Document:

Exhibit 10.2

 

	
   

  	
  CONFIDENTIAL TREATMENT REQUESTED

  	
  Execution

  
	
   

  	
  UNDER 17 C.F.R. §§ 200.80(b)4, AND 240.24b-2

  	
   

  

 

REGULUS
THERAPEUTICS INC.

 

FOUNDING
INVESTOR RIGHTS AGREEMENT

 

 

REGULUS
THERAPEUTICS INC.

 

FOUNDING
INVESTOR RIGHTS AGREEMENT

 

THIS FOUNDING INVESTOR RIGHTS AGREEMENT (the “Agreement”) is entered into as of
the 1st day of January 2009, by and among Regulus
Therapeutics Inc., a Delaware corporation (the “Company”)
on the one hand, and Isis Pharmaceuticals, Inc.,
a Delaware Corporation (“Isis”) and
Alnylam Pharmaceuticals, Inc., a
Delaware corporation (“Alnylam”)
who are each holders of the Company’s Series A Preferred Stock (the “Preferred Stock”) on the other
hand.  Isis and Alnylam may be referred
to hereinafter collectively as the “Founding Investors”
and each individually as a “Founding Investor”.  The Company, Isis and Alnylam may be referred
to hereinafter collectively as the “Parties”
and each individually as a “Party”.

 

RECITALS

 

WHEREAS, the Company was formerly a Delaware limited liability
company with the Founding Investors as its only members;

 

WHEREAS, the Company converted to a Delaware corporation in January 2009;

 

WHEREAS, in connection with the Company’s conversion to a
Delaware corporation, the Founding Investors received the Preferred Stock in
exchange for their membership interests in the limited liability company; and

 

WHEREAS, in connection with the issuance of the Preferred
Stock, the parties desire to enter into this Agreement in order to grant
registration, information rights, buy-out rights and other rights to the
Founding Investors as set forth below.

 

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

 

SECTION 1.        DEFINITIONS.

 

Capitalized terms used
herein and not defined elsewhere herein have the meanings set forth in Exhibit A.

 

SECTION 2.         RESTRICTIONS ON TRANSFER.

 

No Founding Investor may directly or indirectly sell,
assign, transfer, pledge, hypothecate, or otherwise deal with or encumber or
dispose of in any way (each a “Transfer”) such Founding Investor’s Shares or
Registrable Securities, whether in whole or in part, voluntarily or
involuntarily, by operation of law or otherwise, except in accordance with the
terms and conditions set forth in this Section 2.

 

2.1          Restrictions on Transfer Before
Initial Offering.  Except as provided in this Section 2,
before the Company’s Initial Offering, each Founding Investor agrees that it
may not 

 

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and will not Transfer its
Shares or Registrable Securities without the prior written consent of the other
Founding Investor.

 

2.2          Restrictions on Transfer After
Initial Offering.  Each Holder agrees not to make any
disposition of all or any portion of the Shares or Registrable Securities
unless and until:

 

(a)           there is then in effect a registration statement under
the Securities Act covering such proposed disposition and such disposition is
made in accordance with such registration statement; or

 

(b)           (i) The transferee has agreed in writing to be
bound by the terms of this Agreement, (ii) such Holder will have notified
the Company of the proposed disposition and will have furnished the Company
with a detailed statement of the circumstances surrounding the proposed
disposition, and (iii) if reasonably requested by the Company, such Holder
will have furnished the Company with an opinion of counsel, reasonably
satisfactory to the Company, that such disposition will not require
registration of such shares under the Securities Act.  It is agreed that the Company will not
require opinions of counsel for transactions made pursuant to Rule 144,
except in unusual circumstances.  After
its Initial Offering, the Company will not require any transferee pursuant to Rule 144
to be bound by the terms of this Agreement if the shares so transferred do not
remain Registrable Securities hereunder following such transfer.

 

2.3          Exempt Transfers. 
Notwithstanding the provisions of Sections 2.1 and 2.2 above, no such
restriction will apply to a transfer by a Founding Investor that is:

 

(a)           a Transfer by a Founding Investor to an Affiliate of
such Founding Investor; provided, however,
that (i) the Affiliate of such transferring Founding Investor must have
the resources, assets, experience, qualifications, permits and other rights
necessary to perform under this Agreement and each of the Ancillary Agreements
and (ii) the transferee will agree in writing to be subject to the terms of
this Agreement to the same extent as if it were an original Founding Investor
hereunder.

 

(b)           Transfer pursuant to a Change in Control of such
Founding Investor.  In the event of a
Change in Control of a Founding Investor, the other Founding Investor may
initiate a Buy-Out pursuant to Section 4.

 

2.4          Stock Legends. 
Each certificate representing Shares or Registrable Securities will be
stamped or otherwise imprinted with legends substantially similar to the
following (in addition to any legend required under applicable state securities
laws):

 

THE SECURITIES
REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933
(THE “ACT”) AND MAY NOT BE
OFFERED, SOLD OR OTHERWISE TRANSFERRED, ASSIGNED, PLEDGED OR HYPOTHECATED
UNLESS AND UNTIL REGISTERED UNDER THE ACT OR UNLESS THE COMPANY HAS RECEIVED AN
OPINION OF COUNSEL SATISFACTORY TO THE COMPANY AND ITS COUNSEL THAT SUCH 

 

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REGISTRATION IS NOT REQUIRED.

 

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

 

(a)           The Company will be obligated to promptly reissue
unlegended certificates at the request of any Holder thereof if the Company has
completed its Initial Offering and the Holder has obtained an opinion of
counsel (which counsel may be counsel to the Company) reasonably acceptable to
the Company to the effect that the securities proposed to be disposed of may
lawfully be so disposed of without registration, qualification and legend, provided that the second legend listed
above will be removed only at such time as the Holder of such certificate is no
longer subject to any restrictions hereunder.

 

(b)           Any legend endorsed on an instrument pursuant to
applicable state securities laws and the stop-transfer instructions with
respect to such securities will be removed upon receipt by the Company of an
order of the appropriate blue sky authority authorizing such removal.

 

SECTION 3.         COVENANTS OF THE COMPANY.

 

3.1          Financial Information and Reporting.

 

(a)           The Company will cause to be maintained complete books
and records accurately reflecting the accounts, business and transactions of
the Company on a calendar-year basis and with sufficient detail and
completeness customary and usual for businesses of the type engaged in by the
Company.  The Company’s books and records
and financial statements will be kept using the accrual method of accounting
and in accordance with U.S. generally accepted accounting principles.  The Company will maintain a system of
internal accounting controls which are sufficient to provide reasonable
assurance that (w) transactions are executed in accordance with the
Company’s signature authority policy; (x) transactions are recorded as
necessary to permit preparation of the financial statements of the Company and
to maintain accountability for the Company’s assets; (y) access to the
Company’s assets is permitted only in accordance with management’s
authorization; and (z) the reporting of the Company’s assets is compared
with existing assets at regular intervals. 
The Company’s financial statements will be audited annually by an
independent nationally recognized public accounting firm approved by the
Company’s Board of Directors.

 

(b)           During Consolidation Period. 
For so long as (1) Isis’ independent auditors advise Isis that Isis
should consolidate Regulus’ financial statements with Isis’ financial
statements or (2) Regulus is using Isis’ financial systems (the “Consolidation Period”) Regulus will
do the following:

 

3

 

(i)            Commencing with respect to the fiscal year ending December 31,
2008, and for each fiscal year during the term hereof, the Company will deliver
or mail to each Founding Investor the audited annual financial statements of
the Company at least [***] ([***]) [***] prior to the earliest date by which
either Founding Investor is required to file its annual report on Form 10-K
for such fiscal year (or such earlier time as may be required by either
Founding Investor to satisfy its reporting obligations under law, including without
limitation, the rules and regulations of the SEC), which financial
statements will have been prepared in accordance with U.S. generally accepted
accounting principles.

 

(ii)           For each fiscal quarter during the term hereof, the
Company will deliver or mail to each Founding Investor an unaudited balance
sheet of the Company as at the end of such quarter and unaudited statements of
income and cash flows of the Company for such quarter and for the current
fiscal year to the end of such fiscal quarter within [***] ([***]) days after
the end of each fiscal quarter of the Company (or such earlier time as may be
required by a Founding Investor to satisfy its reporting obligations under law,
including without limitation, the rules and regulations of the SEC).

 

(iii)         Commencing with the month ending on January 31,
2009, the Company will deliver to each Founding Investor an unaudited balance
sheet of the Company as at the end of such month and unaudited statements of
income and of cash flows of the Company for such month and for the current
fiscal year to the end of such month promptly following the Company’s
completion of the review of its financial statements for such month (other than
the last month of any fiscal quarter) (or such earlier time as may be required by
a Founding Investor to satisfy its reporting obligations under law, including
without limitation, the rules and regulations of the SEC).

 

(iv)          The income statements and balance sheets referred to
in this Section 3.1 will be accompanied by the report thereon, if any, of
any independent accountants engaged by the Company or by the certificate of the
President that such financial statements were prepared without audit from the
books and records of the Company.

 

(v)            The Company will use the same accounting
firm as Isis uses to audit its financial statements.

 

(vi)          The Company’s principal executive officer and
principal financial officer, or persons performing similar functions, will
provide certifications to Isis corresponding to those required under Sections
302 and 906 of the Sarbanes-Oxley Act of 2002, and the Company will provide to
Isis an attestation report of its auditors with respect to the Company’s
internal controls, as may be requested by Isis’ external auditors.

 

(vii)         If after reasonable discussions in good faith, the
Company’s audit committee and Isis’ audit committee cannot resolve any dispute
with respect to accounting policies and practices for the Company’s financial
reporting, the Parties agree that they will apply the accounting policy or practice
proposed by Isis’ audit committee.

 

(c)           After the Consolidation Period. 
After the Consolidation Period and until neither Isis nor Alnylam is
required to record their respective share of Regulus’ profit/loss, 

 

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Regulus will provide Isis
and Alnylam the information as specified on EXHIBIT E
attached hereto.

 

(d)           Once Isis and Alnylam are no longer required to record
their respective share of Regulus’ income/losses, Regulus will not be required
to provide the information to Isis and Alnylam outlined in Section 3.1(c) above.
However, Regulus will provide to Isis and/or Alnylam any financial information
reasonably requested by either company so that such company can determine if an
impairment in Regulus exists, and Regulus will make its management available to
Isis and/or Alnylam for reasonable inquiries regarding its financials.

 

3.2          Tax Matters.

 

(a)           The Company will prepare or cause to be prepared, at
the Company’s expense, all tax returns and statements, if any, that must be
filed on behalf of the Company with any taxing authority, and will make timely
filing thereof, including filings pursuant to extensions permitted under
applicable federal and state tax regulations. 
With respect to the Company’s tax return for the fiscal year ended December 31,
2008, the Company will provide a draft of such tax return to each Founding
Investor within a reasonable amount of time prior to filing such return to
allow each Founding Investor an opportunity to review and comment on such
return.  In addition, the Company will
give due consideration to each Founding Investor’s comments regarding the tax
return for the year ended December 31, 2008.

 

(b)           Each Founding Investor may request from the Company
any information reasonably necessary for the Founding Investor to complete any
of its tax returns or compute estimated tax payments and the Company will,
within a reasonable period of time following the request, provide such
information to the requesting Founding Investor.

 

3.3          Confidentiality of Records.  Each Founding Investor agrees to use the same degree
of care as such Founding Investor uses to protect its own confidential
information to keep confidential and not disclose to any party any information
furnished to such Founding Investor pursuant to Section 3.1 and 3.2 hereof
that the Company identifies as being confidential or proprietary (so long as
such information is not in the public domain), except that such Founding
Investor may disclose such proprietary or confidential information (i) to
any partner, subsidiary or parent of such Founding Investor as long as such
partner, subsidiary or parent is advised of and agrees or has agreed to be
bound by the confidentiality provisions of this Section 3.3 or comparable
restrictions; (ii) at such time as it enters the public domain through no
fault of such Founding Investor; (iii) that is communicated to it free of
any obligation of confidentiality; (iv) that is developed by Founding
Investor or their respective agents independently of and without reference to
any confidential information communicated by the Company; or (v) as
required by applicable law.  Upon request
by the Company, each Founding Investor agrees to enter into a separate
confidentiality agreement with the Company.

 

3.4          Reservation of Common Stock.  The Company will at all times reserve and keep
available, solely for issuance and delivery upon the conversion of the
Preferred Stock, all Common Stock issuable from time to time upon such
conversion.

 

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3.5          Board of Directors.  The Board will consist of up to [***] ([***])
directors (each, a “Director”).  Alnylam will have the right to designate
[***] ([***]) Directors who need not be Independent Directors (the “Alnylam Directors”).  Isis will have the right to designate [***]
([***]) Directors who need not be Independent Directors (the “Isis Directors”).  The President of the Company will, at all
times while in office, be a Director. The remaining two members will be
independent industry representatives approved by the other Directors then
serving on the Board.  Other than the
President, each Director will serve at the pleasure of the Founding Investor
designating such Director until such Director’s removal by the designating Founding
Investor or such Director’s resignation. 
If there is a vacancy on the Board, the vacancy will be filled by the
Founding Investor, if any, who initially designated the Director, except if the
vacancy is caused by the termination of the President, such vacancy will be
filled when the then existing Board appoints the new President.  Any Founding Investor may remove, at any time
and for any reason, any or all of the Directors designated by such Founding
Investor and, subject to the Independent Director requirements, designate in
lieu thereof any individual(s) to serve the remainder of the relevant
term.

 

(a)           Observers. 
The right to attend all or particular meetings of the Board (“Observer  Rights”)
may be granted to any Person designated by a Founding Investor upon the
approval of the other Founding Investor (such approval not to be unreasonably
withheld or delayed); provided, however,
that any Person granted Observer Rights, and/or any representative of such
Person attending meetings of the Board, will agree in writing to be subject to
appropriate confidentiality obligations if requested by a Director; provided, further, that such holder of Observer Rights may
be excluded from any meeting or any portion of a meeting for which any Director
believes (i) such meeting or portion will involve a discussion of
information that the Company or the Founding Investor designating such Director
considers to be a trade secret or of a confidential or proprietary nature, (ii) exclusion
of such holder of Observer Rights is desirable in order to preserve the
attorney client-privilege or (iii) exclusion is otherwise merited.

 

(b)           Other Attendees. 
Any Director may invite a subject matter expert to attend any meeting of
the Board; provided, however, that any Person
granted attendance rights will agree in writing to be subject to appropriate
confidentiality obligations if requested by a Director and provided further
that no other Director objects to such expert’s presence.  Upon such objection, the expert will be
excluded from any meeting or any portion of a meeting.

 

(c)           The Directors designated as of the Effective Date are
set forth on EXHIBIT B hereto.

 

3.6          Directors’ Liability and
Indemnification.  The Company’s Certificate of Incorporation
and Bylaws will provide (a) for elimination of the liability of a Director
to the maximum extent permitted by law and (b) for indemnification of
Directors for acts on behalf of the Company to the maximum extent permitted by
law.  In addition, the Company will enter
into and use its best efforts to at all times maintain reasonable and customary
indemnification agreements with each of its Directors to indemnify such
directors to the maximum extent permissible under applicable law.

 

3.7          Operating Plan. 
The Company will use commercially reasonable efforts to operate the
Company in accordance with the Approved Operating Plan (as defined below). The 

 

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initial Operating Plan,
dated April 30, 2008 attached hereto as EXHIBIT C
(the “Initial Operating Plan”), will be
deemed the “Approved Operating Plan” for
the period beginning on September 6, 2007 and ending on December 31,
2009 (such period, the “Initial Commitment
Period”).

 

(a)           No later than September 30, 2009, and no later
than September 30 in each fiscal year thereafter, Regulus’ management will
prepare and submit to the Board a proposal for revising the Approved Operating
Plan then in effect (“Proposed Operating Plan”),
which will include a proposed Development Plan (“Proposed
Development Plan”), proposed
Operating Budget (“Proposed Operating Budget”).

 

(b)           Each Proposed Operating Plan that has been prepared
and submitted by Regulus’ management in accordance with Section 3.7(a) will
be considered at the first meeting of the Board following its submission and
will be subject to the approval of the Board. 
The Chairperson will call a special meeting of the Board for this
purpose at the request of any Director if the next scheduled regular meeting is
later than December 31 of the year in which submission is made.  Any such Proposed Operating Plan (or any
amendment thereto) that is approved by the Board will be considered the “Approved Operating Plan” for all
purposes of this Agreement until amended or replaced.

 

(c)           If, after the Initial Commitment Period, the Board is
unable to approve a Proposed Operating Plan that has been prepared and
submitted by Regulus’ management in accordance with Section 3.7(a) within
three months following the date such Proposed Operating Plan is submitted for
approval (a “Stalemate”), either Founding
Investor may initiate a Buy-Out in accordance with Section 4; provided, however, that in the event sufficient funding is
available to the Company to continue to carry out the Development Plan after
the Initial Commitment Period, a Stalemate will not be deemed to have occurred,
and neither Founding Investor may initiate a Buy-Out, until a date [***]
([***]) days prior to the date on which all of the Company’s funds are expected
to be depleted as determined based on the Approved Operating Plan then in
effect.

 

3.8          Scientific Advisory Board.  The Company will maintain a Scientific Advisory Board
(“SAB”) consisting of at least three (3) members.  The initial members and chairperson of the
SAB will be as set forth on EXHIBIT B.  Any changes to the composition of the
Scientific Advisory Board, including the removal or appointment of the
chairperson, will be approved by the Board. 
The SAB will meet at least at least three time a year until December 31,
2009 and will initially be responsible for (i) advising the Company as to
research goals and plans, (ii) reviewing research data and advising the
Company with respect to interpretation of such research data, as requested by
the Board, President or Chief Scientific Officer; and (iii) advising the
Company with respect to research and development decisions, as requested by the
Board, President or Chief Scientific Officer.

 

3.9          Termination of Covenants.  All covenants of the Company contained in Section 3
of this Agreement (other than the provisions of Section 3.1 and 3.3)  will expire and terminate as to each Founding Investor upon
the earlier of (i) the effective date of the registration statement
pertaining to an Initial Offering or (ii) upon a Liquidation Event,
Acquisition or Asset Transfer 

 

7

 

(in each case as defined
in the Company’s Certificate of Incorporation as such may be amended from time
to time).

 

SECTION 4.         BUY-OUT.

 

4.1          Right to Initiate Buy-Out. 
Within (a) solely
in the event of a Stalemate occurring after the end of the Initial Commitment
Period (as further described in Section 3.7(c), the [***] ([***]) day
period following such Stalemate, (b) at any time, whether before or after
the end of the Initial Commitment Period, during the [***] ([***]) day period
following notice from a Founding Investor that it has entered into a binding
agreement providing for a Change of Control of such Founding Investor (such
[***] ([***]) or [***] ([***]) day period, a “Buy-Out
Notice  Period”),
or (c) as provided for in the License Agreement, either Founding Investor
(in the case of (a)), the Founding Investor receiving the notice of a Change in
Control (in the case of (b)), or the Founding Investor or Founding Investors as
specified in the License Agreement (in the case of (c) (in each case, the “Initiating Founding Investor”) has
the right, exercisable upon written notice to the Company and the other
Founding Investor (the “Buy-Out Notice”),
to initiate the sale of the Company or the distribution the Company’s assets,
including the Company Intellectual Property and Company’s rights in Licensed
IP, in accordance with the terms set forth on EXHIBIT D
(the “Buy-Out”).

 

4.2          Voting Agreement; Cooperation. 
If any Founding Investor initiates a Buy-Out under Section 4.1,
each Founding Investor agrees to vote or act with respect to their Shares,
Registrable Securities and designated members of the Board so as to authorize
and approve the Buyout unless Exhibit D expressly allows a Founding
Investor to withhold such vote or action. 
Each Party further agrees to assist the other Parties in every proper
way to consummate the Buy-Out, effect the Buy-Out, including but not limited to
executing and delivering such documents and performing such other acts as a
Party may reasonably request in connection with effecting the Buy-Out.

 

4.3          Preservation of Intent. 
If any term, covenant or condition of this Section 4 or Exhibit D
or the application thereof to any Party or circumstance, to any extent, is
invalid or unenforceable, then (a) the remainder of this Section 4
and Exhibit D, or the application of such term, covenant or condition to
Parties or circumstances other than those as to which it is invalid or
unenforceable, will not be affected thereby and each term, covenant or
condition of this Section 4 and Exhibit D will be valid and be
enforced to the fullest extent permitted by law; and (b) the Parties
hereto covenant and agree to renegotiate any such term, covenant or application
thereof in good faith in order to provide a reasonably acceptable alternative
to the term, covenant or condition of this Section 4 and Exhibit D or
the application thereof that is invalid or unenforceable, it being the intent
of the Parties that the basic purposes of this Section 4 and Exhibit D
are to be effectuated.

 

4.4          Termination of Buy-Out. 
The provisions set forth in this Section 4 will expire and
terminate upon the effective date of the registration statement pertaining to
an Initial Offering.

 

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SECTION 5.         RIGHTS OF FIRST REFUSAL

 

5.1          Subsequent Offerings. 
Subject to
applicable securities laws, each Founding Investor will have a right of first
refusal to purchase its pro rata share
of all Equity Securities, as defined below, that the Company may, from time to
time, propose to sell and issue after the date of this Agreement, other than
the Equity Securities excluded by Section 5.6 hereof.  Each Founding Investor’s pro rata
share is equal to the ratio of (a) the number of shares of the Company’s
Common Stock (including all shares of Common Stock issuable or issued upon
conversion of the Shares or upon the exercise of outstanding warrants or
options) of which such Founding Investor is deemed to be a holder immediately
prior to the issuance of such Equity Securities to (b) the total number of
shares of the Company’s outstanding Common Stock (including all shares of
Common Stock issued or issuable upon conversion of the Shares or upon the
exercise of any outstanding warrants or options) immediately prior to the
issuance of the Equity Securities.  The
term “Equity Securities” will mean (i) any
Common Stock, Preferred Stock or other security of the Company, (ii) any
security convertible into or exercisable or exchangeable for, with or without
consideration, any Common Stock, Preferred Stock, or other security (including
any option to purchase such a convertible security), (iii) any security
carrying any warrant or right to subscribe to or purchase any Common Stock,
Preferred Stock or other security or (iv) any such warrant or right.

 

5.2          Exercise of Rights.  If the Company proposes to issue any Equity
Securities, it will give each  Founding
Investor written notice of its intention, describing the Equity Securities, the
price and the terms and conditions upon which the Company proposes to issue the
same.  Each Founding Investor will have
[***] ([***]) days from the giving of such notice to agree to purchase its pro rata share of the Equity Securities for the price and
upon the terms and conditions specified in the notice by giving written notice
to the Company and stating therein the quantity of Equity Securities to be
purchased.  Notwithstanding the
foregoing, the Company will not be required to offer or sell such Equity
Securities to any Founding Investor who would cause the Company to be in
violation of applicable federal securities laws by virtue of such offer or
sale.

 

5.3          Issuance of Equity Securities to Other
Persons.  The Company will have [***] ([***])  days thereafter to sell the Equity Securities in respect of
which the Founding Investor’s rights were not exercised, at a price not lower
and upon general terms and conditions not materially more favorable to the
purchasers thereof than specified in the Company’s notice to the Founding
Investors pursuant to Section 5.2 hereof. 
If the Company has not sold such Equity Securities within [***] ([***])
days of the notice provided pursuant to Section 5.2, the Company will not
thereafter issue or sell any Equity Securities, without first offering such
securities to the Founding Investors in the manner provided above.

 

5.4          Termination and Waiver of Rights of
First Refusal.  The rights of first refusal established
by this Section 5 will not apply to, and will terminate upon the earlier
of (i) the effective date of the registration statement pertaining to the
Company’s Initial Offering or (ii) an Acquisition.  Notwithstanding Section 7.5 hereof, the
rights of first refusal established by this Section 5 may be amended, or
any provision waived with and only with the written consent of the Company and
the Founding Investors holding a majority  of the
Registrable Securities held by all Founding Investors.

 

9

 

5.5          Assignment of Rights of First
Refusal.  The rights of first refusal of each Founding Investor
under this Section 5 may be assigned to the same parties, subject to the
same restrictions as any transfer of registration rights pursuant to Section 6.7.

 

5.6          Excluded Securities.  The rights of first refusal established by this Section 5
will have no application to any of the following Equity Securities:

 

(a)           shares of Common Stock and/or options, warrants or
other Common Stock purchase rights and the Common Stock issued pursuant to such
options, warrants or other rights issued to employees, officers or directors
of, or consultants or advisors to, the Company or any subsidiary pursuant to
stock purchase or stock option plans or other arrangements that are approved by
the Board of Directors;

 

(b)           stock issued or issuable pursuant to any rights or
agreements, options, warrants or convertible securities outstanding as of the
date of this Agreement; and stock issued pursuant to any such rights or
agreements granted after the date of this Agreement, so long as the rights of first
refusal established by this Section 5 were complied with, waived, or were
inapplicable pursuant to any provision of this Section 5.6 with respect to
the initial sale or grant by the Company of such rights or agreements;

 

(c)           any Equity Securities issued for consideration other
than cash pursuant to a merger, consolidation, acquisition or similar business
combination approved by the Board of Directors;

 

(d)           any Equity Securities issued in connection with any
stock split, stock dividend or recapitalization by the Company;

 

(e)           any Equity Securities issued pursuant to any equipment
loan or leasing arrangement, real property leasing arrangement, or debt
financing from a bank or similar financial or lending institution approved by
the Board of Directors;

 

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

 

(g)           any Equity Securities that are issued by the Company
in connection with any underwritten public offering;

 

(h)           any Equity Securities issued in connection with
strategic transactions involving the Company and other entities, including,
without limitation (i) joint ventures, manufacturing, marketing or
distribution arrangements or (ii) technology transfer or development
arrangements; provided that the issuance of
shares therein has been approved by the Company’s Board of Directors; and

 

(i)            Any Equity Securities issued to third-party service
providers in exchange for or as partial consideration for services rendered to
the Company.

 

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SECTION 6.                            REGISTRATION RIGHTS; MARKET
STAND-OFF.

 

6.1          Piggyback Registrations.  The Company will notify all Holders of Registrable
Securities in writing at least fifteen (15)  days prior to
the filing of any registration statement under the Securities Act for purposes
of a public offering of securities of the Company (including, but not limited
to, registration statements relating to secondary offerings of securities of
the Company, but excluding Special Registration Statements) and will afford
each such Holder an opportunity to include in such registration statement all
or part of such Registrable Securities held by such Holder.  Each Holder desiring to include in any such
registration statement all or any part of the Registrable Securities held by it
will, within fifteen (15) days after the above-described notice from the
Company, so notify the Company in writing. 
Such notice will state the intended method of disposition of the
Registrable Securities by such Holder. 
If a Holder decides not to include all of its Registrable Securities in
any registration statement thereafter filed by the Company, such Holder will
nevertheless continue to have the right to include any Registrable Securities
in any subsequent registration statement or registration statements as may be
filed by the Company with respect to offerings of its securities, all upon the
terms and conditions set forth herein.

 

(a)           Underwriting.  If the registration statement of which the Company
gives notice under this Section 6.3 is for an underwritten offering, the
Company will so advise the Holders of Registrable Securities.  In such event, the right of any such Holder
to include Registrable Securities in a registration pursuant to this Section 6.3
will be conditioned upon such Holder’s participation in such underwriting and
the inclusion of such Holder’s Registrable Securities in the underwriting to
the extent provided herein.  All Holders
proposing to distribute their Registrable Securities through such underwriting
will enter into an underwriting agreement in customary form with the
underwriter or underwriters selected for such underwriting by the Company.  Notwithstanding any other provision of this
Agreement, if the underwriter determines in good faith that marketing factors
require a limitation of the number of shares to be underwritten, the number of
shares that may be included in the underwriting will be allocated, first, to
the Company; and second, to the Holders on a pro rata
basis based on the total number of Registrable Securities held by the Holders; provided, however, that such
reduction will not be permitted unless such registration does not include
shares of any other selling stockholders. 
If any Holder disapproves of the terms of any such underwriting, such
Holder may elect to withdraw therefrom by written notice to the Company and the
underwriter, delivered at least ten (10) business days prior to the
effective date of the registration statement. 
Any Registrable Securities excluded or withdrawn from such underwriting
will be excluded and withdrawn from the registration.  For any Holder which is a partnership,
limited liability company or corporation, the partners, retired partners,
members, retired members and stockholders of such Holder, or the estates and
family members of any such partners, retired partners, members and retired
members and any trusts for the benefit of any of the foregoing persons will be
deemed to be a single “Holder,” and any pro rata
reduction with respect to such “Holder” will be based upon the aggregate amount
of shares carrying registration rights owned by all entities and individuals
included in such “Holder,” as defined in this sentence.

 

(b)           Right
to Terminate Registration.  The Company will have the right to terminate
or withdraw any registration initiated by it under this Section 6.1
whether or not any 

 

11

 

Holder has elected to include securities in such
registration.  The Registration Expenses
of such withdrawn registration will be borne by the Company in accordance with Section 6.3
hereof.

 

6.2          Form S-3 Registration.  In case the Company receives from any Holder or
Holders of Registrable Securities a written request or requests that the
Company effect a registration on Form S-3 (or any successor to Form S-3)
or any similar short-form registration statement and any related qualification
or compliance with respect to all or a part of the Registrable Securities owned
by such Holder or Holders, the Company will:

 

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

 

(b)           as soon as practicable, effect such
registration and all such qualifications and compliances as may be so requested
and as would permit or facilitate the sale and distribution of all or such
portion of such Holder’s or Holders’ Registrable Securities as are specified in
such request, together with all or such portion of the Registrable Securities
of any other Holder or Holders joining in such request as are specified in a
written request given within fifteen (15) days after receipt of such written
notice from the Company; provided, however,
that the Company will not be obligated to effect any such registration,
qualification or compliance pursuant to this Section 6.2:

 

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

 

(ii)           if the Holders, together with the holders
of any other securities of the Company entitled to inclusion in such
registration, propose to sell Registrable Securities and such other securities
(if any) at an aggregate price to the public of less than  fifteen
million dollars ($15,000,000);

 

(iii)         if within thirty (30) days of receipt of
a written request from any Holder or Holders pursuant to this Section 6.2,
the Company gives notice to such Holder or Holders of the Company’s intention
to make  a public offering within ninety (90)
days, other than pursuant to a Special Registration Statement;

 

(iv)          if the Company will furnish to the
Holders a certificate signed by the Chairman of the Board of Directors of the
Company stating that in the good faith judgment of the Board of Directors of
the Company, it would be seriously detrimental to the Company and its
stockholders for such Form S-3 registration to be effected at such time,
in which event the Company will have the right to defer the filing of the Form S-3
registration statement for a period of not more than one hundred twenty (120)
days after receipt of the request of the Holder or Holders under this Section 6.2;
provided, that such right to delay a
request will be exercised by the Company not more than twice  in any twelve
(12) month period;

 

(v)            if the Company has, within the twelve
(12) month period preceding the date of such request, already effected one (1) registration
on Form S-3 for the Holders pursuant to this Section 6.2, or

 

12

 

(vi)          in any particular jurisdiction in which the Company
would be required to qualify to do business or to execute a general consent to
service of process in effecting such registration, qualification or compliance.

 

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

 

6.3          Expenses of Registration.  Except as specifically provided herein,
all Registration Expenses incurred in connection with any registration,
qualification or compliance pursuant to Section 6.1 or 6.2 herein will be
borne by the Company.  All Selling
Expenses incurred in connection with any registrations hereunder, will be borne
by the holders of the securities so registered pro rata
on the basis of the number of shares so registered.  The Company will not, however, be required to
pay for expenses of any registration proceeding begun pursuant to Section 6.2,
the request of which has been subsequently withdrawn by the Initiating Holders
unless (a) the withdrawal is based upon material adverse information
concerning the Company of which the Initiating Holders were not aware at the
time of such request or (b) the Holders of a majority of Registrable
Securities agree to deem such registration to have been effected as of the date
of such withdrawal for purposes of determining whether the Company will be
obligated pursuant to Section 6.2(b)(v), as applicable, to undertake any
subsequent registration, in which event such right will be forfeited by all
Holders).  If the Holders are required to
pay the Registration Expenses, such expenses will be borne by the holders of
securities (including Registrable Securities) requesting such registration in
proportion to the number of shares for which registration was requested.  If the Company is required to pay the
Registration Expenses of a withdrawn offering pursuant to clause (a) above,
then such registration will not be deemed to have been effected for purposes of
determining whether the Company will be obligated pursuant to Section 6.2(b)(v) to
undertake any subsequent registration.

 

6.4          Obligations of the Company.  Whenever required to effect the
registration of any Registrable Securities, the Company will, as expeditiously
as reasonably possible:

 

(a)           prepare and file with the SEC a
registration statement with respect to such Registrable Securities and use all
commercially reasonable efforts to cause such registration statement to become
effective, and, upon the request of the Holders of a majority of the
Registrable Securities registered thereunder, keep such registration statement
effective for up to thirty (30) days or, if earlier, until the Holders have
completed the distribution related thereto; provided, however, that at any
time, upon written notice to the participating Holders and for a period not to
exceed sixty (60) days thereafter (the “Suspension Period”), the Company may
delay the filing or effectiveness of any registration statement or suspend the
use of any registration statement (and the Initiating Holders hereby agree not
to offer or sell any Registrable Securities pursuant to such registration
statement during the Suspension Period) if the Company reasonably believes that
there is or may be in existence material nonpublic information or events
involving the Company, the failure of which to be disclosed in the prospectus
included in the registration statement could result in a Violation (as defined
below).  In the event that the Company
will exercise its right to delay the filing or effectiveness or suspend the use
of a registration hereunder, the applicable time period during which the 

 

13

 

registration statement is to remain effective will be
extended by a period of time equal to the duration of the Suspension
Period.  The Company may extend the
Suspension Period for an additional consecutive sixty (60) days with the consent
of the Holders of a majority  of the
Registrable Securities registered under the applicable registration statement,
which consent will not be unreasonably withheld.  If so directed by the Company, all
Holders registering shares under such registration statement will (i) not
offer to sell any Registrable Securities pursuant to the registration statement
during the period in which the delay or suspension is in effect after receiving
notice of such delay or suspension; and (ii) use their commercially
reasonable efforts to deliver to the Company (at the Company’s expense) all
copies, other than permanent file copies then in such Holders’ possession, of
the prospectus relating to such Registrable Securities current at the time of
receipt of such notice.  Notwithstanding the foregoing, the Company
will not be required to file, cause to become effective or maintain the
effectiveness of any registration statement other than a registration statement
on Form S-3 that contemplates a distribution of securities on a delayed or
continuous basis pursuant to Rule 415 under the Securities Act.

 

(b)           Prepare and file with the SEC such
amendments and supplements to such registration statement and the prospectus
used in connection with such registration statement as may be necessary to
comply with the provisions of the Securities Act with respect to the
disposition of all securities covered by such registration statement for the
period set forth in subsection (a) above.

 

(c)           Furnish to the Holders such number of
copies of a prospectus, including a preliminary prospectus, in conformity with
the requirements of the Securities Act, and such other documents as they may
reasonably request in order to facilitate the disposition of Registrable
Securities owned by them.

 

(d)           Use its commercially reasonable efforts
to register and qualify the securities covered by such registration statement
under such other securities or Blue Sky laws of such jurisdictions as will be
reasonably requested by the Holders; provided that
the Company will not be required in connection therewith or as a condition
thereto to qualify to do business or to file a general consent to service of
process in any such states or jurisdictions.

 

(e)           In the event of any underwritten public
offering, enter into and perform its obligations under an underwriting agreement,
in usual and customary form, with the managing underwriter(s) of such
offering.  Each Holder participating in
such underwriting will also enter into and perform its obligations under such
an agreement.

 

(f)            Notify each Holder of Registrable Securities
covered by such registration statement at any time when a prospectus relating
thereto is required to be delivered under the Securities Act of the happening
of any event as a result of which the prospectus included in such registration
statement, as then in effect, includes an untrue statement of a material fact
or omits to state a material fact required to be stated therein or necessary to
make the statements therein not misleading in the light of the circumstances
then existing. The Company will use commercially reasonable efforts to amend or
supplement such prospectus in order to cause such prospectus not to include any
untrue statement of a material fact or omit to 

 

14

 

state a material fact required to be stated therein or
necessary to make the statements therein not misleading in the light of the
circumstances then existing.

 

(g)           Use its commercially reasonable efforts
to furnish, on the date that such Registrable Securities are delivered to the
underwriters for sale, if such securities are being sold through underwriters, (i) an
opinion, dated as of such date, of the counsel representing the Company for the
purposes of such registration, in form and substance as is customarily given to
underwriters in an underwritten public offering, addressed to the underwriters,
if any, and (ii) a letter, dated as of such date, from the independent
certified public accountants of the Company, in form and substance as is
customarily given by independent certified public accountants to underwriters
in an underwritten public offering addressed to the underwriters.

 

6.5          Delay of Registration; Furnishing Information.

 

(a)           No Holder will have any right to obtain
or seek an injunction restraining or otherwise delaying any such registration
as the result of any controversy that might arise with respect to the
interpretation or implementation of this Section 6.

 

(b)           It will be a condition precedent to the
obligations of the Company to take any action pursuant to Section 6.1 or
6.2 that the selling Holders will furnish to the Company such information
regarding themselves, the Registrable Securities held by them and the intended
method of disposition of such securities as will be required to effect the
registration of their Registrable Securities.

 

(c)           The Company will have no obligation with
respect to any registration requested pursuant to Section 6.2 if the
number of shares or the anticipated aggregate offering price of the Registrable
Securities to be included in the registration does not equal or exceed the
number of shares or the anticipated aggregate offering price required to
originally trigger the Company’s obligation to initiate such registration as
specified in Section 6.2.

 

6.6          Indemnification.  In the event any Registrable Securities
are included in a registration statement under Section 6.1 or 6.2:

 

(a)           To the extent permitted by law, the
Company will indemnify and hold harmless each Holder, the partners, members,
officers and directors of each Holder, as applicable, any underwriter (as
defined in the Securities Act) for such Holder and each person, if any, who
controls such Holder or underwriter within the meaning of the Securities Act or
the Exchange Act, against any losses, claims, damages, or liabilities (joint or
several) to which they may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereof) arise out of or are
based upon any of the following statements, omissions or violations
(collectively a “Violation”) by the Company: (i) any
untrue statement or alleged untrue statement of a material fact contained in
such registration statement or incorporated by reference therein, including any
preliminary prospectus or final prospectus contained therein or any amendments
or supplements thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or 

 

15

 

(iii) any violation or alleged violation by the
Company of the Securities Act, the Exchange Act, any state securities law or
any rule or regulation promulgated under the Securities Act, the Exchange
Act or any state securities law in connection with the offering covered by such
registration statement; and the Company will reimburse each such Holder,
partner, member, officer, director, underwriter or controlling person for any
legal or other expenses reasonably incurred by them in connection with
investigating or defending any such loss, claim, damage, liability or action; provided however, that the indemnity agreement contained in
this Section 6.6(a) will not apply to amounts paid in settlement of
any such loss, claim, damage, liability or action if such settlement is
effected without the consent of the Company, which consent will not be
unreasonably withheld, nor will the Company be liable in any such case for any
such loss, claim, damage, liability or action to the extent that it arises out
of or is based upon a Violation which occurs in reliance upon and in conformity
with written information furnished expressly for use in connection with such
registration by such Holder, partner, member, officer, director, underwriter or
controlling person of such Holder.

 

(b)           To the extent permitted by law, each
Holder will, if Registrable Securities held by such Holder are included in the
securities as to which such registration qualifications or compliance is being
effected, indemnify and hold harmless the Company, each of its directors, its
officers and each person, if any, who controls the Company within the meaning
of the Securities Act, any underwriter and any other Holder, as applicable,
selling securities under such registration statement or any of such other
Holder’s partners, directors or officers or any person who controls such
Holder, against any losses, claims, damages or liabilities (joint or several)
to which the Company or any such director, officer, controlling person,
underwriter or other such Holder, or partner, director, officer or controlling
person of such other Holder may become subject under the Securities Act, the
Exchange Act or other federal or state law, insofar as such losses, claims,
damages or liabilities (or actions in respect thereto) arise out of or are
based upon any of the following statements: (i) any untrue statement or
alleged untrue statement of a material fact contained in such registration
statement or incorporated reference therein, including any preliminary
prospectus or final prospectus contained therein or any amendments or
supplements thereto, (ii) the omission or alleged omission to state
therein a material fact required to be stated therein, or necessary to make the
statements therein not misleading, or (iii) any violation or alleged
violation by the Company of the Securities Act (collectively, a “Holder Violation”), in each case to
the extent (and only to the extent) that such Holder Violation occurs in
reliance upon and in conformity with written information furnished by such
Holder under an instrument duly executed by such Holder and stated to be
specifically for use in connection with such registration; and each such Holder
will reimburse any legal or other expenses reasonably incurred by the Company
or any such director, officer, controlling person, underwriter or other Holder,
or partner, officer, director or controlling person of such other Holder in
connection with investigating or defending any such loss, claim, damage, liability
or action if it is judicially determined that there was such a Holder
Violation; provided, however, that the indemnity
agreement contained in this Section 6.6(b) will not apply to amounts
paid in settlement of any such loss, claim, damage, liability or action if such
settlement is effected without the consent of the Holder, which consent will
not be unreasonably withheld; provided further,
that in no event will any indemnity under this Section 6.6 exceed the net proceeds from the offering
received by such Holder, as applicable.

 

16

 

(c)           Promptly after receipt by an indemnified
party under this Section 6.6 of notice of the commencement of any action
(including any governmental action), such indemnified party will, if a claim in
respect thereof is to be made against any indemnifying party under this Section 6.6,
deliver to the indemnifying party a written notice of the commencement thereof
and the indemnifying party will have the right to participate in, and, to the
extent the indemnifying party so desires, jointly with any other indemnifying
party similarly noticed, to assume the defense thereof with counsel mutually
satisfactory to the parties; provided, however,
that an indemnified party will have the right to retain its own counsel, with
the fees and expenses thereof to be paid by the indemnifying party, if
representation of such indemnified party by the counsel retained by the
indemnifying party would be inappropriate due to actual or potential differing
interests between such indemnified party and any other party represented by
such counsel in such proceeding.  The
failure to deliver written notice to the indemnifying party within a reasonable
time of the commencement of any such action will relieve such indemnifying
party of any liability to the indemnified party under this Section 6.6 to
the extent, and only to the extent, prejudicial to its ability to defend such
action, but the omission so to deliver written notice to the indemnifying party
will not relieve it of any liability that it may have to any indemnified party
otherwise than under this Section 6.6.

 

(d)           If the indemnification provided for in
this Section 6.6 is held by a court of competent jurisdiction to be
unavailable to an indemnified party with respect to any losses, claims, damages
or liabilities referred to herein, the indemnifying party, in lieu of
indemnifying such indemnified party thereunder, will to the extent permitted by
applicable law contribute to the amount paid or payable by such indemnified
party as a result of such loss, claim, damage or liability in such proportion
as is appropriate to reflect the relative fault of the indemnifying party on
the one hand and of the indemnified party on the other in connection with the
Violation(s) or Holder Violation(s) that resulted in such loss,
claim, damage or liability, as well as any other relevant equitable
considerations.  The relative fault of
the indemnifying party and of the indemnified party will be determined by a
court of law by reference to, among other things, whether the untrue or alleged
untrue statement of a material fact or the omission to state a material fact
relates to information supplied by the indemnifying party or by the indemnified
party and the parties’ relative intent, knowledge, access to information and
opportunity to correct or prevent such statement or omission; provided, that
in no event will any contribution by a Holder, as applicable, hereunder exceed
the net proceeds from the offering received by such Holder, as applicable.

 

(e)           The obligations of the Company and
Holders under this Section 6.6 will survive completion of any offering of
Registrable Securities, as applicable, in a registration statement and, with
respect to liability arising from an offering to which this Section 6.6
would apply that is covered by a registration filed before termination of this
Agreement, such termination.  No
indemnifying party, in the defense of any such claim or litigation, will,
except with the consent of each indemnified party, consent to entry of any
judgment or enter into any settlement which does not include as an
unconditional term thereof the giving by the claimant or plaintiff to such
Indemnified Party of a release from all liability in respect to such claim or
litigation.

 

17

 

6.7          Assignment of Registration Rights. 
The rights
to cause the Company to register Registrable Securities pursuant to this Section 6
may be assigned by a Holder to a transferee or assignee of Registrable
Securities (for so long as such shares remain Registrable Securities) that (a) is
a subsidiary, parent, general partner, limited partner, retired partner, member
or retired member, stockholder or other affiliate of a Holder that is a
corporation, partnership or limited liability company, (b) acquires all of
such Holders Registrable Securities in connection with the sale of all or
substantially all of such Holder’s business, or (c) acquires at least two
hundred thousand (200,000)  shares of
Registrable Securities (as adjusted for stock splits and combinations); or (d) is
an entity affiliated by common control (or other related entity) with such
Holder provided, however, (i) the
transferor will, within ten (10) days after such transfer, furnish to the
Company written notice of the name and address of such transferee or assignee
and the securities with respect to which such registration rights are being
assigned and (ii) such transferee will agree to be subject to all
restrictions set forth in this Agreement.

 

6.8          Limitation on Subsequent Registration Rights.  Other than as provided in Section 5.10,
after the date of this Agreement, the Company will not enter into any agreement
with any holder or prospective holder of any securities of the Company that would
grant such holder rights to demand the registration of shares of the Company’s
capital stock, or to include such shares in a registration statement that would
reduce the number of shares includable by the Holders.

 

6.9          “Market Stand-Off” Agreement.  Each Holder hereby agrees that such Holder, as the
case may be, will not sell, transfer, make any short sale of, grant any option
for the purchase of, or enter into any hedging or similar transaction with the
same economic effect as a sale, any Common Stock (or other securities) of the
Company held by such Holder (other than those included in the registration)
during (i) the 180-day period following the effective date of the Initial
Offering (or such longer period, not to exceed 34 days after the expiration of
the 180-day period, as the underwriters or the Company will request in order to
facilitate compliance with NASD Rule 2711 or NYSE Member Rule 472 or
any successor rule), and (ii) the 90-day period following the effective
date of a registration statement of the Company filed under the Securities Act
(or such longer period, not to exceed 18 days after the expiration of the
90-day period, as the underwriters or the Company will request in order to
facilitate compliance with NASD Rule 2711); provided,
that, with respect to (i) and (ii) above, all officers, directors of
the Company and all entities who hold Common Stock (or Securities Convertible
into Common Stock) in an amount that is greater than 1% of the Company’s then
issued and outstanding Common Stock are bound by and have entered into similar
agreements.  The obligations described in
this Section 6.9 will not apply to a Special Registration Statement.

 

6.10        Agreement to Furnish Information.  Each Holder
hereby agrees to execute and deliver such other agreements as may be reasonably
requested by the Company or the underwriter that are consistent with such
Holder’s obligations under Section 6.9, as applicable, or that are
necessary to give further effect thereto. 
In addition, if requested by the Company or the representative of the
underwriters of Common Stock (or other securities) of the Company, each Holder
will provide, within ten (10) days of such request, such information as
may be required by the Company or such representative in connection with the completion
of any public offering of the Company’s securities pursuant to a registration
statement filed under the Securities Act. 
The obligations described in Section 6.9 and this Section 6.10
will not apply to a Special 

 

18

 

Registration
Statement.  The Company may impose
stop-transfer instructions with respect to the shares of Common Stock (or other
securities) subject to the foregoing restriction until the end of said day
period.  Each Holder agrees that any
transferee of any shares of Registrable Securities will be bound by
Sections 6.9 and 6.10.  The
underwriters of the Company’s stock are intended third party beneficiaries of
Sections 6.9 and 6.10 and will have the right, power and authority to enforce the
provisions hereof as though they were a party hereto.

 

6.11        Rule 144 Reporting.  With a view to making available to the
Holders, as applicable, the benefits of certain rules and regulations of
the SEC which may permit the sale of the Registrable Securities to the public
without registration, the Company agrees to use its best efforts to:

 

(a)           Make and keep public information
available, as those terms are understood and defined in SEC Rule 144 or
any similar or analogous rule promulgated under the Securities Act, at all
times after the effective date of the first registration filed by the Company
for an offering of its securities to the general public;

 

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

 

(c)           So long as a Holder owns any Registrable
Securities, as applicable, furnish to such Holder forthwith upon request:  a written statement by the Company as to its
compliance with the reporting requirements of said Rule 144 of the Securities
Act, and of the Exchange Act (at any time after it has become subject to such
reporting requirements); a copy of the most recent annual or quarterly report
of the Company filed with the Commission; and such other reports and documents
as a Holder may reasonably request in connection with availing itself of any rule or
regulation of the SEC allowing it to sell any such securities without
registration.

 

6.12        Termination of Registration Rights.  The right of
any Holder to request registration or inclusion of Registrable Securities in
any registration pursuant to Sections 6.1 or 6.2 hereof will terminate upon the
earlier of: (i) the date three (3) years following an Initial
Offering; or (ii) following the Initial Offering, such time as all Registrable Securities
issuable or issued upon conversion of the Shares held by and issuable to such
Holder (and its affiliates) may be sold pursuant to Rule 144 during any
ninety (90) day period.  Upon such
termination, such shares will cease to be “Registrable Securities” hereunder
for all purposes.

 

SECTION 7.         MISCELLANEOUS.

 

7.1          Governing Law.  This Agreement will in all respects be
governed by and construed in accordance with the substantive laws of the State
of Delaware, without regard to its choice of law rules.

 

7.2          Successors and Assigns.  Except as otherwise expressly provided
herein, the provisions hereof will inure to the benefit of, and be binding
upon, the parties hereto and their respective successors, assigns, heirs,
executors, and administrators and will inure to the benefit of and be
enforceable by each person who will be a holder of Registrable Securities from
time to time; provided, however, that prior to
the receipt by the Company of adequate written notice of 

 

19

 

the transfer of any
Registrable Securities specifying the full name and address of the transferee,
the Company may deem and treat the person listed as the holder of such shares
in its records as the absolute owner and holder of such shares for all
purposes, including the payment of dividends or any redemption price.

 

7.3          Entire Agreement.  This Agreement, together with the
Ancillary Agreements, including the exhibits and schedules hereto and thereto,
constitutes the entire agreement among the Founding Investors and the Company
with respect to the specific subject matter hereof, and supersedes all prior
and contemporaneous agreements, representations, and understandings of the
parties with respect to such specific subject matter.  No party hereto will be liable or bound to
the other in any manner by any warranties, representations or covenants with
respect to the subject matter hereof except as specifically set forth
herein.  Notwithstanding the foregoing and
except as provided herein or in any Ancillary Agreement, neither the
dissolution of the Company nor the termination of any Ancillary Agreement will
have any affect on any other agreement or contract between the Founding
Investors, and the termination or cancellation of any such other agreement or
contract will have no effect on this Agreement or any Ancillary Agreement.

 

7.4          Severability.  If one or more provisions of this
Agreement are held by a proper court or arbitral tribunal to be unenforceable
under applicable law, the unenforceable portions of such provisions, or such
provisions in their entirety, to the extent necessary and permitted by law,
will be severed herefrom, and the balance of this Agreement will be enforceable
in accordance with its terms.

 

7.5          Amendment and Waiver.

 

(a)           Except as otherwise expressly provided, this Agreement
may be amended or modified, and the obligations of the Company and the rights
of the Holders under this Agreement may be waived, only upon the written
consent of (i) the Company, and (ii) a 2/3 majority of shares held by
the Founding Investors.

 

(b)           For the purposes of determining the number of Holders
or Founding Investors entitled to vote or exercise any rights hereunder, the
Company will be entitled to rely solely on the list of record holders of its
stock as maintained by or on behalf of the Company.

 

7.6          Delays or Omissions.  It is agreed that no delay or omission to
exercise any right, power, or remedy accruing to any party, upon any breach,
default or noncompliance by another party under this Agreement will impair any
such right, power, or remedy, nor will it be construed to be a waiver of any
such breach, default or noncompliance, or any acquiescence therein, or of any
similar breach, default or noncompliance thereafter occurring.  It is further agreed that any waiver, permit,
consent, or approval of any kind or character on any party’s part of any
breach, default or noncompliance under the Agreement or any waiver on such
party’s part of any provisions or conditions of this Agreement must be in writing
and will be effective only to the extent specifically set forth in such
writing.  All remedies, either under this
Agreement, by law, or otherwise afforded to any party, will be cumulative and
not alternative.

 

7.7          Notices.  Except where otherwise specifically
provided in this Agreement, all notices, requests, consents, approvals and
statements will be in writing and will be deemed to 

 

20

 

have been properly given
by (i) personal delivery, (ii)  electronic facsimile transmission, (iii) electronic
mail, or by (iv) nationally recognized overnight courier service,
addressed in each case, to the intended recipient as set forth below:

 

	
  To the Company:

  	
   

  	
  Regulus Therapeutics LLC

  1896 Rutherford
  Road

  Carlsbad, California 92008

  Attention: President

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Alnylam and/or Isis at the addresses below

  
	
   

  	
   

  	
   

  
	
  To Alnylam:

  	
   

  	
  Alnylam Pharmaceuticals, Inc.

  300 Third Street, 3rd Floor

  Cambridge, MA 02142

  Attention: Vice President, Legal

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  WilmerHale

  60 State Street

  Boston, MA 02109

  Attention: Steven D. Singer, Esq.

  
	
   

  	
   

  	
   

  
	
  To Isis:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  1896 Rutherford Road

  Carlsbad, California 92008

  Attention: Chief Financial Officer

  
	
   

  	
   

  	
   

  
	
  With a copy to:

  	
   

  	
  Isis
  Pharmaceuticals, Inc.

  1896 Rutherford Road

  Carlsbad, California 92008

  Attn: General Counsel

  (fax) 760-268-4922

  

 

Such notice, request, demand, claim or other
communication will be deemed to have been duly given on (a) the date of
personal delivery, (b) the date actually received if by facsimile or
electronic mail; or (c) on the third business day after delivery to a
nationally recognized overnight courier service, as the case may be.  Any Party may change the address to which
notices, requests, demands, claims, and other communications hereunder are to
be delivered by giving the other Parties notice in the manner herein set forth.

 

7.8          Fees and Expenses.  Each party will pay all costs and
expenses that it incurs with respect to the negotiation, execution, delivery
and performance of this Agreement.  If
any action at law or in equity is necessary to enforce or interpret the terms
of any of this Agreement, the prevailing party will be entitled to reasonable
attorneys’ fees, costs and necessary disbursements 

 

21

 

in addition to any other
relief to which such party may be entitled. 
For purposes of this Section 7.8, “prevailing party” means the net
winner of a dispute, taking into account the claims pursued, the claims on
which the pursuing party was successful, the amount of money sought, the amount
of money awarded, and offsets or counterclaims pursued (successfully or
unsuccessfully) by the other Party.  If a
written settlement offer is rejected and the judgment or award finally obtained
is equal to or more favorable to the offeror than an offer made in writing to
settle, the offeror is deemed to be the prevailing party from the date of the
offer forward.

 

7.9          Titles and Subtitles; Form of Pronouns; Construction and
Definitions.  The titles of the Sections and paragraphs of
this Agreement are for convenience only and are not to be considered in
construing this Agreement.  All pronouns
used in this Agreement will be deemed to include masculine, feminine and neuter
forms, the singular number includes the plural and the plural number includes
the singular and will not be interpreted to preclude the application of any
provision of this Agreement to any individual or entity.  Unless the context otherwise requires, (i) each
reference in this Agreement to a designated “Section,” “Schedule,” “Exhibit,”
or “Appendix” is to the corresponding Section, Schedule, Exhibit, or Appendix
of or to this Agreement; (ii) the word “or” will not be applied in its
exclusive sense; (iii) “including” will mean “including, without
limitation”; (iv) references to “$” or “dollars” will mean the lawful
currency of the United States; and (v) “herein,” “hereof,” “hereunder” and
other words of similar import refer to this Agreement as a whole and not to any
particular Section or other subdivision. 
References in this Agreement to particular sections of the Securities
Act or to any provisions of Delaware law will be deemed to refer to such
sections or provisions as they may be amended or succeeded after the date of
this Agreement.

 

7.10        Counterparts.  This Agreement may be executed in two or
more counterparts, each of which will be deemed an original, but all of which
together will constitute one and the same instrument, and will become effective
when there exist copies hereof which, when taken together, bear the authorized
signatures of each of the parties hereto. 
Only one such counterpart signed by the party against whom
enforceability is sought needs to be produced to evidence the existence of this
Agreement.

 

7.11        Aggregation of Stock.  All shares of
Registrable Securities held or acquired by affiliated entities or persons or
persons or entities under common management or control will be aggregated
together for the purpose of determining the availability of any rights under
this Agreement.

 

7.12        Specific Performance.  The failure of any party to this Agreement to
perform its agreements and covenants hereunder, including but not limited to Section 4,
may cause irreparable injury to the other parties to this Agreement for which
monetary damages, even if available, will not be an adequate remedy.  Accordingly, each of the parties hereto
hereby consents to the granting of equitable relief (including specific
performance and injunctive relief) by any court of competent jurisdiction to
enforce any Member’s obligations hereunder. 
The parties further agree to waive any requirement for the securing or
posting of any bond in connection with the obtaining of any such equitable
relief and that this Section 7.12 is without prejudice to any other rights
that the Founding Investors and the Company hereto may have for any failure to
perform this Agreement.

 

22

 

7.13        Termination. 
This Agreement will terminate and be of no further force or effect upon
the earlier of (i) a Liquidation Event, Acquisition or Asset Transfer; or (ii) the
date three (3) years following the Closing of the Initial Offering that results in the conversion of all
outstanding shares of Preferred Stock.

 

[THIS SPACE INTENTIONALLY
LEFT BLANK]

 

23

 

IN WITNESS WHEREOF, the parties hereto have executed this FOUNDING INVESTOR RIGHTS AGREEMENT as of the date set forth
in the first paragraph hereof.

 

 

	
  COMPANY:

  	
   

  
	
   

  	
   

  
	
  REGULUS THERAPEUTICS INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Kleanthis G.
  Xanthopoulos

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  FOUNDING INVESTORS:

  	
   

  
	
   

  	
   

  
	
  ISIS PHARMACEUTICALS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ B. Lynne Parshall

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  ALNYLAM PHARMACEUTICALS, INC.

  	
   

  
	
   

  	
   

  
	
   

  	
   

  
	
  By:

  	
  /s/ Barry Greene

  	
   

  

 

1

 

EXHIBIT A

 

DEFINITONS

 

1.1          “Ancillary Agreements” means the License Agreement and the
Services Agreement each as amended from time to time.

 

1.2          “Change of Control” means, with respect to a Founding
Investor (the “Affected Founding Investor”), the earlier of (x) the public
announcement of and (y) the closing of: (a) a merger, reorganization
or consolidation involving the Affected Founding Investor in which its
shareholders immediately prior to such transaction would hold less than 50% of
the securities or other ownership or voting interests representing the equity
of the surviving entity immediately after such merger, reorganization or
consolidation, or (b) a sale to a Third Party of all or substantially all
of the Affected Founding Investor’s assets or business relating to this
Agreement.  Any Founding Investor will
notify each other Founding Investor within two (2) Business Days of
entering into an agreement which, if consummated, would result in a Change of
Control.

 

1.3          “Common Stock” means the Common Stock of the Company.

 

1.4          “Exchange Act”  means the Securities Exchange Act of
1934, as amended.

 

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

 

1.6          “Holder”  means any person owning of record
Registrable Securities that have not been sold to the public or any assignee of
record of such Registrable Securities in accordance with Section 6.7
hereof.

 

1.7          “Independent Director” means a Director who is not an (i) Affiliate,
director or officer of, or an immediate family member of, any director or
officer of the Founding Investor designating such Director, or (ii) an
officer or employee of, or immediate family member of any officer or employee
of, the Company.

 

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

 

1.9          “License Agreement” means that certain Amended and Restated
License and Collaboration Agreement by and among the Company, Alnylam and Isis
dated January 1, 2008, as amended from time to time.

 

1.10        “Person” means a natural person, company,
corporation, partnership, trust or other organization or legal entity of any
type, whether or not formally organized.

 

 

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

 

1.12        “Registrable
Securities”  means
(a) Common Stock issuable or issued upon conversion of the Shares and (b) any
Common Stock issued as (or issuable upon the conversion or exercise of any
warrant, right or other security which is issued as) a dividend or other
distribution with respect to, or in exchange for or in replacement of, such
above-described securities. Notwithstanding the foregoing, Registrable
Securities will not include any securities (i) sold by a person to the
public either pursuant to a registration statement or Rule 144, (ii) sold
in a private transaction in which the transferor’s rights under Section 6
of this Agreement are not assigned or (iii) eligible for resale pursuant
to Rule 144 without volume limitations.

 

1.13        “Registrable
Securities then outstanding”  will be the number of shares of Common
Stock that are Registrable Securities and either (a) are then issued and
outstanding or (b) are issuable pursuant to then exercisable or
convertible securities.

 

1.14        “Registration
Expenses”  will
mean all expenses incurred by the Company in complying with Sections 6.1
or 6.2, including, without limitation, all registration and filing fees,
printing expenses, fees and disbursements of counsel for the Company,
reasonable fees and disbursements not to exceed ten thousand dollars ($10,000)  of a single special counsel for the Holders, if applicable,
blue sky fees and expenses and the expense of any special audits incident to or
required by any such registration (but excluding the compensation of regular
employees of the Company which will be paid in any event by the Company).

 

1.15        “SEC” or “Commission”  means
the Securities and Exchange Commission.

 

1.16        “Securities Act”  will mean the Securities Act of 1933, as
amended.

 

1.17        “Selling Expenses”  will mean all underwriting discounts and
selling commissions applicable to the sale.

 

1.18        “Shares”  will mean the Company’s Preferred Stock issued pursuant to the
Purchase Agreement held from time to time by the Founding Investors and
their permitted assigns.

 

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

 

 

EXHIBIT B

 

INITIAL DIRECTORS

AND

INITIAL SAB MEMBERS

 

Board of Directors:

 

	
  Name

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  Kleanthis G. Xanthopoulos, Ph.D.

  	
   

  	
  President,
  Regulus Therapeutics LLC

  
	
  David Baltimore,
  Ph.D.

  	
   

  	
  Independent
  Director nominated by Alnylam

  
	
  Stelios
  Papadopoulos, Ph.D.

  	
   

  	
  Independent
  Director nominated by Isis

  
	
  John M.
  Maraganore, Ph.D.

  	
   

  	
  Alnylam Director

  
	
  Barry E. Greene

  	
   

  	
  Alnylam Director

  
	
  Stanley T. Crooke, M.D., Ph.D.

  	
   

  	
  Isis Director

  
	
  B. Lynne
  Parshall, J.D.

  	
   

  	
  Isis Director

  

 

SAB Members:

 

	
  Name

  	
   

  	
  Title

  
	
   

  	
   

  	
   

  
	
  David Baltimore,
  Ph.D.

  	
   

  	
  Member and
  Chairperson

  
	
  David Bartel,
  Ph.D.

  	
   

  	
  Member

  
	
  Scott Hammond,
  Ph.D.

  	
   

  	
  Member

  
	
  Markus Stoffel,
  M.D., Ph.D.

  	
   

  	
  Member

  
	
  Thomas Tuschl,
  Ph.D.

  	
   

  	
  Member

  
	
  Philip Zamore,
  Ph.D.

  	
   

  	
  Member

  

 

 

EXHIBIT C

 

OPERATING PLAN

 

[***]

 

 

EXHIBIT D

 

TERMS OF BUY-OUT

 

Capitalized terms used but not otherwise defined herein will have the
meaning ascribed to them in the Agreement or the License Agreement.

 

1.1          Negotiated Resolution.  Following the
Company’s receipt of the Buy-Out Notice, the Founding Investors will take all
actions necessary to cause the sale of the Company to a Third Party or a
Founding Investor (whether through merger, acquisition of 100% of the Equity
Securities or purchase of all or substantially all of the assets of the
Company) (a “Sale”).  The Company promptly thereafter will retain a
reputable investment bank chosen by mutual agreement (such agreement not to be
unreasonably withheld, conditioned or delayed) of the Founding Investors and
the Company (the “Investment Banker”) to
assist with the valuation and possible Sale of the Company; provided, however, that in the event that due to
then-current market conditions a Sale would be impractical because it would be
reasonably like to result in proceeds from such Sale to either Founding
Investor that are substantially below such Founding Investor’s cost basis in
its investment in the Company, as determined based on the written advice of the
Investment Banker (“Poor Market Conditions”),
then the Founding Investors will mutually determine whether notwithstanding
such market conditions to attempt to Sell the Company to a Third Party or a
Founding Investor; and, provided, further however, that, notwithstanding anything in
this Exhibit D or Section 4.2 to the contrary, neither Founding
Investor will be required to agree to enter into, or to approve the Company’s
entering into, such a Sale.  Any such
Sale will be subject to all other terms agreed upon by the Founding Investors
and the Company, which will be documented in a separate written agreement among
the parties (a “Sale Agreement”).

 

1.2          Non-Negotiated Resolution.

 

(a)           If (i) Poor Market Conditions exist and the
Founding Investors do not determine pursuant to Section 1.1 to attempt a
Sale of the Company, or (ii) the Founding Investors have not within [***]
([***]) days after the Company’s receipt of the Buy-Out Notice, or such longer
period as mutually agreed to by the Founding Investors (such period, the
“Buy-Out Negotiation Period”), executed a Sale Agreement, the Company will,
except as otherwise set forth in this Section 1.2, distribute and assign
to the Founding Investors, or their designated Affiliate, jointly, in
accordance with Pro Rata Share, all of the Company’s rights, interests and
assets, other than any contracts and/or arrangements between the Company and
Third Parties that the Board determines cannot or should not be assigned
(“Third Party Contracts”) (provided that the Parties agree to use commercially
reasonable efforts to provide for the assignment of all Third Party Contracts),
and the provisions of this Section 1.2 will apply.  For purposes of this Exhibit D, “Pro Rata Share” means, with respect
to each Investor at any particular moment, the ratio of (a) the number of
shares of the Company’s Common Stock (not including any shares of Common Stock
issuable or issued upon conversion of the Shares or upon the exercise of
outstanding warrants or options) of which such Investor is deemed to be a
holder immediately prior to the moment in question to (b) the total number
of shares of the Company’s outstanding 

 

 

Common Stock (not
including any shares of Common Stock issued or issuable upon conversion of the
Shares or upon the exercise of any outstanding warrants or options) immediately
prior to the moment in question.

 

(b)           Distribution of Intellectual
Property.

 

(i)            Upon the distribution of the Company’s assets pursuant
to this Section 1.2, each Founding Investor or its designated Affiliate
will receive, subject to Third Party Rights and Third Party Contracts, (1) a
co-exclusive license under Company Intellectual Property Controlled by the
Company at the end of the Buy-Out Negotiation Period, for any and all purposes,
and (2) a co-exclusive license under Licensed IP licensed to the Company
at the end of the Buy-Out Negotiation Period, for any and all purposes within
the scope of the license granted to the Company (collectively, the “Distributed
IP”); provided, however, that (y) to the
extent that one Founding Investor has obtained a license in connection with an
Opt-In Election or obtains a license pursuant to Section 1.2(d) or
1.2(e), the licenses to the Distributed IP under this Section 1.2(b) will
not include the right to Develop, Manufacture or Commercialize the
Program/Project Compounds or Program/Project Therapeutics subject to such
Opt-In election or license pursuant to Section 1.2(d) or 1.2(e); and (z) to
the extent that a Founding Investor has obtained a license in connection with Section 2.3
of the License Agreement, the licenses to the Distributed IP under this Section 1.2(b) will
be subject to such license granted to such Founding Investor.  For purposes of this Section 1.2(b)(i),
“co-exclusive” means that such license is exercisable by each Founding Investor
or its designated Affiliate, and that the Company retains no rights to exercise
any such licensed Intellectual Property.

 

(ii)           The rights granted to each Founding Investor in this Section 1.2(b) will
be (1) royalty-bearing, as set forth in Section 1.2(b)(iii) below,
and (2) sublicenseable solely (A) to such Founding Investor’s
Affiliates or (B) by such Founding Investor or its Affiliates to a Third
Party pursuant to a Bona Fide Collaboration; provided
that, (x) each such sublicense will be subject and subordinate to, and
consistent with, the terms and conditions of the License Agreement and this Exhibit D,
and will provide that any such sublicensee will not further sublicense except
on terms consistent with this clause; (y) such Founding Investor will
remain responsible for the performance of its sublicensees, and will ensure
that all such sublicensees comply with the relevant provisions of the License
Agreement and this Exhibit D and (z) in the event of a material
default by any of its sublicensees under a sublicense agreement, such Founding
Investor will inform the Company and the other Founding Investor and will take
such action, after consultation with such other parties, which, in such
Founding Investor’s reasonable business judgment, will address such default.

 

(iii)         Each Founding Investor will, to the extent it, its
Affiliates and/or Sublicensees develop a Royalty-Bearing Product under
Intellectual Property distributed from the Company to the Founding Investor
pursuant to this Section 1.2(b) that does not become subject to Section 1.2(d) or
1.2(e): (x) pay to the other Founding Investor (or its designated
Affiliate) a royalty of [***]% on Net Sales of such Royalty-Bearing Products
sold by the selling Founding Investor, its Affiliates and/or Sublicensees, on a
Royalty-Bearing Product-by-Royalty-Bearing Product and a country-by-country basis,
during the Royalty Term (provided, however,
that, for the remainder of the relevant Royalty Term following the end of both
the relevant Exclusivity Period, the royalty rate will be [***]%), and (y) be
responsible for all milestones, royalties and 

 

 

other payments payable to
Third Parties in respect of the exercise of such license by such selling
Founding Investor, its Affiliates and/or Sublicensees, including without
limitation any amounts payable by either Founding Investor or the Company to
its Third Party licensors with respect to the license and sublicense granted to
such Founding Investor pursuant to this Section 1.2(b).  The royalty-paying Founding Investor will use
Commercially Reasonable Efforts to benefit from offsets to the amounts payable
to such Founding Investor’s Third Party licensors.

 

(c)           Retained Assets and Rights. 
Following the distribution of the Company’s assets pursuant to this Section 1.2,
the Company will not maintain any interest in or right to any assets of the
Company, including Intellectual Property, except to the extent the Board
determines is necessary to maintain Third Party Contracts or its obligations to
Opt-In Parties or Founding Investors pursuant to the Buy-Out.  Notwithstanding the foregoing, the Parties
will use their Commercially Reasonable Efforts to remove any restrictions on,
and facilitate the distribution of, the Company’s assets pursuant to this Section 1.2.

 

(d)           Research Program Selection and
Transfer.

 

(i)            Within [***] ([***]) Business Days following the distribution
of the Company’s assets in accordance with Section 1.2(a) and (b),
the non-Initiating Founding Investor will submit a bid, consisting [***] (“First Selection Right Bid”), to the
Initiating Founding Investor to obtain the first right to select a Research
Program from the most recent Program/Project List with respect to which such
Founding Investor desires to acquire exclusive rights; provided,
however, that in the event the non-Initiating Founding Investor does
not submit such a bid with [***] ([***]) Business Days, the Initiating Founding
Investor may assume the rights of the non-Initiating Founding Investor set
forth in this Section 1.2(d) with respect to the First Selection
Right Bid.  The Initiating Founding
Investor will have [***] ([***]) Business Days to notify the non-Initiating
Founding Investor of its acceptance or rejection of such First Selection Right
Bid.

 

(ii)           If the Initiating Founding Investor accepts such First
Selection Right Bid,

 

(1)           The non-Initiating Founding Investor will have the
right, upon payment to the Initiating Founding Investor of the [***] set forth
in the First Selection Right Bid (which [***] will be due and payable within
[***] ([***]) Business Days after acceptance of such bid), to select one
Research Program (“Selected Program”).  Upon such selection, the non-Initiating
Founding Investor will obtain the license set forth in clause (vi) below
under Intellectual Property directed to such Selected Program; and.

 

(2)           Each of the Founding Investors, starting with the Initiating
Founding Investor, will then take turns selecting (by written notice within
[***] ([***]) Business Days following the last selection by the other Founding
Investor) a Research Program (other than the Selected Program), until all
Research Programs on the Program/Project List have been selected by the
Founding Investors (and each such selected Research Program is a “Selected
Program” hereunder), and each Founding Investor will obtain the rights set
forth in clause (vi) below under Intellectual Property directed to the
Research Program selected by such Founding Investor.

 

 

(iii)         If the Initiating Founding Investor rejects such First
Selection Right Bid, such Founding Investor will submit to the non-Initiating
Founding Investor, concurrently with such notice of rejection, a counterbid
which is higher than such First Selection Right Bid by at least [***]% or
$[***] (whichever is higher).  The
non-Initiating Founding Investor will have [***] ([***]) Business Days to
accept or reject such counterbid.

 

(iv)          If the non-Initiating Founding Investor accepts such
counterbid, the Initiating Founding Investor will have the right, upon payment
to the non-Initiating Founding Investor of the amount set forth in such
counterbid (which amount will be due and payable within [***] ([***]) Business
Days after acceptance of such counterbid), to select a Research Program (other
than a Selected Program) and each such selected Research Program is a “Selected Program” hereunder.  Upon completion of the Buy-Out, the Initiating
Founding Investor will obtain from the non-Initiating Founding Investor the
rights set forth in clause (vi) below with respect to the Research Program
selected by such Founding Investor.

 

(v)            If the non-Initiating Founding Investor rejects such
counterbid, then such non-Initiating Founding Investor will submit,
concurrently with such notice of rejection, its counterbid to the Initiating
Founding Investor’s counterbid, which counterbid must be higher than the
Initiating Founding Investor’s counterbid by at least [***]%, and the process
will repeat itself until a bid is accepted or no counterbid exceeds the prior
bid or counterbid by at least [***]%.

 

(vi)          Each Founding Investor will grant to the other
Founding Investor which purchased a Selected Program hereunder (the “Buy-Out Party”), subject to Third
Party Rights, an exclusive (to the fullest extent possible) license under
Distributed IP (which, with respect to Licensed IP therein, is within the scope
of the license granted to the Founding Investor by the Company), to Develop,
Manufacture and/or Commercialize the miRNA Compound(s) and miRNA
Therapeutics included in such Selected Program in the Field.

 

(vii)         Such licenses to Distributed IP will be (1) royalty-bearing
as set forth in Section 1.2(d)(viii) below, and (2) sublicenseable;
provided that, (x) each such
sublicense will be subject and subordinate to, and consistent with, the terms
and conditions of this Exhibit D, and will provide that any such
Sublicensee will not further sublicense except on terms consistent with this
clause; (y) such Founding Investor will remain responsible for the
performance of its Sublicensees, and will ensure that all such Sublicensees
comply with the relevant provisions of the License Agreement and this Exhibit D
and (z) in the event of a material default by any of its Sublicensees
under a sublicense agreement, such Founding Investor will inform the Company
and the other Founding Investor and will take such action, after consultation
with such other Parties, which, in such Founding Investor’s reasonable business
judgment, will address such default.

 

(viii)        Each Founding Investor selecting a Selected Program
will (1) pay to the other Founding Investor (or its designated Affiliate)
a royalty of [***]% on Net Sales of any Royalty-Bearing Product with respect to
such Selected Program, on a Royalty-Bearing Product-by-Royalty-Bearing Product
and a country-by-country basis, during the Royalty Term (provided,
however, that, for the remainder of the relevant Exclusivity Period,
the royalty rate will be [***]%, and (2) be responsible for milestones,
royalties and other payments payable to 

 

 

Third Parties in respect
of the exercise of such license by such selling Founding Investor, its
Affiliates and/or Sublicensees, including without limitation any amounts
payable by either Founding Investor or the Company to its Third Party licensors
with respect to the licenses granted to such Founding Investor pursuant to Section 1.2(a).  The royalty-paying Founding Investor will use
Commercially Reasonable Efforts to benefit from offsets to the amounts payable
to such Founding Investor’s Third Party licensors.

 

(ix)          Each Founding Investor will assign or exclusively
license to the other Founding Investor, to the fullest extent possible, all of
its rights and obligations in assets, other than Intellectual Property,
distributed by the Company to the Founding Investors pursuant to Section 1.2(a),
to the extent such assets are solely related to any of the other Founding
Investor’s Selected Programs. In the event any such assets are related to
Selected Programs of both Founding Investors, each Founding Investors will
assign to or exclusively license the other, to the fullest extent possible, the
rights to such assets as they relate to the other Founding Investor’s Selected
Programs.

 

(e)           Development Project Selection and
Transfer.

 

(i)            Within [***] ([***]) Business Days following the
completion of the distribution of the Company’s assets pursuant to Section 1.2(a),
the non-Initiating Party (the “Bidding Party”)
will have the right to submit to the other Founding Investor a bid, which need
not be limited to a [***] (“Project Bid”),
with respect to one or more Development Projects included in the most recent
Program/Project List; provided that,
a separate Project Bid must be submitted for each and every Development Project
for which the Party is bidding. 
Notwithstanding the foregoing, in the event the non-Initiating Party
does not submit such a bid within [***] Business Days, the Initiating Party may
assume the rights of the non-Initiating Party set forth in this Section 1.2(e) with
respect to a Project Bid.  The
non-Bidding Party will have [***] ([***]) Business Days to notify the Bidding
Party of its acceptance or rejection of a Project Bid made by the Bidding Party,
on a Project Bid-by-Project Bid basis.

 

(ii)           If the non-Bidding Party accepts a Project Bid or does
not reject a Project Bid and provide a counterbid in accordance with clause (iii) below
(in which case the Project Bid is deemed accepted) within such [***] ([***])
Business Day period, the Bidding Party, subject to compliance with its payment
obligations under the terms of such Project Bid (including, without limitation,
payment of any upfront fees to the non-Bidding Party), will obtain the rights
set forth in clause (vi) below with respect to the Development Project
covered by such accepted Project Bid.

 

(iii)         If the non-Bidding Party rejects a Project Bid, the
non-Bidding Party (“Counterbidding Party”) will submit to the Bidding Party,
concurrently with its notice of rejection, a counterbid with terms which are
more favorable, when taken as a whole, to the Bidding Party than the terms set
forth in the Project Bid, by at least the greater of (1) [***]% (as
measured by industry standards) or (2) $[***] (if the Project Bid is less
than or equal to $[***]).  The Bidding
Party will have [***] ([***]) Business Days to accept or reject such
counterbid.

 

(iv)          If the Bidding Party accepts such counterbid or does
not reject such counterbid and provide a counterbid in accordance with clause (v) below
(in which case the 

 

 

Counterbidding Party’s
counterbid is deemed accepted) within such [***] ([***]) Business Day period,
the Counterbidding Party, subject to compliance with its payment obligations
under the terms of such counterbid (including, without limitation, payment of
any upfront fees to the Bidding Party), will obtain the rights set forth in
clause (vi) below with respect to the Development Project covered by such
accepted counterbid.

 

(v)            If the Bidding Party rejects such counterbid, such
Bidding Party will submit, concurrently with its notice of rejection, its
counterbid to the Counterbidding Party’s counterbid, which counterbid must be
higher than the Counterbidding Party’s counterbid by at least [***]% (as
measured by industry standards), and the process will repeat itself until a bid
for a Development Project is accepted; provided, however,
that, if a Founding Investor to which a counterbid is submitted determines in
good faith that the terms of such counterbid are not more favorable to such
Founding Investor, taken as a whole, than the terms offered in such Founding
Investor’s most-recent prior bid, by at least [***]% (as measured by industry
standards), then at any time within the [***] ([***]) day period during which
such Founding Investor may accept or reject such counterbid, such Founding
Investor (the “Contesting Party”) may
notify the other Parties thereof and will have the right to submit such matter
to a reputable investment bank (“Qualified Third Party”)
chosen by mutual agreement of the Founding Investors.  If the Founding Investors are unable to agree
upon a Qualified Third Party within [***] ([***]) Business Days after receipt
of the Contesting Party’s notice, the Company (through a vote of its Board)
will select a Qualified Third Party within [***] ([***]) Business Days after
the end of such initial [***] ([***]) Business Day period and will promptly
notify the Founding Investors of the Qualified Third Party selected.  The Founding Investors will then submit the
dispute to such Qualified Third Party and will instruct such Qualified Third
Party to determine whether the counterbid most-recently proposed by the
non-Contesting Party is more favorable, taken as a whole, than the terms
proposed by the Contesting Party, by at least [***]% (as measured by industry
standards) and to deliver a written report to both Founding Investors within
[***] ([***]) Business Days following submission of such dispute to such
Qualified Third Party.  Such Qualified
Third Party’s determination will be binding on the Founding Investors.  If such Qualified Third Party determines that
the counterbid proposed by the non-Contesting Party constitutes a sufficient
counterbid, such counterbid will be deemed accepted by the Contesting
Party.  If such Qualified Third Party
determines that the counterbid proposed by the non-Contesting Party does not
constitute a sufficient counterbid, then the immediately preceding bid or
counterbid terms proposed by the Contesting Party will be deemed accepted by
the non-Contesting Party.  The Founding
Investor against whom the Qualified Third Party finds will bear the costs of
such Qualified Third Party.

 

(vi)          Each Founding Investor will grant to the other
Founding Investor that purchased a Development Project hereunder (the Buy-Out
Party), subject to Third Party Rights, an exclusive (to the fullest extent
possible) sublicense under Distributed IP (which, with respect to Licensed IP
therein, is within the scope of the license granted to the Founding Investor by
the Company), to Develop, Manufacture and/or Commercialize miRNA Compounds and
miRNA Therapeutics included in the Development Project in the Field.

 

(vii)         Such license to such Development Project will be (1) royalty-bearing
in accordance with the terms of the accepted bid covering such Development
Project, and (2) sublicenseable; provided that, (1) each
such sublicense will be subject and subordinate to, 

 

 

and consistent with, the
terms and conditions of this Exhibit D, and will provide that any such
Sublicensee will not further sublicense except on terms consistent with this
clause; (2) such Founding Investor will remain responsible for the
performance of its Sublicensees, and will ensure that all such Sublicensees
comply with the relevant provisions of the License Agreement and this Exhibit D
and (3) in the event of a material default by any of its Sublicensees
under a sublicense agreement, such Founding Investor will inform the Company
and the other Founding Investor and will take such action, after consultation
with such other Parties, which, in such Founding Investor’s reasonable business
judgment, will address such default.

 

(viii)        Each Founding Investor will assign or exclusively
license to the other Founding Investor, to the fullest extent possible, all of
its rights and obligations in assets, other than Intellectual Property,
distributed by the Company to the Founding Investors pursuant to Section 1.2(a) to
the extent such assets are solely related to any of the other Founding
Investor’s Selected Development Projects. 
In the event any such assets are related to Development Programs of both
Founding Investors, each Founding Investor will assign to the other, to the
fullest extent possible, the rights to such assets as they relate to the other
Founding Investor’s Development Programs.

 

(ix)          The Parties will promptly negotiate in good faith and
execute a written agreement substantially in accordance with the terms of the
accepted bid covering each such Development Project.

 

(f)            Company Following Buy-Out. 
In the event of a Buy-Out pursuant to this Section 1.2, the Company
will not be dissolved if, in the discretion of the Board, it should continue to
exist for the purpose of maintaining Third Party Contracts and/or receiving
payments from Third Parties that may become due to the Company following the
completion of the Buy-Out, making tax and other distributions, filing tax and
other required reports and conducting any activity necessary for the purpose of
dissolving the Company pursuant to Section 10 (the “Post
Buy-Out Activities”).  In
the event the Company is not dissolved following the completion of a Buy-Out
pursuant to this Section 1.2, the Company will be prohibited from engaging
in any activities other than the Post Buy-Out Activities, and any assets
acquired by the Company after the completion of the Buy-Out will be distributed
as determined by the Managing Board, unless otherwise distributable under
then-existing agreements.

 

(g)           Diligence. 
Each Founding Investor will use Commercially Reasonable Efforts to
Develop and Commercialize the miRNA Compounds and miRNA Therapeutics covered by
the Research Program or Development Project purchased by such Founding Investor
under this Section 1.2, at such Founding Investor’s own expense, in the
Field, either by itself or with or through its Affiliates or Sublicensees.

 

(h)           Non-Compete. 
With respect to any Research Program or Development Project, the
non-Opt-In Party or non-Buy-Out Party will not, itself or through its
Affiliates or with Third Parties, Discover, Develop, Manufacture or
Commercialize the relevant Opt-In Products or Buy-Out Products during the
period (i) prior to first commercial sale of an Opt-In Product or Buy-Out
Product with respect to such Research Program or Development Project anywhere
in the world, as long as the relevant Opt-In Party or Buy-Out Party reasonably
believes that the Opt-In Product or Buy-Out Product would be a Royalty-Bearing
Product upon first 

 

 

commercial sale, and (ii) after
first commercial sale of a Royalty-Bearing Product with respect to such
Research Program or Development Project anywhere in the world, until the
expiration of all Royalty Terms for all Royalty-Bearing Products for such
Research Program or Development Project; provided, however, that each Party
will be entitled to grant Permitted Licenses.

 

1.3          Section 365(n) of the
Bankruptcy Code.  All rights and licenses granted under this Exhibit D
and Section 4 of this Agreement are and will otherwise be deemed to be for
purposes of Section 365(n) of the United States Bankruptcy Code
(Title 11, U.S. Code), as amended (the “Bankruptcy Code”), licenses of rights
to “intellectual property” as defined in Section 101(35A) of the
Bankruptcy Code.  The Parties will retain
and may fully exercise all of their respective rights and elections under the
Bankruptcy Code.  The Parties agree that
each Party, as licensee of such rights under this Agreement, will retain and
may fully exercise all of its rights and elections under the Bankruptcy Code or
any other provisions of Applicable Law outside the United States that provide
similar protection for ‘intellectual property.’ 
The Parties further agree that, in the event of the commencement of a
bankruptcy proceeding by or against a Party under the U.S. Bankruptcy Code or analogous
provisions of applicable law outside the United States, the Party that is not
subject to such proceeding will be entitled to a complete duplicate of (or
complete access to, as appropriate) such intellectual property and all
embodiments of such intellectual property, which, if not already in the non
subject Party’s possession, will be promptly delivered to it upon the non
subject Party’s written request thereof. 
Any agreements supplemental hereto will be deemed to be “agreements
supplementary to” this Agreement for purposes of Section 365(n) of
the Bankruptcy Code.

 

 

EXHIBIT E

 

FINANCIAL
REQUIREMENT FOR EQUITY ACCOUNTING

 

Once Regulus is no longer
consolidated into Isis’ financials and is not using Isis’ financial systems,
then Regulus may hire its own auditors subject to the requirements below that
are necessary to ensure that Isis and Alnylam receive in a timely manner the
information each needs to record its share of Regulus’ income/losses.

 

1.     Regulus’ auditors will be an
independent registered public accounting firm of recognized national standing.

 

2.     Regulus will provide Isis
and Alnylam the audited annual financial statements of Regulus no later than
[***] ([***]) weeks after the end of each fiscal year, including the related
notes thereto. The financial statements include the following:

 

a.     A balance sheet of Regulus
as of the close of such fiscal year.

b.     A statement of net income
for such fiscal year.

c.     A statement of cash flows
for such fiscal year.

d.     The related notes thereto.

e.     These financial statements
will contain in comparative form the figures for the previous fiscal year.

f.      An opinion of Regulus’
auditors that the above financial statements present fairly, in all material
respects, the financial position of Regulus and its results of operations and
cash flows. Also, that the financial statements have been prepared in
conformity with GAAP and that the audit by Regulus’ auditors has been made in
accordance with generally accepted auditing standards and that audit provides a
reasonable basis for the auditors’ opinion.

 

3.     Regulus will provide Isis
and Alnylam an unaudited balance sheet of Regulus as of the end of each quarter
and unaudited statements of income and cash flows of Regulus for such quarter
and for the current fiscal year to the end of such fiscal quarter within [***]
([***]) calendar days after the end of each fiscal quarter of Regulus,
including the related notes thereto.

 

a.     The financial statements
will be those outlined in 2(a) — (f) above.

b.     These financial statements
will be reviewed by Regulus’ auditors, which review will be complete prior to
Regulus providing the above financial statements to Isis and Alnylam.

c.     These financial statements
will include a certificate signed by the CEO and CFO of Regulus stating that
these financial statements were prepared in conformity with GAAP from the books
and records of Regulus and that there were no changes in the internal control
environment of Regulus that would materially affect the integrity of these
statements.

 

4.     Regulus will provide Isis
and Alnylam with an unaudited balance sheet of Regulus as of the end of each
month and unaudited statements of income and of cash flows of Regulus for such
month and for the current fiscal year to the end of such month promptly following
Regulus’ completion of the review of its financial statements for such month
(other than the last month of any fiscal quarter).

 

 

a.             The financial statements
will be those outlined in 2(a) — (f) above, excluding 2(d).

 

5.     The financial statements referred
to above will be accompanied by the report thereon of the independent
accountants engaged by Regulus as described in 2(f) above. Additionally,
Regulus will provide to Isis and/or Alnylam any supplemental schedules
reasonably required by either company, and Regulus will make its management
available to Isis and/or Alnylam for reasonable inquiries regarding its
financials.

 

6.     Regulus will provide Isis
and Alnylam with any certificate that may be reasonably necessary to meet Isis’
and Alnylam’s SOX 404 requirements.

 

7.     If Isis’ and/or Alnylam’s
filing requirements change, all three companies together will review the timing
outlined above. If filing requirements for either Isis or Alnylam are
accelerated, Regulus agrees to provide the information in #2 and #3 above on
the timeline that Isis and/or Alnylam reasonably determines is necessary to
meet its filing requirements.

 

 

An extra section
break has been inserted above this paragraph. Do not delete this section break
if you plan to add text after the Table of Contents/Authorities.  Deleting this break will cause Table of
Contents/Authorities headers and footers to appear on any pages following
the Table of Contents/Authorities.Exhibit 10.3

 

THIRD AMENDMENT AND CONSENT TO CREDIT AGREEMENT

 

THIRD  AMENDMENT AND CONSENT, dated as of May 7,
2009, and effective as of March 27, 2009, (this “Amendment and Consent”)
to the Credit Agreement dated as of August 20, 2007 (as amended by the First
Amendment to Credit Agreement, dated as of February 25, 2008 and the
Second Amendment to Credit Agreement, dated as of February 27, 2009, the “Credit
Agreement”) by and among VEECO INSTRUMENTS
INC., a Delaware corporation (the “Company”), the Lenders party
thereto and HSBC BANK USA, NATIONAL
ASSOCIATION, a national banking association, as Administrative Agent
for the Lenders.

 

WHEREAS, the Company
has requested that the Lenders amend certain provisions of the Credit Agreement
and consent to the acquisition by Veeco Process Equipment Inc. of the stock of
Fluens Corporation, and the Lenders have agreed to amend such provisions of the
Credit Agreement and grant such consent, subject to the terms and conditions
set forth herein;

 

NOW,
THEREFORE, in consideration of the premises and of the mutual
agreements herein contained, the parties hereto agree as follows:

 

1.             Amendments.

 

a.             The definition
of the term “Loan Documents” in Section 1.01 of the Credit Agreement is
hereby amended and restated in its entirety to provide as follows:

 

“Loan
Documents” shall mean, collectively, this Agreement, the Notes, the Guaranties,
the Security Agreement, the Hedging Agreements (but only to the extent that
such Hedging Agreements are between the Company and a Lender and relate to the
Company’s hedging of interest rate exposure under this Agreement), the Pledge
Agreements, the Account Pledge Agreement and each other agreement executed in
connection with the transactions contemplated hereby or thereby, as each of the
same may hereafter be amended, restated, supplemented or otherwise modified
from time to time.

 

b.             Section 1.01 of the Credit
Agreement is hereby amended to add the following definition in its appropriate
alphabetical order:

 

“Account
Pledge Agreement” shall mean the Account Pledge Agreement, dated as of May 7,
2009, between the Company and the Administrative Agent, as the same may
hereafter be further amended, restated, supplemented or otherwise modified from
time to time.

 

c.             Section 5.02 of the Credit
Agreement is hereby amended to add the following new subsection “(d)”
immediately following subsection “(c)” thereof:

 

“(d)         Cash Collateral.  The Company shall have deposited with the
Administrative Agent, Cash Collateral in an amount equal to the Aggregate
Outstandings (after giving effect to the Loan requested or the requested
issuance, amendment, renewal or extension of a Letter of Credit).”

 

d.             Article VI of the Credit
Agreement is hereby amended to add a new Section 6.16 at the end thereof
as follows:

 

 

1

 

“SECTION 6.16.  Cash
Collateral.  The Company
shall, at all times required by the Lenders, maintain with, and pledge to, the
Administrative Agent for the ratable benefit of the Lenders, Cash Collateral in
an amount equal to or greater than the Aggregate Outstandings, pursuant to the
Account Pledge Agreement.”

 

e.             Section 7.13(e) of the
Credit Agreement is hereby amended and restated in its entirety to provide as
follows:

 

“(e)         Consolidated EBITA.  Permit Consolidated EBITA to exceed (i) ($11,692,000),
for the fiscal quarter ending March 31, 2009, (ii) ($19,807,000), on
a cumulative basis for the two fiscal quarters ending June 30, 2009, (iii) ($21,899,000),
on a cumulative basis for the three fiscal quarters ending September 30,
2009 or (iv) ($14,710,000), for the fiscal year ending December 31,
2009.”

 

2.                                      Consent.

 

The Company acknowledges and
agrees that a Compliance Period is not currently in effect and, as a result
thereof, the Required Lenders must consent to the acquisition by Veeco Process
Equipment Inc. of the stock of Fluens Corporation, a Massachusetts corporation
as a Permitted Acquisition (the “Specified Acquisition”).  In accordance with Section 7.06(d) of
the Credit Agreement, the Required Lenders hereby consent to the consummation
of the Specified Acquisition as a Permitted Acquisition, provided that (a) no
Default or Event of Default has occurred and is then continuing at the time of,
or will occur after giving effect to, such Acquisition and (b) such Acquisition
otherwise satisfies the requirements of a “Permitted Acquisition” as defined in
the Credit Agreement other than the requirement set forth in clause “(f)(ii)”
thereof with respect to the ratio of Consolidated Senior Funded Debt to
Consolidated EBITA.

 

3.                                      Conditions to Effectiveness.

 

This Amendment and Consent
shall become effective upon receipt by the Administrative Agent of: (a) this
Amendment and Consent, duly executed by the Company and the Guarantors, (b) the
Account Pledge Agreement, duly executed by the Company, and Cash Collateral in
an amount equal to the Aggregate Outstandings as of the date hereof, (c) executed
consents from the Lenders authorizing the Administrative Agent to execute this
Amendment and Consent on behalf of the Lenders (the “Consent”), and (d) an
amendment fee for each Lender providing its Consent to the Administrative Agent
on or before the time that the Administrative Agent shall sign this Amendment
and Consent on behalf of the Required Lenders, in an amount equal to ten (10) basis
points of such Lender’s Revolving Credit Commitment.

 

4.             Miscellaneous.

 

Capitalized terms used
herein and not otherwise defined herein shall have the same meanings as defined
in the Credit Agreement.

 

Except as expressly amended
hereby, the Credit Agreement shall remain in full force and effect in
accordance with the original terms thereof.

 

The amendments set forth
above are limited specifically to the matters set forth above and for the
specific instances and purposes given and do not constitute directly or by
implication a waiver or 

 

 

2

 

amendment of any other
provision of the Credit Agreement or a waiver of any Default or Event of
Default, whether now existing or hereafter arising, which may occur or may have
occurred.

 

The Company hereby (i) represents
and warrants that (a) after giving effect to this Amendment and Consent,
the representations and warranties made by the Company and each of its
Subsidiaries pursuant to the Credit Agreement and the other Loan Documents to
which each is a party are true and correct in all material respects as of the
date hereof with the same effect as though such representations and warranties
had been made on and as of such date, unless any such representation or warranty
is as of a specific date, in which case, as of such date and (b) after
giving effect to this Amendment and Consent, no Default or Event of Default has
occurred and is continuing and (ii) confirms that the liens, heretofore
granted, pledged and/or assigned to the Administrative Agent for the Lenders
shall not be impaired, limited or affected in any manner whatsoever by reason
of this Amendment and Consent.

 

The Company hereby further
represents and warrants that the execution, delivery and performance by the
Company of this Amendment and Consent and the Credit Agreement (as amended by
this Amendment and Consent), (a) have been duly authorized by all
requisite corporate action, (b) will not violate or require any consent
(other than consents as have been made or obtained and which are in full force
and effect) under (i) any provision of law applicable to the Company, any
applicable rule or regulation of any Governmental Authority, or the
Certificate of Incorporation or By-laws of the Company, (ii) any order of
any court or other Governmental Authority binding on the Company or (iii) any
agreement or instrument binding on the Company. 
Each of this Amendment and Consent and the Credit Agreement (as amended
hereby), constitutes a legal, valid and binding obligation of the Company.

 

This Amendment and Consent
may be executed in one or more counterparts, each of which shall constitute an
original, but all of which when taken together shall constitute but one
Amendment and Consent. This Amendment and Consent shall become effective when
duly executed counterparts hereof which, when taken together, bear the
signatures of each of the parties hereto shall have been delivered to the
Administrative Agent.

 

This Amendment and Consent
shall constitute a Loan Document.

 

This Amendment and Consent
shall be governed by, and construed in accordance with, the laws of the State
of New York.

 

[next page is signature
page]

 

 

3

 

IN WITNESS
WHEREOF, the Company and the Administrative Agent, as
authorized on behalf of the Required Lenders, have caused this Amendment and
Consent to be duly executed by their duly authorized officers, all as of the
day and year first above written.

 

	
   

  	
  HSBC BANK
  USA, NATIONAL

  
	
   

  	
  ASSOCIATION, as
  Administrative Agent

  
	
   

  	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ Christopher Mendelsohn

  
	
   

  	
  Name:

  	
  Christopher Mendelsohn

  
	
   

  	
  Title:

  	
  Senior Vice President

  
				

 

	
   

  	
  VEECO
  INSTRUMENTS INC.

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John F. Rein, Jr.

  
	
   

  	
  Name:

  	
  John F. Rein, Jr.

  
	
   

  	
  Title:

  	
  Executive Vice President
  and Chief Financial Officer

  
				

 

The undersigned, not parties
to the Credit Agreement but as “Guarantors” under the Guaranty and “Grantors”
under the Security Agreement, hereby (a) accept and agree to the terms of
the foregoing Amendment and Consent, (b) acknowledge and confirm that all
terms and provisions contained in the Loan Documents to which they are a party
are, and shall remain, in full force and effect in accordance with their
respective terms, (c) reaffirm and ratify all of the representations and
covenants contained in the Loan Documents to which they are a party, (d) represent,
warrant and confirm the non-existence of any offsets, defenses and
counterclaims to its obligations under the Loan Documents to which they are a
party and (e) confirm that the liens, heretofore granted, pledged and/or
assigned to the Administrative Agent for the Lenders shall not be impaired,
limited or affected in any manner whatsoever by reason of this Amendment and
Consent.

 

	
   

  	
  VEECO
  COMPOUND SEMICONDUCTOR INC.

  VEECO
  METROLOGY INC.

  VEECO
  PROCESS EQUIPMENT INC.

  VEECO
  APAC INC.

  VEECO
  CORPORATE LLC

  By:  Veeco Metrology Inc., its Sole Member

  
	
   

  	
   

  
	
   

  	
   

  	
   

  
	
   

  	
  By:

  	
  /s/ John F. Rein, Jr.

  
	
   

  	
  Name:

  	
  John F. Rein, Jr.

  
	
   

  	
  Title:

  	
  Vice President of each of
  the foregoing corporations

  
				

 

 

4

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