IRHYTHM TECHNOLOGIES, INC. NOTE AND WARRANT PURCHASE AGREEMENT
Exhibit 10.31
THIS NOTE AND WARRANT PURCHASE AGREEMENT (AND ALL PAYMENT AND ENFORCEMENT PROVISIONS HEREIN) IS SUBJECT TO THE TERMS OF A SUBORDINATION AGREEMENT, DATED AS OF NOVEMBER 1, 2012, BY AND AMONG THE COMPANY, THE INVESTORS AND SILICON VALLEY BANK (“SVB”) (THE “SUBORDINATION AGREEMENT”). IN THE EVENT OF ANY INCONSISTENCY BETWEEN THIS AGREEMENT AND THE SUBORDINATION AGREEMENT, THE TERMS OF THE SUBORDINATION AGREEMENT SHALL CONTROL.
IRHYTHM TECHNOLOGIES, INC.
NOTE AND WARRANT PURCHASE AGREEMENT
This NOTE AND WARRANT PURCHASE AGREEMENT (this “Agreement”) is made and entered into as of November 1, 2012 (the “Effective Date”), by and among iRhythm Technologies, Inc., a Delaware corporation (the “Company”), and the persons and entities (each, an “Investor” and collectively, the “Investors”) listed on the Schedule of Investors attached hereto as Exhibit A (the “Schedule of Investors”).
RECITALS
WHEREAS, upon the terms and subject to the conditions set forth herein, the Company is willing to sell to each stockholder of the Company that is an “accredited investor”, as defined pursuant to Regulation D promulgated under the Securities Act of 1933, as amended (the “Securities Act”), and that has funded investments in the Company equal in value to at least $25,000 and/or that is a significant holder of capital stock of the Company as determined by the Company and as set forth on Exhibit G hereto (each, an “Eligible Investor,” and collectively, the “Eligible Investors”), subordinated convertible promissory notes (each a “Note,” and collectively, the “Notes”), together with corresponding warrants to purchase shares of the Company’s capital stock (“Warrants”); and
WHEREAS, unless otherwise stated, capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the form of Note, in substantially the form of Exhibit B hereto.
AGREEMENT
NOW, THEREFORE, in consideration of the foregoing, and the representations, warranties, and conditions set forth below, the parties hereto, intending to be legally bound, hereby agree as follows:
SECTION 1
The Notes and Warrants
1.1. Issuance of Convertible Promissory Notes. Subject to all of the terms and conditions of this Agreement, at each Closing (as defined below), the Company agrees to issue and sell to each of the Investors, and each of the Investors severally agrees to purchase, a Note in the principal amount set forth opposite such Investor’s name on the Schedule of Investors. The securities into which the Notes are convertible are referred to herein as the “Note Conversion Shares.” The obligations of the Investors to purchase Notes are several and not joint. The aggregate principal amount of all Notes that may be issued and sold hereunder shall not exceed $3,500,000 (the “Total Note Principal Amount”).
1.2. Warrants to Purchase Shares. In consideration for the purchase by each Investor of such Investor’s Note at the Initial Closing or an Additional Closing (as defined below), the Company will issue to such Investor at each such Closing a Warrant, in substantially the form of Exhibit C hereto, for a purchase
price equal to 0.01% of the principal amount of the corresponding Note. The Company and each Investor agree that such purchase price allocation represents the parties’ good faith allocation of the purchase price of the Notes and Warrants and shall be used for all purposes, including income tax reporting by the Company. The securities for which the Warrants are exercisable are referred to herein as the “Warrant Shares.” The Notes and the Note Conversion Shares, the Warrants and the Warrant Shares, and the Common Stock issuable upon conversion of the Note Conversion Shares and Warrant Shares, are sometimes collectively referred to herein as the “Securities.”
1.3. Place and Date of Closing. Subject to the terms and conditions of this Agreement, the purchase, sale and issuance of the Notes and Warrants shall take place at one (1) or more closings (each, a “Closing”).
(a) Initial Closing. The initial Closing (the “Initial Closing”) shall take place at the offices of Wilson Sonsini Goodrich & Rosati, Professional Corporation, 650 Page Mill Road, Palo Alto, CA 94304 at 1:00 p.m. Pacific time, on or around October 26, 2012, or at such other time as the Company and a majority in interest of the Investors participating in the Initial Closing may determine.
(b) Additional Closings. The Company may sell and issue at one (1) or more additional Closings (each, an “Additional Closing”), at such times and places as determined by the Company, in its sole discretion (each, an “Additional Closing Date”), up to the balance of the unissued Notes (the “Remaining Amount”): (i) first, to those Eligible Investors that, following the Initial Closing, have not purchased at least their respective full Pro Rata Shares; (ii) second, to the Investors that previously purchased at least their respective full Pro Rata Shares (each, a “Fully Participating Investor”, and collectively, the “Fully Participating Investors”), as allocated in accordance with Section 1.3(d); and (iii) third, if any portion of the Remaining Amount has not been purchased by (A) such Eligible Investors purchasing at least their respective full Pro Rata Shares, or (B) the Fully Participating Investors in accordance with Section 1.3(d), to such persons or entities (each, an “Other Investor” and collectively, the “Other Investors”) and in such amounts as may be mutually agreed upon by the Company and the holders of greater than fifty percent (50%) of the then aggregate outstanding principal amount of the Notes (a “Majority in Interest of Investors”). The Company may conduct such Additional Closings until the date that is sixty (60) days following the Initial Closing (the end of such period, the “Final Closing Date”). After each Additional Closing, the Company shall update the Schedule of Investors to list any Other Investors purchasing Notes and Warrants hereunder.
(c) General. For the avoidance of doubt, each of the Initial Closing and each Additional Closing is referred to herein as a “Closing.” Each of the Initial Closing Date and each Additional Closing Date is referred to herein as a “Closing Date.” At each Closing, the Company will deliver to each Investor the Note and Warrant to be purchased by such Investor, against receipt by the Company of the corresponding principal amount funded by such Investor and the purchase price of the corresponding Warrant. Each of the Notes and the Warrants will be registered in such Investor’s name in the Company’s records.
(d) Additional Allocations. Subject to Section 1.3(b), if there is any portion of the Remaining Amount due to one or more Eligible Investor’s failure to purchase at least their respective full Pro Rata Shares on or prior to the Final Closing Date, each Fully Participating Investor shall have the right to purchase an additional Note in the principal amount equal to all or any part of such Remaining Amount; provided, however, that to the extent the aggregate principal amount of Notes that the Fully Participating Investors desire to purchase exceeds the Remaining Amount, each Fully Participating Investor so electing to purchase all or any part of such Remaining Amount (each, an “Electing Fully Participating Investor” and together, the “Electing Fully Participating Investors”) shall be entitled to purchase a Note in the principal amount equal to the product obtained by multiplying: (i) the Remaining Amount, by (ii) a fraction, (A) the numerator of which shall be the Pro Rata Share of such Electing Fully Participating Investor, and (B) the
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denominator of which shall be the sum of the Pro Rata Shares of all Electing Fully Participating Investors. The sale and purchase of such Notes shall take place at an Additional Closing or Additional Closings on or prior to the Final Closing Date.
1.4. Definitions.
(a) “Pro Rata Share” shall mean: (i) with respect to each Eligible Investor that is a holder of the Company’s Preferred Stock, the amount obtained by multiplying: (A) $3,000,000; by (B) a fraction, (x) the numerator of which shall be the number of shares of Preferred Stock (calculated on an as-converted to Common Stock basis) held by such Eligible Investor that is a holder of Preferred Stock, and (y) the denominator of which shall be the number of shares of Preferred Stock (calculated on an as-converted-to Common Stock basis) held by all Eligible Investors that are holders of Preferred Stock, in each case measured as of immediately prior to the Initial Closing; and (ii) with respect to each Eligible Investor that is a holder of the Company’s Common Stock, the amount obtained by multiplying: (a) $3,000,000; by (b) a fraction, (x) the numerator of which is the number of shares of Common Stock held by the Eligible Investor (calculated on an as-converted to Common Stock basis) and (y) the denominator of which is the total number of issued and outstanding shares of capital stock of the Company held by all Eligible Investors (calculated on an as-converted to Common Stock basis), in each case measured as of immediately prior to the Initial Closing. Each Eligible Investor’s Pro Rata Share is set forth opposite such Eligible Investor’s name on Exhibit G hereto.
(b) “Transaction Documents” shall mean this Agreement, the Notes, the Warrants and the Subordination Agreement.
1.5. Use of Proceeds. The proceeds of the sale and issuance of the Notes and Warrants shall be used for general corporate purposes.
1.6. Payments. The Company will make all cash payments due under the Notes in immediately available funds by 1:00 p.m. Pacific time on the date such payment is due at the address for such purpose specified below each Investor’s name on the Schedule of Investors, or at such other address, or in such other manner, as an Investor or other registered holder of a Note may from time to time direct in writing.
SECTION 2
Representations and Warranties of the Company
A Schedule of Exceptions, attached hereto as Exhibit D (each, a “Schedule of Exceptions”) shall be delivered to the Investors in connection with each Closing. Except as set forth on the Schedule of Exceptions, which exceptions shall be deemed to be representations and warranties hereunder, delivered to the Investors at the applicable Closing, the Company hereby represents and warrants to the Investors as follows:
2.1. Organization, Good Standing and Qualification. The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware. The Company has the requisite legal and corporate power and authority to own and operate its properties and assets, to carry on its business as presently conducted or proposed to be conducted, to execute and deliver the Transaction Documents, to issue and sell the Notes and the Note Conversion Shares, and the Warrants and the Warrant Shares, and to perform its obligations pursuant to the Transaction Documents. The Company is presently qualified to do business as a foreign corporation in California and in each other jurisdiction where the failure to be so qualified has had or could reasonably be expected to have a material adverse effect on the Company’s financial condition, operations, properties, assets, liabilities, prospects or business as now conducted or proposed to be conducted (a “Material Adverse Effect”).
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2.2. Subsidiaries. The Company does not own or control (and has never owned or controlled), directly or indirectly, any interest in any corporation, partnership, limited liability company, association or other business entity. The Company is not a participant in any joint venture, partnership or similar arrangement. Since its inception, the Company has not consolidated or merged with, acquired all or substantially all of the assets of, or acquired the stock of or any interest in any corporation, partnership, association, or other business entity.
2.3. Capitalization. Immediately prior to the Initial Closing:
(a) The authorized capital stock of the Company will consist of: (i) 60,000,000 shares of Common Stock, of which 7,245,527 shares are issued and outstanding; and (ii) 33,747,093shares of Preferred Stock, consisting of (A) 20,093,232 shares of which are designated Series A Preferred Stock, of which 19,948,052 shares are issued and outstanding, (B) 3,666,416 shares of which are designated Series B Preferred Stock, of which 3,589,247 shares are issued and outstanding, and (C) 9,987,445 shares of which are designated Series C Preferred Stock, of which 7,950,056 shares are issued and outstanding. Warrants to purchase up to 145,180 shares of Series A Preferred Stock and up to 77,169 shares of Series B Preferred Stock, respectively, are issued and outstanding.
(b) The outstanding shares of capital stock of the Company have been duly authorized and validly issued in compliance with applicable laws, and are fully paid and nonassessable.
(c) The Company has reserved 8,938,724 shares of Common Stock authorized for issuance to employees, consultants and directors pursuant to the Company’s 2006 Stock Plan (the “2006 Stock Plan”), under which options or other rights to purchase 7,753,887 shares of Common Stock are issued and outstanding, 1,052,644 shares of Common Stock remain available for issuance, and 132,193 shares of Common Stock have been issued upon exercise of stock options or other rights previously granted, each as of the date of this Agreement.
(d) Except for the: (i) the Notes and the Note Conversion Shares; (ii) the Warrants and the Warrant Shares; (iii) the conversion privileges of the Preferred Stock; (iv) the rights provided pursuant to the Amended and Restated Investors’ Rights Agreement, dated as of April 26, 2011 (the “Rights Agreement”), the Amended and Restated Voting Agreement, dated as of October 13, 2011, and the Amended and Restated Right of First Refusal and Co-Sale Agreement, dated as of April 26, 2011 (each as may be amended from time to time); (v) the shares reserved for issuance pursuant to the 2006 Stock Plan as described above; and (vi) the warrants to purchase up to 145,180 shares of Series A Preferred Stock and up to 77,169 shares of Series B Preferred Stock, there are no options, warrants or other rights (including conversion or preemptive rights and rights of first refusal or similar rights) to purchase any of the Company’s authorized and unissued capital stock.
2.4. Authorization. All corporate action on the part of the Company and its directors, officers and stockholders necessary for: (a) the authorization, execution and delivery of the Transaction Documents by the Company; (b) the authorization, sale, issuance and delivery of the Notes and Warrants at each Closing, the Note Conversion Shares issuable upon conversion of the Notes, the Warrant Shares issuable upon exercise of the Warrants, and the Common Stock issuable upon conversion of the Note Conversion Shares and Warrant Shares; and (c) the performance of all of the Company’s obligations under the Transaction Documents has been taken or will be taken prior to the Initial Closing. The Transaction Documents, when executed and delivered by the Company, shall constitute valid and binding obligations of the Company, enforceable against the Company in accordance with their terms, except: (i) as limited by rules of law governing specific performance, injunctive relief or other equitable remedies and by general principles of equity; and (ii) to the extent the indemnification provisions contained in the Rights Agreement may further be limited by applicable laws and principles of public policy.
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2.5. Financial Statements. The Company has made available to the Investors: (a) the audited balance sheet as of December 31, 2011 and the related statements of operations and cash flows for the fiscal year then-ended; and (b) the unaudited balance sheet and related statements of operations and cash flows as of and for the nine (9)-month period ended September 30, 2012 (the “Financial Statements”). With the exception of the items noted in Section 2.5 of the Schedule of Exceptions, the Financial Statements are true and correct in all material respects and present fairly the financial condition and operating results of the Company as of the dates and during the periods indicated therein. The Financial Statements have been prepared in accordance with generally accepted accounting principles (“GAAP”) applied on a consistent basis throughout the periods indicated, except that the unaudited Financial Statements may exclude certain footnotes required under GAAP and are subject to normal year-end audit adjustments, which are not expected to be material either individually or in the aggregate. Except as set forth in the Financial Statements, the Company has no liabilities or obligations, contingent or otherwise, other than liabilities incurred in the ordinary course of business subsequent to September 30, 2012. The Company maintains and will continue to maintain a standard system of accounting established and administered in accordance with GAAP.
2.6. Material Contracts.
(a) Except for the agreements explicitly contemplated hereby, there are no agreements, understandings, instruments, contracts, proposed transactions, judgments, orders, writs or decrees to which the Company is a party or by which it is bound (written or otherwise) which may involve: (i) obligations (contingent or otherwise) of, or payments to, the Company in excess of $100,000; (ii) the license of any patent, trademark, copyright, trade secret or other proprietary right to or from the Company; (iii) provisions restricting or affecting the development, manufacture, license, marketing, distribution or sale of the Company’s products or services; or (iv) indemnification by the Company with respect to infringements of proprietary rights (each, a “Material Contract” and, collectively the “Material Contracts”). All of the Material Contracts are valid, binding and in full force and effect, subject to laws of general application relating to bankruptcy, insolvency and the relief of debtors and rules of law governing specific performance, injunctive relief or other equitable remedies and to general principles of equity. Neither the Company nor, to the Company’s knowledge, any other party to any Material Contract is in default under the terms any such Material Contract.
(b) Except for: (i) agreements explicitly contemplated hereby; (ii) option agreements and stock purchase agreements with employees, directors and consultants in the Company’s service (including all exhibits to such option and stock purchase agreements); (iii) offer letters of employment with the Company’s employees and similar letters and/or agreements with other service providers to the Company; and (iv) agreements set forth under Section 2.6(b) of the Schedule of Exceptions, there are no agreements, understandings or proposed transactions between the Company and any of its officers, directors, or holders of the Company’s outstanding capital stock or any affiliate thereof, including, without limitation, spouses, or family members of any such officer, director or holders of such outstanding capital stock.
(c) The Company has not: (i) declared or paid any dividends, or authorized or made any distribution upon or with respect to any class or series of its capital stock; (ii) incurred or guaranteed any indebtedness for money borrowed or incurred or guaranteed any other liabilities individually in excess of $50,000 or in excess of $100,000 in the aggregate; (iii) made any loans or advances to any person, other than ordinary advances for travel expenses; or (iv) sold, exchanged or otherwise disposed of any of its assets or rights (other than in the ordinary course of business of the Company).
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For the purposes of subsections (a) and (c) above, all indebtedness, liabilities, agreements, understandings, instruments, contracts and proposed transactions involving the same person or entity (including persons or entities the Company knows to be affiliated therewith) shall be aggregated for the purpose of meeting the individual minimum dollar amounts of such subsections.
2.7. Intellectual Property.
(a) The Schedule of Exceptions sets forth a true, correct and complete list, as of the date of this Agreement, of: (i) all patents and patent applications owned by the Company; (ii) all registered and unregistered trademarks, service marks and trade names and applications therefor, owned or claimed to be owned by the Company; and (iii) all registered and material unregistered copyrights and copyright applications owned by the Company. The Company has previously disclosed to the Investors all information, documents and material that is actually known by the Company and that, as of the date of this Agreement, is substantive or material in connection with or related to its Intellectual Property as it relates to the Company’s business as currently conducted, including, without limitation, with respect to any patents owned or used in its business. The Company has taken all steps necessary or prudent to maintain and protect its right, title and interest in and to its Intellectual Property (as defined below), including in response to any actions taken by governmental authorities, as are customary for similarly situated companies engaged in the same or similar business. For purposes of this Agreement, the term “Intellectual Property” means all know how, intellectual property, inventions (whether or not patentable), discoveries, processes, machines, manufactures, compositions of matter, improvements, techniques, methods, ideas, concepts, procedures, formulas, designs, technical data, medical analysis, product development data, clinical and research data, technology secret processes, trade secrets, prototypes, specifications, plans, software, promotional and marketing materials, any patents or patents applications, any registered and unregistered trademarks, service marks and trade names and applications therefor, any registered and unregistered copyrights, copyright applications and copyright renewals, and all goodwill associated with any of the foregoing.
(b) The Schedule of Exceptions sets forth a complete list of all licenses, agreements, authorizations and/or permissions pursuant to which the Company uses any one (1) or more items of Intellectual Property licensed from third parties in connection with the ongoing business of the Company (“Licensed IP Agreements”), other than software that is generally commercially available at retail. The Company has made available to the Investors correct and complete copies of each of the Licensed IP Agreements. Each of the Licensed IP Agreements is legal, valid, binding, enforceable, and in full force and effect. The Company has performed all obligations imposed upon it under each of the Licensed IP Agreements, and is not in breach of any of the Licensed IP Agreements, and, to the Company’s knowledge, no other party to any of the Licensed IP Agreements is in breach thereof. The Company has not granted any sublicense or similar right with respect to the Licensed IP Agreements. The Company has not received any notice that the other parties to the Licensed IP Agreements intend to cancel, terminate or refuse to renew the same or to exercise or decline to exercise any option or right thereunder. The consummation of the transactions contemplated hereby and by the other Agreements will not cause a breach of any of the Licensed IP Agreements. The Company has obtained and possesses valid licenses to use all of the software programs present on the computers and other software-enabled electronic devices that it owns or leases or that it has otherwise provided to its employees for their use in connection with the Company’s business.
(c) The Schedule of Exceptions sets forth a complete list of all licenses and agreements pursuant to which the Company has granted to any person or party a license or sublicense to use any one (1) or more items of Intellectual Property used by the Company in connection with the ongoing business of the Company (“IP Agreements”), exclusive of any evaluation license or non-disclosure agreements related to the Company’s third party evaluation process. The Company has made available to the Investors correct and complete copies of each of the IP Agreements. Each of the IP Agreements is legal, valid, binding,
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enforceable, and in full force and effect. The Company has performed all obligations imposed upon it under each of the IP Agreements, and is neither in breach of, nor has incurred any indemnification obligations under, any one or more of the IP Agreements. The Company has not granted any sublicense or similar right with respect to the IP Agreements. The consummation of the transactions contemplated hereby and by the other Transaction Documents will not cause a breach of any of the IP Agreements.
(d) The Company possesses all right, title and interest in and to, and is the sole and exclusive owner of the Intellectual Property, including, without limitation, all patents, trademarks and copyrights (and any applications for any of the foregoing), listed on the Schedule of Exceptions. The Company is the sole and exclusive licensee of the Licensed IP Agreements, and has the right to use such Intellectual Property in the operation of its business as presently conducted and as presently proposed to be conducted. As of the Initial Closing, the Company has not received any written notice that its rights in such Intellectual Property have been or will be declared unenforceable or otherwise invalid by any court or governmental authority. No infringement, misuse or misappropriation of any such Intellectual Property by a third party has come to the Company’s attention, either orally or in writing.
(e) No third party has made a claim, assertion or, to the Company’s knowledge, threatened assertion, either orally or in writing, that the Company is interfering with, infringing, misusing, misappropriating or otherwise conflicting with such third party’s Intellectual Property.
(f) Except as set forth in the Schedule of Exceptions, the Intellectual Property owned or otherwise used by the Company is free and clear of all material liens or other restrictions, and no such item of Intellectual Property is subject to any outstanding injunction, judgment, order, decree, ruling or charge. No action, suit, proceeding, hearing, investigation, charge, complaint, claim or demand is pending (or, to the Company’s knowledge, threatened) against the Company, which challenges the legality, validity, enforceability or ownership of, or the right of the Company to use, any one or more items of the Intellectual Property owned or used by the Company in connection with its business as currently conducted. Except as set forth in the Schedule of Exceptions, the Company has not agreed to indemnify any person or party for or against any interference, infringement, misappropriation, or other conflict with respect to any one or more items of the Intellectual Property owned or licensed by the Company.
(g) The Company has taken all steps reasonably necessary to ensure that it has not interfered with, infringed upon, misappropriated or otherwise come into conflict with any Intellectual Property right of any third party in the conduct of its business as presently conducted, and the Company has no knowledge of any such interference, infringement, misappropriation or conflict. To the knowledge of the Company, the operation of the business of the Company and the manufacture, marketing, sale or distribution of the Company’s products has not and does not interfere with, infringe upon or constitute misappropriation of the Intellectual Property rights of any third party.
(h) No director, officer, stockholder, employee of or consultant to or other affiliate of the Company owns, directly or indirectly, in whole or in part, any interest in any of the Intellectual Property owned or used by the Company.
(i) The Company has not disclosed to any person or party, other than in the ordinary course of business of the Company, consistent with past practice and pursuant to valid written non-disclosure and non-use agreements, any proprietary or otherwise confidential information relating to the Intellectual Property owned or licensed by the Company. The Company has at all times maintained reasonable procedures to protect all trade secrets and other confidential information of the Company. The Company and, to the Company’s knowledge, each other party to any Licensed IP Agreement or IP Agreement, is not under any contractual or other obligation to disclose any proprietary information relating to the Intellectual Property
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owned, developed or licensed by the Company (unless required by law) and no event has taken place, including the execution and delivery of this Agreement or the other Transaction Documents and the transactions contemplated hereby and thereby or any related change in the business activities of the Company, that would give rise to such obligation. The Company has disclosed trade secrets solely as required for the conduct of its business in the ordinary course and solely under non-disclosure and non-use agreements.
2.8. Title to Properties and Assets; Liens. The Company has good and marketable title to its properties and assets, and has good title to all its leasehold interests, in each case subject to no material mortgage, pledge, lien, lease, encumbrance or charge, other than: (a) liens for current taxes not yet due and payable; (b) liens imposed by law and incurred in the ordinary course of business for obligations not past due; (c) liens in respect of pledges or deposits under workers’ compensation laws or similar legislation; and (d) liens, encumbrances and defects in title which do not in any case materially detract from the value of the property subject thereto, and which have not arisen otherwise than in the ordinary course of business of the Company. With respect to the property and assets it leases, the Company is in compliance with such leases in all material respects and, to its knowledge, holds a valid leasehold interest free of any liens, claims or encumbrances.
2.9. Compliance with Other Instruments. The Company is not in violation of any term of its Restated Certificate or Bylaws, each as amended to date, or in any material respect, of any term or provision of any material mortgage, indebtedness, indenture, contract, agreement, instrument, judgment, order or decree to which it is party or by which it is bound. The Company is not in violation of any federal or state statute, rule or regulation applicable to the Company, the violation of which would have a Material Adverse Effect. The execution and delivery of the Agreements by the Company, the performance by the Company of its obligations pursuant to the Agreements, and the issuance of the Securities, will not result in any violation of, or conflict with, or constitute a default under, the Company’s Certificate of Incorporation or Bylaws, each as amended to date, or any of its agreements, nor result in the creation of any mortgage, pledge, lien, encumbrance or charge upon any of the properties or assets of the Company or the suspension, revocation, forfeiture or nonrenewal of any material permit or license applicable to the Company.
2.10. Litigation. There are no claims, arbitrations, complaints, chares, actions, suits, proceedings or investigations pending against the Company or its properties or against any current or former officer, director or employee in their capacity as such or that questions the validity of the Agreement of the rights of the Company to enter into them or to consummate the transactions contemplated thereby (nor has the Company received notice of any threat of any of the foregoing). The Company is not a party or subject to the provisions of any order, writ, injunction, judgment or decree of any court or government agency or instrumentality. There are no claims, arbitrations, complaints, charges, actions, suits, proceedings or investigations by the Company pending or which the Company intends to initiate against any other person or entity.
2.11. Compliance with Health Care Laws.
(a) The Company meets, in all respects, the requirements of participation and payment of all Government Health Care Programs (as defined below) in which it participates or to which it submits any invoices or bills, and is a party to valid participation agreements for payment by such Government Health Care Programs if the Company bills a particular Government Health Care Program for services or procedures or is otherwise required to meet such requirements. There is no action pending, received or, to the knowledge of the Company, threatened against the Company that relates directly to a violation of any laws pertaining to the Government Health Care Programs or that could result in the imposition of penalties or the exclusion by any of them from participation in any Government Health Care Program. For purposes of this Agreement, the term “Government Health Care Program” means any program operated or funded (in whole or in part) by any governmental entity that provides or pays for the delivery of health care services, supplies or equipment, including, without limitation, Medicare and Medicaid.
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(b) The Company is in compliance with all applicable Health Care Laws, in all material respects. For purposes of this Agreement, the term “Health Care Laws” means all federal or state, civil or criminal health care laws applicable to the Company or its business that pertain to the delivery of or payment for health care services or products; the operation of Government Health Care Programs; medical device marketing or manufacturing; certification requirements for the provision of health care services; conduct of medical research; handling of medical devices; reprocessing of medical devices; and/or handling of medical waste or infectious materials, including, without limitation, the federal Anti-kickback Statute (42 U.S.C. § 1320a-7b(b)), the Stark Law (42 U.S.C. § 1395nn), the civil False Claims Act (31 U.S.C. §§ 3729 et seq.), the administrative False Claims Law (42 U.S.C. § 1320a-7b(a)), the Health Insurance Portability and Accountability Act of 1996 (42 U.S.C. § 1320d et seq.), the exclusion laws, SSA § 1128 (42 U.S.C. 1320a-7), or the regulations promulgated pursuant to such laws, and comparable state and federal laws and regulations applicable to the Company or its business.
(c) All material reports, documents, applications, claims and notices required to be filed, maintained, or furnished to any governmental entity with respect to the marketing, sale or manufacture by the Company of any item or service marketed, sold or manufactured by or on behalf of the Company have been so filed, maintained or furnished, except to the extent that any failure to do so would not have a Material Adverse Effect. All such reports, documents, claims and notices were complete and correct in all material respects on the date filed (or were corrected in or supplemented by a subsequent filing) such that no liability exists with respect to such filings. All reports required to be filed by the Company with any governmental entity regarding any incidents, injuries or defects in any products marketed, sold or manufactured by the Company have been timely filed.
(d) Neither the Company, nor any employee, owner or officer of the Company (to the extent applicable) has ever been excluded from participation in any Government Health Care Program.
2.12. FDA Compliance.
(a) The operations of the Company, including, without limitation, the manufacture, import, export, testing, development, processing, packaging, labeling, storage, marketing and distribution of all products, are in compliance in all material respects with all applicable federal and state laws and permits held by the Company including, without limitation, those administered by the Food and Drug Administration (the “FDA”) relating to the business, assets, properties, products, operations or processes of the Company. There are no actual or, to the knowledge of the Company, threatened actions against the Company by the FDA or any other governmental entity that has jurisdiction over the operations of the Company. The Company has not received notice of any pending or threatened claim, and the Company has no knowledge that any governmental entity is considering such action.
(b) The Company has not received any FDA Form 483 notice of adverse findings, warning letters, untitled letters or other written correspondence or notice from the FDA, or other governmental entity alleging or asserting noncompliance with any applicable federal or state laws or permits, and the Company has no knowledge that the FDA or any governmental entity is considering such action.
(c) All studies, tests and preclinical and clinical trials being conducted by or on behalf of the Company are being conducted in compliance in all material respects with experimental protocols, procedures and controls pursuant to accepted professional scientific standards and applicable federal and state laws. The Company has not received any notices, correspondence or other communication from the FDA or
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any other governmental entity requiring the termination, suspension or material modification of any clinical trials conducted by, or on behalf of, the Company, or in which they have participated, and the Company has no knowledge that the FDA or any other governmental entity is considering such action.
(d) The manufacture of products by, or on behalf of, the Company is being conducted in compliance in all material respects with all applicable laws including the FDA’s Quality Systems Regulation. In addition, the Company, and, to the Company’s knowledge, any third-party manufacturer of products on the Company’s behalf, are in material compliance with all applicable FDA requirements, including registration and listing requirements set forth in 21 U.S.C. Section 360 and 21 C.F.R. Part 207.
(e) The Company is not the subject of any pending or, to the Company’s knowledge, threatened investigation by the FDA pursuant to its “Fraud, Untrue Statements of Material Facts, Bribery, and Illegal Gratuities” Final Policy set forth in 56 Fed. Reg. 46191 (September 10, 1991) and any amendments thereto. The Company has not, to the Company’s knowledge, committed any act, made any statement, or failed to make any statement that would provide a basis for the FDA to invoke its policy with respect to “Fraud, Untrue Statements of Material Facts, Bribery and Illegal Gratuities” and any amendments thereto.
(f) To the extent that the Company markets or sells any products or services in any jurisdiction outside of the United States, or manufactures any products outside of the United States, the Company has acted in compliance in all material respects with the applicable laws of such jurisdiction pertaining to the approval of marketing or sale of such medical devices; the use of good manufacturing practices; and such other laws and regulations that that pertain to the same subject area under the jurisdiction of the FDA.
2.13. Governmental Consent. No consent, approval or authorization of or designation, declaration or filing with any governmental authority on the part of the Company is required in connection with the valid execution and delivery of this Agreement, or the offer, sale or issuance of the Notes and the Note Conversion Shares, and the Warrants and the Warrant Shares, or the consummation of any other transaction contemplated by this Agreement or any of the other Transaction Documents, except: (a) the filing of such notices as may be required under the Securities Act; and (b) such filings as may be required under applicable state securities laws, which have been made or will be made in a timely manner.
2.14. Permits. The Company has all franchises, permits, licenses, and any similar authority materially necessary for the conduct of its business as now being conducted by it and believes it can obtain, without undue burden or expense, any similar authority for the conduct of its business as presently planned to be conducted. The Company is not in default in any material respect under any of such franchises, permits, licenses or other similar authority.
2.15. Environmental and Safety Laws. To the knowledge of the Company, the Company is not in violation of any applicable statute, law or regulation relating to the environment or occupational health and safety, and, to its knowledge, no material expenditures are or will be required in order to comply with any such existing statute, law or regulation.
2.16. Tax Returns and Payments. The Company has duly and timely filed all material tax returns (federal, state, local and foreign) required to be filed by it and there are no waivers of applicable statutes of limitations in effect with respect to taxes for any year. All taxes shown to be due and payable on such returns, any assessments imposed, and all other taxes due and payable by the Company on or before the Initial Closing, have been paid or will be paid prior to the time they become delinquent. The Company has not been advised: (a) that any of its returns, federal, state or other, have been audited in the past or are being audited as of the date hereof; or (b) of any deficiency in assessment or proposed judgment to its federal, state or other
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taxes. The Company has no knowledge of any liability of any tax to be imposed upon its properties or assets as of the date hereof that is not adequately provided for. The Company believes in good faith that any “nonqualified deferred compensation plan” (as such term is defined under Section 409A(d)(1) of the Internal Revenue Code of 1986, as amended (the “Code”), and the guidance thereunder) under which the Company makes, is obligated to make or promises to make, payments (each, a “409A Plan”) complies in all material respects, in both form and operation, with the requirements of Section 409A of the Code and the guidance thereunder. To the knowledge of the Company, no payment to be made under any 409A Plan is, or will be, subject to the penalties of Section 409A(a)(1) of the Code.
2.17. Offering. Assuming the accuracy of the Investors’ representations and warranties in Section 3, the offer, sale and issuance of the Securities constitute transactions exempt from the registration requirements of Section 5 of the Securities Act and from the registration or qualification requirements of applicable state securities laws. Neither the Company nor any agent on its behalf has solicited or will solicit any offers to sell or has offered to sell or will offer to sell all or any part of the Securities to any person or persons so as to bring the sale of such Securities by the Company within the registration provisions of the Securities Act or any state securities laws.
2.18. Brokers or Finders. The Company has not incurred, and will not incur, directly or indirectly, as a result of any action taken by the Company, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with this Agreement or any of the transactions contemplated hereby.
2.19. Employees. The Company is not aware that any officer or key employee intends to terminate his or her employment with the Company, nor does the Company have a present intention to terminate the employment of any officer or key employee. The employment of each officer and employee of the Company is terminable at the will of the Company (subject to general principles related to wrongful termination of employees) and no severance or other payments will be due upon any such termination. There is no strike, labor dispute or union organization activities pending or, to the Company’s knowledge, threatened between it and its employees. To the knowledge of the Company, none of its employees belongs to any union or collective bargaining unit. The Company is not a party to or bound by any currently effective employment contract, deferred compensation agreement, bonus plan, incentive plan, profit sharing plan, retirement agreement, or other employee compensation agreement. The Company is not aware that any of its employees is obligated under any contract (including licenses, covenants or commitments of any nature) or other agreement, or subject to any judgment, decree or order of any court or administrative agency, that would interfere with the use of his or her best efforts to promote the interests of the Company or that would conflict with the Company’s business. The Company has complied with all applicable state and federal laws and regulations respecting employment and employment practices, terms and conditions of employment, wages and hours and other laws related to employment, and there are no arrears in the payments of wages, withholding or social security taxes, unemployment insurance premiums or other similar obligations.
2.20. Employee Benefit Plans. The Company does not have any Employee Benefit Plan as defined in the Employee Retirement Income Security Act of 1974, as amended. The Company has made all required contributions and has no liability to any employee benefit plan required to be set forth on Section 2.20 of the Schedule of Exceptions and has complied in all material respects with all applicable laws for any such plan.
2.21. Disclosure. The Company has provided each Investor with all the information regarding the Company that such Investor has requested for deciding whether to purchase the Notes and Warrants. Neither the Transaction Documents nor any other documents or certificates delivered in connection herewith, when taken as a whole, contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements contained herein or therein not misleading in light of the circumstances under which they were made. The Company does not represent or warrant that it will achieve any financial projections made available to the Investors.
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2.22. Insurance. The Company has in full force and effect fire and casualty insurance policies in amounts customary for companies in similar businesses similarly situated. The Schedule of Exceptions lists all of the insurance policies maintained by the Company, including the name of the insurer and the type and amount of coverage.
2.23. Obligations of Management. Each officer and key employee of the Company is currently devoting substantially all of his or her business time to the conduct of the business of the Company. The Company is not aware that any officer or key employee of the Company is planning to work less than full time at the Company in the future. No officer or key employee is currently working or, to the Company’s knowledge, plans to work for a competitive enterprise, whether or not such officer or key employee is or will be compensated by such enterprise.
2.24. Subsequent Events. Since September 30, 2012, there has not been:
(a) any change in the business, assets, liabilities, financial condition or operating results of the Company from that reflected in the Financial Statements, except changes in the ordinary course of business that have not caused or could not reasonably be expected to cause, in the aggregate, a Material Adverse Effect;
(b) any damage, destruction or loss, whether or not covered by insurance, that has had or would reasonably be expected to have a Material Adverse Effect;
(c) any waiver or compromise by the Company of a valuable right or of a material debt owed to it;
(d) any satisfaction or discharge of any lien, claim, or encumbrance or payment of any obligation by the Company, except in the ordinary course of business;
(e) any material change to a material contract or agreement by which the Company or any of its assets is bound or subject;
(f) any material change in any compensation arrangement or agreement with any employee, officer, director or stockholder;
(g) any resignation or termination of employment of any officer of the Company;
(h) any material mortgage, pledge, transfer of a security interest in, or lien, created by the Company, with respect to any of its properties or assets, except liens for taxes not yet due or payable and liens that arise in the ordinary course of business and do not materially impair the Company’s ownership or use of such property or assets;
(i) any loans or guarantees made by the Company to or for the benefit of its employees, officers or directors, or any members of their immediate families, other than travel advances and other advances made in the ordinary course of its business;
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(j) any declaration, setting aside or payment or other distribution in respect of any of the Company’s capital stock, or any direct or indirect redemption, purchase, or other acquisition of any of such stock by the Company;
(k) any sale, assignment or transfer of any intellectual property of the Company;
(l) receipt of notice that there has been a loss of, or material order cancellation by, any major customer of the Company;
(m) to the Company’s knowledge, any other event or condition of any character, other than events affecting the economy or the Company’s industry generally, that has had or could reasonably be expected to result in a Material Adverse Effect; or
(n) any arrangement or commitment by the Company to do any of the things described in this Section 2.24.
SECTION 3
Representations and Warranties of the Investors
Each Investor hereby represents and warrants, severally and not jointly, and only with respect to itself, to the Company with respect to the purchase of the Securities, as follows:
3.1. No Registration. Such Investor understands that the Securities, have not been, and will not be, registered under the Securities Act by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of such Investor’s representations as expressed herein or otherwise made pursuant hereto.
3.2. Investment Intent. Such Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with the view to, or for resale in connection with, any distribution thereof, and that such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same in violation of the Securities Act. Such Investor further represents that it does not have any contract, undertaking, agreement or arrangement with any person or entity to sell, transfer or grant participation to such person or entity or to any third person or entity with respect to any of the Securities.
3.3. Investment Experience. Such Investor, has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company and acknowledges that such Investor, can protect its own interests. Such Investor has such knowledge and experience in financial and business matters so that such Investor is capable of evaluating the merits and risks of its investment in the Company.
3.4. Speculative Nature of Investment. Such Investor understands and acknowledges that the Company has a limited financial and operating history and that an investment in the Company is highly speculative and involves substantial risks. Such Investor can bear the economic risk of such Investor’s investment and is able, without impairing such Investor’s financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of such Investor’s investment.
3.5. Access to Data. Such Investor has had an opportunity to ask questions of, and receive answers from, the officers of the Company concerning the Transaction Documents, the exhibits and schedules attached hereto and thereto and the transactions contemplated by the Transaction Documents, as well as the
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Company’s business, management and financial affairs. Such Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results. The foregoing, however, does not limit or modify the representations and warranties of the Company in Section 3 (each as modified by the Schedule of Exceptions referred to therein) of this Agreement or the right of the Investors to rely thereon.
3.6. Accredited Investor. Such Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission (“SEC”) under the Securities Act and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company.
3.7. Residency. The residency of such Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the Schedule of Investors.
3.8. Rule 144. Such Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. Such Investor is aware of the provisions of Rule 144 promulgated under the Securities Act (“Rule 144”) which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “brokers’ transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. Such Investor understands that the current public information referred to above is not now available and the Company has no present plans to make such information available. Such Investor acknowledges and understands that notwithstanding any obligation under the Rights Agreement, the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities, and that, in such event, such Investor may be precluded from selling such securities under Rule 144, even if the other applicable requirements of Rule 144 have been satisfied. Such Investor acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. Such Investor understands that, although Rule 144 is not exclusive, the SEC has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for such offers or sales and that such persons and the brokers who participate in the transactions do so at their own risk.
3.9. No Public Market. Such Investor understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.
3.10. Authorization.
(a) Such Investor has all requisite power and authority to execute and deliver the Transaction Documents, to purchase the Securities hereunder and to carry out and perform its obligations under the terms of the Transaction Documents. All action on the part of the Investor necessary for the authorization, execution, delivery and performance of the Transaction Documents, and the performance of all of such Investor’s obligations under the Transaction Documents, has been taken or will be taken prior to the Initial Closing.
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(b) The Transaction Documents (as applicable), when executed and delivered by such Investor, will constitute valid and legally binding obligations of such Investor, enforceable against such Investor in accordance with their terms except: (i) to the extent that the indemnification provisions contained in the Rights Agreement may be limited by applicable law and principles of public policy, and (ii) as limited by laws relating to the availability of specific performance, injunctive relief or other equitable remedies or by general principles of equity.
(c) No consent, approval, authorization, order, filing, registration or qualification of or with any court, governmental authority or third person is required to be obtained by such Investor in connection with the execution and delivery of the Transaction Documents (as applicable) by such Investor or the performance of such Investor’s obligations hereunder or thereunder.
3.11. Brokers or Finders. Such Investor has not engaged any brokers, finders or agents, and neither the Company nor any other Investor has, nor will, incur, directly or indirectly, as a result of any action taken by such Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Transaction Documents.
3.12. Tax Advisors. Such Investor has reviewed with its own tax advisors the U.S. federal, state, local and foreign tax consequences of this investment and the transactions contemplated by the Agreements. With respect to such matters, such Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. Such Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Transaction Documents.
3.13. Legends. Such Investor understands and agrees that the Notes and the Note Conversion Shares, the Warrant and the Warrant Shares, or any other securities issued in respect of the Notes, the Note Conversion Shares, the Warrants and/or the Warrant Shares upon any applicable stock split, stock dividend, recapitalization, merger, consolidation or similar event, shall bear any legend required by the Transaction Documents or under applicable federal or state securities laws.
3.14. Exculpation. Such Investor acknowledges that it is not relying upon any person or entity, other than the Company and its officers and directors, in making its investment or decision to invest in the Company. Such Investor agrees that neither any Investor nor the respective controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable to any other Investor for any action heretofore taken or omitted to be taken by any of them in connection with the purchase of the Securities.
3.15. Investment Representations, Warranties and Covenants by Non-United States Persons. If such Investor is not a U.S. person (as defined in Regulation S promulgated under the Securities Act (“Regulation S”)) or is deemed not to be a U.S. person under Rule 902(k)(2) of the Securities Act, such Investor has been advised and acknowledges that: (a) in issuing and selling the Securities to such Investor pursuant to this Agreement, the Company is relying upon the “safe harbor” provided by Regulation S and/or on Section 4(2) under the Securities Act; (b) it is a condition to the availability of the Regulation S “safe harbor” that the Securities not be offered or sold in the United States or to a U.S. person until the expiration of a one (1)-year “distribution compliance period” (or a six (6)-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in Regulation S) following the applicable Closing; (c) notwithstanding the foregoing, prior to the expiration of the one (1)-year “distribution compliance period” (or six (6)-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in
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Regulation S) after the Closing (the “Restricted Period”), the Securities may be offered and sold by the holder thereof only if such offer and sale is made in compliance with the terms of this Agreement and either: (i) if the offer or sale is within the United States or to or for the account of a U.S. person (as such terms are defined in Regulation S), the Securities are offered and sold pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act, or (ii) the offer and sale is outside the United States and to other than a U.S. person; and (d) until the expiration of the Restricted Period, such Investor, its agents or its representatives have not and will not solicit offers to buy, offer for sale or sell any of the Securities, or any beneficial interest therein in the United States or to or for the account of a U.S. person, unless pursuant to an effective registration statement or pursuant to Rule 144 under the Securities Act or pursuant to an exemption from the registration requirements of the Securities Act.
3.16. Representations by Non-United States Persons. If such Investor is not a U.S. person, such Investor is satisfied as to the full observance of the laws of such Investor’s jurisdiction in connection with any offer to acquire the Securities or any use of this Agreement, including: (a) the legal requirements within such Investor’s jurisdiction for the purchase of the Securities; (b) any foreign exchange restrictions applicable to such purchase; (c) any governmental or other consents that may need to be obtained; and (d) the income tax and other tax consequences, if any, that may be relevant to the purchase, holding, redemption, sale or transfer of such Securities. Such Investor’s subscription and payment for, and such Investor’s continued beneficial ownership of, Securities will not violate any applicable securities or other laws of such Investor’s jurisdiction.
SECTION 4
Covenants of the Company
For so long as any Notes held by the Investors are outstanding:
4.1. Negative Pledge. The Company hereby agrees not to license, pledge, create a lien on or otherwise encumber any of the Company’s properties and assets without the consent of the Majority in Interest of Investors, except for Permitted Liens. For purposes of this Agreement, the term “Permitted Liens” means: (a) Liens for taxes not yet due and payable or which are being contested in good faith and with respect to which adequate reserves have been established on the Financial Statements, as required under GAAP; (b) carriers’, warehousemen’s, mechanics’, materialmen’s and other like Liens and charges incurred in the ordinary course of business and which are not delinquent or are being contested in good faith and, in either case, do not, individually or in the aggregate, exceed $50,000 for which adequate reserves have been established in the Financial Statements, as required under GAAP; (c) Liens on inventory held by suppliers thereof that are incurred in the ordinary course of business and which are not delinquent or are being contested in good faith and do not, individually or in the aggregate, exceed $50,000; (d) the interests of the lessors and sublessors of any such leased properties; (e) Liens arising in connection with worker’s compensation and unemployment insurance incurred, in each case, in the ordinary course of business that do not, individually or in the aggregate exceed $50,000 for which adequate reserves have been established in the Financial Statements, as required under GAAP; (f) purchase money Liens that arise in the ordinary course of business; (g) restrictions on the use of property or minor irregularities of title as normally exist with respect to properties similar to the Company’s properties that arise in the ordinary course of business which do not in the aggregate materially impair the ownership or use thereof in the operation of the business of the Company; (g) any Liens in favor of SVB pursuant to that certain Loan and Security Agreement, dated as of July 16, 2007, by and between the Company and SVB, as amended to date; and (h) extensions, renewals and replacements of the foregoing Liens with respect to the property covered by the Lien extended, renewed or replaced.
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4.2. Registration Rights. The shares of Common Stock issuable upon conversion of the securities underlying the Notes and Warrants shall be included in the definition of “Registrable Securities” under the Rights Agreement.
4.3. Reservation and Issuance of Series C Preferred Stock Issuable Upon Conversion of Notes and/or Exercise of Warrants.
(a) Reservation of Series C Preferred Stock. The Company shall at all times reserve and keep available out of its authorized but unissued shares of Series C Preferred Stock solely for the purposes of effecting: (i) the conversion of the Notes into such number of its shares of Series C Preferred Stock (and shares of its Common Stock for issuance upon conversion of such Series C Preferred Stock) as shall from time to time be sufficient to effect the conversion of the Notes; and (ii) the exercise of the Warrants for the purchase of such number of its shares of Series C Preferred Stock (and shares of its Common Stock for issuance upon conversion of such Series C Preferred Stock) as shall from time to time be sufficient to effect the exercise of the Warrants (collectively, the “Reserved Series C Preferred Shares”). If at any time the number of Reserved Series C Preferred Shares that are authorized but unissued shall not be sufficient to effect the conversion of the then-entire outstanding principal amount of the Notes and the exercise of the Warrants in full, without limitation of such other remedies as shall be available to the Investors, the Company shall use its reasonable best efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase the number of Reserved Series C Preferred Shares that are authorized but unissued to such number of shares as shall be sufficient for issuance of the full amount of shares of Series C Preferred Stock necessary to effect the conversion of the Notes and the exercise of the Warrants.
(b) Limitation on Issuance of Reserved Shares of Series C Preferred Stock. The Company shall: (i) maintain the Reserved Series C Preferred Shares so as to only be issuable upon conversion of the Notes and exercise of the Warrants in accordance with their terms; and (ii) take no corporate or other action which may cause the Reserved Series C Preferred Shares to be issued or become issuable upon any event, occurrence or other circumstance other than the conversion of the Notes and the exercise of the Warrants in full.
SECTION 5
Conditions to Closing of the Investors
Each Investor’s obligations at each Closing are subject to the fulfillment, on or prior to the applicable Closing Date, of all of the following conditions, any of which may be waived in whole or in part by such Investor participating in the applicable Closing:
5.1. Representations and Warranties. Except as set forth herein, the representations and warranties made by the Company in Section 2 hereof shall have been true and correct when made, and shall be true and correct in all material respects on the applicable Closing Date.
5.2. Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the applicable Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes and Warrants.
5.3. Legal Requirements. At the applicable Closing, the sale and issuance by the Company, and the purchase by the Investors participating in such Closing, of the Notes and Warrants shall be legally permitted by all laws and regulations to which the Investors or the Company are subject.
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5.4. Proceedings and Documents. All corporate and other proceedings in connection with the transactions contemplated at the applicable Closing and all documents and instruments incident to such transactions shall be reasonably satisfactory in substance and form to the Investors.
5.5. Transaction Documents. The Company shall have duly executed and delivered to the Investors the following Transaction Documents:
(a) This Agreement;
(b) Each Note and Warrant issued hereunder; and
(c) The Subordination Agreement, in substantially the form of Exhibit E hereto.
5.6. Corporate Documents. With respect to the Initial Closing only, the Company shall have delivered to the Investors each of the following:
(a) A certificate of the Secretary of the Company, dated as of the Initial Closing Date, in substantially the form of Exhibit F hereto, certifying that: (i) the Amended and Restated Certificate of Incorporation of the Company, certified by the Secretary of State of the State of Delaware and attached thereto, is in full force and effect and has not been amended, supplemented, revoked or repealed since the date of such certification; (ii) attached thereto is a true and correct copy of the Bylaws of the Company as in effect on the Initial Closing Date; (iii) attached thereto are true and correct copies of resolutions duly adopted by the Company’s Board of Directors and continuing in effect, which authorize the execution, delivery and performance by the Company of this Agreement and the other Transaction Documents and the consummation of the transactions contemplated hereby and thereby; and (iv) attached thereto are true and correct copies of the resolutions duly adopted by the stockholders of the Company and continuing in effect, which resolutions ratify and approve the consummation of the transactions contemplated by this Agreement and the other Transaction Documents; and
(b) A certificate of the Secretary of State of the State of Delaware, certified as of a recent date prior to the Initial Closing Date, with respect to the good standing of the Company.
SECTION 6
Conditions to Obligations of the Company
The Company’s obligation to issue and sell the Notes and Warrants at each Closing is subject to the fulfillment, on or prior to the applicable Closing Date, of the following conditions, any of which may be waived in whole or in part by the Company:
6.1. Representations and Warranties. The representations and warranties made by the applicable Investors in Section 3 hereof shall be true and correct when made, and shall be true and correct on the applicable Closing Date.
6.2. Governmental Approvals and Filings. Except for any notices required or permitted to be filed after the applicable Closing Date with certain federal and state securities commissions, the Company shall have obtained all governmental approvals required in connection with the lawful sale and issuance of the Notes and Warrants.
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6.3. Legal Requirements. At the applicable Closing, the sale and issuance by the Company, and the purchase by the applicable Investors, of the Notes and Warrants shall be legally permitted by all laws and regulations to which such Investors or the Company are subject.
6.4. Transaction Documents. Each Investor shall have duly executed and delivered to the Company the following Transaction Documents:
(a) This Agreement; and
(b) The Subordination Agreement.
6.5. Purchase Price. Each Investor shall have delivered to the Company the purchase price in respect of the Note and Warrant being purchased by such Investor at the applicable Closing.
SECTION 7
Miscellaneous
7.1. Waivers and Amendments. Any provision of this Agreement and the Notes may be amended, waived or modified only upon the written consent of the Company and a Majority in Interest of Investors; provided, however, that in no event may any such amendment, waiver or modification materially adversely affect any holder of Notes in a different or disproportionate manner unless agreed to in writing by such materially adversely affected holder; and provided, further, no such amendment, waiver or modification shall: (i) reduce the principal amount of any Note without the affected holder’s written consent, or (ii) reduce the rate of interest of any Note without the affected holder’s written consent. Any amendment or waiver effected in accordance with this Section 7.1 shall be binding upon all of the parties hereto. Notwithstanding the foregoing, this Agreement may be amended to add a party as an Investor hereunder in connection with the Additional Closing without the consent of any other Investor (except as provided in Section 1.3(b)), by delivery to the Company of a counterparty signature page to this Agreement. Such amendment shall take effect at the Additional Closing and such party shall thereafter be deemed an “Investor” for all purposes hereunder and the Schedule of Investors hereto shall be updated to reflect the addition of such Investor.
7.2. Governing Law. This Agreement and all actions arising out of or in connection with this Agreement shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware or of any other state.
7.3. Survival. The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Investor and the applicable Closing of the transactions contemplated hereby.
7.4. Successors and Assigns. Except as otherwise expressly provided herein, the provisions hereof shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties hereto.
7.5. Entire Agreement. This Agreement (including the schedules and exhibits attached hereto) and the other documents delivered pursuant hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and thereof.
7.6. Registration, Transfer and Replacement of the Notes. The Notes issuable under this Agreement shall be registered notes. The Company will keep, at its principal executive office, books for the registration and registration of transfer of the Notes. Prior to presentation of any Note for registration of
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transfer, the Company shall treat the person in whose name such Note is registered as the owner and holder of such Note for all purposes whatsoever, whether or not such Note shall be overdue, and the Company shall not be affected by notice to the contrary. Subject to any restrictions on or conditions to transfer set forth in any Note, the holder of any Note, at its option, may in person or by duly authorized attorney surrender the same for exchange at the Company’s principal executive office, and promptly thereafter and at the Company’s expense, except as provided below, receive in exchange therefor one or more new Note(s), each in the principal requested by such holder, dated the date to which interest shall have been paid on the Note so surrendered or, if no interest shall have yet been so paid, dated the date of the Note so surrendered and registered in the name of such person or persons as shall have been designated in writing by such holder or its attorney for the same principal amount as the then unpaid principal amount of the Note so surrendered. Upon receipt by the Company of evidence reasonably satisfactory to it of the ownership of and the loss, theft, destruction or mutilation of any Note and: (a) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (b) in the case of mutilation, upon surrender thereof, the Company, at its expense, will execute and deliver in lieu thereof a new Note executed in the same manner as the Note being replaced, in the same principal amount as the unpaid principal amount of such Note and dated the date to which interest shall have been paid on such Note or, if no interest shall have yet been so paid, dated the date of such Note.
7.7. Assignment by the Company. The rights, interests or obligations hereunder may not be assigned, by operation of law or otherwise, in whole or in part, by the Company without the prior written consent of a Majority in Interest of Investors.
7.8. Notices, etc. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to an Investor) or otherwise delivered by hand, messenger or courier service addressed:
(a) if to an Investor, to the Investor at the Investor’s address, facsimile number or electronic mail address as shown on the Schedule of Investors, as may be updated in accordance with the provisions hereof, or if any such Investor does not furnish such an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of such Investor for which the Company has contact information in its records; or
(b) if to the Company, to the attention of the Chief Executive Officer or the Chief Financial Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Investors, with a copy (which shall not constitute notice) to Philip H. Oettinger, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304.
Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given: (i) if delivered by hand, messenger or courier service, when delivered; (ii) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid; or (iii) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Agreement or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
7.9. Fees and Expenses. The Company and the Investors shall each pay their own expenses in connection with the transactions contemplated by this Agreement and the other Transaction Documents; provided, however, that if the Initial Closing is effected, the Company shall reimburse the reasonable documented legal fees and expenses of Carr & Ferrell LLP, as counsel for New Leaf Venture Partners, Synergy Life Science Partners and Kaiser Permanente, in an aggregate amount not to exceed $25,000.
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7.10. Counterparts. This Agreement may be executed in any number of counterparts, each of which shall be an original, but all of which together shall be deemed to constitute one instrument. A facsimile, telecopy or other reproduction of this Agreement may be executed by one or more parties hereto, and an executed copy of this Agreement may be delivered by one or more parties hereto by facsimile or similar electronic transmission device pursuant to which the signature of or on behalf of such party can be seen, and such execution and delivery shall be considered valid, binding and effective for all purposes.
7.11. Attorneys’ Fees. In the event of any dispute between the parties concerning the terms and provisions of this Agreement, the party prevailing in such dispute shall be entitled to collect from the other party all costs incurred in such dispute, including reasonable attorneys’ fees.
7.12. Separability of Agreements; Severability of this Agreement. The Company’s agreement with each of the Investors is a separate agreement and the sale of the Securities to each of the Investors is a separate sale. Unless otherwise expressly provided herein, the rights of each Investor hereunder are several rights, not rights jointly held with any of the other Investors. Any invalidity, illegality or limitation on the enforceability of this Agreement or any part thereof, by any Investor whether arising by reason of the law of the respective Investor’s domicile or otherwise, shall in no way affect or impair the validity, legality or enforceability of this Agreement with respect to other Investors. If any provision of this Agreement shall be judicially determined to be invalid, illegal or unenforceable, the validity, legality and enforceability of the remaining provisions of this Agreement shall not in any way be affected or impaired thereby.
7.13. Market Standoff. Each Investor agrees that all Securities shall be subject to the market standoff provisions of Section 2.10 of the Rights Agreement.
7.14. Pari Passu Notes. The Company and each Investor acknowledge and agree that the payment of all or any portion of the outstanding principal amount of any Note and all interest thereon shall be pari passu in right of payment and in all other respects to the other Notes issued pursuant to this Agreement. Upon repayment of any amounts on any Note, the Company shall as promptly as reasonably practicable make available with such repayment an accounting that sets forth the repayments made to all holders of Notes issued hereunder. In the event that the Investor receives payments in excess of such Investor’s pro rata share of the Company’s payments to the holders holding all of the Notes, then the Investor shall hold in trust all such excess payments for the benefit of the holders of the other Notes and shall pay such amounts held in trust to such other holders upon demand by such holders.
7.15. Anti dilution Adjustment. The Company and the undersigned Investors who represent the holders of the majority of the outstanding shares of each of: (a) the Series A Preferred Stock; (b) the Series B Preferred Stock; and (c) the Series C Preferred Stock, hereby acknowledge that the sale and issuance of the Notes and Warrants will not be deemed to constitute an issuance or deemed issuance of Additional Shares of Common (as defined the Restated Certificate) under Article FIVE, Section 4(d)(iv) of the Restated Certificate until such time as the number of shares issuable upon conversion of the Notes or exercise of the Warrants is determinable and only in the event that an issuance or deemed issuance of Additional Shares of Common will have occurred as a result thereof.
7.16. Waiver of Right of First Refusal. Pursuant to Section 5.1 of the Rights Agreement, the undersigned Investors, representing the Holders (as defined in the Rights Agreement) holding a majority of the Registrable Securities, on behalf of themselves and all other Holders of Registrable Securities granted the right of first refusal pursuant to Section 4 of the Rights Agreement, hereby agree to waive such right of first offer and any notice requirements in connection therewith, with respect to the Company’s sale and issuance of the Securities pursuant to this Agreement.
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7.17. Waiver of Potential Conflicts of Interest. Each of the Investors and the Company acknowledges that Wilson Sonsini Goodrich & Rosati, Professional Corporation (“WSGR”) may have represented and may currently represent certain of the Investors. In the course of such representation, WSGR may have come into possession of confidential information relating to such Investors. Each of the Investors, and the Company acknowledges that WSGR is representing only the Company in the transactions contemplated hereunder and under the other Transaction Documents. Pursuant to Rule 3-310 of the Rules of Professional Conduct promulgated by the State Bar of California, an attorney must avoid representations in which the attorney has or had a relationship with another party interested in the representation without the informed written consent of all parties affected. By executing this Note and Warrant Purchase Agreement, each of the Investors and the Company hereby waives any actual or potential conflict of interest which may arise as a result of WSGR’s representation of such persons and entities and WSGR’s possession of such confidential information. Each of the Investors and the Company represents that it has had the opportunity to consult with independent counsel concerning the giving of this waiver.
(Signature Pages Follow)
22
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| COMPANY: | ||
| IRHYTHM TECHNOLOGIES, INC. | ||
| a Delaware corporation | ||
| By: | /s/ Kevin King | |
| Name: | Kevin King | |
| Title: | President and Chief Executive Officer | |
| Address: | ||
| 650 Townsend Street, Suite 380 | ||
| San Francisco, CA 94103 | ||
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| NEW LEAF VENTURES II, L.P. | ||
| By: | New Leaf Venture Associates II, L.P. | |
| Its: | General Partner | |
| By: | New Leaf Venture Management II, L.L.C. | |
| Its: | General Partner | |
| By: | /s/ Craig L. Slutzkin | |
| Name: | Craig L. Slutzkin | |
| Title: | Chief Financial Officer | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| ST. JUDE MEDICAL, INC. | ||
| By: | [Illegible] | |
| Name: | [Illegible] | |
| Title: | VP, Finance & CFO | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| SYNERGY LIFE SCIENCE PARTNERS, LP | ||
| By: | Synergy Venture Partners, LLC | |
| Its: | General Partner | |
| By: | /s/ William N. Starling | |
| Name: | William N. Starling | |
| Title: | Manager | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| THE BOARD OF TRUSTEES OF THE LELAND STANFORD JUNIOR UNIVERSITY (PVF) | ||
| By: | /s/ Martina Poquet | |
| Name: | Martina Poquet | |
| Title: | Managing Director - Separate Investments | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| KFBSF PRIVATE EQUITY FUND II, L.P. | ||
| By: | /s/ David Stevens | |
| Its: |
| |
| By: |
| |
| Name: | David Stevens | |
| Title: | Manager | |
| 10/31/12 | ||
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| WS INVESTMENT COMPANY, LLC (2012A) | ||
| By: | /s/ Philip H. Oettinger | |
| Name: | Philip H. Oettinger | |
| Title: | Member | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTORS: | ||
| KAISER PERMANENTE VENTURES, LLC – SERIES A | ||
| By: | /s/ Thomas Meier | |
| Name: | Thomas Meier | |
| Title: | SVP & Treasurer | |
| KAISER PERMANENTE VENTURES, LLC – SERIES B | ||
| By: | /s/ Thomas Meier | |
| Name: | Thomas Meier | |
| Title: | Management Committee | |
| THE PERMANENTE FEDERATION, LLC – SERIES J | ||
| By: | /s/ Glen Hentges | |
| Name: | Glen Hentges | |
| Title: | CFO | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| JAY H. ALEXANDER DECLARATION OF TRUST DATED NOVEMBER 12, 1987 | ||
| By: | /s/ Jay Alexander 10/31/12 | |
| Name: | Jay Alexander, MD | |
| Title: | Trustee | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| JOSEPH P. ILVENTO, MD AND JUDY C. DEAN, MD PROFIT SHARING TRUST FOR STAFF | ||
| By: | /s/ Joseph P. Ilvento | |
| Name: | Joseph P. Ilvento | |
| Title: | Trustee | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: |
| SCOTT B. GIBSON |
| /s/ Scott B. Gibson |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| MIRRO FAMILY PARTNERSHIP | ||
| By: | /s/ Michael Mirro | |
| Name: | Michael Mirro | |
| Title: | General Partner | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| MICHAEL D. GOLDBERG FAMILY TRUST | ||
| By: | /s/ Michael D. Goldberg | |
| Name: | M.D. Goldberg | |
| Title: | TTEE | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTOR: | ||
| KATZ FAMILY VENTURES, LLC | ||
| By: | /s/ Charles J. Katz, Jr. | |
| Name: | Charles J. Katz, Jr. | |
| Title: | President | |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
IN WITNESS WHEREOF, the parties have caused this Agreement to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.
| INVESTORS: |
| VANCE VANIER |
| /s/ Vance Vanier |
| KATHLEEN VANIER |
| /s/ Kathleen Vanier |
(Signature Page to iRhythm Technologies, Inc. Note and Warrant Purchase Agreement)
EXHIBIT A
SCHEDULE OF INVESTORS
[Intentionally Omitted]
EXHIBIT B
FORM OF SUBORDINATED CONVERTIBLE PROMISSORY NOTE
EXHIBIT C
FORM OF WARRANT TO PURCHASE SHARES
EXHIBIT D
SCHEDULE OF EXCEPTIONS
EXHIBIT E
FORM OF SUBORDINATION AGREEMENT
EXHIBIT F
SECRETARY’S CERTIFICATE
EXHIBIT G
PRO RATA SHARES OF ELIGIBLE INVESTORS
| Name of Eligible Investor | Pro Rata Share | |||
| Preferred Stockholders: |
| |||
| MDV VIII, L.P. | $ | 869,556.69 | ||
| New Leaf Ventures II, L.P. | $ | 462,502.95 | ||
| St. Jude Medical, Inc. | $ | 371,290.68 | ||
| Synergy Life Science Partners, LP | $ | 869,556.69 | ||
| The Board of Trustees of the Leland Stanford Junior University (PVF) | $ | 85,117.61 | ||
| KFBSF Private Equity Fund II, L.P. | $ | 15,748.00 | ||
| WS Investment Company, LLC (2012A) | $ | 2,475.23 | ||
| Kaiser Permanente Ventures, LLC - Series A | $ | 177,885.84 | ||
| Kaiser Permanente Ventures, LLC - Series B | $ | 111,178.65 | ||
| The Permanente Federation, LLC - Series J | $ | 34,687.66 | ||
|
|
| |||
| SUBTOTAL: | $ | 3,000,000.00 | ||
|
|
| |||
| Common Stockholders: |
| |||
| Uday Kumar and Trusts | $ | 335,298.19 | ||
| William F. Willis | $ | 69,258.45 | ||
| Sally Willis | $ | 45,006.99 | ||
| Jay H. Alexander Declaration of Trust Dated November 12, 1987 | $ | 4,801.49 | ||
| Joseph D. Ilvento, MD and Judy C. Dean, MD Profit Sharing Trust for Staff | $ | 2,274.36 | ||
| Scott B. Gibson | $ | 2,274.36 | ||
| Makower Family Trust | $ | 2,653.47 | ||
| Mirro Family Partnership | $ | 7,238.62 | ||
| Michael D. Goldberg Family Trust | $ | 2,228.89 | ||
| Katz Family Ventures, LLC | $ | 1,516.29 | ||
| Vance Vanier and Kathleen Vanier | $ | 1,401.40 | ||
|
|
| |||
| SUBTOTAL: | $ | 473,952.51 | ||
|
|
| |||
| TOTAL FOR ALL ELIGIBLE INVESTORS: | $ | 3,473,952.51 | ||
|
|
| |||
THIS WARRANT AND THE SECURITIES ISSUABLE UPON THE EXERCISE HEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF ANY STATE. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE, TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS WARRANT MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
| Purchase Price | Dated as of November 1, 2012 | |
| «Warrant_Purchase_Price» | Void after the date specified in Section 8 |
IRHYTHM TECHNOLOGIES, INC.
WARRANT TO PURCHASE SHARES
No. «Warrant_Number»
THIS CERTIFIES THAT, for value received, «Investor», or its registered assigns (the “Holder”), is entitled, subject to the provisions and upon the terms and conditions set forth herein, to purchase from iRhythm Technologies, Inc., a Delaware corporation (the “Company”), Shares (as defined below), in the amounts, at such times and at the price per share set forth in Section 1. The term “Warrant” as used herein shall include this Warrant and any warrants delivered in substitution or exchange therefor as provided herein. This Warrant is issued in connection with the transactions described in the Note and Warrant Purchase Agreement, dated as of November 1, 2012, by and among the Company and the Investors described therein (the “Note and Warrant Purchase Agreement”). This Warrant is one of the series of “Warrants” issued pursuant to the Note and Warrant Purchase Agreement. Capitalized terms not otherwise defined herein shall have the respective meanings ascribed to such terms in the Note and Warrant Purchase Agreement and/or the form of subordinated convertible promissory note attached as Exhibit B to the Note and Warrant Purchase Agreement (the “Note”, and together with each other Note issued pursuant to the Note and Warrant Purchase Agreement, the “Notes”). The Holder of this Warrant is subject to certain restrictions as set forth in the Note and Warrant Purchase Agreement.
The following is a statement of the rights of the Holder and the conditions to which this Warrant is subject, and to which the Holder, by acceptance of this Warrant, agrees:
1. Number and Price of Shares; Exercise Period.
(a) Definition of Shares. “Shares” shall mean the following: (i) if a Qualified Financing occurs on or prior to the Maturity Date of the Notes, the shares of the series of Preferred Stock sold in such Qualified Financing; or (ii) if a Qualified Financing has not occurred on or prior to any Maturity Event and the Notes are voluntarily converted into the Series C Preferred Stock of the Company, the shares of the Series C Preferred Stock.
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(b) Number of Shares. Subject to any previous exercise of the Warrant, the Holder shall have the right to purchase up to the number of Shares that equals the quotient obtained by dividing: (i) the Warrant Coverage Amount, by (ii) the Conversion Price, prior to (or in connection with) the expiration of this Warrant as provided in Section 8.
(c) Exercise Price. The exercise price per Share shall be equal to $0.001, subject to adjustment pursuant hereto (the “Exercise Price”).
(d) Exercise Period. This Warrant shall be exercisable, in whole or in part: (i) after the earlier to occur of: (A) the closing date of a Qualified Financing in which the Notes automatically convert into the shares of the series of Preferred Stock sold in such Qualified Financing; or (B) the voluntary conversion of the Notes into shares of the Series C Preferred Stock upon the written election of a Majority in Interest of Investors in connection with a Maturity Event; and (ii) prior to (or in connection with) the expiration of this Warrant as set forth in Section 8.
(e) Warrant Coverage Amount. The “Warrant Coverage Amount” shall mean:
(i) if the aggregate principal amount of the Holder’s Note(s) delivered pursuant to the Note and Warrant Purchase Agreement is less than or equal to the Holder’s Pro Rata Share, the amount obtained by multiplying: (A) twenty-five percent (25%); by (B) the principal amount of such Note(s); or
(ii) if the aggregate principal amount of the Holder’s Note(s) delivered pursuant to the Note and Warrant Purchase Agreement is greater than the Holder’s Pro Rata Share, the sum of: (A) the amount obtained by multiplying: (1) twenty-five percent (25%); by (2) the Holder’s Pro Rata Share; plus (B) the amount obtained by multiplying: (1) fifty percent (50%); by (2) the amount that the aggregate principal amount of such Note(s) exceeds the Holder’s Pro Rata Share.
2. Exercise of the Warrant.
(a) Exercise. The purchase rights represented by this Warrant may be exercised at the election of the Holder, in whole or in part, in accordance with Section 1, by:
(i) the tender to the Company at its principal office (or such other office or agency as the Company may designate) of a notice of exercise, in the form of Exhibit A hereto (the “Notice of Exercise”), duly completed and executed by or on behalf of the Holder, together with the surrender of this Warrant; and
(ii) the payment to the Company of an amount equal to: (A) the Exercise Price; multiplied by (B) the number of Shares being purchased, by wire transfer or certified, cashier’s or other check acceptable to the Company and payable to the order of the Company.
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(b) Net Issue Exercise. In lieu of exercising this Warrant pursuant to Section 2(a)(ii), if the fair market value of one Share is greater than the Exercise Price (at the date of calculation as set forth below), the Holder may elect to receive a number of Shares equal to the value of this Warrant (or of any portion of this Warrant being cancelled) by surrender of this Warrant at the principal office of the Company (or such other office or agency as the Company may designate), together with a properly completed and executed Notice of Exercise reflecting such election, in which event the Company shall issue to the Holder that number of Shares computed using the following formula:
| X | = | Y (A – B) | ||||||
| A |
Where:
| X | = | The number of Shares to be issued to the Holder. | ||
| Y | = | The number of Shares purchasable under this Warrant or, if only a portion of the Warrant is being exercised, the portion of the Warrant being cancelled (at the date of such calculation). | ||
| A | = | The fair market value of one Share (at the date of such calculation). | ||
| B | = | The Exercise Price (as adjusted to the date of such calculation). | ||
For purposes of the calculation above, the fair market value of one Share shall be determined by the Board of Directors of the Company, acting in good faith; provided, however, that:
(i) where a public market exists for the Company’s common stock at the time of such exercise, the fair market value per Share shall be the product of: (A) the average of the closing bid prices of the Common Stock or the closing price quoted on the national securities exchange on which the Common Stock is listed as published in the Wall Street Journal, as applicable, for the ten (10) trading day period ending five (5) trading days prior to the date of determination of the fair market value; and (B) the number of shares of Common Stock into which each Share is convertible at the time of such exercise, as applicable; and
(ii) if the Warrant is exercised in connection with the Company’s initial public offering of Common Stock, the fair market value per Share shall be the product of: (A) the per share offering price to the public of the Company’s initial public offering; and (B) the number of shares of Common Stock into which each Share is convertible at the time of such exercise, as applicable.
(c) Stock Certificates. The rights under this Warrant shall be deemed to have been exercised and the Shares issuable upon such exercise shall be deemed to have been issued immediately prior to the close of business on the date this Warrant is exercised in accordance with its terms, and the person entitled to receive the Shares issuable upon such exercise shall be treated for all purposes as the holder of record of such Shares as of the close of business on such date. As promptly as reasonably practicable on or after such date, the Company shall issue and deliver to the person or persons entitled to receive the same a certificate or certificates for that number of Shares issuable upon such exercise. In the event that the rights under this Warrant are exercised in part and have not expired, the Company shall execute and deliver a new Warrant reflecting the number of Shares that remain subject to this Warrant.
(d) No Fractional Shares or Scrip. No fractional shares or scrip representing fractional shares shall be issued upon the exercise of the rights under this Warrant. In lieu of such fractional share to which the Holder would otherwise be entitled, the Company shall make a cash payment equal to the Exercise Price multiplied by such fraction of a share.
(e) Conditional Exercise. The Holder may exercise this Warrant conditioned upon (and effective immediately prior to) consummation of any transaction that would cause the expiration of this Warrant pursuant to Section 8 by so indicating in the Notice of Exercise.
(f) Automatic Exercise Upon Change of Control. To the extent this Warrant is not previously exercised and if the Company will consummate a Change of Control, this Warrant shall be deemed
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automatically exercised in accordance with Section 2(b) above (even if not surrendered) immediately prior to the consummation of such Change of Control; provided, however, that the Holder may, at the Holder’s option, elect to exercise this Warrant in accordance with Section 2(a) above prior to the Company’s consummation of such Change of Control. To the extent this Warrant or any portion thereof is deemed automatically exercised pursuant to this Section 2(f), the Company (or its successor entity) agrees to notify the Holder within a reasonable period of time of the number of Shares, if any (or the consideration payable for such number of Shares in connection with such Change of Control, if any), that the Holder is entitled to receive by reason of such automatic exercise. If applicable, the Company shall not be required to deliver any stock certificate(s) evidencing any Shares issuable upon such automatic exercise unless and until the Company has received the original of this Warrant. The Company shall provide the Holder with prior notice of the Company’s contemplated consummation of any such Change of Control in accordance with Section 7 below.
(g) Reservation of Stock. The Company agrees during the term the rights under this Warrant are exercisable to take all reasonable action to reserve and keep available from its authorized and unissued shares of Preferred Stock for the purpose of effecting the exercise of this Warrant such number of shares (and shares of Common Stock for issuance on conversion of such shares) as shall from time to time be sufficient to effect the exercise of the rights under this Warrant; and if at any time the number of authorized but unissued shares of Preferred Stock (and shares of Common stock for issuance upon conversion of such shares) shall not be sufficient for purposes of the exercise of this Warrant in accordance with its terms and the conversion of the Shares, without limitation of such other remedies as may be available to the Holder, the Company will use reasonable efforts to take such corporate action as may, in the opinion of counsel, be necessary to increase its authorized and unissued shares of its Preferred Stock (and shares of Common Stock for issuance on conversion of such shares) to a number of shares as shall be sufficient for such purposes.
3. Replacement of the Warrant. Subject to the receipt of evidence reasonably satisfactory to the Company of the loss, theft, destruction or mutilation of this Warrant and, in the case of loss, theft or destruction, upon delivery of an indemnity agreement reasonably satisfactory in form and substance to the Company or, in the case of mutilation, upon surrender and cancellation of this Warrant, the Company at the expense of the Holder shall execute and deliver, in lieu of this Warrant, a new warrant of like tenor and amount.
4. Transfer of the Warrant.
(a) Warrant Register. The Company shall maintain a register (the “Warrant Register”) containing the name and address of the Holder or Holders. Until this Warrant is transferred on the Warrant Register in accordance herewith, the Company may treat the Holder as shown on the Warrant Register as the absolute owner of this Warrant for all purposes, notwithstanding any notice to the contrary. Any Holder of this Warrant (or of any portion of this Warrant) may change its address as shown on the Warrant Register by written notice to the Company requesting such a change of address.
(b) Warrant Agent. The Company may appoint an agent for the purpose of maintaining the Warrant Register referred to in Section 4(a), issuing the Shares or other securities then issuable upon the exercise of the rights under this Warrant, exchanging this Warrant, replacing this Warrant or conducting related activities.
(c) Transferability of the Warrant. Subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, including, without limitation, compliance with the restrictions on transfer set forth in Section 5, title to this Warrant may be transferred by endorsement (by the transferor and the transferee executing the assignment form, attached hereto as Exhibit B (the “Assignment Form”)), and delivery in the same manner as a negotiable instrument transferable by endorsement and delivery.
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(d) Exchange of the Warrant upon a Transfer. On surrender of this Warrant (and a properly endorsed Assignment Form) for exchange, subject to the provisions of this Warrant with respect to compliance with the Securities Act and limitations on assignments and transfers, the Company shall issue to or on the order of the Holder a new warrant or warrants of like tenor, in the name of the Holder or as the Holder (on payment by the Holder of any applicable transfer taxes) may direct, for the number of Shares issuable upon exercise hereof, and the Company shall register any such transfer upon the Warrant Register. This Warrant (and the securities issuable upon exercise of the rights under this Warrant) must be surrendered to the Company or its warrant or transfer agent, as applicable, as a condition precedent to the sale, pledge, hypothecation or other transfer of any interest in any of the securities represented hereby.
(e) Taxes. In no event shall the Company be required to pay any tax which may be payable in respect of any transfer involved in the issue and delivery of any certificate in a name other than that of the Holder, and the Company shall not be required to issue or deliver any such certificate unless and until the person or persons requesting the issue thereof shall have paid to the Company the amount of such tax or shall have established to the satisfaction of the Company that such tax has been paid or is not payable.
5. Restrictions on Transfer of the Warrant and Shares; Compliance with Securities Laws. By acceptance of this Warrant, the Holder agrees to comply with the following:
(a) Restrictions on Transfers. Subject to Section 5(b) below, this Warrant may not be transferred or assigned, in whole or in part, without the Company’s prior written consent (which shall not be unreasonably withheld), and any attempt by the Holder to transfer or assign any rights, duties or obligations that arise under this Warrant without such permission shall be void. Any transfer of this Warrant or the Shares or the shares of Common Stock issuable upon conversion of the Shares (the “Securities”) must be in compliance with all applicable federal and state securities laws. The Holder agrees not to make any sale, assignment, transfer, pledge or other disposition of all or any portion of the Securities, or any beneficial interest therein, unless and until the transferee thereof has agreed in writing for the benefit of the Company to take and hold such Securities subject to, and to be bound by, the terms and conditions set forth in this Warrant to the same extent as if the transferee were the original Holder hereunder, and
(i) there is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement, or
(ii) (A) such Holder shall have given prior written notice to the Company of such Holder’s intention to make such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition, (B) the transferee shall have confirmed to the satisfaction of the Company in writing, in substantially the form of Exhibit A-1 hereto, that the Securities are being acquired (1) solely for the transferee’s own account and not as a nominee for any other party, (2) for investment and (3) not with a view toward distribution or resale, and shall have confirmed such other matters related thereto as may be reasonably requested by the Company, and (C) if requested by the Company, such Holder shall have furnished the Company, at the Holder’s expense, with evidence satisfactory to the Company that such disposition will not require registration of such Securities under the Securities Act, whereupon such Holder shall be entitled to transfer such Securities in accordance with the terms of the notice delivered by such Holder to the Company. The Company agrees that it will not require an opinion of counsel for a transfer pursuant to Rule 144 of the Securities Act except in unusual circumstances.
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(b) Permitted Transfers. The following transfers shall not be subject to Section 5(a): (i) a transfer not involving a change in beneficial ownership; or (ii) transactions involving the distribution without consideration of Securities by any Holder to: (A) a parent, subsidiary or other affiliate of a Holder that is a corporation, (B) any of the Holder’s partners, members or other equity owners, or retired partners or members, or to the estate of any of its partners, members or other equity owners or retired partners or members, or (C) a venture capital fund that is controlled by or under common control with one or more general partners or managing members of, or shares the same management company with, the Holder; provided, however, in each case, that the Holder shall give written notice to the Company of the Holder’s intention to effect such disposition and shall have furnished the Company with a detailed description of the manner and circumstances of the proposed disposition.
(c) Investment Representation Statement. Unless the rights under this Warrant are exercised pursuant to an effective registration statement under the Securities Act that includes the Shares with respect to which the Warrant was exercised, it shall be a condition to any exercise of the rights under this Warrant that the Holder shall have confirmed to the satisfaction of the Company in writing, in substantially the form of Exhibit A-1 hereto, that the Shares so purchased are being acquired solely for the Holder’s own account and not as a nominee for any other party, for investment and not with a view toward distribution or resale and that the Holder shall have confirmed such other matters related thereto as may be reasonably requested by the Company.
(d) Securities Law Legend. The Securities shall (unless otherwise permitted by the provisions of this Warrant) be stamped or imprinted with a legend substantially similar to the following (in addition to any legend required by state securities laws):
THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED (THE “ACT”), OR UNDER THE SECURITIES LAWS OF CERTAIN STATES. THESE SECURITIES MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED EXCEPT AS PERMITTED UNDER THE ACT AND APPLICABLE STATE SECURITIES LAWS IN ACCORDANCE WITH APPLICABLE REGISTRATION REQUIREMENTS OR AN EXEMPTION THEREFROM. THE ISSUER OF THESE SECURITIES MAY REQUIRE AN OPINION OF COUNSEL REASONABLY SATISFACTORY TO THE ISSUER THAT SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT AND ANY APPLICABLE STATE SECURITIES LAWS. THIS CERTIFICATE MUST BE SURRENDERED TO THE COMPANY OR ITS TRANSFER AGENT AS A CONDITION PRECEDENT TO THE SALE, TRANSFER, PLEDGE OR HYPOTHECATION OF ANY INTEREST IN ANY OF THE SECURITIES REPRESENTED HEREBY.
(e) Market Stand-off Legend. The Shares and Common Stock issued upon exercise hereof or conversion thereof shall also be stamped or imprinted with a legend in substantially the following form:
THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO RESTRICTIONS ON TRANSFERABILITY AND RESALE, INCLUDING A LOCK-UP PERIOD IN THE EVENT OF A PUBLIC OFFERING, AS SET FORTH IN THE WARRANT PURSUANT TO WHICH THESE SHARES WERE ISSUED, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY.
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(f) Instructions Regarding Transfer Restrictions. The Holder consents to the Company making a notation on its records and giving instructions to any transfer agent in order to implement the restrictions on transfer established in this Section 5.
(g) Removal of Legend. The legend referring to federal and state securities laws identified in Section 5(c) stamped on a certificate evidencing the Shares (and the Common Stock issuable upon conversion thereof) and the stock transfer instructions and record notations with respect to such securities shall be removed and the Company shall issue a certificate without such legend to the holder of such securities if: (i) such securities are registered under the Securities Act; or (ii) such holder provides the Company with an opinion of counsel reasonably acceptable to the Company to the effect that a sale or transfer of such securities may be made without registration or qualification.
6. Adjustments. Subject to the expiration of this Warrant pursuant to Section 8, the number and kind of Shares purchasable hereunder and the Exercise Price therefor are subject to adjustment from time to time, as follows:
(a) Merger or Reorganization. If at any time there shall be any reorganization, recapitalization, merger or consolidation (a “Reorganization”) involving the Company (other than as otherwise provided for herein or as would cause a deemed net exercise pursuant to Section 2(f)) in which shares of the Company’s stock are converted into or exchanged for securities, cash or other property, then, as a part of such Reorganization, lawful provision shall be made so that the Holder shall thereafter be entitled to receive upon exercise of this Warrant, the kind and amount of securities, cash or other property of the successor corporation resulting from such Reorganization, equivalent in value to that which a holder of the Shares deliverable upon exercise of this Warrant would have been entitled in such Reorganization if the right to purchase the Shares hereunder had been exercised immediately prior to such Reorganization. In any such case, appropriate adjustment (as determined in good faith by the Board of Directors of the successor corporation) shall be made in the application of the provisions of this Warrant with respect to the rights and interests of the Holder after such Reorganization to the end that the provisions of this Warrant shall be applicable after the event, as near as reasonably may be, in relation to any shares or other securities deliverable after that event upon the exercise of this Warrant.
(b) Reclassification of Shares. If the Securities issuable upon exercise of this Warrant are changed into the same or a different number of securities of any other class or classes by reclassification, capital reorganization, conversion of all outstanding shares of the relevant class or series (other than as would cause the expiration of this Warrant pursuant to Section 8) or otherwise (other than as otherwise provided for herein) (a “Reclassification”), then, in any such event, in lieu of the number of Shares which the Holder would otherwise have been entitled to receive, the Holder shall have the right thereafter to exercise this Warrant for a number of shares of such other class or classes of stock that a holder of the number of Securities deliverable upon exercise of this Warrant immediately before that change would have been entitled to receive in such Reclassification, all subject to further adjustment as provided herein with respect to such other shares.
(c) Subdivisions and Combinations. In the event that the outstanding shares of the Securities issuable upon exercise of this Warrant are subdivided (by stock split, by payment of a stock dividend or otherwise) into a greater number of shares of such Securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately increased, and the Exercise Price shall be proportionately decreased, and in the event that the outstanding shares of the Securities issuable upon exercise of this Warrant are combined (by reclassification or otherwise) into a lesser number of shares of such Securities, the number of Shares issuable upon exercise of the rights under this Warrant immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately decreased, and the Exercise Price shall be proportionately increased.
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(d) Notice of Adjustments. Upon any adjustment in accordance with this Section 6, the Company shall give notice thereof to the Holder, which notice shall state the event giving rise to the adjustment, the Exercise Price as adjusted and the number of securities or other property purchasable upon the exercise of the rights under this Warrant, setting forth in reasonable detail the method of calculation of each. The Company shall, upon the written request of any Holder, furnish or cause to be furnished to such Holder a certificate setting forth: (i) such adjustments; (ii) the Exercise Price at the time in effect; and (iii) the number of securities and the amount, if any, of other property that at the time would be received upon exercise of this Warrant.
7. Notification of Certain Events. Prior to the expiration of this Warrant pursuant to Section 8, in the event that the Company shall authorize:
(a) the issuance of any dividend or other distribution on the capital stock of the Company (other than: (i) dividends or distributions otherwise provided for in Section 6; (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase; (iii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Company or its subsidiaries pursuant to rights of first refusal or first offer contained in agreements providing for such rights; or (iv) repurchases of capital stock of the Company in connection with the settlement of disputes with any stockholder), whether in cash, property, stock or other securities;
(b) the voluntary liquidation, dissolution or winding up of the Company;
(c) a Change of Control; or
(d) any transaction resulting in the expiration of this Warrant pursuant to Section 8(b).
the Company shall send to the Holder of this Warrant at least ten (10) calendar days prior written notice of the date on which a record shall be taken for any such dividend or distribution specified in clause (a) or the expected effective date of any such other event specified in clause (b), (c) or (d), as applicable. The notice provisions set forth in this Section 7 may be shortened or waived prospectively or retrospectively by the consent of the holders of greater than fifty percent (50%) of the aggregate Warrant Coverage Amount of all Warrants issued pursuant to the Note and Warrant Purchase Agreement (a “Majority in Interest of Warrant Holders”).
8. Expiration of the Warrant. This Warrant shall expire and shall no longer be exercisable as of the earlier of:
(a) 5:00 p.m., Pacific time, on November 1, 2019; or
(b) Upon the written election of a Majority in Interest of Warrant Holders to effect an adjustment of the Conversion Price of: (i) in the case of a Qualified Financing, the shares of the series of Preferred Stock sold in such Qualified Financing; or (ii) the Series C Preferred Stock, to a price per share that, following such adjustment of the Conversion Price, would result in the number of such shares of the series of Preferred Stock sold in such Qualified Financing or the Series C Preferred Stock, as applicable, being issued upon any conversion of the Notes in accordance with their terms, being equal to the number of shares as would otherwise have been issuable upon the conversion of the Notes and exercise of the Warrants, in each case in accordance with their terms, had no such adjustment of the Conversion Price been so effected.
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9. No Rights as a Stockholder. Nothing contained herein shall entitle the Holder to any rights as a stockholder of the Company or to be deemed the holder of any securities that may at any time be issuable on the exercise of the rights hereunder for any purpose nor shall anything contained herein be construed to confer upon the Holder, as such, any right to vote for the election of directors or upon any matter submitted to stockholders at any meeting thereof, or to give or withhold consent to any corporate action (whether upon any recapitalization, issuance of stock, reclassification of stock, change of par value or change of stock to no par value, consolidation, merger, conveyance or otherwise) or to receive notice of meetings, or to receive dividends or subscription rights or any other rights of a stockholder of the Company until the rights under the Warrant shall have been exercised and the Shares purchasable upon exercise of the rights hereunder shall have become deliverable as provided herein.
10. Market Stand-off. Each Holder agrees that all Shares shall be subject to the market standoff provisions of Section 2.10 of the Rights Agreement.
11. Miscellaneous.
(a) Amendments. Except as expressly provided herein, neither this Warrant nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Warrant and signed by the Company and a Majority in Interest of the Warrant Holders; provided, however, that in no event may any such amendment, waiver, discharge or termination materially adversely affect any holder of a Warrant in a different or disproportionate manner than the other holders of Warrants issued under the Note and Warrant Purchase Agreement unless agreed to in writing by such materially adversely affected holder. Any amendment, waiver, discharge or termination effected in accordance with this Section 11(a) shall be binding upon each holder of the Warrants, each future holder of such Warrants and the Company; provided, however, that no special consideration or inducement may be given to any such holder in connection with such consent that is not given ratably to all such holders, and that such amendment must apply to all such holders equally and ratably in accordance with the number of shares of capital stock issuable upon exercise of the Warrants. The Company shall promptly give notice to all holders of Warrants of any amendment effected in accordance with this Section 11(a).
(b) Waivers. No waiver of any single breach or default shall be deemed a waiver of any other breach or default theretofore or thereafter occurring.
(c) Notices. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or electronic mail (if to the Holder) or otherwise delivered by hand, messenger or courier service addressed:
(i) if to the Holder, to the Holder at the Holder’s address, facsimile number or electronic mail address as shown in the Company’s records, as may be updated in accordance with the provisions hereof, or until any such Holder so furnishes an address, facsimile number or electronic mail address to the Company, then to and at the address, facsimile number or electronic mail address of the last holder of this Warrant for which the Company has contact information in its records; or
(ii) if to the Company, to the attention of the Chief Executive Officer or the Chief Financial Officer of the Company at the Company’s address as shown on the signature page hereto, or at such other address as the Company shall have furnished to the Holder, with a copy (which shall not constitute notice) to Philip H. Oettinger, Wilson Sonsini Goodrich & Rosati, P.C., 650 Page Mill Road, Palo Alto, CA 94304.
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Each such notice or other communication shall for all purposes of this Warrant be treated as effective or having been given: (A) if delivered by hand, messenger or courier service, when delivered; (B) if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid; or (C) if sent by facsimile, upon confirmation of facsimile transfer or, if sent by electronic mail, upon confirmation of delivery when directed to the relevant electronic mail address. In the event of any conflict between the Company’s books and records and this Warrant or any notice delivered hereunder, the Company’s books and records will control absent fraud or error.
(d) Governing Law. This Warrant and all actions arising out of or in connection with this Warrant shall be governed by and construed in accordance with the laws of the State of Delaware, without regard to the conflicts of law provisions of the State of Delaware or of any other state.
(e) Titles and Subtitles. The titles and subtitles used in this Warrant are used for convenience only and are not to be considered in construing or interpreting this Warrant. All references in this Warrant to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto.
(f) Severability. If any provision of this Warrant becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, portions of such provision, or such provision in its entirety, to the extent necessary, shall be severed from this Warrant, and such illegal, unenforceable or void provision shall be replaced with a valid and enforceable provision that will achieve, to the extent possible, the same economic, business and other purposes of the illegal, unenforceable or void provision. The balance of this Warrant shall be enforceable in accordance with its terms.
(g) Waiver of Jury Trial. EACH OF THE HOLDER AND THE COMPANY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER BASED ON CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS WARRANT. This Section 11(g) shall not restrict the Holder or the Company from exercising remedies under the Uniform Commercial Code or from exercising pre-judgment remedies under applicable law.
(h) California Corporate Securities Law. THE SALE OF THE SECURITIES THAT ARE THE SUBJECT OF THIS WARRANT HAS NOT BEEN QUALIFIED WITH THE COMMISSIONER OF CORPORATIONS OF THE STATE OF CALIFORNIA AND THE ISSUANCE OF SUCH SECURITIES OR THE PAYMENT OR RECEIPT OF ANY PART OF THE CONSIDERATION THEREFOR PRIOR TO SUCH QUALIFICATION IS UNLAWFUL, UNLESS THE SALE OF SECURITIES IS EXEMPT FROM QUALIFICATION BY SECTION 25100, 25102, OR 25105 OF THE CALIFORNIA CORPORATIONS CODE. THE RIGHTS OF ALL PARTIES TO THIS WARRANT ARE EXPRESSLY CONDITIONED UPON THE QUALIFICATION BEING OBTAINED, UNLESS THE SALE IS SO EXEMPT.
(i) Rights and Obligations Survive Exercise of the Warrant. Except as otherwise provided herein, the rights and obligations of the Company and the Holder under this Warrant shall survive exercise of this Warrant.
(j) Entire Agreement. Except as expressly set forth herein, this Warrant (including the exhibits attached hereto), the Notes, the Note and Warrant Purchase Agreement and the other Transaction Documents constitute the entire agreement and understanding of the Company and the Holder with respect to the subject matters hereof and thereof and supersede all prior agreements and understandings relating to the subject matters hereof and thereof.
(Signature Page Follows)
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The Company signed this Warrant as of the date first written above.
| COMPANY: | ||
| IRHYTHM TECHNOLOGIES, INC. | ||
| a Delaware corporation | ||
| By: |
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| Name: | Kevin King | |
| Title: | President and Chief Executive Officer | |
| Address: | ||
| 650 Townsend Street, Suite 380 | ||
| San Francisco, CA 94103 | ||
(Signature Page to iRhythm Technologies, Inc. Warrant)
EXHIBIT A
NOTICE OF EXERCISE
| TO: | IRHYTHM TECHNOLOGIES, INC. (the “Company”) | |
| Attention: | President and Chief Executive Officer | |
| (1) | Exercise. The undersigned elects to purchase the following pursuant to the terms of the attached Warrant: |
| Number of shares: |
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| Type of security: |
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| (2) | Method of Exercise. The undersigned elects to exercise the attached Warrant pursuant to: |
| ¨ | A cash payment, and tenders herewith payment of the purchase price for such shares in full, together with all applicable transfer taxes, if any. | |
| ¨ | The net issue exercise provisions of Section 2(b) of the attached Warrant. | |
| (3) | Conditional Exercise. Is this a conditional exercise pursuant to Section 2(e): |
| ¨ | Yes ¨ No | |||
| If “Yes,” indicate the applicable condition: | ||||
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| (4) | Stock Certificate. Please issue a certificate or certificates representing the shares in the name of: |
| ¨ | The undersigned | |||
| ¨ | Other—Name: |
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| Address: |
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| (5) | Unexercised Portion of the Warrant. Please issue a new warrant for the unexercised portion of the attached Warrant in the name of: |
| ¨ | The undersigned | |||
| ¨ | Other—Name: |
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| ¨ | Not applicable | |||
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| (6) | Investment Intent. The undersigned represents and warrants that the aforesaid shares are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that the undersigned has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same. |
| (7) | Investment Representation Statement and Market Stand-Off Agreement. The undersigned has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the Warrant as Exhibit A-1. |
| (8) | Consent to Receipt of Electronic Notice. Subject to the limitations set forth in Delaware General Corporation Law § 232(e), the undersigned consents to the delivery of any notice to stockholders given by the Company under the Delaware General Corporation Law or the Company’s Certificate of Incorporation or Bylaws by: (i) facsimile telecommunication to the facsimile number provided below (or to any other facsimile number for the undersigned in the Company’s records); (ii) electronic mail to the electronic mail address provided below (or to any other electronic mail address for the undersigned in the Company’s records); (iii) posting on an electronic network together with separate notice to the undersigned of such specific posting; or (iv) any other form of electronic transmission (as defined in the Delaware General Corporation Law) directed to the undersigned. This consent may be revoked by the undersigned by written notice to the Company and may be deemed revoked in the circumstances specified in Delaware General Corporation Law § 232. |
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(Signature Page to the Notice of Exercise)
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EXHIBIT A-l
INVESTMENT REPRESENTATION STATEMENT
AND
MARKET STAND-OFF AGREEMENT
| INVESTOR: |
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| COMPANY: | IRHYTHM TECHNOLOGIES, INC. | |||
| SECURITIES: | THE WARRANT ISSUED ON NOVEMBER 1, 2012 (THE “WARRANT”) AND THE SECURITIES ISSUED OR ISSUABLE UPON EXERCISE THEREOF (INCLUDING UPON SUBSEQUENT CONVERSION OF THOSE SECURITIES) | |||
| DATE: |
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In connection with the purchase or acquisition of the above-listed Securities, the undersigned Investor represents and warrants to, and agrees with, the Company as follows:
1. No Registration. The Investor understands that the Securities have not been, and will not be, registered under the Securities Act of 1933, as amended (the “Securities Act”), by reason of a specific exemption from the registration provisions of the Securities Act, the availability of which depends upon, among other things, the bona fide nature of the investment intent and the accuracy of the Investor’s representations as expressed herein or otherwise made pursuant hereto.
2. Investment Intent. The Investor is acquiring the Securities for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, any distribution thereof. The Investor has no present intention of selling, granting any participation in, or otherwise distributing the Securities, nor does it have any contract, undertaking, agreement or arrangement for the same.
3. Investment Experience. The Investor has substantial experience in evaluating and investing in private placement transactions of securities in companies similar to the Company, and has such knowledge and experience in financial or business matters so that it is capable of evaluating the merits and risks of its investment in the Company and protecting its own interests.
4. Speculative Nature of Investment. The Investor understands and acknowledges that the Company has a limited financial and operating history and that its investment in the Company is highly speculative and involves substantial risks. The Investor can bear the economic risk of its investment and is able, without impairing its financial condition, to hold the Securities for an indefinite period of time and to suffer a complete loss of its investment.
5. Access to Data. The Investor has had an opportunity to ask questions of officers of the Company, which questions were answered to its satisfaction. The Investor believes that it has received all the information that it considers necessary or appropriate for deciding whether to acquire the Securities. The Investor understands that any such discussions, as well as any information issued by the Company, were intended to describe certain aspects of the Company’s business and prospects, but were not necessarily a thorough or exhaustive description. The Investor acknowledges that any business plans prepared by the Company have been, and continue to be, subject to change and that any projections included in such business plans or otherwise are necessarily speculative in nature, and it can be expected that some or all of the assumptions underlying the projections will not materialize or will vary significantly from actual results.
A-1-1
6. Accredited Investor. The Investor is an “accredited investor” within the meaning of Regulation D, Rule 501(a), promulgated by the Securities and Exchange Commission and agrees to submit to the Company such further assurances of such status as may be reasonably requested by the Company.
7. Residency. The residency of the Investor (or, in the case of a partnership or corporation, such entity’s principal place of business) is correctly set forth on the signature page hereto.
8. Restrictions on Resales. The Investor acknowledges that the Securities must be held indefinitely unless subsequently registered under the Securities Act or an exemption from such registration is available. The Investor is aware of the provisions of Rule 144 promulgated under the Securities Act, which permit resale of shares purchased in a private placement subject to the satisfaction of certain conditions, which may include, among other things, the availability of certain current public information about the Company; the resale occurring not less than a specified period after a party has purchased and paid for the security to be sold; the number of shares being sold during any three-month period not exceeding specified limitations; the sale being effected through a “broker’s transaction,” a transaction directly with a “market maker” or a “riskless principal transaction” (as those terms are defined in the Securities Act or the Securities Exchange Act of 1934, as amended, and the rules and regulations promulgated thereunder); and the filing of a Form 144 notice, if applicable. The Investor acknowledges and understands that the Company may not be satisfying the current public information requirement of Rule 144 at the time the Investor wishes to sell the Securities and that, in such event, the Investor may be precluded from selling the Securities under Rule 144 even if the other applicable requirements of Rule 144 have been satisfied. The Investor understands and acknowledges that, in the event the applicable requirements of Rule 144 are not met, registration under the Securities Act or an exemption from registration will be required for any disposition of the Securities. The Investor understands that, although Rule 144 is not exclusive, the Securities and Exchange Commission has expressed its opinion that persons proposing to sell restricted securities received in a private offering other than in a registered offering or pursuant to Rule 144 will have a substantial burden of proof in establishing that an exemption from registration is available for those offers or sales and that those persons and the brokers who participate in the transactions do so at their own risk.
9. No Public Market. The Holder understands and acknowledges that no public market now exists for any of the securities issued by the Company and that the Company has made no assurances that a public market will ever exist for the Company’s securities.
10. Brokers and Finders. The Investor has not engaged any brokers, finders or agents in connection with the Securities, and the Company has not incurred nor will incur, directly or indirectly, as a result of any action taken by the Investor, any liability for brokerage or finders’ fees or agents’ commissions or any similar charges in connection with the Securities.
11. Legal Counsel. The Investor has had the opportunity to review the Warrant, the exhibits and schedules attached thereto and the transactions contemplated by the Warrant with its own legal counsel. The Investor is not relying on any statements or representations of the Company or its agents for legal advice with respect to this investment or the transactions contemplated by the Warrant.
12. Tax Advisors. The Investor has reviewed with its own tax advisors the U.S. federal, state and local and non-U.S. tax consequences of this investment and the transactions contemplated by the Warrant. With respect to such matters, the Investor relies solely on such advisors and not on any statements or representations of the Company or any of its agents, written or oral. The Investor understands that it (and not the Company) shall be responsible for its own tax liability that may arise as a result of this investment or the transactions contemplated by the Warrant.
13. Market Stand-off. The Investor agrees that all Securities shall be subject to the market standoff provisions of Section 2.10 of the Rights Agreement
(Signature Page Follows)
A-1-2
The Investor is signing this Investment Representation Statement and Market Stand-Off Agreement on the date first written above.
| INVESTOR |
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EXHIBIT B
ASSIGNMENT FORM
| ASSIGNOR: |
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| COMPANY: | IRHYTHM TECHNOLOGIES, INC. | |||||
| WARRANT: | THE WARRANT TO PURCHASE SHARES ISSUED ON NOVEMBER 1, 2012 (THE “WARRANT”) | |||||
| DATE: |
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| (1) | Assignment. The undersigned registered holder of the Warrant (“Assignor”) assigns and transfers to the assignee named below (“Assignee”) all of the rights of Assignor under the Warrant, with respect to the number of shares set forth below: |
| Name of Assignee: |
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| Address of Assignee: |
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| Number of Shares Assigned: |
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and does irrevocably constitute and appoint as attorney to make such transfer on the books of IRHYTHM TECHNOLOGIES, INC., maintained for the purpose, with full power of substitution in the premises.
| (2) | Obligations of Assignee. Assignee agrees to take and hold the Warrant and any shares of stock to be issued upon exercise of the rights thereunder (and any shares issuable upon conversion thereof) (the “Securities”) subject to, and to be bound by, the terms and conditions set forth in the Warrant to the same extent as if Assignee were the original holder thereof. |
| (3) | Investment Intent. Assignee represents and warrants that the Securities are being acquired for investment for its own account, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and that Assignee has no present intention of selling, granting any participation in, or otherwise distributing the shares, nor does it have any contract, undertaking, agreement or arrangement for the same. |
| (4) | Investment Representation Statement and Market Stand-Off Agreement. Assignee has executed, and delivers herewith, an Investment Representation Statement and Market Stand-Off Agreement in a form substantially similar to the form attached to the Warrant as Exhibit A-1. |
B-1
Assignor and Assignee are signing this Assignment Form on the date first set forth above.
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| (Print name of Assignor) | (Print name of Assignee) | |||
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| (Signature of Assignor) | (Signature of Assignee) | |||
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| (Print name of signatory, if applicable) | (Print name of signatory, if applicable) | |||
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| (Print title of signatory, if applicable) | (Print title of signatory, if applicable) | |||
| Address: | Address: | |||
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B-2
