Exhibit 4.2(a)
THIRD AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT
THIS THIRD AMENDED AND RESTATED
INVESTOR RIGHTS AGREEMENT (this “ Agreement ”)
dated as of May 12, 2004, is by and among TARGACEPT, INC., a
Delaware corporation (the “ Company ”), and the
undersigned holders (the “ Series C Investors ”)
of the Company’s Series C Convertible Preferred Stock, $0.001
par value per share (the “ Series C Stock ”),
the undersigned holder (the “ Series A Investor
”) of the Company’s Series A Convertible Preferred
Stock, $0.001 par value per share (the “ Series A
Stock ”), and the undersigned holders (the “
Series B Investors ” and, together with the Series C
Investors and the Series A Investor, the “ Investors
”) of the Company’s Series B Convertible Preferred
Stock, $0.001 par value per share (the “ Series B
Stock ” and, together with the Series C Stock and Series
A Stock, the “ Preferred Stock ”).
W I T N E S
S E T H :
WHEREAS, the Company and the
Investors are parties to the Second Amended and Restated Investor
Rights Agreement dated November 26, 2002 (the “ Current
Agreement ”), which amended, restated and superseded the
Amended and Restated Investor Rights Agreement dated July 16, 2001
(the “ Original Agreement ”); and
WHEREAS, the Company is
contemplating a registered offering of Common Stock to the general
public that is to be (i) approved by a majority of the members of
the Board of Directors of the Company (the “ Board
”), with such majority to include (A) two directors who shall
have been designated by either the Series A Investor or the Series
B Investors (including any director designated by a specific Series
B Investor or by a group of Series B Investors), and (B) one
director designated by the Series C Investors (including any
director designated by a specific Series C Investor or by a group
of Series C Investors), and (ii) effected pursuant to a
registration statement filed with, and declared effective by, the
Commission under the Act (the “ Initial Public
Offering ”); and
WHEREAS, effective as of the date
of, and conditional on, consummation of the Initial Public Offering
(the “ Effective Date ”), the Company and the
Investors wish to amend and fully restate the Current Agreement in
its entirety as set forth herein;
NOW, THEREFORE, in consideration of
the premises and the mutual terms and provisions hereof, the
parties hereto hereby agree as follows:
1. Definitions
. For purposes of this Agreement, the
following terms shall have the following respective
meanings:
(a) “ Act ” shall
mean the Securities Act of 1933, as amended, or any similar federal
statute enacted hereafter, and the rules and regulations of the
Commission thereunder, all as shall be in effect from time to
time.
(b) “ Commission
” shall mean the Securities and Exchange Commission or any
other federal agency that administers the Act.
(c) “ Common Stock
” shall mean the Company’s common stock, $0.001 par
value per share.
(d) “ Eligibility Date
” shall mean 180 days following the Effective
Date.
(e) “ Holder ”
shall mean an Investor that holds Registrable Securities or any
transferee of an Investor that holds Registrable Securities to
which registration rights hereunder have been transferred pursuant
to Section 2.12.
(f) The terms “
register ,” “ registered ” and
“ registration ” refer to a registration
effected by preparing and filing a registration statement in
compliance with the Act and the declaration or ordering of
effectiveness of such registration statement by the
Commission.
(g) “ Registrable
Securities ” shall mean Series A Registrable Securities,
Series B Registrable Securities and Series C Registrable
Securities, collectively.
(h) “ Series A Registrable
Securities ” shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Series A Stock, (ii) shares of
Common Stock issued or issuable upon exercise of the warrant issued
by the Company as of August 22, 2000 to R.J. Reynolds Tobacco
Company, a New Jersey corporation (“ RJRT ”),
and subsequently transferred to R.J. Reynolds Tobacco Holdings,
Inc., to purchase up to 1,612,903 shares of Common Stock (the
“ Special Warrant ”), and (iii) shares of Common
Stock issued upon any subdivision, combination or reclassification
of the foregoing or issued as a stock dividend or other
distribution with respect to the foregoing; provided, that Series A
Registrable Securities shall cease to be Series A Registrable
Securities if (A) a registration statement with respect to the sale
thereof shall have been filed and declared effective under the Act,
(B) they are sold pursuant to Rule 144 under the Act (or any
successor provision) or become saleable pursuant to Rule 144(k)
under the Act (or any successor provision), (C) with respect to any
Holder’s Series A Registrable Securities, all of such
Holder’s Series A Registrable Securities become saleable
under Rule 144 without impact from the volume limitations of Rule
144(e) (or any successor provision), or (D) they are sold in a
private transaction in which a Holder’s rights hereunder are
not validly transferred.
(i) “ Series B Registrable
Securities ” shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Series B Stock, and (ii) shares
of Common Stock issued upon any subdivision, combination or
reclassification of the foregoing or issued as a stock dividend or
other distribution with respect to the foregoing; provided, that
Series B Registrable Securities shall cease to be Series B
Registrable Securities if (A) a registration statement with respect
to the sale thereof shall have been filed and declared effective
under the Act, (B) they are sold pursuant to Rule 144 under the Act
(or any successor provision) or become saleable pursuant to Rule
144(k) under the Act (or any successor provision), (C) with respect
to any Holder’s Series B Registrable Securities, all of such
Holder’s Series B Registrable Securities become saleable
under Rule 144 without impact from the volume limitations of Rule
144(e) (or
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any successor provision), or (D)
they are sold in a private transaction in which a Holder’s
rights hereunder are not validly transferred.
(j) “ Series C Registrable
Securities ” shall mean (i) shares of Common Stock issued
or issuable upon conversion of the Series C Stock, and (ii) shares
of Common Stock issued upon any subdivision, combination or
reclassification of the foregoing or issued as a stock dividend or
other distribution with respect to the foregoing; provided, that
Series C Registrable Securities shall cease to be Series C
Registrable Securities if (A) a registration statement with respect
to the sale thereof shall have been filed and declared effective
under the Act, (B) they are sold pursuant to Rule 144 under the Act
(or any successor provision) or become saleable pursuant to Rule
144(k) under the Act (or any successor provision), (C) with respect
to any Holder’s Series C Registrable Securities, all of such
Holder’s Series C Registrable Securities become saleable
under Rule 144 without impact from the volume limitations of Rule
144(e) (or any successor provision), or (D) they are sold in a
private transaction in which a Holder’s rights hereunder are
not validly transferred.
(k) “ 1934 Act ”
shall mean the Securities Exchange Act of 1934, as amended, or any
similar federal statute enacted hereafter, and the rules and
regulations of the Commission thereunder, all as shall be in effect
from time to time.
2. Registration Rights
.
2.1 Demand Registration
.
(a) Subject to the other provisions
of this Section 2.1, Section 2.8 and Section 2.9, if, at any time
or from time to time following the Eligibility Date (but in no
event within three months after the effective date of any
registration of the Company’s securities, other than
registrations on Form S-4, Form S-8 or comparable or successor
forms and other than registrations for the account of selling
stockholders on Form S-3 or a comparable or successor form), the
Company shall receive a written request (specifying that it is
being made pursuant to this Section 2.1) from (i) Holders of at
least a majority of the Series A Registrable Securities and Series
B Registrable Securities, considered together, or (ii) Holders of
Series C Registrable Securities that the Company file a
registration statement under the Act covering the registration for
offer and sale of at least thirty percent (30%) of, in the case of
clause (i) above, all Series A Registrable Securities and Series B
Registrable Securities, considered together, and at least thirty
percent (30%) of, in the case of clause (ii) above, all Series C
Registrable Securities, then the Company shall, within ten (10)
business days notify in writing all other Holders of such request.
Within twenty (20) calendar days after such notice has been sent by
the Company, any other Holder of Series A Registrable Securities or
Series B Registrable Securities, in the case of clause (i) above,
and any other Holder of Series C Registrable Securities, in the
case of clause (ii) above, may give written notice to the Company
of its intent to include its Registrable Securities in the
registration, which notice shall specify the number of Registrable
Securities to be included. As soon as practicable after the
expiration of such 20-day period, the Company shall use its best
efforts to cause all Registrable Securities that Holders have
requested be registered to be registered under the Act. The
Holders
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may, if they so desire, individually
or collectively condition their request or participation on price
or other market terms being available at the time of
registration.
(b) Notwithstanding the provisions
of Section 2.1(a) and Section 2.3, if the Board, in its good faith
judgment, determines by written resolution that any registration of
Registrable Securities should not be made or continued because it
would materially and detrimentally interfere with any material
financing, acquisition, corporate reorganization or merger or other
similar transaction involving the Company or any of its
subsidiaries or any registration that the Company has already taken
definite and substantial steps toward effecting, or would otherwise
be materially detrimental to the stockholders of the Company (a
“ Valid Business Reason ”), the Company may
postpone filing a registration statement request under Section
2.1(a) or 2.3 until such Valid Business Reason no longer exists,
but in no event for more than 90 days or more than once in any
twelve-month period, and, in the event a registration statement has
been filed relating to a registration request under Section 2.1(a)
or Section 2.3, if the Valid Business Reason has not resulted from
actions taken by the Company, the Company may cause such
registration statement to be withdrawn and its effectiveness
terminated or may postpone amending or supplementing such
registration statement; and the Company shall give written notice
of its determination to postpone or withdraw a registration
statement and of the fact that the Valid Business Reason for such
postponement or withdrawal no longer exists, in each case, promptly
after the occurrence thereof.
(c) Each Holder of Registrable
Securities agrees that, upon receipt of any notice from the Company
that the Company has determined to withdraw any registration
statement pursuant to Section 2.1(b), such Holder will discontinue
its disposition of Registrable Securities pursuant to such
registration statement and, if so directed by the Company, will
deliver to the Company (at the Company’s expense) all copies,
other than permanent file copies, then in such Holder’s
possession of the prospectus covering such Registrable Securities
that was in effect at the time of receipt of such notice. If the
Company shall have withdrawn or prematurely terminated a
registration statement filed under Section 2.1(a) or Section 2.3,
the Company shall not be considered to have effected an effective
registration for the purposes of this Agreement until the Company
shall have filed a new registration statement covering the
Registrable Securities covered by the withdrawn registration
statement and such registration statement shall have been declared
effective and shall not have been withdrawn. If the Company shall
give any notice of withdrawal or postponement of a registration
statement, the Company shall, at such time as the Valid Business
Reason that caused such withdrawal or postponement no longer exists
(but in no event later than 90 days after the date of the
postponement), use its best efforts to effect the registration
under the Securities Act of the Registrable Securities covered by
the withdrawn or postponed registration statement in accordance
with this Section 2.1(c) (unless the Holders making the
registration request shall have withdrawn such request, in which
case the Company shall not be considered to have effected an
effective registration for the purposes of this
Agreement).
2.2 Piggyback Registration
.
(a) Subject to Section 2.8, if at
any time after the Effective Date the Company proposes to register
any of its securities under the Act, either for its own
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account or for the account of
others, in connection with the public offering of such securities
solely for cash, on a registration form that would also permit the
registration of Registrable Securities, the Company shall, each
such time, promptly give each Holder written notice of such
proposal. Upon the written request of any Holder given within 20
days after receipt of such notice from the Company, the Company
shall use its best efforts to cause to be included in such
registration under the Act all the Registrable Securities that each
such Holder has requested be registered.
(b) The Holders’ rights to
registration under this Section 2.2 are in addition to, and not in
lieu of, their rights to registration under Sections 2.1 and
2.3.
2.3 Registration on Form S-3
.
(a) Subject to Section 2.1(b) and
Section 2.8, if at any time or from time to time after the Company
has become eligible to register securities on Form S-3 (or any
successor form), and while the Company is so eligible, Holders
request in writing (specifying that such request is being made
pursuant to this Section 2.3) that the Company file under the Act a
registration statement on Form S-3 (or any successor form) for a
public offering from which the total gross proceeds reasonably
expected to be received by the requesting Holders is at least
$1,000,000, then the Company shall use its best efforts to cause
such shares to be registered on Form S-3 (or any successor
form).
(b) The Holders’ rights to
registration under this Section 2.3 are in addition to, and not in
lieu of, their rights to registration under Sections 2.1 and
2.2.
2.4 Obligations of the
Company . Whenever required under this
Agreement to use its best efforts to effect the registration of any
Registrable Securities, the Company shall, as expeditiously as
reasonably possible:
(a) Prepare and file with the
Commission a registration statement covering such Registrable
Securities and use its best efforts to cause such registration
statement to be declared effective by the Commission as
expeditiously as possible and to keep such registration effective
until the earlier of (i) the date when all Registrable Securities
covered by the registration statement have been sold or (ii) 150
days from the effective date of the registration statement;
provided, that before filing a registration statement or prospectus
or any amendments or supplements thereto, the Company will furnish
to each Holder of Registrable Securities covered by such
registration statement and the underwriters, if any, copies of all
such documents proposed to be filed (excluding exhibits, unless any
such person shall specifically request exhibits), which documents
will be subject to the review of such Holders and underwriters, and
the Company will not file such registration statement or any
amendment thereto or any prospectus or any supplement thereto
(including any documents incorporated by reference therein) with
the Commission if (i) the Holders of a majority of the Registrable
Securities covered by such registration statement or the
underwriters, if any, reasonably object to such filing or (ii)
information in such registration statement or prospectus concerning
a particular selling Holder has changed and such Holder or the
underwriters, if any, reasonably objects;
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(b) Prepare and file with the
Commission such amendments and post-effective amendments to such
registration statement as may be necessary to keep such
registration statement effective during the period referred to in
Section 2.4(a) and to comply with the provisions of the Act with
respect to the disposition of all securities covered by such
registration statement; and cause the prospectus to be supplemented
by any required prospectus supplement and to file such supplement
with the Commission pursuant to Rule 424 under the Act;
(c) Furnish to the selling Holders
such numbers of copies of such registration statement, each
amendment thereto, the prospectus included in such registration
statement (including each preliminary prospectus), each supplement
thereto and such other documents as they may reasonably request in
order to facilitate the disposition of Registrable Securities owned
by them;
(d) Use its best efforts to register
and qualify the Registrable Securities under such other securities
laws of such jurisdictions as shall be reasonably requested by any
selling Holder and do any and all other acts and things which may
be reasonably necessary or advisable to enable such selling Holder
to consummate the disposition of the Registrable Securities owned
by such Holder in such jurisdictions; provided, that the Company
shall not be required in connection therewith or as a condition
thereto to qualify to transact business or to file a general
consent to service of process in any such states or jurisdictions
and that, notwithstanding any provision of this Agreement to the
contrary, to the extent that any jurisdiction in which the
Registrable Securities are to be qualified requires that expenses
incurred in connection with the qualification of the Registrable
Securities in that jurisdiction be borne by selling shareholders,
then such expenses shall be payable by the selling Holders pro
rata;
(e) Promptly notify each selling
Holder of such Registrable Securities at any time when a prospectus
relating thereto is required to be delivered under the Act of the
happening of any event which results in the prospectus included in
such registration statement containing an untrue statement of a
material fact or omitting a fact necessary to make the statements
therein not misleading; and, at the request of any such Holder, the
Company will prepare a supplement or amendment to such prospectus
so that, as thereafter delivered to the purchasers of such
Registrable Securities, such prospectus will not contain an untrue
statement of a material fact or omit to state any fact necessary to
make the statements therein not misleading;
(f) Provide a transfer agent and
registrar for all such Registrable Securities not later than the
effective date of such registration statement;
(g) Enter into such customary
agreements (including underwriting agreements in customary form for
a primary offering) and take all such other actions as the Holders
of a majority of the Registrable Securities being sold or the
underwriters, if any, reasonably request in order to expedite or
facilitate the disposition of such Registrable Securities
(including, without limitation, effecting a stock split or a
combination of shares);
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(h) Make available for inspection by
any selling Holder of Registrable Securities, any underwriter
participating in any disposition pursuant to such registration
statement and any attorney, accountant or other agent retained by
any such selling Holder or underwriter, all financial and other
records, pertinent corporate documents and properties of the
Company, and cause the officers, directors, employees and
independent accountants of the Company to supply all information
reasonably requested by any such seller, underwriter, attorney,
accountant or agent in connection with such registration
statement;
(i) Promptly notify the Holders of
Registrable Securities and the underwriters, if any, of the
following events and (if requested by any such person) confirm such
notification in writing: (1) the filing of the prospectus or any
prospectus supplement and the registration statement and any
amendment or post-effective amendment thereto and, with respect to
the registration statement or any post-effective amendment thereto,
the declaration of the effectiveness of such documents; (2) any
requests by the Commission for amendments or supplements to the
registration statement or the prospectus or for additional
information; (3) the issuance or threat of issuance by the
Commission of any stop order suspending the effectiveness of the
registration statement or the initiation of any proceedings for
that purpose; and (4) the receipt by the Company of any
notification with respect to the suspension of the qualification of
the Registrable Securities for sale in any jurisdiction or the
initiation or threat of initiation of any proceeding for such
purpose;
(j) Use its best efforts to prevent
the entry of any order suspending the effectiveness of the
registration statement and to obtain the withdrawal of any such
order, if entered, as expeditiously as possible;
(k) If reasonably requested by any
underwriter or a selling Holder of Registrable Securities in
connection with any underwritten offering, promptly incorporate in
a prospectus supplement or post-effective amendment such
information as the underwriters and the Holders of a majority of
the Registrable Securities covered by such registration statement
reasonably request be included therein relating to the sale of the
Registrable Securities, including, without limitation, information
with respect to the number of Registrable Securities being sold to
such underwriters, the purchase price being paid therefor by such
underwriters and any other terms of the underwritten offering of
the Registrable Securities to be sold pursuant thereto, and make
all required filings of such prospectus supplement or
post-effective amendment promptly after being notified of the
matters to be incorporated in such prospectus supplement or
post-effective amendment;
(l) Prior to the filing of any
document which is to be incorporated by reference into the
registration statement or the prospectus (after the initial filing
of the registration statement with the Commission), (i) promptly
provide copies of such document to counsel for the selling Holders
of the Registrable Securities and the counsel for the underwriters,
if any; (ii) make representatives of the Company available for
discussion of such document; and (iii) make such changes in such
document prior to the filing thereof as counsel for such Holders or
underwriters may reasonably request;
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(m) Cooperate with the selling
Holders of Registrable Securities and the underwriters, if any, to
facilitate the timely preparation and delivery of certificates
representing Registrable Securities to be sold that do not bear
restrictive legends, and enable such Registrable Securities to be
in such lots and registered in such names as the
underwrit
