers. The number of Observers shall at all times and from time to time be equal to the number of members of the Board that JPMP Global and BBI are then entitled to designate pursuant to Section 2.1(b)(i) or (ii)  above, as applicable, but whose seats on the Board are at the time vacant. The Company will give each Observer reasonable prior notice (it being agreed that the same prior notice given to the Board shall be deemed reasonable prior notice) in any manner permitted in the Bylaws for notices to directors of the time and place of any proposed meeting of the Board. Each such Observer will be entitled (i) to receive true and complete copies of all documents furnished to any director in connection with such meeting and (ii) to be present in person as an Observer at any such meeting or, if a meeting is held by telephone conference, to participate therein for the purpose of listening thereto; provided , that in each case, the Observers may be excluded from access to any materials prepared for the Board or meeting or portion thereof if the Board reasonably believes, upon advice of counsel, that such exclusion is reasonably necessary to preserve the attorney-client privilege.

(g) Each of JPMP Global and BBI agree to use reasonable efforts to cause the individual serving as the JPMP Director or the BBI Director, respectively, to provide the Company, on a timely basis, with any information relating to such individual that the Company may be required to disclose pursuant to Applicable Law, including without limitation those rules or regulations promulgated by the NASD and the NMS.

 

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2.2	Board Meetings .

The Company shall convene meetings of the Board at least four times each fiscal year at regular time intervals. The Company may use video conferencing capabilities or teleconference facilities for meetings of the Board and any committees thereof (“ Committees ”).

 

2.3	Expenses .

The Company shall pay or reimburse each of the Preferred Directors and any Observer for the reasonable out-of-pocket expenses incurred by such Preferred Director or Observer in connection with attending formal meetings of the Board, any Committee thereof (including any Subsidiary board or committee meetings), or attending any other activities in connection with the fulfillment of such Preferred Director’s duties, including, but not limited to, reasonable travel and related expenses.

 

2.4	Subsidiary Board .

The Company shall cause the board of directors of each of its Subsidiaries (except for any Subsidiary that is formed in a jurisdiction other than the United States) to be constituted in a manner similar to the Board.

 

2.5	Committees .

The Board may, from time to time, establish and maintain certain Committees. To the extent allowed under Applicable Law, the Board shall, upon the request of the Preferred Directors, appoint at least one Preferred Director to serve on each Committee formed by the Board (other than the Option Committee that is solely responsible for granting stock options to employees of the Company below the level of “Director”, for so long as such Committee is comprised solely of employee directors).

 

2.6	Qualifications of Board Members .

If at any time (a) the holders of Series A Preferred Stock shall be entitled to elect one or more individuals to serve as directors to the Board pursuant to Article III(A)(3)(a) of the Certificate of Designations and (b)  Section 2.1 of this Agreement shall have been terminated or shall no longer be in effect, then each Person elected pursuant to the Certificate of Designations shall be a Person reasonably acceptable to a majority of the other members of the Board of Directors (it being understood and agreed by the parties hereto that an employee of an Investor holding the position of “Principal” or any position senior thereto shall be deemed acceptable); provided , however , that such Person must be qualified to serve as a member of the board of directors of a publicly traded company.

 

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ARTICLE III

ADDITIONAL AGREEMENTS

 

3.1	Inconsistent Agreements .

The Company shall not enter into any agreement containing any provision which would (a) be violated or breached by the exercise or performance by the Company of any of its respective rights or obligations under any Document, or (b) impair the ability of the Company or any Subsidiary to comply with the terms of the Documents.

 

3.2	Information Rights .

(a) The Company shall furnish (x) each of the JPMP Director and the BBI Director or (y) if there is no JPMP Director or BBI Director then serving on the Board, the JPMP Entities or BBI, as applicable, ( provided that the Company shall be obligated to furnish such information to the JPMP Entities and BBI only for so long as JPMP Global and BBI continue to have the right to designate a director pursuant to Section 2.1(b) above) with the following:

(i) Quarterly Reports . As soon as available, but not later than 45 days after the end of each quarter in each fiscal year (other than the last quarter in each fiscal year) of the Company, a balance sheet of the Company and the related statements of income, stockholders’ equity and cash flows, unaudited but prepared in accordance with GAAP consistently applied and certified by the President or the Chief Financial Officer of the Company, such balance sheet to be as of the end of such quarter and such statements of income, stockholders’ equity and cash flows to be for such quarter and for the period from the beginning of the fiscal year to the end of such quarter, in each case with comparative statements for the prior fiscal year. The Company providing a copy of its Form 10-Q for the applicable quarter shall satisfy the requirements of this Section.

(ii) Annual Audit . As soon as available, but not later than 90 days after the end of each fiscal year of the Company, audited financial statements of the Company, which shall include a statement of cash flows and statement of operations for such fiscal year and a balance sheet as at the last day thereof, each prepared in accordance with GAAP consistently applied (except as set forth in the notes thereto), and accompanied by the report of a firm of independent certified public accountants of nationally recognized standing selected by the Board (the “ Accountants ”). The Company shall maintain a system of accounting sufficient to enable the Accountants to render the report referred to in this clause. The Company providing a copy of its Form 10-K for the applicable fiscal year shall satisfy the requirements of this Section.

(iii) Annual Operating Plan . Within 60 days after the beginning of each fiscal year of the Company, an annual operating plan, including a qualitative summary by the President of the Company and an updated consolidated budget, projected income statements, balance sheets and cash flow statements (setting forth in detail the

 

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assumptions therefor) on a monthly basis for the Company and its Subsidiaries for such fiscal year of the Company.

(iv) Subsidiaries . If for any period the Company shall have any Subsidiary or Subsidiaries whose accounts are consolidated with those of the Company, then in respect of such period the financial statements delivered pursuant to the foregoing clauses shall be consolidated (and consolidating if normally prepared by the Company) financial statements of the Company and all such consolidated Subsidiaries.

(v) GAAP Reporting . The financial statements and reports delivered under this subsection shall fairly present in all material respects the financial position and results of operations of the Company at the dates thereof and for the periods then ended and shall have been prepared in accordance with GAAP, in the case of unaudited financial statements, subject to normal year-end audit adjustments and the absence of footnotes.

(b) Access to Records and Properties . The Company shall afford the Preferred Directors, during normal business hours and with reasonable advance notice, reasonable access to (i) visit and inspect the assets, properties and information (financial or otherwise), (ii) examine upon reasonable advance notice, the books of accounts and records of the Company and (iii) make copies of such records and permit such Preferred Directors to discuss all aspects of the Company and each Subsidiary with any officers, employees or Accountants of the Company, in each case consistent with the highest level of access to information and inspection rights granted by the Company to other members of its Board; provided , however , that such investigation shall not unreasonably interfere with the operations of the Company. The Company will instruct the Accountants to discuss such aspects of the financial condition of the Company with any such Preferred Director as such Preferred Director may reasonably request, and to permit such Preferred Director to inspect, copy and make extracts from such financial statements, analyses, work papers and other documents and information (including electronically stored documents and information) prepared by the Accountants with respect to the Company as such Preferred Director may reasonably request.

(c) Other Reports; Miscellaneous . The Company shall promptly provide to each of the Investors:

(i) as soon as available, but not later than 45 days after the end of each quarterly accounting period, a Form 10-Q or, if the Company does not file quarterly reports with the Commission, the documents referred to in Section 3.2(a)(i) ;

(ii) as soon as available, but not later than 90 days after the end of each fiscal year, a Form 10-K or, if the Company does not file an annual report with the Commission, the audited consolidated financial statements referred to in Section 3.2(a)(ii) ;

(iii) simultaneously with any distribution of any document to holders of the Common Stock, any such document so distributed; and

 

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(iv) copies of all financial statements, reports, press releases, notices, proxy statements and other documents sent by the Company or its Subsidiaries to its stockholders generally or released to the public and copies of all regular and periodic reports, if any, filed by the Company or its Subsidiaries with the Commission, any securities exchange or the NASD.

(d) Notice of Material Sale . The Company shall promptly provide to the JPMP Entities and BBI notice of any proposed Material Sale, and shall afford the Preferred Directors with reasonable time to review and comment on any agreement relating to such Material Sale, as applicable.

 

3.3	Compliance .

The Company (a) in carrying out its business shall comply in all material respects with Applicable Law and Orders of any Governmental Authority applicable to it, its business and the ownership of its assets and (b) shall obtain and maintain in full force and effect all Federal, state, local and foreign governmental licenses and permits material to and necessary in the conduct of its business.

 

3.4	Insurance .

All the insurable properties of the Company shall be insured for the benefit of the Company in the full amounts required to protect the Company against risks usually insured against by Persons operating similar properties in the localities in which such properties are located under policies in effect and issued by national insurers of recognized responsibility.

 

3.5	Affirmative Covenants .

The Company shall observe and perform the following, except to the extent waived upon the written consent of the Requisite Investors:

(a) Payment Under the Documents . The Company shall pay or accrue, as the case may be, any amounts payable under the Documents in accordance with the terms of the Documents.

(b) Payment of Taxes, etc . The Company shall pay and discharge, and cause each of its Subsidiaries to pay and discharge, before the same shall become delinquent, (i) all amounts of taxes, assessments and governmental charges or levies imposed upon it or upon its property and (ii) all lawful claims that, if unpaid, could reasonably be expected by law to become a Lien upon its property; provided , however , that the Company shall not be required to pay or discharge any such tax, assessment, charge or claim that is being contested in good faith and by proper proceedings and as to which appropriate reserves are being maintained.

(c) Preservation of Corporate Existence, etc. The Company shall preserve and maintain its corporate existence; provided , however , that any Subsidiary may merge or consolidate with any other Subsidiary or the Company. The Company shall preserve and maintain its rights (charter and statutory), and all material permits, licenses, approvals, privileges and franchises necessary or desirable in the normal conduct of its business.

 

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(d) Keeping of Books . The Company shall keep proper books of record and account, in which entries that are full and correct in all material respects shall be made of all financial transactions and the assets and business of the Company and each such Subsidiary in accordance with GAAP.

(e) Maintenance of Properties, etc. The Company shall maintain and preserve all of its properties that are reasonably required in the conduct of its business in good working order and condition, ordinary wear, tear and depletion excepted.

(f) Transactions with Affiliates . The Company shall conduct all transactions otherwise permitted under the Documents with any of its Affiliates on terms that are fair and reasonable and no less favorable to the Company than it would obtain in a comparable arm’s-length transaction with a Person not an Affiliate.

(g) D&O Insurance; Indemnification . The Company shall maintain director and officer liability insurance, with coverage of at least $10 million, from a nationally recognized insurance company rated “A” or above, which insurance and amount thereof shall be acceptable to the Investors, and shall keep such insurance in full force and effect. The Company’s Restated Certificate and Bylaws shall at all times provide for indemnification and exculpation of the Preferred Directors to the fullest extent permissible under Applicable Law.

(h) Performance of Documents . The Company shall perform and observe all of the terms and provisions of each Document to be performed or observed by it, maintain each such Document in full force and effect, and enforce such Document in accordance with its terms.

(i) Proprietary Information and Inventions Agreements . The Company shall require each employee of the Company as a condition to the employment of such individual, to execute and deliver a nondisclosure and proprietary assignment agreement in the Company’s standard form.

(j) Material Indebtedness . The Company shall perform and observe any and all of its obligations with respect to material Indebtedness of the Company.

(k) Public Announcements . The Company shall consult with the Requisite Investors before issuing, and shall provide the Requisite Investors with the opportunity to review and comment upon, any press release or other public statements with respect to the transactions contemplated by the Purchase Agreement and shall not issue any such press release or make any such public statement without the prior written consent of the Requisite Investors, except to the extent expressly required by Applicable Law and, in such case, the Company shall first promptly notify the Requisite Investors of such obligation and allow such Requisite Investors to provide comment to any such disclosure prior thereto. Notwithstanding the foregoing, if any such press release or public statement specifically names or mentions any Investor, the consent of such Investor will be required prior to the issuance of such press release or public statement, except as may be expressly required by Applicable Law and, in such case, the Company shall first promptly notify such Investor of such obligation and allow such Investor to provide comment to any such disclosure prior thereto.

 

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3.6	Tax Treatment .

(a) The Company shall treat the shares of Series A Preferred Stock held by the Investors as stock that participates in the corporate growth of the Company to a significant extent within the meaning of Treasury Regulation Section 1.305-5(a), and will not treat such shares as “preferred stock” for purposes of the Code.

(b) On or before January 31 of each year, the Company shall provide the Investors with a statement containing the Company’s “Issuer Allocation Percentage” for New York State tax purposes if the Company files or is required to file a tax return in the State of New York for such year.

ARTICLE IV

REGISTRATION RIGHTS

 

4.1	Required Registration .

(a) If at any time the Company shall be requested by the Requisite Investors to effect the registration under the Securities Act of Registrable Shares having an aggregate gross offering price (before underwriters discounts and commissions) of at least $5,000,000, it shall promptly give written notice to the other Investors of its requirement to so register such Registrable Shares (which notice shall specify the number of Registrable Shares proposed to be included in such registration and the intended method of distribution, which may be pursuant to a shelf registration) and, upon the written request, delivered to the Company within 30 days after delivery of any such notice by the Company, of such other Investors to include in such registration Registrable Shares of such Investors (which request shall specify the number of Registrable Shares proposed to be included in such registration), the Company shall, subject to Section 4.1(b) below, promptly use its best efforts to effect such registration on an appropriate form, under the Securities Act of the Registrable Shares which the Company has been so requested to register.

(b) Anything contained in Section 4.1(a) to the contrary notwithstanding, the Company shall not be obligated to effect pursuant to Section 4.1(a) any registration under the Securities Act except in accordance with the following provisions:

(i) the Company shall not be obligated to use its best efforts to file and cause to become effective (A) more than two (2) Registration Statements initiated pursuant to Section 4.1(a) ; provided however , that if the Investors were unable to sell at least 90% of the Registrable Shares requested to be included in the last registration initiated by such group pursuant to Section 4.1(a) as a result of an underwriter’s cutback, then additional registrations shall be added to this Section 4.1(b) until the foregoing condition is satisfied for such Investors, (B) any Registration Statement during the period starting with the date 60 days prior to the Company’s good faith estimate of the date of filing of, and ending on the date 180 days after the effective date of, any other registration

 

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statement (other than on Form S-4 or Form S-8 promulgated under the Securities Act or any successor forms thereto) pursuant to which Primary Shares are to be or were sold; provided , however , that in the case of clause (B) the Company is actively employing in good faith all reasonable efforts to cause such Registration Statement to become effective and the Investors were offered the right to have the Registrable Shares included in such registration pursuant to Section 4.2 below, or (C) more than one Registration Statement pursuant to Section 4.1(a) in any consecutive six-month period;

(ii) the Company may delay the filing or effectiveness of any Registration Statement for a period of up to 90 days after the date of a request for registration pursuant to Section 4.1(a) if at the time of such request the Company is engaged in a Material Transaction; provided , however , that the Company may only so delay the filing or effectiveness of a registration statement pursuant to this Section 4.1(b)(ii) on one occasion during any twelve-month period; and

(iii) with respect to any registration pursuant to Section 4.1(a) , the Company may include in such registration any Primary Shares or Other Shares; provided , however , that if the managing underwriter advises the Company that the inclusion of all Registrable Shares, Primary Shares and Other Shares proposed to be included in such registration would interfere with the successful marketing (including pricing) of all such Securities, then the number of Registrable Shares, Primary Shares and Other Shares proposed to be included in such registration shall be included in the following order:

(A) first , the Registrable Shares held by the Investors requesting that their Registrable Shares be included in such registration pursuant to Section 4.1(a) , pro rata based upon the number of Registrable Shares owned by each such Investor at the time of such registration;

(B) second , the Primary Shares; and

(C) third , the Other Shares.

(c) A requested registration under Section 4.1(a) may be rescinded prior to such registration being declared effective by the Commission by written notice to the Company from the Requisite Investors; provided , however , that such rescinded registration shall not count as a registration initiated pursuant to this Section 4.1 for purposes of subclause (A) of clause (i) of subsection (b) above if (x) the Company shall have been reimbursed ( pro rata by the Investors requesting registration or in such other proportion as they may agree) for all out-of-pocket expenses incurred by the Company in connection with such rescinded registration, provided that each registration that may be requested under this Section 4.1 may not be rescinded pursuant to clause (x) more than two times, provided , further that such rescission may not be made more than once in any 12-month period or (y) (1) the participating Investors reasonably believed that the registration statement contained an untrue statement of material fact or omitted to state a material fact required to be stated therein or necessary to make the statements made therein not misleading, (2) notified the Company of such fact and requested that the Company correct such alleged misstatement or omi