Document:

Exhibit 4.7

 

THIS WARRANT, AND THE SECURITIES ISSUABLE UPON THE EXERCISE OF THIS WARRANT, HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR ANY STATE SECURITIES LAWS. THEY MAY NOT BE SOLD, OFFERED FOR SALE, PLEDGED, OR HYPOTHECATED IN THE ABSENCE OF AN EFFECTIVE REGISTRATION STATEMENT RELATED THERETO OR AN OPINION OF COUNSEL (WHICH MAY BE COMPANY COUNSEL) REASONABLY SATISFACTORY TO THE COMPANY THAT SUCH REGISTRATION IS NOT REQUIRED UNDER THE ACT, OR ANY APPLICABLE STATE SECURITIES LAWS.

 

WARRANT AGREEMENT

 

To Purchase Shares of Preferred Stock of

 

TELA BIO, INC.

 

Dated as of March 31, 2017 (the “Effective Date”)

 

WHEREAS, TELA Bio, Inc., a Delaware corporation, has entered into a Loan and Security Agreement of even date herewith (as amended and in effect from time to time, the “Loan Agreement”) with Hercules Capital, Inc., a Maryland corporation, in its capacity as administrative agent, Hercules Technology II, L.P., a Delaware limited partnership, in its capacity as lender (the “Warrantholder”) and the other lender parties thereto;

 

WHEREAS, the Company (as defined below) desires to grant to Warrantholder, in consideration for, among other things, the financial accommodations provided for in the Loan Agreement, the right to purchase shares of Preferred Stock (as defined below) pursuant to this Warrant Agreement (this “Warrant” or this “Agreement”);

 

NOW, THEREFORE, in consideration of the Warrantholder executing and delivering the Loan Agreement and providing the financial accommodations contemplated therein, and in consideration of the mutual covenants and agreements contained herein, the Company and Warrantholder agree as follows:

 

SECTION 1.                         GRANT OF THE RIGHT TO PURCHASE PREFERRED STOCK.

 

(a)                                 For value received, the Company hereby grants to the Warrantholder, and the Warrantholder is entitled, upon the terms and subject to the conditions hereinafter set forth, to subscribe for and purchase, from the Company, up to such number of shares of Preferred Stock as determined pursuant to Section l(b) below, at a purchase price per share equal to the Exercise Price (as defined below). The number and class/series of shares for which this Warrant is exercisable and the Exercise Price are subject to adjustment from time to time as provided in this Warrant. As used herein, the following terms shall have the following meanings:

 

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

 

“Company” means TELA Bio, Inc., a Delaware corporation, and any successor or surviving entity that assumes the obligations of the Company under this Agreement pursuant to Section 8(a).

 

“Charter” means the Company’s Certificate of Incorporation as filed with the Secretary of State of Delaware, as may be amended and/or restated and in effect from time to time.

 

“Common Stock” means the Company’s common stock, $0,001 par value per share;

 

“Exercise Price” means (i) with respect to the Tranche 1 Shares and the Tranche 2 Shares (as hereinafter defined), $1.16, subject to adjustment from time to time pursuant to Section 8 (the “Tranche 1 Shares and Tranche 2 Shares Exercise Price”); provided, that, in connection with the Next Equity Round, if the Warrantholder elects (as provided below) for the Preferred Stock to become the Next Equity Round Series, then the “Tranche 1 Shares and Tranche 2 Shares Exercise Price” shall thereupon be the Next Equity Round Price, subject to adjustment thereafter from time to time pursuant to Section 8; and (ii) with respect to the Tranche 3 Shares (as hereinafter defined),

 

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the Next Equity Round Price, subject to adjustment from time to time in accordance with the provisions of this Warrant (the “Tranche 3 Shares Exercise Price”); provided, that if, prior to the consummation of the Next Equity Round, there shall be a Merger Event or Initial Public Offering, or the Company shall wind up and liquidate, then the “Tranche 3 Shares Exercise Price” shall be the then-effective Tranche 1 Shares and Tranche 2 Shares Exercise Price as of immediately prior to the closing of such Merger Event, the effectiveness of the registration statement filed in connection with the Initial Public Offering or the first distribution in liquidation to the holders of the Preferred Stock, as the case may be, and subject to adjustment thereafter from time to time in accordance with the provisions of this Warrant. As used in this Warrant, “Exercise Price” shall mean the Tranche 1 Shares and Tranche 2 Shares Exercise Price with respect to the Tranche 1 Shares and Tranche 2 Shares and the Tranche 3 Shares Exercise Price with respect to the Tranche 3 Shares.

 

“Initial Public Offering” means the initial underwritten public offering of the Company’s Common Stock pursuant to a registration statement under the Act, which public offering has been declared effective by the Securities and Exchange Commission (“SEC”);

 

“Merger Event” means any (i) sale, lease or other transfer of all or substantially all assets of the Company; (ii) any merger or consolidation involving the Company in which the Company is not the surviving entity, or in which the outstanding shares of the Company’s capital stock are otherwise converted into or exchanged for shares of preferred stock, other securities or property of another entity; or (iii) any sale or other transfer, in a single transaction or series of related transactions, by holders of the Company’s issued and outstanding capital stock of shares representing more than fifty percent (50%) of the total combined voting power of the Company;

 

“Next Equity Round” means the first sale and issuance by the Company after the Effective Date of shares of its preferred stock to one or more investors for cash for financing purposes in which the Company actually receives gross cash proceeds of at least $5,000,000;

 

“Next Equity Round Notice” has the meaning given in Section l(c) below.

 

“Next Equity Round Price” means the lowest effective price per share for which shares of the Next Equity Round Series are sold and issued in the Next Equity Round. For the avoidance of doubt, if shares of the Next Equity Round Series are sold and issued in the Next Equity Round to one or more investors in consideration of the conversion by such investors of Company indebtedness at a conversion price per share less than the cash price per share for which shares of the Next Equity Round Series are sold and issued to cash purchasers thereof, then the “Next Equity Round Price” shall equal such conversion price per share;

 

“Next Equity Round Series” means the series or other designation of the Company’s preferred stock sold and issued in the Next Equity Round;

 

“Preferred Stock” means (i) with respect to the Tranche 1 Shares and Tranche 2 Shares, Series B Stock, subject to adjustment from time to time pursuant to Section 8; provided, that, in connection with the closing of the Next Equity Round, the Warrantholder may in its sole discretion (but shall not be obligated to) elect for the Preferred Stock with respect to the Tranche 1 Shares and Tranche 2 Shares to become the Next Equity Round Series, such election to be made in writing by the Warrantholder delivered not later than the later to occur of (i) two (2) business days before the closing of the Next Equity Round, or (ii) seven (7) days following the Company’s delivery of the Next Equity Round Notice, subject to adjustment thereafter from time to time to the extent provided in Section 8; and (ii) with respect to the Tranche 3 Shares the Next Equity Round Series, subject to adjustment from time to time in accordance with the provisions of this Warrant; provided, that if, prior to the consummation of the Next Equity Round, there shall be a Merger Event or Initial Public Offering, or the Company shall wind up and liquidate, then “Preferred Stock” with respect to the Tranche 3 Shares shall be Series B Stock as of immediately prior to the closing of such Merger Event, the effectiveness of the registration statement filed in connection with the Initial Public Offering or the first distribution in liquidation to the holders of the Preferred Stock, as the case may be, and subject to adjustment thereafter from time to time in accordance

 

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with the provisions of this Warrant; and in all cases, to the extent provided in Sections 8(a) and (b), any other stock into or for which such Preferred Stock may be converted or exchanged.

 

“Purchase Price” means, with respect to any exercise of this Agreement, an amount equal to the Exercise Price as of the relevant time multiplied by the number of shares of Preferred Stock requested to be exercised under this Agreement pursuant to such exercise; and

 

“Series B Stock” means the Company’s presently authorized Series B Preferred Stock, $0.001 par value per share.

 

(b)                                 Number of Shares. This Warrant shall be exercisable for the Tranche 1 Shares, the Tranche 2 Shares and the Tranche 3 Shares. As used herein, (i) “Tranche 1 Shares” means such number of shares of Preferred Stock as shall equal (x) $150,000, divided by (y) the Tranche 1 Shares and Tranche 2 Shares Exercise Price in effect from time to time, (ii) Tranche 2 Shares” means such number of shares of Preferred Stock as shall equal (x) $150,000, divided by (y) the Tranche 1 Shares and Tranche 2 Shares Exercise Price in effect from time to time; and (iii) “Tranche 3 Shares” means such number of shares of Preferred Stock as shall equal (i) $150,000, divided by (y) the Tranche 3 Shares Exercise Price in effect from time to time; in all cases subject to adjustment from time to time in accordance with the provisions of this Warrant.

 

(c)                                  Notice of Next Equity Round. The Company shall provide written notice to the Warrantholder not less than seven (7) days prior to the anticipated closing of the Next Equity Round, which notice shall state all material terms and conditions thereof and all material rights, powers, preferences and privileges of the Next Equity Round Series (the “Next Equity Round Notice”). Following delivery of such Next Equity Round Notice, the Company shall promptly provide to the Warrantholder such copies of the execution versions of the transaction documents (or if execution versions are not yet available, then current drafts of such transaction documents) in connection with the Next Equity Round (including, without limitation, the Company’s amended and/or restated Certificate of Incorporation, the securities purchase agreement and pre- and post-closing capitalization tables) as the Warrantholder shall request from time to time.

 

SECTION 2.                         TERM OF THE AGREEMENT.

 

Except as otherwise provided for herein, the term of this Agreement and the right to purchase Preferred Stock as granted herein (the “Warrant”) shall commence on the Effective Date and shall be exercisable for a period ending on the tenth (10th) anniversary of the Effective Date.

 

SECTION 3.                         EXERCISE OF THE PURCHASE RIGHTS.

 

(a)                                 Exercise. The purchase rights set forth in this Agreement are exercisable by the Warrantholder, in whole or in part, at any time, or from time to time, prior to the expiration of the term set forth in Section 2, by tendering to the Company at its principal office a notice of exercise in the form attached hereto as Exhibit I (the “Notice of Exercise”), duly completed and executed, Promptly upon receipt of the Notice of Exercise and the payment of the Purchase Price in accordance with the terms set forth below, and in no event later than five (5) days thereafter, the Company shall issue to the Warrantholder a certificate for the number of shares of Preferred Stock purchased and shall execute the acknowledgment of exercise in the form attached hereto as Exhibit II (the “Acknowledgment of Exercise”) indicating the number of shares which remain subject to future purchases, if any,

 

The Purchase Price may be paid at the Warrantholder’s election either (i) by cash or check, or (ii) by surrender of all or a portion of the Warrant for shares of Preferred Stock to be exercised under this Agreement and, if applicable, an amended Agreement representing the remaining number of shares purchasable hereunder, as determined below (“Net Issuance”). If the Warrantholder elects the Net Issuance method, the Company will issue Preferred Stock in accordance with the following formula:

 

	
 
    	
 
    	
X =
    	
Y(A-B)
    	
 
    
	
 
    	
 
    	
 
    	
A
    	
 
    

 

	
Where:
    	
X =
    	
the number of shares of Preferred Stock to be issued to the   Warrantholder.
    

 

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Y =
    	
the number of shares of Preferred Stock requested to be exercised   under this Agreement.
    
	
 
    	
A =
    	
the fair market value of one (1) share of Preferred Stock at   the time of issuance of such shares of Preferred Stock.
    
	
 
    	
B =
    	
the Exercise Price.
    

 

For purposes of the above calculation, current fair market value of Preferred Stock shall mean with respect to each share of Preferred Stock:

 

(i)                                     if the exercise is in connection with an Initial Public Offering, and if the Company’s Registration Statement relating to such Initial Public Offering has been declared effective by the SEC, then the fair market value per share shall be the product of (x) the initial “Price to Public” of the Common Stock specified in the final prospectus with respect to the offering and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;

 

(ii)                                  if the exercise is after, and not in connection with an Initial Public Offering, and:

 

(A)                               if the Common Stock is traded on a securities exchange, the fair market value shall be deemed to be the product of (x) the average last sale price of a share of common stock reported for the five (5) trading days ending two (2) days before the date on which the Warrantholder delivers this Warrant for exercise and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise; or

 

(B)                               if the Common Stock is traded over-the-counter, the fair market value shall be deemed to be the product of (x) the prior day closing bid and asked price quoted on the NASDAQ system (or similar system) before the day the current fair market value of the securities is being determined and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise;

 

(iii)                               if at any time the Common Stock is not listed on any securities exchange or quoted in the NASDAQ National Market or the over-the-counter market, the current fair market value of Preferred Stock shall be the product of (x) the highest price per share which the Company could obtain from a willing buyer (not a current employee or director) for shares of Common Stock sold by the Company, from authorized but unissued shares, as determined in good faith by its Board of Directors and (y) the number of shares of Common Stock into which each share of Preferred Stock is convertible at the time of such exercise, unless the Company shall become subject to a Merger Event, in which case the fair market value of Preferred Stock shall be deemed to be the per share value received by the holders of the Company’s Preferred Stock on a common equivalent basis pursuant to such Merger Event.

 

Upon partial exercise by either cash or Net Issuance, the Company shall promptly issue an amended Agreement representing the remaining number of shares purchasable hereunder. All other terms and conditions of such amended Agreement shall be identical to those contained herein, including, but not limited to the Effective Date hereof.

 

As a condition to the receipt of evidence of the issuance of shares of Preferred Stock to the Warrantholder following exercise hereof, Warrantholder shall, if requested by the Company, execute and deliver to the Company a counterpart signature page or joinder to the Company’s then effective investor rights agreement and stockholders agreement, or other similar agreements entered into by shareholders of the Company with respect to the Preferred Stock, in each case solely with respect to the shares of Preferred Stock issued on such exercise, solely to the extent such agreement is then by its terms in force and effect, and only if all holders of the outstanding shares of Preferred Stock (or, if the Preferred Stock is then Common Stock in

 

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accordance with the definition of Preferred Stock in Section 1(a) above, holders of eighty percent (80%) of the then-outstanding shares of Preferred Stock) are then parties thereto.

 

(b)                                 Exercise Prior to Expiration. To the extent this Agreement is not previously exercised as to all Preferred Stock subject hereto, and if the fair market value of one share of the Preferred Stock is greater than the Exercise Price then in effect, this Agreement shall be deemed automatically exercised pursuant to Section 3(a) (even if not surrendered) immediately before its expiration. For purposes of such automatic exercise, the fair market value of one share of the Preferred Stock upon such expiration shall be determined pursuant to Section 3(a). To the extent this Agreement or any portion thereof is deemed automatically exercised pursuant to this Section 3(b), the Company agrees to promptly notify the Warrantholder of the number of shares of Preferred Stock, if any, the Warrantholder is to receive by reason of such automatic exercise.

 

SECTION 4.                         RESERVATION OF SHARES.

 

During the term of this Agreement, the Company will at all times have authorized and reserved a sufficient number of shares of its Preferred Stock to provide for the exercise of the rights to purchase Preferred Stock as provided for herein, and shall have authorized and reserved a sufficient number of shares of its Common Stock to provide for the conversion of the shares of Preferred Stock issuable hereunder.

 

SECTION 5.                         NO FRACTIONAL SHARES OR SCRIP.

 

No fractional shares or scrip representing fractional shares shall be issued upon the exercise of this Agreement, but in lieu of such fractional shares the Company shall make a cash payment therefor upon the basis of the then fair market value of one share of Preferred Stock.

 

SECTION 6.                         NO RIGHTS AS SHAREHOLDER/STOCKHOLDER.

 

This Agreement does not entitle the Warrantholder to any voting rights or other rights as a shareholder/stockholder of the Company prior to the exercise of this Agreement.

 

SECTION 7.                         WARRANTHOLDER REGISTRY.

 

The Company shall maintain a registry showing the name and address of the registered holder of this Agreement. Warrantholder’s initial address, for purposes of such registry, is set forth below Warrantholder’s signature on this Agreement. Warrantholder may change such address by giving written notice of such changed address to the Company.

 

SECTION 8.                         ADJUSTMENT RIGHTS.

 

The Exercise Price and the number of shares of Preferred Stock purchasable hereunder are subject to adjustment, as follows:

 

(a)                                 Merger Event. If at any time there shall be Merger Event, then, as a part of such Merger Event, lawful provision shall be made so that the Warrantholder shall thereafter be entitled to receive, upon exercise of this Agreement, the number of shares of preferred stock or other securities or property (collectively, “Reference Property”) that the Warrantholder would have received in connection with such Merger Event if Warrantholder had exercised this Agreement immediately prior to the Merger Event. In any such case, appropriate adjustment (as determined in good faith by the Company’s Board of Directors and reasonably acceptable to the Warrantholder) shall be made in the application of the provisions of this Agreement with respect to the rights and interests of the Warrantholder after the Merger Event to the end that the provisions of this Agreement (including adjustments of the Exercise Price, the ability of the Warrantholder to elect the class and series of Preferred Stock as set forth in the definition thereof, and adjustments to ensure that the provisions of this Section 8 shall thereafter be applicable, as nearly as possible, to the purchase rights under this Agreement in relation to any Reference Property thereafter acquirable upon exercise of such purchase rights) shall continue to be applicable in their entirety, and to the greatest extent possible. Without limiting the foregoing, in connection with any Merger Event, upon the closing thereof, the successor or surviving entity shall assume the obligations of this Agreement;

 

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provided that the foregoing assumption requirement shall not apply if (i) the consideration to be paid for or in respect of the outstanding shares of Preferred Stock in such Merger Event consists solely of cash and/or readily marketable securities, and (ii) the value of such consideration (as determined at closing in accordance with the definitive executed transaction documents) to be paid for or in respect of each outstanding share of Preferred Stock is at least two (2) times the Exercise Price in effect as of immediately prior to the closing of such Merger Event. In connection with a Merger Event and upon Warrantholder’s written election to the Company, the Company shall cause this Warrant Agreement to be exchanged for the consideration that Warrantholder would have received if Warrantholder had chosen to exercise its right to have shares issued pursuant to the Net Issuance provisions of this Warrant Agreement without actually exercising such right, acquiring such shares and exchanging such shares for such consideration. The provisions of this Section 8(a) shall similarly apply to successive Merger Events.

 

(b)                                 Reclassification of Shares. Except for Merger Events subject to Section 8(a), and subject to Section 8(f), if the Company at any time shall, by combination, reclassification, exchange or subdivision of securities or otherwise, change any of the securities as to which purchase rights under this Agreement exist into the same or a different number of securities of any other class or classes, this Agreement shall thereafter represent the right to acquire such number and kind of securities as would have been issuable as the result of such change with respect to the securities which were subject to the purchase rights under this Agreement immediately prior to such combination, reclassification, exchange, subdivision or other change; provided, that to the extent Warrantholder has the right to elect to receive upon exercise either Series B Stock or the Next Equity Round Series, the adjustment under this clause (b) shall apply solely to the class and series of preferred stock that has been so combined, reclassified, exchanged or subdivided and shall not impair the Warrantholder’s right to elect to exercise the purchase rights for any other class or series of preferred stock. The provisions of this Section 8(b) shall similarly apply to successive combination, reclassification, exchange, subdivision or other change.

 

(c)                                  Subdivision or Combination of Shares. If the Company at any time shall combine or subdivide its Preferred Stock, (i) in the case of a subdivision, the Exercise Price shall be proportionately decreased and the number of shares of Preferred Stock issuable hereunder shall be proportionately increased, or (ii) in the case of a combination, the Exercise Price shall be proportionately increased and the number of shares of Preferred Stock issuable hereunder shall be proportionately decreased.

 

(d)                                 Stock Dividends. If the Company at any time while this Agreement is outstanding and unexpired shall:

 

(i)                                          pay a dividend with respect to the Preferred Stock payable in Preferred Stock, then the Exercise Price shall be adjusted, from and after the date of determination of stockholders entitled to receive such dividend or distribution, to that price determined by multiplying the Exercise Price in effect immediately prior to such date of determination by a fraction (A) the numerator of which shall be the total number of shares of Preferred Stock outstanding immediately prior to such dividend or distribution, and (B) the denominator of which shall be the total number of shares of Preferred Stock outstanding immediately after such dividend or distribution; or

 

(ii)                                       make any other distribution with respect to Preferred Stock (or stock into which the Preferred Stock is convertible), except any distribution specifically provided for in any other clause of this Section 8, then, in each such case, provision shall be made by the Company such that the Warrantholder shall receive upon exercise or conversion of this Warrant a proportionate share of any such distribution as though it were the holder of the Preferred Stock (or other stock for which the Preferred Stock is convertible) as of the record date fixed for the determination of the stockholders of the Company entitled to receive such distribution.

 

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(e)                                  Antidilution Rights. Additional antidilution rights applicable to the Preferred Stock purchasable hereunder are as set forth in the Charter and shall be applicable with respect to the Preferred Stock issuable hereunder. The Company shall promptly provide the Warrantholder with any restatement, amendment, modification or waiver of the Charter; provided, that no such amendment, modification or waiver shall impair or reduce the antidilution rights applicable to the Preferred Stock as of the date hereof unless such amendment, modification or waiver affects the rights of Warrantholder with respect to the Preferred Stock in the same manner as it affects all other holders of Preferred Stock. The Company shall provide Warrantholder with prior written notice of any issuance of its stock or other equity security to occur after the Effective Date of this Agreement, which notice shall include (a) the price at which such stock or security is to be sold, (b) the number of shares to be issued, and (c) such other information as necessary for Warrantholder to determine if a dilutive event has occurred. For the avoidance of doubt, there shall be no duplicate anti-dilution adjustment pursuant to this subsection (e), the forgoing subsection (d) and the Charter.

 

(f)                                   Notice of Adjustments. If: (i) the Company shall declare any dividend or distribution upon its stock, whether in stock, cash, property or other securities; (ii) there shall be any Merger Event; (iv) there shall be an Initial Public Offering; (iii) the Company shall sell, lease, license or otherwise transfer all or substantially all of its assets; or (iv) there shall be any voluntary dissolution, liquidation or winding up of the Company; then, in connection with each such event, the Company shall send to the Warrantholder: (A) at least thirty (30) days’ prior written notice of the date on which the books of the Company shall close or a record shall be taken for such dividend, distribution, subscription rights (specifying the date on which the holders of Preferred Stock shall be entitled thereto) or for determining rights to vote in respect of such Merger Event, dissolution, liquidation or winding up; (B) in the case of any such Merger Event, sale, lease, license or other transfer of all or substantially all assets, dissolution, liquidation or winding up, at least thirty (30) days’ prior written notice of the date when the same shall take place (and specifying the date on which the holders of Preferred Stock shall be entitled to exchange their Preferred Stock for securities or other property deliverable upon such Merger Event, dissolution, liquidation or winding up); and (C) in the case of an Initial Public Offering, the Company shall give the Warrantholder at least thirty (30) days’ written notice prior to the effective date thereof.

 

Each such written notice shall set forth, in reasonable detail, (i) the event requiring the notice, and (ii) if any adjustment is required to be made, (A) the amount of such adjustment, (B) the method by which such adjustment was calculated, (C) the adjusted Exercise Price (if the Exercise Price has been adjusted), and (D) the number of shares subject to purchase hereunder after giving effect to such adjustment, and shall be given in accordance with Section 12(g) below.

 

(g)                                  Timely Notice. Failure to timely provide such notice required by subsection (f) above shall entitle Warrantholder to retain the benefit of the applicable notice period notwithstanding anything to the contrary contained in any insufficient notice received by Warrantholder. For purposes of this subsection (g), and notwithstanding anything to the contrary in Section 12(g), the notice period shall begin on the date Warrantholder actually receives a written notice containing all the information required to be provided in such subsection (g).

 

SECTION 9.                         REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

 

(a)                                 Reservation of Preferred Stock. The Preferred Stock issuable upon exercise of the Warrantholder’s rights has been or, in the case of Preferred Stock issuable in the Next Equity Round, will be duly and validly reserved and, when issued in accordance with the provisions of this Agreement, will be validly issued, fully paid and non-assessable, and will be free of any taxes, liens, charges or encumbrances of any nature whatsoever; provided, that the Preferred Stock issuable pursuant to this Agreement may be subject to restrictions on transfer under state and/or federal securities laws. The Company has made available to the Warrantholder true, correct and complete copies of its Charter and current bylaws. The issuance of certificates for shares of Preferred Stock upon exercise of this Agreement shall be made without charge to the Warrantholder for any issuance tax in respect thereof, or other cost incurred by the Company in connection with such exercise and the related issuance of shares of Preferred

 

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Stock; provided, that the Company shall not be required to pay any tax which may be payable in respect of any transfer and the issuance and delivery of any certificate in a name other than that of the Warrantholder.

 

(b)                                 Due Authority. The execution and delivery by the Company of this Agreement and the performance of all obligations of the Company hereunder, including the issuance to Warrantholder of the right to acquire the shares of Preferred Stock and the Common Stock into which it may be converted, have been duly authorized by all necessary corporate action on the part of the Company. This Agreement: (1) does not violate the Company’s Charter or current bylaws; (2) does not contravene any law or governmental rule, regulation or order applicable to it; and (3) does not and will not contravene any provision of, or constitute a default under, any indenture, mortgage, contract or other instrument to which it is a party or by which it is bound. This Agreement constitutes a legal, valid and binding agreement of the Company, enforceable in accordance with its terms.

 

(c)                                  Consents and Approvals. No consent or approval of, giving of notice to, registration with, or taking of any other action in respect of any state, federal or other governmental authority or agency is required with respect to the execution, delivery and performance by the Company of its obligations under this Agreement, except for the filing of notices pursuant to Regulation D under the Act and any filing required by applicable state securities law, which filings will be effective by the time required thereby.

 

(d)                                 Capitalization. The fully-diluted capitalization table of the Company attached hereto as Exhibit IV is true and complete in all material respects as of the Effective Date.

 

(e)                                  Registration Rights. The Company agrees that the shares of Common Stock issued and issuable upon conversion of the shares of Preferred Stock issued and issuable upon exercise of this Warrant, and, at all times (if any) when the Preferred Stock shall be Common Stock, the shares of Preferred Stock issued and issuable upon exercise of this Warrant, shall have the “Piggyback,” and S-3 registration rights pursuant to and as set forth in the Company’s investor rights agreement or similar agreement (the “Investor Rights Agreement”) on a pari passu basis with the holders of outstanding shares of Preferred Stock who are parties thereto. The provisions set forth in the Company’s Investor Rights Agreement or similar agreement relating to such registration rights in effect as of the Effective Date may not be amended, modified or waived without the prior written consent of the Warrantholder unless such amendment, modification or waiver affects the rights associated with the shares of Preferred Stock issued and issuable upon exercise hereof in the same manner as such amendment, modification, or waiver affects the rights associated with all outstanding shares of Preferred Stock whose holders are parties thereto.

 

(f)                                   Other Commitments to Register Securities. Except as set forth in this Agreement, the Company is not, pursuant to the terms of any other agreement currently in existence, under any obligation to register under the Act any of its presently outstanding securities or any of its securities which may hereafter be issued.

 

(g)                                  Exempt Transaction. Subject to the accuracy of the Warrantholder’s representations in Section 10, the issuance of the Preferred Stock upon exercise of this Agreement, and the issuance of the Common Stock upon conversion of the Preferred Stock, will each constitute a transaction exempt from (i) the registration requirements of Section 5 of the Act, in reliance upon Section 4(2) thereof, and (ii) the qualification requirements of the applicable state securities laws.

 

(h)                                 Compliance with Rule 144. If the Warrantholder proposes to sell Preferred Stock issuable upon the exercise of this Agreement, or the Common Stock into which it is convertible, in compliance with Rule 144 promulgated by the SEC, then, upon Warrantholder’s reasonable written request to the Company, the Company shall furnish to the Warrantholder, within ten days after receipt of such request, a written statement confirming the Company’s compliance with the filing requirements of the SEC as set forth in such Rule, as such Rule may be amended from time to time.

 

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(i)                                     Information Rights. During the term of this Warrant and prior to the Initial Public Offering, Warrantholder shall be entitled to the information rights contained in subsections 7.1(c) and (f) of the Loan Agreement, and such subsections of the Loan Agreement are hereby incorporated into this Agreement by this reference as though fully set forth herein.

 

SECTION 10.                                    REPRESENTATIONS AND COVENANTS OF THE WARRANTHOLDER.

 

This Agreement has been entered into by the Company in reliance upon the following representations and covenants of the Warrantholder:

 

(a)                                 Investment Purpose. The right to acquire Preferred Stock is being acquired for investment and not with a view to the sale or distribution of any part thereof, and the Warrantholder has no present intention of selling or engaging in any public distribution of such rights or the Preferred Stock except pursuant to an effective registration statement or an exemption from the registration requirements of the Act.

 

(b)                                 Private Issue. The Warrantholder understands (i) that the Preferred Stock issuable upon exercise of this Agreement is not registered under the Act or qualified under applicable state securities laws on the ground that the issuance contemplated by this Agreement will be exempt from the registration and qualifications requirements thereof, and (ii) that the Company’s reliance on such exemption is predicated on the representations set forth in this Section 10.

 

(c)                                  Financial Risk. The Warrantholder has such knowledge and experience in financial and business matters as to be capable of evaluating the merits and risks of its investment, and has the ability to bear the economic risks of its investment.

 

(d)                                 Risk of No Registration. The Warrantholder understands that if the Company does not register with the SEC pursuant to Section 12 of the Securities Exchange Act of 1934 (the “1934 Act”), or file reports pursuant to Section 15(d) of the 1934 Act, or if a registration statement covering the securities under the Act is not in effect when it desires to sell (i) the rights to purchase Preferred Stock pursuant to this Agreement or (ii) the Preferred Stock issuable upon exercise of the right to purchase, it may be required to hold such securities for an indefinite period. The Warrantholder also understands that any sale of (A) its rights hereunder to purchase Preferred Stock or (B) Preferred Stock issued or issuable hereunder which might be made by it in reliance upon Rule 144 under the Act may be made only in accordance with the terms and conditions of that Rule.

 

(e)                                  Accredited Investor. Warrantholder is an “accredited investor” within the meaning of the Securities and Exchange Rule 501 of Regulation D, as presently in effect.

 

SECTION 11.                                    TRANSFERS.

 

Subject to compliance with applicable federal and state securities laws, this Agreement and all rights hereunder are transferable, in whole or in part, without charge to the holder hereof (except for transfer taxes) upon surrender of this Agreement properly endorsed. Each taker and holder of this Agreement, by taking or holding the same, consents and agrees that this Agreement, when endorsed in blank, shall be deemed negotiable, and that the holder hereof, when this Agreement shall have been so endorsed and its transfer recorded on the Company’s books, shall be treated by the Company and all other persons dealing with this Agreement as the absolute owner hereof for any purpose and as the person entitled to exercise the rights represented by this Agreement. The transfer of this Agreement shall be recorded on the books of the Company upon receipt by the Company of a notice of transfer in the form attached hereto as Exhibit III (the “Transfer Notice”), at its principal offices and the payment to the Company of all transfer taxes and other governmental charges imposed on such transfer. Until the Company receives such Transfer Notice, the Company may treat the registered owner hereof as the owner for all purposes.

 

SECTION 12.                                    MISCELLANEOUS.

 

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(a)                                 Effective Date. The provisions of this Agreement shall be construed and shall be given effect in all respects as if it had been executed and delivered by the Company on the date hereof. This Agreement shall be binding upon any successors or assigns of the Company.

 

(b)                                 Remedies. In the event of any default hereunder, the non-defaulting party may proceed to protect and enforce its rights either by suit in equity and/or by action at law, including but not limited to an action for damages as a result of any such default, and/or an action for specific performance for any default where Warrantholder will not have an adequate remedy at law and where damages will not be readily ascertainable. The Company expressly agrees that it shall not oppose an application by the Warrantholder or any other person entitled to the benefit of this Agreement requiring specific performance of any or all provisions hereof or enjoining the Company from continuing to commit any such breach of this Agreement.

 

(c)                                  No Impairment of Rights. The Company will not, by amendment of its Charter or through any other means, avoid or seek to avoid the observance or performance of any of the terms of this Agreement, but will at all times in good faith assist in the carrying out of all such terms and in the taking of all such actions as may be necessary or appropriate in order to protect the rights of the Warrantholder against impairment.

 

(d)                                 Additional Documents. The Company, upon execution of this Agreement, shall provide the Warrantholder with certified resolutions with respect to the representations, warranties and covenants set forth in Sections 9(a) through 9(d), 9(f) and 9(g). The Company shall also supply documentation reasonably necessary to evaluate whether to exercise (in cash or a net issuance basis) this Warrant, including without limitation, (i) any merger/purchase/asset sale agreement and related documents and estimated payout allocations to each of the respective shareholders, warrant and option holders in connection with a Merger Event, (ii) the most recent capitalization tables, 409A valuations (if any), and board determination of share value (including any waterfall or per share allocations provided to the share/unitholders), and (iii) most recent articles of incorporation or organization (as applicable).

 

(e)                                  Attorney’s Fees. In any litigation, arbitration or court proceeding between the Company and the Warrantholder relating hereto, the prevailing party shall be entitled to attorneys’ fees and expenses and all costs of proceedings incurred in enforcing this Agreement. For the purposes of this Section 12(e), attorneys’ fees shall include without limitation fees incurred in connection with the following: (i) contempt proceedings; (ii) discovery; (iii) any motion, proceeding or other activity of any kind in connection with an insolvency proceeding; (iv) garnishment, levy, and debtor and third party examinations; and (v) post-judgment motions and proceedings of any kind, including without limitation any activity taken to collect or enforce any judgment.

 

(f)                                   Severability. In the event any one or more of the provisions of this Agreement shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Agreement shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision, which comes closest to the intention of the parties underlying the invalid, illegal or unenforceable provision.

 

(g)                                  Notices. Except as otherwise provided herein, any notice, demand, request, consent, approval, declaration, service of process or other communication that is required, contemplated, or permitted under this Agreement or with respect to the subject matter hereof shall be in writing, and shall be deemed to have been validly served, given, delivered, and received upon the earlier of: (i) the day of transmission by facsimile or hand delivery if transmission or delivery occurs on a business day at or before 5:00 pm in the time zone of the recipient, or, if transmission or delivery occurs on a non-business day or after such time, the first business day thereafter, or the first business day after deposit with an overnight express service or overnight mail delivery service; or (ii) the third calendar day after deposit in the United States mails, with proper first class postage prepaid, and shall be addressed to the party to be notified as follows:

 

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If to Warrantholder:

 

Hercules Technology III, L.P. 
 Legal Department 
 Attention: Chief Legal Officer 
 400 Hamilton Avenue, Suite 310 
 Palo Alto, CA 94301 
 Facsimile: 650-473-9194 
 Telephone: 650-289-3060

 

If to the Company:

 

TELA Bio, Inc.
 Attention: Chief Financial Officer
 1 Great Valley Parkway, Suite 24
 Malvern, PA 19355
 Facsimile:
 Telephone:

 

or to such other address as each party may designate for itself by like notice.

 

(h)                                 Entire Agreement; Amendments. This Agreement constitute the entire agreement and understanding of the parties hereto in respect of the subject matter hereof, and supersede and replace in their entirety any prior proposals, term sheets, letters, negotiations or other documents or agreements, whether written or oral, with respect to the subject matter hereof (including Warrantholder’s proposal letter dated February 27, 2017). None of the terms of this Agreement may be amended except by an instrument executed by each of the parties hereto.

 

(i)                                     Headings. The various headings in this Agreement are inserted for convenience only and shall not affect the meaning or interpretation of this Agreement or any provisions hereof.

 

(j)                                    No Strict Construction. The parties hereto have participated jointly in the negotiation and drafting of this Agreement. In the event an ambiguity or question of intent or interpretation arises, this Agreement shall be construed as if drafted jointly by the parties hereto and no presumption or burden of proof shall arise favoring or disfavoring any party by virtue of the authorship of any provisions of this Agreement.

 

(k)                                 No Waiver. No omission or delay by Warrantholder at any time to enforce any right or remedy reserved to it, or to require performance of any of the terms, covenants or provisions hereof by the Company at any time designated, shall be a waiver of any such right or remedy to which Warrantholder is entitled, nor shall it in any way affect the right of Warrantholder to enforce such provisions thereafter.

 

(1)                                 Survival. All agreements, representations and warranties contained in this Agreement or in any document delivered pursuant hereto shall be for the benefit of Warrantholder and shall survive the execution and delivery of this Agreement and the expiration or other termination of this Agreement.

 

(m)                             Governing Law. This Agreement have been negotiated and delivered to Warrantholder in the State of California, and shall have been accepted by Warrantholder in the State of California. Delivery of Preferred Stock to Warrantholder by the Company under this Agreement is due in the State of California. This Agreement shall be governed by, and construed and enforced in accordance with, the laws of the State of California, excluding conflict of laws principles that would cause the application of laws of any other jurisdiction.

 

(n)                                 Consent to Jurisdiction and Venue. All judicial proceedings arising in or under or related to this Agreement may be brought in any state or federal court of competent jurisdiction located in the State of California. By execution and delivery of this Agreement, each party hereto generally and unconditionally: (a) consents to personal jurisdiction in Santa Clara County, State of California; (b) waives any objection as to jurisdiction or venue in Santa Clara County, State of California; (c) agrees not to assert any defense based on lack of jurisdiction or venue in the aforesaid courts; and (d) irrevocably agrees to be bound by any judgment rendered thereby in connection with this Agreement. Service of process on any party hereto in any action arising out of or relating to this Agreement shall be effective if given in accordance with the requirements for notice set forth in Section 12(g), and shall be deemed effective and received as set forth in Section 12(g). Nothing herein shall affect the right to serve process in any other manner permitted by law or shall limit the right of either party to bring proceedings in the courts of any other jurisdiction.

 

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(o)                                 Mutual Waiver of Jury Trial. Because disputes arising in connection with complex financial transactions are most quickly and economically resolved by an experienced and expert person and the parties wish applicable state and federal laws to apply (rather than arbitration rules), the parties desire that their disputes be resolved by a judge applying such applicable laws. EACH OF THE COMPANY AND WARRANTHOLDER SPECIFICALLY WAIVES ANY RIGHT IT MAY HAVE TO TRIAL BY JURY OF ANY CAUSE OF ACTION, CLAIM, CROSS-CLAIM, COUNTERCLAIM, THIRD PARTY CLAIM OR ANY OTHER CLAIM (COLLECTIVELY, “CLAIMS”) ASSERTED BY THE COMPANY AGAINST WARRANTHOLDER OR ITS ASSIGNEE OR BY WARRANTHOLDER OR ITS ASSIGNEE AGAINST THE COMPANY. This waiver extends to all such Claims, including Claims that involve Persons other than Company and Warrantholder; Claims that arise out of or are in any way connected to the relationship between the Company and Warrantholder; and any Claims for damages, breach of contract, specific performance, or any equitable or legal relief of any kind, arising out of this Agreement.

 

(p)                                 Judicial Reference. If the waiver of jury trial set forth above is ineffective or unenforceable, the parties agree that all Claims shall be resolved by reference to a private judge sitting without a jury, pursuant to Code of Civil Procedure Section 638, before a mutually acceptable referee or, if the parties cannot agree, a referee selected by the Presiding Judge of Santa Clara County, California. Such proceeding shall be conducted in Santa Clara County, California, with California rules of evidence and discovery applicable to such proceeding.

 

(q)                                 Prejudgment Relief. In the event Claims are to be resolved by arbitration, either party may seek from a court of competent jurisdiction identified in Section 12(n), any prejudgment order, writ or other relief and have such prejudgment order, writ or other relief enforced to the fullest extent permitted by law notwithstanding that all Claims are otherwise subject to resolution by judicial reference.

 

(r)                                    Counterparts. This Agreement and any amendments, waivers, consents or supplements hereto may be executed in any number of counterparts, and by different parties hereto in separate counterparts, each of which when so delivered shall be deemed an original, but all of which counterparts shall constitute but one and the same instrument.

 

[Remainder of Page Intentionally Left Blank]

 

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IN WITNESS WHEREOF, the parties hereto have caused this Agreement to be executed by its officers . thereunto duly authorized as of the Effective Date.

 

	
COMPANY:
    	
TELA BIO, INC.
    
	
 
    	
 
    
	
 
    	
By: 
    	
/s/ Francis M. Conway
    
	
 
    	
Name:
    	
Francis M. Conway 
    
	
 
    	
Title:
    	
Vice President - Finance
    
	
 
    	
 
    	
 
    
	
WARRANTHOLDER:
    	
HERCULES TECHNOLOGY II, L.P., a Delaware limited partnership
    
	
 
    	
 
    
	
 
    	
By: Hercules Technology SBIC Management LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
By: Hercules Capital, Inc., its Manager
    
	
 
    	
 
    
	
 
    	
By:
    	
/s/ Zhuo Huang
    
	
 
    	
Name:
    	
Zhuo Huang
    
	
 
    	
Title:
    	
Associate General Counsel
    

 

13

 

EXHIBIT I

 

NOTICE OF EXERCISE

 

To:                             [                                             ]

 

(1)                                 The undersigned Warrantholder hereby elects to purchase [         ] shares of the Series [  ] Preferred Stock of [             ], pursuant to the terms of the Agreement dated the [   ] day of [          ,     ] (the “Agreement”) between [                 ] and the Warrantholder, and [CASH PAYMENT: Tenders herewith payment of the Purchase Price in full, together with all applicable transfer taxes, if any.] [NET ISSUANCE: elects pursuant to Section 3(a) of the Agreement to effect a Net Issuance.]

 

(2)                                 Please issue a certificate or certificates representing said shares of Series [  ] Preferred Stock in the name of the undersigned or in such other name as is specified below.

 

	
 
    	
 
    
	
 
    	
(Name)
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
(Address)
    
	
 
    	
 
    
	
WARRANTHOLDER:
    	
HERCULES TECHNOLOGY II, L.P., a Delaware limited partnership
    
	
 
    	
 
    
	
 
    	
By: Hercules Technology SBIC Management LLC, its General Partner
    
	
 
    	
 
    
	
 
    	
By: Hercules Capital, Inc., its Manager
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
Title:
    	
 
    

 

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EXHIBIT II

ACKNOWLEDGMENT OF EXERCISE

 

The undersigned [                   ], hereby acknowledge receipt of the “Notice of Exercise” from Hercules Technology II, L.P.. to purchase [                                        ] shares of the Series [   ] Preferred Stock of [  ], pursuant to the terms of the Agreement, and further acknowledges that [   ] shares remain subject to purchase under the terms of the Agreement.

 

	
COMPANY:
    	
[                                         ]
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Date:
    	
 
    

 

15

 

EXHIBIT III

TRANSFER NOTICE

 

(To transfer or assign the foregoing Agreement execute this form and supply required information. Do not use this form to purchase shares.)

 

FOR VALUE RECEIVED, the foregoing Agreement and all rights evidenced thereby are hereby transferred and assigned to

 

 

	
 
    	
 
    
	
(Please Print)
    	
 
    	
 
    	
 
    
				

 

whose address is

 

 

	
 
    	
Dated:
    	
 
    	
 
    
	
 
    	
Holder’s Signature:
    	
 
    	
 
    
	
 
    	
Holder’s Address:
    	
 
    	
 
    
	
 
    	
 
    	
 
    	
 
    
					

 

Signature Guaranteed:

 

NOTE: The signature to this Transfer Notice must correspond with the name as it appears on the face of the Agreement, without alteration or enlargement or any change whatever. Officers of corporations and those acting in a fiduciary or other representative capacity should file proper evidence of authority to assign the foregoing Agreement.

 

 

2107048.4/27955.00059

 

16Exhibit 4.8

 

Execution Version

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT AND PURSUANT TO THE PROVISIONS OF ARTICLE 5 BELOW, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW, OR SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION CAN BE MADE IN COMPLIANCE WITH RULE 144 OF THE ACT, OR UNLESS IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

THE SECURITIES EVIDENCED BY THIS INSTRUMENT ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A MARKET STAND-OFF PERIOD OF UP TO 180 DAYS IN THE EVENT OF A PUBLIC OFFERING, OR FOR A LONGER PERIOD IF THE ISSUER’S TRANSFER AGENT IS NOTIFIED BY THE ISSUER OR THE ISSUER’S COUNSEL THAT THIS MARKET STAND-OFF RESTRICTION HAS BEEN EXTENDED FOR THE PURPOSE OF COMPLYING WITH APPLICABLE LAW.

 

WARRANT TO PURCHASE STOCK

 

	
Company:
    	
TELA Bio, Inc., a Delaware corporation
    
	
Number of Shares
    	
206,897 (Subject to adjustment as hereinafter   provided)
    
	
Class of   Stock:
    	
Series B Preferred Stock (Subject to   Section 1.7)
    
	
Warrant Price:
    	
$1.16 per Share (Subject to adjustment as   hereinafter provided)
    
	
Issue Date:
    	
April 26, 2018
    
	
Expiration Date:
    	
The earlier to occur of the (i) expiration of   this Warrant pursuant to Section 1.6 hereof or (ii) 10th   anniversary of the Issue Date
    
	
Credit Facility:
    	
This Warrant is issued in connection with the Credit   and Security Agreement (Term Loan), dated as of April 26, 2018, among   the Company, the other Borrowers (as defined therein) from time to time party   thereto, MidCap Financial Trust, a Delaware statutory trust, as Agent and the   lenders from time to time party thereto (as amended, restated, supplemented   or otherwise modified from time to time, the “Credit Agreement”).
    

 

THIS WARRANT TO PURCHASE STOCK (this “Warrant”) CERTIFIES THAT, for good and valuable consideration, including without limitation the mutual promises contained in the Credit Agreement (defined above), MidCap Funding XXVIII Trust, a Delaware statutory trust (together with any registered holder from time to time of this Warrant or any holder of the Shares issuable or issued upon the exercise or conversion of this Warrant, “Holder”) is entitled to purchase the number of fully paid and nonassessable shares of the class and series of capital stock of the Company at the Warrant Price, all as set forth above or herein below and as adjusted pursuant to the terms of this Warrant, subject to the provisions and upon the terms and conditions set forth in this Warrant.  As used herein, “Share” or “Shares” shall refer to either (i) the shares of stock issuable upon the exercise or conversion of this Warrant and any shares of capital stock into which such shares may be converted or exchanged, or (ii) the authorized or issued and outstanding shares of capital stock of the Company which are of the same class and 

 

 

series as the shares of stock issuable upon the exercise or conversion of this Warrant, in either case as the specific provisions of this Warrant or the context may require.

 

ARTICLE 1                              EXERCISE.

 

1.1                               Method of Exercise.  Holder may at any time and from time to time exercise this Warrant, in whole or in part, by delivering a duly completed and executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  Unless Holder is exercising the conversion right set forth in Section 1.2, Holder shall also deliver to the Company a check, wire transfer (to an account designated by the Company), or other form of payment acceptable to the Company for the aggregate Warrant Price for the Shares being purchased.

 

1.2                               Conversion Right.  In lieu of exercising this Warrant as specified in Section 1.1, Holder may at any time and from time to time after the Issue Date convert this Warrant, in whole or in part, into a number of Shares determined by dividing (a) the aggregate Fair Market Value of the number of Shares or the securities otherwise issuable upon exercise of this Warrant with respect to which Holder elects to convert this Warrant minus the aggregate Warrant Price of such Shares by (b) the Fair Market Value of one Share, and by delivering a duly completed and executed Notice of Exercise in substantially the form attached as Appendix 1 to the principal office of the Company.  The “Fair Market Value” of a Share shall be determined pursuant to Section 1.3.

 

1.3                               Fair Market Value.  If the Company’s common stock is traded on a nationally recognized securities exchange, inter-dealer quotation system or over-the-counter market (a “Trading Market”) and the Shares are common stock, the Fair Market Value of each Share shall be the closing price of a Share reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of the Company’s initial public offering of its common stock (“IPO”), the “price to public” per share specified in the final prospectus relating to such offering).  If the Company’s common stock is traded in a Trading Market and the Shares are preferred stock, the Fair Market Value of each Share shall be the closing price of such common stock reported for the business day immediately before Holder delivers its Notice of Exercise to the Company (or in the instance where the Warrant is exercised immediately prior to the effectiveness of an IPO, the initial “price to public” per share specified in the final prospectus relating to the IPO), in either case, multiplied by the number of shares of the Company’s common stock into which a Share is then convertible.  In the event of an exercise in connection with an Acquisition, the Fair Market Value of a Share shall be the value to be received per Share by all holders of such Shares in such transaction.  In the event of an exercise other than in connection with an IPO or Acquisition, and where the Company’s common stock is not traded in a Trading Market, the Board of Directors of the Company shall determine the Fair Market Value in its reasonable good faith judgment.

 

1.4                               Delivery of Certificate and New Warrant.  Promptly after Holder exercises or converts this Warrant pursuant to Section 1.1 or 1.2, respectively, and, if applicable, the Company receives payment of the aggregate Warrant Price, the Company shall promptly deliver to Holder certificates for the Shares acquired and, if this Warrant has not been fully exercised or converted and has not expired, a new Warrant of like tenor representing the Shares not so acquired.  This Warrant shall be deemed to have been exercised and such certificates deemed issued, and Holder shall become the holder of record of the Shares for all purposes, as of the 

 

2

 

date of Holder’s delivery of the exercise notice pursuant to Section 1.1 or 1.2 and payment of the Warrant Price, if applicable.

 

1.5                               Replacement of Warrants.  On receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, on delivery of an indemnity agreement reasonably satisfactory in form and amount to the Company or, in the case of mutilation on surrender and cancellation of this Warrant, the Company shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor.

 

1.6                               Treatment of Warrant Upon Acquisition of Company.

 

1.6.1                     “Acquisition”.  For the purpose of this Warrant, “Acquisition” means (a) any sale, exclusive license, or other disposition of all or substantially all of the assets of the Company, or (b) any reorganization, consolidation, share exchange or merger of the Company with or into another person or entity, or sale of outstanding securities of the Company by the holders thereof, in each case where the holders of the Company’s securities before the transaction beneficially own less than fifty percent (50%) of the outstanding voting securities of the successor, acquiring or surviving person or entity after the transaction.

 

1.6.2                     Treatment of Warrant Upon Acquisition.

 

A)                                   Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that (i) is not described in Section 1.6.1(a), (ii) in which the sole consideration is cash, and (iii) in connection with or as a result of which all holders of the Shares are receiving or have the right to receive solely cash in the same proportions in respect of all of their Shares, then either (a) Holder shall exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition, or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition, subject to Section 5.8.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may reasonably request in connection with such contemplated Acquisition giving rise to such notice), which notice is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

B)                                   Upon the written request of the Company, Holder agrees that, in the event of an Acquisition that is described in Section 1.6.1(a) and is an “arms’-length” transaction with a third party that is not an Affiliate (as defined below) of the Company (a “True Asset Sale”), Holder may (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such True Asset Sale, (b) permit this Warrant to continue (unless exercised in the interim) until the earlier of the Expiration Date or the dissolution and/or liquidation of the Company following the closing of any such True Asset Sale, subject to Section 5.8, or (c) elect to have the terms of Section 1.6.2(D) below apply.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may request in connection with such contemplated Acquisition giving rise to such notice), which notice is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed True Asset Sale.

 

C)                                   Upon the written request of the Company, Holder agrees that, in the event of an Acquisition (i) in which the consideration is a combination of cash and equity securities of the acquirer listed for trading on a U.S. national securities exchange and which may be freely resold 

 

3

 

pursuant to a resale registration statement or under Rule 144 of the Act without any restriction or limitation (including without limitation volume and manner of sale restrictions), (ii) in connection with or as a result of which all holders of the Shares are receiving or have the right to receive solely cash and/or such securities in the same proportions in respect of all of their Shares, and (iii) on the record date for which the Fair Market Value of one Share (or other securities issuable upon exercise of this Warrant) is greater than the Warrant Price, Holder may (a) exercise its conversion or purchase right under this Warrant and such exercise will be deemed effective immediately prior to the consummation of such Acquisition, or (b) if Holder elects not to exercise the Warrant, this Warrant will expire upon the consummation of such Acquisition, subject to Section 5.8.  The Company shall provide Holder with written notice of its request relating to the foregoing (together with such reasonable information as Holder may reasonably request in connection with such contemplated Acquisition giving rise to such notice), which notice is to be delivered to Holder not less than ten (10) days prior to the closing of the proposed Acquisition.

 

D)                                   Upon the closing of any Acquisition other than those particularly described in subsections (A), (B) and (C) above (or in the case of an Acquisition described in Section 1.6.2(B) above if Holder elects to have the terms of this Section 1.6.2(D) apply), the successor, surviving or acquiring entity shall assume in writing the obligations of this Warrant, including agreements to deliver to Holder in exchange for this Warrant a written instrument issued by the successor, surviving or acquiring entity pursuant to which this Warrant shall thereafter be exercisable for the kind, amount and value of securities, cash, and property as would have been payable for the Shares issuable upon exercise of the unexercised portion of this Warrant had such Shares been outstanding on the record date for the Acquisition and subsequent closing.  The Warrant Price and/or number of Shares shall be adjusted accordingly.

 

E)                                    Conditional Exercise.  Notwithstanding any other provision hereof, if an exercise of this Warrant is to be made in connection with an IPO or an Acquisition, such exercise may at the election of Holder be conditioned upon the consummation of such transaction, in which case such exercise shall not be deemed to be effective until immediately prior to the consummation of such transaction.

 

As used herein “Affiliate” shall mean any person or entity that owns or controls directly or indirectly ten percent (10%) or more of the voting securities of the Company, any person or entity that controls, is controlled by or is under common control with any such person or entity, and each of such person’s or entity’s officers, directors, members, managers, joint venturers or partners, as applicable (whether as a result of the ownership of voting securities, by contract or otherwise).

 

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1.7 Adjustment in Number, Class and/or Series of Shares and Warrant Price in Certain Equity Financings.  In the event of an equity financing after the Issue Date (the “Next Round”), if the price per share (the “Next Round Price”) of any class or series of Company’s capital stock issued in such financing (the “Next Round Stock”) is less than the Warrant Price, Holder and any permitted transferee shall have the right, in Holder’s sole discretion, to elect to cause this Warrant to be (and this Warrant shall be deemed automatically upon such election to be) exercisable for shares of the Next Round Stock at the Next Round Price (with the number of such shares subject to this Warrant automatically adjusted to equal (i) the Warrant Price divided by (ii) the Next Round Price).  The Shares for which this Warrant is exercisable upon such election, if at all, shall bear the same rights, preferences, and privileges applicable to all holders of such Next Round Stock.  Company shall provide Holder no less than ten (10) days’ written notice prior to any sale of Next Round Stock; and Holder shall provide Company written notice of its election, if at all, under this Section 1.7, no less than five (5) days’ prior to such sale.  Any adjustment to the number of Shares, class or series of Shares and/or Warrant Price made as a result of this Section 1.7 shall be in addition to any adjustment(s) to be made in accordance with Article 2 hereof.

 

ARTICLE 2.                           ADJUSTMENTS TO THE SHARES.

 

2.1                               Stock Dividends, Subdivisions and Combinations.  If the Company declares or pays a dividend on the Shares payable in common stock or other securities, then upon exercise of this Warrant, for each Share acquired, Holder shall receive, without cost to Holder, the total number and kind of securities to which Holder would have been entitled had Holder owned the Shares of record as of the date the dividend occurred.  If the Company subdivides the Shares by reclassification, stock split, split-up or otherwise into a greater number of shares or takes any other action which increases the number of shares of any class or series of capital stock into which the Shares are convertible, the number of Shares purchasable hereunder shall be proportionately increased and the Warrant Price shall be proportionately decreased.  If the outstanding Shares are combined or consolidated, by reclassification, reverse stock split or otherwise, into a lesser number of shares, the Warrant Price shall be proportionately increased and the number of Shares shall be proportionately decreased.

 

2.2                               Reclassification, Exchange, Combination or Substitution.  Upon any reclassification, exchange, combination, substitution, reorganization, merger, consolidation or other event that results in a change of the number and/or class of the underlying securities as to which purchase rights under this Warrant exist, Holder shall be entitled to receive, upon exercise or conversion of this Warrant, the number, amount and kind of securities, money and property that Holder would have ultimately received upon the completion of such reclassification, exchange, combination, substitution, reorganization, merger, consolidation or other event if this Warrant had been exercised immediately before such reclassification, exchange, combination, substitution, reorganization, merger, consolidation or other event.  Such an event shall include any automatic conversion of the outstanding or issuable securities of the Company of the same class or series as the Shares to common stock pursuant to the terms of the Company’s Amended and Restated Certificate of Incorporation, as amended (the “Certificate”).  The Company or its successor shall promptly issue to Holder an amendment to this Warrant setting forth the number and kind of such new securities or other property issuable upon exercise or conversion of this Warrant as a result of such reclassification, exchange, combination, substitution, reorganization, merger, consolidation or other event that results in a change of the number and/or class of securities issuable upon exercise or conversion of this Warrant.  The amendment to this Warrant shall provide for adjustments which shall be as nearly equivalent as may be practicable to the adjustments provided for in this Article 2 including, 

 

5

 

without limitation, adjustments to the Warrant Price and to the number of securities or property issuable upon exercise of the amended Warrant.  The provisions of this Section 2.2 shall similarly apply to successive reclassifications, exchanges, combinations, substitutions, reorganizations, mergers, consolidations or other events.

 

2.3                               Adjustments for Diluting Issuances.  The Warrant Price and the number of Shares issuable upon exercise of this Warrant, and the number of shares of common stock or other securities issuable upon conversion of the Shares, shall be subject to adjustment, from time to time in the manner set forth in the Certificate as if the Shares were issued and outstanding on and as of the date of any such required adjustment.  The provisions set forth for the Shares in the Certificate relating to the above in effect as of the Issue Date may not be amended, modified or waived, without the prior written consent of Holder unless such amendment, modification or waiver affects the rights associated with the Shares in the same manner as such amendment, modification or waiver affects the rights associated with all other shares of the same series and class as the Shares.

 

2.4                               No Impairment.  Without the prior written consent of Holder, the Company shall not, by amendment of the Certificate, the Stockholders Agreements (as defined below) or the Company’s by-laws, or through any reorganization, recapitalization, share exchange, transfer of assets, consolidation, merger, dissolution, issuance or sale of securities, or any other voluntary action, intentionally avoid or seek to avoid the performance of any of the Company’s obligations set forth in this Warrant.

 

2.5                               Fractional Shares.  No fractional Shares shall be issuable upon exercise or conversion of this Warrant, and the number of Shares to be issued shall be rounded down to the nearest whole Share.  If a fractional share interest arises upon any exercise or conversion of the Warrant, the Company shall eliminate such fractional share interest by paying Holder the amount computed by multiplying the fractional interest by the Fair Market Value of a full Share.

 

2.6                               Certificate as to Adjustments.  Upon each adjustment of the Warrant Price or the kind or number of securities issuable under this Warrant pursuant to this Article 2, the Company shall promptly notify Holder in writing, and, at the Company’s expense, promptly compute such adjustment, and furnish Holder with a certificate of its Chief Executive Officer, Corporate Secretary or a senior financial officer setting forth such adjustment and the facts upon which such adjustment is based.  The Company shall, upon written request, furnish Holder a certificate setting forth the Warrant Price and the number and kind of securities issuable under this Warrant in effect upon the date thereof and the series of adjustments leading to such Warrant Price and such number and kind of securities.

 

ARTICLE 3.                           REPRESENTATIONS, WARRANTIES AND COVENANTS OF THE COMPANY.

 

3.1                               Representations and Warranties.  The Company represents and warrants and covenants to Holder as follows:

 

(a)                                 The Company has all requisite legal and corporate power and authority, and has taken all corporate action on the part of itself, its officers, directors and stockholders necessary, to execute, issue and deliver this Warrant, to issue the Shares issuable upon exercise or conversion of this Warrant and the securities issuable upon conversion of the Shares, and to carry out and perform its obligations under this Warrant, and this Warrant constitutes the legally binding and valid obligation of the Company enforceable in accordance with its terms, except as enforceability may be limited by applicable bankruptcy, insolvency, 

 

6

 

reorganization, or similar laws relating to or affecting the enforcement of creditors’ rights, or to principles of equity.

 

(b)                                 (i) This Warrant has been validly issued and is free of restrictions on transfer and (ii) all Shares which may be issued upon the exercise of the purchase or conversion right represented by this Warrant, and all securities, if any, issuable upon conversion of the Shares, shall, upon issuance, be duly authorized, validly issued, fully paid and nonassessable, and free of any liens and encumbrances (including preemptive or other similar rights), in each case except for restrictions on transfer provided for herein or under applicable federal and state securities laws or as set forth in the Certificate, the Stockholders Agreements; provided that no restrictions on transfer as set forth in the Certificate, the Stockholders Agreements shall restrict Holder from transferring this Warrant or the Shares, in whole or in part, to any Affiliate of Holder or to any Eligible Assignee, as defined in the Credit Agreement, in connection with the transfer of a Lender’s Loan to such Eligible Assignee.

 

(c)                                  The execution, delivery, and performance of this Warrant will not result in a violation of, be in conflict with, or constitute a default under, with or without the passage of time or giving of notice, any provision of the Certificate, the Stockholders Agreements or the Company’s by-laws, any provision of any judgment, decree, or order to which the Company is a party, by which it is bound, or to which any of its material assets are subject, any contract, obligation, or commitment to which the Company is a party or by which it is bound, or any statute, rule, or governmental regulation applicable to the Company, or the creation of any lien, charge, or encumbrance upon any assets of the Company.

 

(d)                                 The capitalization table of the Company is attached hereto as Exhibit A, and such capitalization table is complete and accurate as of the date hereof and reflects all outstanding capital stock of the Company and all outstanding warrants, options, conversion privileges, preemptive rights and other rights or agreements to purchase or otherwise acquire or issued any equity securities or convertible debt securities of the Company.  The Company has reserved a sufficient number of Shares for issuance upon the exercise of this Warrant and a sufficient number of shares of the securities issuable upon conversion of the Shares.

 

(e)                                  The Warrant Price is no greater than the lowest price per share of any shares of Series B Preferred Stock sale that have been issued prior to the Issue Date.

 

3.2                               Notice of Certain Events; Information.  If the Company proposes at any time (a) to declare any dividend or distribution upon any of its stock, whether in cash, property, stock, or other securities and whether or not a regular cash dividend; (b) to effect any reclassification or recapitalization of any of its stock; (c) to merge or consolidate with or into any other corporation, or sell, lease, license, or convey all or substantially all of its assets, (d) to approve or participate in any Acquisition or an IPO, (e) to liquidate, dissolve or wind up or approve or consummate any Liquidity Event (as defined in the Certificate), or (f) to take any action or to effect any transaction which requires the Company to provide notice to other holders of the Shares, then, in connection with each such event, the Company shall give Holder: (1) at least ten (10) days prior written notice of the date on which a record will be taken for such dividend or distribution (and specifying the date on which the holders of stock will be entitled thereto) or for determining rights to vote, if any, in respect of the matters referred to in (a) above; and (2) in the case of the matters referred to in (b), (c), (d), (e) or (f) above, at least ten (10) days prior written notice of the date when the same will take place (and, if applicable, specifying the date on which the holders of stock will be entitled to exchange their common stock for securities or other property deliverable upon 

 

7

 

the occurrence of such event).  The Company will also provide such information in its possession as is requested by Holder and as is reasonably necessary to enable Holder to comply with Holder’s accounting or reporting requirements, including without limitation, a capitalization table, to be provided to Holder within thirty (30) days after the end of each fiscal quarter of the Company, including the per share price of the Company’s equity securities most recently issued prior to the date such capitalization table and indication are so provided; provided, that the Company’s obligations set forth in this sentence shall terminate immediately prior to the Company’s IPO.

 

3.3                               Stockholders Agreements; No Other Stockholder Rights.  Except as provided in this Warrant and subject to the following provisions of this Section 3.3, Holder will not have any rights as a stockholder of the Company until the exercise of this Warrant and the issuance of the Shares.  Effective upon any exercise or conversion of this Warrant, Holder and any permitted transferee of the Warrant or the Shares shall be entitled to all of the rights and benefits provided to, and subject to all of the obligations of, all other holders of the Shares pursuant to, and the Company and Holder agree that Holder (and any permitted transferee of the Warrant or the Shares) will execute a counterpart signature page and become a party to (a) the Amended and Restated Stockholders Agreement, dated as of October 2, 2014 and the Amended and Restated Investor Rights Agreement, dated as of October 2, 2014, in each case, by and among the Company and certain of its stockholders (as hereafter amended, restated or superseded, together, the “Stockholders Agreements”), provided that no such amendment shall in any respect restrict Holder’s or such permitted transferee’s right and ability to transfer this Warrant or the Shares to any affiliate of Holder or such permitted transferee and (b) provided Holder or any permitted transferee agrees to become a party to any such agreement entered into hereafter (such agreement not to be unreasonably withheld), any agreement to which holders of the Shares may hereafter become parties and the Shares may become bound (including, without limitation, any stockholders, investor rights, registration rights, right of refusal, voting and co-sale rights or similar agreement); and provided, that (v) Holder and any permitted transferee shall have all of the rights and obligations of each other holder of Shares under all such agreements without regard to any applicable minimum share ownership or other requirement on which such rights are conditioned, (w) with respect to Holder and its permitted transferees and assigns, notwithstanding any term or restriction on transfer contained in the Stockholders Agreements, Holder and its permitted transferees shall have the unrestricted right to transfer all or any portion of the Shares to any assignee of or purchaser from Holder or its affiliate of their rights under the Credit Agreement (to the extent permitted by the Credit Agreement) or any interest or participation therein, (x) Holder and its permitted transferees may transfer all of the rights and obligations under the Stockholders Agreements to any affiliate of Holder or any assignee of or purchaser from Holder or its affiliates of their rights under the Credit Agreement (to the extent permitted by the Credit Agreement) or any interest or participation therein that assumes the rights and obligations of this Warrant or, if applicable, acquires any of the Shares, (y) Holder and its permitted transferees shall have purchase, participation, preemptive and registration rights, if any, granted to any other holders of the Shares, and (z) in the event any term, restriction or condition of the Stockholders Agreements or any such agreement conflicts with, is inconsistent with or would otherwise prohibit or restrict the exercise of any right of Holder under this Warrant, the terms of this Warrant shall control and this Warrant and Holder shall not be subject to such term, restriction or condition, if applicable.  As an illustration and not by way of limitation as to the purpose and intent of this Section 3.3, the Company shall grant registration rights to Holder for any Shares acquired by Holder upon exercise or conversion of this Warrant or conversion of such Shares in parity to the registration rights granted to any other holder of the Shares.

 

8

 

ARTICLE 4                              .REPRESENTATIONS AND WARRANTIES OF HOLDER.  Holder represents and warrants to the Company as follows:

 

4.1                               Purchase for Own Account.  This Warrant and the Shares to be acquired upon exercise of this Warrant by Holder will be acquired for investment for Holder’s account, not as a nominee or agent, and not with a view to the public resale or distribution within the meaning of the Act and Holder has no present intention of selling or engaging in any public distribution of the same except pursuant to a registration or exemption or any transfer contemplated by or permitted under Section 5.3.  Holder also represents that Holder has not been formed for the specific purpose of acquiring this Warrant or the Shares.

 

4.2                               Disclosure of Information.  Holder has received or has had full access to all the information it considers necessary or appropriate to make an informed investment decision with respect to the acquisition of this Warrant and its underlying securities.  Holder further has had an opportunity to ask questions and receive answers from the Company regarding the terms and conditions of the offering of this Warrant and its underlying securities and to obtain additional information (to the extent the Company possessed such information or could acquire it without unreasonable effort or expense) necessary to verify any information furnished to Holder or to which Holder has access.

 

4.3                               Investment Experience.  Holder understands that the purchase of this Warrant and its underlying securities is highly speculative and involves substantial risk.  Holder has experience as an investor in securities of companies in the development stage and acknowledges that Holder can bear the economic risk of Holder’s investment in this Warrant and its underlying securities and has such knowledge and experience in financial or business matters that Holder is capable of evaluating the merits and risks of its investment in this Warrant and its underlying securities and/or has a preexisting personal or business relationship with the Company and certain of its officers, directors or controlling persons of a nature and duration that enables Holder to be aware of the character, business acumen and financial circumstances of such persons.

 

4.4                               Accredited Investor Status.  Holder is an “accredited investor” within the meaning of U.S.  Securities and Exchange Commission (“SEC”) Rule 501 of Regulation D promulgated the under the Act as presently in effect.

 

4.5                               The Act.  Holder understands that this Warrant and the Shares issuable upon exercise or conversion hereof have not been registered, and may never be registered, under the Act in reliance upon a specific exemption therefrom, which exemption depends upon, among other things, the bona fide nature of Holder’s investment intent as expressed herein.  Holder understands that this Warrant and the Shares issued upon any exercise or conversion hereof must be held indefinitely unless subsequently registered under the Act and qualified under applicable state securities laws, or unless exemption from such registration and qualification are otherwise available.

 

4.6                               Market Stand-Off.  Holder hereby agrees that, in connection with the Company’s IPO it shall not to the extent requested by the Company’s underwriter(s) sell, make any short sale of, loan, grant any option for the purchase of, or otherwise dispose of any securities of the Company (other than any disposed of in the registration and those acquired by Holder in the IPO or thereafter in open market transactions, or any disposed of in a private transaction to a transferee who agrees to be bound by the terms of this Section 4.6) for up to one hundred eighty (180) days from the effective date of the registration statement filed in connection 

 

9

 

with the IPO; provided, however, that such one hundred eighty (180) day period may be extended to the extent necessary to permit any managing underwriter to comply with applicable law; provided further, however, that Holder shall not be bound by the restrictions set forth in this Section 4.6 unless all stockholders that own at least five percent (5%) of the issued and outstanding capital stock of the Company agree to such restrictions; and provided, further, that any discretionary waiver or termination of the foregoing restrictions by the Company or the underwriters shall apply to all holders of the Company’s equity securities subject to such restrictions pro rata based on the number of shares subject to such restrictions.  Holder agrees to enter into the form of lock-up agreement as reasonably requested by the underwriter(s) in connection with this Section 4.6.

 

ARTICLE 5                              .MISCELLANEOUS.

 

5.1                               Term.  This Warrant is exercisable in whole or in part at any time and from time to time on or before the Expiration Date.  The conditions under which the Warrant shall automatically convert on the Expiration Date are set forth in Section 5.8 below.

 

5.2                               Legends.

 

(a)                                 This Warrant and each certificate evidencing the Shares (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) shall be imprinted with a legend in substantially the following form:

 

THIS WARRANT AND THE SHARES ISSUABLE HEREUNDER HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR THE SECURITIES LAWS OF ANY STATE AND, EXCEPT PURSUANT TO THE PROVISIONS OF ARTICLE 5, MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS REGISTERED UNDER SAID ACT AND APPLICABLE STATE SECURITIES LAW, OR UNLESS SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION CAN BE MADE IN COMPLIANCE WITH RULE 144 OF THE ACT, OR UNLESS, IN THE OPINION OF LEGAL COUNSEL IN FORM AND SUBSTANCE REASONABLY SATISFACTORY TO THE ISSUER OF THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION IS EXEMPT FROM REGISTRATION.

 

THE SECURITIES EVIDENCED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A MARKET STAND-OFF PERIOD OF UP TO 180 DAYS IN THE EVENT OF A PUBLIC OFFERING, OR FOR A LONGER PERIOD IF THE ISSUER’S TRANSFER AGENT IS NOTIFIED BY THE ISSUER OR THE ISSUER’S COUNSEL THAT THIS MARKET STAND-OFF RESTRICTION HAS BEEN EXTENDED FOR THE PURPOSE OF COMPLYING WITH APPLICABLE LAW.

 

(b)                                 Notwithstanding the foregoing, neither this Warrant nor any certificate or instrument evidencing this Warrant or the Shares shall bear, and the Company hereby agrees to remove, within ten (10) days of any written request (together with such evidence or documentation described in the following provisions) by Holder, pursuant to the following provisions of this Section 5.2(b), or not to affix, as applicable, any restrictive or other legend, notice or provision restricting the sale or transfer of this Warrant or the Shares, in each case provided that Holder has provided reasonable evidence to the Company (including any customary 

 

10

 

broker’s or transferring stockholder’s letters but expressly excluding an opinion of counsel other than with respect to clause (D) below) that: (A) a transfer of this Warrant or the Shares, as applicable, has been made pursuant to SEC Rule 144 (assuming the transferor is not an “affiliate” (as defined in SEC Rule 144) of the Company); (B) the Warrant or the Shares, as applicable, are then eligible for transfer pursuant to SEC Rule 144 promulgated under the Act (“Rule 144”); (C) a transfer of this Warrant or the Shares has been made for no consideration to an affiliate of Holder or any assignee or purchaser of Holder’s or its affiliate’s rights under the Credit Agreement or any interest or participation therein or has otherwise been made to any affiliate of Holder who is an “accredited investor” as defined in Regulation D, and that is otherwise in compliance with all applicable securities laws; or (D) in connection with any other sale or transfer, provided that upon the request of the Company, such Holder provides the Company with an opinion of counsel to such Holder, in a reasonably acceptable form to the Company, to the effect that either such sale or transfer may be made without registration under the applicable requirements of the Act or that such a legend, notice or provision is not required by, and is not required in order to establish compliance with any provisions of, the Act.  For all purposes of Section 1.4, the Company shall not be deemed to have delivered to Holder Shares unless and until the Company shall have fully complied with all of the terms and conditions of this Section 5.2(b) (if removal has been requested by Holder in compliance with this Section 5.2(b)).

 

5.3                               Compliance with Securities Laws on Transfer.  This Warrant and the Shares issuable upon exercise of this Warrant (and the securities issuable, directly or indirectly, upon conversion of the Shares, if any) may not be transferred or assigned in whole or in part without compliance with applicable federal and state securities laws by the transferor and the transferee (including, without limitation, the delivery of investment representation letters and, subject to Section 5.2(b), legal opinions reasonably satisfactory to the Company, as reasonably requested by the Company).  The Company shall not require Holder to provide an opinion of counsel if the transfer is to an affiliate of Holder or any assignee or purchaser of Holder’s or its affiliate’s rights under the Credit Agreement or any interest or participation therein.  Additionally, the Company shall also not require an opinion of counsel if there is no reasonable basis for the Company to have any material question as to the availability of Rule 144.

 

5.4                               Transfer Procedure.  Upon and effective immediately as of providing Company with written notice substantially in the form attached as Appendix 2, Holder and any permitted transferee may transfer all or part of (x) this Warrant (subject to the provisions of Section 5.3) or (y) the Shares issuable upon exercise of this Warrant (or the Shares issuable directly or indirectly, upon conversion of the Shares, if any) (subject to (i) the provisions of Section 5.3, (ii), the transfer restrictions and procedures set forth in the Stockholders Agreements, (iii) the provisions of Section 3.3), in each case, to any transferee, provided, however, in connection with any such transfer, Holder or such transferee will give the Company notice of the portion of the Warrant being transferred (if applicable) with the name, address and taxpayer identification number of the transferee and, in the case of transfer to a transferee who is not an affiliate of the Holder, Holder or such transferee promptly thereafter surrenders this Warrant to the Company for reissuance to the transferee(s) (and Holder if applicable); provided, further, that with respect to a transfer of the Shares, prior to or simultaneously with any such transfer, the transferee shall have executed joinders to each of the Stockholders Agreements on forms satisfactory to the Company.  The Company, in its reasonable discretion, may refuse to transfer this Warrant or the Shares, and the Holder shall not be permitted to transfer this Warrant or the Shares, to any company or other person who directly competes with the Company, unless, in either case, the stock of the Company is publicly traded on a national securities exchange.

 

11

 

5.5                               Notices.  All notices, requests, documents and other communications (collectively, “Notices”) from the Company to Holder, or vice versa, shall be in writing and deemed validly delivered effective as of the earliest to occur of (a) when actually received, (b) when transmitted by facsimile or electronic mail (PDF), (c) the first business day after mailing by first-class registered or certified mail, postage prepaid, or after deposit with a reputable overnight courier with all charges paid, in each case other than actual receipt at such mailing, facsimile or electronic mail address as may have been furnished to the Company or Holder, as the case may be.  As used in this Warrant, “business days” shall refer to all days other than any Saturday, Sunday or day on which the Company’s primary depository bank is closed.  All notices to Holder shall be addressed as follows until the Company receives notice of a change of address in connection with a transfer or otherwise:

 

MIDCAP FUNDING XXVIII TRUST

c/o MidCap Financial Services, LLC, as servicer

7255 Woodmont Avenue, Suite 200

Bethesda, MD 20814

Attention: Portfolio Management - TELA Bio transaction

Facsimile: (301) 941-1450

E-mail: notices@midcapfinancial.com

 

with a copy to:

 

c/o MidCap Financial Services, LLC, as servicer

7255 Woodmont Avenue, Suite 200

Bethesda, Maryland 20814

Attn: General Counsel

Facsimile: 301-941-1450

E-mail: legalnotices@midcapfinancial.com

 

Notice to the Company shall be addressed as follows until Holder receives notice of a change in address:

 

TELA Bio, Inc.

1 Great Valley Parkway, Suite 24

Malvern, PA 193557

Attention: Vice President - Finance

Fax: 610-644-3769

E-Mail: fconway@telabio.com

 

With a copy to:

 

Duane Morris LLP

30 S. 17th Street

Philadelphia, PA 19103

Attention: David C. Toner, Esq.

Fax: (215) 689-4452

E-Mail: toner@duanemorris.com

 

12

 

5.6                               Waiver.  This Warrant and any term hereof may be changed, waived, discharged or terminated only by an instrument in writing signed by the party against which enforcement of such change, waiver, discharge or termination is sought.

 

5.7                               Attorneys’ Fees.  In the event of any dispute between the parties concerning the terms and provisions of this Warrant, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.

 

5.8                               Automatic Conversion upon Expiration.  Unless Holder notifies the Company in writing to the contrary prior to such automatic conversion, in the event that, upon the earliest to occur of the Expiration Date or any expiration, involuntary termination or cancellation of this Warrant, the Fair Market Value of one Share as determined in accordance with Section 1.3 above is greater than the Warrant Price in effect on such date, then this Warrant shall automatically be deemed as of immediately before such date to have been converted pursuant to Section 1.2 above as to all Shares for which it shall not previously have been exercised or converted, and the Company shall promptly deliver a certificate representing the Shares issued upon such conversion to the Holder.

 

5.9                               Counterparts.  This Warrant may be executed in counterparts, all of which together shall constitute one and the same agreement.

 

5.10                        Governing Law.  This Warrant shall be governed by and construed in accordance with the laws of the State of Maryland, in each case (except to the extent the General Corporation Law of the State of Delaware applies) without giving effect to its principles regarding conflicts of law.

 

5.11                        Headings.  The various headings in this Warrant are inserted for convenience only and shall not affect the meaning or interpretation of this Warrant or any provisions hereof.

 

5.12                        Severability.  In the event any one or more of the provisions of this Warrant shall for any reason be held invalid, illegal or unenforceable, the remaining provisions of this Warrant shall be unimpaired, and the invalid, illegal or unenforceable provision shall be replaced by a mutually acceptable valid, legal and enforceable provision.

 

[Balance of Page Intentionally Left Blank]

 

13

 

“COMPANY”

 

TELA BIO, INC.

 

	
By:
    	
/s/ Antony Koblish
    	
 
    
	
Name: Antony Koblish
    	
 
    
	
 
    	
 
    
	
Title: President & CEO
    	
 
    

 

14

 

“HOLDER”

 

MIDCAP FUNDING XXVIII TRUST

 

By: Apollo Capital Management, L.P.,

 

its investment manager

 

By: Apollo Capital Management GP, LLC,

 

its general partner

 

 

	
By:
    	
/s/ Maurice Amsellem
    	
 
    
	
 
    	
 
    
	
Name: Maurice Amsellem
    	
 
    
	
 
    	
 
    
	
Title: Authorized Signatory
    	
 
    

 

15

 

APPENDIX 1
 NOTICE OF EXERCISE

 

1.                                      Holder elects to purchase                 shares of the [Preferred/Common] Stock of TELA Bio, Inc. pursuant to the terms of the attached Warrant, and tenders payment of the purchase price of the shares in full.

 

[or]

 

1.                                      Holder elects to convert the attached Warrant into Shares/cash [strike one] in the manner specified in the Warrant.  This conversion is exercised for               of the Shares covered by the Warrant.

 

[Strike paragraph that does not apply.]

 

2.                                      Please issue a certificate or certificates representing the shares in the name specified below:

 

 

	
 
    	
 
    
	
          Holder’s   Name
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
          (Address)
    	
 
    

 

3.                                      By its execution below and for the benefit of the Company, Holder hereby restates each of the representations and warranties in Article 4 of the Warrant as the date hereof.

 

	
 
    	
HOLDER:
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
 
    
	
 
    	
By:.
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
(Date):
    	
 
    

 

16

 

APPENDIX 2

 

ASSIGNMENT

 

For value received, MIDCAP FUNDING XXVIII TRUST hereby sells, assigns and transfers unto

 

Name:

 

Address:

 

 

Tax ID:

 

that certain Warrant to Purchase Stock issued by TELA Bio, Inc. (the “Company”), on April 26, 2018 (the “Warrant”) together with all rights, title and interest therein.

 

 

	
 
    	
 
    	
MIDCAP FUNDING XXVIII TRUST
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By: Apollo Capital Management, L.P.,
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
its investment manager
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By: Apollo Capital Management GP, LLC,
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
its general partner
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    	
(Print)
    
	
 
    	
 
    	
 
    	
 
    
	
 
    	
 
    	
Title:
    	
 
    
	
 
    	
 
    	
 
    	
 
    
	
Date:
    	
 
    	
 
    	
 
    	
 
    
					

 

17

 

By its execution below, and for the benefit of the Company,                makes each of the representations and warranties set forth in Article 4 of the Warrant and agrees to all other provisions of the Warrant as of the date hereof.

 

	
 
    	
[NAME OF TRANSFEREE]
    
	
 
    	
 
    
	
 
    	
By:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Name:
    	
 
    
	
 
    	
 
    	
 
    
	
 
    	
Title:
    	
 
    

 

18

 

EXHIBIT A

 

CAPITALIZATION TABLE

 

[See attached.]

 

19

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