Exhibit 10.2

 

HELIX TCS, INC.

INVESTOR RIGHTS AGREEMENT

 

This Investor Rights Agreement (this “Agreement”) is entered into as of May 17,
2017 by and among Helix TCS, Inc., a Delaware corporation (the “Company”), and
the Investors listed on Exhibit A attached to this Agreement, including Rose
Capital (collectively, the “Investors” and each, without distinction among them,
an “Investor”).

 

Recitals

 

Whereas, certain of the Investors are holders of the Company’s Series A
Preferred Stock (the “Series A Preferred”); and

 

Whereas, RSF4, LLC, a Delaware limited liability company (“Rose Capital”),
concurrent with the execution of this Agreement, is purchasing shares of the
Company’s Series B Preferred Stock (the “Series B Preferred”, together with the
Series A Preferred, the “Preferred”) pursuant to that certain Series B Preferred
Stock Purchase Agreement of even date herewith (the “Purchase Agreement”), by
and between the Company and Rose Capital; and

 

WHEREAS, the Company and the Prior Investors desire to enter into this Agreement
to provide Rose Capital with the rights and privileges set forth herein.

 

Agreement

 

Now, Therefore, in consideration of the premises and for other good and valuable
consideration, the receipt and sufficiency of which are hereby acknowledged, the
parties hereto agree as follows:

 

SECTION 1. GENERAL.

 

1.1       Definitions. As used in this Agreement the following terms shall have
the following respective meanings:

 

(a)       “Change in Control” means (i) the sale of substantially all of the
assets of the Company, (ii) the consolidation or merger of the Company with or
into any other corporation or other entity or person or any other corporate
reorganization, in which the capital stock of the Company prior to such
consolidation, merger or reorganization, represents less than fifty percent
(50%) of the voting power of the surviving entity immediately after such
consolidation, merger or reorganization; or (iii) any “person” or “group” (as
such terms are used in Sections 13(d)(3) and 14(d)(2) of the Exchange Act or any
successor provisions to either of the foregoing), including any group acting for
the purpose of acquiring, holding, voting or disposing of securities within the
meaning of Rule 13d-5(b)(1) of the Exchange Act (other than Helix Opportunities
LLC or any of its Affiliates), becomes after the date of this Agreement the
“beneficial owner” (as such term is defined in Rule 13d-3 of the Exchange Act
(provided that a Person will be deemed to have “beneficial ownership” of all
shares that any such Person has the right to acquire, whether such right is
exercisable immediately or only after the passage of time)), directly or
indirectly, 50% or more of voting stock of the Company, provided, however, that
(A) any consolidation or merger effected exclusively to change the domicile of
the Company, or (B) any transaction or series of transactions principally for
bona fide equity financing purposes in which cash is received by the Company or
indebtedness of the Company is cancelled or converted or a combination thereof,
shall not constitute a Change in Control.

 

 

 

 

(b)       “Charter” has the meaning ascribed to such term in the Purchase
Agreement.

 

(c)       “Common Stock” means shares of the Company’s common stock, par value
$0.001 per share, as so designated in the Restated Certificate.

 

(d)       “Equity Securities” means (i) any Common Stock, the Preferred or other
security of the Company, (ii) any security convertible, with or without
consideration, into any Common Stock, the Preferred 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, the Preferred
or other security, or (iv) any such warrant or right.

 

(e)       “Exchange Act” means the Securities Exchange Act of 1934, as amended.

 

(f)       “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.

 

(g)       “Holder” means any Investor owning of record Registrable Securities
that have not been sold to the public or any assignee of record of such
Registrable Securities in accordance with Section 2.10 hereof.

 

(h)       “Initial Offering” means the Company’s first firm commitment
underwritten public offering of its Common Stock registered under the Securities
Act.

 

(i)         “Management Services” means management, consulting and advisory
services provided by Rose Management to the Company as requested from time to
time by the Company, including (i) advice in connection with the structuring,
negotiation and consummation of strategic transactions, including raising new
equity capital, and commercial agreements; (ii) financial, business, managerial
and strategic advice in connection with the business of the Company and its
subsidiaries, including, without limitation, advice with respect to the
development and implementation of strategies for improving the operating,
marketing and financial performance of the Company and its subsidiaries; (iii)
advice in connection with potential joint ventures and other strategic
initiatives; and (iv) financial and strategic planning and analysis, consulting
services, and executive recruitment services and other services.

 

(j)        “Proprietary Rights” means patents, trademarks, trade names,
know-how, rights in trade dress and packaging, and shop rights, copyrights,
inventions, trade secrets, service marks and all other intellectual property
rights, in each case whether registered or not and in each case wherever such
rights exist throughout the world, and including the right to recover for any
past infringement.

 

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(k)       “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.

 

(l)        “Registrable Securities” means (i) Common Stock issued or issuable
upon conversion of the Preferred and (ii) any other shares of Common Stock held
beneficially or of record (or issuable upon the conversion or exercise of any
warrant, right or other security which is held beneficially or of record) by a
holder of the securities described in the foregoing clause (i). 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.

 

(m)       “Registrable Securities Deemed Outstanding” means the shares of the
Company’s Common Stock that are Registrable Securities that are either: (i) then
issued and outstanding, or (ii) issuable upon the exercise or conversion of
vested rights under exercisable or convertible securities.

 

(n)       “Registration Expenses” means 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 not to exceed $32,500
for 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).

 

(o)       “Rule 144” means Rule 144, as promulgated under the Securities Act, or
any similar or analogous rule promulgated under the Securities Act.

 

(p)       “SEC” or “Commission” means the Securities and Exchange Commission.

 

(q)       “Securities Act” means the Securities Act of 1933, as amended.

 

(r)       “Selling Expenses” means all underwriting discounts and selling
commissions applicable to the sale.

 

(s)       “Special Registration Statement” means (i) a registration statement
relating to any employee benefit plan, (ii) with respect to any corporate
reorganization or transaction under Rule 145 of the Securities Act, any
registration statements related to the resale of securities issued in such a
transaction, or (iii) a registration related to stock issued upon conversion of
debt securities.

 

(t)        “State Securities Laws” means all applicable state securities laws
and regulations, including, without limitation, the registration, permit or
qualification requirements thereunder.

 

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SECTION 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 Registrable Securities unless and until:

 

(i)          There is then in effect a registration statement 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 and applicable state and foreign securities law. Notwithstanding the
foregoing, no such opinion of counsel shall be required in connection with any
transfer of shares of Registrable Securities made in compliance with Rule 144.

 

(iii)       Notwithstanding the provisions of paragraphs (i) and (ii) above, no
such registration statement or opinion of counsel shall be necessary for a
transfer by a Holder that is (A) a partnership transferring to its partners or
former partners in accordance with partnership interests, (B) a corporation
transferring to a wholly-owned subsidiary or a parent corporation that owns all
of the capital stock of the Holder, (C) a limited liability company transferring
to its members or former members in accordance with their interest in the
limited liability company, or (D) a natural person and the transfer is to any
family member or to a trust established for the benefit of such natural person
and/or any member of such person’s family, (E) a trust and the transfer is to
any other trust or to any person that is a beneficiary of the transferring trust
or (F) is a natural person and such transfer occurs as a matter of law upon the
death or declaration of incompetence of such Holder; provided, however, that in
each case the transferee will be subject to the terms of this Agreement to the
same extent as if the transferee were an original Holder hereunder.

 

(b)       Each certificate representing 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 State Securities Laws):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE HAVE NOT BEEN REGISTERED PURSUANT
TO THE SECURITIES ACT OF 1933, AS AMENDED, OR ANY STATE SECURITIES LAW. NEITHER
THIS SECURITY NOR ANY PORTION HEREOF OR INTEREST HEREIN MAY BE SOLD, ASSIGNED,
TRANSFERRED, PLEDGED OR OTHERWISE DISPOSED OF UNLESS THE SAME IS REGISTERED
UNDER SAID ACT AND ANY APPLICABLE STATE SECURITIES LAW, OR UNLESS AN EXEMPTION
FROM SUCH REGISTRATION IS AVAILABLE AND THE COMPANY SHALL HAVE RECEIVED, AT THE
EXPENSE OF THE HOLDER HEREOF, EVIDENCE OF SUCH EXEMPTION REASONABLY SATISFACTORY
TO THE COMPANY (WHICH MAY INCLUDE, AMONG OTHER THINGS, AN OPINION OF COUNSEL
SATISFACTORY TO THE COMPANY).

 

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THE SALE, PLEDGE, HYPOTHECATION OR TRANSFER OF THE SECURITIES REPRESENTED BY
THIS CERTIFICATE IS SUBJECT TO THE TERMS AND CONDITIONS OF A CERTAIN INVESTOR
RIGHTS AGREEMENT BY AND BETWEEN THE STOCKHOLDER AND THE COMPANY. COPIES OF SUCH
AGREEMENT MAY BE OBTAINED UPON WRITTEN REQUEST TO THE SECRETARY OF THE COMPANY.

 

(c)       The Company shall be obligated to reissue promptly unlegended
certificates 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.

 

(d)       Any legend endorsed on an instrument pursuant to State Securities Laws
and the stop-transfer instructions with respect to such securities shall be
removed upon receipt by the Company of an order of the appropriate blue sky
authority authorizing such removal.

 

(e)       The restrictions set forth in this Section 2.1 shall terminate upon
completion of the Company’s Initial Offering.

 

2.2       Demand Registration.

 

(a)       Subject to the conditions of this Section 2.2, if the Company shall
receive a written request from the Holders of not less than twenty-five percent
(25%) of the outstanding shares of the Registrable Securities (the “Initiating
Holders”) that the Company file a registration statement under the Securities
Act having an aggregate offering price to the public of not less than
$20,000,000 (a “Qualified Public Offering”), then the Company shall, within
thirty (30) days of the receipt thereof, give written notice of such request to
all Holders, and subject to the limitations of this Section 2.2, the Company
shall use its commercially reasonable efforts to effect the registration under
the Securities Act of 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
or any request pursuant to Section 2.4 and the Company shall include such
information in the written notice referred to in Section 2.2(a) or
Section 2.4(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 a majority in interest of the
Initiating Holders (which underwriter or underwriters shall be reasonably
acceptable to the Company). Notwithstanding any other provision of this
Section 2.2 or Section 2.4, 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 which would otherwise be underwritten
pursuant hereto, and the number of shares that may be included in the
underwriting shall be allocated to the Holders of such Registrable Securities on
a pro rata basis based on the number of Registrable Securities held by all such
Holders (including the Initiating 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 outstanding 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. A registration statement shall not be counted
if, as a result of an exercise of the underwriter's cut-back provisions, fewer
than 25% of the total number of Registrable Securities that Holders have
requested to be included in such registration statement are actually included.

 

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(c)       The Company shall not be required to effect a registration pursuant to
this Section 2.2:

 

(i)          prior to the earlier of (A) the third anniversary of the date of
this Agreement, or (B) one hundred eighty (180) days following the effective
date of the registration statement pertaining to the Initial Offering;

 

(ii)        after the Company has effected two (2) registrations pursuant to
this Section 2.2, and such registrations have been declared or ordered
effective;

 

(iii)       during the period starting with the date of filing of, and ending on
the date one hundred eighty (180) days following the effective date of, the
registration statement on Form S- or any similar or successor form pertaining to
the Initial Offering; provided, however, that the Company makes a reasonable
good faith effort to effect such registration as soon thereafter as practicable;

 

(iv)        prior to ninety (90) days after the first follow-on offering of the
Company’s Common Stock to the public that is registered under the Securities Act
and follows the Initial Offering;

 

(v)         if within thirty (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 file a registration statement with respect
to the Initial Offering within ninety (90) days;

 

(vi)        if the Registrable Securities to be included in the registration
statement could be sold without restriction under SEC Rule 144 within a ninety
(90) day period and the Company is currently subject to the periodic reporting
requirements of Section 12(g) or 15(d) of the Exchange Act;

 

(vii)       if the Company shall furnish to Holders requesting a registration
pursuant to this Section 2.2, a certificate signed by (A) the Chairman of the
Board of Directors of the Company (the “Board”) or (B) a majority of the
then-serving members of the Board stating that in their good faith judgment, it
would directly, materially and adversely affect 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
ninety (90) days after receipt of the request of the Initiating Holders;
provided, however, that such right to delay a request together with the similar
right pursuant to Section 2.4(b)(v) shall be exercised by the Company not more
than once in any twelve (12) month period;

 

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(viii)       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; or

 

(ix)       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.

 

2.3       Piggyback Registrations.

 

(a)       The Company shall notify all Holders of Registrable Securities in
writing at least fifteen (15) days prior to the filing of any registration
statement under the Securities Act for purposes of a public offering of
securities of the Company solely for cash (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 ten (10) business days after the
above-described notice from the Company, so notify the Company in writing and
the Company will use its commercially reasonable efforts to cause the
Registrable Securities so requested by such Holder to be included in such
registration statement. 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 such Holder’s 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.

 

(b)       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 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 Company; second, to the Holders on a pro rata basis based on the total
number of Registrable Securities offered for sale by the Holders; and third, to
any stockholder of the Company (other than a Holder) on a pro rata basis,
provided, however, that no such reduction shall reduce the amount of securities
of the selling Holders included in the registration below thirty percent (30%)
of the total amount of securities included in such registration unless such
offering is the Initial Offering, in which case, the selling Holders may be
excluded. In no event will shares of any other selling stockholder be included
in such registration that would reduce the number of shares that may be included
by Holders without the written consent of Holders of not less than sixty-six and
two-thirds percent (66 2/3%) of the Registrable Securities proposed to be sold
in the offering. 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 and stockholders 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 persons 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.

 

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(c)       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       Short Form Registration. In the event the Company shall receive from
any Holder or Holders of not less than twenty percent (20%) of the Registrable
Securities a written request or requests that the Company effect a registration
on Form S-3, or any successor or any similar short-form registration statement
(a “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 use its commercially reasonable efforts
to:

 

(a)       promptly give written notice of the proposed registration, and any
related qualification or compliance, to all other Holders of Registrable
Securities;

 

(b)       subject to any comments from the Securities and Exchange Commission,
include as part of such Short Form Registration Statement a plan of distribution
in form and substance satisfactory to Rose Capital; provided, however, that no
Holder shall be named as an “underwriter” in such Short Form Registration
Statement without the Holder’s prior written consent; and

 

(c)       as soon as practicable, effect such registration and all such
qualifications and compliances as may be so requested and as would permit or
facilitate the sale and distribution of all or such portion of such Holder’s or
Holders’ Registrable Securities as are specified in such request, together with
all or such portion of the Registrable Securities of any other Holder or Holders
joining in such request as are specified in a written request given within
fifteen (15) business 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 the Company has, within the twelve (12) month period preceding
the date of such request, already effected two (2) registrations on Form S-3,
Form S-2 or any similar short form registration statement for the Holders
pursuant to this Section 2.4;

 

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(ii)       if Form S-3 is not available to the Company for such offering by the
Holders;

 

(iii)      if the Holders, together with the holders of any other securities of
the Company entitled to inclusion in such registration, propose to sell
Registrable Securities and such other securities (if any) at an aggregate price
to the public of less than $5,000,000;

 

(iv)       if within thirty (30) days of receipt of a written request from
Initiating Holders pursuant to Section 2.4, the Company gives notice to the
Holders of the Company’s intention to file a registration statement for a public
offering, other than pursuant to a Special Registration Statement within ninety
(90) days;

 

(v)        if the Company shall furnish to the Holders a certificate signed by
(A) the Chairman of the Board or (B) a majority of the then-serving members of
the Board, stating that in the good faith judgment of the Board, it would
directly, materially and adversely effect the Company and its stockholders for
such Form S-3 registration to be effected at such time, in which event the
Company shall have the right to defer the filing of the Form S-3 registration
statement for a period of not more than ninety (90) days after receipt of the
request of the Holder or Holders under this Section 2.4; provided, however, that
such right to delay a request together with the similar right pursuant to
Section 2.2(c)(vii) shall be exercised by the Company not more than once in any
twelve (12) month period; or

 

(vi)       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.

 

(d)       Subject to the foregoing, the Company shall file a Form S-3 or Form
S-2, as applicable, registration statement covering the Registrable Securities
and other securities so requested to be registered as soon as practicable after
receipt of the requests of the Holders.

 

2.5       Expenses of Registration. Except as specifically provided herein, all
Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Sections 2.2, 2.3 or 2.4 hereof 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. The
Company shall not, however, be required to pay for expenses of any registration
proceeding begun pursuant to Section 2.2 or 2.4, the request of which has been
subsequently withdrawn by the Initiating Holders unless (a) the withdrawal is
based upon material adverse information concerning the Company of which the
Initiating Holders were not notified in writing by the Company prior to the time
of such request, or (b) the Holders of a majority of Registrable Securities
agree to forfeit their right to one requested registration pursuant to
Section 2.2, in which event such right shall be forfeited by all Holders. If the
Holders are required to pay the Registration Expenses, such expenses shall be
borne by the holders of securities (including Registrable Securities) requesting
such registration in proportion to the number of shares for which registration
was requested. If the Company is required to pay the Registration Expenses of a
withdrawn offering pursuant to clause (a) above, then the Holders shall not
forfeit their rights pursuant to Section 2.2 or to a demand registration.

 

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2.6       Obligations of the Company. Whenever required to effect the
registration of any Registrable Securities, the Company shall, use its
commercially reasonable efforts to:

 

(a)       Prepare and file with the SEC a registration statement with respect to
such Registrable Securities and use its commercially 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 for up to ninety (90) days or, if earlier,
until the Holder or Holders have completed the distribution related thereto;
provided, however, that at any time, upon written notice to the participating
Holders and for a period not to exceed sixty (60) days thereafter (the
“Suspension Period”), the Company may delay the filing or effectiveness of any
registration statement or suspend the use or effectiveness of any registration
statement (and the Initiating Holders hereby agree not to offer or sell any
Registrable Securities pursuant to such registration statement during the
Suspension Period) if the Company reasonably believes that the Company may, in
the absence of such delay or suspension hereunder, be required under state or
federal securities laws to disclose (i) any corporate development the disclosure
of which could reasonably be expected to have a material adverse effect upon the
Company or its stockholders, (ii) a potentially significant transaction or event
involving the Company, or (iii) any negotiations, discussions, or proposals
directly relating thereto. No more than two (2) such Suspension Periods shall
occur in any twelve (12) month period. In the event that the Company shall
exercise its rights hereunder, the applicable time period during which the
registration statement is to remain effective shall be extended by a period of
time equal to the duration of the Suspension Period. The Company may extend the
Suspension Period for an additional consecutive sixty (60) days with the consent
of the sixty-six and two-thirds percent (66 2/3%) of the Registrable Securities
proposed to be sold by the Initiating Holders, which consent shall not be
unreasonably withheld. If so directed by the Company, the Initiating Holders
shall use their reasonable efforts to deliver to the Company (at the Company’s
expense) or destroy all copies, other than permanent file copies then in such
Initiating Holders’ possession, of the prospectus relating to such Registrable
Securities current at the time of receipt of such notice. The Company shall not
be required to file, cause to become effective or maintain the effectiveness of
any registration statement that contemplates a distribution of securities on a
delayed or continuous basis pursuant to Rule 415 under the Securities Act.

 

(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.

 

 10 

 

 

(d)       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, however, 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 underwriting agreement.

 

(f)        Cause all such Registrable Securities registered pursuant to this
Agreement to be listed on a national securities exchange or trading system and
each securities exchange and trading system on which similar securities issued
by the Company are then listed.

 

(g)       Provide a transfer agent and registrar for all Registrable Securities
registered pursuant hereto and a CUSIP number for all such Registrable
Securities, in each case not later than the effective date of such registration.

 

(h)       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, those items required to be
delivered by or on behalf of the Company to the underwriters pursuant to the
underwriting agreement.

 

(i)       Notwithstanding any provision in Section 2.2 through Section 2.5 to
the contrary, if the Company delivers to the holders requesting registration
pursuant to Section 2.2 or 2.4 a certificate signed by a majority of the
then-serving members of the Board stating that in their good faith judgment, the
Company’s obligation to pay (and resulting payment of any) Registration Expenses
would (x) not permitted by or would cause a breach or event of default under any
financing agreement to which the Company or any of its Subsidiaries is a party,
or (y) after giving effect to the payment of such Registration Expenses the
Company would not be able to pay its debts as they become due in the usual
course of business, then the Company shall not be required to effect such
registration and incur such Registration Expenses until the liquidity
constraints described in clauses (x) and (y) are resolved; provided further that
the requesting holders can elect (in their sole discretion) to advance the cost
of such Registration Expenses on behalf of the Company and the Company shall
agree to reimburse the cost of such Registration Expenses on reasonable
repayment terms agreed to in good faith between the Company and such requesting
holders.

 

2.7       Termination of Registration Rights. All registration rights granted
under this Section 2 shall terminate and be of no further force and effect upon
the earlier of: (a) five (5) years after the date of the Company’s Initial
Offering or (b) the occurrence of an event contemplated by Subsection 3(c) of
Part C of Article IV of the Restated Certificate. In addition, a Holder’s
registration rights shall expire if all Registrable Securities held by and
issuable to such Holder (and its affiliates) may be sold in a single transaction
pursuant to Rule 144.

 

 11 

 

 

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 as shall be necessary in order to assure compliance with
federal and applicable State Securities Laws.

 

2.9       Indemnification. In the event any Registrable Securities are included
in a registration statement under Sections 2.2, 2.3 or 2.4:

 

(a)       To the maximum extent permitted by law, the Company will indemnify and
hold harmless each Holder, the partners, 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, 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 suffered by a Holder 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 by such Holder expressly for use in connection
with such registration, which information relates to such person or entity or
his or its relationship with the Company.

 

 12 

 

 

(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 to the Company
specifically for use in connection with such registration, which information
relates to such person or entity or his or its relationship with the Company;
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.

 

(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, however, that in no event shall any contribution by a Holder hereunder
exceed the net proceeds from the offering received by such Holder.

 

 13 

 

 

(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. 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 that (a) is a
partner or retired partner of any Holder which is a partnership, (b) is a member
or former member of any Holder which is a limited liability company, (c) is a
Holder’s family member or trust for the benefit of an individual Holder, (d)
acquires at least five percent (5%) of all Registrable Securities Deemed
Outstanding (as adjusted for stock splits and combinations), or (e) acquires
such Registrable Securities in a transfer permitted under Section 2.1(a)(ii);
provided, however, (i) 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 (ii) such transferee shall agree in
writing to be subject to all restrictions set forth in this Agreement

 

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 (i) a majority of the
Registrable Securities, and (ii) Rose Capital. 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 hereof, after the date of this Agreement, the Company shall not,
without the prior written consent of the Holders of at least (i) a majority of
the Registrable Securities Deemed Outstanding, and (ii) Rose Capital, 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, other than the right to a Special
Registration Statement.

 

 14 

 

 

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) not to exceed one hundred eighty (180) days for the Initial Offering
and ninety (90) days for any subsequent public offering; following the effective
date of the registration statement filed by the Company under the Securities Act
in connection with an underwritten offering; provided, however, that all
officers, directors, employees and 1% stockholders of the Company (those holding
1% or more of the Company’s Common Stock determined on an as-converted basis)
enter into similar agreements. Notwithstanding anything herein to the contrary,
the provisions of this Section 2.13 shall not apply to any shares purchased in
the Initial Offering or in the secondary market following the 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 that are consistent with the Holder’s obligations under Section
2.13 or that 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. The obligations described in Section 2.13 and this
Section 2.14 shall not apply to a Special Registration Statement. The Company
may impose stop-transfer instructions with respect to the shares of Common Stock
(or other securities) subject to the foregoing restriction until the end of the
applicable period. Each Holder agrees that any transferee of any shares of
Registrable Securities shall be bound by Sections 2.13 and 2.14. The
underwriters of the Company’s stock are intended third party beneficiaries of
Sections 2.13 and 2.14 and shall have the right, power and authority to enforce
the provisions hereof as though they were a party hereto. Each Holder shall use
its best 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, an opinion, dated as of such date, of the counsel
representing such Holder for the purposes of such registration, in form and
substance as is customarily given to underwriters in an underwritten public
offering that includes selling stockholders.

 

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 commercially reasonable efforts to:

 

(a)       Make and keep public information available, as those terms are
understood and defined in Rule 144, 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 to the extent required by applicable law;

 

(b)       File with the SEC, in a timely manner, all reports and other documents
required of the Company under the Exchange Act; and

 

 15 

 

 

(c)       So long as a Holder owns any Registrable Securities, furnish to such
Holder forthwith upon request (i) a written statement by the Company as to its
compliance with the reporting requirements of Rule 144, and of the Exchange Act
(at any time after it has become subject to such reporting requirements), (ii) a
copy of the most recent annual or quarterly report of the Company, if any, and
(iii) 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, and which the Company is able to provide
without unreasonable effort or expense.

 

2.16       Changes in Common Stock or Preferred Stock. If, and as often as,
there is any change in the Common Stock or the Preferred Stock by way of a stock
split, stock dividend, combination, recapitalization, reclassification and the
like, or through a merger, consolidation, reorganization or recapitalization, or
by any other means, appropriate adjustment shall be made in the provisions
hereof so that the rights and privileges granted hereby shall continue with
respect to the Common Stock and the Preferred Stock as so changed.

 

SECTION 3. COVENANTS OF THE COMPANY.

 

3.1       Basic Financial Information and Reporting.

 

(a)       The Company shall 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 substantial accordance
with generally accepted accounting principles consistently applied.

 

(b)       The Company shall furnish to each Holder of not less than five percent
(5%) of the outstanding shares of the Preferred (or an equivalent amount of the
Common Stock issued upon conversion) (each, a “Major Investor”), each Board
member and each Board observer, as soon as practicable after the end of each
calendar quarter, and in any event within thirty (30) days thereafter:

 

(i)         as soon as available but in any event within forty five (45) days
after the end of each quarterly accounting period in each fiscal year, unaudited
consolidated statements of income and cash flows of the Company and its
Subsidiaries for such quarterly period and for the period from the beginning of
the fiscal year to the end of such quarter, and unaudited consolidated balance
sheets of the Company and its Subsidiaries as of the end of such quarterly
period, setting forth in each case comparisons to the annual Operating Budget
(as defined below) and to the corresponding period in the preceding fiscal year,
and all such items shall be prepared in accordance with generally accepted
accounting principles, consistently applied;

 

(ii)        as soon as available but in any event within ten (10) business days
after the end of each monthly accounting period in each fiscal year, a copy of
the “Key Performance Indicators” report used by management;

 

 16 

 

 

(iii)       within one hundred twenty (120) days after the end of each fiscal
year:

 

(1)       audited financial statements of the Company and its Subsidiaries
(including a consolidated balance sheet and consolidated statements of income,
cash flows and members’ equity) as of the end of such fiscal year, prepared in
accordance with generally accepted accounting principles, consistently applied,
and accompanied by (A) (with respect to the consolidated portions of such
statements) an opinion of an independent accounting firm of recognized national
standing reasonably acceptable to the Board and (B) a copy of such firm’s annual
management letter to the Board; and

 

(2)       comparisons between the audited financial statements and each of (A)
the Operating Budget and (B) the preceding Fiscal Year, in each case prepared in
accordance with generally accepted accounting principles, consistently applied;

 

(iv)       within thirty (30) days prior to the beginning of each fiscal year, a
draft of the Operating Budget, and within thirty (30) days after any monthly
period in which there is a material adverse deviation from the Operating Budget,
a written explanation of the deviation and what actions the Company has taken
and proposes to take with respect thereto; and

 

(v)         an updated capitalization table, certified by the Company’s Chief
Executive Officer or Chief Financial Officer.

 

(c)       As soon as practicable after the end of each fiscal year of the
Company and in any event within one hundred twenty (120) days thereafter, the
Company shall furnish to each Holder, (i) a balance sheet as of the end of such
year, (ii) statements of income and of cash flows for such year, and (iii) a
statement of stockholders’ equity as of the end of such year, all such financial
statements in reasonable detail, prepared in accordance with generally accepted
accounting principles (“GAAP”), audited and certified by an accounting firm
acceptable to the Board.

 

3.2       Operating Budget. The Company will cause its management to prepare and
submit to the Board and Rose Capital no later than thirty (30) days prior to the
commencement of each fiscal year, an annual budget and plan for such fiscal
year, which shall include the Company’s forecasted revenues, expenses, and cash
position (together with reasonably detailed supporting materials regarding the
assumptions used in the preparation of such statements of income and cash flows
and balance sheets) on a month-to-month basis for the upcoming fiscal year,
together with management’s written discussion and analysis of such budget and
plan (collectively, the “Operating Budget”). The Operating Budget shall be
accepted as the budget for such fiscal year when it has been approved by the
Board and Rose Capital (which approval by Rose Capital shall be provided in good
faith and shall not be unreasonably withheld, conditioned or delayed). Upon
approval, a copy of such budget as so approved promptly shall be sent to each
Major Investor. The Company shall review the Operating Budget periodically and
shall promptly advise the Board and each Major Investor of all changes therein
and all material deviations therefrom.

 

3.3       Inspection. The Company shall permit each Major Investor, at such
Major Investor’s expense, to visit and inspect the Company’s properties, to
examine its books of account and records and to discuss the Company’s affairs,
finances and accounts with its officers, all at such reasonable times as may be
reasonably requested by such Major Investor.

 

 17 

 

 

3.4       Confidentiality of Records. Each Investor agrees to use, and to use
its best efforts to insure that its representatives use, the same degree of care
as an Investor uses to protect its own confidential information to keep
confidential any information furnished by the Company to such Investor and
identifies as being confidential or proprietary (so long as such information is
not in the public domain), except that such Investor may disclose such
confidential or proprietary information to any partner, 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 the confidentiality
provisions of this Section 3.4.

 

3.5       Payment of Corporate Taxes; Corporate Existence and Licenses;
Maintenance of Properties. The Company shall:

 

(a)       (i) Pay and discharge promptly, or cause to be paid and discharged
promptly, when due and payable, all taxes, assessments and governmental charges
or levies imposed upon it or upon its income or upon any of its property or upon
any part thereof, as well as all claims of any kind (including claims for labor,
materials and supplies) which, if unpaid, might by law become a lien, charge or
encumbrance upon its property; (ii) withhold all monies required to be withheld
by the Company from employees for income taxes, Social Security and unemployment
insurance taxes; and (iii) complete and file, on a timely basis, all tax returns
and reports required to be filed by it; provided, however, that the Company
shall not be required to pay any tax, assessment, charge, levy or claim if the
amount, applicability or validity thereof shall currently be contested in good
faith by appropriate proceedings and if the Company shall have set aside on its
books reserves (segregated to the extent required by generally accepted
accounting principles) deemed by the Company adequate with respect thereto;

 

(b)       Do or cause to be done all things necessary to preserve and keep in
full force and effect its corporate existence, and all of its corporate rights,
franchises, licenses and permits that are material to its business; provided,
however, that nothing in this subsection (b) shall (i) prevent the abandonment
or termination of the Company’s or any subsidiary’s authorization to do business
in any foreign state or jurisdiction, if, in the opinion of the Board, such
abandonment or termination is in the best interest of the Company or such
subsidiary, (ii) require compliance with any law so long as the validity or
applicability thereof shall be disputed and contested in good faith, or
(iii) prevent the Company from effecting a merger, consolidation or voluntary
dissolution upon obtaining the required approval, if any, of such Board and/or
the stockholders of the Company; and

 

(c)       Maintain and keep, or cause to be maintained and kept, its property in
working order and condition (subject to ordinary wear and tear), and from time
to time make, or cause to be made, all repairs, renewals and replacements which,
in the opinion of the management of the Company, are necessary and proper so
that the business carried on in connection therewith may be properly and
advantageously conducted at all times; provided, however, that nothing in this
subsection (c) shall prevent the Company or any subsidiary from selling or
otherwise disposing of any property  whenever in the good faith judgment of the
Company’s management such property is obsolete, worn out, without economic
value, or unnecessary for the conduct of the business of the Company or such
subsidiary.

 

 18 

 

 

3.6       Insurance. The Company shall keep all of its insurable property
insured against loss or damage by fire and other risks. The Company shall bind
D&O insurance with a carrier and in an amount satisfactory to the Board and Rose
Capital. In the event the Company merges with another entity and is not the
surviving entity, or transfers all of its assets, the Company shall take
reasonable efforts to ensure that the successors of the Company assume the
Company’s obligations with respect to indemnification of Directors.

 

3.7       Maintenance and Protection of Intellectual Property. The Company shall
use its commercially reasonable efforts to maintain all Proprietary Rights and
all applications and registrations therefor owned or held by the Company or
hereafter owned or held by the Company in full force and effect in the United
States and, except where application, registration, or maintenance of any
registration or patent would not be, in the reasonable judgment of the Board,
cost-effective, in other countries in which the Company shall engage in
business, including, but not limited to, (a) the prosecution of applications to
register or perfect rights or claims in and to any Proprietary Rights, (b) the
registration of license agreements, the timely filing of affidavits of use,
renewals, or other maintenance filings, and (c) the timely payment of filing,
issue and maintenance fees. The Company shall not abandon or let lapse or pass
to the public domain any of the Proprietary Rights now or hereafter owned or
held by the Company that are material to its business, shall not encumber or
license others to use the Proprietary Rights owned by it except in the ordinary
course of the Company’s business, and shall maintain the confidentiality and
trade secret status of all Proprietary Rights that are confidential except where
and only to the extent that disclosure is necessary to obtain copyright
registrations or patents, or is necessary or desirable in the prudent conduct of
the Company’s business.

 

3.8       Employee Confidentiality Agreements. The Company will cause each
person now or hereafter employed by it or any subsidiary (or engaged by the
Company or any subsidiary as a consultant/independent contractor) with access to
confidential information and/or trade secrets to enter into a non-disclosure and
proprietary rights assignment agreement.

 

3.9       Related Party Transactions. The Company will not enter into or be a
party to any transaction with any director, officer or employee of the Company
or any “associate” (as defined in Rule 12b-2 promulgated under the Exchange Act)
of any such person, except for transactions contemplated by this Agreement and
the Purchase Agreement, transactions resulting in payments to or by the Company
in an amount less than $25,000 per year, or transactions made in the ordinary
course of business and pursuant to reasonable requirements of the Company’s
business and upon fair and reasonable terms that are approved by Rose Capital.
The term “non-employee director” has the meaning assigned to such term in the
Commission’s Rule 16b-3.

 

3.10       Matters Requiring Rose Capital Approval. Without the prior approval
of Rose Capital, the Company shall not:

 

(a)       issue or authorize any class or series of equity securities or
equivalents (except pursuant to an award approved by the Board which award is
within the Authorized Pool) without complying with Section 4 herein;

 

(b)       effect any transaction that results in a Change in Control, unless
such Change in Control will result in Rose Capital receiving a return
cash-on-cash multiple to Rose Capital on its investment in the Series B
Preferred of at least 3.0x, and in the event such return threshold is satisfied,
Rose Capital shall consent to such transaction in accordance with Section 2.2 of
the Voting Agreement and the Charter;

 

 19 

 

 

(c)       incur any aggregate indebtedness in excess of $200,000, other than
trade credit incurred in the ordinary course of business;

 

(d)       enter into or be a party to any transaction with any director, officer
or employee of the Company or any “associate” (as defined in Rule 12b-2
promulgated under the Exchange Act) of any such person;

 

(e)       change the principal business of the Company, enter new lines of
business, or exit the current line of business;

 

(f)       sell, transfer, license, pledge or encumber assets (including
technology or intellectual property) in excess of $100,000, other than licenses
granted in the ordinary course of business;

 

(g)       any acquisition in excess of $100,000;

 

(h)       approve the Operating Budget or pay employee bonuses except for
ordinary course employee bonuses to employees (other than any Helix Opps Company
Executive) in the amounts included in the Operating Budget;

 

(i)       adoption or modification of any management incentive plan which
provides for awards in excess of 1,501,758 shares of Common Stock (the
“Authorized Pool”), any attempted increase in the size of the Authorized Pool or
the issuance of any awards under any management incentive plan outside of the
Authorized Pool;

 

(j)       hiring, terminating or modifying the terms of any employment or
consulting relationship, as applicable, with the President or Chief Executive
Officer, Chief Financial Officer or Chief Operating Officer, except that,
subject to Section 3.11(c), the Chief Executive Officer shall have full
discretion to hire Scott Ogur as the Company’s first Chief Financial Officer;

 

(k)       the making of aggregate capital expenditures for the Company or any of
its Subsidiaries in excess of 20% of amounts set forth on the Operating Budget;
or

 

(l)       declare or pay any dividend or make any distribution on any shares of
capital stock of the Company.

 

3.11       Board Matters; Rose Management Compensation For Management and Key
Management Compensation.

 

(a)       Unless otherwise agreed by a unanimous vote of the members of the
Board, the Board shall meet at least four times per year and if Rose Capital is
not represented by a formal member of the Board, Rose Capital shall be entitled
to attend such meeting in a non-voting observer capacity. The Company shall
reimburse the Directors (and any Rose Capital observer) all reasonable
out-of-pocket expenses incurred in performance of their duties as directors.

 

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(b)       In connection with the establishment of the Operating Budget for 2018
and continuing until the occurrence of a Rose Capital Selldown Event and in
exchange for Management Services provided by Rose Management during such time
period, the Company shall pay aggregate compensation to Rose Management Group
LLC (or such other person or entity as designated by Rose Capital to the Company
in writing) (“Rose Management”) a management fee in amount agreed to in writing
by Rose Capital and the Company, which management fee shall payable quarterly in
arrears (the “Rose Management Fees”). Notwithstanding any provision in this
Section 3.11(b) to the contrary, if the Company determines in its reasonable,
good faith judgment (after consultation with Rose Management) that the Company’s
obligation to pay (and resulting payment of any) Rose Management Fees would (x)
not permitted by or would cause a breach or event of default under any financing
agreement to which the Company or any of its Subsidiaries is a party, or (y)
after giving effect to the payment of such Rose Management Fees, the Company
would not be able to pay its debts, operating expenses or other liabilities as
they become due in the usual course of business, then the Company shall not be
required to pay such Rose Management Fees and any such unpaid amounts shall
accrue until the liquidity constraints described in the foregoing clauses (x)
and (y) are resolved; provided further that, in lieu of accruing such fees, Rose
Management may elect to receive the unpaid Rose Management Fees in shares of the
Company’s stock equal to the fair market value of such unpaid fees (as mutually
agreed upon in writing by the Company and Rose Management).

 

(c)       To the extent that Zachary Venegas and Scott Ogur serve as the
full-time Chief Executive Officer and Chief Financial Officer, respectively
(each, a “Helix Opps Company Executive”), each such Helix Opps Company Executive
shall be entitled to up to $200,000 (or such lower amount agreed to between the
Company and each such Helix Opps Company Executive) of cash compensation. No
Helix Opps Company Executive shall be entitled to any annual bonus without the
prior written consent of Rose Capital; provided that no Rose Capital consent
shall be required to pay any reasonable bonus earned by Scott Ogur as long as
such bonus was reflected in the Operating Budget for such period and the
applicable bonus targets were satisfied.

 

3.12       Termination of Covenants. All covenants of the Company contained in
this Section 3 shall expire and terminate as to each Investor or Holder of
Registrable Securities, as applicable, upon the earlier of (a) the effective
date of the registration statement pertaining to the Initial Offering, (b) upon
a Change in Control which is consented to by Rose Capital or otherwise complies
with Section 3.10(b), or (c) the date on which Rose Capital or its Affiliates
transfers or sells to an unaffiliated third party more than seventy five percent
(75%) of Equity Securities (whether in the form of Series B Preferred or any
other class of Equity Securities in which the Series B Preferred are converted
into) acquired by Rose Capital pursuant to the Purchase Agreement (the event
described in the foregoing clause (c), a “Rose Capital Selldown Triggering
Event”).

 

SECTION 4. PARTICIPATION RIGHTS.

 

4.1       Subsequent Offerings. Each Major Investor shall have a right to
purchase such Major Investor’s pro rata share of all Equity Securities that the
Company may, from time to time, propose to sell and issue after the date of this
Agreement, other than the Equity Securities excluded by Section 4.7 hereof. Each
Major Investor’s pro rata share is equal to the ratio of (a) the number of
shares of the Company’s outstanding Common Stock (treating all shares of
convertible preferred stock or warrants to acquire convertible preferred stock
on an as-converted to common stock basis and including all shares of Common
Stock issuable upon the exercise of outstanding warrants or options) which such
Major Investor holds of record immediately prior to the issuance of such Equity
Securities to (b) the total number of shares of the Company’s outstanding Common
Stock (treating all shares of convertible preferred stock or warrants to acquire
convertible preferred stock on an as-converted to common stock basis and
including all shares of Common Stock issuable upon the exercise of outstanding
warrants or options) immediately prior to the issuance of such Equity
Securities.

 

 21 

 

 

4.2       Exercise of Rights. If the Company proposes to issue any Equity
Securities, it shall give each Major Investor written notice of its intention,
describing the Equity Securities, the price and the terms and conditions upon
which the Company proposes to issue the same. Each Major Investor shall have
ninety (90) days (the “Preemptive Rights Period”) from the giving of such notice
to agree to purchase its pro rata share of the 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; provided that the Preemptive Rights Period shall be reduced to
thirty (30) days commencing on and after March 31, 2018.

 

4.3       Issuance of Equity Securities to Other Persons. If not all of the
Major Investors elect to purchase their pro rata share of the Equity Securities,
then the Company shall promptly notify in writing the Major Investors that have
so elected (the “Participating Investors”) and offer the Participating Investors
the right to acquire such unsubscribed shares. Each Participating Investor shall
have five (5) business days after receipt of such notice to notify the Company
of such Participating Investor’s election to purchase all or a portion thereof
of the unsubscribed shares. If the Major Investors fail to exercise in full the
participation rights set forth in Section 4.2 hereof and this Section 4.3, the
Company shall have ninety (90) days thereafter to sell the Equity Securities in
respect of which the Major Investors’ rights were not exercised, at a price and
upon terms and conditions no more favorable to the purchasers thereof than
specified in the Company’s original notice of the sale of such Equity Securities
to the Major Investors pursuant to Section 4.2 hereof. If the Company has not
sold such Equity Securities within ninety (90) days of such notice, the Company
shall not thereafter issue or sell any Equity Securities, without first offering
such securities to the Major Investors in the manner provided above.

 

4.4       Termination and Waiver of Participation Rights. The participation
rights established by this Section 4 shall not apply to, and shall terminate
upon the earlier of (a) the effective date of the registration statement
pertaining to the Company’s Initial Offering, or (b) a Change in Control. The
participation rights set forth in this Section 4 may be amended, or any
provision waived, with the written consent of Major Investors (which consent
must also include the consent of Rose Capital) holding a majority of the shares
of Common Stock held by such Major Investors (treating all shares of convertible
preferred stock or warrants to acquire convertible preferred stock on an
as-converted to common stock basis), or as permitted by Section 5.5.

 

4.5       Transfer of Participation Rights. The participation rights set forth
in this Section 4 are transferable, subject to the same limitations set forth in
Section 2.10 hereof.

 

4.6       [RESERVED].

 

4.7       Excluded Securities. The participation rights set forth in this
Section 4 shall not apply to the following Equity Securities:

 

(a)       shares of the Common Stock issued or issuable upon conversion of any
shares of the Preferred Stock;

 

(b)       [RESERVED];

 

(c)       shares of the Common Stock, including options, warrants or other
rights to purchase up to such number of shares of the Common Stock (as adjusted
for any stock dividends, combinations, splits, recapitalizations and the like),
issued, sold or granted 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 Rose Capital;

 

(d)       shares of the Common Stock issued in connection with any stock split,
stock dividend or recapitalization by the Company;

 

(e)       shares of the Common Stock or the Preferred Stock issued or issuable
pursuant to the exercise of options, warrants or Convertible Securities
outstanding as of the date hereof;

 

(f)       shares of the Common Stock or Preferred Stock and/or options, warrants
or other rights to purchase the Common Stock or the Preferred Stock issued or
issuable for consideration other than cash pursuant to a merger, consolidation,
acquisition, strategic alliance or similar business combination approved by Rose
Capital; and

 

(g)       any equity securities issued or issuable 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, however, that the
issuance of shares therein has been approved by the Board; and

 

(h)       any Equity Securities that are issued by the Company pursuant to a
registration statement filed under the Securities Act.

 

 22 

 

 

SECTION 5. MISCELLANEOUS.

 

5.1       Governing Law; Consent to Jurisdiction; Waiver of Jury Trial. This
Agreement shall be governed by and construed in accordance with the laws of the
State of Delaware, without regard to its principles of conflicts of laws. Each
of the parties hereto irrevocably submits to the exclusive jurisdiction of the
courts of the State of Delaware located in Wilmington and the United States
District Court for the District of Delaware for the purpose of any suit, action,
proceeding or judgment relating to or arising out of this Agreement and the
transactions contemplated hereby.  Service of process in connection with any
such suit, action or proceeding may be served on each party hereto anywhere in
the world by the same methods as are specified for the giving of notices under
this Agreement.  Each of the parties hereto irrevocably consents to the
jurisdiction of any such court in any such suit, action or proceeding and to the
laying of venue in such court.  Each party hereto irrevocably waives any
objection to the laying of venue of any such suit, action or proceeding brought
in such courts and irrevocably waives any claim that any such suit, action or
proceeding brought in any such court has been brought in an inconvenient forum. 
EACH OF THE PARTIES HERETO WAIVES ANY RIGHT TO REQUEST A TRIAL BY JURY IN ANY
LITIGATION WITH RESPECT TO THIS AGREEMENT AND REPRESENTS THAT COUNSEL HAS BEEN
CONSULTED SPECIFICALLY AS TO THIS WAIVER.

 

5.2       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.

 

5.3       Entire Agreement. This Agreement, together with (i) that certain Right
of First Refusal and Co-Sale Agreement (the “ROFR/Co-Sale Agreement”) by and
among the Company, the Key Holders (as defined therein) and the Investors dated
as of the date hereof; (ii) that certain Voting Agreement (the “Voting
Agreement”) by and among the Company, the Key Holders (as defined therein) and
the Investors dated as of the date hereof; and (iii) only as to Rose Capital,
that certain Series B Preferred Stock Purchase Agreement, of even date herewith,
constitute the full and entire understanding and agreement between the parties
with regard to the subjects hereof and thereof 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.

 

5.4       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.

 

 23 

 

 

5.5       Amendment and Waiver.

 

(a)       Except as otherwise expressly provided herein, this Agreement may be
amended or modified only upon the written consent of the Company and the holders
of at least a (i) majority of the Registrable Securities and (ii) Rose Capital.
Any such amendment or modification effected in accordance with this Section
5.5(a) shall be binding on all parties hereto, even if they do not execute such
consent.

 

(b)       Subject to Section 5.5(c) below, any party hereto may waive compliance
with any agreements, covenants or conditions for the benefit of such party
contained herein. Any agreement on the part of a party hereto to any such waiver
shall be valid only if set forth in an instrument in writing signed on behalf of
such party.

 

(c)       Except as otherwise expressly provided, the obligations of the Company
and the rights of the Holders under this Agreement may be waived with respect to
all parties to this Agreement (either generally or in a particular instance and
either retroactively or prospectively) only with the written consent of the
holders of (i) at least a majority of the Registrable Securities and (ii) Rose
Capital. Any such waiver effected in accordance with this Section 5.5(c) shall
be binding on all parties hereto, even if they do not execute such consent. Each
Holder acknowledges that by the operation of this paragraph, the holders of (i)
a majority of the Registrable Securities (excluding any of such shares that have
been sold to the public or pursuant to Rule 144) and (ii) and (ii) Rose Capital,
each voting separately, will have the right and power to diminish or eliminate
all rights of such Holder under this Agreement.

 

(d)       For the purposes of determining the number of Holders 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.

 

5.6       Delays or Omissions. No delay or omission to exercise any right,
power, or remedy accruing to any person or entity hereunder (including, without
limitation, 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. Any waiver, permit, consent, or approval of
any kind or character on any such person’s or entity’s part of any breach,
default or noncompliance under the Agreement or any waiver on such person or
entity’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 any such person or entity, shall be cumulative and not alternative.

 

5.7       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 (5) days after having been sent by registered or
certified mail, return receipt requested, postage prepaid, or (d) one (1) 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 herein or at such
other address as such party may designate by ten (10) days advance written
notice to the other parties hereto.

 

 24 

 

 

5.8       Bad Actor Notice Requirement. Each party to this Agreement will
promptly notify each other party to this Agreement in writing if it or, to its
knowledge, any of such party’s directors or executive officers becomes subject
to any Bad Actor Disqualification (as such term is defined in the ROFR/Co-Sale
Agreement).

 

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 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 the Preferred,
any purchaser of such shares of the Preferred shall become a party to this
Agreement by executing and delivering an additional counterpart signature page
to this Agreement and shall be deemed an “Investor,” a “Holder” and a party
hereunder.

 

5.12       Aggregation of Stock. All shares of Registrable Securities held or
acquired by affiliated entities or persons, or persons (which, with respect to a
partnership, shall include its general and limited partners, as well as the
members or partners of any general partner of such partnership) or entities
under common management or control shall be aggregated together for the purpose
of determining the availability of any rights under this Agreement.

 

5.13       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. This Agreement may be executed by facsimile
signatures or by .pdf signature.

 

Signatures on the Following Pages

 

 25 

 

 

The parties hereto have executed this Investor Rights Agreement as of the date
set forth in the first paragraph hereof.

 

THE COMPANY:       Helix TCS, Inc.         By:     Name: Zachary L. Venegas  
Its: Chief Executive Officer         THE PRIOR INVESTORS:       KEY HOLDERS:    
  Helix Opportunities, LLC         By:     Name: Zachary L. Venegas   Its:
Director  

 

 A-2 

 

 

The parties hereto have executed this Investor Rights Agreement as of the date
set forth in the first paragraph hereof.

 

ROSE CAPITAL:       RSF4, LLC         By:     Name:           Title:          
By:     Name:     Title: