Document:

Exhibit 10.28

 

INVESTORS’ RIGHTS AGREEMENT

 

This
INVESTORS’ RIGHTS AGREEMENT (this “Agreement”) dated as of March 1,
2005, is entered into by and between Refocus Group, Inc., a Delaware
corporation (the “Company”), and MedCare
Investment Fund III, Ltd., a Texas limited partnership (the “Purchaser”).

 

A.                                   The Company has filed a Certificate of
Designation, Rights and Preferences establishing three series of convertible
preferred stock, namely, the Series A-1 Convertible Preferred Stock, par value
$0.0001 per share (the “Series A-1 Preferred Stock”),
the Series A-2 Convertible Preferred Stock, par value $0.0001 per share (the “Series A-2 Preferred Stock”), and
the Series A-3 Convertible Preferred Stock, par value $0.0001 per share (the “Series A-3 Preferred Stock”); and

 

B.                                     The Company and the Purchaser are parties to
that certain Securities Purchase Agreement dated as of even date herewith (the “Purchase Agreement”) pursuant to
which (i) the Company has agreed to sell, and the Purchaser has agreed to
purchase, (a) 280,000 shares of the Series A-1 Preferred Stock (the “Series A-1 Shares”) at an initial
closing on the date hereof and (b) 280,000 shares of the Series A-2 Preferred
Stock (the “Series A-2 Shares”) at a
subsequent closing provided certain milestones are met, and (ii) the Company
has granted to the Purchaser a warrant to purchase 133,334 shares Series A-3
Preferred Stock (the “Warrant Shares”);
and

 

C.                                     The Company’s and the Purchaser’s respective
obligations under the Purchase Agreement are conditioned upon the execution and
delivery of this Agreement.

 

AGREEMENT

 

NOW,
THEREFORE, in
consideration of the foregoing recitals and the mutual promises hereinafter set
forth, the parties hereto agree as follows.

 

ARTICLE I

 

REGISTRATION RIGHTS

 

Section 1.1                                   Definitions.  For
purposes of this Agreement:

 

(a)                                  “Affiliate” means,
with respect to any Person, (i) any other Person of which securities or
other ownership interests representing more than fifty percent (50%) of the
voting interests are, at the time such determination is being made, owned,
Controlled or held, directly or indirectly, by such Person or (ii) any
other Person which, at the time such determination is being made, is
Controlling, Controlled by or under common Control with, such Person.  As used herein, “Control”,
whether used as a noun or verb, refers to the possession, directly or
indirectly, of the power to direct, or cause the direction of, the management
or policies of a Person, whether through the ownership of voting securities or
otherwise.

 

(b)                                 “Holder”
means a Person that (i) is a party to this Agreement (or a permitted transferee
under Section 1.11 hereof) and (ii) owns Registrable Securities; provided,
however,

 

 

that for purposes of this
Agreement, Holders of Registrable Securities will not be required to convert
their Preferred Shares into Common Stock in order to exercise the registration
rights granted hereunder, until immediately before the closing of the offering
to which the registration relates.

 

(c)                                  “NASD” means
the National Association of Securities Dealers, Inc.

 

(d)                                 “Participating Holders”
means Holders participating, or electing to participate, in an offering of
Registrable Securities.

 

(e)                                  “Person”
means any individual, firm, corporation, company, partnership, trust,
incorporated or unincorporated association, limited liability company, joint
venture, joint stock company, government (or an agency or political subdivision
thereof) or other entity of any kind, and shall include any successor (by
merger or otherwise) of any such entity.

 

(f)                                    “Preferred Shares”
means the Series A-1 Shares, the Series A-2 Shares and the Warrant Shares.

 

(g)                                 “Registrable Securities”
means any shares of common stock of the Company (“Common
Stock”) (i) issued or issuable upon conversion of the Preferred Shares;
(ii) otherwise held or deemed held by conversion by the Purchaser or acquired
pursuant to any preemptive right; and (iii) issued or issuable with respect to
the securities referred to in clauses (i) and (ii) above by virtue of any stock
split, combination, stock dividend, merger, consolidation or other similar
event; provided, however, that shares of Common Stock that are
considered to be Registrable Securities shall cease to be Registrable
Securities (A) upon the sale thereof pursuant to an effective registration
statement, (B) upon the transfer thereof in a private transaction where the
transferor’s rights under this Agreement are not assigned, or (C) when such
securities cease to be outstanding.

 

(h)                                 “Registration Expenses”
mean all expenses (other than underwriting discounts and commissions) arising
from or incident to the performance of, or compliance with, this Agreement,
including, without limitation, (i) SEC, stock exchange, NASD and other
registration and filing fees, (ii) all fees and expenses incurred in connection
with complying with any securities or blue sky laws (including, without
limitation, fees, charges and disbursements of counsel in connection with blue
sky qualifications of the Registrable Securities), (iii) all printing, messenger
and delivery expenses, (iv) the fees, charges and disbursements of counsel to
the Company and of its independent public accountants and any other accounting
and legal fees, charges and expenses incurred by the Company (including,
without limitation, any expenses arising from any special audits or “comfort
letters” required in connection with or incident to any registration), (v) the
fees, charges and disbursements of any special experts retained by the Company
in connection with any registration pursuant to the terms of this Agreement,
(vi) all internal expenses of the Company (including, without limitation, all
salaries and expenses of its officers and employees performing legal or
accounting duties), (vii) the fees and expenses incurred in connection with the
listing of the Registrable Securities on any securities exchange or Nasdaq and
(viii) Securities Act liability insurance (if the Company elects to obtain such
insurance), regardless of whether any Registration Statement filed in
connection with such registration is declared effective.  “Registration Expenses” shall also include
fees, charges and

 

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disbursements of one (1)
firm of counsel to all of the Participating Holders participating in any underwritten
public offering pursuant to this Agreement (which shall be selected by a
majority, based on the number of Registrable Securities to be sold, of the
Participating Holders.

 

(i)                                     “Registration Statement”
shall mean any Registration Statement of the Company filed with the SEC on the
appropriate form pursuant to the Securities Act which covers any of the shares
of Common Stock and any other Registrable Securities pursuant to the provisions
of this Agreement and all amendments and supplements to any such Registration
Statement, including post-effective amendments, in each case including the
prospectus contained therein, all exhibits thereto and all materials
incorporated by reference therein.

 

(j)                                     “SEC” or “Commission” means the United States
Securities and Exchange Commission.

 

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

 

(l)                                     “Selling Expenses”
shall mean the underwriting fees, discounts, selling commissions and stock
transfer taxes applicable to all Registrable Securities registered by the
Participating Holders.

 

Section 1.2.                                Demand Registration.

 

(a)                                  Request
by Holders.  If the Company receives
at any time a written request from Holders that hold at least twenty percent (20%)
of the Registrable Securities then outstanding (the “Requesting
Holders”) that the Company register Registrable Securities held
by Requesting Holders (a “Demand Request”),
then the Company shall, within ten (10) days after receipt of such Demand
Request, give written notice of such request (“Request
Notice”) to all Holders. 
Each Demand Request shall (x) specify the number of Registrable
Securities that the Requesting Holders intend to sell or dispose of, (y) state
the intended method or methods of sale or disposition of the Registrable
Securities and (z) specify the expected price
range (net of underwriting discounts and commissions) acceptable to the
Requesting Holders to be received for such Registrable Securities.  Following receipt of a Demand Request, the
Company shall:

 

(i)                                     cause to be filed, as soon as practicable,
but within ninety (90) days of the date of delivery to the Company of the
Demand Request, a Registration Statement covering such Registrable Securities
which the Company has been so requested to register by the Requesting Holders
and other Holders who request to the Company that their Registrable Securities
be registered within twenty (20) days of the
mailing of the Request Notice, providing for the registration under the
Securities Act of such Registrable Securities to the extent necessary to permit
the disposition of such Registrable Securities in accordance with the intended
method of distribution specified in such Demand Request;

 

(ii)                                  use its best efforts to have such
Registration Statement declared effective by the SEC as soon as practicable thereafter;
and

 

(iii)                               refrain from filing any other Registration
Statements, other than pursuant to a Registration Statement on Form S-4 or S-8
(or similar or successor forms), with respect to

 

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any other securities of the
Company until such date which is one hundred and eighty (180) days following
effectiveness of the Registration Statement filed in response to the Demand
Request.

 

(b)                                 Effective Registration Statement.  A
registration requested pursuant to this Agreement shall not be deemed to have
been effected (i) unless a Registration Statement with respect thereto has
become effective and remained effective in compliance with the provisions of
the Securities Act with respect to the disposition of all Registrable
Securities covered by such Registration Statement until such time as all of
such Registrable Securities have been disposed of in accordance with the
intended methods of disposition by the Holders thereof set forth in such
Registration Statement; (ii) if, after it has become effective, such
registration is interfered with by any stop order, injunction or other order or
requirement of the SEC or other governmental agency or court and has not
thereafter become effective, or if the offering of Registrable Securities is
not consummated for any reason, including, without limitation, if the
underwriters of an underwritten public offering advise the Participating
Holders that the Registrable Securities cannot be sold at a net price per share
equal to or above the net price disclosed in the preliminary prospectus; (iii)
if the conditions to closing specified in the underwriting agreement, if any,
entered into in connection with such registration are not satisfied or waived;
or (iv) if the Requesting Holders are cut back regarding the Registrable
Securities requested to be registered.

 

(c)                                  Selection of Underwriters.  In
the event that the Company is required to file a Registration Statement
covering any Registrable Securities of any Requesting Holders pursuant to Section 1.2(a)
hereof and the proposed public offering is to be an underwritten public
offering, the managing underwriter shall be one or more reputable nationally
recognized investment banks selected by a majority in interest of the
Requesting Holders and reasonably acceptable to the Company, which consent
shall not be unreasonably withheld, delayed or conditioned.

 

(d)                                 Priority for Demand Registration. 
Notwithstanding any other provision of this Agreement, if the managing
underwriter of an underwritten public offering determines and advises the
Participating Holders and the Company in writing that the inclusion of all
securities proposed to be included by the Company and any other Holders in the
underwritten public offering would materially and adversely interfere with the
successful marketing of the Requesting Holders’ Registrable Securities, then
the Company and other Holders shall not be permitted to include any securities
in excess of the amount, if any, of securities which the managing underwriter
of such underwritten public offering shall reasonably and in good faith agree
in writing to include in such public offering in addition to the amount of
Registrable Securities to be registered for the Requesting Holders. The Company
will be obligated to include in such Registration Statement, as to each Holder,
only a portion of the Registrable Securities such Holder has requested be
registered equal to the ratio which such Holder’s requested Registrable
Securities bears to the total number of Registrable Securities requested to be
included in such Registration Statement by all Holders who have requested that
their Registrable Securities be included in such Registration Statement. It is
acknowledged by the parties hereto that pursuant to the foregoing provision,
the securities to be included in a registration requested by the Requesting
Holders pursuant to Section 1.2 shall be allocated:

 

(i)                                     first, to the Participating Holders; and

 

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(ii)                                  second, to the Company and any other
shareholders of the Company requesting registration of securities of the
Company.

 

(e)                                  Limitations on Demand Registrations.

 

(i)                                     The Company may delay making a filing of a
Registration Statement or taking action in connection therewith by not more
than ninety (90) days if the Company provides a
written certificate signed by the President and Chief Executive Officer of the
Company to the Holders, prior to
the time it would otherwise have been required to file such Registration
Statement or take such action pursuant to this Section 1.2, stating
that the Board has determined in good faith that the filing of such
Registration Statement would be seriously detrimental to the Company or would
otherwise materially adversely affect a financing, acquisition, disposition,
merger or other material transaction (collectively, a “Valid
Business Reason”) and that it is therefore essential to defer
the filing of the Registration Statement; provided, however, that
such right to delay a Demand Request shall be exercised by the Company not more
than once in any twelve (12) month period and the Company shall only have the
right to delay a Demand Request so long as such Valid Business Reason exists,
and during such time, the Company may not file a Registration Statement for
securities to be issued and sold for its own account or for that of anyone
other than the Holders.

 

(ii)                                  The Company shall only be obligated to effect
two (2) Demand Requests pursuant to this Section 1.2.

 

(iii)                               The Company shall not be required to comply
with a Demand Request unless the reasonably anticipated aggregate gross
proceeds to be raised (before any underwriting discounts and commissions) would
be equal to or exceed $1,000,000.

 

(f)                                    Cancellation of Registration.  A
majority in interest of the
Participating Holders shall have the right to cancel a proposed registration of
Registrable Securities pursuant to this Section 1.2 when, (i) in
their discretion, market conditions are so unfavorable as to be seriously
detrimental to an offering pursuant to such registration or (ii) the request
for cancellation is based upon material adverse information relating to the
Company that is different from the information known to the Participating
Holders at the time of the Demand Request. 
Such cancellation of a registration shall not be counted as one of the two
(2) Demand Requests and notwithstanding
anything to the contrary in the Agreement, the Company shall be responsible for
the expenses of the Participating Holders incurred in connection with the registration
prior to the time of cancellation.

 

Section 1.3.                                Piggyback Registrations.

 

(a)                                  Right
to Include Registrable Securities. Each time that the Company proposes for
any reason to register any of its Common Stock under the Securities Act, either
for its own account or for the account of a stockholder or stockholders
exercising demand registration rights other than Demand Requests pursuant to Section 1.2
hereof or pursuant to a Registration Statement on Forms S-4 or S-8 (or similar
or successor forms) (a “Proposed Registration”),
the Company shall promptly give written notice of such Proposed Registration to
all of the Holders of Registrable Securities (which notice shall be given not
less than thirty (30) days prior to the

 

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expected effective date of the Company’s Registration
Statement) and shall offer such Holders the right to request inclusion of any
of such Holder’s Registrable Securities in the Proposed Registration. No
registration pursuant to this Section 1.3 shall relieve the Company
of its obligation to register Registrable Securities pursuant to a Demand
Request, as contemplated by Section 1.2  hereof. 
The rights to piggyback registration may be exercised an unlimited
number of occasions.

 

(b)                                 Piggyback Procedure.  Each
Holder of Registrable Securities shall have twenty (20) days from the date of
receipt of the Company’s notice referred to in Section 1.3(a) above
to deliver to the Company a written request specifying the number of
Registrable Securities such Holder intends to sell and such Holder’s intended
method of disposition.  Any Holder shall
have the right to withdraw such Holder’s request for inclusion of such holder’s
Registrable Securities in any Registration Statement pursuant to this Section 1.3
by giving written notice to the Company of such withdrawal.  Subject to Section 1.3(d) below,
the Company shall use its best efforts to include in
such Registration Statement all such Registrable Securities so requested to be
included therein; provided, however, that the Company may at any
time withdraw or cease proceeding with any such Proposed Registration if it
shall at the same time withdraw or cease proceeding with the registration of
all other shares of Common Stock originally proposed to be registered.

 

(c)                                  Selection of Underwriters.  The
managing underwriter for any Proposed Registration that involves an
underwritten public offering shall be one or more reputable nationally
recognized investment banks selected by the Company and reasonably acceptable
to a majority in interest of the Holders.

 

(d)                                 Priority for Piggyback Registration. 
Notwithstanding any other provision of this Agreement, if the managing
underwriter of an underwritten public offering determines and advises the
Company and the Holders in writing that the inclusion of all Registrable
Securities proposed to be included by the Holders of Registrable Securities in
the underwritten public offering would materially and adversely
interfere with the successful marketing of the Company’s securities, then the
Holders of Registrable Securities shall not be permitted to include any
Registrable Securities in excess of the amount, if any, of Registrable
Securities which the managing underwriter of such underwritten public offering
shall reasonably and in good faith agree in writing to include in such public
offering in addition to the amount of securities to be registered for the
Company.  The Company will be obligated
to include in such Registration Statement, as to each Holder, only a portion of
the Registrable Securities such Holder has requested be registered equal to the
ratio which such Holder’s requested Registrable Securities bears to the total
number of Registrable Securities requested to be included in such Registration
Statement by all Holders who have requested that their Registrable Securities
be included in such Registration Statement.  
It is acknowledged by the parties hereto that pursuant to the foregoing
provision, the securities to be included in a registration initiated by the
Company shall be allocated:

 

(i)                                     first, to the Company; and

 

(ii)                                  second, pari passu among the Holders and all
other holders of securities of the Company with piggyback registration rights.

 

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If
as a result of the provisions of this Section 1.3(d), any Holder
shall not be entitled to include all of its
Registrable Securities in a registration that such Holder has requested to be
so included, such Holder may withdraw such Holder’s request to include Registrable
Securities in such Registration Statement.

 

(e)                                  Underwritten Offering.  In
the event that the Proposed Registration by the Company is, in whole or in
part, an underwritten public offering of securities of the Company, any request
under this Section 1.3 shall specify that the Registrable
Securities be included in the underwriting on the same terms and conditions as
the shares, if any, otherwise being sold through underwriters under such
registration.

 

Section 1.4                                   Form S-3 Registration.  Any Holder (an “Initiating Form S-3 Holder”) may
request at any time that the Company file a Registration Statement under the
Securities Act on Form S-3 (or similar or successor form) covering the sale or
other distribution of all or any portion of the Registrable Securities held by
such Initiating Form S-3 Holder pursuant to Rule 415 under the Securities Act (“Form S-3 Demand”) if (i) the
reasonably anticipated aggregate gross proceeds would equal or exceed $5,000,000, (ii) the Company is a registrant qualified to use Form S-3
(or any similar or successor form) to register such Registrable Securities and
(iii) the plan of distribution of the Registrable Securities is other than
pursuant to an underwritten public offering. 
If such conditions are met, the Company shall use its best efforts to
register under the Securities Act on Form S-3 (or any similar or successor
form) at the earliest practicable date, for sale in accordance with the method
of disposition specified in the Form S-3 Demand, the number of Registrable Securities
specified in such Form S-3 Demand.  In
connection with a Form S-3 Demand, the Company agrees to include in the
prospectus included in any Registration Statement on Form S-3, such material
describing the Company and intended to facilitate the sale of securities being
so registered as is reasonably requested for inclusion therein by the
Initiating Form S-3 Holders, whether or not the rules applicable to preparation
of Form S-3 require the inclusion of such information. Notwithstanding the
foregoing, if the Company shall furnish to the Initiating Form S-3 Holders a
certificate signed by the Chief Executive Officer and Chief Financial Officer
of the Company stating that in the good faith opinion of the Board of Directors
of the Company, a Valid Business Reason exists, the Company shall have the
right to delay or defer taking action with respect to such filing for a period
of ninety (90) days after receipt of the Form S-3 Demand; provided, however,
that such right to delay or defer a Form S-3 Demand shall be exercised by the
Company not more than once in any twelve (12) month period, the Company shall
only have the right to delay a Form S-3 Demand so long as such Valid Business
Reason exists, and during such time the Company may not file a Registration
Statement for securities to be issued and sold for its own account or for that
of any other Holders. Form S-3 Demands will not be deemed to be Demand Requests
as described in Section 1.2 hereof and Holders shall have the right
to request an unlimited number of Form S-3 Demands.  Notwithstanding the foregoing, the Company
shall not be obligated to file more than one (1) Registration Statement on Form
S-3 pursuant to this Section 1.4 in any given six (6) month period.

 

Section 1.5.                                Registration Procedures.

 

(a)                                  Obligations
of the Company.  Whenever
registration of Registrable Securities is required pursuant to this Agreement,
the Company shall use its best efforts to effect the

 

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registration and sale of such Registrable Securities
in accordance with the intended method of distribution thereof as promptly as
possible, and in connection with any such request, the Company shall, as
expeditiously as possible:

 

(i)                                     Preparation of Registration
Statement; Effectiveness.  Prepare and file with the SEC (in any event
not later than ninety (90) days after receipt of a Demand Request to file a
Registration Statement with respect to Registrable Securities), a Registration
Statement on any form on which the Company then qualifies, which counsel for
the Company shall deem appropriate and pursuant to which such offering may be
made in accordance with the intended method of distribution thereof (except
that the Registration Statement shall contain such information as may
reasonably be requested for marketing or other purposes by the managing
underwriter), and use its best efforts to cause any
registration required hereunder to become effective as soon as practicable
after the initial filing thereof and remain effective for a period of not less
than one hundred and eighty (180) days (or such shorter period in which all
Registrable Securities have been sold in accordance with the methods of
distribution set forth in the Registration Statement); provided, however,
that, in the case of any registration of Registrable Securities on Form S-3
which are intended to be offered on a continuous or delayed basis, such one
hundred eighty (180) day period shall be extended, if necessary, to keep the
Registration Statement effective until all such Registrable Securities are
sold, provided that Rule 415, or any successor rule under the Securities
Act, permits an offering on a continuous or delayed basis;

 

(ii)                                  Participation in Preparation. 
Provide any Participating Holder, any underwriter participating in any
disposition pursuant to a Registration Statement, and any attorney, accountant
or other agent retained by any Participating Holder or underwriter (each, an “Inspector” and, collectively,
the “Inspectors”),
the opportunity to reasonably participate (including, but not limited to,
reviewing, commenting on and attending all meetings) in the preparation of such
Registration Statement, each prospectus included therein or filed with the SEC
and each amendment or supplement thereto;

 

(iii)                               Due Diligence.  For
a reasonable period prior to the filing of any Registration Statement pursuant
to this Agreement, make available for inspection and copying by the Inspectors
such financial and other information and books and records, pertinent corporate
documents and properties of the Company and its subsidiaries and cause the
officers, directors, employees, counsel and independent certified public
accountants of the Company and its subsidiaries to respond to such inquiries
and to supply all information reasonably requested by any such Inspector in
connection with such Registration Statement, as shall be reasonably necessary,
in the judgment of the respective counsel referred to in Section 1.5(a)(ii),
to conduct a reasonable investigation within the meaning of the Securities Act;

 

(iv)                              General Notifications. 
Promptly notify in writing the Participating Holders, the sales or
placement agent, if any, therefor and the managing underwriter of the
securities being sold, (A) when such Registration Statement or the prospectus
included therein or any prospectus amendment or supplement or post-effective
amendment has been filed, and, with respect to any such Registration Statement
or any post-effective amendment, when the same has become effective, (B) when
the SEC notifies the Company whether there will be a “review” of such
Registration Statement and (C) of any comments (oral or written) by the SEC and
by the blue sky or securities commissioner or regulator of any state with
respect thereto or (D) of any

 

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request by the SEC for any
amendments or supplements to such Registration Statement or the prospectus or
for additional information;

 

(v)                                 10b-5 Notification. Promptly notify in writing the
Participating Holders, the sales or placement agent, if any, therefor and the
managing underwriter of the securities being sold pursuant to any Registration
Statement at any time when a prospectus relating thereto is required to be
delivered under the Securities Act upon discovery that, or upon the happening
of any event as a result of which, any prospectus included in such Registration
Statement (or amendment or supplement thereto) contains an untrue statement of
a material fact or omits to state any material fact required to be stated
therein or necessary to make the statements therein not misleading in light of
the circumstances under which they were made, and the Company shall promptly
prepare a supplement or amendment to such prospectus and file it with the SEC
(in any event no later than ten (10) days following
notice of the occurrence of such event to each Participating Holder, the sales
or placement agent and the managing underwriter) so that after delivery of such
prospectus, as so amended or supplemented, to the purchasers of such Registrable
Securities, such prospectus, as so amended or supplemented, shall not contain
an untrue statement of a material fact or omit to state any material fact
required to be stated therein or necessary to make the statements therein not
misleading in light of the circumstances under which they were made;

 

(vi)                              Notification of Stop Orders;
Suspensions of Qualifications and Exemptions. Promptly notify in writing the Participating Holders, the sales or
placement agent, if any, therefor and the managing underwriter of the
securities being sold of the issuance by the SEC of (A) any stop order issued
or threatened to be issued by the SEC or (B) any notification with respect to
the suspension of the qualification or exemption from qualification of any of
the Registrable Securities for sale in any jurisdiction or the initiation or
threatening of any proceeding for such purpose, and the Company agrees to use commercially
reasonable best efforts to (x) prevent
the issuance of any such stop order, and in the event of such issuance, to
obtain the withdrawal of any such stop order and (y) obtain the withdrawal of
any order suspending or preventing the use of any related prospectus or
suspending the qualification of any Registrable Securities included in such
Registration Statement for sale in any jurisdiction at the earliest practicable
date;

 

(vii)                           Amendments and Supplements;
Acceleration.  Prepare and file with the SEC such
amendments, including post-effective amendments to each Registration Statement
as may be necessary to keep such Registration Statement continuously effective
for the applicable time period required hereunder and if applicable, file any
Registration Statements pursuant to Rule 462(b) under the Securities Act; cause
the related prospectus to be supplemented by any required prospectus
supplement, and as so supplemented to be filed pursuant to Rule 424 (or any
similar provisions then in force) promulgated under the Securities Act; and
comply with the provisions of the Securities Act and the Exchange Act with respect
to the disposition of all securities covered by such Registration Statement
during such period in accordance with the intended methods of disposition by
the sellers thereof set forth in such Registration Statement as so amended or
in such prospectus as so supplemented. 
If a majority in interest of the
Participating Holders so request, to request acceleration of effectiveness of
the Registration Statement from the SEC and any post-effective amendments
thereto, if any are filed; provided that at the time of such request,
the Company does not in good faith believe that it is necessary to

 

9

 

amend further the
Registration Statement in order to comply with the provisions of this
subparagraph.  If the Company wishes to
further amend the Registration Statement prior to requesting acceleration, it
shall have five (5) days to so amend prior to requesting acceleration;

 

(viii)                        Copies. 
Furnish as promptly as practicable to each Participating Holder and
Inspector prior to filing a Registration Statement or any supplement or
amendment thereto, copies of such Registration Statement, supplement or
amendment as it is proposed to be filed, and after such filing such number of
copies of such Registration Statement, each amendment and supplement thereto
(in each case including all exhibits thereto), the prospectus included in such
Registration Statement (including each preliminary prospectus) and such other
documents as each such Participating Holder or underwriter may reasonably
request in order to facilitate the disposition of the Registrable Securities
owned by such Participating Holder;

 

(ix)                                Blue Sky.  Use commercially
reasonable efforts to, prior to
any public offering of the Registrable Securities, register or qualify (or seek
an exemption from registration or qualifications) such Registrable Securities
under such other securities or blue sky laws of such jurisdictions as any
Participating Holder or underwriter may request, and to continue such
qualification in effect in each such jurisdiction for as long as is permissible
pursuant to the laws of such jurisdiction, or for as long as a Participating
Holder or underwriter requests or until all of such Registrable Securities are
sold, whichever is shortest, and do any and all other acts and things which may
be reasonably necessary or advisable to enable any Participating Holder to
consummate the disposition in such jurisdictions of the Registrable Securities;

 

(x)                                   Other Approvals.  Use commercially
reasonable efforts to obtain all
other approvals, consents, exemptions or authorizations from such governmental
agencies or authorities as may be necessary to enable the Participating Holders
and underwriters to consummate the disposition of Registrable Securities;

 

(xi)                                Agreements. 
Enter into customary agreements (including any underwriting agreements
in customary form), and take such other actions as may be reasonably required
in order to expedite or facilitate the disposition of Registrable Securities;

 

(xii)                             “Cold Comfort” Letter.  Obtain a “cold
comfort” letter from the Company’s independent public accountants in customary
form and covering such matters of the type customarily covered by “cold comfort”
letters as the managing underwriter may reasonably request, and reasonably satisfactory
to a majority in interest of the
Participating Holders;

 

(xiii)                          Legal Opinion. 
Furnish, at the request of any underwriter of Registrable Securities on
the date such securities are delivered to the underwriters for sale pursuant to
such registration, an opinion, dated such date, of counsel representing the
Company for the purposes of such registration, addressed to the Holders, and
the placement agent or sales agent, if any, thereof and the underwriters, if
any, thereof, covering such legal matters with respect to the registration in
respect of which such opinion is being given as such underwriter may reasonably
request and as are customarily included in such opinions, and reasonably
satisfactory to a majority in interest of the Participating Holders;

 

10

 

(xiv)                         SEC Compliance, Earnings
Statement. Use its best
efforts to comply with all applicable rules
and regulations of the SEC and make available to its shareholders, as soon as
reasonably practicable, but no later than fifteen (15) months after the
effective date of any Registration Statement, an earnings statement covering a
period of twelve (12) months beginning after the effective date of such
Registration Statement, in a manner which satisfies the provisions of Section 11(a)
of the Securities Act and Rule 158 thereunder;

 

(xv)                            Certificates, Closing. 
Provide officers’ certificates and other customary closing documents;

 

(xvi)                         NASD. 
Cooperate with each Participating Holder and each underwriter participating
in the disposition of such Registrable Securities and underwriters’ counsel in
connection with any filings required to be made with the NASD;

 

(xvii)                      Road Show. 
Cause appropriate officers as are requested by an managing underwriter
to participate in a “road show” or similar marketing effort being conducted by
such underwriter with respect to an underwritten public offering;

 

(xviii)                   Listing.  Use
its best efforts to cause all such Registrable Securities to be listed on each
securities exchange on which similar securities issued by the Company are then
listed and if not so listed, to be listed on the NASD automated quotation
system;

 

(xix)                           Transfer Agent, Registrar and
CUSIP.  Provide a transfer agent and registrar for
all Registrable Securities registered pursuant hereto and a CUSIP number for
all such Registrable Securities, in each case, no later than the effective date
of such registration;

 

(xx)                              Private Sales.  Use
its best efforts to assist a Holder in facilitating private sales of Registrable
Securities by, among other things, providing officers’ certificates and other
customary closing documents; and

 

(xxi)                           Commercially Reasonable Efforts.  Use commercially
reasonable efforts to take all other actions necessary to effect the
registration of the Registrable Securities contemplated hereby.

 

(b)                                 Seller Information.  The
Company may require each Participating Holder as to which any registration of
such Holder’s Registrable Securities is being effected to furnish to the
Company with such information regarding such Participating Holder and such
Participating Holder’s method of distribution of such Registrable Securities as
the Company may from time to time reasonably request in writing.

 

(c)                                  Notice to Discontinue.  Each
Participating Holder whose Registrable Securities are covered by a Registration
Statement filed pursuant to this Agreement agrees that, upon receipt of written
notice from the Company of the happening of any event of the kind described in Section 1.5(a)(v),
such Participating Holder shall forthwith discontinue the disposition of
Registrable Securities until such Participating Holder’s receipt of the copies
of the supplemented or amended prospectus contemplated by Section 1.5(a)(v)
or until it is advised in writing by the Company that the use of the prospectus
may be resumed and has received copies of any additional or supplemental
filings which are incorporated by reference into the prospectus, and,

 

11

 

if so directed by the
Company in the case of an event described in Section 1.5(a)(v),
such Participating Holder shall deliver to the Company (at the Company’s
expense) all copies, other than permanent file copies then in such
Participating Holder’s possession, of the prospectus covering such Registrable
Securities which is current at the time of receipt of such notice.  If the Company shall give any such notice,
the Company shall extend the period during which such Registration Statement is
to be maintained effective by the number of days during the period from and
including the date of the giving of such notice pursuant to Section 1.5(a)(v)
to and including the date when the Participating Holder shall have received the
copies of the supplemented or amended prospectus contemplated by, and meeting
the requirements of, Section 1.5(a)(v).

 

Section 1.6.                                Registration Expenses. 
Except as otherwise
provided herein, all Registration Expenses shall be borne by the Company.  All Selling Expenses relating to Registrable
Securities registered shall be borne by the Participating Holders of such
Registrable Securities pro rata on the basis of the number of shares so
registered.

 

Section 1.7.                                Indemnification.

 

(a)                                  Indemnification
by the Company.  The Company agrees,
notwithstanding termination of this Agreement, to indemnify and hold harmless
to the fullest extent permitted by law, each Holder, each of its directors,
officers, employees, advisors, agents and general or limited partners (and the
directors, officers, employees, advisors and agents thereof), their respective
Affiliates and each Person who controls (within the meaning of the Securities
Act or the Exchange Act) any of such Persons, and each underwriter and each
Person who controls (within the meaning of the Securities Act or the Exchange
Act) any underwriter (collectively, “Holder
Indemnified Parties”) from and against any and all
losses, claims, damages, expenses (including, without limitation, reasonable
costs of investigation and fees, disbursements and other charges of counsel,
any amounts paid in settlement effected with the Company’s consent, which
consent shall not be unreasonably withheld or delayed and any costs incurred in
enforcing the Company’s indemnification obligations hereunder) or other
liabilities (collectively, “Losses”)
to which any such Holder Indemnified Party may become subject under the
Securities Act, Exchange Act, any other federal law, any state or common law or
any rule or regulation promulgated thereunder or otherwise, insofar as such
Losses (or actions or proceedings, whether commenced or threatened, in respect
thereof) are resulting from or arising out of or based upon (i) any untrue, or
alleged untrue, statement of a material fact contained in any Registration
Statement, prospectus or preliminary prospectus (as amended or supplemented) or
any document incorporated by reference in any of the foregoing or resulting
from or arising out of or based upon any omission or alleged omission to state
therein a material fact required to be stated therein or necessary to make the statements
therein (in the case of a prospectus, in light of the circumstances under which
they were made), not misleading or (ii) any violation by the Company of the
Securities Act, Exchange Act, any other federal law, any state or common law or
any rule or regulation promulgated thereunder or otherwise incident to any
registration, qualification or compliance and in any such case, the Company
will promptly reimburse each such Holder Indemnified Party for any legal and
any other Losses reasonably incurred in connection with investigating,
preparing or defending any such claim, loss, damage, liability, action or
investigation or proceeding (collectively, a “Claim”); provided,
however, that the Company shall not be liable to any Holder Indemnified
Party for any Losses that arise out of or

 

12

 

are based upon written information provided by a
Holder Indemnified Party specifically stating it is for use in the Registration
Statement. Such indemnity obligation shall remain
in full force and effect regardless of any investigation made by or on behalf
of the Holder Indemnified Parties and shall survive the transfer of Registrable
Securities by such Holder Indemnified Parties.

 

(b)                                 Indemnification by Holders.  In
connection with any proposed registration in which a Holder is participating
pursuant to this Agreement, each such Holder shall furnish to the Company in
writing such information with respect to such Holder as the Company may
reasonably request or as may be required by law for use in connection with any
Registration Statement or prospectus or preliminary prospectus to be used in
connection with such registration and each Holder agrees, severally and not
jointly, to indemnify and hold harmless the Company, any underwriter retained
by the Company and their respective directors, officers, partners, employees,
advisors and agents, their respective Affiliates and each Person who controls
(within the meaning of the Securities Act or the Exchange Act) any of such
Persons to the same extent as the foregoing indemnity from the Company to the
Holders as set forth in Section 1.7(a) (subject to the exceptions
set forth in the foregoing indemnity, the proviso to this sentence and
applicable law), but only with respect to any such information furnished in
writing by such Holder expressly for use therein; provided, however,
that the liability of any Holder under this Section 1.7(b) shall be
limited to the amount of the net proceeds
received by such Holder in the offering giving rise to such liability. Such
indemnity obligation shall remain in full force and effect regardless of any
investigation made by or on behalf of the Holder Indemnified Parties (except as
provided above) and shall survive the transfer of Registrable Securities by
such Holder.

 

(c)                                  Conduct of Indemnification Proceedings.  Any
Person entitled to indemnification hereunder (the “Indemnified Party”) agrees to give prompt written
notice to the indemnifying party (the “Indemnifying
Party”) after the receipt by the Indemnified Party of any
written notice of the commencement of any action, suit, proceeding or
investigation or threat thereof made in writing for which the Indemnified Party
intends to claim indemnification or contribution pursuant to this Agreement; provided,
however, that, the failure so to notify the Indemnifying Party shall not
relieve the Indemnifying Party of any liability that it may have to the
Indemnified Party hereunder unless and to the extent such Indemnifying Party is
materially prejudiced by such failure. 
If notice of commencement of any such action is given to the
Indemnifying Party as above provided, the Indemnifying Party shall be entitled
to participate in and, to the extent it may wish, jointly with any other
Indemnifying Party similarly notified, to assume the defense of such action at
its own expense, with counsel chosen by it and reasonably satisfactory to such
Indemnified Party.  The Indemnified Party
shall have the right to employ separate counsel in any such action and
participate in the defense thereof, but the fees and expenses of such counsel
shall be paid by the Indemnified Party unless (i) the Indemnifying Party agrees
to pay the same, (ii) the Indemnifying Party fails to assume the defense of
such action with counsel satisfactory to the Indemnified Party in its
reasonable judgment or (iii) the named parties to any such action (including,
but not limited to, any impleaded parties) reasonably believe that the
representation of such Indemnified Party and the Indemnifying Party by the same
counsel would be inappropriate under applicable standards of professional
conduct.  In the case of clause (ii)
above and (iii) above, the Indemnifying Party shall not have the right to
assume the defense of such action on behalf of such Indemnified Party.  No Indemnifying Party shall be liable for any
settlement entered into without its written consent, which consent shall not be
unreasonably

 

13

 

withheld.  No Indemnifying Party shall, without the
written consent of the Indemnified Party, effect the settlement or compromise
of, or consent to the entry of any judgment with respect to, any pending or
threatened action or claim in respect of which indemnification or contribution
may be sought hereunder (whether or not the Indemnified Party is an actual or
potential party to such action or claim) unless such settlement, compromise or
judgment (A) includes an unconditional release of the Indemnified Party from
all liability arising out of such action or claim and (B) does not include a
statement as to, or an admission of, fault, culpability or a failure to act by
or on behalf of any Indemnified Party. 
The rights afforded to any Indemnified Party hereunder shall be in
addition to any rights that such Indemnified Party may have at common law, by
separate agreement or otherwise.

 

(d)                                 Contribution.  If
the indemnification provided for in this Section 1.7 from the
Indemnifying Party is unavailable or insufficient to hold harmless an
Indemnified Party in respect of any Losses referred to herein, then the
Indemnifying Party, in lieu of indemnifying the Indemnified Party, shall
contribute to the amount paid or payable by the Indemnified Party as a result
of such Losses in such proportion as is appropriate to reflect the relative
fault of the Indemnifying Party and the Indemnified Party, as well as any other
relevant equitable considerations.  The
relative faults of the Indemnifying Party and Indemnified Party shall be
determined by reference to, among other things, whether any action in question,
including any untrue or alleged untrue statement of a material fact or omission
or alleged omission to state a material fact, was made by, or relates to
information supplied by, such Indemnifying Party or Indemnified Party, and the
Indemnifying Party’s and Indemnified Party’s relative intent, knowledge, access
to information and opportunity to correct or prevent such action; provided,
however, that the liability of any Holder under this Section 1.7(d)
shall be limited to the amount of the net proceeds
received by such Holder in the offering giving rise to such liability.  The amount paid or payable by a party as a
result of the Losses or other liabilities referred to above shall be deemed to
include, subject to the limitations set forth in Sections 1.7(a), 1.7(b)
and 1.7(c), any legal or other fees, charges or expenses reasonably
incurred by such party in connection with any investigation or proceeding.

 

The
parties hereto agree that it would not be just and equitable if contribution pursuant
to this Section 1.7(d) were determined by pro rata allocation or by
any other method of allocation which does not take account of the equitable
considerations referred to in the immediately preceding paragraph.  No person guilty of fraudulent misrepresentation
(within the meaning of Section 11(f) of the Securities Act) shall be
entitled to contribution pursuant to this Section 1.7(d).

 

Section 1.8.                                Rule 144 and Rule 144A; Other
Exemptions. With a view
to making available to the Holders the benefits of Rule 144 and Rule 144A
promulgated under the Securities Act and other rules and regulations of the SEC
that may at any time permit a Holder to sell securities of the Company to the
public without registration, the Company covenants that it shall (i) file in a
timely manner all reports and other documents required to be filed by it under
the Securities Act and the Exchange Act and the rules and regulations adopted
by the SEC thereunder and (ii) take such further action as each Holder may
reasonably request (including, but not limited to, providing any information
necessary to comply with Rule 144 and Rule 144A, if available with respect to
resales of the Registrable Securities under the Securities Act), all to the
extent required from time to time to enable such Holder to sell Registrable
Securities without

 

14

 

registration under the
Securities Act within the limitation of the exemptions provided by (x) Rule 144
and Rule 144A (if available with respect to resales of the Registrable
Securities) under the Securities Act, as such rules may be amended from time to
time or (y) any other rules or regulations now existing or hereafter adopted by
the SEC.  Upon the written request of a
Holder, the Company shall deliver to the Holder a written statement as to
whether it has complied with such requirements.

 

Section 1.9.                                Certain Limitations On
Registration Rights. No
Holder may participate in any Registration Statement hereunder unless such
Holder completes and executes all questionnaires, powers of attorney,
indemnities, underwriting agreements, and other documents reasonably required
under the terms of such underwriting arrangements and agrees to sell such
Holder’s Registrable Securities on the basis provided in any underwriting
agreement approved by the Holder or Holders entitled hereunder to approve such
arrangements; provided, however, that no such Holder shall be
required to make any representations or warranties to the Company or the
underwriters in connection with any such registration other than
representations and warranties as to (i) such Holder’s ownership of its
Registrable Securities to be sold or transferred, (ii) such Holder’s power and
authority to effect such transfer and (iii) such matters pertaining to compliance
with securities laws as may be reasonably requested.  Such Holders of Registrable Securities to be
sold by such underwriters may, at their option, require that any or all of the
representations and warranties by, and the other agreements on the part of the
Company to and for the benefit of such underwriters, shall also be made to and
for the benefit of such Holders and that any or all of the conditions precedent
to the obligations of the underwriters under the underwriting agreement be
conditions precedent to the obligations of the Holders.

 

Section 1.10.                         Limitations on Subsequent
Registration Rights.  The Company agrees that from and after the
date of this Agreement, it shall not, without the prior written consent of the
Holders of at least 80% of the Registrable Securities then outstanding, enter
into any agreement (or amendment or waiver of the provisions of any agreement)
with any holder or prospective holder of any securities of the Company that
would grant such holder registration rights that are more favorable, pari passu
or senior to those granted to the Purchaser hereunder.

 

Section 1.11.                         Transfer of Registration Rights. The rights of
a Holder hereunder may be transferred or assigned in connection with a transfer
of Registrable Securities to (i) any Affiliate of a Holder, (ii) any
subsidiary, parent, partner, limited partner, shareholder or member of a Holder or (iii) any party or parties to a transaction
or series of related transactions who, after such transaction, holds or collectively
hold at least 1,000,000 shares of Registrable Securities (as adjusted for any stock dividends, stock splits, combinations and
reorganizations and similar events). 
Notwithstanding the foregoing, such rights may only be transferred or
assigned provided that all of the following additional conditions are
satisfied:  (a) such transfer or
assignment is effected in accordance with applicable securities laws; (b) such
transferee or assignee agrees in writing to become subject to the terms of this
Agreement; and (c) the Company is given written notice by such Holder of such
transfer or assignment, stating the name and address of the transferee or
assignee and identifying the Registrable Securities with respect to which such
rights are being transferred or assigned.

 

15

 

ARTICLE II

 

PREEMPTIVE
RIGHTS

 

Section 2.1  General.  The Purchaser
and any party to whom the Purchaser’s rights under this Article 2 have
been duly assigned in accordance with this Agreement (each such holder or
assignee hereinafter referred to as a “Rights
Holder”), has the preemptive right to purchase such
Rights Holder’s Pro Rata Share (as defined herein), of all or any part of any “New Securities” (as defined
in Section 2.2 hereof), that the Company may from time to time
issue after the date of this Agreement. A Rights Holder’s “Pro Rata Share” for purposes of this preemptive
right is the ratio of (a) the number of Registrable Securities as to which such
Rights Holder is the Holder (and/or is deemed to be the Holder under Section 1.1(b)
hereof) to (b) the sum of the total number of shares of the Company’s Common
Stock then outstanding, the number of shares of the Company’s Common Stock
issuable upon conversion of the then outstanding Series A-1 Preferred Stock,
Series A-2 Preferred Stock and Series A-3 Preferred Stock and the number of
shares of the Company’s Common Stock issuable upon conversion or exercise of
then outstanding securities.

 

Section 2.2  New Securities.  For
purposes of this Article 2, “New
Securities” means any of the Company’s capital stock,
whether now authorized or not, and rights, options or warrants to purchase such
capital stock and securities of any type whatsoever that are, or may become,
convertible into, exercisable or exchangeable into such capital stock; provided,
however, that the term “New Securities” does not include securities
issued or issuable:

 

(a)                                  under the Purchase Agreement and the Warrant;

 

(b)                                 to officers, directors or employees of, or
consultants, to the Company pursuant to those certain stock option or stock
purchase plans in effect as of the date hereof or new plans approved by a
majority of the directors appointed by the Purchaser or agreements on terms
approved by the Board, including a majority of the directors appointed by the Purchaser;

 

(c)                                  upon the exercise of warrants outstanding as
of the date hereof; and

 

(d)                                 as a dividend or distribution on the Series A-1
Preferred Stock, the Series A-2 Preferred Stock or the Series A-3 Preferred
Stock.

 

Section 2.3  Procedure.  The
Company will give each Rights Holder at least twenty-five (25) days prior
written notice of the Company’s intention to issue New Securities (the “New Securities Notice”),
describing the type and amount of New Securities to be issued and the price and
the general terms and conditions upon which the Company proposes to issue such
New Securities.  Each Rights Holder may
purchase at least such Rights Holder’s Pro Rata Share of such New Securities,
by delivering to the Company, within twenty-five (25) days after the date of
mailing of any such New Securities Notice by the Company, a written notice
specifying such number of New Securities which such Rights Holder desires to
purchase (which may be all or any part of such New Securities), for the price and
upon the general terms and conditions specified in the New Securities Notice.  If any Rights Holder fails to notify the
Company in writing within such twenty-five (25) day period of its election to
purchase any or all of such Rights
Holder’s Pro Rata Share of an offering of New Securities (a “Nonpurchasing Holder”),

 

16

 

then such Nonpurchasing
Holder will forfeit the right hereunder to purchase that part of such Rights
Holder’s Pro Rata Share of such New Securities that such Rights Holder did not
agree to purchase.  If any Rights Holder
fails to elect to purchase the full amount of such Rights Holder’s Pro Rata
Share of the New Securities, the Company shall give notice of such failure to
the Rights Holders who did so elect (a “Participating
Holder”).  The
Participating Holders shall have ten (10) days from the date such notice was
given to notify the Company in writing of its election to purchase their pro
rata portion of the total number of New Securities not subscribed for by the
Nonpurchasing Holders.   Each
Participating Holder’s pro rata portion thereof will be equal to the total of
the number of shares of Common Stock of the Company held by such Participating
Holder plus the number of shares of Common Stock of the Company into which all
shares of Preferred Stock held by such Participating Holder are convertible on
the date of the New Securities Notice, as a percentage of the total number of
shares of Common Stock of the Company held by all Participating Holders plus
the number of shares of Common Stock of the Company into which all shares of
Preferred Stock held by all such Participating Holders are convertible on the
date of the New Securities Notice.

 

Section 2.4  Failure To Exercise.  In
the event that the Rights Holders fail to exercise in full the preemptive right
within such twenty-five (25) day period, then the Company will have ninety (90)
days thereafter to sell the New Securities with respect to which the Rights
Holders’ preemptive rights hereunder were not exercised, at a price and upon
terms and conditions not more favorable to the purchasers thereof than
specified in the Company’s New Securities Notice to the Rights Holders.  In the event that the Company has not issued
and sold the New Securities within such ninety (90) day
period, then the Company shall not thereafter issue or sell any New Securities
without again first offering such New Securities to the Rights Holders pursuant
to this Article 2.

 

Section 2.5  Termination.  The
preemptive rights set forth in this Article 2 shall terminate upon the
earlier of (a) the consummation of an underwritten public offering pursuant to
a Registration Statement under the Securities Act that results in gross proceeds
to the Company of not less than $45,000,000 in the aggregate (a “Qualified Public Offering”),
and (b) such time as the Investor and its Affiliates hold fewer than twenty-five
percent (25%) of the Series A-1 Preferred Stock originally issued under the
Purchase Agreement.

 

Section 2.6  Assignment.  The preemptive rights set forth in
this Article 2 may not be assigned or transferred, except the rights of a
Rights Holder hereunder may be transferred or assigned in connection with a
transfer of Registrable Securities to (i) any Affiliate of a Rights Holder, or (ii)
any subsidiary, parent, partner, limited partner, shareholder or member of a
Rights Holder.

 

ARTICLE III

 

GENERAL
PROVISIONS

 

Section 3.1  Entire Agreement.  This Agreement constitutes the entire agreement and understanding of
the parties in respect of the subject matter hereof and supersedes all prior
understandings, agreements or representations by or among the parties, written
or oral, to the extent they relate in any way to the subject matter hereof.

 

17

 

Section 3.2  Successors and Assigns.  All of the terms, agreements,
covenants, representations, warranties and conditions of this Agreement are
binding upon, and inure to the benefit of and are enforceable by, the parties
and their respective successors and permitted assigns.

 

Section 3.3. Notices.  All notices, requests and
other communications provided for or permitted to be given under this Agreement
must be in writing and shall be given by personal delivery, by certified or
registered United States mail (postage prepaid, return receipt requested), by a
nationally recognized overnight delivery service for next day delivery, or by
facsimile transmission, as follows (or to such other address as any party may
give in a notice given in accordance with the provisions hereof):

 

If to the Purchaser:

 

Medcare Investment Fund III, Ltd.

8122 Datapoint Drive, Suite 1000

San Antonio, Texas 
78229

Fax: (210) 614-5841

Attn: Tim Lyles

 

With a copy to (which does not constitute notice):

 

Akin Gump Strauss Hauer & Feld LLP

300 Convent Street, Suite 1500

San Antonio, Texas 78205

Phone: (210) 281-7000

Fax: (210) 224-2035

Attn: Alan Schoenbaum, Esq.

 

If to the Company:

 

Refocus Group, Inc.

10300 North Central Expressway, Suite 104.

Dallas, Texas 
75231

Fax:  (214)
368-0332

Attn: 
President

 

With a copy to (which does not constitute notice):

 

Jenkens & Gilchrist, P.C.

1445 Ross Avenue, Suite 3200

Dallas, Texas 
75202

Phone:  (214)
855-4500

Fax:  (214)
855-4300

Attn:  Robert
W. Dockery, Esq.

 

18

 

All notices, requests or other communications will be
effective and deemed given only as follows: 
(i) if given by personal delivery, upon such personal delivery, (ii) if
sent by certified or registered mail, on the fifth business day after being
deposited in the United States mail, (iii) if sent for next day delivery by
overnight delivery service, on the date of delivery as confirmed by written
confirmation of delivery, (iv) if sent by facsimile, upon the transmitter’s
confirmation of receipt of such facsimile transmission, except that if such
confirmation is received after 5:00 p.m. (in the recipient’s time zone) on a
business day, or is received on a day that is not a business day, then such
notice, request or communication will not be deemed effective or given until
the next succeeding business day. 
Notices, requests and other communications sent in any other manner,
including by electronic mail, will not be effective.

 

Section 3.4  Governing Law.  This Agreement will be governed by and
construed in accordance with the laws of the State of Texas, without giving
effect to any choice of law principles.

 

Section 3.5  Headings.  The article and
section headings contained in this Agreement are inserted for convenience
only and will not affect in any way the meaning or interpretation of this
Agreement.

 

Section 3.6  Amendments. This Agreement
may not be amended or modified without the written consent of the Holders of at
least a majority of the Registrable Securities.

 

Section 3.7  Extensions; Waivers.  Any
party may, for itself only, (a) extend the time for the performance of any of
the obligations of any other party under this Agreement, (b) waive any
inaccuracies in the representations and warranties of any other party contained
herein or in any document delivered pursuant hereto and (c) waive compliance
with any of the agreements or conditions for the benefit of such party
contained herein.  Any such extension or
waiver will be valid only if set forth in a writing signed by the party to be
bound thereby.  No
waiver by any party of any default, misrepresentation or breach of warranty or
covenant hereunder, whether intentional or not, may be deemed to extend to any
prior or subsequent default, misrepresentation or breach of warranty or
covenant hereunder or affect in any way any rights arising because of any prior
or subsequent such occurrence.  Neither
the failure nor any delay on the part of any party to exercise any right or
remedy under this Agreement shall operate as a waiver thereof, nor shall any
single or partial exercise of any right or remedy preclude any other or further
exercise of the same or of any other right or remedy.

 

Section 3.8  Severability.  The provisions of this Agreement will be deemed severable and the
invalidity or unenforceability of any provision will not affect the validity or
enforceability of the other provisions hereof; provided that if any provision
of this Agreement, as applied to any party or to any circumstance, is
judicially determined not to be enforceable in accordance with its terms, the
parties agree that the court judicially making such determination may modify
the provision in a manner consistent with its objectives such that it is
enforceable, and/or to delete specific words or phrases, and in its modified
form, such provision will then be enforceable and will be enforced.

 

Section 3.9  Counterparts; Effectiveness.  This
Agreement may be executed in two or more counterparts, each of which will be
deemed an original but all of which together will

 

19

 

constitute one and the same
instrument.  This Agreement will become
effective when one or more counterparts have been signed by each of the parties
and delivered to the other parties.  For
purposes of determining whether a party has signed this Agreement or any
document contemplated hereby or any amendment or waiver hereof, only a
handwritten original signature on a paper document or a facsimile copy of such
a handwritten original signature shall constitute a signature, notwithstanding
any law relating to or enabling the creation, execution or delivery of any
contract or signature by electronic means.

 

[SIGNATURE PAGE FOLLOWS]

 

20

 

IN WITNESS WHEREOF, the parties hereto have executed this Investors’
Rights Agreement as of the date first above written.

 

	
  COMPANY:

  	
   

  	
  REFOCUS GROUP, INC.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
   /s/ Terence
  A. Walts

  	
   

  
	
   

  	
   

  	
  Name: Terence A. Walts

  
	
   

  	
   

  	
  Title: President

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
  PURCHASER:

  	
   

  	
  MEDCARE INVESTMENT FUND III,
  LTD.

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By: MEDCARE GP CORP, Inc., a Texas

  corporation, General Partner

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
  By:

  	
  /s/ Thomas W. Lyles, Jr.

  	
   

  
	
   

  	
   

  	
   

  	
  Thomas W. Lyles, Jr., PresidentExhibit 10.29.1

 

SECURED BRIDGE NOTE

 

	
  Date:

  	
   

  	
  January
  27, 2005

  
	
   

  	
   

  	
   

  
	
  Maker:

  	
   

  	
  Refocus
  Group, Inc., a Delaware corporation

  
	
   

  	
   

  	
   

  
	
  Maker’s
  Mailing Address:

  	
   

  	
  10300
  North Central Expressway, Suite 104

  
	
   

  	
   

  	
  Dallas,
  Texas 75231

  
	
   

  	
   

  	
   

  
	
  Payee:

  	
   

  	
  Medcare
  Investment Fund III, Ltd.

  
	
   

  	
   

  	
   

  
	
  Place
  for Payment:

  	
   

  	
  c/o
  Mission City Management, Inc.

  
	
   

  	
   

  	
  8155
  Datapoint, Suite 1000

  
	
   

  	
   

  	
  San
  Antonio, Texas 78229

  
	
   

  	
   

  	
   

  
	
  Principal
  Amount:

  	
   

  	
  Five
  hundred thousand dollars (US$500,000)

  
	
   

  	
   

  	
   

  
	
  Annual
  Interest Rate on

  	
   

  	
   

  
	
  Unpaid
  Principal Until

  	
   

  	
   

  
	
  Maturity
  Date:

  	
   

  	
  8%
  per annum, calculated on the basis of a year of 360 days

  
	
   

  	
   

  	
   

  
	
  Annual
  Interest Rate on

  	
   

  	
   

  
	
  Matured,
  Unpaid Amounts:

  	
   

  	
  18% per annum

  
	
   

  	
   

  	
   

  
	
  Terms
  of Payment:

  	
   

  	
  Principal
  and interest are payable on or before the earlier of the First Closing Date
  and July 26, 2005 (the “Maturity Date”).
  “First Closing Date” means the
  closing date of the issuance and sale by Maker to Payee and other investors
  of $6,000,000 of convertible debt securities of the Company.

  

 

Maker hereby unconditionally promises to pay to the order of Payee at
the place for payment and according to the Terms of Payment (in funds available
for immediate use) the principal amount and interest, which shall accrue from
and after the date of this Note and compound annually, at the rate stated above.  The principal amount and interest shall be
due and payable on the Maturity Date.

 

The obligations of Maker
hereunder are secured by that certain Security Agreement, dated the date
hereof, by and among Maker, Maker’s wholly owned subsidiary, Refocus Ocular,
Inc., and Payee, and are guaranteed by Maker’s wholly owned subsidiaries, Refocus
Ocular, Inc., PC Lens Corp, a Delaware corporation, and Refocus Ocular Europe —
SPRL, a Belgian company, pursuant to that certain Guaranty, dated the date
hereof.

 

If Maker defaults in the payment
of this Note, then Payee may declare the unpaid principal balance and interest
thereon immediately due.  Maker and each
surety, endorser and

 

 

guarantor hereby waive presentment, demand, protest or
notice of any kind in connection with this Note.

 

If this Note is given to an
attorney for collection, or if suit is brought for collection, or if it is
collected through probate, bankruptcy or other judicial proceeding, then Maker
shall pay Payee all costs of collection, including reasonable attorney’s fees
and court costs, in addition to other amounts due.

 

Neither a delay on the part of Payee
in the exercise of any power or right under this Note, nor a single or partial
exercise of any such power or right, shall operate as a waiver thereof.  Enforcement by Payee of any of its rights
hereunder shall not constitute an election by it of remedies so as to preclude
the exercise of any other remedy available to it.

 

Regardless of any provision
contained herein or in any other instrument or agreement concerning the debt
evidenced by this Note, interest on such debt shall not exceed the maximum
amount of nonusurious interest that may be contracted for, taken, reserved,
charged or received under law; any interest in excess of that maximum amount
shall be credited on the principal of the debt or, if that has been paid,
refunded.  On any acceleration or
required or permitted prepayment, any such excess shall be canceled
automatically as of the acceleration or prepayment or, if already paid, credited
on the principal of the debt or, if the principal of the debt has been paid,
refunded.  In determining whether or not
the interest paid or payable, under any specific contingency, exceeds the
maximum amount of nonusurious interest, Maker and Payee shall, to the maximum
extent permitted under applicable law, (a) characterize any nonprincipal
payment as an expense, fee or premium rather than as interest, (b) exclude
voluntary prepayments and the effects thereof, and (c) spread the total amount
of interest throughout the entire contemplated term hereof.

 

This Note is delivered and is
intended to be paid and performed in the State of Texas, and the laws of such
state shall govern the construction, validity, enforcement, and interpretation
hereof.

 

	
   

  	
  REFOCUS GROUP, INC.

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
   

  	
   

  
	
   

  	
  Name:

  	
  Terence A. Walts

  	
   

  
	
   

  	
  Title:

  	
  President

  	
   

  
					

 

2

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