Exhibit 4.2


 


TRANSOMA MEDICAL, INC.


 


SECOND AMENDED AND
RESTATED INVESTOR RIGHTS AGREEMENT


 


This Second Amended and Restated Investor
Rights Agreement (this “Agreement”)  is
entered into as of February 26, 2007, by and among Transoma Medical, Inc., a Delaware
corporation (the “Company”), and the parties listed on Schedule 1 (each an “Investor”
and, collectively, the “Investors”). Capitalized terms used in this Agreement
and not otherwise defined herein shall have the meanings assigned to them in
the Purchase Agreement (as defined below).


 


WHEREAS, certain of the Investors hold “Series
A Shares,” as defined herein (the “Series A Investors”) and certain of the
Investors hold “Series B Shares,” as defined herein (the “Series B Investors”),
each of which are convertible into “Common Shares,” as defined herein, and
possess certain rights pursuant to the Amended and Restated Investor Rights
Agreement dated as of September 23, 2005, by and among the Company and such
Series A Investors and Series B Investors (the “Prior Agreement”);


 


WHEREAS, Article 17 of the Prior Agreement
provides that the Prior Agreement may be amended by a writing signed by the
Company and the holders of at least a majority of the “Registrable Securities”
then outstanding, as defined herein;


 


WHEREAS, the Company proposes to sell, and
certain of the Investors (the “Series C Investors”) wish to purchase, Series C
Convertible Preferred Stock, par value $.001 per share, of the Company pursuant
to that certain Stock Purchase Agreement dated as of the date hereof (the “Purchase
Agreement”); and


 


WHEREAS, as a condition to the obligations
of the Series C Investors under the Purchase Agreement, the Company has agreed
to amend and restate the Prior Agreement in full to grant registration and
other rights to the Investors and to make certain covenants on the terms and
conditions set forth herein;


 


NOW, THEREFORE, in consideration of the foregoing, and for other good and valuable
consideration, the receipt and adequacy of which are hereby acknowledged, the
parties agree as follows:


 


1.             Definitions. Unless the context requires otherwise, the terms defined in this Article
1 shall have the following meanings for all purposes of this Agreement:


 


1.1.          “Affiliate”
shall have the meaning set forth in Rule 405 under the Securities Act.


 


1.2.          “Cause”
means an involuntary termination of employment for any of the following, as
determined in good faith by the Company’s board of directors: (i) the employee
commits an act or acts of personal dishonesty intended to result in the
employee’s personal gain at the expense of the Company, (ii) the employee
willfully and materially violates his or her obligations to the Company
(including willful and material violations of, or failure to comply with,
Company policies) and does not remedy those violations within 30 days after
receipt of 


 

















 


written notice of such violations from the Company,
(iii) the employee is convicted of or pleads nolo contendere to any felony
criminal misconduct, or (iv) the employee abuses alcohol or other substances in
a manner that has a detrimental effect on the performance of his or her
responsibilities to the Company and does not cease such abuse promptly after
receipt of written notice from the Company. Any act, or failure to act, based
upon authority given pursuant to a resolution duly adopted by the board of
directors of the Company or based upon the advice of counsel for the Company
shall be conclusively presumed to be done, or omitted to be done, by such
employee in good faith and in the best interests of the Company.


 


1.3.          “Change
in Control” means (i) the sale, exchange or other transfer, directly or
indirectly, of all or substantially all of the assets of the Company (in one
transaction or in a series of related transactions) to one or more persons or
entities that are not (prior to such transaction) Affiliates of the Company or
(ii) an acquisition of the Company’s capital stock (other than from the
Company) or a merger or consolidation to which the Company is a party, if the stockholders
of the Company immediately prior to the effective date of such acquisition,
merger or consolidation own less than 50% of the combined voting power of the
surviving corporation’s then outstanding securities immediately after the
effective date of such merger, acquisition or consolidation; provided, however,
that a transaction or series of transactions resulting in the separation of the
human and animal product businesses of the Company or a similar reorganization,
recapitalization or spinoff shall not constitute a “Change in Control” for the
purposes of this Agreement.


 


1.4.          “Commission”
means the Securities and Exchange Commission or any other federal agency at the
time administering the Securities Act.


 


1.5.          “Common
Shares” means the common stock of the Company’s authorized capital stock, $.001
par value per share, and shall also include capital stock of any other class of
the Company which is not preferred as to dividends or assets over any other
class of stock of the Company and which is not subject to redemption.


 


1.6.          “Constructive
Discharge” means a material alteration of an employee’s employment without the
employee’s prior consent in any of the following manners: (i) the employee is
assigned employment responsibilities which are not substantially comparable to
his or her then existing employment responsibilities, (ii) the Company reduces
the employee’s base salary, eligibility for bonuses or stock options from that
currently in effect (other than in connection with reductions in the salaries,
eligibility for bonuses or stock options of substantially all of the Company’s
employees), (iii) the Company requires the employee to be based at a location
that is more than 30 miles from the location of the employee’s then-current
place of employment, or (iv) the Company fails to provide employee benefit
plans, programs, policies and practices to the employee and his or her family
and dependents (if applicable) that provide substantially similar benefits, in
terms of aggregate monetary value, at substantially similar costs to the
employee as the benefits then provided by the Company (other than in connection
with reductions in benefits or increases in costs for benefits that affect
substantially all of the Company’s employees).


 


1.7.          “Equity
Securities” means (i) Common Shares, rights, options or warrants to purchase
Common Shares, (ii) any security other than Common Shares having voting rights
in 


 


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the election of the Board of Directors, not contingent
upon a failure to pay dividends, (iii) any security convertible into or
exchangeable for any of the foregoing, except that Equity Securities shall not
include the Preferred Shares, or Non-Participating Shares issued or issuable
upon automatic conversion of any Preferred Shares pursuant to Section 4.3(E)(7)
of the Company’s Second Amended and Restated Certificate of Incorporation, and
(iv) any agreement or commitment to issue any of the foregoing.


 


1.8.          “Form
S-3” means such form under the Securities Act as in effect on the date hereof
or any successor registration form under the Securities Act subsequently
adopted by the Commission which permits inclusion or incorporation of
substantial information by reference to other documents filed by the Company
with the Commission.


 


1.9.          “Initial
Offering” means the Company’s first firm commitment underwritten offering of
Common Shares to the public, either on behalf of the Company or any of its
security holders, pursuant to an effective registration statement under the
Securities Act.


 


1.10.        “Non-Participating
Shares” means, collectively, the Company’s Series A-1 Convertible Preferred
Stock, Series B-1 Convertible Preferred Stock and Series C-1 Convertible
Preferred Stock.


 


1.11.        “Preferred
Shares” means, collectively, the Series A Shares, the Series B Shares and the
Series C Shares.


 


1.12.        “Pro
Rata Share” means, for each Investor, the proportion that (a) the number of
Common Shares (including all Common Shares issued or issuable to such Investor
upon conversion of the Preferred Shares or upon exercise of outstanding
warrants or options held by such Investor) of which such Investor is deemed to
be a holder bears to (b) the sum of (i) the total number of Common Shares then
outstanding, (ii) the total number of Common Shares (including the Common
Shares issuable upon the conversion of the Preferred Shares or
Non-Participating Shares) then issuable upon exchange or conversion of any
outstanding securities exchangeable for or convertible into Common Shares and
(iii) the total number of Common Shares then issuable upon the exercise of
then-outstanding options, warrants and other rights to acquire Common Shares
(whether or not such options, warrants and other rights are then vested).


 


1.13.        The
terms “register,” “registered,” and “registration” refer to a registration
effected by preparing and filing a registration statement or similar document
in compliance with the Securities Act, and the declaration or ordering of
effectiveness of such registration statement.


 


1.14.        “Registrable
Securities” means (a) the Common Shares at any time issued or subject to
issuance upon the conversion of the Preferred Shares and (b) any Common Shares
issued as (or subject to issuance upon the conversion or exercise of any
warrant, right or other security that is issued as) a dividend or other
distribution with respect to, or in exchange for, or in replacement of, the
shares referenced in (a) above; excluding, in all cases, however,
any Registrable Securities when (aa) such securities shall have been sold to
the public either (i) pursuant to a registration statement that has been
declared effective under the Securities Act or (ii) pursuant to Rule 144,
(bb) such securities shall be eligible to be distributed pursuant to 


 


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Rule 144 under the Securities Act in a single
three-month period by the holder thereof or (cc) such securities shall
have ceased to be outstanding.


 


1.15.        “Registration
Expenses” shall mean the expenses described in Article 5.


 


1.16.        “Securities
Act” shall mean the Securities Act of 1933, as amended, or any successor
federal statute thereto.


 


1.17.        “Series
A Shares” shall mean the shares of the Series A Convertible Preferred Stock,
par value $0.001 per share, of the Company issued to the Investors, and any securities
(other than Common Shares) into which such shares may hereafter be changed or
converted, including shares of the Company’s Series A-1 Convertible Preferred
Stock.


 


1.18.        “Series
B Shares” shall mean the shares of the Series B Convertible Preferred Stock,
par value $.001 per share, of the Company issued to the Series B Investors, and
any securities (other than Common Shares) into which such shares may hereafter
be changed or converted, including shares of the Company’s Series B-1
Convertible Preferred Stock.


 


1.19.        “Series
C Shares” shall mean the shares of the Series C Convertible Preferred Stock,
par value $.001 per share, of the Company issued to the Series C Investors
pursuant to the Purchase Agreement, and any securities (other than Common Shares)
into which such shares may hereafter be changed or converted, including shares
of the Company’s Series C-1 Convertible Preferred Stock.


 


2.             Demand
Registration


 


2.1.          At any time after the earlier of
(i) August     , 2009 or (ii) six (6)
months after the effective date of the Initial Offering and subject to Section
2.2, if the Company shall at any time receive a written request from the record
holder or holders of at least thirty percent (30%) of the Registrable
Securities (the “Initiating Holders”) that the Company file a registration
statement under the Securities Act covering the public offer and sale of
Registrable Securities the aggregate public offering price of which would equal
or exceed $7,500,000, the Company shall prepare and file, within seventy-five
(75) days of the receipt thereof, a registration statement under the Securities
Act covering such number of Registrable Securities as are the subject of such
request and shall use its best efforts to cause such registration statement to
become effective within ninety (90) days of the filing of such registration
statement. The Initiating Holders may elect that the offering shall be
underwritten by an underwriter or underwriters selected by a
majority-in-interest of the Initiating Holders and reasonably acceptable to the
Company, and the Initiating Holders shall include the names of such
underwriters in the notice for registration referred to in the preceding
sentence. Upon the receipt of a registration request meeting the requirements
of this Section 2.1, the Company shall, within ten (10) business days of the
receipt thereof, give written notice to all other record holders of Registrable
Securities that such registration is to be effected. The Company shall include
in such registration statement such additional Registrable Securities as such
other record holders request in writing within thirty (30) days after the date
of the Company’s written notice to them. If (a) the holders of a majority
of the Registrable Securities for which registration has been requested
pursuant to this Section 2.1 determine for any reason not to proceed with the
registration at any time before the related 


 


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registration statement has been declared effective by
the Commission, (b) such registration statement previously filed with the
Commission has been withdrawn and (c) the holders of the Registrable Securities
subject to such registration statement agree to bear their own Registration
Expenses incurred in connection with such registration and to reimburse the
Company for the Registration Expenses incurred by it in connection therewith or
if such registration statement previously filed with the Commission has been
withdrawn at the initiative of the Company, then the holders of the Registrable
Securities shall not be deemed to have exercised a demand registration right
pursuant to this Section 2.1, provided, however, that such
holders of Registrable Securities shall not bear any Registration Expenses for
a registration request that is subsequently withdrawn by such holders if
holders of a majority of the Registrable Securities then outstanding agree to
forfeit their rights to one demand registration under this Section 2.1; provided,
further, however, that, if at the time a registration is
terminated at the request of holders of Registrable Securities, such holders
have learned of a material adverse change in the condition, business or
prospects of the Company not known for such holders at the time of their
request for such registration and have withdrawn their request for registration
with reasonable promptness after learning of such material adverse change, then
such holders of Registrable Securities shall not be required to pay any
Registration Expenses and shall retain their rights under this Article 2. Notwithstanding
the foregoing, the Company may defer the filing of any registration statement
requested pursuant to this Section 2.1 for a period not to exceed one hundred
and twenty (120) days if the Company shall furnish to record holders requesting
registration pursuant to this Section 2.1 a certificate signed by the
Company’s Chief Executive Officer or Chairman of the Board stating that, in the
good faith judgment of the Company’s Board of Directors, it would be seriously
detrimental to the Company and its stockholders for such registration to be
effected at such time; provided, however, that such right to
defer such filing shall be exercised by the Company not more than once in any
twelve-month period. The Company shall be obligated to prepare, file and cause
to become effective only two registration statements pursuant to this Section
2.1.


 


2.2.          Notwithstanding
anything to the contrary contained herein, at any time within forty-five (45)
days after receiving a demand for registration pursuant to Section 2.1, if such
demand does not involve an underwritten offering, the Company may elect to
effect an underwritten primary registration in lieu of the requested
registration. If the Company so elects, the Company shall give prompt written
notice to all holders of Registrable Securities of its intention to effect such
a registration and shall afford such holders the rights contained in Article 3
with respect to “piggyback” registrations. In such event, the holders of the
Registrable Securities shall not be deemed to have exercised their demand
registration right pursuant to Section 2.1 with respect to such registration
and the Company shall bear all Registration Expenses.


 


2.3.          From
and after the date on which the Company first consummates an Initial Offering,
if the Company shall at any time receive a written request from the record
holder or holders of Registrable Securities requesting that the Company file a
registration statement on Form S-3 covering the public offer and sale of Registrable
Securities the aggregate public offering price of which would equal or exceed
$1,000,000 and the Company is eligible to use Form S-3 to register the public
sale of such Registrable Securities, then the Company shall prepare and file a
registration statement on such form covering such number of Registrable
Securities as are the subject of such request within thirty (30) days of such
request and shall use 


 


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its best efforts to cause such registration statement
to become effective within ninety (90) days of the filing of such registration
statement. Upon the receipt of a registration request meeting the requirements
of this Section 2.3, the Company shall promptly give written notice to all
other record holders of Registrable Securities that such registration is to be
effected. The Company shall include in such registration statement such
additional Registrable Securities as such other record holders request in
writing within thirty (30) days after the effective date of the Company’s
written notice to them. Notwithstanding the foregoing, the Company may defer
the filing of any registration statement requested pursuant to this Section 2.3
for a period not to exceed ninety (90) days if the Company shall furnish to
record holders requesting registration pursuant to this Section 2.3 a
certificate signed by the Company’s Chief Executive Officer or Chairman of the
Board stating that, in the good faith judgment of the Company’s Board of
Directors, it would be seriously detrimental to the Company and its stockholders
for such registration to be effected at such time; provided, however,
that such right to defer such filing shall be exercised by the Company not more
than twice in any twelve-month period.


 


2.4.          Notwithstanding
any provision in this Article 2, in the event a distribution under this
Article 2 is to be underwritten, if the underwriter advises the Company that
marketing factors require a limitation of the number of securities underwritten
(including Registrable Securities), then the Company shall so advise all
holders of Registrable Securities that would otherwise be underwritten pursuant
hereto, and the number of shares that may be included in the underwriting shall
be allocated to such record holders of 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
shall not be reduced unless all other securities are first entirely excluded
from the underwriting including shares proposed to be offered by the Company. Any
Registrable Securities excluded or withdrawn from such underwriting shall be
withdrawn from the registration.


 


3.             Piggyback
Registration


 


3.1.          Each
time that the Company determines to proceed with the actual preparation and
filing of a registration statement under the Securities Act in connection with
the proposed public offering of any of its securities by it or any of its
security holders (other than a registration statement on Form S-4, Form S-8 or
other form not permitting the inclusion of shares of selling securities
holders), the Company shall give written notice of its determination to all
record holders of Registrable Securities at least twenty (20) days prior to
filing of any registration statement. Upon the written request of a record
holder of any Registrable Securities given within twenty (20) days after the
effective date of any such notice from the Company, the Company shall, except
as herein provided, cause all Registrable Securities the registration of which
is requested to be included in such registration statement, all to the extent
requisite to permit the sale or other disposition by the prospective seller or
sellers of the Registrable Securities, to be so registered; provided, however,
that nothing herein shall prevent the Company from, at any time, abandoning or
delaying any such registration; and provided, further, that if
the Company determines not to proceed with a registration after the
registration statement has been filed with the Commission, and the Company’s
decision not to proceed is primarily based upon
the anticipated public offering price of the securities to be sold
by the Company, the Company shall promptly complete the registration for the
benefit of those selling security holders who wish 


 


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to proceed with such offering of their Registrable
Securities and who agree to bear all of the Registration Expenses incurred by
the Company as the result of such registration after the Company has decided
not to proceed. Record holders of at least a majority of the Registrable
Securities then outstanding may elect to have a registration that is continued
as provided in the preceding sentence count as a demand registration under
Section 2.1 (if it otherwise meets the requirements of Section 2.1), for which
the Company shall pay all Registration Expenses.


 


3.2.          If any
registration pursuant to Section 3.1 is underwritten in whole or in part, the
Company may require that the Registrable Securities included in the
registration be included in the underwriting on the same terms and conditions
as the securities otherwise being sold through the underwriters. If, in the
good faith judgment of the managing underwriter(s) of the public offering, the
inclusion of all of the Registrable Securities originally covered by requests
for registration would reduce the number of shares to be offered by the Company
or interfere with the successful marketing of the shares offered by the
Company, the number of Registrable Securities to be included in such public
offering may be reduced in the following manner: first, securities held by
officers and directors of the Company shall be excluded from such underwritten
public offering to the extent required by the managing underwriter(s); second,
if a further reduction is required, any securities, other than Registrable
Securities, proposed to be sold by persons other than the Company shall be
excluded; and third, if a further reduction is required, the Registrable
Securities requested to be included shall be reduced, pro rata, among
the requesting holders thereof in proportion to the number of Registrable
Securities included in their respective requests for registration; provided,
however, that in no event shall the amount of securities of the selling
holders of Registrable Securities be reduced below thirty percent (30%) of the
total securities to be included in such offering, unless such offering is the
Initial Offering and was initiated by the Company pursuant to this Article 3,
in which case the selling holders of Registrable Securities may be excluded if
the underwriters make the determination described above and no other stockholders’
securities are included in such registration. Any Registrable Securities
excluded or withdrawn from such underwriting shall be excluded or withdrawn
from the registration. For any holder of Registrable Securities which is a
partnership, limited liability company or corporation, the partners, retired
partners, members 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 number of shares carrying registration rights owned by all such
related entities and individuals  The
Registrable Securities that are excluded from such registration shall be
subject to the provisions of Article 9.


 


4.             Registration
Procedures. If and whenever the Company is
required by the provisions of Article 2 or Article 3 to effect a registration
of Registrable Securities under the Securities Act, the Company shall, as
expeditiously as possible and as provided in such Article:


 


4.1.          In the
case of a demand registration pursuant to Section 2.1, prepare and file with
the Commission the requisite registration statement to effect such registration
(including such audited financial statements as may be required by the
Securities Act or the rules and regulations thereunder) and use its best
efforts to cause such registration statement to become effective; provided,
however, that as far in advance as practical before filing such
registration statement or any amendment thereto, the Company shall furnish
counsel for the requesting holders of Registrable Securities with copies of
reasonably complete drafts of all such documents 


 


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proposed to be filed (including exhibits), and any
such holder shall have the opportunity to object to any information pertaining
solely to such holder that is contained therein and the Company shall make the
corrections reasonably requested by such holder with respect to such
information prior to filing such registration statement or amendment.


 


4.2.          Prepare
and file with the Commission such amendments and supplements to such
registration statement and any prospectus used in connection therewith as may
be necessary to maintain the effectiveness of such registration statement and
to comply with the provisions of the Securities Act with respect to the
disposition of all Registrable Securities included in such registration
statement, in accordance with the intended methods of disposition thereof,
until the earlier of (a) such time as all of the Registrable Securities
included in such registration statement have been disposed of in accordance
with the intended methods of disposition by the holder or holders thereof as
set forth in such registration statement or (b) one hundred twenty (120)
days after such registration statement becomes effective.


 


4.3.          Promptly
notify each requesting holder and the underwriter or underwriters, if any, of:


 


(a)           when such registration
statement or any prospectus used in connection therewith, or any amendment or
supplement thereto, has been filed and, with respect to such registration
statement or any post-effective amendment thereto, when the same has become
effective;


 


(b)           any written request by the
Commission for amendments or supplements to such registration statement or
prospectus;


 


(c)           any notification received
by the Company from the Commission regarding the Commission’s initiation of any
proceeding with respect to, or of the issuance by the Commission of, any stop
order suspending the effectiveness of such registration statement; and


 


(d)           the receipt by the Company
of any notification with respect to the suspension of the qualification of any
Registrable Securities for sale under the applicable securities or blue sky
laws of any jurisdiction.


 


4.4.          Furnish
to each holder of Registrable Securities included in such registration
statement such number of conformed copies of such registration statement and of
each amendment and supplement thereto, and such number of copies of the
prospectus contained in such registration statement (including each preliminary
prospectus and any summary prospectus) and any other prospectus filed under
Rule 424 promulgated under the Securities Act relating to such seller’s
Registrable Securities, and such other documents, as such holder may reasonably
request to facilitate the disposition of its Registrable Securities.


 


4.5.          Use
its best efforts to register or qualify all Registrable Securities included in
such registration statement under the securities or “blue sky” laws of such
states as each holder of Registrable Securities shall reasonably request and to
keep such registration or qualification in effect for so long as such
registration statement remains in effect, and take any other action which may
be reasonably necessary or advisable to enable such holder to 


 


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consummate the disposition in such states of the Registrable
Securities owned by such holder, except that the Company shall not for any such
purpose be required to (a) qualify generally to do business as a foreign
corporation in any jurisdiction wherein it would not but for the requirements
of this Section 4.5 be obligated to be so qualified, or (b) consent to general
service of process in any such jurisdiction.


 


4.6.          Use
its best efforts to cause all Registrable Securities included in such
registration statement to be registered with or approved by such other
governmental agencies or authorities as may be necessary to enable each holder
thereof to consummate the disposition of such Registrable Securities.


 


4.7.          Notify
each holder whose Registrable Securities are included in such registration
statement, at any time when a prospectus relating thereto is required to be
delivered under the Securities Act, of the happening of any event as a result
of which any prospectus included in such registration statement, as then in
effect, includes an untrue statement of a material fact or omits to state any
material fact required to be stated therein or necessary to make the statements
therein, in the light of the circumstances under which they were made, not
misleading, and at the request of any such holder promptly prepare and furnish
to such holder a reasonable number of copies of a supplement to or an amendment
of such prospectus as may be necessary so that, as thereafter delivered to the
purchasers of such Registrable Securities, such prospectus shall not include an
untrue statement of a material fact or omit to state a material fact required
to be stated therein or necessary to make the statements therein, in the light
of the circumstances under which they were made, not misleading; provided that
for a total of not more than thirty (30) trading days, the Company may delay
the preparation and filing of such amendment or supplement, if disclosure of
such information at the time would be, in the good faith opinion of the
Company, seriously detrimental to the Company.


 


4.8.          In the
event of an 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.


 


4.9.          Otherwise
use its best efforts to comply with all applicable rules and regulations of the
Commission.


 


4.10.        Use its
best efforts to cause all Registrable Securities included in such registration
statement to be listed, upon official notice of issuance, on each securities
exchange or quotation system on which any of the securities of the same class
as the Registrable Securities are then listed.


 


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


 


4.12.        The
Company may require each holder whose Registrable Securities are being
registered to, and each such holder, as a condition to including Registrable
Securities in such registration statement, shall, furnish the Company and the
underwriters with such information and affidavits regarding such holder and the
distribution of such Registrable 


 


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Securities as the Company and the underwriters may
from time to time reasonably request in writing in connection with such
registration statement. At any time during the effectiveness of any
registration statement covering Registrable Securities offered by a holder, if
such holder becomes aware of any change materially affecting the accuracy of
the information contained in such registration statement or the prospectus (as
then amended or supplemented) relating to such holder, it shall immediately
notify the Company of such change.


 


4.13.        Upon
receipt of any notice from the Company of the happening of any event of the
kind described in Section 4.7, each holder shall forthwith discontinue such
holder’s disposition of Registrable Securities pursuant to the registration
statement relating to such Registrable Securities until such holder receives
the copies of the supplemented or amended prospectus contemplated by Section
4.7 and, if so directed by the Company, shall deliver to the Company all
copies, other than permanent file copies, then in such holder’s possession of
the earlier prospectus relating to such Registrable Securities that includes
the untrue statement of a material fact or omits to state the material fact
required to be stated therein or necessary to make the statements therein, in
the light of the circumstances under which they were made, not misleading.


 


4.14.        If such
securities are being sold through underwriters, furnish, at the request of any
such underwriter and on the date that such Registrable Securities are delivered
to the underwriters for sale, (i) an opinion, dated as of such date, of
the counsel representing the Company for the purposes of such registration, in
form and substance as is customarily given to underwriters in an underwritten
public offering and reasonably satisfactory to such underwriters, addressed to
the underwriters and (ii) a “comfort” letter dated as of such date, from
the independent certified public accountants of the Company, in form and
substance as is customarily given by independent certified public accountants
to underwriters in an underwritten public offering and reasonably satisfactory
to such underwriters, addressed to the underwriters.


 


4.15.        If such
securities are being sold in a registration pursuant to Section 2.1 but are not
being sold through underwriters, furnish, at the request of any holder
requesting registration of Registrable Securities and on the date the
registration statement with respect to such securities becomes effective,
(i) an opinion, dated as of such date, of the counsel representing the
Company for the purposes of such registration, in form and substance as is
customarily given in connection with such offerings and reasonably satisfactory
to a majority-in-interest of the holders of Registrable Securities requesting
registration, addressed to the holders requesting such opinion and (ii) a “comfort”
letter dated as of such date, from the independent certified public accountants
of the Company, in form and substance as is customarily given by independent
certified public accountants in connection with such offerings and reasonably
satisfactory to a majority-in-interest of the holders of Registrable Securities
requesting registration, addressed to the holders requesting such letter.


 


5.             Expenses. With respect to any registration requested pursuant to Article 2
(except as otherwise provided in such Article with respect to a registration
voluntarily terminated at the request of the requesting holders of Registrable
Securities), or Article 3 (except as otherwise provided in such Article with respect
to a registration continued by holders of Registrable Securities who wish to
proceed with a public offering of securities that is withdrawn by the Company),
the Company shall bear all of the expenses (“Registration Expenses”) incident
to the


 


10

















 


Company’s performance of or compliance with its
obligations under this Agreement in connection with such registration
including, without limitation, all registration, filing, securities exchange
listing and NASD fees, all registration, filing, qualification and other fees
and expenses or complying with state securities or “blue sky” laws, all word
processing, duplicating and printing expenses, messenger and delivery expenses,
the fees and disbursements of counsel for the Company and of its independent
public accountants, premiums and other costs of any policies of insurance
against liabilities arising out of the public offering of the Registrable
Securities being registered obtained by the Company (it being understood that
the Company shall have no obligation to obtain such insurance) and any fees and
disbursements of underwriters customarily paid by issuers or sellers of
securities; but excluding underwriting discounts and commissions and transfer
taxes, if any, in respect of Registrable Securities and any fees and
disbursements of counsel (other than the reasonable fees and disbursements of
one counsel for the holders of the Registrable Securities, which the Company
shall bear) and accountants to the holders of the Registrable Securities, which
discounts, commissions, transfer taxes, fees and disbursements shall in any
registration be payable by the holders of the Registrable Securities being
registered, pro rata in proportion to the number of Registrable Securities
being sold by them.


 


6.             Indemnification.


 


6.1.          The
Company shall, to the full extent permitted by law, indemnify and hold harmless
each holder of Registrable Securities which are included in a registration
statement pursuant to the provisions of this Agreement, and its directors,
officers, members and partners, any underwriter for such holder and each other
person, if any, who controls such holder within the meaning of the Securities
Act, from and against any and all losses, claims, damages, expenses or
liabilities, joint or several (collectively, 
“Losses”) to which such holder or any such director, member, officer,
partner, underwriter or controlling person may become subject under the
Securities Act or otherwise, insofar as such Losses (or actions or proceedings,
whether commenced or threatened, in respect thereof) arise out of or are based
upon (i) any untrue statement or alleged untrue statement of any material
fact contained in a registration statement prepared and filed hereunder, any
preliminary, final or summary prospectus contained therein or any amendment or
supplement thereto, (ii) any omission or alleged omission to state therein
a material fact required to be stated therein or necessary to make the
statements therein (in the case of a prospectus, in the light of the
circumstances under which they were made) not misleading, or (iii) any
violation or alleged violation by the Company of the Securities Act, the
Securities and Exchange Act of 1934, as amended (the “Exchange Act”), any
federal or state securities law or any rule or regulation promulgated under the
Securities Act, the Exchange Act or any federal or state securities law in
connection with the offering covered by such registration statement and the
Company shall reimburse the holder and each such director, officer, member, partner,
underwriter and controlling person for any legal or other expenses reasonably
incurred by them in connection with investigating or defending against any such
Losses (or action or proceeding in respect thereof); provided, however,
that the Company shall not be liable in any such case to the extent that any
such Losses arise out of or are based upon (a) an untrue statement or alleged
untrue statement or omission or alleged omission made in conformity with
written information furnished by such holder specifically for use in the
preparation of the registration statement or (b) such holder’s failure (or the
failure of any underwriter or other agent for such holder) to send or give a
copy of the final prospectus to the persons asserting an untrue statement or
alleged 


 


11

















 


untrue statement, provided that such holder (or such
underwriter or other agent) had an affirmative duty to send or give a copy of
such final prospectus to such persons, or such holder’s omission or alleged
omission at or prior to the written confirmation of the sale of Registrable
Securities to such person if such statement or omission was corrected in such
final prospectus. Such indemnity shall remain in full force and effect
regardless of any investigation made by or on behalf of such holder or any such
director, officer, member, partner or controlling person of such holder and
shall survive the transfer of such securities by such holder. The Company shall
also indemnify each other person who participates (including as an underwriter)
in the offering or sale of Registrable Securities, their officers and
directors, and members and partners, and each other person, if any, who
controls any such participating person within the meaning of the Securities Act
to the same extent provided above with respect to holders of Registrable
Securities.


 


6.2.          Each
holder of Registrable Securities which are included in a registration pursuant
to the provisions of this Agreement shall, to the full extent permitted by law,
indemnify and hold harmless the Company, its officers who have signed the
registration statement, directors and each other person, if any, who controls
the Company within the meaning of the Securities Act, any underwriter and any
other holder of Registrable Securities selling securities under such
registration statement or any of such holder’s partners, directors, officers,
underwriters or any person who controls such holder within the meaning of the
Securities Act, from and against any and all Losses to which the Company or any
such officer, director, controlling person, underwriter or other such holder,
partner or director, officer, underwriter, or controlling person of such other
holder may become subject under the Securities Act or otherwise, insofar as
such Losses (or actions or proceedings, whether commenced or threatened, in
respect thereof) arise out of or are based upon any untrue or alleged untrue
statement of any material fact contained in a registration statement prepared
and filed hereunder, any preliminary, final or summary prospectus contained
therein or any amendment or supplement thereto, or arise out of or are based
upon (a) the omission or the alleged omission to state therein a material
fact required to be stated therein or necessary to make the statements therein
(in the case of a prospectus, in the light of the circumstances under which
they were made) not misleading, in each case to the extent, but only to the
extent, that such untrue statement or alleged untrue statement or omission or
alleged omission was so made in reliance upon and in strict conformity with
written information furnished by such holder specifically for use in the
preparation of such registration statement or (b) such holder’s failure to send
or give a copy of the final prospectus to the persons asserting an untrue
statement or alleged untrue statement or omission or alleged omission at or
prior to the written confirmation of the sale of Registrable Securities to such
person if such statement or omission was corrected in such final prospectus; provided,
however, that the total amounts payable in indemnity by a holder of
Registrable Securities under this Section 6.2, in respect of any Losses
shall not exceed the net proceeds received by such holder in the registered
offering out of which such Losses arise. Such indemnity shall remain in full
force and effect regardless of any investigation made by or on behalf of the
Company or any such director, officer or controlling person of the Company. The
holder of Registrable Securities included in a registration statement shall
also indemnify each other person who participates (including as an underwriter)
in the offering or sale of Registrable Securities, their officers and directors,
and partners, and each other person, if any, who controls any such
participating person within the meaning of the Securities Act to the same
extent as provided above with respect to the Company.


 


12

















 


6.3.          Promptly
after receipt by a party indemnified pursuant to the provisions of Section 6.1
or Section 6.2 of notice of the commencement of any action involving the
subject matter of the foregoing indemnity provisions, such indemnified party
shall, if a claim thereof is to be made against the indemnifying party pursuant
to the provisions of Section 6.1 or Section 6.2, promptly notify the
indemnifying party of the commencement thereof; but the omission so to notify
the indemnifying party shall not relieve the indemnifying party from any
liability which it may have to any indemnified party, except to the extent that
the indemnifying party is prejudiced in its ability to defend such action by
such failure to give notice. In case any such action is brought against any
indemnified party, the indemnifying party shall have the right to participate
in, and, to the extent that it may wish, jointly with any other indemnifying
party, to assume the defense thereof, with counsel reasonably satisfactory to
such indemnified party; provided, however, that if the defendants in any action
include both the indemnified party and the indemnifying party and counsel for
the indemnified party reasonably concludes that there is a conflict of interest
that would prevent counsel for the indemnifying party from also representing
the indemnified party, the indemnified party shall have the right to select
separate counsel to participate in the defense of such action on behalf of the
indemnified party or parties. After notice from the indemnifying party to such
indemnified party of its election so to assume the defense thereof, the
indemnifying party shall not be liable to such indemnified party pursuant to
the provisions of Section 6.1 or Section 6.2 for any legal or other expense
subsequently incurred by such indemnified party in connection with the defense
thereof unless (a) the indemnified party shall have employed counsel in
accordance with the proviso of the preceding sentence, (b) the indemnifying
party shall not have employed counsel reasonably satisfactory to the
indemnified party to represent the indemnified party within a reasonable time
after the notice of the commencement of the action or (c) the indemnifying
party has authorized the employment of counsel for the indemnified party at the
expense of the indemnifying party. If the indemnifying party is not entitled
to, or elects not to, assume the defense of a claim, it shall not be obligated
to pay the fees and expenses of more than one counsel for the indemnified
parties with respect to such claim, unless in the reasonable judgment of
counsel for any indemnified party a conflict of interest may exist between such
indemnified party and any other indemnified parties with respect to such claim,
in which event the indemnifying party shall be obligated to pay the fees and
expenses of additional counsel or counsels for the indemnified parties. No
indemnifying party shall 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 without the consent of the
indemnified party. No indemnifying party shall be subject to any liability for
any settlement made without its consent. An indemnified party may at any time
elect to participate in the defense of any claim or proceeding at its own
expense.


 


7.             Underwritten
Offerings. If a distribution of Registrable
Securities pursuant to a registration statement is to be underwritten, the
holders whose Registrable Securities are to be distributed by such underwriters
shall be parties to such underwriting agreement in the customary form. No
requesting holder may participate in such underwritten offering unless such
holder agrees to sell its Registrable Securities on the basis provided in such
underwriting agreement and completes and executes all questionnaires, powers of
attorney, indemnities and other documents reasonably required under the terms
of such underwriting agreement. If any requesting holder disapproves of the
terms of an underwriting, such holder may elect to withdraw therefrom and from
such registration by notice to the Company and the managing 


 


13

















 


underwriter, and each of the remaining requesting
holders shall be entitled to increase the number of Registrable Securities
being registered to the extent of the Registrable Securities so withdrawn in
the proportion which the number of Registrable Securities being registered by
such remaining requesting holder bears to the total number of Registrable
Securities being registered by all such remaining requesting holders.


 


8.             Covenants
Relating to Rule 144. If at any time the Company
is required to file reports in compliance with either Section 13 or Section
15(d) of the Securities Exchange Act of 1934, as amended, (the “Exchange Act”)
the Company shall (a) file reports in compliance with the Exchange Act and (b)
comply with all rules and regulations of the Commission applicable to the use
of Rule 144. Upon request, the Company shall deliver to any holder of
Registrable Securities a written statement as to whether it has complied with
such requirements.


 


9.             Market
Stand-Off Agreement. If requested by the Company
or the representative of the underwriters of Common Shares (or other
securities) of the Company, each holder of Registrable Securities shall not,
without the prior written consent of the Company or the representative of the
underwriters, sell (including, without limitation, any short sale), lend, grant
any option for the purchase of, otherwise transfer or dispose of, or engage in
any hedging or other transactions that involve the transfer of some or all of
the risks or benefits of ownership of, any Common Shares (or other securities)
of the Company held, directly or indirectly, by such holder (other than those
included in the registration). The obligations imposed by this Article 9 shall
apply (a) for such period, not to exceed 180 days following the effective
date of the relevant registration statement, as shall be specified by the
Company or the representative of the underwriters and (b) only to either
(i) the Company’s Initial Offering pursuant to a registration statement on
Form S–1 or Form SB-2 (or any successor forms thereto) if all officers and
directors of the Company and all holders of more than 1% of the voting power of
the Company’s capital stock are similarly restricted with respect to such
offering or (ii) Registrable Securities excluded from an underwritten
public offering pursuant to Section 3.2. Notwithstanding the foregoing, each
holder of Registrable Securities shall automatically be released from any and
all limitations and restrictions imposed by this Article 9 (or any other such
agreement entered into by such holder) on the disposition of Common Shares (or
other securities) in the event that, on or after the effective date of a
registration, a representative of the underwriters for such registration
releases any party holding any security of the Company from similar such
limitations or restrictions.


 


10.           Assignment
of Registration Rights. An Investor may assign its
rights to cause the Company to register Registrable Securities pursuant to this
Agreement only (a) in connection with a transfer of Registrable Securities
that is exempt from the registration requirements of the Securities Act and
(b) to a transferee or assignee of Registrable Securities that either
(i) acquires at least 5% of the Series A Shares, Series B Shares or Series
C Shares, as applicable, initially purchased by such Investor or (ii) is a
subsidiary, parent, general partner, limited partner, retired partner, member
or retired member, or stockholder of an Investor or of a general partner,
limited partner, member or stockholder of Investor; provided, however, that (x)
the assignor shall, within ten days before such transfer, furnish to the
Company written notice of the name and address of the assignee and the
securities with respect to which such registration or qualification rights are
being assigned, (y) the assignee shall agree in writing to be subject to all
restrictions set forth in this Agreement and (z) in no event shall any
such assignment be made to any entity that the 


 


14

















 


Board of Directors of the Company determines in good
faith is a competitor of the Company or an affiliate of such competitor;
provided further, however, that an existing subsidiary, parent, general
partner, limited partner, member, retired member or stockholder of an Investor
or of a general partner, limited partner, retired partner, member or
stockholder of Investor shall not be deemed to be a competitor of the Company.


 


11.           Information
Rights. For so long as an Investor (together with
its affiliates) shall own in the aggregate not less than (a) with respect to
the Series A Investors, at least 2,405,618 Series A Shares (or the Common
Shares issuable upon conversion thereof), (b) with respect to the Series B
Investors, at least 1,000,000 Series B Shares (or the Common Shares issuable
upon conversion thereof), or (c) with respect to the Series C Investors, at
least 1,506,588 Series C Shares (or the Common Shares issuable upon conversion
thereof) (in each case as adjusted for stock splits, stock dividends,
combinations and other recapitalizations) (each a “Qualified Investor” and
collectively, the “Qualified Investors”):


 


11.1.        Financial
Reports. The Company shall deliver to each Qualified
Investor:


 


(a)           within five business days
of their availability, but in any event within thirty (30) days after the close
of each month except for such months which are at the end of quarter or
year-end, (A) an unaudited consolidated balance sheet of the Company and any
subsidiaries as of the end of such month and as of the end of the two prior
months and the corresponding balance sheet from budget as of the end of such
month and for the period in the prior fiscal year, (B) the related unaudited
consolidated operating statements for such month, the prior two months, the
fiscal year to date and the corresponding statements from budget for such
month, the fiscal year to date and for the period in the prior fiscal year (C)
the related consolidated statement of cash flows for the current month compared
to the period in the prior fiscal year; all to be in reasonable detail and (a)
are in accordance with the books and records of the Company, (b) present fairly
the financial condition and results of operations of the Company as of their
dates and for the periods covered (subject to ordinary course year-end audit
adjustments) and (c) have been prepared in accordance with GAAP applied on a
consistent basis throughout the periods indicated and with each other (subject
to the absence of footnote disclosure);


 


(b)           within five business days
of their availability, but in any event within thirty (30) days after the close
of each fiscal quarter, (A) an unaudited consolidated balance sheet of the
Company and any subsidiaries as of the end of such fiscal quarter and the
corresponding balance sheet from budget as of the end of such fiscal quarter
and for the period in the prior fiscal year, (B) the related unaudited
consolidated operating statements for such fiscal quarter, the fiscal year to
date and the corresponding statements from budget for such fiscal quarter, the
fiscal year to date and for the period in the prior fiscal year and (C) the
related consolidated statement of cash flows for the fiscal quarter and for the
period in the prior fiscal year; all to be in reasonable detail, and (a) are in
accordance with the books and records of the Company, (b) present fairly the
financial condition and results of operations of the Company as of their dates
and for the periods covered (subject to ordinary course year-end audit
adjustments) and (c) have been 


 


15

















 


prepared
in accordance with GAAP applied on a consistent basis throughout the periods
indicated and with each other (subject to the absence of footnote disclosure);
and


 


(c)           within five business days
of their availability, but in any event within one hundred twenty (120) days
after the end of each fiscal year, an audited consolidated balance sheet of the
Company and any subsidiaries, as of the end of such fiscal year, together with
the related consolidated statements of income and retained earnings and
statements of cash flows for such fiscal year, setting forth in comparative
form figures for the previous fiscal year, duly certified by independent public
accountants of nationally recognized standing.


 


11.2.        At least
one month prior to the beginning of each fiscal year of the Company, the
Company shall prepare and submit to the Qualified Investors and its board of
directors for discussion purposes a first draft of an annual plan for such year
which shall include monthly capital and operating expense budgets, cash flow
statements and profit and loss projections and year-end projected balance
sheets, itemized in such detail as the Qualified Investors and the Company’s
board of directors may reasonably request. The final draft of such annual plan
shall be presented to the Company’s board of directors for approval prior to
the beginning of each fiscal year of the Company, and the final approved annual
plan shall be delivered to the Qualified Investors. Each annual plan shall be
modified as often as is necessary to reflect changes required as a result of
operating results and other events that occur, or may be reasonably expected to
occur, during the year covered by the annual plan, and copies of such
modification shall be submitted to the Company’s board of directors.


 


11.3.        The
Company shall permit each Qualified Investor, and any of its partners, officers
or employees, or any outside representatives designated by such Qualified Investor
and reasonably satisfactory to the Company, to visit and inspect at the expense
of such Qualified Investor any of the properties of the Company or its
subsidiaries, including their books and records (and to make photocopies
thereof or extracts therefrom), and to discuss their affairs, finances and
accounts with their officers, all to such reasonable extent and at such
reasonable times and intervals as such Qualified Investor may reasonably
request without disruption of the Company’s operations, except with respect to
trade secrets and similar confidential information, which need not be
disclosed.


 


11.4.        Each Qualified
Investor shall maintain, and require its partners, officers, employees and
outside representatives to maintain, the information obtained pursuant to this Article
11 on a confidential basis.


 


12.           Covenants
Related to the SBIC Act. The Company recognizes
that, as “Small Business Investment Companies”, as defined in Title 15 of the
United States Code (“U.S.C”) Section 662(5), the investment activities of
certain Investors (each such Investor, an “SBIC Investor”) are regulated by,
among other provisions, 15 U.S.C. Sections 681 – 687m and the regulations
promulgated thereunder (collectively, the “SBIC Act”). Accordingly, for so long
as any Investor remains an SBIC Investor, the Company covenants as follows:


 


12.1.        Small
Business Concern. The Company covenants that it,
together with any “affiliates” (as that term is defined in 13 C.F.R. 121.103),
shall remain a “Small Business 


 


16

















 


Concern” within the meaning of 15 U.S.C. Section
662(5) and the regulations promulgated thereunder, including without limitation
13 C.F.R. 107, and shall continue to meet the applicable size eligibility
criteria set forth in 13 C.F.R. 121.301(c)(1) or the industry standard covering
the industry in which the Company is primarily engaged as set forth in 13
C.F.R. 121.301(c)(2). The Company shall not, and shall ensure that no
affiliates or subsidiaries, engage in any activities for which a small business
investment company is prohibited from providing funds by the SBIC Act,
including without limitation those set forth in 13 C.F.R. 107.


 


12.2.        SBA
Documentation; Compliance. On the date of this
Agreement, each SBIC Investor shall have received from the Company SBA Form 480
(Size Status Declaration) and SBA Form
652 (Assurance of Compliance) which have been
completed and executed by the Company, and SBA Form 1031 (Portfolio
Finance Report), Parts A and B of which have been completed by the
Company. Between the date of this Agreement and the Closing Date, the Company
shall provide all additional forms and inspection rights required by the SBA
for any SBIC Investor in connection with the issuance of the Series B Preferred
Stock, including without limitation Form 652 (Assurance of
Compliance for Nondiscrimination).


 


12.3.        Use
of Proceeds. The Company covenants to use the proceeds obtained from the
Investors upon the execution and performance of the Purchase Agreement (the “Proceeds”)
for research and development, marketing and general working capital. The Company will deliver to each
SBIC Investor from time to time promptly following such SBIC Investor’s
request, a written report, certified as correct by the Company’s chief
financial officer, verifying the purposes and amounts for which the Proceeds
have been disbursed.  The Company will supply to each SBIC Investor such
additional information and documents as such SBIC Investor reasonably requests
with respect to its use of proceeds and will permit each SBIC Investor to have access
to any and all Company records and information and personnel as such SBIC
Investor deems necessary to verify how such proceeds have been or are being
used, and to assure that the proceeds have been used for the purposes specified
above.


 


12.4.        Activities. The Company
covenants that neither it nor any of its affiliates (as defined above) will
engage in any activities or use directly or indirectly the Proceeds for any
purpose for which a small business investment company is prohibited from
providing funds by the SBIC Act, including without limitation 13 C.F.R. 107. Without
obtaining the prior written approval of all SBIC Investors, the Company will
not change within one (1) year of the date of this Agreement its current
business activity to a business activity which a small business investment
company is prohibited from providing funds by the SBIC Act. The Company agrees
that any such changes in its business activity without such prior written
consent will constitute a material breach of its obligations under this
Agreement and the Purchase Agreement.


 


12.5.        Reports. Within sixty (60) days after the end of each calendar year, the Company
will furnish or cause to be furnished to each SBIC Investor information
required by the SBA concerning the economic impact of such SBIC Investor’s
investment, for (or as of the end of) each calendar year, including but not
limited to, information concerning full-time equivalent employees; Federal,
state and local income taxes paid; gross revenue; source of revenue growth; after-tax
profit or loss; and Federal, state and local income tax withholding. Such
information shall be forwarded by the Company on a form provided by each SBIC
Investor. The Company also will furnish or cause to be furnished to each SBIC
Investor such other information regarding 


 


17

















 


the business, affairs and
condition of the Company as such SBIC Investor or the SBA may from time to time
reasonably request.


 


13.           Insurance. The Company shall maintain in effect directors and officers,
employment practices and product liability insurance policies, each having a
coverage amount customary for companies at a similar stage of development, the
proceeds of which shall be payable to the Company. Such insurance shall be
effected and maintained in force under a policy or policies issued by insurers
of recognized responsibility. The Company shall provide each Investor from time
to time upon request with evidence of such insurance policies.


 


14.           Directors’
Liability and Indemnification. The Company’s
Certificate of Incorporation and Bylaws shall provide (a) for elimination
of the liability of director to the maximum extent permitted by law and
(b) for indemnification of directors for acts on behalf of the Company to
the maximum extent permitted by law.


 


15.           Board
of Directors; Compensation Committee.


 


15.1.        The
board of directors shall meet as often as necessary to fulfill its fiduciary
responsibilities, as determined by the board of directors in its discretion,
but in no event less than once every calendar quarter.


 


15.2.        The
Company shall reimburse each director for the reasonable out-of-pocket travel
or other expenses incurred by such director in connection with attending
meetings or otherwise fulfilling their fiduciary responsibilities as directors.


 


15.3.        The
Company’s board of directors shall maintain a Compensation Committee to consist
exclusively of (i) one of the directors nominated under that certain Second Amended
and Restated Voting Agreement of even date herewith (the “Voting Agreement”) by
the Series A Investors, who shall initially be Brian Chee, (ii) the director
nominated under the Voting Agreement by the Series B Investor (as defined in
the Voting Agreement), who shall initially be B. Kristine Johnson, and (iii) each
of the Combined Directors (as defined in the Voting Agreement) other than the
Chief Executive Officer of the Company. The Compensation Committee shall (a)
set the Company’s general compensation goals and policies, (b) approve the cash
compensation to be paid to the Company’s officers and (c) recommend all options
and other equity compensation to the Company’s board of directors.


 


16.           Issuance
of Stock and Rights to Acquire Stock. For so long
as at least 15% of any of the Series A Shares, the Series B Shares or the
Series C Shares, respectively, remain outstanding, the Company shall comply
with the following provisions:


 


16.1.        Each
time the Company proposes to issue or sell any Equity Securities other than (a)
securities offered for sale to the public in the Initial Offering, (b) Common
Shares issuable upon conversion of the Preferred Shares, (c) Non-Participating
Shares issuable upon conversion of the Preferred Shares and the Common Shares
issued or issuable upon the conversion thereof, (d) Common Shares issued upon
exercise of options or warrants outstanding on the date of this Agreement, (e)
options to purchase up to an additional 2,006,877 shares of Common Stock (not
including any options outstanding as of the date of this Agreement) which are
available for issuance pursuant to the Company’s 2000 Stock Incentive Plan, as
amended to 


 


18

















 


date, and the issuance of Common Shares upon the
exercise thereof, and (f) shares of Common Stock issued pursuant to the
acquisition of another business entity or other business segment of any such
entity by the Company by merger, purchase of substantially all the assets or
other reorganization whereby the Company will own more than fifty percent (50%)
of the voting power of such business entity or business segment of any such
entity approved by the Board, including the affirmative vote of each of the Series
A Directors and the Series B Director (as defined in the Voting Agreement),
then the Company shall provide, (i) if at least 15% of the Series A Shares
remain outstanding, each Series A Investor, (ii) if at least 15% of the Series
B Shares remain outstanding, each Series B Investor, and (iii) if at least 15%
of the Series C Shares remain outstanding, each Series C Investor, respectively
(each, an “Eligible Investor”), with a notice (the “First Offer Notice”)
stating (A) its bona fide intention to offer such Equity Securities, (B) the
total number of Equity Securities to be offered, (C) such Eligible Investor’s
Pro Rata Share of such Equity Securities and (D) the price and terms upon which
the Company proposes to offer the Equity Securities.


 


16.2.        Each
Eligible Investor shall have a period of thirty (30) days from the date on
which the First Offer Notice is given to elect to purchase, at the price and on
the terms specified in the First Offer Notice, up to such Eligible Investor’s
Pro Rata Share of such Equity Securities. If an Eligible Investor elects to
purchase such Eligible Investor’s Pro Rata Share, then such Eligible Investor
shall have a right of over-allotment such that if any other Eligible Investor
fails to purchase such Eligible Investor’s Pro Rata Share of the Equity
Securities, Eligible Investors who have elected to purchase their Pro Rata
Shares may purchase, on a pro rata basis (taking into account only those shares
held by Eligible Investors who did so elect), that portion of the Equity
Securities which such other Eligible Investors had the right to purchase but
elected not to purchase.


 


16.3.        If all
Equity Securities referred to in the First Offer Notice which the Eligible
Investors are entitled to purchase are not elected to be purchased as provided
in Section 16.2, the Company may, during the 120-day period following the
expiration of the period provided in Section 16.2, sell the remaining
unsubscribed portion of such Equity Securities to any person or persons at a
price not less than, and upon terms no more favorable to the purchaser than,
those specified in the First Offer Notice. If the Company does not sell all
such Equity Securities within such 120-day period, the right provided hereunder
shall be deemed to be revived and such Equity Securities shall not be offered
unless first reoffered to the Eligible Investors pursuant to this Article 16.


 


17.           Other
Covenants.


 


17.1.        Key
Man Insurance. The Company shall maintain in
effect life insurance policies having a coverage amount of $1,000,000 on each
of Brian Brockway and Perry Mills, the proceeds of which shall be payable to
the Company. Such insurance shall be effected and maintained in force under a
policy or policies issued by insurers of recognized responsibility. The Company
shall provide each Investor from time to time upon request with evidence of
such insurance policies.


 


17.2.        Options
to Purchase Common Shares. From and after the date
of this Agreement, the Company, as determined by the Board of Directors, may
provide for the issuance 


 


19

















 


of options to purchase up to 2,006,877  Common Shares (not including any options
outstanding as of the date of this Agreement) available for issuance pursuant
to the Company’s 2000 Stock Incentive Plan, as amended to date. All such
options shall provide for the following:


 


(a)           an exercise price equal to
or greater than the fair market value of a Common Share on the date of grant;


 


(b)           25% vesting on the first
anniversary of the grant date and quarterly vesting thereafter over the next 36
months;


 


(c)           if the Company has allowed
the optionee to purchase shares in advance of vesting for tax-planning
purposes, then upon termination of the employee’s employment, the Company may
repurchase any unvested shares at their original option purchase price;


 


(d)           except for option
agreements that specifically provide for individual accelerated vesting upon a
Change in Control either approved by a majority of the Board of Directors,
including each of the Series A Directors and the Series B Director (as defined
in the Voting Agreement), or recommended unanimously by the Compensation
Committee then upon a Change in Control, all unvested options with vesting
dates within the one year period following the closing date of the Change in
Control transaction shall be accelerated; provided, however, that vesting shall
not be accelerated if the acquiror in a Change in Control transaction either
(i) adopts and maintains the Company’s option plan in the form existing
immediately prior to the Change in Control, or (ii) issues to the optionees new
options upon the Change in Control with substantially the same terms as the
options in effect immediately prior to the Change in Control; and


 


(e)           if, within one year after
a Change in Control, an employee is terminated without Cause or terminates
employment as the result of a Constructive Discharge, all unvested options held
by the discharged employee with vesting dates within one year from the date of
such termination shall become fully vested as of the effective date of such
termination.


 


17.3.        Non-Competition
Agreements. The Company shall require that all new
employees of the Company enter into a non-competition, non-solicitation,
non-disclosure and invention assignment agreement in a form reasonably
acceptable to the Investors. The Company shall require that all new consultants
to the Company enter into agreements containing non-solicitation, nondisclosure
and invention assignment provisions that are reasonably acceptable to the
Investors. In each case, the period of non-competition and non-solicitation
shall be eighteen (18) months.


 


17.4.        Diligence
from Third Parties. The Investors shall provide to
the Company any information obtained from a third party during the course of
such Investors’ due diligence regarding the Company, including but not limited
to any information obtained prior to the date of this Agreement.


 


18.           Amendment
and Waiver. Any provision of this Agreement may be
amended, and the observance thereof may be waived (either generally or in a
particular instance and either retroactively or prospectively), by an
instrument in writing signed by the Company and the 


 


20

















 


holders of at least a majority of the Registrable
Securities then outstanding. In no event shall a waiver of any rights pursuant
to this Article 18 be deemed a waiver of any rights not specified in the
instrument evidencing such waiver. Except as expressly provided in this
Agreement, no delay or omission to exercise any right, power or remedy accruing
to any party under this Agreement shall impair any such right, power or remedy
of such party nor shall it be construed to be a waiver of any such breach or
default, or an acquiescence thereto, or of a similar breach of default
thereafter occurring. Notwithstanding anything in this Agreement to the
contrary, the Company may in its sole discretion amend this Agreement solely to
add Additional Investors who become parties to the Purchase Agreement or to
amend Schedule 1 attached hereto to reflect additional Series C Shares issued
to such Additional Investors pursuant to the Purchase Agreement.


 


19.           Termination. The rights and obligations set forth in Articles 11, 12, 14, 15, 16
and 17 shall terminate at the earliest of (i) the closing of an Initial
Offering; (ii) the consummation of the sale of all or substantially all of the
assets of the Company or the merger or consolidation of the Company with or
into any other entity (other than the transactions permitted by Section 4.3(C)(2)
of the Certificate of Incorporation); (iii) the conversion of all of the
Preferred Shares and Non-Participating Shares into Common Stock; (iv) the
liquidation or dissolution of the Company, (v) the execution by the Company of
a general assignment for the benefit of creditors or the appointment of a
receiver or trustee to take possession of the property and assets of the Company,
or (vi) the date which is agreed to in writing by the Company and the
majority-in-interest of the Investors. This Agreement, and the parties’
obligations hereunder (other than their obligations pursuant to Article 6,
which obligations shall survive such termination), shall terminate on the date
three (3) years after the date on which the Company first consummates an Initial
Offering pursuant to a registration statement on Form S–1 or Form SB-2 (or any
successor forms thereto).


 


20.           Miscellaneous.


 


20.1.        Any
notice or other communication to any party in connection with this Agreement
shall be in writing and shall be sent by personal delivery, facsimile
transmission, overnight courier requiring signature for delivery or United
States mail (postage prepaid, registered or certified, return receipt
requested) addressed to such party at the address set forth below, or at such
other address as such party shall have specified to the other parties hereto in
writing. Any such notice shall be deemed given on the date of delivery thereof
if manually delivered, the date of sending thereof if sent by facsimile
transmission with electronic confirmation of delivery received, the first
business day after the date of sending if sent by overnight courier or five
days after the date of mailing if mailed.


 


	
  The
  Company:

  	
   

  	
  Transoma
  Medical, Inc.

  
	
   

  	
   

  	
  4211
  Lexington Avenue N., Suite 2244

  
	
   

  	
   

  	
  Arden
  Hills, MN 55126-6164

  
	
   

  	
   

  	
  Attention:
  Brian Brockway, President and CEO

  
	
   

  	
   

  	
   

  
	
  with
  a copy to:

  	
   

  	
  Oppenheimer
  Wolff & Donnelly LLP

  
	
   

  	
   

  	
  Plaza
  VII, Suite 3300

  
	
   

  	
   

  	
  45
  South Seventh Street

  



 


21

















 


	
   

  	
   

  	
  Minneapolis,
  MN 55402-1609

  
	
   

  	
   

  	
  Attention:
  Thomas A. Letscher, Esq.

  
	
   

  	
   

  	
   

  
	
  Investor:

  	
   

  	
  The
  address set forth opposite such Investor’s name on Schedule 1.

  



 


20.2.        Subject
to the limitations contained in Article 10, the terms and provisions of this
Agreement shall inure to the benefit of and be binding upon and enforceable by
the successors and permitted assigns of the parties hereto; provided, however,
that except as otherwise provided in Article 10, a successor or assign of an
Investor shall not be regarded as an “Investor” unless such successor or assign
(a) acquired the Shares or Conversion Stock in compliance with the terms of the
Purchase Agreement and (b) is either an affiliate of such Investor or acquires
at least 20% of Shares and/or Conversion Stock originally issued to such
Investor (except that if such Investor originally acquired less than 100,000
Shares, then such Investor must transfer all Shares owned by such Investor).


 


20.3.        It is
the intention of the parties that the internal laws of the State of Delaware,
without regard to the body of law controlling conflicts of law, shall govern
the validity of this Agreement, the construction of its terms and the interpretation
of the rights and duties of the parties.


 


20.4.        This
Agreement constitutes the full and entire understanding and agreement among the
parties with regard to the subject matter hereof and supersedes all prior or
contemporaneous agreements or understandings, express or implied, written or
oral, including the Prior Agreement, among the parties with respect to the
subject matter hereof.


 


20.5.        The
headings of the sections of this Agreement have been inserted for convenience
of reference only and do not constitute a part of this Agreement.


 


20.6.        This
Agreement may be executed concurrently in two or more counterparts, any one or
more of which may be facsimile and each of which shall be deemed an original,
but all of which together shall constitute one and the same instrument.


 


20.7.        If any
provision of this Agreement, or the application thereof, shall for any reason
and to any extent be invalid or unenforceable, the remainder of this Agreement
and application of such provision to other persons or circumstances shall be
interpreted so as to reasonably effect the intent of the parties hereto. The
parties further agree to replace such void or unenforceable provision of this
Agreement with a valid and enforceable provision that shall achieve, to the
extent possible, the economic, business and other purposes of the void or
unenforceable provision.


 


20.8.        With
respect to this Agreement: (a) defined terms may be used in the singular or the
plural, as the context requires, (b) unless the context in which it is used
otherwise clearly requires, the word “or” has the inclusive meaning represented
by the phrase “and/or,” (c) pronouns of one gender shall include all genders,
(d) references to articles, sections, paragraphs, subparagraphs or the like
shall refer to the corresponding articles, sections, paragraphs, subparagraphs
or the like of this Agreement, (e) the words “hereof,” “herein” and terms of
similar import shall refer to this entire Agreement, (f) unless the context
clearly requires 


 


22

















 


otherwise, the use of the terms “including,” “included,”
“such as” or terms of similar meaning shall not be construed to imply the
exclusion of any other particular elements.


 


20.9.        Nothing
in this Agreement, express or implied, is intended to confer upon any person,
other than the parties hereto and their successors and assigns, any rights or
remedies under or by reason of this Agreement.


 


20.10.      Wherever
in this Agreement there is a reference to a specific number of shares of capital
stock of the Company of any class or series, then, upon the occurrence of any
subdivision, combination or stock dividend of such class or series of stock,
the specific number of shares so referenced in this Agreement shall
automatically be proportionally adjusted to reflect the affect on the
outstanding shares of such class or series of stock by such subdivision,
combination or stock dividend.


 


20.11.      All shares and Registrable Securities held or acquired by
affiliated entities or persons shall be aggregated together for the purpose of
determining the availability of any rights under this Agreement.


 


20.12.      The Prior
Agreement is hereby amended and superseded in its entirety and restated herein.
Such amendment and restatement is effective upon the execution of this
Agreement by the Company and the parties required for an amendment pursuant to
Section 17 of the Prior Agreement. Upon such execution, all provisions of,
rights granted and covenants made in the Prior Agreement are hereby waived,
released and superseded in their entirety by the provisions hereof and shall
have no further force or effect.


 


[Signature
page follows.]


 


23














 


IN WITNESS WHEREOF, the parties have caused this
Agreement to be duly executed and delivered by their proper and duly authorized
representatives as of the day and year first above written.


 


	
   

  	
  COMPANY:

  
	
   

  	
   

  
	
   

  	
  TRANSOMA
  MEDICAL, INC.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brian Brockway

  	
   

  
	
   

  	
  Name:   Brian
  Brockway

  
	
   

  	
  Title:     President
  and CEO

  



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  THE
  WALLIN FOUNDATION

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ 
  Winston R. Wallin

  	
   

  
	
   

  	
  Name:   Winston
  R. Wallin

  
	
   

  	
  Title:     Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  2004
  WALLIN PARTNERSHIP LLLP

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Brad Wallin

  	
   

  
	
   

  	
  Name:   Brad
  Wallin

  
	
   

  	
  Title:     General
  Partner

  
					



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
  POLARIS
  VENTURE PARTNERS III, L.P.

  
	
   

  	
  By:        Polaris Venture Management Co. III,
  L.L.C.

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William E. Bilodeau

  	
   

  
	
   

  	
  Name:   William
  E. Bilodeau

  
	
   

  	
  Title:     Attorney-in-fact

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  POLARIS
  VENTURE PARTNERS

  ENTREPRENEURS’ FUND III, L.P.

  
	
   

  	
  By:        Polaris Venture Management Co. III,
  L.L.C.

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William E. Bilodeau

  	
   

  
	
   

  	
  Name:   William
  E. Bilodeau

  
	
   

  	
  Title:     Attorney-in-fact

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  POLARIS
  VENTURE PARTNERS FOUNDERS’

  FUND III, L.P. 

  
	
   

  	
  By:        Polaris Venture Management Co. III,
  L.L.C.

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ William E. Bilodeau

  	
   

  
	
   

  	
  Name:   William
  E. Bilodeau

  
	
   

  	
  Title:     Attorney-in-fact

  
					



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CANAAN
  EQUITY III L.P.

  
	
   

  	
  By:

  	
  Canaan
  Equity Partners III LLC

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric A. Young

  	
   

  
	
   

  	
  Name:   Eric A.
  Young

  
	
   

  	
  Title:     Member/Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CANAAN
  EQUITY III ENTREPRENEURS LLC

  
	
   

  	
  By:

  	
  Canaan
  Equity Partners III LLC

  Its Manager

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eric A. Young

  	
   

  
	
   

  	
  Name:   Eric A.
  Young

  
	
   

  	
  Title:     Manager

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  HUTTON
  LIVING TRUST DATED 12/10/96

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Wende Hutton

  	
   

  
	
   

  	
  Name:   Wende
  Hutton

  
	
   

  	
  Title:     Trustee

  
	
   

  	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  AFFINITY
  VENTURES IV, L.P.

  
	
   

  	
  By:

  	
  Affinity
  Capital Advisors IV, LLC

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Eelson Spencer

  	
   

  
	
   

  	
  Name:   Eelson
  Spencer 

  
	
   

  	
  Title:     Managing
  Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  TRELLIS
  HEALTH VENTURES II L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  THV
  Management II LLC

  Its General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Paul J. Felton

  	
   

  
	
   

  	
   

  	
  Name:   Paul J.
  Felton

  
	
   

  	
   

  	
  Title:     Manager

  
					



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  WASATCH
  FUNDS, INC.

  for Wasatch Ultra Growth Fund

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Wasatch
  Advisors, Inc.

  Its Investment Adviser

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel Thurber

  	
   

  
	
   

  	
   

  	
  Name:   Daniel
  Thurber

  
	
   

  	
   

  	
  Title:     Vice
  President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CROSS
  CREEK CAPITAL, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cross
  Creek Capital GP, L.P.

  Its Sole General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cross
  Creek Capital, LLC

  Its Sole General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Wasatch
  Advisors, Inc.

  Its Sole Member

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel Thurber

  	
   

  
	
   

  	
   

  	
  Name:   Daniel
  Thurber

  
	
   

  	
   

  	
  Title:     Vice
  President

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  CROSS
  CREEK CAPITAL EMPLOYEES’ 

  FUND, L.P.

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cross
  Creek Capital GP, L.P.

  Its Sole General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Cross
  Creek Capital, LLC

  Its Sole General Partner

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Wasatch
  Advisors, Inc.

  Its Sole Member

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Daniel Thurber

  	
   

  
	
   

  	
   

  	
  Name:   Daniel
  Thurber

  
	
   

  	
   

  	
  Title:     Vice
  President

  
					



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  MICHAEL
  BERMAN REVOCABLE TRUST

  DATED SEPTEMBER 30, 2002

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Michael Berman

  	
   

  
	
   

  	
   

  	
    Name: Michael
  Berman

  
	
   

  	
   

  	
    Title:   Trustee

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  D&W
  VENTURES III, LLC

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Thomas Martin

  	
   

  
	
   

  	
   

  	
    Name: Thomas
  Martin

  
	
   

  	
   

  	
    Title:   Manager

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  	
   

  
	
   

  	
  2003
  REVOCABLE TRUST OF MARK

  WAGNER, DATED APRIL 23, 2003

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Mark Wagner

  	
   

  
	
   

  	
   

  	
    Name: Mark
  Wagner

  
	
   

  	
   

  	
    Title:   Trustee

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  RICHARD
  NIGON IRA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  Stifel
  Nicolaus, Custodian for

  Richard Nigon IRA

  
	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Lisa K. Bass

  	
   

  
	
   

  	
   

  	
  Name:   Lisa
  K.
  Bass                                                

  	
   

  
	
   

  	
   

  	
  Title:     Vice
  President                                             

  	
   

  
	
   

  	
   

  
						



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  
	
   

  	
   

  
	
   

  	
   

  
	
   

  	
  /s/ Richard Nigon

  	
   

  
	
   

  	
  Richard Nigon

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  PJC CAPITAL LLC

  	
   

  
	
   

  	
  /s/ Scott LaRue

  	
   

  
	
   

  	
  Name:

  	
  Scott
  LaRue

  
	
   

  	
  Its:

  	
  Managing
  Director

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  MICHAEL L. TURNBULL

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Michael L. Turnbull

  	
   

  
	
   

  	
  Michael L. Turnbull

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  BOBBY GRIFFIN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Bobby Griffin

  	
   

  
	
   

  	
  Bobby Griffin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NESTOR JARAMILLO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Nestor Jaramillo

  	
   

  
	
   

  	
  Nestor Jaramillo

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CHARLES SCHWAB, CUSTODIAN FOR THE

  NESTOR JARAMILLO IRA

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Lisa Shea

  	
   

  
	
   

  	
  Name:

  	
  Lisa
  Shea

  	
   

  
	
   

  	
  Its:

  	
   

  	
   

  



 


[Signature
page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  LUIS CARLOS CARAMILLO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Luis Carlos Caramillo

  	
   

  
	
   

  	
  Luis
  Carlos Caramillo

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  ORDER OF ST. BENEDICT

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Benedict Leuthner, O.S.B.

  	
   

  
	
   

  	
  Name:

  	
  Benedict
  Leuthner, O.S.B.

  	
   

  
	
   

  	
  Its:

  	
  Corporate
  Treasurer

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  K.
  JAMES EHLEN, M.D.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ K. James Ehlen, M.D.

  	
   

  
	
   

  	
  K. James Ehlen

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WHITNEY E. PEYTON

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Whitney E. Peyton

  	
   

  
	
   

  	
  Whitney E. Peyton

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JEREMY C. GREEN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Jeremy C. Green

  	
   

  
	
   

  	
  Jeremy C. Green

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  THE ROBERT W. BAIRD CO., CUSTODIAN 

  FOR THE BENEFIT OF THE MICHAEL L.

  TURNBULL IRA

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Mary Jane Phillips

  	
   

  
	
   

  	
  Name:

  	
  Mary
  Jane Phillips

  	
   

  
	
   

  	
  Its:

  	
  First
  Vice President

  	
   

  



 


[Counterpart
signature page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  WILLIAM
  CADOGAN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ William Cadogan

  	
   

  
	
   

  	
  William Cadogan

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DEEPAK KAMRA

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Deepak Kamra

  	
   

  
	
   

  	
  Deepak Kamra

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  DAN
  CIPORIN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Dan Ciporin

  	
   

  
	
   

  	
  Dan Ciporin

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JOHN BALEN

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ John Balen

  	
   

  
	
   

  	
  John Balen

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CONNOR ERICKSON YOUNG

  IRREVOCABLE TRUST DTD 2/11/98

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Eric A. Young

  	
   

  
	
   

  	
  Name:

  	
  Eric
  A. Young, Trustee

  	
   

  
	
   

  	
  Its:

  	
  Trustee

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  RYAN ANDERSON YOUNG

  IRREVOCABLE TRUST DTD 7/28/95

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Eric A. Young, Trustee

  	
   

  
	
   

  	
  Eric
  A. Young, Trustee

  	
   

  



 


[Counterpart
signature page to Second Amended and Restated Investor Rights Agreement]


 

















 


	
   

  	
  INVESTORS:

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  STEPHEN BLOCH

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Stephen Bloch

  	
   

  
	
   

  	
  Stephen Bloch

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  SETH
  A. RUDNICK

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ Seth A. Rudnick

  	
   

  
	
   

  	
  Seth A. Rudnick

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  JOHN PACIFICO

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ John Pacifico

  	
   

  
	
   

  	
  John Pacifico

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  NAFCO INSURANCE COMPANY, LTD.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ John Flottmeier, CFA

  	
   

  
	
   

  	
  Name:

  	
  John
  Flottmeier, CFA

  	
   

  
	
   

  	
  Its:

  	
  Authorized
  Agent

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  CURTIS L. CARLSON FAMILY

  FOUNDATION

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  /s/ John Flottmeier, CFA

  	
   

  
	
   

  	
  Name:

  	
  John
  Flottmeier, CFA

  	
   

  
	
   

  	
  Its:

  	
  Authorized
  Agent

  	
   

  



 


[Counterpart
signature page to Second Amended and Restated Investor Rights Agreement]


 

















 


SCHEDULE
1


 


SCHEDULE
OF INVESTORS


 


	
  Investors

  	
   

  
	
   

  	
   

  
	
  The Wallin
  Foundation

  2550 Metropolitan Centre

  Suite 2550

  333 South 7th Street

  Minneapolis, MN  55402

  	
   

  
	
   

  	
   

  
	
  2004 Wallin Partnership LLP

  2550 Metropolitan Centre

  Suite 2550

  333 South 7th Street

  Minneapolis, MN  55402

  	
   

  
	
   

  	
   

  
	
  Polaris Venture Partners III, LP

  1000 Winter Street

  Suite 3350

  Waltham, MA  02451

  	
   

  
	
   

  	
   

  
	
  Polaris Venture Partners Entrepreneurs’ Funds III, L.P.

  1000 Winter Street

  Suite 3350

  Waltham, MA  02451

  	
   

  
	
   

  	
   

  
	
  Polaris Venture Partners Founders’ Fund III, L.P.

  1000 Winter Street

  Suite 3350

  Waltham, MA  02451

  	
   

  
	
   

  	
   

  
	
  Canaan Equity III L.P.

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  
	
   

  	
   

  
	
  Canaan Equity III Entrepreneurs LLC

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  
	
   

  	
   

  
	
  Hutton Living Trust Dated 12/10/96

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  



 

















 


	
  Investors

  	
   

  
	
   

  	
   

  
	
  Affinity Ventures IV, L.P.

  901 Marquette Avenue, Suite 2820

  Minneapolis, MN 55402

  Attn:  Treasurer

  Attn:  General Counsel

  	
   

  
	
   

  	
   

  
	
  Wasatch Ultra Growth Fund

  Wasatch Funds, Inc.

  150 Social Hall Avenue, 4th Floor

  Salt Lake City, UT  84111

  Attn:                                

  	
   

  
	
   

  	
   

  
	
  Cross Creek Capital, L.P.

  150 Social Hall Avenue, 4th Floor

  Salt Lake City, UT  84111

  Attn:                                

  	
   

  
	
   

  	
   

  
	
  Cross Creek Capital Employees’ Fund, L.P.

  150 Social Hall Avenue, 4th Floor

  Salt Lake City, UT  84111

  Attn:                                 

  	
   

  
	
   

  	
   

  
	
  Michael Berman Revocable Trust Dated September 30, 2002

  10727 Genevieve Lane

  Minnetonka, MN 55305

  	
   

  



 

















 


	
  Trellis Health Ventures II L.P.

  425 Market Street, Suite 2200

  San Francisco, CA 94105

  Attn:  Paul J. Felton

  	
   

  
	
   

  	
   

  
	
  D&W Ventures III, LLC

  Attention: Thomas Martin

  50 South Sixth Street

  Minneapolis, MN 55402

  	
   

  
	
   

  	
   

  
	
  2003 Revocable Trust of Mark Wagner

  Dated April 23, 2003

  18743 Bearpath Trail

  Eden Prairie, MN  55347

  	
   

  
	
   

  	
   

  
	
  Stifel Nicolaus Custodian for (TXID #43-0538770)

  RICHARD NIGON IRA (Acct 6843 9108)

  Attn: Cheri Hill

  501 North Broadway

  St. Louis, MO 63102

  	
   

  
	
   

  	
   

  
	
  Richard Nigon

  445 Spring Hill Road

  Wayzata, MN 55391

  	
   

  



 

















 


Schedule
I


 


Schedule
of Investors 


	
  Investor

  	
   

  	
  Number of Shares

  	
   

  	
  Aggregate Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cross Creek
  Capital, L.P.

  150 Social Hall Avenue, 4th Floor

  Salt Lake City, UT 84111 

  Attn:                                

  	
   

  	
  380,970

  	
   

  	
  $

  	
  910,518.30

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Cross Creek
  Capital Employees’ Fund, L.P.

  150 Social Hall Avenue, 4th Floor

  Salt Lake City, UT 84111

  Attn:                                

  	
   

  	
  37,440

  	
   

  	
  $

  	
  89,481.60

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  PJC Capital
  LLC

  1950 University Ave.

  Palo Alto, CA 94303

  	
   

  	
  418,410

  	
   

  	
  $

  	
  999,999.90

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Michael L.
  Turnbull

  2384 W. Lane Ave.

  Columbus, OH 43221

  	
   

  	
  41,841

  	
   

  	
  $

  	
  99,999.99

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Bobby
  Griffin

  8085 Wayzata Blvd. #203

  Golden Valley, MN 55426

  	
   

  	
  41,841

  	
   

  	
  $

  	
  99,999.99

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nestor
  Jaramillo

  6608 Parkwood Rd.

  Edina, MN 55436

  	
   

  	
  37,657

  	
   

  	
  $

  	
  90,000.23

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Nestor
  Jaramillo IRA

  c/o Bradley M. Johnston

  The Johnston Group

  121 South Eighth Street

  Suite 1111

  Minneapolis, MN 55402

  	
   

  	
  25,104

  	
   

  	
  $

  	
  59,998.56

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Luis Carlos
  Jaramillo

  Apdo Postal 7777

  Panama, 9 Panama

  	
   

  	
  31,380

  	
   

  	
  $

  	
  74,998.20

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Order of
  St. Benedict

  31802 Co Rd 159

  Collegeville, MN 56321

  	
   

  	
  20,920

  	
   

  	
  $

  	
  49,998.80

  	
   

  



 


 

















 


	
  K. James Ehlen, M.D.

  600 Pillsbury Center South

  220 South Sixth Street

  Minneapolis, MN
  55402-4501

  	
   

  	
  20,920

  	
   

  	
  $

  	
  49,998.80

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Whitney
  Peyton

  25 Bello Drive

  Edina, MN 55439

  	
   

  	
  20,920

  	
   

  	
  $

  	
  49,998.80

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  1,077,403

  	
   

  	
  $

  	
  2,574,993.17

  	
   

  



 


 

















Schedule
I


 


Schedule
of Investors (Third Closing)


 


	
  Investor

  	
   

  	
  Number of Shares

  	
   

  	
  Aggregate Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Jeremy C.
  Green

  One Ferry Building, Suite 255

  San Francisco, CA 94111

  	
   

  	
  209,205

  	
   

  	
  $

  	
  499,999.95

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  The Robert W. Baird Co., custodian for the

  benefit of the Michael L. Turnbull IRA

  Attn: Mary Jane Phillips, Client Services

  777 E. Wisconsin Ave.,

  Milwaukee, WI 53202

  	
   

  	
  83,682

  	
   

  	
  $

  	
  199,999.98

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  William
  Cadogan

  81 Seagate Dr.

  Unit 1203

  Naples, FL 34103

  	
   

  	
  83,682

  	
   

  	
  $

  	
  199,999.98

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Deepak
  Kamra

  c/o Canaan Partners

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  	
  10,460

  	
   

  	
  $

  	
  24,999.40

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Dan Ciporin

  c/o Canaan Partners

  285 Riverside Avenue, Suite 250

  Westport, CT 06880

  	
   

  	
  10,460

  	
   

  	
  $

  	
  24,999.40

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John Balen

  c/o Canaan Partners

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  	
  8,368

  	
   

  	
  $

  	
  19,999.52

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Connor
  Erickson Young Irrevocable Trust

  DTD 2/11/98

  c/o Canaan Partners

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  	
  8,368

  	
   

  	
  $

  	
  19,999.52

  	
   

  



 


 

















 


	
  Ryan
  Anderson Young Irrevocable Trust

  DTD 7/28/95

  c/o Canaan Partners

  2765 Sand Hill Road

  Menlo Park, CA 94025

  	
   

  	
  8,368

  	
   

  	
  $

  	
  19,999.52

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Stephen
  Bloch

  c/o Canaan Partners

  285 Riverside Avenue,Suite 250

  Westport, CT 06880

  	
   

  	
  4,184

  	
   

  	
  $

  	
  9,999.76

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Seth
  Rudnick

  c/o Canaan Partners

  285 Riverside Avenue,Suite 250

  Westport, CT 06880

  	
   

  	
  2,092

  	
   

  	
  $

  	
  4,999.88

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  John
  Pacifico

  c/o Canaan Partners

  285 Riverside Avenue, Suite 250

  Westport, CT 06880

  	
   

  	
  1,255

  	
   

  	
  $

  	
  2,999.45

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  430,124

  	
   

  	
  $

  	
  1,027,996.36

  	
   

  



 


 

















 


Schedule
I


 


Schedule
of Investors (Fourth Closing)


 


	
  Investor

  	
   

  	
  Number of Shares

  	
   

  	
  Aggregate Purchase Price

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  Curtis L.
  Carlson Foundation

  301 Carlson Parkway, Suite 275

  Minnetonka, MN 55305

  	
   

  	
  418,410

  	
   

  	
  $

  	
  999,999.90

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  NAFCO
  Insurance Company, Ltd.

  301 Carlson Parkway, Suite 275

  Minnetonka, MN 55305

  	
   

  	
  102,989

  	
   

  	
  $

  	
  246,143.71

  	
   

  
	
   

  	
   

  	
   

  	
   

  	
   

  	
   

  
	
  TOTAL

  	
   

  	
  521,399

  	
   

  	
  $

  	
  1,246,143.61