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TABLE OF CONTENTS
INDEX TO FINANCIAL STATEMENTS

Table of Contents

As filed with the Securities and Exchange Commission on December 30, 2014

Registration No. 333-            


UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549



FORM S-1
REGISTRATION STATEMENT
Under
The Securities Act of 1933



AVINGER, INC.
(Exact name of Registrant as specified in its charter)



Delaware
(State or other jurisdiction of
incorporation or organization)
  3841
(Primary Standard Industrial
Classification Code Number)
  20-8873453
(I.R.S. Employer
Identification Number)

400 Chesapeake Drive
Redwood City, California 94063
(650) 241-7900

(Address, including zip code, and telephone number, including
area code, of Registrant's principal executive offices)



Jeffrey M. Soinski
Chief Executive Officer
Avinger, Inc.
400 Chesapeake Drive
Redwood City, CA 94063
(650) 241-7900
(Name, address, including zip code, and telephone number, including area code, of agent for service)



Copies to:

Philip H. Oettinger
Wilson Sonsini Goodrich & Rosati
Professional Corporation
650 Page Mill Road
Palo Alto, California 94304
(650) 493-9300

 

Timothy R. Curry
Ruben A. Garcia
Jones Day
1755 Embarcadero Road
Palo Alto, CA 94303
(650) 739-3939



Approximate date of commencement of proposed sale to the public:
As soon as practicable after the effective date of this Registration Statement.

         If any of the securities being registered on this Form are to be offered on a delayed or continuous basis pursuant to Rule 415 under the Securities Act of 1933, check the following box.     o

         If this Form is filed to register additional securities for an offering pursuant to Rule 462(b) under the Securities Act, please check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         If this Form is a post-effective amendment filed pursuant to Rule 462(c) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         If this Form is a post-effective amendment filed pursuant to Rule 462(d) under the Securities Act, check the following box and list the Securities Act registration statement number of the earlier effective registration statement for the same offering.     o

         Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See the definitions of "large accelerated filer," "accelerated filer" and "smaller reporting company" in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer  o   Accelerated filer  o   Non-accelerated filer  o
(Do not check if a
smaller reporting company)
  Smaller reporting company  ý



CALCULATION OF REGISTRATION FEE

       
 
Title of Each Class of Securities
to be Registered

  Proposed Maximum
Aggregate Offering
Price(1)(2)

  Amount of
Registration Fee

 

Common Stock, $0.001 par value

  $69,000,000   $8,017.80

 

(1)
In accordance with Rule 457(o) under the Securities Act of 1933, the number of shares being registered and the proposed maximum offering price per share are not included in this table.

(2)
Estimated solely for the purpose of computing the amount of the registration fee pursuant to Rule 457(o) under the Securities Act of 1933.



          The Registrant hereby amends this Registration Statement on such date or dates as may be necessary to delay its effective date until the Registrant shall file a further amendment which specifically states that this Registration Statement shall thereafter become effective in accordance with Section 8(a) of the Securities Act of 1933 or until the Registration Statement shall become effective on such date as the Commission acting pursuant to said Section 8(a) may determine.

   


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The information in this preliminary prospectus is not complete and may be changed. We may not sell these securities until the registration statement filed with the Securities and Exchange Commission is declared effective. This preliminary prospectus is not an offer to sell these securities and we are not soliciting an offer to buy these securities in any state where the offer or sale is not permitted.

Subject to Completion, dated December 30, 2014

LOGO

                Shares

Avinger, Inc.

Common Stock



       We are offering                shares of common stock. This is our initial public offering and no public market currently exists for our common stock. We anticipate the initial public offering price will be between $        and $        per share.

       We expect our common stock to be quoted on The NASDAQ Stock Market under the symbol "AVGR."



        We are an "emerging growth company" and a "smaller reporting company" as defined under the federal securities laws. Investing in our common stock involves a high degree of risk. Please see the section entitled "Risk Factors" starting on page 11 to read about risks you should consider carefully before buying shares of our common stock.

        Neither the Securities and Exchange Commission nor any state securities commission has approved or disapproved of these securities or determined if this prospectus is truthful or complete. Any representation to the contrary is a criminal offense.



 
  Per Share   Total  

Initial Public Offering Price

  $     $    

Underwriting Discount (1)

  $     $    

Proceeds to Avinger, Inc. 

  $     $    

(1)
See the section titled "Underwriting" for a description of the compensation payable to the underwriters.

       We have granted the underwriters a 30-day option to purchase up to an additional        shares of common stock at the initial public offering price, less the underwriting discount, to cover over-allotments.

       The underwriters expect to deliver the shares on or about            , 2015.




Joint Book-Running Managers

Canaccord Genuity   Cowen and Company


Co- Managers

Oppenheimer & Co.   BTIG   Stephens Inc.

   

The date of this prospectus is        , 2015


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GRAPHIC


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TABLE OF CONTENTS

Section
  Page

Prospectus Summary

  1

Risk Factors

  11

Cautionary Notes Regarding Forward-Looking Statements

  42

Market, Industry and Other Data

  44

Use of Proceeds

  45

Dividend Policy

  46

Capitalization

  47

Dilution

  49

Selected Financial Data

  51

Management's Discussion and Analysis of Financial Condition and Results of Operations

  53

Business

  71

Management

  98

Executive Compensation

  108

Certain Relationships and Related Transactions

  119

Principal Stockholders

  123

Underwriting

  125

Description of Capital Stock

  133

Shares Eligible for Future Sale

  139

Material U.S. Federal Income and Estate Tax Consequences for Non-U.S. Holders of Our Common Stock

  142

Legal Matters

  146

Experts

  146

Where You Can Find More Information

  146

Index to Financial Statements

  F-1



        You should rely only on the information contained in this prospectus or contained in any free writing prospectus prepared by or on behalf of us. Neither we nor the underwriters have authorized anyone to provide any information or to make any representations other than those contained in this prospectus or in any free writing prospectuses prepared by or on behalf of us or to which we have referred you. We take no responsibility for, and can provide no assurance as to the reliability of, any other information that others may give you. This prospectus is an offer to sell only the securities offered hereby, but only under circumstances and in jurisdictions where it is lawful to do so. The information contained in this prospectus is accurate only as of its date regardless of the time of delivery of this prospectus or of any sale of securities.

       For investors outside the United States, neither we nor the underwriters have done anything that would permit this offering or possession or distribution of this prospectus in any jurisdiction where action for that purpose is required, other than in the U.S. Persons who come into possession of this prospectus and any free writing prospectus related to this offering in jurisdictions outside the U.S. are required to inform themselves about and to observe any restrictions as to this offering and the distribution of this prospectus and any such free writing prospectus applicable to that jurisdiction.

        Until                         , all dealers that effect transactions in these securities, whether or not participating in this offering, may be required to deliver a prospectus. This is in addition to the dealers' obligation to deliver a prospectus when acting as underwriters and with respect to their unsold allotments or subscriptions .

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PROSPECTUS SUMMARY

        This summary highlights selected information contained in greater detail elsewhere in this prospectus and does not contain all of the information that you should consider in making your investment decision. Before investing in our common stock, you should carefully read the entire prospectus, including "Risk Factors" beginning on page 11 and the financial statements and related notes. As used in this prospectus, references to "we," "our," "us" and "Avinger" refer to Avinger, Inc. unless the context requires otherwise.

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments include stents, angioplasty, and atherectomy devices, which are catheter-based products for the removal of plaque. These treatments also have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which we refer to as the black line.

       Our lumivascular platform is the only technology that offers real-time visualization of the inside of the artery during PAD treatment. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding healthy portions of the artery.

       During the third quarter of 2014, we began enrolling, and we are continuing to enroll, patients in VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. We believe the data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. We expect to complete the VISION trial and submit for 510(k) clearance during the second half of 2015 from FDA. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

 

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       We have assembled a team with extensive medical device development and commercialization capabilities, including our founder, John B. Simpson, Ph.D., M.D., who founded Advanced Cardiovascular Systems, FoxHollow Technologies and Perclose, among other vascular medical device companies. We design, develop and manufacture all of our products in-house at our headquarters in Redwood City, California using some components and sub-assemblies provided by third party suppliers. As of September 30, 2014, we had 103 employees.

Market Overview

       According to an article published in The Lancet, the global prevalence of PAD was estimated at 202 million people in 2010. The prevalence of PAD in the United States alone was estimated at 18 million people in 2010 and is projected to grow to 21 million people by 2020 according to the Sage Group. Despite its prevalence, PAD is underdiagnosed and undertreated relative to many other serious vascular conditions, including coronary artery disease, or CAD, in part because many PAD patients are asymptomatic or dismiss their symptoms as normal signs of aging. Despite the relative undertreatment of PAD, Millennium Research Group estimates that over 570,000 catheter-based PAD procedures in the pelvis and legs were performed in the United States in 2013, which corresponded to a $1.0 billion market. Millennium Research Group also estimates that the number of catheter-based PAD procedures will grow to 700,000 in 2017, representing a $1.2 billion market in the United States. Higher diagnosis and intervention rates resulting from greater physician and patient awareness of PAD, as well as higher prevalence, may significantly expand the market opportunity for PAD treatments, according to Millennium Research Group.

Current Treatments and Their Limitations

       Physicians currently have the following options available to treat PAD:

    Medical Management —The large majority of cases of diagnosed PAD in the United States are medically managed through lifestyle changes and drug treatment. Although these measures can be effective, many people are unable to sustain them and will ultimately require more aggressive treatments.

    Bypass Surgery —This procedure entails using a synthetic graft or harvesting a healthy vessel from another area of the body and grafting it around a blocked portion of an artery. General anesthesia and the potential for surgical infections make this approach less suitable for patients with conditions such as high blood pressure, heart failure, chronic obstructive pulmonary disease or poor kidney function.

    Amputation Physicians may recommend full or partial amputation of the leg or foot for patients with critical limb ischemia, or CLI. The Transatlantic Intersociety Consensus for the Management of Peripheral Arterial Disease estimates that 30% of patients with CLI will require an amputation within one year of diagnosis.

    Balloon Angioplasty —In an angioplasty procedure, a miniature balloon attached to the tip of the treatment catheter opens the blood vessel by expanding the vessel and compressing plaque against the arterial wall. While angioplasty catheters are relatively easy to use, they stretch the arterial wall, often leading to dissections of, and damage to, the black line.

    Stenting —A stent is a wire-mesh tube that acts as a scaffold inside the artery to maintain adequate blood flow. Since stents rely on a similar expansion mechanism as balloons, we believe they also cause injury to the arterial wall and disrupt the black line during placement. Once a stent is implanted, it cannot be removed, which may limit future treatment options.

 

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    Atherectomy —Atherectomy is a procedure in which plaque is cleared from the arterial walls using a catheter-based technology with a mechanism to remove or displace diseased tissue. Current atherectomy technologies can damage the black line, which we believe increases the risk of restenosis.

Our Solution

       We believe the combination of enhanced visualization and the ability to precisely target the diseased portion of an artery will allow physicians to access difficult to treat areas and significantly improve the safety and efficacy of endovascular procedures for patients. We believe that our lumivascular platform provides the following benefits to physicians, hospitals and patients:

    Improved efficacy through reduced risk of restenosis.   Our lumivascular platform is designed to provide physicians with a clear picture from inside the artery during treatment. This visualization helps physicians to avoid disrupting the black line during an intervention, which we believe reduces the risk of restenosis.

    Safety of endovascular procedures.   Serious adverse events such as perforations and dissections may be reduced during endovascular procedures using our lumivascular platform.

    Expanded patient population eligible for endovascular treatment of PAD.   Our lumivascular platform is designed to allow physicians to treat complex PAD cases due to our increased CTO crossing success rates. Due to improved safety of our lumivascular platform products, we believe physicians will be more likely to use our products to treat patients who would otherwise be medically managed.

    Decreased radiation exposure for physicians and patients.   Our lumivascular platform, which utilizes radiation-free OCT imaging, provides real-time visualization from the inside of the artery. When using our lumivascular platform, physicians may elect to use less fluoroscopy during a procedure as a result of having an additional means of visualization that does not involve radiation.

    Reduced use of balloons and stents and preservation of future treatment options.   Pantheris, if cleared by FDA, is designed to enable physicians to successfully perform atherectomy procedures and remove plaque blockages in PAD patients using fewer balloons and stents. By avoiding the use of stents in atherectomy procedures, we believe that Pantheris better preserves future treatment options.

    Lumivascular platform designed for ease of adoption by physicians and hospitals.   Our lumivascular platform products, while providing image-guided assistance to physicians, are used in a similar fashion to traditional catheters. We believe the more than 10,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States that are trained in endovascular techniques can generally adopt our lumivascular platform and products without extensive training.

       Risks of using the lumivascular platform include the risks that are common to endovascular procedures and generally may include perforation, dissection, embolization, bleeding, infection, restenosis and limb loss. We are aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption, including that the current model of Pantheris may require two physicians to operate the catheter and that training for technicians and physicians will be required to enable them to effectively operate our lumivascular platform products. Our Pantheris product is not cleared or approved by FDA for commercial sale. Pantheris may not be sold in the United States without clearance from FDA. Our current products are contraindicated, and therefore should not be used, in the iliac, coronary, cerebral, renal and carotid arteries.

 

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Our Strategy

       Our goal is to become the leading provider of image-guided medical devices for physicians to treat vascular diseases. The key elements of our strategy are to:

    Successfully complete the Pantheris VISION clinical trial.   We are currently enrolling patients in the VISION clinical trial to evaluate the safety and effectiveness of Pantheris in performing atherectomy procedures. We intend to use the data from our VISION trial to support an FDA 510(k) submission in the second half of 2015 for Pantheris.

    Increase the installed base and penetration of our lumivascular platform.   Our current sales efforts focus on establishing new lumivascular platform sites by marketing our products to physicians and hospital administrators. Additionally, we seek to increase the use of our lumivascular platform products by our current customers through case coverage, clinical training and other programs. We expect to grow our sales force in preparation for the commercial launch of Pantheris in order to increase the base of customers using our lumivascular platform products.

    Perform additional post-market studies to demonstrate the clinical and economic benefits of our lumivascular platform . We intend to initiate post-market studies that will examine clinical outcomes of our lumivascular platform products compared to other endovascular treatments for PAD, and demonstrate the benefits of our lumivascular platform. We plan to conduct studies comparing the safety, efficacy and cost of our lumivascular platform products to competitive products and may also conduct studies to gain additional clinical indications.

    Assist hospitals in raising awareness of our lumivascular platform for patients suffering from PAD . We work with our hospital customers to build a lumivascular platform-based program through clinical training, public relations and physician education. The main focus of our clinical value proposition is to demonstrate how the lumivascular platform allows physicians to avoid injury to the black line during intervention, while addressing the other limitations of competing endovascular approaches.

    Leverage our technology platform to develop new products and further enhance our intellectual property portfolio . We intend to continue to invest in initiatives to improve the safety, efficacy and ease of use of our lumivascular platform, as well as to reduce costs and procedure times. We have also identified a number of future expansion opportunities, including within the coronary artery market, to position our lumivascular platform as the standard of care for vascular disease. We believe we have a strong intellectual property portfolio and will continue to enhance this portfolio as we develop new technologies.

    Optimize our manufacturing operations to achieve cost and production efficiencies while maintaining quality . We design, develop and manufacture all of our products in-house at our headquarters using some components and sub-assemblies provided by third party suppliers. We believe that controlling the manufacturing and assembly of our products allows us to innovate more quickly and produce higher quality products than if we outsourced manufacturing. We have the capacity to significantly increase our manufacturing volume within our current facilities and improve our gross margins.

Risks Associated with Our Business

       Our business is subject to numerous risks, as more fully described in the section entitled "Risk Factors" immediately following this prospectus summary. These risks include, among others:

    We have a history of net losses and we may not be able to achieve or sustain profitability.

 

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    Our limited commercialization experience and number of approved products makes it difficult to evaluate our current business, predict our future prospects and forecast our financial performance and growth.

    Our success depends in large part on our ability to obtain FDA clearance for, and successfully commercialize, Pantheris. This device is still in clinical trials, has been used in only a limited number of procedures and there is no long-term data on its safety and efficacy.

    We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed could force us to delay, reduce or eliminate our product development programs and commercialization efforts.

    We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

    We depend on a limited number of products, which we only recently introduced in the United States. If these products fail to gain, or lose, market acceptance, our business will suffer.

    We compete against companies that have longer operating histories, more established products and greater resources, which may prevent us from achieving significant market penetration, increasing our revenues or becoming profitable.

    We may in the future be a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with our ability to sell our lumivascular platform products.

Company Information

       We were incorporated in Delaware on March 8, 2007. Our principal executive offices are located at 400 Chesapeake Drive, Redwood City, CA 94063, and our telephone number is (650) 241-7900. Our website address is www.avinger.com. The information on, or that may be accessed through, our website is not incorporated by reference into this prospectus and should not be considered a part of this prospectus.

       We are an "emerging growth company," as defined in the Jumpstart Our Business Startups Act of 2012. As such, we are eligible for exemptions from various reporting requirements applicable to other public companies that are not emerging growth companies, including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act of 2002 and reduced disclosure obligations regarding executive compensation. We will remain an emerging growth company until the earlier of (1) the last day of the fiscal year following the fifth anniversary of the completion of this offering, (2) the last day of the fiscal year in which we have total annual gross revenues of at least $1.0 billion, (3) the date on which we are deemed to be a large accelerated filer, which means the market value of our common stock that is held by non-affiliates exceeds $700 million as of the prior June 30th, and (4) the date on which we have issued more than $1.0 billion in non-convertible debt securities during the prior three-year period. We are also a "smaller reporting company," as defined by applicable rules of the Securities and Exchange Commission, or SEC. We will remain eligible for the exemptions from various reporting requirements available to emerging growth companies, other than with respect to stockholder approval of golden parachute payments, after we are no longer an emerging growth company for as long as we remain a smaller reporting company. We will remain a smaller reporting company until we have a public float, or value attributable to stock held by non-affiliates, of at least $75 million, as measured on the prior June 30 th .

 

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        "Avinger" and "Pantheris" are trademarks of our company. Our logo and our other trade names, trademarks and service marks appearing in this prospectus are our property. Other trade names, trademarks and service marks appearing in this prospectus are the property of their respective owners. Solely for convenience, our trademarks and tradenames referred to in this prospectus appear without the ™ symbol, but those references are not intended to indicate, in any way, that we will not assert, to the fullest extent under applicable law, our rights, or the right of the applicable licensor to these trademarks and tradenames. Certain market and industry data used in this prospectus, where noted, is attributable to Millennium Research Group, Inc. Millennium Research Group asserts copyright protection over the use of such information and reserves all rights with respect to its use. This information has been reprinted with Millennium Research Group's permission and the reproduction, distribution, transmission or publication of such information is prohibited without its consent.

 

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THE OFFERING

Common stock offered by us

 

                         shares

Common stock outstanding prior to the offering

 

                         shares

Common stock outstanding after this offering

 

                         shares

Underwriters over-allotment option

 

                         shares

Estimated initial public offering price per share

 

$            to $            

Directed Share Program

 

The underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, consultants and other parties related to us as part of a directed share program. We will offer these shares to the extent permitted under applicable regulations. The number of shares available for sale in this offering will be reduced to the extent these persons purchase reserved shares. Any reserved shares not purchased will be offered by the underwriters on the same terms as the other shares in this offering.

Use of proceeds

 

We intend to use the net proceeds from this offering for working capital and other general corporate purposes including payment of scheduled interest and principal on our credit facility with PDL Biopharma. See "Use of Proceeds."

Risk Factors

 

See "Risk Factors" beginning on page 11 and the other information included in this prospectus for a discussion of factors you should carefully consider before deciding to invest in our common stock.

Proposed NASDAQ Stock Market symbol

 

AVGR

       The number of shares of common stock that will be outstanding after this offering is based on 235,350,425 shares outstanding as of September 30, 2014, and excludes:

    47,297,276 shares of common stock underlying warrants that are exercisable at $0.28 per share;

                     shares of common stock issuable upon the conversion of principal and accrued interest of approximately $12.4 million underlying outstanding convertible promissory notes as of September 30, 2014, which are convertible at the option of the holders of such notes into shares of our common stock at a price equal to 85% of the initial public offering price;

    14,257,803 shares of common stock issuable upon the exercise of options outstanding under our 2009 Stock Plan at a weighted-average exercise price of approximately $0.36 per share;

                     shares of common stock to be reserved for future issuance upon the exercise of options available for grant under our 2014 Equity Incentive Plan; and

 

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                     shares to be reserved for future issuance under our 2014 Employee Stock Purchase Plan.

       Unless otherwise indicated, all information in this prospectus assumes:

    a      -for-      reverse split of our common stock to be effected prior to this offering;

    the conversion, in accordance with our existing amended and restated certificate of incorporation, of all our shares of outstanding preferred stock into 224,414,391 shares of our common stock upon the closing of this offering;

    the underwriters do not exercise their over-allotment option;

    we price our offering at the mid-point of the price range on the front cover of this prospectus; and

    the adoption of our amended and restated certificate of incorporation and amended and restated bylaws upon the completion of this offering.

 

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SUMMARY FINANCIAL DATA

       The following table presents summary historical, pro forma and pro forma as adjusted financial data. We derived the summary statements of operations data for the years ended December 31, 2012 and 2013, and the balance sheet data as of December 31, 2012 and 2013, from our audited financial statements appearing elsewhere in this prospectus. The summary statements of operations data for the nine months ended September 30, 2013 and 2014, and the balance sheet data as of September 30, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited financial statements and related notes appearing elsewhere in this prospectus and the information under the captions "Selected Financial Data" and "Management's Discussion and Analysis of Financial Condition and Results of Operations." The summary financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.

 
  Years Ended
December 31,
  Nine Months
Ended September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except per share data)
 

Statements of Operations Data:

                         

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  
                   

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Net loss per share, basic and diluted

  $ (3.60 ) $ (3.80 ) $ (3.00 ) $ (2.20 )
                   
                   

Weighted average common shares used to compute net loss per share, basic and diluted

    9,416     10,512     10,438     10,836  
                   
                   

Pro forma net loss per share, basic and diluted (unaudited) (1)

        $ (0.31 )       $ (0.17 )
                       
                       

Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited) (1)

          127,116           138,475  
                       
                       

 

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  As of September 30, 2014  
 
  As of December 31,  
 
   
   
  Pro Forma
As Adjusted (2)
 
 
  2012   2013   Actual   Pro Forma (1)  
 
   
   
  (unaudited)
  (unaudited)
  (unaudited)
 
 
  (in thousands)
   
 

Balance Sheet Data:

                               

Cash and cash equivalents

  $ 20,617   $ 12,221   $ 12,213   $ 12,213        

Working capital

    22,462     15,874     13,271     13,271        

Total assets

    30,324     25,008     23,064     23,064        

Borrowings

        20,052     20,323     20,323        

Convertible notes and accrued interest

        13,731     12,416     12,416        

Convertible preferred stock

    99,659     99,654     119,769            

Accumulated deficit

    (74,668 )   (114,569 )   (138,398 )   (138,398 )      

Total stockholders' deficit

    (73,644 )   (112,782 )   (135,915 )   (16,146 )      

(1)
Reflects (i) the filing of our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, (ii) the automatic conversion of all outstanding shares of our preferred stock into 224,414,391 shares of our common stock, and (iii) a     -for-    reverse split of our common stock to be effected prior to the offering;

(2)
Reflects (i) the filing of our amended and restated certificate of incorporation, which will become effective immediately prior to the consummation of this offering, (ii) the automatic conversion of all outstanding shares of our preferred stock into 224,414,391 shares of common stock, (iii) a       -for-      reverse split of our common stock to be effected prior to the offering and (iv) the sale by us of            shares of common stock at an assumed initial public offering price of $            per share less the underwriting discounts and commissions and estimated offering expenses payable by us.

 

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RISK FACTORS

        Investing in our common stock involves a high degree of risk. You should carefully consider the risks and uncertainties described below, together with all of the other information in this prospectus, including the financial statements and the related notes included elsewhere in this prospectus, before deciding whether to invest in shares of our common stock. If any of the following risks or other risks actually occur, our business, financial condition, results of operations and future prospects could be materially harmed. In that event, the market price of our common stock could decline, and you could lose all or part of your investment. Please also see "Cautionary Notes Regarding Forward-Looking Statements."


Risks Related to Our Business

Our quarterly and annual results may fluctuate significantly, may not fully reflect the underlying performance of our business and may result in decreases in the price of our common stock.

       Our quarterly and annual results of operations, including our revenues, profitability and cash flow, may vary significantly in the future and period-to-period comparisons of our operating results may not be meaningful. Accordingly, the results of any one quarter or period should not be relied upon as an indication of future performance. Our quarterly and annual financial results may fluctuate as a result of a variety of factors, many of which are outside our control and, as a result, may not fully reflect the underlying performance of our business. Fluctuation in quarterly and annual results may decrease the value of our common stock. Factors that may cause fluctuations in our quarterly and annual results include, without limitation:

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We have a history of net losses and we may not be able to achieve or sustain profitability.

       We have incurred significant losses in each period since our inception in 2007. We incurred net losses of $33.9 million in 2012, $39.9 million in 2013 and $23.8 million in the nine months ended September 30, 2014. As of September 30, 2014, we had an accumulated deficit of approximately $138.4 million. These losses and our accumulated deficit reflect the substantial investments we have made to develop our lumivascular platform and acquire customers.

       We expect our costs and expenses to increase in the future due to anticipated increases in cost of revenues, sales and marketing expenses, research and development expenses and general and administrative expenses and, therefore, we expect our losses to continue for the foreseeable future as we continue to make significant future expenditures to develop and expand our business. In addition, as a public company, we will incur significant legal, accounting and other expenses that we did not incur as a private company. Accordingly, we cannot assure you that we will achieve profitability in the future or that, if we do become profitable, we will sustain profitability. Our failure to achieve and sustain profitability would negatively impact the market price of our common stock.

Our limited commercialization experience and number of approved products makes it difficult to evaluate our current business, predict our future prospects and forecast our financial performance and growth.

       We were incorporated in 2007, began commercializing our initial non-lumivascular platform products in 2009 and introduced our first lumivascular platform products in the United States in late 2012. Our limited commercialization experience and number of approved products make it difficult to evaluate our current business and predict our future prospects. We have encountered and will continue to encounter risks and difficulties frequently experienced by companies in rapidly-changing industries. These risks and uncertainties include the risks inherent in clinical trials and increasing and unforeseen expenses as we continue to attempt to grow our business.

       Our short commercialization experience and limited number of approved products also make it difficult for us to forecast our future financial performance and growth and such forecasts are limited and subject to a number of uncertainties, including our ability to successfully complete our VISION clinical trial and obtain FDA clearance for, and successfully commercialize, Pantheris in the United States. If our assumptions regarding the risks and uncertainties we face, which we use to plan our business, are incorrect or change due to circumstances in our business or our markets, or if we do not address these risks successfully, our operating and financial results could differ materially from our expectations and our business could suffer.

Our success depends in large part on our ability to obtain FDA clearance for, and successfully commercialize, Pantheris. This device is still in clinical trials, has been used in only a limited number of procedures and there is no long-term data on its safety and efficacy.

       The long-term viability of our company is largely dependent on the successful development and commercialization of Pantheris. We are currently enrolling patients in a clinical study called VISION that will be used to support regulatory clearance of Pantheris, and we do not have significant long term data on Pantheris' safety and efficacy. While we expect to successfully complete the on-going study and file our 510(k) submission for Pantheris in the second half of 2015 with FDA, there can be no guarantee that the study will be completed, that the primary endpoints will be achieved, or that we will receive regulatory clearance for the sale and marketing of Pantheris in the United States. Because we are depending heavily on sales of Pantheris to achieve our revenue goals, failure to successfully complete the study and receive FDA clearance, in a timely manner or at all, will harm our financial results and ability to become profitable. Even if we obtain regulatory clearance, our ability to

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successfully market this product will be limited due to a number of factors including regulatory restrictions in our labeling. In addition, there can be no guarantee that Pantheris will be accepted by the medical community as a valid alternative to currently available devices. If we cannot sell Pantheris as planned, our financial results will be harmed.

       Failure to successfully complete our Pantheris clinical study would significantly impair our financial results. Such a failure could (i) delay or prevent Pantheris from obtaining regulatory clearance, (ii) require us to perform another clinical trial, which will be expensive, may not be successful and will significantly delay our ability to commercialize Pantheris and (iii) impair our ability to convince hospitals and physicians of the benefits of our lumivascular platform products.

We may not be able to secure additional financing on favorable terms, or at all, to meet our future capital needs and our failure to obtain additional financing when needed could force us to delay, reduce or eliminate our product development programs and commercialization efforts.

       We believe that our cash and cash equivalents at September 30, 2014 plus expected revenues from operations and the net proceeds of this offering will be sufficient to satisfy our cash requirements for at least the next 18 months. We will likely need additional funds to meet our operational needs and capital requirements for product development, clinical trials and commercialization.

       To date, we have financed our operations primarily through sales of our products, net proceeds from the issuance of our preferred stock and debt financings. We do not know when or if our operations will generate sufficient cash to fund our ongoing operations. In the future, we may require additional capital in order to (i) continue to conduct research and development activities, (ii) conduct post-market clinical studies, as well as clinical trials to obtain regulatory clearances and approvals necessary to commercialize our lumivascular platform products, (iii) expand our sales and marketing infrastructure and (iv) acquire complementary business technology or products; or (v) respond to business opportunities, challenges, a decline in sales, increased regulatory obligations or unforeseen circumstances. Our future capital requirements will depend on many factors, including:

       We may raise funds in equity or debt financings following our initial public offering or enter into credit facilities in order to access funds for our capital needs. Any debt financing obtained by us in the future would cause us to incur additional debt service expenses and could include restrictive

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covenants relating to our capital raising activities and other financial and operational matters, which may make it more difficult for us to obtain additional capital and pursue business opportunities. If we raise additional funds through further issuances of equity or convertible debt securities, our existing stockholders could suffer significant dilution in their percentage ownership of our company, and any new equity securities we issue could have rights, preferences and privileges senior to those of holders of our common stock. If we are unable to obtain adequate financing or financing on terms satisfactory to us when we require it, we may terminate or delay the development of one or more of our products, delay clinical trials necessary to market our products, or delay establishment of sales and marketing capabilities or other activities necessary to commercialize our products. If this were to occur, our ability to continue to grow and support our business and to respond to business challenges could be significantly limited.

We have a significant amount of debt, which may affect our ability to operate our business and secure additional financing in the future.

       As of September 30, 2014, we had $21.4 million in principal and interest outstanding under our credit facility, or the credit agreement, with PDL Biopharma, or PDL, and $12.4 million in principal plus interest outstanding under convertible promissory notes, or the notes. We must make significant annual debt payments under the credit agreement, which diverts resources from other activities. Our debt with PDL is collateralized by substantially all of our assets and contains customary financial and operating covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions. In addition to the interest and principal payments due under the credit agreement, we are obligated to pay PDL a royalty at the rate of 1.8% of our quarterly revenues through the maturity date of April 18, 2018. To the extent that we prepay the borrowings under the credit agreement, our royalty obligations will continue and will be payable through the maturity date at the higher of a reduced rate of 0.9% of our quarterly revenues or certain minimum amounts. During this period, we must continue to comply with covenants limiting our ability to, among other things, undergo a change in control and dispose of assets, in each case subject to certain exceptions. These covenants may make it difficult to operate our business. We are also subject to standard event of default provisions both under the credit agreement and the notes that, if triggered, would allow the debt to be accelerated, which could significantly deplete our cash resources, cause us to raise additional capital at unfavorable terms, require us to sell portions of our business or result in us becoming insolvent. The existing collateral pledged under the credit agreement, the covenants to which we are bound and the obligation to pay a certain percentage of our future revenues to PDL, even after the PDL debt is repaid, may prevent us from being able to secure additional debt or equity financing on favorable terms, or at all, or to pursue business opportunities, including potential acquisitions. In addition, we are obligated to pay our former financial advisor a transaction fee of $650,000 plus $35,000 for reimbursement of their out-of-pocket expenses.

We depend on a limited number of products, which we only recently introduced in the United States. If these products fail to gain, or lose, market acceptance, our business will suffer.

       Ocelot, Ocelot PIXL, Ocelot MVRX, Lightbox, Wildcat and Kittycat 2 are our only products currently cleared for sale, and our current revenues are wholly dependent on them. Sales of Wildcat and Kittycat 2 have been declining and are continuing to decline as we focus on the promotion of our lumivascular platform products. We expect that sales of our current and future lumivascular platform products in the United States will account for substantially all of our revenues for the foreseeable future. Because of their recent commercial introduction, our lumivascular platform products have

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limited product and brand recognition. We do not know if our lumivascular platform products will be successful over the long term and market acceptance may be hindered if physicians are not presented with compelling data from long-term studies of the safety and efficacy of our lumivascular platform products compared to alternative procedures, such as angioplasty, stenting, bypass surgery or other atherectomy procedures. For example, if patients undergoing treatment with our lumivascular platform products have retreatment rates higher than or comparable with the retreatment rates of alternative procedures, it will be difficult to demonstrate the value of our lumivascular platform products. Any studies we may conduct comparing our lumivascular platform with alternative procedures will be expensive, time consuming and may not yield positive results. Physicians will also need to appreciate the value of real-time imaging in improving patient outcomes in order to change current methods for treating PAD patients. In addition, demand for our lumivascular platform products may decline or may not increase as quickly as we expect. Failure of our lumivascular platform products to significantly penetrate current or new markets would harm our business, financial condition and results of operations.

       We are also aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption. For example, the current model of Pantheris may require two physicians to operate the catheter and a technician to operate the Lightbox, making it less financially attractive for physicians. It may take significant time and expense to modify our products to allow a single physician to operate the entire system and we can provide no guarantee that we will be able to make such modifications, or obtain any additional and necessary regulatory clearances for such modifications. Also, although the OCT images created by our Lightbox may make it possible for physicians to reduce the degree to which fluoroscopy and contrast dye are used when using our lumivascular platform products compared to competing endovascular products, physicians are still using both fluoroscopy and contrast dye, particularly with Pantheris. As a result, risks of complications from radiation and contrast dye are still present and may limit the commercial success of our products. Finally, it will require training for technicians and physicians to effectively operate our lumivascular platform products, including interpreting the OCT images created by our Lightbox, which may affect adoption of our products by physicians. These or other characteristics and features of our lumivascular platform may cause our products not to be widely adopted and harm our business, financial condition and results of operation.

Our ability to compete is highly dependent on demonstrating the benefits of our lumivascular platform to physicians, hospitals and patients.

       In order to generate sales, we must be able to clearly demonstrate that our lumivascular platform is both a more effective treatment system and less costly than the alternatives offered by our competitors. If we are unable to convince physicians that our lumivascular platform leads to significantly lower restenosis, or narrowing of the artery, rates and fewer adverse events during surgery than those using competing technologies, our business will suffer. In order to use our Ocelot family of catheters or, if cleared, Pantheris, hospitals must make an investment in our Lightbox. Accordingly, we must convince hospitals and physicians that our lumivascular platform results in significantly better patient outcomes at a competitive overall cost. For example, we may need to demonstrate that the investment hospitals must make when purchasing our Lightbox and the incremental costs of having up to two physicians operate Pantheris can be justified based on the benefits to patients, physicians and hospitals. If we are unable to develop robust clinical data to support these claims we will be unable to convince hospitals and third party payors of these benefits and our business will suffer.

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       Our value proposition to physicians and hospitals is largely dependent upon our contention that the rate of disruption of the black line when physicians are using our products is lower than with competing products. If minimizing disruption to the black line does not significantly impact patient outcomes, meaning either (i) that restenosis is often triggered without disrupting the black line, or (ii) the black line can often be disrupted without triggering restenosis, then we may be unable to demonstrate our lumivascular platform's benefits are any different than competing technologies. Furthermore, physicians may find our imaging system difficult to use and we may not provide physicians with adequate training to be able to realize the benefits of our lumivascular platform. If physicians do not value the benefits of on-board imaging and the enhanced visualization enabled by our products during an endovascular intervention as compared to our competitor's products, or do not believe that such benefits improve clinical outcomes, our lumivascular platform products may not be widely adopted.

The use, misuse or off-label use of the products in our lumivascular platform may result in injuries that lead to product liability suits, which could be costly to our business.

       We require limited training in the use of our lumivascular platform products because we market primarily to physicians who are experienced in the interventional techniques required to use our device. If demand for our lumivascular platform continues to grow, less experienced physicians will likely use the device, potentially leading to more injury and an increased risk of product liability claims. The use or misuse of our lumivascular platform products has in the past resulted, and may in the future result, in complications, including damage to the treated artery, infection, internal bleeding, and limb loss, potentially leading to product liability claims. Our lumivascular platform products are not FDA-cleared or approved for use in the carotid, cerebral, coronary, iliac, or renal arteries. Our sales force does not promote the use of our products for off-label indications, and our U.S. instructions for use specify that our lumivascular platform products are not intended for use in the carotid, cerebral, coronary, iliac or renal arteries. However, we cannot prevent a physician from using our lumivascular platform products for these off-label applications. The application of our lumivascular platform products to coronary arteries, as opposed to peripheral arteries, is more likely to result in complications that have serious consequences. For example, if excised plaque were not captured properly in our device, it could be carried by the bloodstream to a more narrow location, blocking a coronary artery, leading to a heart attack, or blocking an artery to the brain, leading to a stroke. If our lumivascular platform products are defectively designed, manufactured or labeled, contain defective components or are misused, we may become subject to costly litigation initiated by our customers or their patients. Product liability claims are especially prevalent in the medical device industry and could harm our reputation, divert management's attention from our core business, be expensive to defend and may result in sizable damage awards against us. Although we maintain product liability insurance, the amount or breadth of our coverage may not be adequate for the claims that are made against us.

The expense and potential unavailability of insurance coverage for liabilities resulting from our products could harm us and our ability to sell our lumivascular platform products.

       We may not have sufficient insurance coverage for future product liability claims. We may not be able to obtain insurance in amounts or scope sufficient to provide us with adequate coverage against all potential liabilities. Any product liability claims brought against us, with or without merit, could increase our product liability insurance rates or prevent us from securing continuing coverage, harm our reputation in the industry, significantly increase our expenses, and reduce product sales. Product liability claims in excess of our insurance coverage would be paid out of cash reserves, harming our financial condition and operating results.

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       Some of our customers and prospective customers may have difficulty in procuring or maintaining liability insurance to cover their operations and use of our lumivascular platform products. Medical malpractice carriers are withdrawing coverage in certain states or substantially increasing premiums. If this trend continues or worsens, our customers may discontinue using our lumivascular platform products and potential customers may opt against purchasing our lumivascular platform products due to the cost or inability to procure insurance coverage.

Our ability to compete depends on our ability to innovate successfully.

       The market for medical devices in general, and in the PAD market in particular, is highly competitive, dynamic, and marked by rapid and substantial technological development and product innovation. There are few barriers that would prevent new entrants or existing competitors from developing products that compete directly with ours. Demand for our lumivascular platform products could be diminished by equivalent or superior products and technologies offered by competitors. If we are unable to innovate successfully, our lumivascular platform products could become obsolete and our revenues would decline as our customers purchase our competitors' products.

       The medical device market is characterized by extensive research and development and rapid technological change. Technological progress or new developments in our industry could harm sales of our products. Our products could be rendered obsolete because of future innovations in the treatment of PAD. In order to remain competitive, we must continue to develop new product offerings and enhancements to our existing lumivascular platform products. Maintaining adequate research and development personnel and resources to meet the demands of the market is essential. If we are unable to develop products, applications or features due to certain constraints, such as insufficient cash resources, inability to raise sufficient cash in future equity or debt financings, high employee turnover, inability to hire sufficient research and development personnel or a lack of other research and development resources, we may miss market opportunities. Furthermore, many of our competitors expend a considerably greater amount of funds on their research and development programs than we do, and those that do not may be acquired by larger companies that would allocate greater resources to our competitors' research and development programs. Our failure or inability to devote adequate research and development resources or compete effectively with the research and development programs of our competitors could harm our business.

We compete against companies that have longer operating histories, more established products and greater resources, which may prevent us from achieving significant market penetration, increasing our revenues or becoming profitable.

       Our products compete with a variety of products and devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon markets include Abbott Laboratories, BARD, Boston Scientific, Cook Medical, Covidien, Johnson & Johnson and Medtronic. Competitors in the atherectomy market include Boston Scientific, Cardiovascular Systems, Covidien, Spectranetics and Volcano. Some competitors have previously attempted to combine intravascular imaging with atherectomy and may have current programs underway to do so. These and other companies may attempt to incorporate on-board visualization into their products in the future and may remain competitive with us in marketing traditional technologies. Other competitors include pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that provide products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that compete with our products. Many of our competitors have significantly greater resources than we do and have

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well-established reputations, as well as broader product offerings and worldwide distribution channels that are significantly larger and more effective than ours. Competition with these companies could result in price-cutting, reduced profit margins and loss of market share, any of which would harm our business, financial condition and results of operations.

       Our ability to compete effectively depends on our ability to distinguish our company and our lumivascular platform from our competitors and their products, and includes such factors as:

       In addition, competitors with greater financial resources than ours could acquire other companies to gain enhanced name recognition and market share, as well as new technologies or products that could effectively compete with our existing products, which may cause our revenues to decline and would harm our business.

If our clinical trials are unsuccessful or significantly delayed, or if we do not complete our clinical trials, our business may be harmed.

       Clinical development is a long, expensive, and uncertain process and is subject to delays and the risk that products may ultimately prove unsafe or ineffective in treating the indications for which they are designed. Completion of clinical trials may take several years or more. We cannot provide any assurance that we will successfully, or in a timely manner, enroll our clinical trials, that our clinical trials will meet their primary endpoints or that such trials or their results will be accepted by the FDA or foreign regulatory authorities. Even if we achieve positive early results in clinical trials, these results do not necessarily predict final results, and positive results in early trials may not indicate success in later trials. Many companies in the medical device industry have suffered significant setbacks in late-stage clinical trials, even after receiving promising results in earlier trials.

       We may experience numerous unforeseen events during, or because of, the clinical trial process that could delay or prevent us from receiving regulatory clearance or approval for new products or modifications of existing products, including new indications for existing products, including:

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       Failures or perceived failures in our clinical trials will delay and may prevent our product development and regulatory approval process, damage our business prospects and negatively affect our reputation and competitive position.

From time to time, we engage outside parties to perform services related to certain of our clinical studies and trials, and any failure of those parties to fulfill their obligations could increase costs and cause delays.

       From time to time, we engage consultants to help design, monitor, and analyze the results of certain of our clinical studies and trials. The consultants we engage interact with clinical investigators to enroll patients in our clinical trials. We depend on these consultants and clinical investigators to help facilitate the clinical studies and trials and monitor and analyze data from these studies and trials under the investigational plan and protocol for the study or trial and in compliance with applicable regulations and standards, commonly referred to as good clinical practices. We may face delays in our regulatory approval process if these parties do not perform their obligations in a timely, compliant or competent manner. If these third parties do not successfully carry out their duties or meet expected deadlines, or if the quality, completeness or accuracy of the data they obtain is compromised due to the failure to adhere to our clinical trial protocols or for other reasons, our clinical studies or trials may be extended, delayed or terminated or may otherwise prove to be unsuccessful, and we may have to conduct additional studies, which would significantly increase our costs, in order to obtain the regulatory clearances that we need to commercialize our products.

We have no long-term data regarding the safety and efficacy of our lumivascular platform products. Any long-term data that is generated by clinical trials involving our lumivascular platform may not be positive or consistent with our short-term data, which would harm our ability to obtain clearance to market and sell our products.

       Our lumivascular platform is a novel system, and our success depends on its acceptance by the medical community as being safe and effective, and improving clinical outcomes. Important factors upon which the efficacy of our lumivascular platform products will be measured are long-term data on the rate of restenosis following our procedure, and the corresponding duration of patency, or openness of the artery, and publication of that data in peer-reviewed journals. Another important

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factor that physicians will consider is the rate of reintervention, or retreatment, following the use of our lumivascular platform products. The long-term clinical benefits of procedures that use our lumivascular platform products are not known.

       The results of short-term clinical experience of our lumivascular platform products do not necessarily predict long-term clinical benefit. Restenosis rates typically increase over time. We believe that physicians will compare the rates of long-term restenosis and reintervention for procedures using our lumivascular platform products against alternative procedures, such as angioplasty, stenting, bypass surgery and other atherectomy procedures. If the long-term rates of restenosis and reintervention do not meet physicians' expectations, our lumivascular platform products may not become widely adopted and physicians may recommend alternative treatments for their patients. Another significant factor that physicians will consider is acute safety data on complications that occur during the use of our lumivascular platform products. If the results obtained from our VISION trial or any post-market studies that we conduct or post-clearance surveillance indicate that the use of our lumivascular platform products are not as safe or effective as other treatment options or as current short-term data would suggest, adoption of our product may suffer and our business would be harmed. Even if we believe the data collected from clinical studies or clinical experience indicate positive results, each physician's actual experience with our products will vary. Physicians who are technically proficient participate in our clinical trials and are high-volume users of our lumivascular platform products. Consequently, the results of our clinical trials and their experiences using our products may lead to better patient outcomes than those of physicians that are less proficient, perform fewer procedures or who use our products infrequently.

Our ability to market our current products in the United States is limited to use in peripheral vessels, and if we want to market our products for other uses, we will need to file for FDA clearances or approvals and may need to conduct trials in addition to VISION to support expanded use, which would be expensive, time-consuming and may not be successful.

       Our current products are cleared in the United States solely for crossing sub-total and chronic total occlusions in the peripheral vasculature. This clearance prohibits our ability to market or advertise our products for any other indication within the peripheral vasculature, which restricts our ability to sell these products and could affect our growth. Additionally, our products are contraindicated for use in the cerebral, carotid, coronary, iliac, and renal arteries. While off-label uses of medical devices are common and FDA does not regulate physicians' choice of treatments, FDA does restrict a manufacturer's communications regarding such off-label use. We are not allowed to actively promote or advertise our products for off-label uses. In addition, we cannot make comparative claims regarding the use of our products against any alternative treatments without conducting head-to-head comparative clinical studies, which would be expensive and time consuming. If our promotional activities fail to comply with FDA's regulations or guidelines, we may be subject to FDA warnings or enforcement action by FDA and other government agencies. In the future, if we want to market a variation of Ocelot or Pantheris in the United States for use in coronary arteries, we will need to make modifications to these products, conduct further clinical trials and obtain new clearances or approvals from FDA. There can be no assurance that we will successfully develop these modifications, that future clinical studies will be successful or that the expense of these activities will be offset by additional revenues.

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The continuing development of many of our products, including Pantheris, depends upon maintaining strong working relationships with physicians.

       The development, marketing, and sale of our products, including Pantheris, depends upon our ability to maintain strong working relationships with physicians. We rely on these professionals to provide us with considerable knowledge and experience regarding the development, marketing and sale of our products. Physicians assist us in clinical trials and as researchers, marketing and product consultants and public speakers. If we cannot maintain our strong working relationships with these professionals and continue to receive their advice and input, the development and marketing of our products could suffer, which could harm our business, financial condition and results of operations. The medical device industry's relationship with physicians is under increasing scrutiny by the Health and Human Services Office of Inspector General, or OIG, the Department of Justice, or DOJ, state attorneys general, and other foreign and domestic government agencies. Our failure to comply with laws, rules and regulations governing our relationships with physicians, or an investigation into our compliance by the OIG, DOJ, state attorneys general and other government agencies, could significantly harm our business.

If we fail to grow our sales and marketing capabilities and develop widespread brand awareness cost effectively, our growth will be impeded and our business may suffer.

       We plan to continue to expand and optimize our sales infrastructure in order to grow our customer base and our business. Identifying and recruiting qualified personnel and training them in the use of our lumivascular platform, and on applicable federal and state laws and regulations and our internal policies and procedures, requires significant time, expense and attention. It can take several months before our sales representatives are fully trained and productive. Our business may be harmed if our efforts to expand and train our sales force do not generate a corresponding increase in revenues. In particular, if we are unable to hire, develop and retain talented sales personnel or if new sales personnel are unable to achieve desired productivity levels in a reasonable period of time, we may not be able to realize the expected benefits of this investment or increase our revenues.

       Our ability to increase our customer base and achieve broader market acceptance of our lumivascular platform will depend to a significant extent on our ability to expand our marketing operations. We plan to dedicate significant financial and other resources to our marketing programs. Our business will be harmed if our marketing efforts and expenditures do not generate an increase in revenue.

       In addition, we believe that developing and maintaining widespread awareness of our brand in a cost-effective manner is critical to achieving widespread acceptance of our lumivascular platform and attracting new customers. Brand promotion activities may not generate customer awareness or increase revenues, and even if they do, any increase in revenues may not offset the costs and expenses we incur in building our brand. If we fail to successfully promote, maintain and protect our brand, we may fail to attract or retain the customers necessary to realize a sufficient return on our brand-building efforts, or to achieve the widespread brand awareness that is critical for broad customer adoption of our lumivascular platform.

If we are unable to manage the anticipated growth of our business, our future revenues and operating results may be harmed.

       The growth that we may experience in the future could provide challenges to our organization, requiring us to expand our sales personnel and manufacturing operations and general and administrative infrastructure. We expect to grow our sales force in anticipation of obtaining marketing

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clearance for Pantheris. Rapid expansion in personnel could mean that less experienced people produce and sell our products, which could result in inefficiencies and unanticipated costs and disruptions to our operations. We noted a material weakness in our internal controls in connection with our December 31, 2012 and 2013 audits. The material weakness that was identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. If we do not effectively remediate this weakness or if we or our auditors identify additional material weaknesses in the future, it could result in restatements of our financial statements and a decrease in the value of our stock due to a loss of confidence in the reliability of our financial statements.

We have limited experience manufacturing our lumivascular platform products in commercial quantities, which could harm our business.

       Because we have only limited experience in manufacturing our lumivascular platform products in commercial quantities, we may encounter production delays or shortfalls. Such production delays or shortfalls may be caused by many factors, including the following:

       If we are unable to keep up with demand for our lumivascular platform products, our revenues could be impaired, market acceptance for our lumivascular platform products could be harmed and our customers might instead purchase our competitors' products. Our inability to successfully manufacture our lumivascular platform products would materially harm our business.

       Our manufacturing facilities and processes and those of our third party suppliers are subject to unannounced FDA and state regulatory inspections for compliance with Quality System regulations. Developing and maintaining a compliant quality system is time consuming and expensive. Failure to maintain, or not fully comply with the requirements of, a quality system could result in regulatory authorities initiating enforcement actions against us and our third party suppliers, which could include the issuance of warning letters, seizures, prohibitions on product sales, recalls and civil and criminal penalties, any one of which could significantly impact our manufacturing supply and impair our financial results.

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If our manufacturing facility becomes damaged or inoperable, or we are required to vacate the facility, our ability to manufacture and sell our lumivascular platform products and to pursue our research and development efforts may be jeopardized.

       We currently manufacture and assemble our lumivascular platform products in-house. Our products are comprised of components sourced from a variety of contract manufacturers, with final assembly completed at our facility in Redwood City, California. Our facility and equipment, or those of our suppliers, could be harmed or rendered inoperable by natural or man-made disasters, including fire, earthquake, terrorism, flooding and power outages. Any of these may render it difficult or impossible for us to manufacture products for some period of time. If our facility is inoperable for even a short period of time, the inability to manufacture our current products, and the interruption in research and development of any future products, may result in harm to our reputation, increased costs, lower revenues and the loss of customers. Furthermore, it could be costly and time-consuming to repair or replace our facilities and the equipment we use to perform our research and development work and manufacture our products.

We depend on third party vendors to manufacture some of our components and sub-assemblies, which could make us vulnerable to supply shortages and price fluctuations that could harm our business.

       We currently manufacture some of our components and sub-assemblies at our Redwood City facility and rely on third party vendors for other components and sub-assemblies used in our lumivascular platform. Our reliance on third party vendors subjects us to a number of risks that could impact our ability to manufacture our products and harm our business, including:

       Any significant delay or interruption in the supply of components or sub-assemblies, or our inability to obtain substitute components, sub-assemblies or materials from alternate sources at acceptable prices in a timely manner, could impair our ability to meet the demand of our customers and harm our business.

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We depend on single and limited source suppliers for some of our product components and sub-assemblies, and if any of those suppliers are unable or unwilling to produce these components and sub-assemblies or supply them in the quantities that we need, we would experience manufacturing delays.

       We rely on single and limited source suppliers for several of our components and sub-assemblies. For example, we rely on single vendors for our optical fiber and drive cables, that are key components of our catheters, and we rely on a single vendor for our data acquisition card in Lightbox. These components are critical to our products and there are relatively few alternative sources of supply. We do not carry a significant inventory of these components. Identifying and qualifying additional or replacement suppliers for any of the components or sub-assemblies used in our products could involve significant time and cost. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components or sub-assemblies incorporated into our products would limit our ability to manufacture our products and could therefore harm our business, financial condition and results of operations.

Our future growth depends on physician adoption of our lumivascular platform products, which may require physicians to change their current practices.

       We intend to educate physicians on the capabilities of our lumivascular platform products and advances in treatment for PAD patients. We target our sales efforts to interventional cardiologists, vascular surgeons and interventional radiologists because they are often the physicians diagnosing and treating both coronary artery disease and PAD. However, the initial point of contact for many patients may be general practitioners, podiatrists, nephrologists and endocrinologists, each of whom commonly treat patients experiencing complications or symptoms resulting from PAD. If these physicians are not made aware of our lumivascular platform products, they may not refer patients to interventional cardiologists, vascular surgeons and interventional radiologists for treatment using our lumivascular platform procedure, and those patients may instead be surgically treated or treated with an alternative interventional procedure. In addition, there is a significant correlation between PAD and coronary artery disease, and many physicians do not routinely screen for PAD while screening for coronary artery disease. If we are not successful in educating physicians about screening for PAD and about the capabilities of our lumivascular platform products, our ability to increase our revenues may be impaired.

We depend on our senior management team and the loss of one or more key employees or an inability to attract and retain highly skilled employees could harm our business.

       Our success largely depends upon the continued services of our executive management team and key employees and the loss of one or more of our executive officers or key employees could harm us and directly impact our financial results. Our employees may terminate their employment with us at any time. Changes in our executive management team resulting from the hiring or departure of executives, including the recent addition of our chief executive officer, could disrupt our business. In particular, our founder, Dr. John Simpson, is the visionary behind many of our product development activities and he actively supports our clinical trials and physician education and training efforts. If Dr. Simpson was no longer working at our company, our industry credibility, product development efforts and physician relationships would be harmed. We do not currently maintain key person life insurance policies on any of our employees, including Dr. Simpson.

       Our officers and directors could become distracted by other activities that would prevent them from devoting their full time and attention to our company. For example, John D. Simpson, our Vice President of Sales, is also the Chief Executive Officer of Recreation, Inc., a full service creative,

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digital and media agency focused on brand strategy and implementation. Periodically, Mr. Simpson may have obligations to Recreation which interfere with his obligations to the Company.

       To execute our growth plan, we must attract and retain highly qualified personnel. Competition for skilled personnel is intense, especially for engineers with high levels of experience in designing and developing medical devices and for sales executives. We have, from time to time, experienced, and we expect to continue to experience, difficulty in hiring and retaining employees with appropriate qualifications. Many of the companies with which we compete for experienced personnel have greater resources than we have. If we hire employees from competitors or other companies, their former employers may attempt to assert that these employees or we have breached legal obligations, resulting in a diversion of our time and resources and, potentially, damages. In addition, job candidates and existing employees, particularly in the San Francisco Bay Area, often consider the value of the stock awards they receive in connection with their employment. If the perceived value of our stock awards declines, either because we are a public company or otherwise, it may harm our ability to recruit and retain highly skilled employees. In addition, we invest significant time and expense in training our employees, which increases their value to competitors who may seek to recruit them. If we fail to attract new personnel or fail to retain and motivate our current personnel, our business and future growth prospects would be harmed.

We do not currently intend to devote significant additional resources in the near-term to market our lumivascular platform internationally, which will limit our potential revenues from our lumivascular platform products.

       Marketing our lumivascular platform outside of the United States would require substantial additional sales and marketing, regulatory and personnel expenses. As part of our product development and regulatory strategy, we plan to expand into select European markets, but we do not currently intend to devote significant additional resources to market our lumivascular platform internationally in order to focus our resources and efforts on the U.S. market. Our decision to market our products primarily in the United States in the near-term will limit our ability to reach all of our potential markets and will limit our potential sources of revenue. In addition, our competitors will have an opportunity to further penetrate and achieve market share outside of the United States until such time, if ever, that we devote significant additional resources to market our lumivascular platform products or other products internationally.

Our net operating loss carryovers may be limited.

       As of December 31, 2013, we had federal and state net operating loss carryforwards, or NOLs, due to prior period losses of $104.5 million and $99.7 million, respectively, which if not utilized will begin to expire in 2027 for federal purposes and 2014 for state purposes. We may use these NOLs to offset against taxable income for U.S. federal income tax purposes. However, Section 382 of the Internal Revenue Code of 1986, as amended, may limit the NOLs we may use in any year for U.S. federal income tax purposes in the event of certain changes in ownership of our company. A Section 382 "ownership change" generally occurs if one or more stockholders or groups of stockholders who own at least 5% of our stock increase their ownership by more than 50 percentage points over their lowest ownership percentage within a rolling three-year period. Similar rules may apply under state tax laws. This offering or future issuances or sales of our stock (including certain transactions involving our stock that are outside of our control) could cause an "ownership change." If an "ownership change" occurs, Section 382 would impose an annual limit on the amount of pre-ownership change NOLs and other tax attributes we can use to reduce our taxable income, potentially increasing and accelerating our liability for income taxes, and also potentially causing those

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tax attributes to expire unused. Any limitation on using NOLs could (depending on the extent of such limitation and the NOLs previously used) result in our retaining less cash after payment of U.S. federal income taxes during any year in which we have taxable income (rather than losses) than we would be entitled to retain if such NOLs were available as an offset against such income for U.S. federal income tax reporting purposes, which could harm our profitability.

The forecasts of market growth included in this prospectus may prove to be inaccurate, and even if the markets in which we compete achieve the forecasted growth, our business may not grow at similar rates, if at all.

       Growth forecasts are subject to significant uncertainty and are based on assumptions and estimates that may not prove to be accurate. The forecasts in this prospectus relating to, among other things, the expected growth in PAD prevalence, diagnosis and endovascular PAD procedures and the markets therefor and increased awareness, higher diagnosis, and intervention rates, may prove to be inaccurate.

       Even if these markets experience the forecasted growth described in this prospectus, we may not grow our business at similar rates, or at all. Our growth is subject to many factors, including whether the market for PAD treatments continues to grow, our ability to successfully complete the VISION trial, obtain 510(k) clearance for Pantheris and commercialize Pantheris, the rate of market acceptance of our lumivascular platform products versus the products of our competitors and our success in implementing our business strategies, each of which is subject to many risks and uncertainties. Accordingly, the forecasts of market growth included in this prospectus should not be taken as indicative of our future growth.

We may acquire other companies or technologies, which could divert our management's attention, result in additional dilution to our stockholders and otherwise disrupt our operations and harm our operating results.

       We may in the future seek to acquire or invest in businesses, applications or technologies that we believe could complement or expand our lumivascular platform, enhance our technical capabilities or otherwise offer growth opportunities. The pursuit of potential acquisitions may divert the attention of management and cause us to incur various costs and expenses in identifying, investigating and pursuing suitable acquisitions, whether or not they are consummated. We may not be able to identify desirable acquisition targets or be successful in entering into an agreement with any particular target or obtain the expected benefits of any acquisition or investment.

       To date, the growth in our business has been organic, and we have no experience in acquiring other businesses. In any acquisition, we may not be able to successfully integrate acquired personnel, operations and technologies, or effectively manage the combined business following the acquisition. Acquisitions could also result in dilutive issuances of equity securities, the use of our available cash, or the incurrence of debt, which could harm our operating results. In addition, if an acquired business fails to meet our expectations, our operating results, business and financial condition may suffer.

We have identified a material weakness in our internal control over financial reporting as of December 31, 2012 and 2013, and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remedy our material weaknesses, or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be harmed.

       Our management is responsible for establishing and maintaining adequate internal control over financial reporting. Internal control over financial reporting is a process designed to provide

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reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with U.S. generally accepted accounting principles. During the course of preparing for this offering, we determined that material adjustments to various accounts were necessary for our financial statements for the years ended December 31, 2012 and 2013. These adjustments led us to conclude that we had a material weakness in internal control over financial reporting as of December 31, 2012 and 2013. A "material weakness" is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness that we identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements. This material weakness contributed to adjustments to our financial statements in the following principal areas, among others: accounting for debt issuances, stock-based compensation, and accounting for inventory costs and fixed assets. There can be no assurance that we will be able to hire sufficient personnel with the required skills to remediate this weakness, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows. Competition to hire such personnel is intense, and we will incur significant additional compensation expense in connection with the hiring and retention of these additional employees. If we are unable to successfully remediate this material weakness, and if we are unable to produce accurate and timely financial statements, our stock price may be adversely affected, our reputation may be harmed and we may be unable to maintain compliance with applicable NASDAQ Stock Market listing requirements.

If we are unable to implement and maintain effective internal control over financial reporting in the future, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock may decrease.

       As a public company, we will be required to maintain internal control over financial reporting and to report any material weaknesses in such internal controls. Section 404 of the Sarbanes-Oxley Act of 2002, or the Sarbanes-Oxley Act, requires that we evaluate and determine the effectiveness of our internal control over financial reporting and, beginning with our annual report for the year ending December 31, 2015, provide a management report on our internal control over financial reporting, which must be attested to by our independent registered public accounting firm to the extent we are no longer an "emerging growth company," as defined by the Jumpstart Our Businesses Act of 2012, or the JOBS Act, or a smaller reporting company under the Securities Act.

       Currently and in the future, if we have material weaknesses in our internal control over financial reporting, we may not detect errors on a timely basis and our financial statements may be materially misstated. We are in the process of designing and implementing our internal control over financial reporting, which process will be time consuming, costly and complicated. Until such time as we are no longer an "emerging growth company" or a smaller reporting company, our auditors will not be required to attest as to our internal control over financial reporting. If we continue to identify material weaknesses in our internal control over financial reporting, if we are unable to comply with the requirements of Section 404 in a timely manner, if we are unable to assert that our internal control over financial reporting is effective or, once required, if our independent registered public accounting firm is unable to attest that our internal control over financial reporting is effective, investors may lose confidence in the accuracy and completeness of our financial reports and the market price of our common stock could decrease. We could also become subject to stockholder or other third party litigation as well as investigations by the stock exchange on which our securities are listed, the SEC or other regulatory authorities, which could require additional financial and management resources and could result in fines, trading suspensions or other remedies.

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The report of our independent registered public accounting firm on our 2013 financial statements contains an explanatory paragraph regarding our ability to continue as a going concern, and we will need additional financing to execute our business plan, to fund our operations and to continue as a going concern.

       Since inception, we have experienced recurring operating losses and negative cash flows and we expect to continue to generate operating losses and consume significant cash resources for the foreseeable future. These conditions raise substantial doubt about our ability to continue as a going concern without additional financing. As a result, our independent registered public accounting firm included an explanatory paragraph in its report on our 2013 financial statements with respect to this uncertainty. Substantial doubt about our ability to continue as a going concern may materially and adversely affect the price per share of our common stock and we may have a more difficult time obtaining financing.

       We have prepared our financial statements on a going concern basis, which contemplates the realization of assets and the satisfaction of liabilities and commitments in the normal course of business. Our 2013 financial statements do not include any adjustment to reflect the possible future effects on the recoverability and classification of assets or the amounts and classification of liabilities that may result from the outcome of this uncertainty.


Risks Related to Our Intellectual Property

We may in the future be a party to intellectual property litigation or administrative proceedings that could be costly and could interfere with our ability to sell our lumivascular platform products.

       The medical device industry has been characterized by extensive litigation regarding patents, trademarks, trade secrets, and other intellectual property rights, and companies in the industry have used intellectual property litigation to gain a competitive advantage. It is possible that U.S. and foreign patents and pending patent applications or trademarks controlled by third parties may be alleged to cover our products, or that we may be accused of misappropriating third parties' trade secrets. Additionally, our products include hardware and software components that we purchase from vendors, and may include design components that are outside of our direct control. Our competitors, many of which have substantially greater resources and have made substantial investments in patent portfolios, trade secrets, trademarks, and competing technologies, may have applied for or obtained or may in the future apply for or obtain, patents or trademarks that will prevent, limit or otherwise interfere with our ability to make, use, sell and/or export our products or to use product names. We may become a party to patent or trademark infringement or trade secret claims and litigation as a result of these and other third party intellectual property rights being asserted against us. The defense and prosecution of these matters are both costly and time consuming. Vendors from whom we purchase hardware or software may not indemnify us in the event that such hardware or software is accused of infringing a third party's patent or trademark or of misappropriating a third party's trade secret.

       Further, if such patents, trademarks, or trade secrets are successfully asserted against us, this may harm our business and result in injunctions preventing us from selling our products, license fees, damages and the payment of attorney fees and court costs. In addition, if we are found to willfully infringe third party patents or trademarks or to have misappropriated trade secrets, we could be required to pay treble damages in addition to other penalties. Although patent, trademark, trade secret, and other intellectual property disputes in the medical device area have often been settled through licensing or similar arrangements, costs associated with such arrangements may be substantial and could include ongoing royalties. We may be unable to obtain necessary licenses on satisfactory

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terms, if at all. If we do not obtain necessary licenses, we may not be able to redesign our lumivascular platform products to avoid infringement.

       Similarly, interference or derivation proceedings provoked by third parties or brought by the U.S. Patent and Trademark Office, or USPTO, may be necessary to determine the priority of inventions or other matters of inventorship with respect to our patents or patent applications. We may also become involved in other proceedings, such as re-examination, inter partes review, or opposition proceedings, before the USPTO or other jurisdictional body relating to our intellectual property rights or the intellectual property rights of others. Adverse determinations in a judicial or administrative proceeding or failure to obtain necessary licenses could prevent us from manufacturing and selling our lumivascular platform products or using product names, which would have a significant adverse impact on our business.

       Additionally, we may need to commence proceedings against others to enforce our patents or trademarks, to protect our trade secrets or know-how, or to determine the enforceability, scope and validity of the proprietary rights of others. These proceedings would result in substantial expense to us and significant diversion of effort by our technical and management personnel. We may not prevail in any lawsuits that we initiate and the damages or other remedies awarded, if any, may not be commercially meaningful. We may not be able to stop a competitor from marketing and selling products that are the same or similar to our products or from using product names that are the same or similar to our product names, and our business may be harmed as a result.

We are aware of patents held by third parties that may be asserted against us in litigation that could be costly and could limit our ability to sell our lumivascular platform products.

       We are aware of patent families related to catheter positioning, optical coherence tomography, occlusion cutting, and atherectomy owned by third parties. With regard to atherectomy patents, one of our founders, Dr. John Simpson, founded FoxHollow Technologies prior to founding our company. FoxHollow Technologies developed an atherectomy device that is currently sold by Covidien, and Dr. Simpson and our Chief Technology Officer, Himanshu Patel, are listed as inventors on patents covering that device that are now held by Covidien. We are not currently aware of any claims Covidien has made or intends to make against us with respect to Pantheris or any other product or product under development. Because of a doctrine known as "assignor estoppel," if any of Dr. Simpson's earlier patents are asserted against us by Covidien, we may be prevented from asserting an invalidity defense regarding those patents, and our defense may be compromised. Covidien has significantly greater financial resources than we do to pursue patent litigation and could assert these patent families against us at any time. Adverse determinations in any such litigation could prevent us from manufacturing or selling Pantheris or other products or products under development, which would significantly harm our business.

Intellectual property rights may not provide adequate protection, which may permit third parties to compete against us more effectively.

       In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights. As of October 30, 2014, we held five issued U.S. patents. We currently have 11 U.S. utility patent applications and 11 PCT applications pending. We also have one issued patent from the Japan Patent Office, one issued patent from the Chinese patent office, and one European patent which has been nationalized in Germany, France, Great Britain, Italy and Ireland. We have 26 pending patent

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applications outside of the United States, including in Australia, Canada, Europe, India and Japan. Our patents and patent applications include claims covering key aspects of the design, manufacture and therapeutic use of OCT imaging catheters, occlusion-crossing catheters, atherectomy devices and our imaging console. Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. Any patents issued to us may be challenged by third parties as being invalid, or third parties may independently develop similar or competing technology that avoids our patents. Should such challenges be successful, competitors might be able to market products and use manufacturing processes that are substantially similar to ours. We may not be able to prevent the unauthorized disclosure or use of our technical knowledge or other trade secrets by consultants, vendors or former or current employees, despite the existence generally of confidentiality agreements and other contractual restrictions. Monitoring unauthorized use and disclosure of our intellectual property is difficult, and we do not know whether the steps we have taken to protect our intellectual property will be adequate. In addition, the laws of many foreign countries will not protect our intellectual property rights to the same extent as the laws of the United States. Consequently, we may be unable to prevent our proprietary technology from being exploited abroad, which could affect our ability to expand to international markets or require costly efforts to protect our technology. To the extent our intellectual property protection is incomplete, we are exposed to a greater risk of direct competition. In addition, competitors could purchase our products and attempt to replicate some or all of the competitive advantages we derive from our development efforts or design around our protected technology. Our failure to secure, protect and enforce our intellectual property rights could substantially harm the value of our lumivascular platform, brand and business.

       We use certain open source software in Lightbox. We may face claims from companies that incorporate open source software into their products or from open source licensors, claiming ownership of, or demanding release of, the source code, the open source software or derivative works that were developed using such software, or otherwise seeking to enforce the terms of the applicable open source license. These claims could result in litigation and could require us to cease offering Lightbox unless and until we can re-engineer it to avoid infringement. This re-engineering process could require significant additional research and development resources, and we may not be able to complete it successfully. These risks could be difficult to eliminate or manage, and, if not addressed, could harm our business, financial condition and operating results.


Risks Related to Government Regulation

Failure to comply with laws and regulations could harm our business.

       Our business is subject to regulation by various federal, state, local and foreign governmental agencies, including agencies responsible for monitoring and enforcing employment and labor laws, workplace safety, environmental laws, consumer protection laws, anti-bribery laws, import/export controls, federal securities laws and tax laws and regulations. In certain jurisdictions, these regulatory requirements may be more stringent than those in the United States and in other circumstances these requirements may be more stringent in the United States. Noncompliance with applicable regulations or requirements could subject us to investigations, sanctions, mandatory recalls, enforcement actions, adverse publicity, disgorgement of profits, fines, damages, civil and criminal penalties or injunctions and administrative actions. If any governmental sanctions, fines or penalties are imposed, or if we do not prevail in any possible civil or criminal litigation, our business, operating results and financial condition could be harmed. In addition, responding to any action will likely result in a significant diversion of management's attention and resources and substantial costs. Enforcement actions and sanctions could further harm our business, operating results and financial condition.

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If we fail to obtain and maintain necessary regulatory clearances or approvals for our lumivascular platform products, or if clearances or approvals for future products and indications are delayed or not issued, our commercial operations would be harmed.

       Our lumivascular platform products are medical devices that are subject to extensive regulation by FDA in the United States and by regulatory agencies in other countries where we do business. Government regulations specific to medical devices are wide-ranging and govern, among other things:

       Before a new medical device, or a new intended use for, an existing product can be marketed in the United States, a company must first submit and receive either 510(k) clearance or premarketing approval from FDA, unless an exemption applies. Either process can be expensive, lengthy and unpredictable. We may not be able to obtain the necessary clearances or approvals or may be unduly delayed in doing so, which could harm our business. Furthermore, even if we are granted regulatory clearances or approvals, they may include significant limitations on the indicated uses for the product, which may limit the market for the product. Although we have obtained 510(k) clearance to market our Ocelot family of catheters for crossing sub and total occlusions in the peripheral vasculature, our clearance can be revoked if safety or efficacy problems develop. To market Pantheris in the United States, we must successfully complete a clinical trial, submit an application to FDA for 510(k) clearance and obtain such clearance. Therefore, even if we believe we have successfully developed Pantheris, we may not be permitted to market Pantheris in the United States if we do not obtain FDA regulatory clearance to market the product. Delays in obtaining clearance or approval could increase our costs and harm our revenues and growth.

       In addition, we are required to timely file various reports with the FDA, including reports required by the medical device reporting regulations, or MDRs, that require that we report to the regulatory authorities if our devices may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur. If these reports are not filed timely, regulators may impose sanctions and sales of our products may suffer, and we may be subject to product liability or regulatory enforcement actions, all of which could harm our business. For example, we have submitted to the FDA five MDRs regarding our Ocelot family of catheters, which included four for perforations and one related to removal of the guidewire coating.

       If we initiate a correction or removal for one of our devices to reduce a risk to health posed by the device, we would be required to submit a publically available Correction and Removal report to the FDA and in many cases, similar reports to other regulatory agencies. This report could be classified by the FDA as a device recall which could lead to increased scrutiny by the FDA, other international regulatory agencies and our customers regarding the quality and safety of our devices. Furthermore, the submission of these reports has been and could be used by competitors against us in competitive situations and cause customers to delay purchase decisions or cancel orders and would harm our reputation.

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       The FDA and the Federal Trade Commission, or FTC, also regulate the advertising and promotion of our products to ensure that the claims we make are consistent with our regulatory clearances, that there are adequate and reasonable data to substantiate the claims and that our promotional labeling and advertising is neither false nor misleading in any respect. If the FDA or FTC determines that any of our advertising or promotional claims are misleading, not substantiated or not permissible, we may be subject to enforcement actions, including Warning Letters, and we may be required to revise our promotional claims and make other corrections or restitutions.

       FDA and state authorities have broad enforcement powers. Our failure to comply with applicable regulatory requirements could result in enforcement action by FDA or state agencies, which may include any of the following sanctions:

       If any of these events were to occur, our business and financial condition would be harmed.

Material modifications to our lumivascular platform products may require new 510(k) clearances or premarket approvals or may require us to recall or cease marketing our lumivascular platform products until clearances are obtained.

       Material modifications to the intended use or technological characteristics of our lumivascular platform products will require new 510(k) clearances or premarket approvals or require us to recall or cease marketing the modified devices until these clearances or approvals are obtained. Based on FDA published guidelines, FDA requires device manufacturers to initially make and document a determination of whether or not a modification requires a new approval, supplement or clearance; however, FDA can review a manufacturer's decision. Any modification to an FDA-cleared device that would significantly affect its safety or efficacy or that would constitute a major change in its intended use would require a new 510(k) clearance or possibly a premarket approval. We may not be able to obtain additional 510(k) clearances or premarket approvals for new products or for modifications to, or additional indications for, our lumivascular platform products in a timely fashion, or at all. Delays in obtaining required future clearances would harm our ability to introduce new or enhanced products in a timely manner, which in turn would harm our future growth. We have made modifications to our lumivascular platform products in the past and will make additional modifications in the future that we believe do not or will not require additional clearances or approvals. If FDA disagrees and requires new clearances or approvals for the modifications, we may be required to recall and to stop selling or marketing our lumivascular platform products as modified, which could harm our operating results and require us to redesign our lumivascular platform products. In these circumstances, we may be subject to significant enforcement actions. We have made minor modifications and may make further modifications to the design of Pantheris prior to widespread commercialization, which could require regulatory clearances or approvals.

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If we or our suppliers fail to comply with FDA's Quality System Regulation, our manufacturing operations could be delayed or shut down and lumivascular platform sales could suffer.

       Our manufacturing processes and those of our third party suppliers are required to comply with FDA's Quality System Regulation, which covers the procedures and documentation of the design, testing, production, control, quality assurance, labeling, packaging, storage and shipping of our lumivascular platform products. We are also subject to similar state requirements and licenses. In addition, we must engage in extensive recordkeeping and reporting and must make available our manufacturing facilities and records for periodic unannounced inspections by governmental agencies, including FDA, state authorities and comparable agencies in other countries. If we fail a Quality System inspection, our operations could be disrupted and our manufacturing interrupted. Failure to take adequate corrective action in response to an adverse Quality System inspection could result in, among other things, a shut-down of our manufacturing operations, significant fines, suspension of marketing clearances and approvals, seizures or recalls of our device, operating restrictions and criminal prosecutions, any of which would cause our business to suffer. Furthermore, our key component suppliers may not currently be or may not continue to be in compliance with applicable regulatory requirements, which may result in manufacturing delays for our product and cause our revenues to decline.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by FDA and the Food and Drug Branch of CDHS to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. Our current facility has been inspected by FDA in 2009, 2011 and 2013, and two, three and zero observations, respectively, were noted during those inspections. BSI, our European Notified Body, inspected our facility in 2013 and found zero non-conformances. We can provide no assurance that we will continue to remain in compliance with the QSR. If FDA, CDHS or BSI inspect our facility and discover compliance problems, we may have to shut down our facility and cease manufacturing until we can take the appropriate remedial steps to correct the audit findings. Taking corrective action may be expensive, time consuming and a distraction for management and if we experience a shutdown or delay at our manufacturing facility we may be unable to produce our lumivascular platform products, which would harm our business.

Our lumivascular platform products may in the future be subject to product recalls that could harm our reputation.

       FDA and similar governmental authorities in other countries have the authority to require the recall of commercialized products in the event of material regulatory deficiencies or defects in design or manufacture. A government mandated or voluntary recall by us could occur as a result of component failures, manufacturing errors or design or labeling defects. Recalls of our lumivascular platform products would divert managerial attention, be expensive, harm our reputation with customers and harm our financial condition and results of operations. A recall announcement would negatively affect our stock price.

Changes in coverage and reimbursement for procedures using our lumivascular platform products could affect the adoption of our lumivascular platform and our future revenues.

       Currently, our lumivascular platform procedure is typically reimbursed by third party payors, including Medicare and private healthcare insurance companies, under existing reimbursement codes. These payors may change their coverage and reimbursement policies, as well as payment amounts, in

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a way that would prevent or limit reimbursement for our products, which would significantly harm our business. Also, healthcare reform legislation or regulation may be proposed or enacted in the future, which may adversely affect such policies and amounts. We cannot predict whether and to what extent existing coverage and reimbursement will continue to be available. If physicians, hospitals and other providers are unable to obtain adequate coverage and reimbursement for procedures performed using our lumivascular platform products, they are significantly less likely to use our lumivascular platform products and our business would be harmed.

Healthcare reform measures could hinder or prevent our planned products' commercial success.

       In the United States, there have been, and we expect there will continue to be, a number of legislative and regulatory changes to the healthcare system in ways that could harm our future revenues and profitability and the future revenues and profitability of our potential customers. Federal and state lawmakers regularly propose and, at times, enact legislation that would result in significant changes to the healthcare system, some of which are intended to contain or reduce the costs of medical products and services. For example, one of the most significant healthcare reform measures in decades, the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act, or Affordable Care Act, was enacted in 2010. The Affordable Care Act contains a number of provisions, including those governing enrollment in federal healthcare programs, reimbursement changes and fraud and abuse measures, all of which will impact existing government healthcare programs and will result in the development of new programs. The Affordable Care Act, among other things, imposes an excise tax of 2.3% on the sale of most medical devices, including ours, and any failure to pay this amount could result in the imposition of an injunction on the sale of our products, fines and penalties.

       It remains unclear whether changes will be made to the Affordable Care Act. We cannot assure you that the Affordable Care Act, as currently enacted or as amended in the future, will not harm our business and financial results and we cannot predict how future federal or state legislative or administrative changes relating to healthcare reform will affect our business.

       There likely will continue to be legislative and regulatory proposals at the federal and state levels directed at containing or lowering the cost of health care. We cannot predict the initiatives that may be adopted in the future or their full impact. The continuing efforts of the government, insurance companies, managed care organizations and other payors of healthcare services to contain or reduce costs of health care may harm:

If we fail to comply with healthcare regulations, we could face substantial penalties and our business, operations and financial condition could be adversely affected.

       Even though we do not and will not control referrals of healthcare services or bill directly to Medicare, Medicaid or other third party payors, certain federal and state healthcare laws and regulations pertaining to fraud and abuse and patients' rights are and will be applicable to our business. We could be subject to healthcare fraud and abuse and patient privacy regulation by both

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the federal government and the states in which we conduct our business. The regulations that will affect how we operate include:

       The Affordable Care Act, among other things, amends the intent requirement of the Federal Anti-Kickback Statute and criminal healthcare fraud statutes. A person or entity no longer needs to have actual knowledge of this statute or specific intent to violate it. In addition, the Affordable Care Act provides that the government may assert that a claim including items or services resulting from a violation of the Federal Anti-Kickback Statute constitutes a false or fraudulent claim for purposes of the False Claims Act.

       Efforts to ensure that our business arrangements will comply with applicable healthcare laws may involve substantial costs. It is possible that governmental and enforcement authorities will conclude that our business practices do not comply with current or future statutes, regulations or case law interpreting applicable fraud and abuse or other healthcare laws and regulations. If any such actions are instituted against us, and we are not successful in defending ourselves or asserting our rights, those actions could have a significant impact on our business, including the imposition of civil, criminal and administrative penalties, damages, disgorgement, monetary fines, possible exclusion from participation in Medicare, Medicaid and other federal healthcare programs, contractual damages, reputational harm, diminished profits and future earnings, and curtailment of our operations, any of which could harm our ability to operate our business and our results of operations. In addition, the clearance or approval and commercialization of any of our products outside the United States will also likely subject us to foreign equivalents of the healthcare laws mentioned above, among other foreign laws.

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Compliance with environmental laws and regulations could be expensive. Failure to comply with environmental laws and regulations could subject us to significant liability.

       Our research and development and manufacturing operations involve the use of hazardous substances and are subject to a variety of federal, state, local and foreign environmental laws and regulations relating to the storage, use, discharge, disposal, remediation of, and human exposure to, hazardous substances and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. In addition, our research and development and manufacturing operations produce biological waste materials, such as human and animal tissue, and waste solvents, such as isopropyl alcohol. These operations are permitted by regulatory authorities, and the resultant waste materials are disposed of in material compliance with environmental laws and regulations. Liability under environmental laws and regulations can be joint and several and without regard to fault or negligence. Compliance with environmental laws and regulations may be expensive and non-compliance could result in substantial liabilities, fines and penalties, personal injury and third part property damage claims and substantial investigation and remediation costs. Environmental laws and regulations could become more stringent over time, imposing greater compliance costs and increasing risks and penalties associated with violations. We cannot assure you that violations of these laws and regulations will not occur in the future or have not occurred in the past as a result of human error, accidents, equipment failure or other causes. The expense associated with environmental regulation and remediation could harm our financial condition and operating results.


Risks Related to This Offering

Our common stock has never been publicly traded, and we expect that the price of our common stock will fluctuate substantially.

       Before this initial public offering, there has been no public market for our common stock. The initial public offering price for our common stock will be determined through negotiations between the underwriters and us and may vary substantially from the market price of our common stock following this offering. An active public trading market may not develop after completion of this offering or, if developed, may not be sustained. The public trading price for our common stock after this offering will be affected by a number of factors, including:

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       In addition, the stock prices of many companies in the medical device industry have experienced wide fluctuations that have often been unrelated to the operating performance of those companies. In the past, stockholders have instituted securities class action litigation following periods of market volatility. If we were to become involved in securities litigation, it could subject us to substantial costs, divert resources and the attention of management from our business and harm our business, results of operations, financial condition, reputation and cash flows. These factors may materially and adversely affect the market price of our common stock.

If securities or industry analysts do not publish research or reports about our business, or publish negative reports about our business, our share price and trading volume could decline.

       The trading market for our common stock will depend in part on the research and reports that securities or industry analysts publish about us or our business, our market and our competitors. We do not have any control over these analysts. If one or more of the analysts who cover us downgrade our shares or change their opinion of our shares, our share price would likely decline. If one or more of these analysts cease coverage of our company or fail to regularly publish reports on us, we could lose visibility in the financial markets, which could cause our share price or trading volume to decline.

New investors purchasing our common stock will experience immediate and substantial dilution.

       Our initial public offering price is substantially higher than the book value per share of our common stock. If you purchase common stock in this offering, you will incur immediate dilution of $        in net tangible book value per share of common stock, based on an assumed initial public offering price of $         per share. In addition, the number of shares available for issuance under our stock option and employee stock purchase plans will increase annually without further stockholder approval. Investors will incur additional dilution upon the exercise of stock options and warrants. See "Dilution."

A sale of a substantial number of shares of our common stock may cause the price of our common stock to decline; holders of promissory notes may elect to convert such notes into shares of our common stock at a 15% discount to the initial public offering price.

       If our stockholders sell substantial amounts of our common stock in the public market after this offering, the market price of our common stock could decline. There will be approximately            shares of common stock, including shares issued upon the exercise of options or warrants outstanding as of September 30, 2014, eligible for sale beginning 181 days after the date of this prospectus. Sales of these shares could make it more difficult for us to sell equity or equity-related securities in the future at a time and price that we deem reasonable or appropriate. See "Shares Eligible for Future Sale" and "Underwriting."

       After this offering, the holders of an aggregate of                 shares of our outstanding common stock as of September 30, 2014 will have rights, subject to some conditions, to require us to file registration statements covering their shares or to include their shares in registration statements that we may file for ourselves or our stockholders. We also intend to register shares of common stock that we may issue under our employee equity incentive plans. Once we register these shares, they will be able to be sold freely in the public market upon issuance, subject to existing market stand-off and/or lock-up agreements.

       As of September 30, 2014, we had outstanding $12.4 million in aggregate principal amount and accrued interest under convertible promissory notes, which may, at the option of each holder thereof, convert into shares of our common stock upon completion of this offering, at a conversion price equal

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to 85% of the initial public offering price. Assuming an initial public offering price of $        , the principal amount and interest accrued as of September 30, 2014, under the convertible promissory notes, would be convertible into            shares of our common stock.

Our directors, officers and principal stockholders have significant voting power and may take actions that may not be in the best interests of our other stockholders.

       After this offering, our directors, officers and each stockholder holding more than 5% of our common stock collectively will control approximately    % of our outstanding common stock, assuming the exercise of all options and warrants held by such persons and without giving effect to the purchase of shares by any such persons in this offering. As a result, these stockholders, if they act together, would be able to control the management and affairs of our company and most matters requiring stockholder approval, including the election of directors and approval of significant corporate transactions. This concentration of ownership may have the effect of delaying or preventing a change in control, might adversely affect the market price of our common stock and may not be in the best interests of our other stockholders.

We have broad discretion in the use of proceeds from this offering.

       The net proceeds of this offering will be allocated to sales and marketing initiatives, research and development activities, and general corporate purposes, including potential acquisitions of complementary products, technologies or businesses. Within those categories, our management will have broad discretion over the use and investment of the net proceeds of this offering, and accordingly investors in this offering will need to rely upon the judgment of our management with respect to the use of proceeds with only limited information concerning management's specific intentions.

The requirements of being a public company may strain our resources, divert management's attention and affect our ability to attract and retain executive management and qualified board members.

       As a public company, we will be subject to the reporting requirements of the Securities Exchange Act of 1934, as amended, or the Exchange Act, the Sarbanes-Oxley Act, the Dodd-Frank Act, the listing requirements of The NASDAQ Stock Market and other applicable securities laws, rules and regulations. Compliance with these laws, rules and regulations will increase our legal and financial compliance costs, make some activities more difficult, time-consuming or costly and increase demand on our systems and resources, particularly after we are no longer an "emerging growth company." The Exchange Act requires, among other things, that we file annual, quarterly and current reports with respect to our business and operating results. The Sarbanes-Oxley Act requires, among other things, that we maintain effective disclosure controls and procedures and internal control over financial reporting. In order to maintain and, if required, improve our disclosure controls and procedures and internal control over financial reporting to meet this standard, significant resources and management oversight may be required. As a result, management's attention may be diverted from other business concerns and our costs and expenses will increase, which could harm our business and operating results. We may need to hire more employees in the future or engage outside consultants to comply with these requirements, which will increase our costs and expenses.

       In addition, changing laws, regulations and standards relating to corporate governance and public disclosure are creating uncertainty for public companies, increasing legal and financial compliance costs and making some activities more time consuming. These laws, regulations and standards are subject to varying interpretations, in many cases due to their lack of specificity and, as a result, their application in practice may evolve over time as new guidance is provided by regulatory and governing

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bodies. This could result in continuing uncertainty regarding compliance matters and higher costs necessitated by ongoing revisions to disclosure and governance practices. We intend to invest resources to comply with evolving laws, regulations and standards, and this investment may result in increased general and administrative expenses and a diversion of management's time and attention from revenue-generating activities to compliance activities. If our efforts to comply with new laws, regulations and standards differ from the activities intended by regulatory or governing bodies due to ambiguities related to their application and practice, regulatory authorities may initiate legal proceedings against us and our business may be harmed.

       We will incur additional compensation costs in the event that we decide to pay our executive officers cash compensation closer to that of executive officers of other public medical device companies, which would increase our general and administrative expense and could harm our profitability. Any future equity awards will also increase our compensation expense. We also expect that being a public company and compliance with applicable rules and regulations will make it more expensive for us to obtain director and officer liability insurance, and we may be required to accept reduced coverage or incur substantially higher costs to obtain coverage. These factors could also make it more difficult for us to attract and retain qualified executive officers and members of our board of directors, particularly to serve on our audit committee and compensation committee.

       As a result of disclosure of information in this prospectus and in filings required of a public company, our business and financial condition will become more visible, which could be advantageous to our competitors and clients and could result in threatened or actual litigation, including by competitors and other third parties. If such claims are successful, our business and operating results could be harmed, and even if the claims are resolved in our favor, these claims, and the time and resources necessary to resolve them, could divert the resources of our management and harm our business and operating results.

We are an emerging growth company and a smaller reporting company and we cannot be certain if the reduced disclosure requirements applicable to emerging growth companies and smaller reporting companies will make our common stock less attractive to investors.

       We are an emerging growth company and a smaller reporting company. For as long as we continue to be an emerging growth company, we may take advantage of certain exemptions from reporting requirements that are applicable to other public companies including, but not limited to, not being required to comply with the auditor attestation requirements of Section 404 of the Sarbanes-Oxley Act, reduced disclosure obligations regarding executive compensation in our periodic reports and proxy statements, and exemptions from the requirements of holding a nonbinding advisory vote on executive compensation and stockholder approval of any golden parachute payments not previously approved. We will remain eligible for these exemptions, other than with respect to stockholder approval of golden parachute payments, after we are no longer an emerging growth company for as long as we remain a smaller reporting company. We cannot predict if investors will find our common stock less attractive because we will rely on these exemptions. If some investors find our common stock less attractive as a result, there may be a less active trading market for our common stock and our stock price may be more volatile or decline.

       We will remain an emerging growth company until the earliest of (i) the end of the fiscal year in which the market value of our common stock that is held by non-affiliates is at least $700 million as of the last business day of our most recently completed second fiscal quarter, (ii) the end of the fiscal year in which we have total annual gross revenues of $1 billion or more during such fiscal year, (iii) the date on which we issue more than $1 billion in non-convertible debt in a three-year period or

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(iv) the end of the fiscal year in which the fifth anniversary of the date of this prospectus occurs. We will remain a smaller reporting company until we have a public float, or value attributable to stock held by non-affiliates, of at least $75 million, as measured on the prior June 30th.

Anti-takeover provisions in our amended and restated certificate of incorporation and bylaws and Delaware law could discourage a takeover.

       Our amended and restated certificate of incorporation and bylaws, as amended and restated in connection with this offering, will contain provisions that might enable our management to resist a takeover. These provisions include:

       These provisions might discourage, delay or prevent a change in control of our company or a change in our management. The existence of these provisions could adversely affect the voting power of holders of common stock and limit the price that investors might be willing to pay in the future for shares of our common stock. In addition, because we are incorporated in Delaware, we are governed by the provisions of Section 203 of the Delaware General Corporation Law, which generally prohibits a Delaware corporation from engaging in any of a broad range of business combinations with any "interested" stockholder for a period of three years following the date on which the stockholder became an "interested" stockholder. See "Description of Capital Stock."

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Our amended and restated certificate of incorporation will provide that the Court of Chancery of the State of Delaware will be the sole and exclusive forum for substantially all disputes between us and our stockholders, which could limit our stockholders' ability to obtain a favorable judicial forum for disputes with us or our directors, officers or employees.

       Our amended and restated certificate of incorporation, which will become effective prior to the completion of this offering, provides that, unless we consent to the selection of an alternative forum, the Court of Chancery of the State of Delaware is the sole and exclusive forum for (i) any derivative action or proceeding brought on our behalf, (ii) any action asserting a claim of breach of fiduciary duty owed by any of our directors, officers or other employees to us or to our stockholders, (iii) any action asserting a claim arising pursuant to the Delaware General Corporation Law or (iv) any action asserting a claim governed by the internal affairs doctrine. The choice of forum provision may limit a stockholder's ability to bring a claim in a judicial forum that it finds favorable for disputes with us or our directors, officers or other employees, which may discourage such lawsuits against us and our directors, officers and other employees. Alternatively, if a court were to find the choice of forum provision contained in our amended and restated certificate of incorporation to be inapplicable or unenforceable in an action, we may incur additional costs associated with resolving such action in other jurisdictions, which could harm our business, operating results and financial condition.

We have not paid dividends in the past and do not expect to pay dividends in the future, and any return on investment may be limited to the value of our stock.

       We have never paid cash dividends and do not anticipate paying cash dividends in the foreseeable future. The payment of dividends will depend on our earnings, capital requirements, financial condition, prospects and other factors our board of directors may deem relevant. In addition, our credit agreement prohibits us from, among other things, paying any dividends or making any other distribution or payment on account of our common stock. If we do not pay dividends, our stock may be less valuable because a return on your investment will only occur if you sell our common stock after our stock price appreciates.

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CAUTIONARY NOTES REGARDING FORWARD-LOOKING STATEMENTS

       This prospectus contains forward-looking statements concerning our business, operations and financial performance and condition, as well as our plans, objectives and expectations for our business, operations and financial performance and condition. Any statements contained herein that are not statements of historical facts may be deemed to be forward-looking statements. In some cases, you can identify forward-looking statements by terminology such as "anticipate," "assume," "believe," "contemplate," "continue," "could," "due," "estimate," "expect," "goal," "intend," "may," "objective," "plan," "predict," "potential," "positioned," "seek," "should," "target," "will," "would" and other similar expressions that are predictions of or indicate future events and future trends, or the negative of these terms or other comparable terminology. These forward-looking statements include, but are not limited to, statements about:

       We believe that it is important to communicate our future expectations to our investors. However, there may be events in the future that we are not able to accurately predict or control and that may cause our actual results to differ materially from the expectations we describe in our forward-looking statements. These forward-looking statements are based on management's current expectations, estimates, forecasts and projections about our business and the industry in which we operate and management's beliefs and assumptions and are not guarantees of future performance or development and involve known and unknown risks, uncertainties and other factors that are in some cases beyond our control. As a result, any or all of our forward-looking statements in this prospectus may turn out to be inaccurate. Factors that may cause actual results to differ materially from current expectations include, among other things, those listed under "Risk Factors" and elsewhere in this prospectus. Potential investors are urged to consider these factors carefully in evaluating the forward-looking statements. These forward-looking statements speak only as of the date of this prospectus. We assume

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no obligation to update or revise these forward-looking statements for any reason, even if new information becomes available in the future.

       You should not rely upon forward-looking statements as predictions of future events. Although we believe that the expectations reflected in the forward-looking statements are reasonable, we cannot guarantee that the future results, levels of activity, performance or events and circumstances reflected in the forward-looking statements will be achieved or occur. We undertake no obligation to update publicly any forward-looking statements for any reason after the date of this prospectus to conform these statements to actual results or to changes in our expectations.

       You should read this prospectus and the documents that we reference in this prospectus and have filed with the SEC as exhibits to the registration statement of which this prospectus is a part with the understanding that our actual future results, levels of activity, performance and events and circumstances may be materially different from what we expect.

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MARKET, INDUSTRY AND OTHER DATA

       This prospectus contains estimates and information concerning our industry, including market size and growth rates of the markets in which we participate, that are based on industry publications and reports. We relied on industry, market and similar data from Millennium Research Group, the Sage Group, peer reviewed journals, formal presentations at medical society meetings and other sources. We also rely on our own research and estimates in this prospectus. This information involves a number of assumptions and limitations, and you are cautioned not to give undue weight to these estimates. We have not independently verified the accuracy or completeness of the data contained in these industry publications and reports. The industry in which we operate is subject to a high degree of uncertainty and risk due to a variety of factors, including those described in the section entitled "Risk Factors." These and other factors could cause results to differ materially from those expressed in these publications and reports.

       Information that is based on estimates, forecasts, projections, market research or similar methodologies is inherently subject to uncertainties and actual events or circumstances may differ materially from events and circumstances that are assumed in this information. In some cases, we do not expressly refer to the sources from which this data is derived. In that regard, when we refer to one or more sources of this type of data in any paragraph, you should assume that other data of this type appearing in the same paragraph is derived from the same sources, unless otherwise expressly stated or the context otherwise requires.

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USE OF PROCEEDS

       We estimate that the net proceeds from our sale of shares of common stock in this offering will be approximately $         million, or approximately $         million if the underwriters exercise their over-allotment option in full, assuming an initial public offering price of $        per share and after deducting the estimated underwriting discounts and commissions and offering expenses payable by us. A $1.00 increase (decrease) in the assumed initial public offering price of $        per share would increase (decrease) the net proceeds to us from this offering by $         million, assuming that the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting the estimated underwriting discounts and commissions and estimated offering expenses payable by us. We may also increase or decrease the number of shares we are offering. Each increase of 1.0 million shares in the number of shares offered by us, together with a $1.00 increase in the assumed offering price of $        per share, would increase the net proceeds to us from this offering by $         million. Similarly, each decrease of 1.0 million shares in the number of shares offered by us, together with a $1.00 decrease in the assumed offering price of $        per share, would decrease the net proceeds to us from this offering by $         million.

       We intend to use the net proceeds from this offering for working capital and other general corporate purposes including payment of scheduled interest and principal on our credit facility with PDL Biopharma, or the credit agreement. As of September 30, 2014, we had $21.4 million in principal and interest outstanding under the credit agreement. The interest rate under the credit agreement is 12.0% per annum plus a 1.8% royalty on net revenues and the interest rate under the notes is equal to the 30-day LIBOR plus 6% per annum. During 2015 we expect to use $2.0 million to make scheduled principal payments under the credit agreement. As of September 30, 2014, we had $12.4 million in principal plus accrued interest outstanding under the convertible promissory notes. While we do not have any current plans to allocate the net proceeds of this offering for the redemption of these notes, if we do redeem the notes we would pay each holder an amount equal to 125% of the principal and accrued and unpaid interest under such notes. Please read "Management Discussion and Analysis of Financial Condition and Results of Operations—Contractual Obligations."

       This expected use of net proceeds of this offering represents our current intentions based upon our present plans and business conditions. The amounts we actually expend in these areas, and the timing thereof, may vary significantly from our current intentions and will depend upon a number of factors, including future sales growth, success of research and product development efforts, cash generated from future operations and actual expenses to operate our business. We may use a portion of the net proceeds to acquire complementary products, technologies or businesses; however, we currently have no agreements or commitments to complete any such transactions and are not involved in negotiations to do so.

       As of the date of this prospectus, we cannot specify with certainty all of the particular uses for the net proceeds to be received upon the completion of this offering. Accordingly, our management will have broad discretion in the application of the net proceeds, and investors will be relying on the judgment of our management regarding the application of the proceeds of this offering.

       Pending our use of the net proceeds from this offering, we intend to invest the net proceeds in a variety of capital preservation investments, including short-term, investment grade, interest bearing instruments such as money market funds, certificates of deposit, commercial paper and U.S. government securities.

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DIVIDEND POLICY

       We have never declared or paid, and do not anticipate declaring or paying, any cash dividends on any of our capital stock. We do not anticipate paying any dividends in the foreseeable future, and we currently intend to retain all available funds and any future earnings for use in the operation of our business and to finance the growth and development of our business. Future determinations as to the declaration and payment of dividends, if any, will be at the discretion of our board of directors and will depend on then existing conditions, including our operating results, financial condition, contractual restrictions, capital requirements, business prospects and other factors our board of directors may deem relevant. Our credit agreement prohibits us from paying any dividends or making any other distribution or payment on account of our common stock.

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CAPITALIZATION

       The following table sets forth our capitalization as of September 30, 2014:

 
  As of September 30, 2014  
 
  Actual   Pro Forma   Pro Forma
As Adjusted
 
 
  (unaudited)
(in thousands, except
share data)

 

Borrowings

  $ 20,323   $ 20,323        

Convertible notes and accrued interest

    12,416     12,416        
               

Total

    32,739     32,739      
               

Convertible preferred stock, $0.001 par value; 195,524,356 shares authorized, 191,707,370 shares issued and outstanding, actual; no shares authorized, issued and outstanding, pro forma and pro forma as adjusted

    119,769          
               

Stockholders' deficit:

                   

Preferred stock, $0.001 par value; no shares authorized, issued and outstanding, actual;                shares authorized, pro forma and pro forma as adjusted; no shares issued and outstanding, pro forma and pro forma as adjusted

               

Common stock, $0.001 par value; 320,000,000 shares authorized, actual, 10,936,034 shares issued and outstanding, actual;                         shares authorized, 235,350,425 shares issued and outstanding, pro forma; and            shares authorized, issued and outstanding, pro forma as adjusted

    11     235        

Additional paid-in capital

    2,472     122,017        

Accumulated deficit

    (138,398 )   (138,398 )      
               

Total stockholders' deficit

    (135,915 )   (16,146 )    
               

Total capitalization

  $ 16,593   $ 16,593   $  
               
               

       Each $1.00 increase (decrease) in the assumed initial public offering price of $         per share, would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders' equity (deficit) and total capitalization by approximately $         million, assuming that the number of

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shares offered by us, as set forth on the cover page of this prospectus, remains the same. We may also increase or decrease the number of shares we are offering. An increase (decrease) of 1,000,000 in the number of shares we are offering would increase (decrease) each of pro forma as adjusted additional paid-in capital, stockholders' equity and total capitalization by approximately $         million, assuming that the initial public offering price, as set forth on the cover page of this prospectus, remains the same. The pro forma as adjusted information is illustrative only, and we will adjust this information based on the actual initial public offering price and other terms of this offering determined at pricing.

       The table above excludes, as of September 30, 2014:

       The table should be read in conjunction with "Selected Financial Data," "Management's Discussion and Analysis of Financial Condition and Results of Operations" and our financial statements and related notes included elsewhere in this prospectus.

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DILUTION

       If you invest in our common stock, your interest will be diluted immediately to the extent of the difference between the assumed initial public offering price of $            per share of our common stock and the pro forma as adjusted net tangible book value per share of our common stock after this offering. Our net tangible book value as of September 30, 2014 was $(135.9) million. Our pro forma net tangible book value per share set forth below represents our total tangible assets less total liabilities and preferred stock, divided by the number of shares of our common stock outstanding on September 30, 2014, and assumes the automatic conversion of all of our outstanding shares of preferred stock into 224,414,391 shares of our common stock in connection with the closing of this offering.

       Dilution per share to new investors represents the difference between the amount per share paid by new investors who purchase shares of common stock in this offering and the pro forma as adjusted net tangible book value per share of common stock immediately after the completion of this offering. Giving effect to the sale of shares of our common stock offered by us at the assumed initial public offering price of $            per share, and after deducting the underwriting discounts and commissions and estimated offering expenses payable by us, our pro forma as adjusted net tangible book value as of September 30, 2014 would have been approximately $             million. This amount represents an immediate increase in pro forma net tangible book value of $            per share to our existing stockholders, and an immediate dilution in pro forma net tangible book value of $            per share to new investors purchasing shares of our common stock in this offering. The following table illustrates this dilution:

Initial public offering price per share

        $    

Net tangible book value per share as of September 30, 2014

  $          

Increase in net tangible book value per share attributable to conversion of all shares of preferred stock

  $          

Pro forma net tangible book value per share as of September 30, 2014

  $          

Increase in pro forma net tangible book value per share attributable to new investors in this offering

  $          

Pro forma net tangible book value per share after the offering

        $    
             

Dilution per share to new investors

        $    
             
             

       A $1.00 increase (decrease) in the assumed initial public offering price of $            per share, would increase (decrease) our pro forma net tangible book value, as adjusted to give effect to this offering, by $            per share and the dilution per share to new investors in this offering by $            per share, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting estimated underwriting discounts and commissions and estimated offering expenses payable by us.

       The following table sets forth, as of September 30, 2014, after giving effect to                        , the differences between the number of shares of common stock purchased from us, the total consideration paid, and the average price per share paid by existing stockholders and new investors purchasing shares of our common stock in this offering, before deducting underwriting discounts and commissions

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and estimated offering expenses payable by us at an assumed initial public offering price of $            per share.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

            % $         % $    

New investors

                          $    
                         

Total

            % $         %      
                         
                         

       Each $1.00 increase (decrease) in the assumed initial public offering price of $            per share would increase (decrease) total consideration paid by new investors, total consideration paid by all stockholders and the average price per share paid by all stockholders by $             million, $             million and $            , respectively, assuming the number of shares offered by us, as set forth on the cover page of this prospectus, remains the same and after deducting underwriting discounts and commissions and estimated offering expenses payable by us.

       If the underwriters exercise their over-allotment option in full, the percentage of shares of common stock held by existing stockholders will decrease to approximately        % of the total number of shares of our common stock outstanding after this offering, and the number of shares held by new investors will be increased to            , or approximately        % of the total number of shares of our common stock outstanding after this offering.

       The tables above exclude, as of September 30, 2014:

       The following table sets forth, as of September 30, 2014, the effect on the table above resulting from the issuance of common stock assuming the exercise of all options and warrants and the conversion of all notes described above.

 
   
   
  Total
Consideration
   
 
 
  Shares Purchased    
 
 
  Average Price
Per Share
 
 
  Number   Percent   Amount   Percent  

Existing stockholders

            % $         % $    

New investors

                          $    
                         

Total

            % $         %      
                         
                         

       The exercise of options and warrants and the conversion of the notes, all of which have an exercise or conversion price less than the assumed initial public offering price, would increase the dilution to new investors an additional $            per share, to $            per share.

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SELECTED FINANCIAL DATA

       We derived the selected statements of operations data for the years ended December 31, 2012 and 2013, and the balance sheet data as of December 31, 2012 and 2013, from our audited financial statements appearing elsewhere in this prospectus. The selected statements of operations data for the nine months ended September 30, 2013 and 2014, and the balance sheet data as of September 30, 2014, are derived from our unaudited interim financial statements included elsewhere in this prospectus. We have prepared the unaudited interim financial statements on the same basis as the audited financial statements and have included, in our opinion, all adjustments, consisting only of normal recurring adjustments, that we consider necessary for a fair presentation of the financial information set forth in those statements. You should read this data together with our audited and unaudited financial statements and related notes appearing elsewhere in this prospectus and the information under the caption "Management's Discussion and Analysis of Financial Condition and Results of Operations." The selected financial data included in this section are not intended to replace the financial statements and related notes included elsewhere in this prospectus. Our historical results are not necessarily indicative of our future results and our interim results are not necessarily indicative of results to be expected for the full year ending December 31, 2014, or any other period.

Statements of Operations Data:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except per share data)
 

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  
                   

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Net loss per share, basic and diluted

  $ (3.60 ) $ (3.80 ) $ (3.00 ) $ (2.20 )
                   
                   

Weighted average common shares used to compute net loss per share, basic and diluted

    9,416     10,512     10,438     10,836  
                   
                   

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.31 )       $ (0.17 )
                       
                       

Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited) (1)

          127,116           138,475  
                       
                       

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Balance Sheet Data:

 
  As of December 31,   September 30,
 
 
  2012   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands)
 

Cash and cash equivalents

  $ 20,617   $ 12,221   $ 12,213  

Working capital

    22,462     15,874     13,271  

Total assets

    30,324     25,008     23,064  

Borrowings

        20,052     20,323  

Convertible notes and accrued interest

        13,731     12,416  

Convertible preferred stock

    99,659     99,654     119,769  

Accumulated deficit

    (74,668 )   (114,569 )   (138,398 )

Total stockholders' deficit

    (73,644 )   (112,782 )   (135,915 )

(1)
Reflects the automatic conversion of all outstanding shares of our convertible preferred stock into an aggregate of 224,414,391 shares of common stock immediately prior to the closing of this offering.

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MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS

        The following discussion and analysis of our financial condition and results of operations together with the section entitled "Selected Financial Data," should be read in conjunction with our financial statements and the related notes to those statements included elsewhere in this prospectus. In addition to historical financial information, the following discussion and analysis contains forward-looking statements that involve risks, uncertainties and assumptions. Our actual results and timing of selected events may differ materially from those anticipated in these forward-looking statements as a result of many factors, including those discussed under "Risk Factors" and elsewhere in this prospectus.

Overview

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       During the third quarter of 2014, we began enrolling, and we are continuing to enroll, patients in VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. We believe the data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

       We focus our direct sales force, marketing efforts and promotional activities on interventional cardiologists, vascular surgeons and interventional radiologists in the United States and select European countries. We also work on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders. Although our sales and marketing efforts are directed at these physicians because they are the primary users of our technology, we consider the hospitals and medical centers where the procedure is performed to be our customers, as they typically are responsible for purchasing our products. We are designing future products to be compatible with our lumivascular platform, which we expect to enhance the value proposition for hospitals to invest in our technology. We also expect that Pantheris will qualify for existing reimbursement codes currently utilized by other atherectomy products, further facilitating adoption of our products.

       Prior to the introduction of our lumivascular platform our non-imaging catheter products were manufactured by third parties. All of our products are now manufactured in-house using components

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and sub-assemblies manufactured both in-house at our facilities in Redwood City, California and by outside vendors. We expect our current manufacturing facility will be sufficient to meet our anticipated growth through at least 2016. We assemble all of our products at our manufacturing facility, but certain critical processes such as coating and sterilization are done by outside vendors.

       As of September 30, 2014, we had approximately $12.4 million in principal and accrued interest underlying outstanding promissory notes, or the notes, that are due and payable upon the earlier of October 29, 2018 or upon certain specified events. These notes are convertible at the option of the holders of such notes into shares of our common stock in connection with this offering at a conversion price of 85% of the initial public offering price. We have also borrowed $20.0 million under our credit facility, or the credit agreement, with PDL Biopharma, or PDL. All outstanding amounts under this credit agreement must be repaid on April 18, 2018. We are required to make certain royalty payments on our net sales until April 18, 2018, regardless of whether we prepay the term loan, and we are required to pay an exit fee at maturity, or earlier prepayment in full, based on a percentage of the original principal amount borrowed.

       We began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the United States in late 2012. We generated revenues of $8.6 million in 2012, $13.0 million in 2013 and $8.1 million in the nine months ended September 30, 2014. During the years ended December 31, 2012 and 2013, our net loss was $33.9 million and $39.9 million, respectively, and during the nine months ended September 30, 2014, our net loss was $23.8 million. We have not been profitable since inception and as of September 30, 2014, our accumulated deficit was $138.4 million. Since inception, we have financed our operations primarily through private placements of our preferred securities and, to a lesser extent, debt financing arrangements.

       During the third and fourth quarters of 2013, we effected a reduction in force, lowering our total headcount from 168 employees at June 30, 2013 to 115 employees at December 31, 2013. We implemented this reduction to better align resource utilization with our corporate strategy as we transitioned our focus from non-imaging products to lumivascular platform products, including Pantheris.

Components of Our Results of Operations

Revenues

       All of our revenues are currently derived from sales of our Lightbox console and our various PAD catheters and related services in the United States and select European markets. We expect our revenues to increase as we continue to expand our sales and marketing infrastructure and introduce new lumivascular platform products including, if cleared by FDA, Pantheris. No single customer accounted for more than 10% of our revenues during 2012, 2013, or the first nine months of 2014.

       We expect our revenues to fluctuate from quarter-to-quarter due to a variety of factors. In the first quarter, our results can be harmed by adverse weather and by resetting of annual patient healthcare insurance plan deductibles, both of which may cause patients to delay elective procedures. In the third quarter, the number of elective procedures nationwide is historically lower than other quarters throughout the year, which we believe is primarily attributable to the summer vacations of physicians and their patients.

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Cost of Revenues and Gross Profit

       Cost of revenues consists primarily of costs related to manufacturing overhead, materials and direct labor. A significant portion of our cost of revenues currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. We expect overhead costs as a percentage of revenues to become less significant as our production volume increases. Cost of revenues also includes depreciation expense for production equipment, depreciation and related maintenance expense for leased equipment held by customers and certain direct costs such as those incurred for shipping our products. We expect cost of revenues to increase in absolute dollars to the extent our revenues grow.

       We calculate gross margin as gross profit divided by revenues. Our gross margin has been and will continue to be affected by a variety of factors, primarily production volumes, manufacturing costs, product yields, head count and cost-reduction strategies. We expect our gross margin to increase over the long term as our production volume increases and as we spread the fixed portion of our manufacturing overhead costs over a larger number of units produced, thereby reducing our per unit manufacturing costs. We intend to use our design, engineering and manufacturing capabilities to further advance and improve the efficiency of our manufacturing processes, which we believe will reduce costs and increase our gross margin. In the future, we may seek to manufacture certain of our products outside the United States to further reduce costs. Our gross margin will likely fluctuate from quarter-to-quarter as we continue to introduce new products and adopt new manufacturing processes and technologies.

Research and Development Expenses

       Research and development, or R&D, expenses consist primarily of engineering, product development, clinical and regulatory affairs, consulting services, materials, depreciation and other costs associated with products and technologies in development. These expenses include employee compensation, including stock-based compensation, supplies, materials, quality assurance expenses allocated to R&D programs, consulting, related travel expenses and facilities expenses. Clinical expenses include clinical trial design, clinical site reimbursement, data management, travel expenses and the cost of manufacturing products for clinical trials. In the future, we expect R&D expenses to increase in absolute dollars as we continue to develop new products and enhance existing products and technologies. However, we expect R&D expenses as a percentage of revenues to vary over time depending on the level and timing of our new product development efforts, as well as our clinical development, clinical trial and other related activities.

Selling, General and Administrative Expenses

       We have a direct sales organization that is divided into two distinct roles—sales of capital equipment, such as our Lightbox, and sales of disposable products, such as our catheters. Our current sales efforts focus on establishing new lumivascular platform sites by marketing our products to physicians and hospital administrators. Additionally, we seek to increase the use of our lumivascular platform products by our current customers through case coverage, clinical training and other programs.

       Selling, general and administrative, or SG&A, expenses consist primarily of compensation for personnel, including stock-based compensation, related to selling and marketing functions, physician education programs, business development, finance, information technology and human resource functions. Other SG&A expenses include commissions, training, travel expenses, educational and promotional activities, marketing initiatives, market research and analysis, conferences and trade

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shows, professional services fees, including legal, audit and tax fees, insurance costs, a 2.3% tax on U.S. sales of medical devices, general corporate expenses and allocated facilities-related expenses. We expect to grow our sales force in preparation for the commercial launch of Pantheris in order to increase the base of customers using our lumivascular platform products. We believe that expanding our U.S. sales infrastructure and establishing distributor relationships in select regions outside the United States will drive further adoption of our lumivascular platform. We expect SG&A expenses to continue to increase in absolute dollars and as a percentage of revenues through at least 2015 as we expand our infrastructure to both drive and support anticipated growth in revenues and due to additional legal, accounting, insurance and other expenses associated with being a public company.

Interest Income (Expense), net

       Interest income (expense), net consists primarily of interest incurred on our outstanding indebtedness, our royalty obligation to PDL and non-cash interest related to the amortization of debt discount and issuance costs associated with our various debt agreements. Due to the conversion of $7.8 million in principal amount of the notes and related accrued interest into shares of our Series E preferred stock in September 2014, we expect that our interest expense will decrease.

Other Income (Expense), net

       Other income (expense), net primarily consists of gains and losses resulting from the remeasurement of the fair value of our common stock warrant liability and the compound embedded derivative instrument associated with the notes. We continued to record adjustments to the estimated fair value of the common stock warrants until the Series E preferred stock issuance in September 2014, upon which the common stock warrant exercise price was fixed at $0.28 per share. At this time we re-evaluated the terms of the common stock warrants and determined that the common stock warrants issued with the convertible notes met the requirements for equity classification and the fair value of the warrant liability was reclassified to additional paid-in capital. We will continue to record adjustments to the estimated fair value of the compound embedded derivative instrument associated with the notes until the notes are converted into shares of our capital stock or are repaid. Additionally, for the nine months ended September 30, 2014, other income (expense), net includes the loss on the extinguishment of our notes.

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Results of Operations:

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands, except percentages)
 

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  

Gross margin

    52 %   37 %   39 %   39 %

Operating expenses:

                         

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income (expense), net

    19     (2,923 )   (1,763 )   (4,904 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Comparison of Nine Months Ended September 30, 2013 and 2014

       Revenues.     Revenues decreased $1.5 million, or 15%, to $8.1 million during the nine months ended September 30, 2014, compared to $9.6 million during the nine ended September 30, 2013. This decrease was attributable to a $1.8 million, or 50%, decrease in revenues from sales of our Wildcat and Kittycat non-imaging catheters from $3.5 million to $1.7 million. This decrease was partially offset by sales of our lumivascular platform products, which increased by $0.3 million, or 6%, to $6.4 million. Our average selling prices per unit were substantially consistent for both periods. The increase in sales of our lumivascular platform products was driven by the continued adoption by hospitals of our lumivascular platform and the associated use of our Ocelot family of catheters.

       Cost of Revenues and Gross Margin.     Cost of revenues decreased $1.0 million, or 16%, to $4.9 million during the nine months ended September 30, 2014, compared to $5.9 million during the nine months ended September 30, 2013. This decrease was attributable to the decrease in revenues from sales of our Wildcat and Kittycat non-imaging catheters, as well as a decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013.

       Research and Development Expenses.     R&D expenses decreased $4.3 million, or 34%, to $8.4 million during the nine months ended September 30, 2014, compared to $12.7 million during the nine months ended September 30, 2013. This decrease was primarily due to a $1.8 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013, a reduction of $1.2 million in outside services and a decrease of $1.0 million in product development materials and related costs, as we narrowed our research and development efforts to focus on our lumivascular platform products, particularly Pantheris.

       Selling, General and Administrative Expenses.     SG&A expenses decreased $7.7 million, or 37%, to $12.9 million during the nine months ended September 30, 2014, compared to $20.6 million during

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the nine months ended September 30, 2013. This decrease was primarily due to a $5.9 million decrease in personnel-related expenses associated with our headcount reduction during the third and fourth quarters of 2013, a reduction of $1.5 million in consulting, legal and professional fees and a reduction of $0.3 million in tradeshow and travel-related expenses associated with our reduction in headcount and cost reduction actions taken in the second half of 2013.

       Interest Income (Expense), Net.     Interest income (expense), net increased $3.1 million, or 178%, to an expense of $4.9 million during the nine months ended September 30, 2014, compared to an expense of $1.8 million during the nine months ended September 30, 2013. This increased expense was attributable to interest expense incurred on our credit agreement with PDL, entered into during the second quarter of 2013, and the notes issued during the fourth quarter of 2013, and non-cash interest related to the amortization of debt discount and issuance costs associated with the notes and the credit agreement.

       Other Income (Expense), Net.     Other income (expense), net decreased to an expense of $0.8 million during the nine months ended September 30, 2014, compared to income of $8,000 during the nine months ended September 30, 2013. The decrease in other income (expense) was primarily attributable to the $0.9 million loss on the extinguishment of our notes, that were converted into Series E preferred stock in September 2014, partially offset by the remeasurement of the fair value of our common stock warrant liability through the issuance of the Series E preferred stock in September 2014, and the derivative instruments associated with our notes which are accounted for as a compound embedded derivative instrument and marked-to-market at each reporting date.

Comparison of Years Ended December 31, 2012 and 2013

       Revenues.     Revenues increased $4.4 million, or 51%, to $13.0 million during the year ended December 31, 2013, compared to $8.6 million during the year ended December 31, 2012. $8.3 million of this increase was attributable to the U.S. launch of our lumivascular platform in December 2012, partially offset by a decrease in sales of our non-imaging catheters of $3.9 million. Our average selling prices per unit were substantially consistent for both periods.

       Cost of Revenues and Gross Margin.     Cost of revenues increased $4.0 million, or 98%, to $8.2 million during the year ended December 31, 2013, compared to $4.2 million during the year ended December 31, 2012. This increase was primarily attributable to the growth in sales of our lumivascular platform products, which commenced in the United States in December 2012.

       Gross margin for the year ended December 31, 2013, decreased to 37%, compared to 52% for the year ended December 31, 2012. This decrease was primarily due to the costs associated with the introduction of a new manufacturing process related to the launch of our lumivascular platform and the transition of the manufacturing process of our non-imaging catheters in-house, as well as continued investments in our manufacturing infrastructure, primarily in personnel, which resulted in an increased allocation of facilities expense to cost of revenues.

       Research and Development Expenses.     R&D expenses increased $0.6 million, or 4%, to $16.0 million during the year ended December 31, 2013, compared to $15.4 million during the year ended December 31, 2012. This increase was primarily due to an increase in personnel-related expenses.

       Selling, General and Administrative Expenses.     SG&A expenses increased $3.0 million, or 13%, to $25.8 million during the year ended December 31, 2013, compared to $22.8 million during the year

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ended December 31, 2012. This increase was primarily due to an increase of $3.4 million in employee-related expenses from an increase in headcount. SG&A expenses also increased $0.3 million due to the medical device tax, which became effective on January 1, 2013. These increases were partially offset by a decreased allocation of facilities expense to SG&A due to our decision to manufacture our lumivascular platform products in-house.

       Interest Income (Expense), Net.     Interest income (expense), net increased to an expense of $2.9 million during the year ended December 31, 2013, compared to income of $19,000 during the year ended December 31, 2012. The increase in interest expense was attributable to interest expense incurred on our outstanding indebtedness, including the credit agreement, entered into during the second quarter of 2013, and the notes issued during the fourth quarter of 2013, and non-cash interest related to the amortization of debt discount and issuance costs associated with the notes and the credit agreement.

       Other Income (Expense), Net.     Other income (expense), net increased $24,000 to an income of $5,000 during the year ended December 31, 2013, compared to an expense of $19,000 during the year ended December 31, 2012. The increase in other income was attributable to the remeasurement of the fair value of our common stock warrant liability and the derivative instruments associated with the notes, which are accounted for as a compound embedded derivative instrument, and marked-to-market at each reporting date.

Liquidity and Capital Resources

       As of September 30, 2014, we had cash and cash equivalents of $12.2 million and an accumulated deficit of $138.4 million, compared to cash and cash equivalents of $12.2 million and an accumulated deficit of $114.6 million as of December 31, 2013. We currently believe that the net proceeds from this offering together with our existing cash and cash equivalents and expected revenues will be sufficient to meet our capital requirements and fund our operations for at least 18 months following this offering. If these sources are insufficient to satisfy our liquidity requirements, we may seek to sell additional equity or debt securities or obtain an additional credit facility. Our primary sources of capital have been private placements of preferred stock and debt financing agreements. In April 2013, we entered into a credit agreement with PDL, under which we could borrow up to $40.0 million, of which $20.0 million was immediately available and drawn by us. The remaining $20.0 million would have been available based upon the achievement of certain net revenue milestones prior to June 30, 2014. We did not achieve the net revenue milestones and, accordingly, cannot borrow additional funds under the credit agreement. As of September 30, 2014, we had $20.3 million outstanding under the credit agreement. See section titled —"Contractual Obligations—PDL Credit and Security Agreements."

       If we raise additional funds by issuing equity securities, our stockholders would experience dilution. Debt financing, if available, may involve covenants restricting our operations or our ability to incur additional debt. Any debt financing or additional equity that we raise may contain terms that are not favorable to us or our stockholders and require significant debt service payments, which diverts resources from other activities. Additional financing may not be available at all, or in amounts or on terms acceptable to us. If we are unable to obtain additional financing, we may be required to delay the development, commercialization and marketing of our products and scale back our business and operations.

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Cash Flows

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 
 
  (in thousands)
 

Net cash (used in) provided by:

                         

Operating activities

  $ (35,234 ) $ (40,655 ) $ (33,439 ) $ (15,748 )

Investing activities

    (288 )   (496 )   (811 )   (37 )

Financing activities

    37,303     32,755     19,327     15,777  
                   

Net (decrease) increase in cash and cash equivalents

  $ 1,781   $ (8,396 ) $ (14,923 ) $ (8 )
                   
                   

Net Cash Used in Operating Activities

       During the nine months ended September 30, 2014, net cash used in operating activities was $15.7 million, consisting primarily of a net loss of $23.8 million, partially offset by a decrease in net operating assets of $2.5 million and by non-cash charges of $5.6 million. The decrease in net operating assets was primarily due to decreases in inventory, and an increase in accrued expenses and other current liabilities related to interest payable to PDL and transaction fees related to our Series E financing. The non-cash charges primarily consisted of depreciation, stock-based compensation, non-cash interest expense related to our credit agreement with PDL, and losses on the extinguishment of our notes.

       During the nine months ended September 30, 2013, net cash used in operating activities was $33.4 million, consisting primarily of a net loss of $31.3 million and an increase in net operating assets of $4.6 million, partially offset by non-cash charges of $2.5 million. The increase in net operating assets was primarily due to increases in accounts receivable and inventory as we expanded our sales and marketing organizations and manufacturing supply chain to support the ongoing commercialization of our lumivascular platform. The non-cash charges primarily consisted of depreciation, stock-based compensation and non-cash interest expense related to our credit agreement with PDL.

       Net cash used in operating activities for 2013 was $40.7 million, consisting primarily of a net loss of $39.9 million and an increase in net operating assets of $4.3 million, partially offset by non-cash charges of $3.6 million. The increase in net operating assets was primarily due to the expansion of our sales and marketing organizations to support the ongoing commercialization of our lumivascular platform resulting in increases in accounts receivable and inventory as well as a decrease in accounts payable and accrued expenses and other current liabilities due to timing of payments. Non-cash charges consisted primarily of depreciation, stock-based compensation, and non-cash interest expense related to our credit agreement with PDL.

       Net cash used in operating activities for 2012 was $35.2 million, consisting primarily of a net loss of $33.9 million and an increase in net operating assets of $2.6 million, partially offset by non-cash charges of $1.3 million. The increase in net operating assets was primarily due to increases in inventory as we launched our lumivascular platform in late 2012, partially offset by an increase in accounts payables, accrued compensation and accrued expenses and other current liabilities related to expansion of our sales, and marketing and manufacturing supply chain to support the launch of our lumivascular platform. Non-cash charges consisted primarily of depreciation and stock-based compensation.

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Net Cash Used in Investing Activities

       During the nine months ended September 30, 2013 and 2014, net cash used in investing activities was $0.8 million and $37,000, respectively, consisting of purchases of property and equipment.

       Net cash used in investing activities in 2012 and 2013 was $0.3 million and $0.5 million, respectively, consisting of purchases of property and equipment.

Net Cash Provided by Financing Activities

       During the nine months ended September 30, 2014, net cash provided by financing activities was $15.8 million, consisting of net proceeds of $4.7 million from the issuance of convertible notes and net proceeds of $11.1 million from the issuance of our Series E preferred stock. During the nine months ended September 30, 2013, net cash provided by financing activities was $19.3 million, consisting of net proceeds of $19.3 million from borrowings under our credit agreement with PDL.

       Net cash provided by financing activities in 2013 was $32.8 million, consisting primarily of net proceeds of $19.3 million under our credit agreement with PDL and net proceeds of $13.4 million from the issuance of convertible notes. Net cash provided by financing activities in 2012 was $37.3 million, consisting primarily of net proceeds of $37.1 million from the issuance of our Series D preferred stock.

Off-Balance Sheet Arrangements

       We currently have no off-balance sheet arrangements, such as structured finance, special purpose entities, or variable interest entities.

Contractual Obligations

       Our principal obligations consist of the operating lease for our facilities, capital leases related to office equipment, the credit agreement with PDL, the notes and non-cancellable purchase commitments. The following table sets out, as of December 31, 2013, our contractual obligations due by period (in thousands):

 
  Payments Due by Period  
 
  Less Than
1 Year
  1 - 3 Years   3 - 5 Years   More Than
5 Years
  Total  

Operating lease obligations

  $ 1,092   $ 2,185   $   $   $ 3,277  

Capital lease obligations

    18     13             31  

Credit agreement with PDL

    2,129     23,658     2,122         27,909  

Convertible promissory notes

            33,468         33,468  

Noncancellable purchase commitments

    1,316                 1,316  
                       

  $ 4,555   $ 25,856   $ 35,590   $   $ 66,001  
                       
                       

       In addition to the interest and principal payments due under our credit agreement with PDL, we are obligated to pay PDL a royalty at the rate of 1.8% of our quarterly revenues through the maturity date of April 18, 2018. To the extent that we prepay the borrowings under our credit agreement, our royalty obligations will continue and will be payable through the maturity date at a reduced rate of the greater of 0.9% of our quarterly revenues or specified minimum payments. Because we are unable to estimate the actual royalty amounts payable under the PDL credit agreement, the table above excludes the minimum annual royalty payments due thereunder.

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       In December 2014, we and our former financial advisor agreed to amend and to terminate their engagement letter, effective immediately. Pursuant to the terms of the amended engagement letter, we agreed to pay the former financial advisor a transaction fee of $650,000, which will be paid in four equal quarterly installments starting on December 31, 2014, and ending on September 30, 2015 and $35,000 for reimbursement of their out-of-pocket expenses, which were due upon execution of the amendment. We had accrued approximately $685,000 in the financial statements as of September 30, 2014 for this matter.

       We issued additional convertible notes in May and July of 2014 in an aggregate principal amount of $4.7 million. In September 2014, in connection with our Series E Financing, $7.8 million of the then outstanding convertible notes and accrued interest thereon were converted into shares of our Series E preferred stock. As of September 30, 2014, we had $12.4 million in principal and accrued interest outstanding under the notes. In November 2014, we issued a total of 15.9 million shares of Series E preferred stock pursuant to the conversion of outstanding convertible notes and accrued interest thereon in the amount of $3.8 million.

       Our contractual obligations as of September 30, 2014 have not otherwise significantly changed from December 31, 2013.

Convertible Promissory Notes

       On October 29, 2013, we entered into a Note and Warrant Purchase Agreement, or the Convertible Note Agreement, with certain existing preferred stockholders, third-parties and employees for the issuance of convertible notes up to an aggregate principal amount of $25.0 million. Under the terms of the Convertible Note Agreement, we issued convertible notes, or the notes, in October and November 2013 for total proceeds of $13.5 million, in May 2014 for $4.2 million in total proceeds and in July 2014 for $0.5 million in total proceeds. The notes bear interest equal to 30-day LIBOR, plus 6% per annum subject to a minimum internal rate of return of 20%. The principal and accrued interest thereon will mature on the earlier of: (i) October 29, 2018, (ii) an event of default or (iii) a change of control event.

       The principal and the accrued interest on the notes is convertible, at the option of the holder, upon a future issuance of our preferred stock or common stock into that same stock at a conversion price equal to 85% of the price paid by other investors in the financing event. If the holder does not elect to convert the notes upon the closing of such a financing and such financing raises net proceeds of at least $20.0 million, we may repay the notes at 125% of the outstanding principal and accrued and unpaid interest. Upon a change of control, at the election of the holder, we are obligated to make a payment to such holder equal to the greater of (i) 125% of the outstanding principal and accrued and unpaid interest, (ii) an amount equal to the return the holders of Series D preferred stock would be entitled to receive in such change of control, or (iii) the amount providing the investor with a 20% minimum internal rate of return, provided that in the event that the change of control includes any contingent payments based on future performance, the amount due and payable under clause (ii) will be recalculated at the time each installment or contingent payment is made. In September 2014, in connection with the issuance of the Series E preferred stock, $7.8 million of the outstanding convertible notes and accrued interest thereon were converted into shares of Series E preferred stock. Upon the conversion of the notes, we recorded a loss from the extinguishment of the debt in the amount of $0.9 million, which is reflected in other income (expense), net in the statement of operations and comprehensive loss. As of September 30, 2014, $12.4 million in principal amount of the notes and accrued interest remained outstanding.

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       Upon completion of this offering, the outstanding principal and accrued and unpaid interest under the notes may, at the option of each holder thereof, convert into shares of our common stock at a conversion price equal to 85% of the initial public offering price. To date none of the note holders have indicated an intent to convert their notes in connection with the offering. Assuming an initial public offering price of $            , the principal amount and accrued interest under the notes as of September 30, 2014 would convert into                  shares of our common stock. If holders of the notes elect not to convert the principal and accrued and unpaid interest under such notes into shares of our common stock in connection with this offering, we may, at our sole election, prepay such outstanding principal and accrued and unpaid interest under the notes by paying each holder an amount equal to 125% of the principal and accrued and unpaid interest under the notes at any time prior to their maturity date.

Lease Agreement

       We lease our headquarters in Redwood City, California pursuant to a lease agreement with HCP LS Redwood City dated July 30, 2010, or the 2010 Lease, as amended by the First Amendment to Lease dated September 30, 2011 and together with the 2010 Lease, the Amended Lease. The Amended Lease has a rental commencement date of December 1, 2011 and a term of five years and expires in November 2016. We have two options to extend the lease term for a period of three years each. Each option must be exercised no more than 12 months and no less than nine months prior to the expiration of the applicable term. The Amended Lease is for an aggregate of approximately 44,200 rentable square feet.

PDL Credit and Security Agreements

       On April 18, 2013, we, as borrower, entered into a credit agreement with PDL, as lender and agent. The credit agreement provided for an aggregate term loan facility of up to $40.0 million, available in two tranches of up to $20.0 million each. We borrowed $20.0 million as a term loan under tranche one of the credit agreement on April 18, 2013. We also paid closing fees to PDL of approximately $200,000, which were deducted from the tranche one funds we received, plus legal and brokerage fees. Tranche two of the credit agreement, the availability of which was conditioned on our satisfaction of certain milestones, never became available to us as we did not reach those milestones. The proceeds from tranche one were used for working capital, capital expenditures and general corporate purposes.

       The tranche one term loan bears interest at a rate equal to 12.0% per annum. Interest on the tranche one term loan is due and payable quarterly in arrears, provided that we may elect to add up to 1.5% percent of interest per annum to increase the outstanding principal balance of such loan for the first eight interest payment dates after the closing date with respect to the tranche one loan. Pursuant to this provision, we converted $452,000 of the interest on the tranche one loan amount into principal and, as of September 30, 2014, there was $20.3 million outstanding under the credit agreement. Principal is payable in equal quarterly installments beginning December 2015 or, if certain milestone conditions are met, June 2016. All outstanding amounts under the tranche one term loan must be repaid on April 18, 2018.

       At maturity of the tranche one term loan, we are obligated to pay an exit fee equal to 1.0% of the original principal amount borrowed. Additionally, until April 18, 2018, even if the term loan is prepaid, we are obligated to pay to PDL a certain percentage of our net revenue each quarter. Until the end of the quarter in which prepayment occurs, we are required to pay to PDL a quarterly amount equal to 1.8% of our net revenues for such quarter. If we prepay the loan, we are still required to pay to PDL a quarterly amount equal to the greater of 0.9% of our net revenues for each

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calendar month during such quarter and certain minimum amounts, starting at $65,000 per quarter in 2013 and increasing annually to $310,000 per quarter in 2018. On April 18, 2013, we entered into a security agreement with PDL, as agent, pursuant to which we secured our obligations under the tranche one term loan by granting to PDL a security interest on substantially all of our assets.

       The credit agreement and the security agreement contain customary affirmative covenants and customary negative covenants limiting our ability to, among other things, dispose of assets, undergo a change in control, merge or consolidate with affiliates, make acquisitions, incur debt, incur liens, pay dividends, enter into restrictive agreements, repurchase stock and make investments, in each case subject to certain exceptions. Additionally, even if the term loan is prepaid, until there are no further obligations to periodically pay to lender a percentage of our net revenue, we must comply with certain affirmative covenants and negative covenants limiting our ability to, among other things, undergo a change in control or dispose of assets, in each case subject to certain exceptions. The credit agreement and the security agreement also contain customary events of default including, among others, payment defaults, breaches of covenants, bankruptcy and insolvency events, cross defaults with certain material indebtedness, judgment defaults, and breaches of representations and warranties. Upon an event of default, PDL may declare all or a portion of our outstanding obligations payable to be immediately due and payable and exercise other rights and remedies provided for under the credit agreement, the security agreement and any guaranty. Additionally, upon an event of default, the interest rate would likely be increased to a default rate of 14.0% per annum. We were in compliance with the covenants under the credit agreement and the notes as of September 30, 2014.

Indemnification

       In the normal course of business, we enter into contracts and agreements that contain a variety of representations and warranties and provide for indemnification of the counterparty. Our exposure under these agreements is unknown because it involves claims that may be made against us in the future, but have not yet been made. To date, we have not been subject to any claims or been required to defend any action related to our indemnification obligations. However, we may incur significant expense in the future as a result of these indemnification obligations.

       In accordance with our amended and restated certificate of incorporation and our amended and restated bylaws, we have indemnification obligations to our officers and directors, subject to some limits, with respect to their service in such capacities. We have also entered into indemnification agreements with our directors and certain of our officers. To date, we have not been subject to any claims, and we have director and officer insurance that may enable us to recover a portion of any amounts paid for future potential claims. However, we may incur significant expense in the future as a result of these indemnification obligations.

Quantitative and Qualitative Disclosures About Market Risk

Interest Rate Risk

       The risk associated with fluctuating interest rates is primarily limited to our cash equivalents, which are carried at quoted market prices. Due to the short-term maturities and low risk profile of our cash equivalents, an immediate 100 basis point change in interest rates would not have a material effect on the fair value of our cash equivalents. We do not currently use or plan to use financial derivatives in our investment portfolio.

       We are also exposed to market risk related to fluctuations in interest rates indexed to LIBOR, which determines the variable interest payments we make on the notes, as they bear interest equal to

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30-day LIBOR, plus 6% per annum. However, we do not believe we are subject to any material market risk exposure as the notes are subject to, and interest is accrued at, a minimum internal rate of return of 20%.

Credit Risk

       As of December 31, 2013 and September 30, 2014, our cash and cash equivalents were maintained with one financial institution in the United States, and our current deposits are likely in excess of insured limits. We have reviewed the financial statements of this institution and believe it has sufficient assets and liquidity to conduct its operations in the ordinary course of business with little or no credit risk to us.

       Our accounts receivable primarily relate to revenues from the sale of our lumivascular platform products to hospitals and medical centers in the United States. Three and two customers represented more than 10% of our accounts receivable as of December 31, 2013 and September 30, 2014, respectively.

Foreign Currency Risk

       Our business is primarily conducted in U.S. dollars. Any transactions that may be conducted in foreign currencies are not expected to have a material effect on our results of operations, financial position or cash flows.

Related Parties

       For a description of our related party transactions, see "Certain Relationships and Related Transactions."

Critical Accounting Policies and Estimates

       Management's discussion and analysis of our financial condition and results of operations is based on our financial statements, which have been prepared in accordance with U.S. generally accepted accounting principles. The preparation of these financial statements requires us to make estimates and assumptions for the reported amounts of assets, liabilities, revenues, expenses and related disclosures. Our estimates are based on our historical experience and on various other factors that we believe are reasonable under the circumstances, the results of which form the basis for making judgments about the carrying value of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates under different assumptions or conditions and any such differences may be material.

       While our significant accounting policies are more fully described in Note 2 of our financial statements included in this prospectus, we believe the following discussion addresses our most critical accounting policies, which are those that are most important to our financial condition and results of operations and require our most difficult, subjective and complex judgments.

Revenue Recognition

       All of our revenues are currently derived from sales of our lumivascular platform products, various non-imaging PAD catheters and related services in the United States and select European markets. We recognize revenues when the following revenue recognition criteria are met:

    Persuasive evidence of an arrangement exists. We consider this criterion satisfied when we have an agreement or contract in place with the customer.

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    Delivery has occurred or services have been rendered. We principally determine this criterion to be satisfied as follows:

    Lightbox console:    upon our receipt of a form executed by the customer acknowledging that the training and installation process is complete.

    PAD catheters:    when the product has been shipped and risk of loss and title has passed to the customer.

    Service:    recognized ratably over the term of the service period. To date service revenues have been insignificant.

    The fee is fixed or determinable and collectability is reasonably assured. We determine the satisfaction of these criteria based on our judgment regarding the nature of the fee charged for products, contractual agreements entered into, and the collectability of those fees under any contract or agreement.

       We offer our customers the ability to purchase or lease our Lightbox. When a customer leases the Lightbox, we recover the cost of providing the system by charging that customer a premium on sales of the Ocelot family of catheters. When a Lightbox is leased, we retain title to the equipment and it remains capitalized on our balance sheet under property and equipment. The costs to maintain these leased Lightboxes held by customers are charged to cost of revenues as incurred.

       We evaluate our lease agreements and account for these contracts under the guidance pertaining to accounting for leases and for revenue arrangements with multiple deliverables. The guidance requires arrangement consideration to be allocated between a lease deliverable and a non-lease deliverable based upon the relative selling prices of the deliverables, using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price, or ESP. We allocate arrangement consideration using ESP.

       We assessed whether the embedded lease is an operating lease or sales-type lease and determined that collectability of the minimum lease payments is not reasonably predictable given that any payments under the lease agreements are dependent upon contingent future Ocelot catheter sales. We concluded, therefore, that the embedded lease did not meet the criteria of a sales-type lease and we account for it as an operating lease. We recognize revenue allocated to the lease as the Ocelot catheters are delivered.

       We must make significant assumptions regarding the future collectability of accounts receivable from customers to determine whether revenue recognition criteria have been met. If collectability is not assured at the time of shipment, we defer revenues until such criterion has been met. We estimate reductions in revenue for potential returns of products by customers. In making such estimates, we analyze historical returns, current economic trends and changes in customer demand and acceptance of our products.

Common Stock Valuation

       Our intent has been to grant all options with an exercise price not less than the fair value of our common stock underlying those options on the date of grant. We have determined the estimated fair value of our common stock at each valuation date in accordance with the guidelines outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Our board of directors, with the assistance of independent third party valuation firms and management, developed these valuations using significant judgment

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and taking into account numerous factors, including valuation reports; developments at our company; the rights, preferences and privileges of our preferred stock relative to those of our common stock; market conditions; the lack of marketability of our common stock; and contemporaneous debt and equity financing events.

       For all option grant dates through September 30, 2014, our board of directors determined the enterprise value based on the application of the market approach and the income approach. Under the market approach we estimate the value based upon analysis of similar companies. We then apply these derived multiples or values to our financial metrics to estimate our market value. The income approach, or discounted cash flow method, estimates value based on the expectation of future net cash flows, which are then discounted back to the present using a rate of return derived from companies of similar type and risk profile. The allocation of these enterprise values to each part of our capital structure, including our common stock, was done based on the option pricing method, or OPM. OPM treats the rights of the holders of preferred and common stock as equivalent to call options on any value of the enterprise above certain break points of value based upon the liquidation preferences of the holders of the preferred stock, as well as their rights to participation and conversion. Thus, the estimated value of the common stock can be determined by estimating the value of its portion of each of these call option rights. OPM derives the implied equity value of a company from a recent transaction involving the company's own securities issued on an arms-length basis. Following the closing of this offering, the fair value of our common stock will be determined based on the closing price of our common stock on The NASDAQ Stock Market.

       The intrinsic value of all outstanding vested and unvested options as of September 30, 2014, was $ million based on the assumed initial public offering price of $         per share, and based on 14,257,803 shares of common stock issuable upon the exercise of options outstanding as of September 30, 2014, with a weighted-average exercise price of $0.36 per share.

Stock-Based Compensation

       We maintain an equity incentive plan to provide long-term incentive for employees, consultants and members of our board of directors. We currently have no outstanding stock options granted to consultants. The plan allows for the issuance of non-statutory and incentive stock options to employees and non-statutory stock options to consultants and non-employee directors.

       We are required to determine the fair value of equity incentive awards and recognize compensation expense for all equity incentive awards, including employee stock options. We recognize this expense over the requisite service period. In addition, we recognize stock-based compensation expense in the statements of operations and comprehensive loss based on awards expected to vest and, therefore, the amount of expense has been reduced for estimated forfeitures. We use the straight-line method for expense attribution.

       The valuation model we used for calculating the fair value of awards for stock-based compensation expense is the Black-Scholes option-pricing model, or the Black-Scholes model. The Black-Scholes model requires us to make assumptions and judgments about the variables used in the calculation, including the weighted average period of time that the options granted are expected to be outstanding, the volatility of common stock, an assumed risk-free interest rate and an estimated forfeiture rate.

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       The following table summarizes the assumptions we used to determine the fair value of stock options:

 
  Year Ended
December 31, 2013
  Nine Months
Ended
September 30, 2014
 
 
   
  (unaudited)
 

Expected term (years)

    6.9     7.0  

Expected volatility

    52.1 %   50.0 %

Risk-free interest rate

    1.4 %   2.1 %

Dividend rate

         

       Fair Value of Common Stock.     As discussed above, the fair value of the shares of our common stock underlying the stock options has historically been determined by our board of directors after considering independent third party valuation reports. Because there has been no public market for our common stock, our board of directors has determined the fair value of our common stock at the time of grant of the option by considering a number of objective and subjective factors, including valuations of comparable companies, sales of our preferred stock, our operating and financial performance and the general and industry-specific economic outlook.

       Expected Term.     We do not believe we are able to rely on our historical exercise and post-vesting termination activity to provide accurate data for estimating the expected term for use in determining the fair value-based measurement of our options. Therefore, we have opted to use the "simplified method" for estimating the expected term of options, which is the average of the weighted average vesting period and contractual term of the option.

       Expected Volatility.     Since there has been no public market for our common stock and lack of company specific historical volatility, we have determined the share price volatility for options granted based on an analysis of the volatility of a peer group of publicly traded companies. In evaluating similarity, we consider factors such as stage of development, risk profile, enterprise value and position within the industry.

       Risk-free Interest Rate.     The risk-free interest rate is based on the U.S. Treasury yield in effect at the time of the grant for zero-coupon U.S. Treasury notes with remaining terms similar to the expected term of the options.

       Dividend Rate.     We assumed the expected dividend to be zero as we have never paid dividends and have no current plans to do so.

       Expected Forfeiture Rate.     We are required to estimate forfeitures at the time of grant, and revise those estimates in subsequent periods if actual forfeitures differ from those estimates. We use historical data to estimate pre-vesting option forfeitures and record share-based compensation expense only for those awards that are expected to vest. To the extent actual forfeitures differ from the estimates, we record the difference as a cumulative adjustment in the period that the estimates are revised.

       Service period.     We amortize all stock-based compensation over the requisite service period of the awards, which is generally the same as the vesting period of the awards. We amortize the stock-based compensation cost on a straight-line basis over the expected service periods.

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       If factors change and we employ different assumptions, stock-based compensation expense may differ significantly from what we have recorded in the past. If there are any modifications or cancellations of the underlying unvested securities, we may be required to accelerate, increase or cancel any remaining unearned stock-based compensation expense. To the extent that our assumptions are incorrect, the amount of stock-based compensation recorded will change.

Common Stock Warrant Liability

       For a warrant classified as a derivative liability, we record the fair value of that warrant on the balance sheet at the inception of such classification and adjust to fair value at each financial reporting date. We record the changes in the fair value of the warrants in the statement of operations and comprehensive loss as a component of other income (expense), net. We continued to adjust the carrying value of the common stock warrant liability for changes in the fair value of the warrants until the Series E preferred stock issuance in September 2014, upon which the common stock warrant exercise price was fixed at $0.28 per share. At this time we re-evaluated the terms of the common stock warrants and determined that the common stock warrants issued with the convertible notes now met the requirements for equity classification at which time we reclassified the fair value of the warrant liability to stockholders' deficit. Our assumptions with regard to the warrant valuation were based on estimates of the valuation of the underlying common stock, the volatility of the common stock and interest rates and such estimates could vary significantly.

Compound Embedded Derivative

       We have derivative instruments related to redemption features embedded within the outstanding convertible notes. The compound embedded derivatives were accounted for as a liability at the inception of the obligation and are remeasured to fair value as of each balance sheet date, with the related remeasurement adjustment recognized as other income (expense), net in the statement of operations and comprehensive loss. The fair value of the compound embedded derivative is determined based on an income approach that identified the cash flows using a "with-and-without" valuation methodology. The inputs used to determine estimated fair value of the derivative instruments include the probabilities of the underlying events triggering the embedded derivative and their timing. We will record adjustments to the estimated fair value of the compound embedded derivative associated with convertible notes until the notes are converted into shares of our capital stock or are repaid.

JOBS Act Accounting Election

       As an emerging growth company under the Jumpstart Our Business Startups Act of 2012, we are eligible to take advantage of certain exemptions from various reporting requirements that are applicable to other public companies that are not emerging growth companies. We have irrevocably elected not to avail ourselves of this exemption from new or revised accounting standards and, therefore, are subject to the same new or revised accounting standards as other public companies that are not emerging growth companies.

Internal Control Over Financial Reporting

       A company's internal control over financial reporting is a process designed by, or under the supervision of, that company's principal executive and principal financial officers, or persons performing similar functions, and influenced by that company's board of directors, management and other personnel, to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements in accordance with generally accepted accounting principles. Because of its inherent limitations, internal control over financial reporting may not prevent or detect

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misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with policies or procedures may deteriorate.

       In connection with our preparation for this offering, we concluded that there was a material weakness in our internal control over financial reporting for the years ended December 31, 2012 and 2013. A material weakness is a deficiency, or a combination of deficiencies, in internal control over financial reporting such that there is a reasonable possibility that a material misstatement of our annual or interim financial statements will not be prevented or detected on a timely basis. The material weakness identified was that we did not maintain a sufficient complement of resources with an appropriate level of accounting knowledge, experience and training commensurate with our structure and financial reporting requirements.

       During the third quarter of 2014 and in preparation for this offering, we initiated various remediation efforts, including initiation of hiring processes for additional personnel with the appropriate public company and technical accounting expertise, and other actions that are more fully described below. As such remediation efforts are still ongoing, we have concluded that the material weakness has not been remediated. Our remediation efforts to date have included the following:

       We have added and are continuing to add appropriate full-time resources to our finance team and we have hired additional external consultants with public company and technical accounting experience to facilitate accurate and timely accounting closes, and to accurately prepare and review financial statements and related footnote disclosures. As a result of the additional resources added to the finance function, we are allowing for separate preparation and review of the reconciliations and other account analyses. In addition, these additional finance resources are allowing us to develop a more structured close process, including enhancing our existing policies and procedures, to improve the completeness, timeliness and accuracy of our financial reporting and disclosures including, but not limited to, those regarding proper financial statement classification and assessing more judgmental areas of accounting. The actions that have been taken are subject to continued review, supported by confirmation and testing by management, as well as audit committee oversight. We can provide no assurance that we will be able to hire and retain qualified individuals to create and maintain appropriate internal control over financial reporting. Competition for these individuals is intense, especially in the San Francisco Bay Area where we are located. While we have implemented a plan to remediate this material weakness, we cannot provide any assurance that we will be successful, which could impair our ability to accurately and timely report our financial position, results of operations or cash flows.

        See "Risk Factors—Risks Related to Our Business—We have identified a material weakness in our internal control over financial reporting as of December 31, 2012 and 2013, and may identify additional material weaknesses in the future that may cause us to fail to meet our reporting obligations or result in material misstatements of our financial statements. If we fail to remedy our material weaknesses, or if we fail to establish and maintain effective internal control over financial reporting, our ability to accurately and timely report our financial results could be harmed."

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BUSINESS

Overview

       We are a commercial-stage medical device company that designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease, or PAD. Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. Our mission is to dramatically improve the treatment of vascular disease through the introduction of products based on our lumivascular platform, the only intravascular image-guided system available in this market. We manufacture and sell a suite of products in the United States and select European markets. Our current products include our Lightbox imaging console, as well as our Wildcat, Kittycat, and the Ocelot family of catheters, which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion, or CTO. We are also developing Pantheris, our image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission in the second half of 2015 to the U.S. Food and Drug Administration, or FDA. We believe that Pantheris, if cleared by FDA, will significantly enhance our market opportunity within PAD and can expand the overall addressable market for PAD endovascular procedures.

       According to an article published in The Lancet, the global prevalence of PAD was estimated at 202 million people in 2010. The prevalence of PAD in the United States alone was estimated at 18 million people in 2010 and is projected to grow to 21 million people by 2020 according to the Sage Group. Despite its prevalence, PAD is underdiagnosed and undertreated relative to many other serious vascular conditions, including coronary artery disease, or CAD, in part because many PAD patients are asymptomatic or dismiss their symptoms as normal signs of aging. Despite the relative undertreatment of PAD, Millennium Research Group estimates that over 570,000 catheter-based PAD procedures in the pelvis and legs were performed in the United States in 2013, which corresponded to a $1.0 billion market. Millennium Research Group also estimates that the number of catheter-based PAD procedures will grow to almost 700,000 in 2017, representing a $1.2 billion market in the United States. Higher diagnosis and intervention rates resulting from greater physician and patient awareness of PAD, as well as higher prevalence, may significantly expand the market opportunity for PAD treatments, according to the Millennium Research Group.

       Current treatments for PAD, including bypass surgery, can be costly and may result in complications, high levels of post-surgery pain and lengthy hospital stays and recovery times. Minimally invasive, or endovascular, treatments include stents, angioplasty, and atherectomy devices, which are catheter-based products for the removal of plaque. These treatments also have limitations in their safety or efficacy profiles and frequently result in recurrence of the disease, also known as restenosis. We believe one of the main contributing factors to high restenosis rates for PAD patients treated with endovascular technologies is the amount of vascular injury that occurs during an intervention. Specifically, these treatments often disrupt the membrane between the outermost layers of the artery, which we refer to as the black line.

       Our lumivascular platform is the only technology that offers real-time visualization of the inside of the artery during PAD treatment. We believe this approach will significantly improve patient outcomes by providing physicians with a clearer picture of the artery using radiation-free image guidance during treatment, enabling them to better differentiate between plaque and healthy arterial structures. Our lumivascular platform is designed to improve patient safety by enabling physicians to direct treatment towards the plaque, while avoiding healthy portions of the artery.

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       We are currently enrolling VISION, a clinical trial designed to support a filing with FDA for our Pantheris atherectomy device. VISION is designed to evaluate the safety and efficacy of Pantheris to perform atherectomy using intravascular imaging. We believe the data from VISION will also allow us to demonstrate that avoiding the black line reduces the likelihood of restenosis in these patients. If Pantheris is cleared by FDA, we plan to commercialize it as part of our lumivascular platform in the United States and in select European countries after obtaining any required marketing authorizations.

       We have assembled a team with extensive medical device development and commercialization capabilities, including our founder, John B. Simpson, Ph.D., M.D., who founded Advanced Cardiovascular Systems, FoxHollow Technologies and Perclose, among other vascular medical device companies. We began commercializing our initial non-lumivascular platform products in 2009 and introduced our lumivascular platform products in the United States in late 2012. We generated revenues of $8.6 million in 2012, $13.0 million in 2013 and $8.1 million in the nine months ended September 30, 2014.

Overview of Peripheral Arterial Disease

       Atherosclerosis is a progressive, degenerative condition in which plaque, consisting of lipids, cholesterol, calcium and other substances found in the blood stream, accumulates on the arterial wall. The accumulation of plaque can result in the narrowing of an artery, which may lead to serious health problems. Plaque can occur in many areas of the body and may vary in composition, density and size. These blockages sometimes contain hard areas, characterized as calcified plaque, as well as softer deposits consisting of fibrous or fatty tissue. As plaque continues to accumulate, it can completely block the artery, making it particularly difficult for physicians to treat.

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Comparison of a normal artery to an atherosclerotic artery

       PAD is atherosclerosis in the arteries that supply blood to the arms and legs, and may lead to serious symptoms such as pain, fatigue or numbness. Genetic predisposition, diabetes, smoking,

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hypertension, physical inactivity, high cholesterol, obesity and aging all increase the risk of developing PAD. In extreme cases, PAD can lead to critical limb ischemia, or CLI, which, if left untreated, can result in ulceration, infection, or gangrene in the feet and legs and eventually limb amputation or death. The Transatlantic Intersociety Consensus for the Management of Peripheral Arterial Disease, or TASC II, estimates that 55% of CLI patients will undergo amputation or die within one year after the diagnosis.

Current Treatments for PAD and Their Limitations

       Physicians have several options available to treat PAD. For mild cases, lifestyle changes or drug therapy may slow or stabilize progression of the disease and alleviate symptoms. For more advanced cases of PAD, a physician may employ minimally-invasive endovascular procedures, or surgical interventions such as bypass or amputation.

Medical Management

       The large majority of cases of diagnosed PAD in the United States are medically managed, according to the Society of Interventional Radiology. For this population, lifestyle changes, including improved diet, regular exercise and smoking cessation, as well as drug treatment are often prescribed. Although these measures can be effective, many people are unable to sustain them. In addition, these measures may reduce the symptoms, but do not treat the underlying causes of the disease. Physicians may also prescribe medications that lower cholesterol and reduce blood pressure. These drug therapies are generally prescribed for the life of the patient and do not treat the obstruction, making them an ineffective treatment for many patients. As a result, many of these patients will ultimately require more aggressive treatments.

Surgery

       Bypass Surgery.     More severe cases of PAD may be treated by surgeons with bypass surgery. This procedure entails using a synthetic graft or harvesting a healthy vessel from another area of the body and grafting it around a blocked portion of an artery. This procedure diverts blood flow around the occluded area to ensure that the tissue supplied by these arteries receives sufficient blood flow. Given its invasive nature, bypass surgery is performed by physicians in an operating room with the patient under general anesthesia. Bypass surgery involves multi-day hospital stays for healing and rehabilitation. General anesthesia and the potential for surgical infections make this approach less suitable for patients with conditions such as high blood pressure, heart failure, chronic obstructive pulmonary disease or poor kidney function. We estimate there were over 150,000 lower extremity bypass surgeries performed in the United States in 2013.

       Amputation.     CLI is a serious form of PAD caused by severe lack of blood flow to the legs and often results in pain at rest and tissue breakdown. Physicians may recommend full or partial amputation of the leg or foot for patients with CLI. TASC II estimates that 30% of patients with CLI will require an amputation within one year of diagnosis, and 15% of patients who undergo amputation of one leg will undergo amputation of the other leg within two years of the first amputation. According to TASC II, the mortality rate for patients with CLI is 25% at one year from the development of the condition. The Sage Group estimates that approximately 200,000 amputations occur annually as a result of CLI.

Endovascular Interventions

       In recent years, technologies and techniques have improved such that many forms of PAD can now be treated by physicians with endovascular approaches. We believe PAD endovascular interventions will continue to increase due to improved safety and effectiveness of endovascular

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procedures relative to surgical alternatives, together with greater physician and patient awareness of the disease. The most common endovascular treatments include balloon angioplasty, stenting and atherectomy. These procedures involve a physician feeding a catheter over a guidewire through a small incision, typically while using fluoroscopy, or x-ray, as a visual guide. In the event that the patient has a CTO, the physician may require a specialized guidewire, support catheter or other device to cross the CTO prior to treatment consisting of balloon angioplasty, stenting, atherectomy or some combination thereof.

       Fluoroscopy is the primary imaging tool currently used during endovascular treatments but delivers limited information to physicians. This technology provides an external view of the artery and does not allow physicians to differentiate between plaque and healthy arterial structures. Additionally, fluoroscopy exposes physicians, hospital staff and patients to radiation, which can lead to cataracts, cancer and abnormal blood cell counts. In addition, physicians frequently perform angiography in combination with fluoroscopy to assess the location and severity of the blockage. Angiography requires the use of contrast dye, which can increase the risk of kidney damage and may lead to acute kidney failure.

       Importance of the Black Line.     Scientific research has identified the importance of minimizing vascular injury during an endovascular intervention, and specifically the disruption of the membrane between the outer most layers of the artery, which we call the black line. A study by the Sanford Burnham Institute concluded that disruption of the area around the black line creates an inflammatory response significantly greater than when the black line is not injured, ultimately leading to accelerated narrowing of the artery. This narrowing of the artery is known as restenosis, which can lead to the restriction of blood flow. Black line disruption can be caused by wire-based CTO crossing, dissection from balloon angioplasty, stent placement, or an atherectomy device cutting through this area.

Lumivascular View

 

Cross-Sectional View


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Image of the black line using our visualization compared to a cross sectional view of an artery.

       A study from New York's Mount Sinai Hospital, published in the Journal of the American College of Cardiology, or JACC, demonstrated the correlation between restenosis rates and vascular injury during directional atherectomy procedures. Specifically, the study examined the composition of the tissue removed during treatment of 102 patients and assessed restenosis rates after one year. The study found that in 54% of the patients, the extracted portion contained healthy tissue, indicating disruption of the black line. In this group of patients the restenosis rate, one-year after treatment, was 96%, while in the group of patients without evidence of black line disruption, the restenosis rate was only 15%.

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       The data from the Mount Sinai Hospital study are summarized in the following chart:


Atherectomy Procedures — Restenosis Rates at 1-Year

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       We believe balloon angioplasty, stenting and other current atherectomy procedures often result in vascular injury, limiting their safety and efficacy, and increase restenosis rates associated with these treatments.

       Balloon Angioplasty.     In an angioplasty procedure, a miniature balloon attached to the tip of the treatment catheter opens the blood vessel by expanding the vessel and compressing plaque against the arterial wall. While angioplasty catheters are relatively easy to use, they stretch the arterial wall, often leading to dissections of, and damage to, the black line. Furthermore, angioplasty does not actually remove the plaque, which remains in the artery. Different variations of balloon catheters have been developed for the treatment of PAD, claiming additional benefits compared to standard angioplasty. These include cutting or scoring balloons designed to treat blockages with lower inflation pressures, as well as drug-coated balloons designed to suppress the inflammatory response to minimize restenosis. According to TASC II, 35% of angioplasty treatments result in restenosis at one year and 52% at three years. Millennium Research Group estimates that 500,000 PAD angioplasty procedures in the pelvis and legs were performed in the United States in 2013, 62% of which required the additional use of a stent.

       Stenting.     A stent is a wire-mesh tube that acts as a scaffold inside the artery to maintain adequate blood flow. Stents are currently available in bare metal and drug-coated varieties, with the latter designed to inhibit restenosis. Since stents rely on a similar expansion mechanism as balloons, we believe they also cause injury to the arterial wall and disrupt the black line during placement. According to TASC II, 27% of PAD stent treatments result in restenosis at one year and 36% at three years. Additionally, according to a study in JACC, stents placed in the legs fracture in approximately 25% of cases and have one-year patency, or absence of restenosis, rates of 41%, compared to 84% in cases with no stent fractures. Stents placed in the legs are often longer than coronary stents due to the diffuse nature of the lesions and the arterial anatomy, and longer stents have significantly higher fracture rates. Once a stent is implanted, it cannot be removed, which may limit future treatment options such as angioplasty, additional stenting, atherectomy and bypass surgery. Millennium Research Group estimates that 370,000 PAD stent procedures in the pelvis and legs were performed in the United States in 2013.

       Atherectomy.     Atherectomy is a procedure in which plaque is cleared from the arterial walls using a catheter-based technology with a mechanism to remove or displace diseased tissue. There are several types of atherectomy devices, including directional, rotational and laser, each with different mechanisms of action to remove or displace plaque. Currently available atherectomy devices rely on

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fluoroscopy rather than on-board imaging to provide visual guidance throughout the entire procedure. Atherectomy treatments frequently require the use of a stent or balloon to achieve the desired outcome and cannot selectively target the removal of only diseased tissue. As a result, current atherectomy technologies can damage the black line, which we believe increases the risk of restenosis. According to an article published in the Journal of Invasive Cardiology reviewing published clinical data, one-year restenosis rates for existing atherectomy technologies range from 22% to 46%. According to Millennium Research Group, there were 80,000 atherectomy procedures performed in the pelvis and legs in the United States in 2013, 86% of which required the use of a stent or balloon.

Our Solution

       Our pioneering lumivascular platform combines best-in-class interventional devices with optical coherence tomography, or OCT, a high resolution, light-based, radiation-free intravascular imaging technology. Our lumivascular platform currently provides physicians with real-time OCT images from the inside of an artery during CTO crossing, and we believe Pantheris will be the first product to offer intravascular visualization during atherectomy.


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Visualization using our lumivascular technology compared to standard fluoroscopy imaging

       We believe the combination of enhanced visualization and the ability to precisely target the diseased portion of an artery will allow physicians to access difficult to treat areas and significantly improve the safety and efficacy of endovascular procedures for patients. Market acceptance of our lumivascular platform products may be hindered if physicians are not presented with compelling data from long-term studies of the safety and efficacy of our lumivascular platform products as compared to alternative procedures such as angioplasty, stenting, bypass surgery or other atherectomy procedures. Physicians will also need to appreciate the value of real-time imaging in improving patient outcomes in order to change current methods for treating PAD patients. We believe that our lumivascular platform provides the following benefits to physicians, hospitals and patients, as compared to balloons, stents and other current atherectomy procedures:

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       Risks of using the lumivascular platform include the risks that are common to endovascular procedures and generally may include perforation, dissection, embolization, bleeding, infection, restenosis and limb loss. We are aware of certain characteristics and features of our lumivascular platform that may prevent widespread market adoption, including that the current model of Pantheris

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may require two physicians to operate the catheter and that training for technicians and physicians will be required to enable them to effectively operate our lumivascular platform products. Our Pantheris product is not cleared or approved by FDA for commercial sale. Pantheris may not be sold in the United States without clearance from FDA. Our current products are contraindicated, and therefore should not be used, in the iliac, coronary, cerebral, renal and carotid arteries.

Our Strategy

       Our goal is to become the leading provider of image-guided medical devices for physicians to treat vascular diseases. The key elements of our strategy are to:

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Our Products

       Our current products include our Lightbox console and our various catheters used in PAD treatment. Each of our current products is, and our future products will be, designed to address significant unmet clinical needs in the treatment of vascular disease.

LUMIVASCULAR PRODUCTS

Name
  Clinical
Indication
  Size (Length, Diameter)   Regulatory Status   Original
Clearance Date

Lightbox (1)

  OCT Imaging   N/A   FDA Cleared   November 2012

          CE Mark   September 2011

Pantheris

  Atherectomy   130cm, 8 French (F)   IDE Trial   N/A

Ocelot (2)

  CTO Crossing   110cm, 6F   FDA Cleared   November 2012

          CE Mark   September 2011

Ocelot MVRX (2)

  CTO Crossing   110cm, 6F   FDA Cleared   December 2012

Ocelot PIXL (2)

  CTO Crossing   135/150cm, 5F   FDA Cleared   December 2012

          CE Mark   October 2012

(1)
Lightbox is cleared for use with compatible Avinger products.

(2)
The Ocelot system is intended to facilitate the intra-luminal placement of conventional guidewires beyond stenotic lesions including sub and chronic total occlusions in the peripheral vasculature prior to further percutaneous interventions using OCT-assisted orientation and imaging. The system is an adjunct to fluoroscopy and provides images of vessel lumen and wall structures. The Ocelot system is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature.

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NON-IMAGING PRODUCTS

Name
  Indication   Size (Length, Diameter)   Regulatory Status   Original
Clearance Date

Wildcat (1)

  Guidewire Support   110cm, 6F   FDA Cleared   February 2009 (3)

  CTO Crossing   110cm, 6F   FDA Cleared   August 2011

          CE Mark   May 2011

Kittycat 2 (2)

  CTO Crossing   150cm, 5F   FDA Cleared   October 2011

          CE Mark   September 2011

(1)
The Wildcat catheter is intended to facilitate the intraluminal placement of conventional guidewires beyond stenotic lesions (including sub and chronic total occlusions) in the peripheral vasculature prior to further percutaneous intervention. The Wildcat catheter is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature. The Wildcat catheter is intended to be used to support steerable guidewires in accessing discrete regions of the peripheral vasculature. It may be used to facilitate placement and exchange of guidewires and other interventional devices. It may also be used to deliver saline or contrast.

(2)
The Kittycat 2 catheter is intended to facilitate the intraluminal placement of conventional guidewires beyond stenotic lesions (including sub and chronic total occlusions) in the peripheral vasculature prior to further percutaneous intervention. The Kittycat 2 catheter is contraindicated for use in the iliac, coronary, cerebral, renal and carotid vasculature.

(3)
This original clearance date is for the 7F version of Wildcat. The commercially available version of Wildcat is listed and was cleared in August 2010.

Lumivascular Platform Overview

       Our lumivascular platform integrates OCT visualization with interventional catheters and is the industry's only system that provides real-time intravascular imaging during the treatment portion of PAD procedures. Our lumivascular platform consists of a capital component, Lightbox, and a variety of disposable catheter products, including Ocelot, Ocelot PIXL, Ocelot MVRX and, if cleared by FDA, Pantheris.

Lightbox

       Lightbox is our proprietary imaging console, which enables the use of lumivascular catheters during PAD procedures. The console contains an optical transceiver that transmits light into the artery through an optical fiber and displays a cross-sectional image of the vascular tissue to the physician on

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a high definition monitor during the procedure. Lightbox is configured with two monitors, one for the physicians, and one for the Lightbox technician.


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Lightbox   OCT image, showing layered structures (artery wall) on the right and non-layered structures (atherosclerotic plaque) on the left.

       Lightbox displays a cross-sectional view of the vessel, which provides physicians with detailed information about the orientation of the catheter and the surrounding artery and plaque. Layered structures represent relatively healthy portions of the artery and non-layered structures represent the plaque that is blocking blood flow in the artery. Navigational markers allow the physician to orient the catheter toward the treatment area, helping to avoid damage to the black line during a procedure. Lightbox received FDA 510(k) clearance in November 2012 and CE Mark in Europe in September 2011.

Pantheris

       We believe Pantheris will be the first atherectomy catheter to incorporate real-time OCT intravascular imaging. Pantheris may be used alone or following a CTO crossing procedure using Ocelot or other products. Pantheris is a single-use product and will provide physicians with the ability to see a cross-sectional view of the artery throughout the procedure. The device restores blood flow by shaving thin strips of plaque using a high-speed directional cutting mechanism that specifically targets the portion of the artery where the plaque resides while minimizing disruption to the black line. The excised plaque is deposited in the nosecone of the device and removed from the artery. We

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believe Pantheris, if cleared by FDA, will represent a meaningful advancement in the treatment of PAD and will expand the existing treatable market.


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Pantheris positioned prior to a cut


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Pantheris excising plaque

       To perform atherectomy procedures using Pantheris, physicians advance Pantheris to the diseased portion of the vessel using fluoroscopy prior to activating the cutting tip. The OCT image provides the physician with a cross-sectional view of the treatment site and the relative orientation of the cutter. Visual cues are used to orient the cutting mechanism to target diseased sections of the artery and the plaque is removed by activating the cutter and advancing the catheter through the blockage. A balloon beneath the cutter is inflated to move the catheter closer to the plaque, enabling the physician to stabilize the device and adjust the cut depth into the plaque as necessary. Multiple cuts can be made with the same device until sufficient plaque has been removed to restore adequate blood flow in the artery. In July 2014, FDA granted us an investigational device exemption, or IDE, for Pantheris and we commenced enrollment of our 133-patient VISION trial. We expect to complete the VISION trial and submit for 510(k) clearance from FDA during the second half of 2015. We have made minor modifications and may make further modifications to the design of Pantheris prior to widespread commercialization, which could require regulatory clearances or approvals.

Ocelot, Ocelot PIXL and Ocelot MVRX

       Ocelot is the first ever CTO crossing catheter to incorporate real-time OCT imaging, which allows physicians to see the inside of an artery during a CTO crossing procedure. Physicians have traditionally relied solely on fluoroscopy and tactile feedback to guide catheters through complicated blockages. Ocelot allows physicians to accurately navigate through CTOs by utilizing the OCT images

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to precisely guide the device through the arterial blockage, while minimizing disruption to the black line.


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Ocelot crossing a chronic total occlusion, or CTO

 

Lightbox visualization

       Ocelot has a corkscrew-like tip that rotates to facilitate advancement of the catheter through a CTO. Marker bands are displayed on the OCT image and allow the tip of the catheter to be steered towards the blockage and away from the arterial wall as it moves through the blockage. Once through the blockage, a guidewire can be extended and Ocelot is removed, leaving the wire in place for additional therapies such as the use of an atherectomy catheter like Pantheris. We received CE Mark for Ocelot in September 2011 and received FDA 510(k) clearance in November 2012.

       We also offer Ocelot PIXL, a lower profile CTO-crossing device for below-the-knee arteries and Ocelot MVRX, which offers a different tip design for above-the-knee arteries. We received CE Mark for Ocelot PIXL in October 2012 and received FDA 510(k) clearance in December 2012. We received FDA 510(k) clearance for Ocelot MVRX CTO-crossing device in December 2012.

Other Products

       Our first-generation CTO-crossing catheters, Wildcat and Kittycat 2, employ a proprietary design that uses a rotational spinning technique, allowing the physician to switch between a passive and active mode when navigating across a CTO. Once across the CTO, Wildcat and Kittycat 2 allow for placement of a guidewire and removal of the catheter leaving the wire in place for additional therapies. Both products require the use of fluoroscopy rather than our lumivascular platform for imaging. Wildcat was our first commercial product and has received both FDA 510(k) clearance in the United States and CE Mark in Europe for crossing peripheral artery CTOs. Kittycat 2 has FDA 510(k) clearance in the United States and CE Mark clearance in Europe for the treatment of peripheral artery CTOs.

Clinical Development

       We have conducted several clinical trials to evaluate the safety and efficacy of our products and we received FDA clearance for Wildcat and Ocelot for CTO crossing in 2011 and 2012, respectively. We are currently evaluating the safety and efficacy of Pantheris in our VISION clinical trial and expect to file a 510(k) submission in the second half of 2015 with FDA.

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CONNECT (Wildcat)

       Our clinical trial for the Wildcat catheter, known as the CONNECT trial, was a prospective, multi-center, non-randomized trial that evaluated the safety and efficacy of Wildcat in crossing CTOs in arteries of the upper leg. The CONNECT trial enrolled 88 patients with CTOs at 15 centers in the United States. Patients were followed for 30 days post-procedure and an independent group of physicians verified the results to determine crossing efficacy and safety endpoints. The CONNECT trial demonstrated that Wildcat was able to cross 89% of CTOs following unsuccessful attempts to cross with standard guidewire techniques. The trial demonstrated a 95% freedom from major adverse events, or MAEs. In the CONNECT trial, MAEs were defined as clinically significant perforations or embolizations and/or Grade C or greater dissections occurring within 30 days of the procedure. These results represent the second-highest reported CTO crossing rate of any published CTO clinical trial, exceeded only by our subsequent CONNECT II clinical trial results.

CONNECT II (Ocelot)

       Our clinical trial for Ocelot, known as CONNECT II, was a prospective, multi-center, non-randomized trial that evaluated the safety and efficacy of Ocelot in crossing CTOs in arteries of the upper leg using OCT intravascular imaging. The CONNECT II trial enrolled 100 patients with CTOs at 14 centers in the United States and two centers in Europe. Patients were followed for 30 days post-procedure and an independent group of physicians verified the results to confirm the primary efficacy and safety endpoints. Results from the CONNECT II trial demonstrated that Ocelot surpassed its primary efficacy endpoint by successfully crossing the CTO in 97% of the cases following unsuccessful attempts to cross with standard guidewire techniques. Ocelot achieved these rates with 98% freedom from MAEs.

VISION (Pantheris)

       VISION is our pivotal, non-randomized, prospective, single-arm trial to evaluate the safety and effectiveness of Pantheris. The objective of the clinical trial is to demonstrate that Pantheris can be used to effectively remove plaque from diseased lower extremity arteries while using on-board visualization as an adjunct to fluoroscopy. This trial will include approximately 133 patients at up to 20 sites within the United States and Europe. As of December 29, 2014, we have enrolled 110 patients in this trial. The primary efficacy endpoint requires that at least 87% of blockages treated by physicians using Pantheris have a residual stenosis of less than 50%, as verified by an independent core laboratory. The primary safety endpoint requires that less than 43% of patients experience an MAE through six-month follow-up as adjudicated by an independent Clinical Events Committee. MAEs for VISION include cardiovascular-related death, unplanned major index limb amputation, clinically driven target lesion revascularization, or TLR, heart attack, clinically significant perforation, dissection, embolus, and pseudoaneurysm.

       Data collection from the VISION trial is ongoing, and data monitoring and auditing of the acute procedural data and 30-day follow-up data is currently underway. As of December 29, 2014, acute procedural data were available for 110 patients. Of the 110 patients, 30-day follow-up data were available for 30 patients. Within this subset of patients, we are aware of three MAEs, consisting of two emboli and one TLR, all reported by the investigator to be related to the use of Pantheris. Both emboli were resolved with routine therapy without adverse clinical consequences for the patients, both of whom had good outcomes from the Pantheris atherectomy.

       The Clinical Events Committee will make the final determination as to whether these events were related to use of Pantheris or another part of the treatment procedure. The final analysis for the

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safety endpoint will not be determined until enrollment is complete and all patients are followed through six months.

       As of December 29, 2014, 83 lesions from 66 patients have been analyzed by the independent core lab. Based on the currently available data, we believe that we are on track to meet or exceed the requirements necessary to meet the primary efficacy endpoint. The final efficacy endpoint analysis will not be completed until all patients are enrolled and all lesions have been analyzed by the core lab.

       Although not mandated by the FDA to support the market clearance of Pantheris, the VISION trial allows us to complete histological analysis of the tissue extracted by Pantheris. This process allows us to determine the amount of adventitia present in the tissue, which in turn indicates the extent to which the black line has been disrupted during Pantheris procedures. As of December 29, 2014, we have completed histological analysis on tissue from 105 patients, representing 133 lesions, and have determined that adventitia comprises only 2.9% by area of the excised tissue. We believe the low level of black line disruption will correlate to lower restenosis rates and improved long-term outcomes for patients treated with Pantheris. We intend to publish the results of the histological analysis in conjunction with the primary safety and efficacy endpoint data on the VISION trial.

Sales and Marketing

       We focus our sales and marketing efforts primarily on the approximately 10,000 interventional cardiologists, vascular surgeons and interventional radiologists in the United States that are potential users of our lumivascular platform products. Our marketing efforts are focused on developing strong relationships with physicians and hospitals that we have identified as key opinion leaders based on their knowledge of our products, clinical expertise and reputation. We also use continuing medical education programs and other opportunities to train interventional cardiologists, vascular surgeons, and interventional radiologists in the use of our lumivascular platform products and educate them as to the benefits of our products as compared to alternative procedures such as angioplasty, stenting, bypass surgery or other atherectomy procedures. In addition, we work with physicians to help them develop their practices and with hospitals to market themselves as centers of excellence in PAD treatment by making our products available to physicians for treating patients.

       Our sales team consists of a vice president, regional directors, sales managers and implementation specialists. Our sales managers are divided into two primary roles, one focused on sale and use of our disposable catheters and the other focused on sale and service of our Lightbox console. We have an extensive hands-on sales training program, focused on our technologies, lumivascular image interpretation, case management, sales processes, sales tools and implementing our sales and marketing programs and compliance with applicable federal and state laws and regulations. Our sales team is supported by a highly specialized marketing team, which is divided into three areas of focus: clinical education, marketing program implementation and technology awareness and product development. We also have a small team of field engineers responsible for installation, service and maintenance of our Lightbox consoles.

       As of September 30, 2014, we had 34 employees focused on sales and marketing. Our sales, general and administrative expenses for the years ended December 31, 2012 and December 31, 2013 and for the nine months ended September 30, 2014 were $22.8 million, $25.8 million and $12.9 million, respectively.

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Competition

       The medical device industry is highly competitive, subject to rapid change and significantly affected by new product introductions, results of clinical research, corporate combinations and other factors relating to our industry. Because of the market opportunity and the high growth potential of the PAD treatment market, competitors and potential competitors have historically dedicated, and will continue to dedicate, significant resources to aggressively develop and commercialize their products.

       Our products compete with a variety of products or devices for the treatment of PAD, including other CTO crossing devices, stents, balloons and atherectomy catheters, as well as products used in vascular surgery. Large competitors in the CTO crossing, stent and balloon market segments include Abbott Laboratories, BARD, Boston Scientific, Cook Medical, Covidien, Johnson & Johnson and Medtronic. Competitors in the atherectomy market include Boston Scientific, Cardiovascular Systems, Covidien, Spectranetics and Volcano. Some competitors have attempted to combine intravascular imaging with atherectomy and may have current programs underway to do so. These and other companies may attempt to incorporate on-board visualization into their products in the future. Other competitors include pharmaceutical companies that manufacture drugs for the treatment of symptoms associated with mild to moderate PAD and companies that provide products used by surgeons in peripheral and coronary bypass procedures. These competitors and other companies may introduce new products that compete with our solution.

       Many of our competitors have substantially greater financial, manufacturing, marketing and technical resources than we do. Furthermore, many of our competitors have well-established brands, widespread distribution channels and broader product offerings, and have established stronger and deeper relationships with target customers.

       To compete effectively, we have to demonstrate that our products are attractive alternatives to other devices and treatments on the basis of:

    procedural safety and efficacy;

    acute and long-term outcomes;

    ease of use and procedure time;

    price;

    size and effectiveness of sales force;

    radiation exposure for physicians, hospital staff and patients; and

    third party reimbursement.

Intellectual property

       In order to remain competitive, we must develop and maintain protection of the proprietary aspects of our technologies. We rely on a combination of patents, copyrights, trademarks, trade secret laws and confidentiality and invention assignment agreements to protect our intellectual property rights.

       It is our policy to require our employees, consultants, contractors, outside scientific collaborators and other advisors to execute non-disclosure and assignment of invention agreements on commencement of their employment or engagement. Agreements with our employees also forbid them from using the proprietary rights of third parties in their work for us. We also require

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confidentiality or material transfer agreements from third parties that receive our confidential data or materials.

       As of October 30, 2014, we held five issued U.S. patents. We currently have 11 U.S. utility patent applications and 11 PCT applications pending. We also have one issued patent from the Japan Patent Office, one issued patent from the Chinese patent office, and one European patent which has been nationalized in Germany, France, Great Britain, Italy and Ireland. We have 26 pending patent applications outside of the United States, including in Australia, Canada, Europe, India and Japan. As we continue to research and develop our Pantheris technology, we intend to file additional U.S. and foreign patent applications related to the design, manufacture and therapeutic uses of our atherectomy devices. Our issued patents expire between the years 2028 and 2032.

       Our patent applications may not result in issued patents and our patents may not be sufficiently broad to protect our technology. Any patents issued to us may be challenged by third parties as being invalid, or third parties may independently develop similar or competing technology that avoids our patents. The laws of certain foreign countries do not protect our intellectual property rights to the same extent as do the laws of the United States.

       As of September 30, 2014, we held two allowed U.S. trademarks and two registered marks in Europe. We have one pending trademark application in the United States.

Research and Development

       Our ongoing research and development activities are primarily focused on improving and enhancing our lumivascular platform, specifically our core competency of integrating OCT intravascular imaging onto therapeutic catheters. Our research objectives target areas of unmet clinical need, increase the utility of the lumivascular platform and adoption of our products by healthcare providers.

    Product line improvements and extensions.   We are developing improvements to our lumivascular platform, including additional catheters for use in different clinical applications. For example, we are developing a next-generation CTO crossing device to target the coronary market and enhanced versions of Pantheris.

    Additional treatment indications.   We intend to seek additional regulatory clearances from FDA to expand the indications for which our products can be marketed within PAD, as well as in other areas of the body. This includes both expanding the marketed indications for our current products, as well as development of new products.

    Next-generation console.   We are focusing our console development efforts on miniaturization, equipment integration and increased processing power in anticipation of future catheter products. We may also develop a version of our lumivascular platform that integrates OCT imaging into existing catheterization lab and operating room imaging systems.

    Improved software and user interface.   We are actively improving our software to provide more information and control to our end users during a procedure. We use physician and staff feedback to improve the features and user functionality of our lumivascular platform.

       As of September 30, 2014, we had 18 employees focused on research and development. In addition to our internal team, we retain third party-contractors from time to time to provide us with assistance on specialized projects. We also work closely with experts in the medical community to supplement our internal research and development resources. Research and development expenses for

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the years ended December 31, 2012 and 2013 and for the nine months ended September 30, 2014 were $15.4 million, $16.0 million and $8.4 million, respectively.

Manufacturing

       Prior to the introduction of our lumivascular platform, our non-imaging catheter products were manufactured by a third party. All of our products are now manufactured in-house using components and sub-assemblies manufactured both in-house at our facilities in Redwood City, California and by outside vendors. We expect our current manufacturing facility will be sufficient to meet our anticipated growth through at least 2016. We assemble all of our products at our manufacturing facility but certain critical processes such as coating and sterilization are done by outside vendors.

       Our manufacturing operations are subject to regulatory requirements of 21 CFR part 820, the Quality System Regulation for medical devices sold in the United States, which is enforced by FDA, the Medical Devices Directive 93/42/EEC, which is required for doing business in the European Union, and applicable requirements relating to the environment, waste management and health and safety matters, including measures relating to the release, use, storage, treatment, transportation, discharge, disposal and remediation of hazardous substances, and the sale, labeling, collection, recycling, treatment and disposal of products containing hazardous substances. We cannot ensure that we will not incur material costs or liability in connection with our operations, or that our past or future operations will not result in claims by or injury to employees or the public.

       Order quantities and lead times for components purchased from outside suppliers are based on our forecasts derived from historical demand and anticipated future demand. Lead times for components may vary significantly depending on the size of the order, time required to fabricate and test the components, specific supplier requirements and current market demand for the components and subassemblies. To date, we have not experienced significant delays in obtaining any of our components or subassemblies.

       We rely on single and limited source suppliers for several of our components. For example, we rely on one vendor for, among other components, our torque shaft and drive cable. These components are critical to our products and there are relatively few alternative sources of supply for them. We do not carry a significant inventory of these components. Identifying and qualifying additional or replacement suppliers for any of the components used in our products could involve significant time and cost. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components used to manufacture our products would limit our ability to manufacture our product and could therefore harm our business, financial condition and results of operations.

       Our suppliers have no contractual obligations to supply us with, and we are not contractually obligated to purchase from them, any of our supplies. Any supply interruption from our vendors or failure to obtain additional vendors for any of the components would limit our ability to manufacture our product and could have a material adverse effect on our business, financial condition and results of operations.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from CDRH. We and our component suppliers are required to manufacture our products in compliance with FDA's Quality System Regulation, or QSR in 21 CFR part 820 of the Federal Food, Drug and Cosmetic Act. The QSR regulates extensively the methods and documentation of the design, testing, control, manufacturing, labeling, quality assurance, packaging,

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storage and shipping of our products. FDA enforces the QSR through periodic unannounced inspections that may include the manufacturing facilities of our subcontractors. Since we began manufacturing onsite, our Quality System has undergone 13 external audits, the last of which occurred on August 6, 2014 and resulted in zero non-conformances.

       Our failure or the failure of our component suppliers to maintain compliance with the QSR requirements could result in the shutdown of our manufacturing operations or the recall of our products, which would harm our business. In the event that one of our suppliers fails to maintain compliance with our or governmental quality requirements, we may have to qualify a new supplier and could experience manufacturing delays as a result. We have opted to maintain quality assurance and quality management certifications to enable us to market our products in the member states of the European Union, the European Free Trade Association and countries which have entered into Mutual Recognition Agreements with the European Union. Our Redwood City facilities meet the requirements set forth by ISO 13485:2003 Medical devices—Quality management systems—Requirements for regulatory purposes and MDD 93/42/EEC European Union Council Medical Device Directive.

Government Regulation

       In general, medical device companies must navigate a challenging regulatory environment. The Food and Drug Administration, or FDA, regulates the medical device market to ensure the safety and efficacy of these products. FDA allows for two primary pathways for a medical device to gain approval for commercialization: a successful PMA application or 510(k) clearance. A completely novel product must go through the more rigorous PMA process, or premarket approval, if it cannot receive authorization through a 510(k). FDA has established three different classes of medical devices that indicate the level of risk associated with using a device and consequent degree of regulatory controls needed to govern its safety and efficacy. Level I and Level II devices are considered lower risk and often can gain approval for commercial distribution by submitting a notification request to FDA, generally known as the 510(k) process. The devices regarded as the highest risk by FDA are designated Class III status and generally require the submission of a PMA application for approval to commercialize a product. These generally include life-sustaining, life-supporting, or implantable devices or devices without a known predicate technology already approved by FDA.

       The 510(k) clearance path can be significantly less time-consuming and arduous than PMA approval, making this route preferable for a medical device company. Through a 510(k), a company must provide documentation that its device is substantially equivalent to a technology already approved through a 510(k) or in distribution before May 28, 1976 that FDA has not yet required a PMA submission. FDA has 90 days from the date of the premarket equivalence submission to authorize or decline commercial distribution of the device. However, similar to the PMA process, approval may take longer than this three month window, as FDA can request additional data. If FDA resolves that the product is not substantially equivalent to a predicate device, then the device acquires a Class III designation. All of our currently marketed products have received commercial clearance and associated indications for use through the 510(k) regulatory pathway with FDA, some with the support of clinical data.

       A PMA application must be accompanied by substantial data that supports the safety and efficacy of the device, which includes the provision of preclinical, clinical, technical, manufacturing and labeling information. If FDA deems the application acceptable to pass through the first level of scrutiny, it has 180 days to review the submission, but it can typically take longer (up to several years) as this regulatory body can request additional information or clarifications. FDA may also impose

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additional regulatory hurdles for a premarket approval, including the institution of an outside advisory panel of experts to assess the application or provide recommendations as to whether to approve the device. Although FDA in the end approves or disapproves the device, in nearly all cases FDA follows the recommendation from the independent panel concerning approvability of the new device. As part of this process, FDA will also inspect the manufacturing operations of the company requesting approval to verify compliance with quality control regulations. Significant changes in the fabrication of a device, or alterations in the labeling or design of a product require new PMA applications or PMA supplements for a product originally approved under a PMA. This creates substantial regulatory risk for devices undergoing the PMA route.

Pervasive and Continuing Regulation

       After a device is placed on the market, numerous regulatory requirements continue to apply. These include:

    FDA's Quality System Regulation, or QSR, which requires manufacturers, including third party manufacturers, to follow stringent design, testing, control, documentation and other quality assurance procedures during all aspects of the manufacturing process;

    labeling regulations and FDA prohibitions against the promotion of products for uncleared, unapproved or off-label uses;

    clearance or approval of product modifications that could significantly affect safety or efficacy or that would constitute a major change in intended use;

    medical device reporting, or MDR, regulations, which require that manufacturers report to FDA if their device may have caused or contributed to a death or serious injury or malfunctioned in a way that would likely cause or contribute to a death or serious injury if the malfunction were to recur; and

    post-market surveillance regulations, which apply when necessary to protect the public health or to provide additional safety and effectiveness data for the device.

       After a device receives 510(k) clearance or PMA approval, any modification that could significantly affect its safety or effectiveness, or that would constitute a major change in its intended use, will require a new clearance or approval. FDA requires each manufacturer to make this determination initially, but FDA can review any such decision and can disagree with a manufacturer's determination. If FDA disagrees with the determination not to seek a new 510(k) clearance or PMA, FDA may retroactively require a new 510(k) clearance or premarket approval. FDA could also require a manufacturer to cease marketing and distribution and/or recall the modified device until 510(k) clearance or premarket approval is obtained. Also, in these circumstances, it may be subject to significant regulatory fines, penalties, and warning letters.

       The MDR regulations require that we report to FDA any incident in which our product may have caused or contributed to a death or serious injury or in which our product malfunctioned and, if the malfunction were to recur, would likely cause or contribute to death or serious injury.

       We have registered with FDA as a medical device manufacturer and have obtained a manufacturing license from the California Department of Health Services, or CDHS. FDA has broad post-market and regulatory enforcement powers. We are subject to unannounced inspections by FDA and the Food and Drug Branch of CDHS to determine our compliance with the QSR and other regulations, and these inspections may include the manufacturing facilities of our suppliers. BSI, our European Notified Body, inspected our facility in 2013 and found zero non-conformances. Our current facility has been inspected by FDA in 2009, 2011 and 2013, and two, three and zero

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observations, respectively, were noted during those inspections. In the latest FDA audit, there were no findings that involved a material violation of regulatory requirements, and no non-conformances were noted. Our responses to these observations noted in 2009 and 2011 have been accepted by FDA, and we believe that we are in substantial compliance with the QSR.

       Failure to comply with applicable regulatory requirements can result in enforcement action by FDA, which may include any of the following sanctions:

    warning letters, fines, injunctions, consent decrees and civil penalties;

    repair, replacement, refunds, recall or seizure of our products;

    operating restrictions, partial suspension or total shutdown of production;

    refusing our requests for 510(k) clearance or premarket approval of new products, new intended uses or modifications to existing products;

    withdrawing 510(k) clearance or premarket approvals that have already been granted; and

    criminal prosecution.

Regulatory System for Medical Devices in Europe

       The European Union consists of 25 member states and has a coordinated system for the authorization of medical devices. The E.U. Medical Devices Directive, or MDD, sets out the basic regulatory framework for medical devices in the European Union. This directive has been separately enacted in more detail in the national legislation of the individual member states of the European Union.

       The system of regulating medical devices operates by way of a certification for each medical device. Each certificated device is marked with CE mark which shows that the device has a Certificat de Conformité. There are national bodies known as Competent Authorities in each member state which oversee the implementation of the MDD within their jurisdiction. The means for achieving the requirements for CE mark varies according to the nature of the device. Devices are classified in accordance with their perceived risks, similarly to the U.S. system. The class of a product determines the requirements to be fulfilled before CE mark can be placed on a product, known as a conformity assessment. Conformity assessments for our products are carried out as required by the MDD. Each member state can appoint Notified Bodies within its jurisdiction. If a Notified Body of one member state has issued a Certificat de Conformité, the device can be sold throughout the European Union without further conformance tests being required in other member states.

Health Insurance Portability and Accountability Act

       The Health Insurance Portability and Accountability Act of 1996, or HIPAA, established for the first time comprehensive federal protection for the privacy and security of health information. The HIPAA standards apply to three types of organizations, or Covered Entities: health plans, healthcare clearing houses, and healthcare providers which conduct certain healthcare transactions electronically. Title II of HIPAA, the Administrative Simplification Act, contains provisions that address the privacy of health data, the security of health data, the standardization of identifying numbers used in the healthcare system and the standardization of certain healthcare transactions. The privacy regulations protect medical records and other protected health information by limiting their use and release, giving patients the right to access their medical records and limiting most disclosures of health information to the minimum amount necessary to accomplish an intended purpose. The HIPAA security standards require the adoption of administrative, physical, and technical safeguards and the adoption of written security policies and procedures. HIPAA requires Covered Entities to obtain a

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written assurance of compliance from individuals or organizations who provide services to Covered Entities involving the use or disclosure of protected health information ("Business Associates").

       On February 17, 2009, Congress enacted Subtitle D of the Health Information Technology for Economic and Clinical Health Act, or HITECH, provisions of the American Recovery and Reinvestment Act of 2009. HITECH amends HIPAA and, among other things, expands and strengthens HIPAA, creates new targets for enforcement, imposes new penalties for noncompliance and establishes new breach notification requirements for Covered Entities and Business Associates. Regulations implementing major provisions of HITECH were finalized on January 25, 2013 through publication of the HIPAA Omnibus Rule, or the Omnibus Rule. The Omnibus Rule contained significant changes for Covered Entities and Business Associates with respect to permitted uses and disclosures of Protected Health Information.

       Under HITECH's new breach notification requirements, Covered Entities must report breaches of protected health information that has not been encrypted or otherwise secured in accordance with guidance from the Secretary of the U.S. Department of Health and Human Services, or the Secretary. Required breach notices must be made as soon as is reasonably practicable, but no later than 60 days following discovery of the breach. Reports must be made to affected individuals and to the Secretary and in some cases, they must be reported through local and national media, depending on the size of the breach. We are currently subject to the HIPAA regulations. We are subject to audit under HHS's HITECH-mandated audit program. We may also be audited in connection with a privacy complaint. We are subject to prosecution and/or administrative enforcement and increased civil and criminal penalties for non-compliance, including a new, four-tiered system of monetary penalties adopted under HITECH. We are also subject to enforcement by state attorneys general who were given authority to enforce HIPAA under HITECH. To avoid penalties under the HITECH breach notification provisions, we must ensure that breaches of protected health information are promptly detected and reported within the company, so that we can make all required notifications on a timely basis. However, even if we make required reports on a timely basis, we may still be subject to penalties for the underlying breach.

       In addition to the federal privacy regulations, there are a number of state laws regarding the privacy and security of health information and personal data that are applicable to clinical laboratories. The compliance requirements of these laws, including additional breach reporting requirements, and the penalties for violation vary widely and new privacy and security laws in this area are evolving. Requirements of these laws and penalties for violations vary widely. We believe that we have taken the steps required of us to comply with health information privacy and security statutes and regulations in all jurisdictions, both state and federal. However, we may not be able to maintain compliance in all jurisdictions where we do business. Failure to maintain compliance, or changes in state or federal laws regarding privacy or security, could result in civil and/or criminal penalties and could have a material adverse effect on our business.

       If we or our operations are found to be in violation of HIPAA, HITECH or their implementing regulations, we may be subject to penalties, including civil and criminal penalties, fines, and exclusion from participation in U.S. federal or state health care programs, and the curtailment or restructuring of our operations. HITECH increased the civil and criminal penalties that may be imposed against Covered Entities, their Business Associates and possibly other persons, and gave state attorneys general new authority to file civil actions for damages or injunctions in federal courts to enforce the federal HIPAA laws and seek attorney's fees and costs associated with pursuing federal civil actions.

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       In addition to federal privacy regulations, there are a number of state laws governing confidentiality of health information that are applicable to our operations. New laws governing privacy may be adopted in the future as well. We have taken steps to comply with health information privacy requirements that are applicable to us.

Federal, State and Foreign Fraud and Abuse Laws

       Because of the significant federal funding involved in Medicare and Medicaid, Congress and the states have enacted, and actively enforce, a number of laws to eliminate fraud and abuse in federal healthcare programs. Our business is subject to compliance with these laws. In March 2010, the Recipient Protection and Affordable Care Act, as amended by the Healthcare and Education Affordability Reconciliation Act, which we refer to collectively as the Affordable Care Act, was enacted in the United States. The provisions of the Affordable Care Act are effective on various dates. The Affordable Care Act expands the government's investigative and enforcement authority and increases the penalties for fraud and abuse, including amendments to both the Anti-Kickback Statute and the False Claims Act, to make it easier to bring suit under these statutes. The Affordable Care Act also allocates additional resources and tools for the government to police healthcare fraud, with expanded subpoena power for HHS, additional funding to investigate fraud and abuse across the healthcare system and expanded use of recovery audit contractors for enforcement.

       Anti-Kickback Statutes.     The federal healthcare programs' Anti-Kickback Statute prohibits persons from knowingly and willfully soliciting, offering, receiving or providing remuneration, directly or indirectly, in exchange for or to induce either the referral of an individual, or the furnishing or arranging for a good or service, for which payment may be made under a federal healthcare program such as Medicare or Medicaid.

       The definition of "remuneration" has been broadly interpreted to include anything of value, including, for example, gifts, certain discounts, the furnishing of free supplies, equipment or services, credit arrangements, payment of cash and waivers of payments. Several courts have interpreted the statute's intent requirement to mean that if any one purpose of an arrangement involving remuneration is to induce referrals of federal healthcare covered businesses, the statute has been violated. Penalties for violations include criminal penalties and civil sanctions such as fines, imprisonment and possible exclusion from Medicare, Medicaid and other federal healthcare programs. In addition some kickback allegations have been claimed to violate the Federal False Claims Act, discussed in more detail below.

       The Anti-Kickback Statute is broad and prohibits many arrangements and practices that are otherwise lawful in businesses outside of the healthcare industry. Recognizing that the Anti- Kickback Statute is broad and may technically prohibit many innocuous or beneficial arrangements, Congress authorized the Office of Inspector General (OIG) of the U.S. Department of Health and Human Services to issue a series of regulations known as "safe harbors." These safe harbors set forth provisions that, if all their applicable requirements are met, will assure healthcare providers and other parties that they will not be prosecuted under the Anti-Kickback Statute. The failure of a transaction or arrangement to fit precisely within one or more safe harbors does not necessarily mean that it is illegal or that prosecution will be pursued. However, conduct and business arrangements that do not fully satisfy an applicable safe harbor may result in increased scrutiny by government enforcement authorities such as OIG.

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       Many states have adopted laws similar to the Anti-Kickback Statute. Some of these state prohibitions apply to referral of recipients for healthcare items or services reimbursed by any source, not only the Medicare and Medicaid programs.

       Government officials have focused their enforcement efforts on the marketing of healthcare services and products, among other activities, and recently have brought cases against companies, and certain individual sales, marketing and executive personnel, for allegedly offering unlawful inducements to potential or existing customers in an attempt to procure their business.

       Federal False Claims Act.     Another development affecting the healthcare industry is the increased use of the federal False Claims Act, and in particular, action brought pursuant to the False Claims Act's "whistleblower" or "qui tam" provisions. The False Claims Act imposes liability on any person or entity that, among other things, knowingly presents, or causes to be presented, a false or fraudulent claim for payment by a federal healthcare program. The qui tam provisions of the False Claims Act allow a private individual to bring actions on behalf of the federal government alleging that the defendant has violated the False Claims Act and to share in any monetary recovery. In recent years, the number of suits brought against healthcare providers by private individuals has increased dramatically. In addition, various states have enacted false claims law analogous to the False Claims Act, and many of these state laws apply where a claim is submitted to any third party payor and not just a federal healthcare program.

       When an entity is determined to have violated the False Claims Act, it may be required to pay up to three times the actual damages sustained by the government, plus civil penalties of between $5,500 and $11,000 for each separate instance of false claim. As part of any settlement, the government may ask the entity to enter into a corporate integrity agreement, which imposes certain compliance, certification and reporting obligations. There are many potential bases for liability under the False Claims Act. Liability arises, primarily, when an entity knowingly submits, or causes another to submit, a false claim for reimbursement to the federal government. The federal government has used the False Claims Act to assert liability on the basis of inadequate care, kickbacks and other improper referrals, and improper use of Medicare numbers when detailing the provider of services, in addition to the more predictable allegations as to misrepresentations with respect to the services rendered. In addition, the federal government has prosecuted companies under the False Claims Act in connection with off-label promotion of products. Our future activities relating to the reporting of wholesale or estimated retail prices of our products, the reporting of discount and rebate information and other information affecting federal, state and third party reimbursement of our products and the sale and marketing of our products may be subject to scrutiny under these laws.

       While we are unaware of any current matters, we are unable to predict whether we will be subject to actions under the False Claims Act or a similar state law, or the impact of such actions. However, the costs of defending such claims, as well as any sanctions imposed, could significantly affect our financial performance.

       The Sunshine Act.     The Physician Payment Sunshine Act, or the Sunshine Act, which was enacted as part of the Affordable Care Act, requires all entities that operate in the United States and manufacturers of a drug, device, biologic or other medical supply that is covered by Medicare, Medicaid or the Children's Health Insurance Program to report annually to the Secretary of the Department of Health and Human Services: (i) payments or other transfers of value made by that entity, or by a third party as directed by that entity, to physicians and teaching hospitals or to third parties on behalf of physicians or teaching hospitals; and (ii) physician ownership and investment

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interests in the entity. The payments required to be reported include the cost of meals provided to a physician, travel reimbursements and other transfers of value, including those provided as part of contracted services such as speaker programs, advisory boards, consultation services and clinical trial services. The final rule implementing the Sunshine Act requires data collection on payments to begin on August 1, 2013. The first annual report, comprised of data collected from August 1, 2013 to December 31, 2013, was due March 31, 2014. The statute requires the federal government to make reported information available to the public starting September 2014, which it has. Failure to comply with the reporting requirements can result in significant civil monetary penalties ranging from $1,000 to $10,000 for each payment or other transfer of value that is not reported (up to a maximum per annual report of $150,000) and from $10,000 to $100,000 for each knowing failure to report (up to a maximum per annual report of $1.0 million). Additionally, there are criminal penalties if an entity intentionally makes false statements in such reports. We are subject to the Sunshine Act and the information we disclose may lead to greater scrutiny, which may result in modifications to established practices and additional costs. Additionally, similar reporting requirements have also been enacted on the state level domestically, and an increasing number of countries worldwide either have adopted or are considering similar laws requiring transparency of interactions with healthcare professionals.

       Foreign Corrupt Practices Act.     The Foreign Corrupt Practices Act, or FCPA, prohibits any United States individual or business from paying, offering, or authorizing payment or offering of anything of value, directly or indirectly, to any foreign official, political party or candidate for the purpose of influencing any act or decision of the foreign entity in order to assist the individual or business in obtaining or retaining business. The FCPA also obligates companies whose securities are listed in the United States to comply with accounting provisions requiring us to maintain books and records that accurately and fairly reflect all transactions of the corporation, including international subsidiaries, if any, and to devise and maintain an adequate system of internal accounting controls for international operations.

       International Laws.     In Europe various countries have adopted anti-bribery laws providing for severe consequences, in the form of criminal penalties and/or significant fines, for individuals and/or companies committing a bribery offence. Violations of these anti-bribery laws, or allegations of such violations, could have a negative impact on our business, results of operations and reputation. For instance, in the United Kingdom, under the Bribery Act 2010, which went into effect in July 2011, a bribery occurs when a person offers, gives or promises to give a financial or other advantage to induce or reward another individual to improperly perform certain functions or activities, including any function of a public nature. Bribery of foreign public officials also falls within the scope of the Bribery Act 2010. Under the new regime, an individual found in violation of the Bribery Act of 2010, faces imprisonment of up to 10 years. In addition, the individual can be subject to an unlimited fine, as can commercial organizations for failure to prevent bribery.

       There are also international privacy laws that impose restrictions on the access, use, and disclosure of health information. All of these laws may impact our business. Our failure to comply with these privacy laws or significant changes in the laws restricting our ability to obtain required patient information could significantly impact our business and our future business plans.

U.S. Healthcare Reform

       Changes in healthcare policy could increase our costs and subject us to additional regulatory requirements that may interrupt commercialization of our current and future solutions. Changes in healthcare policy could increase our costs, decrease our revenues and impact sales of and reimbursement for our current and future solutions. The Affordable Care Act substantially changes

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the way healthcare is financed by both governmental and private insurers, and significantly impacts our industry. The Act contains a number of provisions that impact our business and operations, some of which in ways we cannot currently predict, including those governing enrollment in federal healthcare programs and reimbursement changes.

       There will continue to be proposals by legislators at both the federal and state levels, regulators and third party payors to reduce costs while expanding individual healthcare benefits. Certain of these changes could impose additional limitations on the prices we will be able to charge for our current and future solutions or the amounts of reimbursement available for our current and future solutions from governmental agencies or third party payors. While in general it is too early to predict specifically what effect the Affordable Care Act and its implementation or any future healthcare reform legislation or policies will have on our business, current and future healthcare reform legislation and policies could have a material adverse effect on our business and financial condition.

Third-Party Reimbursement

       Payment for patient care in the United States is generally made by third party payors, including private insurers and government insurance programs, such as Medicare and Medicaid. The Medicare program, the largest single payor in the United States, is a federal governmental health insurance program administered by the Centers for Medicare and Medicaid Services, or CMS, and covers certain medical care expenses for eligible elderly and disabled individuals. Because a large percentage of the population with PAD includes Medicare beneficiaries, and private insurers may follow the coverage and payment policies of Medicare, Medicare's coverage and payment policies are significant to our operations.

       Medicare pays PAD treatment facilities, including hospitals and physician office-based labs, pre-determined amounts for each procedure performed. These payment amounts differ based on a variety of factors, including:

    Type of procedure performed—angioplasty, stent or atherectomy;

    Patient-specific complexities and comorbidities;

    Type of facility—hospital, teaching hospital or office-based lab;

    Inpatient or outpatient status; and

    Geographic region.

       We receive payment from the treatment facility for our products, and the Medicare reimbursement to the facility is intended to cover the overall cost of treatment, including the cost of products used during the procedure as well as the overhead cost associated with the facility where the procedure is performed. For procedures performed in hospitals, the physician who performs the procedure is reimbursed separately under the Medicare physician fee schedule. Claims for PAD procedures are typically submitted by the treatment facility and physician to Medicare or other health insurers using established billing codes. These codes identify the procedures performed and are relied upon to determine third party payor reimbursement amounts.

       Medicare reimbursement levels for fiscal year 2015 went into effect as of October 1, 2014. National average Medicare payment rates for PAD procedures for fiscal year 2015 are $10,150 - $19,148 for inpatient procedures, $4,334 - $14,759 for outpatient procedures. These amounts include the cost of disposable catheters such as Ocelot and Pantheris, and additional device-specific reimbursement is not available. The amount of reimbursement can vary substantially by geographical

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region and by facility. Payment rates of other third party payors may follow Medicare rates, or they may be higher or lower, depending on their particular reimbursement methodology. Because of the wide variability, it is not possible to identify an average rate for third party payors other than Medicare.

Employees

       As of September 30, 2014, we had 103 employees, including 24 in manufacturing and operations, 34 in sales, and marketing, 18 in research and development, 13 in clinical affairs, regulatory affairs, and quality assurance and 14 in finance, general administrative and executive administration. All 103 employees are full time employees. None of our employees are represented by a labor union or are parties to a collective bargaining agreement and we believe that our employee relations are good.

Facilities

       Our principal executive offices are located in two buildings, comprising 44,200 square feet in Redwood City, California. The term of the lease for our facility extends through November 2016 and we have the option to extend the lease through November 2022. Our facility houses our research and development, sales, marketing, manufacturing, finance and administrative activities. We believe that our current facilities are adequate for our current and anticipated future needs through 2016.

Legal Proceedings

       We are not currently a party to any material legal proceedings. From time to time we may be involved in legal proceedings or investigations, which could have an adverse impact on our reputation, business and financial condition and divert the attention of our management from the operation of our business.

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MANAGEMENT

Executive Officers, Directors and Key Employees

       The following table sets forth information, as of December 30, 2014, regarding our executive officers, directors, and key employees.

Name
  Age   Title

Jeffrey M. Soinski

    53   Chief Executive Officer and Director

John B. Simpson, Ph.D., M.D. 

    70   Director and Executive Chairman of the Board of Directors

Matthew B. Ferguson

    47   Chief Business Officer and Chief Financial Officer

Sougata Banerjee

    48   Senior Vice President, Operations

Bart C. Beasley

    46   Vice President, Marketing

Arjun M. Desai, M.D. 

    33   Chief Medical Officer

Daniel V. George

    45   Vice President, Finance

Patricia A. Hevey

    49   Vice President, Clinical, Quality & Regulatory Affairs

Himanshu N. Patel

    54   Chief Technology Officer

Philip R. Preuss

    37   Vice President, Corporate Development

John D. Simpson

    36   Vice President, Sales and Director

Donald A. Lucas (1)(2)(3)

    52   Director

James B. McElwee (1)(2)(3)

    62   Director

James G. Cullen

    72   Director

(1)
Member of the audit committee.
(2)
Member of the compensation committee.
(3)
Member of the nominating and governance committee.

        Jeffrey M. Soinski has served as our Chief Executive Officer and as a member of our Board of Directors since December 2014. From its formation in September 2009 until the acquisition of its Unisyn business by GE Healthcare in May 2013, Mr. Soinski served as Chief Executive Officer of Medical Imaging Holdings and its primary operating company Unisyn Medical Technologies, a national provider of technology-enabled products and services to the medical imaging industry. Mr. Soinski remains a Director of Medical Imaging Holdings and its remaining operating company Consensys Imaging Service. From July 2008 to June 2013, Mr. Soinski served periodically as a Special Venture Partner for Galen Partners, a leading healthcare-focused private equity firm, which has Medical Imaging Holdings as one of its portfolio companies. From 2001 until its acquisition by C.R. Bard in 2008, Mr. Soinski was President and CEO of Specialized Health Products International, a publicly-traded manufacturer and marketer of proprietary safety medical products. Mr. Soinski served as a consultant to BLOXR Corporation, a venture-backed medical device company, from October 2013 until September 2014. He has served on the board of directors of Merriman Holdings, parent of Merriman Capital, a San Francisco-based investment banking and brokerage firm, since 2008. Mr. Soinski holds a B.A. degree from Dartmouth College.

       We believe Mr. Soinski is qualified to serve as a member of our board of directors because of his extensive corporate finance and business strategy experience as well as his experience with public companies.

        John B. Simpson, Ph.D., M.D. founded our company in March 2007 and has served as a member of our board of directors since March 2007. From March 2007 to December 2014, Dr. Simpson served as our Chief Executive Officer. Since March 2000 Dr. Simpson has served in various positions at De

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Novo Ventures, a venture capital fund, including managing director and clinical director. Since 1983, Dr. Simpson has been a partner at Cardiovascular Medicine and Coronary Interventions, a cardiology physician group. Prior to founding our company, Dr. Simpson founded several other interventional cardiology companies, including Perclose, a manufacturer of femoral artery access site closure devices, Devices for Vascular Intervention, a manufacturer of atherectomy devices, Advanced Cardiovascular Systems, a manufacturer of balloon angioplasty devices and FoxHollow Technologies, a manufacturer of atherectomy devices. Dr. Simpson holds a B.S. in Agriculture from Ohio State University, an M.D. from the Duke University School of Medicine and an M.S. and a Ph.D. in Biomedical Science from the University of Texas.

       We believe Dr. Simpson is qualified to serve as a member of our board of directors because of his medical background, extensive knowledge of medical device company operations, and his experience working with companies, regulators and other stakeholders in the medical device industry.

        Matthew B. Ferguson has served as our Chief Business Officer and Chief Financial Officer since January 2011, and also as our Co-President from August 2012 to October 2013. From December 2009 to December 2010, Mr. Ferguson served as the Chief Financial Officer at Tethys Bioscience, a provider of molecular diagnostic tests for cardiometabolic conditions. From January 2008 to April 2009 he served as the Chief Financial Officer at Proteolix, a developer of novel drugs for the treatment of cancer and autoimmune diseases. Mr. Ferguson also served as the Chief Financial Officer and Vice President of Finance at FoxHollow Technologies. Mr. Ferguson holds a B.S. in Civil Engineering from Stanford University, an M.S. in Mechanical Engineering from the University of Pennsylvania and an M.B.A. from the University of California at Berkeley.

        Sougata (Bunty) Banerjee has served as our Senior Vice President of Operations since January 2012. From November 2009 to January 2012, Mr. Banerjee was Vice President of Operations and Quality at Evalve where he oversaw the acquisition of Evalve by Abbott Laboratories in 2009 and lead the post-acquisition integration and business expansion as Head of Operations at Abbott Vascular, Structural Heart. Prior to Evalve, Mr. Banerjee served as Plant Manager at Epicor, holding general management responsibilities including operations, quality, product development, finance, human resources, and providing leadership in product commercialization and new product introductions. Prior to Epicor, Mr. Banerjee held several operations leadership positions at several business units of Boston Scientific. Earlier in his career, Mr. Banerjee held various engineering positions at Crompton-Greaves, Caterpillar, and Larsen-Toubro. Mr. Banerjee received a B.S. in Electrical Engineering from Jadavpur University, India and an M.S. in Industrial Management from Clemson University.

        Bart C. Beasley has been our Vice President of Marketing since January 2013. From January 2009 to January 2013, he served as the Senior Director of Marketing at Transcend Medical. From January 2007 to January 2009, Mr. Beasley worked as an independent consultant providing consulting on sales and marketing strategy matters within the medical device industry. Mr. Beasley holds a B.S. in Economics from Santa Clara University and an M.B.A. from IESE, University of Navarra in Spain.

        Arjun M. Desai, M.D. joined our company in January 2012 and has served as our Chief Medical Officer since November 2013. From July 2010 to December 2011, Dr. Desai served as a consultant and advisor for Incline Therapeutics, developing the IONSYS transdermal fentanyl delivery system and other companies. From 2008 to December 2011, Dr. Desai was a Staff Physician at Stanford University in the Department of Anesthesia where he completed his advanced anesthesia residency training. Dr. Desai continues to be affiliated with Stanford University. Dr. Desai has also served as a fellow in the United States House Policy Committee, advising members of Congress on healthcare

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legislation. Additionally, Dr. Desai represented the United States State Department and Rotary International as an Ambassador of Goodwill to Singapore where he led vaccine prophylaxis campaigns and lectured in the department of health economics at the National University of Singapore. Dr. Desai holds an M.D. from the University of Miami Miller School of Medicine and a B.A. in Economics from the University of Oklahoma.

        Daniel V. George has served as our Vice President, Finance since August 2014. From June 2012 to August 2014, Mr. George served as a consultant and Vice President of Finance for ApniCure, a medical device company specializing in the treatment of sleep apnea. From March 2009 to June 2012, Mr. George worked for Avantis Medical Systems, a manufacturer of colonoscopy visualization technology, where he was both a consultant and Chief Financial Officer. Mr. George was also the Sr. Director of Finance at FoxHollow Technologies and worked for PricewaterhouseCoopers in the assurance and business advisory practice. Mr. George holds B.S. degrees in both Accounting and Finance from California State University, Long Beach.

        Patricia A. Hevey has served as our Vice President of Clinical, Regulatory and Quality Affairs since September 2014. From April 2014 to September 2014, Ms. Hevey was our Vice President of Clinical and Regulatory Affairs and from February 2011 to February 2014, she served as our Director of Clinical and Regulatory Affairs. From July 2010 until February 2011, Ms. Hevey was the President of Hevey Clinical Consulting and from October 2008 to July 2010, she was the Director of Clinical and Regulatory Affairs at Baxano. Ms. Hevey holds a B.S. in Clinical Research Administration from George Washington University Medical School and an associate of science in Radiology Science from Canada College.

        Himanshu N. Patel served as our Chief Technology Officer from January 2011 to November 2011 and since October 2013. From September 1999 to February 2007, Mr. Patel led research and development activities as the Director of Advanced Technologies at FoxHollow Technologies. Mr. Patel holds a B.S. in Mechanical Engineering from M.S. University of Baroda, India, and an M.S. in Mechanical Engineering from the University of Florida.

        Philip R. Preuss has served as our Vice President, Corporate Development since September 2014. From September 2012 to August 2014, Mr. Preuss served as our Vice President, Finance and Corporate Development. Mr. Preuss joined Avinger in August 2009 and has held the positions of Vice President, Corporate Development and Vice President, Finance. Prior to joining our company, Mr. Preuss was a Manager of Business Development at another medical device company founded by Dr. Simpson. Mr. Preuss was also a Senior Associate of Corporate Development at FoxHollow Technologies, where he worked on internal strategic priorities and the exploration of external business opportunities. Before entering the medical device industry, Mr. Preuss held various roles in the financial services sector, and specifically within the field of equity research. Mr. Preuss holds an M.B.A. from the Kellogg School of Management and a B.A. in both Economics and History from Stanford University.

        John D. Simpson has served as a member of our board of directors since December 2009 and as our Vice President of Sales since August 2011. Mr. Simpson joined Avinger in 2008 and has held the positions of Chief Marketing Officer and Co-President. From 2001 to 2005, Mr. Simpson worked at FoxHollow Technologies in a Clinical Affairs, Sales and Marketing role. From 2005 to 2006, Mr. Simpson worked at Palo Alto Investors, an independent, privately held investment advisor. Mr. Simpson rejoined FoxHollow Technologies 2006 where he worked in Corporate Development. Mr. Simpson is a Founder and the Chief Executive Officer of Recreation, which is a full service

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creative, digital and media agency focused on brand strategy and implementation for life changing innovations. Mr. Simpson holds a B.A. in Sociology from Duke University.

       We believe Mr. Simpson is able to make valuable contributions to our board of directors due to his extensive operational experience working in Corporate Development at FoxHollow Technologies and the investment knowledge he obtained while working at a venture capital fund.

        Donald A. Lucas has served as a member of our board of directors since 2013 and has been an investor in our company since 2011. Mr. Lucas has been a venture capitalist since 1985, having invested in companies such as Oracle, Macromedia and Cadence Design alongside his father Donald L. Lucas. Mr. Lucas has sourced or led investments in companies such as Intuitive Surgical, Coulter Pharmaceutical, Dexcom, Infinera, Reputation.com, Chegg, Palantir and Theranos. Mr. Lucas has served on the boards of Dexcom and the Silicon Valley Chapter of the Juvenile Diabetes Foundation and is a member of the UCSF Diabetes Center Leadership Council. Mr. Lucas holds a B.A. from Santa Clara University.

       We believe Mr. Lucas is qualified to serve as a member of our board of directors because of his substantial corporate finance, business strategy and corporate development expertise gained from his significant experience in the venture capital industry, analyzing, investing in, serving on the boards of, and providing guidance to various technology companies.

        James B. McElwee has served as a member of our board of directors since March 2011. Mr. McElwee served as general partner of Weston Presidio, a private equity and venture capital firm, from 1992 to 2010. During his tenure as a general partner and member of the investment committee, Weston Presidio led the start up financing of JetBlue Airways and made investments in Fender Musical Instruments, The Coffee Connection, Guitar Center, Mapquest, Party City, Petzazz, RE/MAX, and others. Prior to Weston Presidio, Mr. McElwee was Senior Vice President of the Security Pacific Venture Capital Group and the founding Managing Director of its Menlo Park office where he was responsible for early private investments in Costco, Universal Health Services, Cypress Semiconductor, Aspect Telecommunications, Xilinx, MIPS Computer Systems, Harmonic, Microchip, Vitesse and others. Prior to entering the venture capital industry in 1979, Mr. McElwee was a Senior Consultant with Accenture working on a variety of clients in the retailing, healthcare and technology industries. Mr. McElwee holds a B.A. in Economics from Claremont McKenna College and an M.B.A. from the Wharton Graduation School of Business.

       We believe Mr. McElwee is qualified to serve as a member of our board of directors because of his substantial corporate development and business strategy expertise gained in the venture capital industry.

        James G. Cullen has served as a member of our board of directors since December 2014. During the last five years Mr. Cullen has held board and committee positions with various companies. Mr. Cullen is currently the non-executive Chairman of the board of Neustar, a director and member of the investment and finance committees of Prudential Financial, non-executive Chairman of the Board of Agilent Technologies, a director of Keysight Technologies, and a director and chairman of the audit committee of Johnson & Johnson. From 1993 to 2000, Mr. Cullen held was President, Vice Chairman and Chief Operating Officer of Bell Atlantic Corporation (now Verizon). From 1989 to 1993, he was President and Chief Executive Officer of Bell Atlantic-New Jersey, Inc. Mr. Cullen holds a B.A. in Economics from Rutgers University and an M.S. in Management Science from the Massachusetts Institute of Technology.

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       We believe Mr. Cullen is qualified to serve as a member of our board of directors because of his extensive experience serving on the boards of public companies as well as his financial and business expertise.

Executive Officers

       Each of our executive officers serves at the discretion of our board of directors and holds office until his or her successor is duly elected and qualified or until his or her earlier resignation or removal. John B. Simpson, the Executive Chairman of our board of directors, is the father of John D. Simpson, our Vice President, Sales, who is also a director of our company.

Board of Directors

       Our business is managed under the direction of our board of directors, which consists of five directors. Our directors hold office until the earlier of their death, resignation, removal or disqualification, or until their successors have been elected and qualified. We are actively searching for qualified candidates to add to our board of directors or to replace current members. Our board of directors does not have a formal policy on whether the roles of Chief Executive Officer and Chairman of our board of directors should be separate. Prior to this offering, the members of our board of directors were elected in compliance with the provisions of our amended and restated certificate of incorporation and a voting agreement among certain of our stockholders. The voting agreement will terminate upon the closing of this offering and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors.

       Upon completion of this offering, our bylaws will be amended and restated to provide that the authorized number of directors may be changed only by resolution of the board of directors. Upon the closing of this offering, our board of directors will be divided into three classes with staggered three-year terms. At each annual meeting of stockholders, the successors to directors whose terms then expire will be elected to serve from the time of election and qualification until the third annual meeting following election or until their earlier death, resignation or removal. Our directors have been divided among the three classes as follows:

    The Class I directors will be        , and their terms will expire at our annual meeting of stockholders to be held in 2016

    The Class II directors will be        , and their terms will expire at our annual meeting of stockholders to be held in 2017; and

    The Class III directors will be        , and their terms will expire at our annual meeting of stockholders to be held in 2018.

       This classification of the board of directors, together with the ability of the stockholders to remove our directors only for cause and the inability of stockholders to call special meetings, may have the effect of delaying or preventing a change in control or management. See "Description of Capital Stock—Anti-Takeover Effects or Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law" for a discussion of other anti-takeover provisions that will be included in our amended and restated certificate of incorporation that will become effective immediately prior to the consummation of this offering.

Director Independence

       In connection with this offering, we intend to list our common stock on The NASDAQ Stock Market. Under the rules of The NASDAQ Stock Market, independent directors must comprise a

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majority of a listed company's board of directors within a specified period of time after listing on The NASDAQ Stock Market. In addition, the rules of The NASDAQ Stock Market require that, subject to specified exceptions, each member of a listed company's audit, compensation, and nominating and governance committees be independent. Our board of directors has reviewed the independence of each director and determined that Messrs. Lucas and McElwee are independent. Our board of directors will review the independence of each director at least annually. During these reviews, the board of directors will consider transactions and relationships between each director (and his or her immediate family and affiliates) and our company and its management to determine whether any such transactions or relationships are inconsistent with a determination that the director is independent. This review will be based primarily on responses of the directors to questions in a directors' and officers' questionnaire regarding employment, business, familial, compensation and other relationships with our company including its management.

       We believe that the composition of our board of directors meets the requirements for independence under the current requirements of The NASDAQ Stock Market. As required by The NASDAQ Stock Market, we anticipate that our independent directors will meet in regularly scheduled executive sessions at which only independent directors are present. We intend to comply with future governance requirements to the extent they become applicable to us.

Corporate Governance

       We believe that good corporate governance is important to ensure that, as a public company, we will be managed for the long-term benefit of our stockholders. In preparation for the offering being made by this prospectus, we and our board of directors have been reviewing the corporate governance policies and practices of other public companies, as well as those suggested by various authorities in corporate governance. We have also considered the provisions of the Sarbanes-Oxley Act and the rules of the SEC and The NASDAQ Stock Market.

       Based on this review, our board of directors has taken steps to implement many of these provisions and rules. In particular, we have established and expect to enhance charters for the audit committee, compensation committee and nominating and governance committee, as well as a code of business conduct and ethics applicable to all of our directors, officers and employees.

Board Committees

       Our board of directors has established a standing audit committee, a compensation committee, and a nominating and governance committee. Our board of directors has assessed the independence of the members of each of these standing committees as defined under the rules of The NASDAQ Stock Market and, in the case of the audit committee, the independence requirements of Rule 10A-3 under the Securities Exchange Act of 1934, as amended.

       Audit Committee.     Messrs. Lucas and McElwee will serve on our audit committee. Mr. Lucas will serve as chair of the audit committee and we are actively searching for a financial expert within the meaning of the regulations of the SEC. Our board or directors has assessed whether all members of the audit committee meet the composition requirements of The NASDAQ Stock Market, including the requirements regarding financial literacy and financial sophistication. Our board of directors found that Messrs. Lucas and McElwee met these requirements and are independent under SEC and The NASDAQ Stock Market rules. The audit committee's primary responsibilities include:

    appointing, approving the compensation of, and assessing the qualifications and independence of our independent registered public accounting firm, which currently is Ernst & Young LLP;

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    reviewing and discussing with management and our independent registered public accounting firm our annual and quarterly financial statements and related disclosures;

    preparing the audit committee report required by SEC rules to be included in our annual proxy statements;

    monitoring our internal control over financial reporting, disclosure controls and procedures;

    reviewing our risk management status;

    establishing policies regarding hiring employees from our independent registered public accounting firm and procedures for the receipt and retention of accounting related complaints and concerns;

    meeting independently with our independent registered public accounting firm and management; and

    monitoring compliance with the code of ethics for financial management.

       All audit and non-audit services must be approved in advance by the audit committee. Our board of directors has adopted a written charter for the audit committee which will be available on our website at www.avinger.com upon the completion of this offering.

       Compensation Committee.     Messrs. Lucas and McElwee will serve on our compensation committee.                          will serve as the chair. The compensation committee's responsibilities include:

    annually reviewing and approving corporate goals and objectives relevant to compensation of our chief executive officer and our other executive officers;

    determining the compensation of our chief executive officer and our other executive officers;

    reviewing and making recommendations to our board of directors with respect to director compensation;

    overseeing an evaluation of our senior executives; and

    overseeing and administering our cash and equity incentive plans.

       Our chief executive officer and chief financial officer make compensation recommendations for our other executive officers and initially proposes the corporate and departmental performance objectives under our Executive Bonus Plan to the compensation committee. From time to time, the compensation committee may use outside compensation consultants to assist it in analyzing our compensation programs and in determining appropriate levels of compensation and benefits. For example, in 2014, we engaged Radford Consulting to advise us on compensation philosophy as we transition towards becoming a publicly-traded company, selection of a group of peer companies to use for compensation benchmarking purposes and cash and equity compensation levels for our directors, executives and other employees based on current market practices. Our board of directors has adopted a written charter for the compensation committee which will be available on our website at www.avinger.com upon the completion of this offering.

       Nominating and Governance Committee.     Messrs. Lucas and McElwee will serve on our nominating and governance committee.            will be the chair of the nominating and governance committee. The nominating and governance committee's responsibilities include:

    identifying individuals qualified to become members of our board of directors;

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    recommending to our board of directors the persons to be nominated for election as directors and to each of our board's committees;

    reviewing and making recommendations to our board of directors with respect to management succession planning;

    developing, updating and recommending to our board of directors corporate governance principles and policies; and

    overseeing the evaluation of our board of directors and committees.

       Our board of directors has adopted a written charter for the nominating and governance committee which will be available on our website at www.avinger.com upon the completion of this offering.

Code of Business Conduct and Ethics

       We have adopted a code of business conduct and ethics that applies to all of our employees, officers and directors, including those officers responsible for financial reporting. Following the closing of this offering, our code of business conduct and ethics will be available on our website at www.avinger.com . We intend to disclose any amendments to the code, or any waivers of its requirements, on our website to the extent required by the applicable rules and exchange requirements. The inclusion of our website address in this prospectus does not incorporate by reference into this prospectus the information on or accessible through our website.

Limitation on Liability and Indemnification Matters

       Our amended and restated certificate of incorporation, which will become effective prior to the consummation of this offering, contains provisions that limit the liability of our directors for monetary damages to the fullest extent permitted by Delaware law. Consequently, our directors will not be personally liable to us or our stockholders for monetary damages for any breach of fiduciary duties as directors, except liability for:

    any breach of the director's duty of loyalty to us or our stockholders;

    any act or omission not in good faith or that involves intentional misconduct or a knowing violation of law;

    unlawful payments of dividends or unlawful stock repurchases or redemptions as provided in Section 174 of the Delaware General Corporation Law; and

    any transaction from which the director derived an improper personal benefit.

       Our amended and restated certificate of incorporation and amended and restated bylaws, which will become effective prior to the consummation of this offering, provide that we are required to indemnify our directors and officers, in each case to the fullest extent permitted by Delaware law. Our amended and restated bylaws also provide that we are obligated to advance expenses incurred by a director or officer in advance of the final disposition of any action or proceeding, and permit us to secure insurance on behalf of any officer, director, employee or other agent for any liability arising out of his or her actions in that capacity regardless of whether we would otherwise be permitted to indemnify him or her under Delaware law. We have entered and expect to continue to enter into agreements to indemnify our directors, executive officers and other employees as determined by our board of directors. With specified exceptions, these agreements provide for indemnification for related expenses including, among other things, attorneys' fees, judgments, fines and settlement amounts incurred by any of these individuals in any action or proceeding. We believe that these bylaw

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provisions and indemnification agreements are necessary to attract and retain qualified persons as directors and officers. We also maintain directors' and officers' liability insurance.

       The limitation of liability and indemnification provisions in our amended and restated certificate of incorporation and amended and restated bylaws may discourage stockholders from bringing a lawsuit against our directors and officers for breach of their fiduciary duty. They may also reduce the likelihood of derivative litigation against our directors and officers, even though an action, if successful, might benefit us and our stockholders. Further, a stockholder's investment may be adversely affected to the extent that we pay the costs of settlement and damages.

Compensation Committee Interlocks and Insider Participation

       None of our executive officers serves as a member of the board of directors or compensation committee, or other committee serving an equivalent function, of any other entity that has one or more of its executive officers serving as a member of our board of directors or its compensation committee. None of the current members of the compensation committee of our board of directors has ever been one of our employees.

Director Compensation

       Prior to this offering, non-employee members of our board of directors did not receive any cash compensation for service on our board of directors or committees, including attending board and committee meetings. However, we did reimburse our non-employee directors for travel, lodging and other reasonable expenses incurred in attending board, committee, and other company-related meetings. In addition, from time to time we have granted stock options to some of our directors. In fiscal year 2014, we granted Donald Lucas, one of our non-employee directors, a non-statutory stock option to purchase 200,000 shares of our common stock at an exercise price of $0.45 per share, one quarter of which shares vested on November 26, 2014 and the remaining shares will vest in equal monthly installments thereafter.

       Upon the effectiveness of this offering, each of our non-employee directors who has been a member of our board of directors for at least one year prior to completion of this offering will receive an option to purchase                  shares of our common stock at an exercise price equal to the initial public offering price. One-third of the shares underlying these options will vest on each one-year anniversary of the date of grant, such that the options are fully vested after three years. Following this offering, each non-employee director who serves on the audit and compensation committee, other than the chairperson of the audit and compensation committees, will receive an additional retainer of $            . The chairperson of the audit committee, the compensation committee and the nominating and governance committee will also receive additional annual retainers of $            , $            and $            , respectively.

       Each non-employee director who first becomes a member of our board of directors after the completion of this offering will be granted an option to purchase        shares of our common stock. Twenty five percent (25%) of the shares subject to this option shall vest one year following the date of grant and the balance shall vest in 36 successive equal monthly installments, subject to continued service through each such vesting date. After the completion of this offering, each non-employee director that continues as a non-employee director will be entitled to receive an annual option grant to purchase        shares of our common stock. One-third of the shares subject to such option shall vest on each one-year anniversary following the date of grant such that the options are fully vested after three years. Each such option will have an exercise price equal to the price of the last trade of

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our common stock on the date of grant and will have a ten-year term subject to earlier termination in connection with a termination of directorship.

       The following table sets forth a summary of the compensation received by our non-employee directors who received compensation during our fiscal year ended December 31, 2013:

Director Compensation

Name
  Option Awards
($) (1)
  Total ($)  

James B. McElwee

  $ 22,500   $ 22,500  

John Delfino (2)

  $ 90,000   $ 90,000  

Donald A. Lucas

  $ 90,000   $ 90,000  

James Muzzy (3)

  $ 90,000   $ 90,000  

(1)
Amounts shown represent the grant date fair value of options granted during 2013 as calculated in accordance with ASC Topic 718. See Note 7 of the consolidated financial statements included in this prospectus for the assumptions used in calculating this amount.

(2)
Mr. Delfino resigned from our board of directors on February 24, 2013.

(3)
Mr. Muzzy resigned from our board of directors on October 31, 2014.

       Directors who are also our employees receive no additional compensation for their service as directors. During 2013, John B. Simpson and John D. Simpson, two of our directors, were also our employees. See "Executive Compensation—Summary Compensation Table" for additional information about John B. Simpson's compensation.

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EXECUTIVE COMPENSATION

Summary Compensation Table

       This discussion contains forward looking statements that are based on our current plans, considerations, expectations and determinations regarding future compensation programs. Actual compensation programs that we adopt may difffer materially from currently planned programs as summarized in this discussion. As an "emerging growth company" as defined in the JOBS Act and a smaller reporting company we are not required to include a Compensation Discussion and Analysis section and have elected to comply with the scaled disclosure requirements applicable to emerging growth companies and smaller reporting companies.

       The following table provides information regarding the total compensation for services rendered in all capacities that was earned by each individual who served as our principal executive officer at any time in 2013, and our two other most highly compensated executive officers who were serving as executive officers as of December 31, 2013. These individuals were our named executive officers for 2013.

Name and Principal Position
  Year   Salary
($)
  Bonus
($)
  Stock
Awards
($) (1)
  Option
Awards
($) (1)
  Non-Equity
Incentive Plan
Compensation
($)
  Non-Qualified
Deferred
Compensation
Earnings
($)
  All Other
Compensation
($)
  Total
($)
 

John B. Simpson, Ph.D., M.D.
Chief Executive Officer

    2013     340,584     63,410           301,061                 705,055  

Matthew B. Ferguson
Chief Financial Officer and
Chief Business Officer

    2013     282,584     44,618           72,543                 399,745  

Sougata Banerjee
Senior Vice President of
Operations

    2013     226,666     71,976           11,826                 310,468  

(1)
The amounts reported represent the aggregate grant-date fair value of the stock options awarded to the named executive officer in 2013, calculated in accordance with ASC Topic 718. Such grant-date fair value does not take into account any estimated forfeitures related to service-vesting conditions. The assumptions used in calculating the grant-date fair value of the options reported in this column are set forth in the section titled "Management's Discussion and Analysis of Financial Condition and Results of Operations—Critical Accounting Policies and Estimates—Stock-Based Compensation."

Executive Officer Employment Letters

John B. Simpson

       We entered into an employment offer letter in November 2014 with John B. Simpson, our Chief Executive Officer. The letter has no specific term and provides for at-will employment. The letter does not provide for any bonus. Effective November 1, 2014, Dr. Simpson's annual base salary is $335,000.

Matthew B. Ferguson

       We entered into an employment offer letter in December 2010 with Matt Ferguson, our Chief Financial Officer and Chief Business Officer. The letter has no specific term and provides for at-will employment. The letter did not provide for any bonus. Effective November 1, 2014, Mr. Ferguson's annual base salary is $275,000.

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Sougata Banerjee

       We entered into an employment offer letter in November 2011 with Sougata (Bunty) Banerjee, our Senior Vice President of Operations. The letter has no specific term and provides for at-will employment. The letter also provides that Mr. Banerjee is eligible to earn quarterly bonuses targeted at $60,000 annually based on the satisfaction of agreed upon milestones. Effective November 1, 2014, Mr. Banerjee's annual base salary is $220,000.

Pension Benefits and Nonqualified Deferred Compensation

       We do not provide a pension plan for our employees, and none of our named executive officers participated in a nonqualified deferred compensation plan in 2013.

Outstanding Equity Awards at 2013 Year-End

       The following table sets forth information regarding outstanding stock options and stock awards held by our named executive officers as of December 31, 2013:

 
  Option Awards   Stock Awards  
Name
  Grant Date (1)   Number of
Securities
Underlying
Unexercised
Options (#)
Exercisable (2)
  Number of
Securities
Underlying
Unexercised
Options (#)
Unexercisable
  Option
Exercise
Price ($) (3)
  Option
Expiration
Date
  Number of
Shares or
Units of
Stock That
Have Not
Vested (#)
  Market
Value of
Shares or
Units of
Stock That
Have Not
Vested ($) (4)
 

John B. Simpson, Ph.D., M.D.

    5/1/2013 (5)   1,300,000         0.50     5/1/2023          

Matthew B. Ferguson

    7/29/2011 (6)   1,528,466         0.28     7/29/2021          

    5/1/2013 (5)   306,720         0.45     5/1/2023          

Sougata Banerjee

    1/20/2012 (7)   939,516         0.33     1/20/2022          

    5/1/2013 (5)   50,000         0.45     5/1/2023          

(1)
Each of the outstanding equity awards was granted pursuant to our 2009 Stock Plan.

(2)
All of our options are early exercisable subject to the Company's right to repurchase any unvested shares.

(3)
This column represents the fair value of a share of our common stock on the date of grant, as determined by our board of directors.

(4)
The market price for our common stock is based upon the assumed initial public offering price of $            per share, which is the midpoint of the estimated offering price range set forth on the cover page of this prospectus.

(5)
25% of the shares of our common stock subject to this option vested on January 1, 2014, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date.

(6)
25% of the shares of our common stock subject to this option vested on December 31, 2011, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date.

(7)
25% of the shares of our common stock subject to this option vested on January 3, 2013, and the balance vests in 36 successive equal monthly installments, subject to continued service through each such vesting date.

Executive Bonus Plan

       In 2013, we approved an executive bonus plan pursuant to which certain of our executives were entitled to receive bonuses based on quarterly performance in five areas: Pantheris development, sales, cash burn, Lightbox placements and Ocelot development.

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Executive Officer Change in Control Severance Agreements

       In March 2012, we entered into change of control and severance agreements with each of John B. Simpson, Matt Ferguson, and Sougata Banerjee that superseded all previous severance and change of control arrangements we had entered into with these employees. Under each of these agreements, if, within the 18 month period following a "change of control," we terminate the employment of the applicable employee other than for "cause," death or disability, or the employee resigns for "good reason" (as such terms are defined in the employee's employment agreement) and, within 60 days following the employee's termination, the employee executes an irrevocable separation agreement and release of claims, the employee is entitled to receive (i) continuing payments of severance pay at a rate equal to the employee's base salary and target bonus, as then in effect, for 12 months for Dr. Simpson and Mr. Ferguson and 6 months for Mr. Banerjee, (ii) reimbursement of premiums to maintain group health insurance continuation benefits pursuant to "COBRA" for employee and employee's dependents for up to 12 months for Dr. Simpson and Mr. Ferguson and 6 months for Mr. Banerjee, (iii) accelerated vesting as to 100% of the employee's outstanding unvested stock options and/or restricted stock, and (iv) the extension of the post-termination exercise period of any options held by the employee for a period of 1 year. Additionally, if we experience a change in control, 50% of the employee's outstanding unvested stock options and/or restricted stock will vest.

Employee Benefit and Stock Plans

2014 Preferred Stock Plan

       Our board of directors adopted our 2014 Preferred Stock Plan, or the 2014 Preferred Plan, in August 2014, and we expect our stockholders to approve it in November 2014. Our 2014 Preferred Plan allows for the grant of incentive stock options to purchase shares of our Series E preferred stock, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options to purchase shares of our Series E preferred stock and awards of shares of Series E preferred stock to our employees, directors and consultants and our parent and subsidiary corporations' employees, directors and consultants. None of our executives or members of our board of directors hold outstanding awards under the 2014 Preferred Plan.

       Authorized Shares.     Our 2014 Preferred Plan will be terminated prior to this offering, and accordingly, no shares will be available for issuance under the 2014 Preferred Plan following the completion of this offering. Our 2014 Preferred Plan will continue to govern outstanding awards granted thereunder. As of September 30, 2014, options to purchase                   shares of our common stock remained outstanding under our 2014 Preferred Plan. In the event that an outstanding option or other right for any reason expires or is canceled, the shares allocable to the unexercised portion of such option or other right shall be added to the number of shares then available for issuance under the 2014 Preferred Plan.

       Plan Administration.     Our board of directors or a committee of our board (the administrator) administers our 2014 Preferred Plan. Subject to the provisions of the 2014 Preferred Plan, the administrator has the full authority and discretion to take any actions it deems necessary or advisable for the administration of the 2014 Preferred Plan. All decisions, interpretations and other actions of the administrator are final and binding on all participants in the 2014 Preferred Plan.

       Options.     Stock options may be granted under our 2014 Preferred Plan. The exercise price per share of all options must equal at least 100% of the fair market value per share of our Series E preferred stock on the date of grant, as determined by the administrator. The term of a stock option

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may not exceed 10 years. With respect to any participant who owns 10% of the voting power of all classes of our outstanding stock as of the grant date, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price per share of such incentive stock option must equal at least 110% of the fair market value per share of our Series E preferred stock on the date of grant, as determined by the administrator. The 2014 Preferred Plan administrator determines the terms and conditions of options. After termination of an employee, director or consultant, he or she may exercise his or her option for the period of time as specified in the 2014 Preferred Plan. If termination is due to death, it is expected that the option will remain exercisable for 12 months, and if termination is due to disability, it is expected that the option will remain exercisable for 6 months. In all other cases, it is expected that the option will remain exercisable for 3 months. However, an option generally may not be exercised later than the expiration of its term.

       Shares of Series E preferred stock.     Shares of our Series E preferred stock may be granted under our 2014 Preferred Plan, either as a purchasable award or as a direct grant. The administrator will determine the purchase price and the number of shares granted to the award recipient. Stock purchase rights must be exercised within 30 days of grant.

       Transferability of Awards.     Our 2014 Preferred Plan generally does not allow for the transfer or assignment of options, except by will or by the laws of descent and distribution. Shares issued upon exercise of an option will be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal, and other transfer restrictions as the administrator may determine.

       Certain Adjustments.     In the event of a subdivision of our outstanding stock, a declaration of a dividend payable in shares, a combination or consolidation of our outstanding stock into a lesser number of shares, a reclassification, or any other increase or decrease in the number of issued shares of stock effected without receipt of consideration by us, the 2014 Preferred Plan will be appropriately adjusted by the administrator as to the class and maximum number of securities subject to the 2014 Preferred Plan and the class, number of securities and price per share of Series E preferred stock subject to outstanding awards under the 2014 Preferred Plan, provided that our administrator will make any adjustments as may be required by Section 25102(o) of the California Corporations Code.

       Merger or Change in Control.     Our 2014 Preferred Plan provides that, in the event of a merger or consolidation, all shares acquired under the 2014 Preferred Plan and all options shall be subject to the agreement of merger or consolidation. Such agreement need not treat all options in an identical manner, and it shall provide for one or more of the following with respect to each option:

    the continuation of the option by us (if we are the surviving corporation);

    the assumption of the option by the surviving corporation or its parent in a manner that complies with Section 424(a) of the Internal Revenue Code of 1986, as amended;

    the substitution by the surviving corporation or its parent of a new option in a manner that complies with Section 424(a) of the Internal Revenue Code of 1986, as amended;

    full acceleration of vesting of the option, followed by cancellation of the option if it is not exercised prior to the merger or consolidation, provided that option holders shall be able to exercise the option during a period of at least 5 days, subject to the terms of the 2014 Preferred Plan; or

    the cancellation of the option and the payment to the option holder equal to the excess of (A) the fair market value of the shares subject to the option (whether or not the option is then exercisable or such shares are then vested) as of the closing date of the merger or consolidation over (B) the exercise price of the option.

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       Automatic Conversion.     Our 2014 Preferred Plan provides that, in the event of the automatic conversion of our Series E preferred stock into common stock in accordance with the terms of our amended and restated certificate of incorporation, each outstanding award under the 2014 Preferred Plan immediately prior to such automatic conversion that remains outstanding following such conversion will be exercisable, following such conversion, for that number of shares of common stock into which each outstanding share of our Series E preferred stock was converted in connection with the automatic conversion. Additionally, the exercise or purchase price of a converted award will be adjusted as deemed appropriate by our board of directors.

       Amendment; Termination.     Our board of directors may amend, suspend or terminate our 2014 Preferred Plan at any time, provided that such action does not impair a participant's rights under outstanding awards without such participant's written consent.

2014 Equity Incentive Plan

       We expect our board of directors to adopt, and our stockholders to approve, a 2014 Equity Incentive Plan, or the 2014 Plan. Our 2014 Plan will permit the grant of incentive stock options, within the meaning of Section 422 of the Code, to our employees and any parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options, restricted stock, restricted stock units, stock appreciation rights, performance units and performance shares to our employees, directors and consultants and our parent and subsidiary corporations' employees and consultants.

       Authorized shares.     A total of              shares of our common stock will be reserved for issuance pursuant to the 2014 Plan. In addition, the shares reserved for issuance under our 2014 Plan will also include shares reserved but not issued under the 2009 Stock Plan, as amended, or the 2009 Plan, and shares subject to stock options or similar awards granted under the 2009 Plan that expire or terminate without having been exercised in full and shares issued pursuant to awards granted under the 2009 Plan that are forfeited to or repurchased by us (provided that the maximum number of shares that may be added to the 2014 Plan pursuant to this sentence is              shares). In addition, shares may become available under the 2014 Plan as described below.

       The number of shares available for issuance under the 2014 Plan will also include an annual increase on the first day of each fiscal year beginning in fiscal 2016, equal to the least of:

                     shares;

                     % of the outstanding shares of common stock as of the last day of our immediately preceding fiscal year; or

    such other amount as our board of directors may determine.

       If an award expires or becomes unexercisable without having been exercised in full, is surrendered pursuant to an exchange program, or, with respect to restricted stock, restricted stock units, performance units or performance shares, is forfeited or repurchased due to failure to vest, the unpurchased shares (or for awards other than stock options or stock appreciation rights, the forfeited or repurchased shares) will become available for future grant or sale under our 2014 Plan. With respect to stock appreciation rights, the net shares issued will cease to be available under the 2014 Plan and all remaining shares will remain available for future grant or sale under the 2014 Plan. Shares used to pay the exercise price of an award or satisfy the tax withholding obligations related to an award will become available for future grant or sale under our 2014 Plan. To the extent an award is paid out in cash rather than shares, such cash payment will not result in reducing the number of shares available for issuance under our 2014 Plan.

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       Plan administration.     Our board of directors or one or more committees appointed by our board of directors will administer our 2014 Plan. In the case of awards intended to qualify as "performance-based compensation" within the meaning of Section 162(m) of the Code, the committee will consist of two or more "outside directors" within the meaning of Section 162(m). In addition, if we determine it is desirable to qualify transactions under the 2014 Plan as exempt under Rule 16b-3 of the Securities Exchange Act of 1934, as amended, or Rule 16b-3, such transactions will be structured to satisfy the requirements for exemption under Rule 16b-3. Subject to the provisions of our 2014 Plan, the administrator has the power to administer the plan, including but not limited to, the power to interpret the terms of our 2014 Plan and awards granted under it, to create, amend and revoke rules relating to our 2014 Plan, including creating sub-plans, and to determine the terms of the awards, including the exercise price, the number of shares subject to each such award, the exercisability of the awards and the form of consideration, if any, payable upon exercise. The administrator also has the authority to amend existing awards to reduce or increase their exercise price, to allow participants the opportunity to transfer outstanding awards to a financial institution or other person or entity selected by the administrator and to institute an exchange program by which outstanding awards may be surrendered in exchange for awards of the same type which may have a higher or lower exercise price or different terms, awards of a different type and/or cash.

       Stock options.     Stock options may be granted under our 2014 Plan. The exercise price of options granted under our 2014 Plan must at least be equal to the fair market value of our common stock on the date of grant. The term of an incentive stock option may not exceed 10 years, except that with respect to any participant who owns more than 10% of the voting power of all classes of our outstanding stock, the term must not exceed five years and the exercise price must equal at least 110% of the fair market value on the grant date. The administrator will determine the methods of payment of the exercise price of an option, which may include cash, shares or other property acceptable to the administrator, as well as other types of consideration permitted by applicable law. After the termination of service of an employee, director or consultant, he or she may exercise his or her option for the period of time stated in his or her option agreement. Generally, if termination is due to death or disability, the option will remain exercisable for 12 months. In all other cases, the option will generally remain exercisable for three months following the termination of service. However, in no event may an option be exercised later than the expiration of its term. Subject to the provisions of our 2014 Plan, the administrator determines the other terms of options.

       Stock appreciation rights.     Stock appreciation rights may be granted under our 2014 Plan. Stock appreciation rights allow the recipient to receive the appreciation in the fair market value of our common stock between the exercise date and the date of grant. Stock appreciation rights may not have a term exceeding 10 years. After the termination of service of an employee, director or consultant, he or she may exercise his or her stock appreciation right for the period of time stated in his or her option agreement. However, in no event may a stock appreciation right be exercised later than the expiration of its term. Subject to the provisions of our 2014 Plan, the administrator determines the other terms of stock appreciation rights, including when such rights become exercisable and whether to pay any increased appreciation in cash or with shares of our common stock, or a combination thereof, except that the per share exercise price for the shares to be issued pursuant to the exercise of a stock appreciation right will be no less than 100% of the fair market value per share on the date of grant.

       Restricted stock.     Restricted stock may be granted under our 2014 Plan. Restricted stock awards are grants of shares of our common stock that vest in accordance with terms and conditions established by the administrator. The administrator will determine the number of shares of restricted

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stock granted to any employee, director or consultant and, subject to the provisions of our 2014 Plan, will determine the terms and conditions of such awards. The administrator may impose whatever conditions for lapse of the restriction on the shares it determines to be appropriate (for example, the administrator may set restrictions based on the achievement of specific performance goals or continued service to us); provided, however, that the administrator, in its sole discretion, may accelerate the time at which any restrictions will lapse or be removed. Recipients of restricted stock awards generally will have voting and dividend rights with respect to such shares upon grant without regard to the restriction, unless the administrator provides otherwise. Shares of restricted stock as to which the restrictions have not lapsed are subject to our right of repurchase or forfeiture.

       Restricted stock units.     Restricted stock units may be granted under our 2014 Plan. Restricted stock units are bookkeeping entries representing an amount equal to the fair market value of one share of our common stock. Subject to the provisions of our 2014 Plan, the administrator will determine the terms and conditions of restricted stock units, including the vesting criteria (which may include accomplishing specified performance criteria or continued service to us) and the form and timing of payment. Notwithstanding the foregoing, the administrator, in its sole discretion, may accelerate the time at which any restricted stock units will vest.

       Performance units and performance shares.     Performance units and performance shares may be granted under our 2014 Plan. Performance units and performance shares are awards that will result in a payment to a participant only if performance goals established by the administrator are achieved or the awards otherwise vest. The administrator will establish organizational or individual performance goals or other vesting criteria in its discretion, which, depending on the extent to which they are met, will determine the number and/or the value of performance units and performance shares to be paid out to participants. After the grant of a performance unit or performance share, the administrator, in its sole discretion, may reduce or waive any performance criteria or other vesting provisions for such performance units or performance shares. Performance units shall have an initial dollar value established by the administrator prior to the grant date. Performance shares shall have an initial value equal to the fair market value of our common stock on the grant date. The administrator, in its sole discretion, may pay earned performance units or performance shares in the form of cash, in shares or in some combination

       Outside directors.     Our 2014 Plan provides that all non-employee directors are eligible to receive all types of awards (except for incentive stock options) under the 2014 Plan. Our 2014 Plan provides that in any given fiscal year, a non-employee director may not receive under the 2014 Plan awards having a grant date fair value greater than $        increased to $        in connection with her or her initial service, as grant fair value is determined under generally accepted accounting principles.

       Non-transferability of awards.     Unless the administrator provides otherwise, our 2014 Plan generally does not allow for the transfer of awards and only the recipient of an award may exercise an award during his or her lifetime.

       Certain adjustments.     In the event of certain changes in our capitalization, to prevent diminution or enlargement of the benefits or potential benefits available under our 2014 Plan, the administrator will adjust the number and class of shares that may be delivered under our 2014 Plan and/or the number, class and price of shares covered by each outstanding award and the numerical share limits set forth in our 2014 Plan. In the event of our proposed liquidation or dissolution, the administrator will notify participants as soon as practicable and all awards will terminate immediately prior to the consummation of such proposed transaction.

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       Merger or change in control.     Our 2014 Plan provides that in the event of a merger or change in control, as defined under the 2014 Plan, each outstanding award will be treated as the administrator determines, except that if a successor corporation or its parent or subsidiary does not assume or substitute an equivalent award for any outstanding award, then such award will fully vest, all restrictions on the shares subject to such award will lapse, all performance goals or other vesting criteria applicable to the shares subject to such award will be deemed achieved at 100% of target levels and all of the shares subject to such award will become fully exercisable, if applicable, for a specified period prior to the transaction. The award will then terminate upon the expiration of the specified period of time.

       Amendment, termination.     The administrator will have the authority to amend, suspend or terminate the 2014 Plan provided such action will not impair the existing rights of any participant. Our 2014 Plan will automatically terminate in 2025, unless we terminate it sooner.

2014 Employee Stock Purchase Plan

       We expect our board of directors to adopt, and our stockholders to approve, a 2014 Employee Stock Purchase Plan, or ESPP, prior to the registration date. The ESPP will become effective upon its adoption by our board of directors but will not be in use until the completion of this offering.

       The ESPP includes a component that is intended to qualify as an "employee stock purchase plan" under Section 423 of the Internal Revenue Code of 1986, as amended, or the 423 Component, and a component that does not comply with Section 423, or the Non-423 Component. For purposes of this disclosure, a reference to the "ESPP" will mean the 423 Component. Unless determined otherwise by the administrator, each of our future non-U.S. subsidiaries, if any, will participate in a separate offering under the Non-423 Component.

       Authorized shares.     A total of              shares of our common stock will be made available for sale. In addition, our ESPP provides for annual increases in the number of shares available for issuance under the ESPP on the first day of each fiscal year beginning in fiscal year 2016, equal to the least of:

                     % of the outstanding shares of our common stock on the last day of the previous fiscal year;

                     shares; or

    such other amount as may be determined by our board of directors.

       Plan administration.     Our board of directors or a committee appointed by our board of directors will administer the ESPP. The administrator has authority to administer the plan, including but not limited to, full and exclusive authority to interpret the terms of the ESPP, determine eligibility to participate subject to the conditions of our ESPP as described below, and to establish procedures for plan administration necessary for the administration of the Plan, including creating sub-plans.

       Eligibility.     Generally, all of our employees will be eligible to participate if they are employed by us, or any participating subsidiary, for at least 20 hours per week and more than five months in any calendar year. However, an employee may not be granted an option to purchase stock under the ESPP if such employee:

    immediately after the grant would own stock constituting 5% or more of the total combined voting power or value of all classes of our capital stock; or

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    holds rights to purchase stock under all of our employee stock purchase plans that accrue at a rate that exceeds $25,000 worth of stock for each calendar year in which the option is outstanding.

       Offering periods.     Our ESPP will be intended to qualify under Section 423 of the Code, and provides for        month offering periods. The offering periods generally start on the first trading day on or after          and          of each year, except that the first offering period will commence on the first trading day following the effective date of the registration statement of which this prospectus forms a part. The administrator may, in its discretion, modify the terms of future offering periods.

       Payroll deductions.     Our ESPP will permit participants to purchase common stock through payroll deductions of up to 15% of their eligible compensation, which includes a participant's base straight time gross earnings, but exclusive of payments for incentive compensation, bonuses, payments for overtime and shift premium, equity compensation income and other similar compensation. A participant may purchase a maximum of              shares during an offering period.

       Exercise of option.     Amounts deducted and accumulated by the participant are used to purchase shares of our common stock at the end of each six-month offering period. The purchase price of the shares will be 85% of the lower of the fair market value of our common stock on the first trading day of each offering period or on the exercise date. Participants may end their participation at any time during an offering period, and will be paid their accrued payroll deductions that have not yet been used to purchase shares of common stock. Participation ends automatically upon termination of employment with us.

       Non-transferability.     A participant may not transfer rights granted under our ESPP other than by will, the laws of descent and distribution, or as otherwise provided under our ESPP.

       Merger or change in control.     In the event of our merger or change in control, as defined under the ESPP, a successor corporation may assume or substitute for each outstanding option. If the successor corporation refuses to assume or substitute for the option, the offering period then in progress will be shortened, and a new exercise date will be set. The administrator will notify each participant that the exercise date has been changed and that the participant's option will be exercised automatically on the new exercise date unless prior to such date the participant has withdrawn from the offering period.

       Amendment, termination.     Our ESPP will automatically terminate in 2035, unless we terminate it sooner. The administrator has the authority to amend, suspend or terminate our ESPP at any time.

2009 Stock Plan, as Amended

       Our board of directors adopted, and our stockholders approved, our 2009 Stock Plan, or the 2009 Plan, in March 2009. Our 2009 Plan was most recently amended in September 2014. Our 2009 Plan allows for the grant of incentive stock options, within the meaning of Section 422 of the Internal Revenue Code of 1986, as amended, to our employees and our parent and subsidiary corporations' employees, and for the grant of nonstatutory stock options and shares of common stock to our employees, directors and consultants and our parent and subsidiary corporations' employees, directors and consultants.

       Authorized Shares.     Our 2009 Plan will be terminated in connection with this offering, and accordingly, no shares will be available for issuance under the 2009 Plan following the completion of

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this offering. Our 2009 Plan will continue to govern outstanding awards granted thereunder. As of September 30, 2014, options to purchase 14,257,803 shares of our common stock remained outstanding under our 2009 Plan. In the event that an outstanding option or other right for any reason expires or is canceled, the shares allocable to the unexercised portion of such option or other right shall be added to the number of shares then available for issuance under the 2014 Plan once adopted by our board of directors and our stockholders.

       Plan Administration.     Our board of directors or a committee of our board (the administrator) administers our 2009 Plan. Subject to the provisions of the 2009 Plan, the administrator has the full authority and discretion to take any actions it deems necessary or advisable for the administration of the 2009 Plan. All decisions, interpretations and other actions of the administrator are final and binding on all participants in the 2009 Plan.

       Options.     Stock options may be granted under our 2009 Plan. The exercise price per share of all options must equal at least 100% of the fair market value per share of our common stock on the date of grant, as determined by the administrator. The term of a stock option may not exceed 10 years. With respect to any participant who owns 10% of the voting power of all classes of our outstanding stock as of the grant date, the term of an incentive stock option granted to such participant must not exceed five years and the exercise price per share of such incentive stock option must equal at least 110% of the fair market value per share of our common stock on the date of grant, as determined by the administrator. The 2009 Plan administrator determines the terms and conditions of options.

       After termination of an employee, director or consultant, he or she may exercise his or her option for the period of time as specified in the 2009 Plan. If termination is due to death, it is expected that the option will remain exercisable for 12 months, and if termination is due to disability, it is expected that the option will remain exercisable for 6 months. In all other cases, it is expected that the option will remain exercisable for three months. However, an option generally may not be exercised later than the expiration of its term.

       Shares of Common Stock.     Shares of our common stock may be granted under our 2009 Plan, either as a purchasable award or as a direct grant. The administrator will determine the purchase price and the number of shares granted to the award recipient. Stock purchase rights must be exercised within 30 days of grant.

       Transferability of Awards.     Our 2009 Plan generally does not allow for the transfer or assignment of options, except by will or by the laws of descent and distribution. Shares issued upon exercise of an option will be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal, and other transfer restrictions as the administrator may determine.

       Certain Adjustments.     In the event of a subdivision of our outstanding stock, a declaration of a dividend payable in shares, a combination or consolidation of our outstanding stock into a lesser number of shares, a reclassification, or any other increase or decrease in the number of issued shares of stock effected without receipt of consideration by us, the 2009 Plan will be appropriately adjusted by the administrator as to the class and maximum number of securities subject to the 2009 Plan and the class, number of securities and price per share of common stock subject to outstanding awards under the 2009 Plan, provided that our administrator will make any adjustments as may be required by Section 25102(o) of the California Corporations Code.

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       Merger or Change in Control.     Our 2009 Plan provides that, in the event of a merger or consolidation, all shares acquired under the 2009 Plan and all options shall be subject to the agreement of merger or consolidation. Such agreement need not treat all options in an identical manner, and it shall provide for one or more of the following with respect to each option:

    the continuation of the option by us (if we are the surviving corporation);

    the assumption of the option by the surviving corporation or its parent in a manner that complies with Section 424(a) of the Internal Revenue Code of 1986, as amended;

    the substitution by the surviving corporation or its parent of a new option in a manner that complies with Section 424(a) of the Internal Revenue Code of 1986, as amended.

    full acceleration of vesting of the option, followed by cancellation of the option if it is not exercised prior to the merger or consolidation, provided that option holders shall be able to exercise the option during a period of at least 5 days, subject to the terms of the 2009 Plan; or

    the cancellation of the option and the payment to the option holder equal to the excess of (A) the fair market value of the shares subject to the option (whether or not the option is then exercisable or such shares are then vested) as of the closing date of the merger or consolidation over (B) the exercise price of the option.

       Amendment; Termination.     Our board of directors may amend, suspend or terminate our 2009 Plan at any time, provided that such action does not impair a participant's rights under outstanding awards without such participant's written consent. As noted above, upon completion of this offering, our 2009 Plan will be terminated and no further awards will be granted thereunder. All outstanding awards will continue to be governed by their existing terms.

401(k) Plan

       We maintain a tax-qualified retirement plan that provides eligible employees with an opportunity to save for retirement on a tax advantaged basis. We may make a discretionary matching contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible employee each year. To date, we have not made any matching or profits sharing contributions into the 401(k) plan. All participants' interests in our matching and profit sharing contributions, if any, vest pursuant to a six-year graded vesting schedule from the time of contribution. Pre-tax contributions are allocated to each participant's individual account and are then invested in selected investment alternatives according to the participants' directions. The 401(k) plan is intended to qualify under Sections 401(a) and 501(a) of the Code. As a tax-qualified retirement plan, contributions to the 401(k) plan and earnings on those contributions are not taxable to the employees until distributed from the 401(k) plan, and all contributions are deductible by us when made.

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CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

       As a smaller reporting company, we are required to disclose certain transactions to which we are or will be a party and in which any of our directors, executive officers, or holders of more than 5% of our common stock, or any member of the immediate family of the foregoing persons, had or will have a direct or indirect material interest in the event the amount of such transaction exceeds the lesser of $120,000 or one percent of the average of our total assets at year end for the last two completed fiscal years. The average of our 2012 and 2013 year-end assets multiplied by one percent is greater than $120,000.

       Other than compensation arrangements, we describe below transactions and series of similar transactions, since January 1, 2011, to which we were a party or will be a party, in which:

       Compensation arrangements for our directors and named executive officers are described elsewhere in this prospectus.

       We entered into a Master Consulting Agreement in November 2013 with Recreation, Inc., a brand strategy and design agency, for marketing services. John D. Simpson is the founder and Chief Executive Officer of Recreation and is also one of our directors and our Vice President, Sales. Pursuant to this Consulting Agreement and the current Statement of Work in effect from November 2013 through November 2014, Recreation provided marketing services to us at a flat hourly rate of $250, with an aggregate annual cap of $600,000. The Master Consulting Agreement has no specific term. Periodically Recreation may continue to provide marketing services to us at reasonable and customary rates. We believe that the cost of outsourcing these marketing services to Recreation is significantly lower than the cost of our marketing department performing those services. The amounts we paid to Recreation in 2013 and for the nine months ended September 30, 2014 were $107,000 and $542,000, respectively.

       During the years ended December 31, 2011, 2012 and 2013, we paid $132,000, $140,000 and $146,000, respectively, to Baysinger Search & Associates, or Baysinger, for recruiting services. Baysinger's management included the wife of our former Vice President, Sales.

       We entered into a Time Sharing Agreement with JBS Consulting, or JBS, in June 2011. JBS is owned and controlled by our Executive Chairman of our board of directors, John B. Simpson. Pursuant to this Time Sharing Agreement, we leased the right to use an airplane owned by JBS for business-related travel by our employees. We agreed to pay to JBS expenses related to the operation of the airplane and the aggregate incremental cost of each specific flight leased by us.

       Concurrently with the Time Sharing Agreement, we entered into a Reimbursement Agreement with JBS and John B. Simpson, pursuant to which JBS agreed to reimburse us for certain costs and expenses incurred by us under the Time Sharing Agreement, except for (i) the cost of a first class fare equivalent commercial airline ticket for all flights when Dr. Simpson or one of our directors is aboard the airplane in connection with Company business, and (ii) the cost of a coach fare equivalent commercial airline ticket for all flights when any of our employees or consultants are aboard the airplane in connection with company business. Neither the Time Sharing Agreement nor the

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Reimbursement Agreement have any specific term. The net amounts paid to JBS under the Time Sharing Agreement and Reimbursement Agreement in 2012, 2013 and for the nine months ended September 30, 2014 were $611,000, $568,000 and $0, respectively, which represented only a fraction of the total cost of the airplane. Travel by our employees on this airplane ended in August 2013.

Series E Preferred Stock Financing

       From September 2014 to November 2014, the Company issued a total of 91,071,250 shares of Series E Convertible Preferred Stock at $0.28 per share for cash proceeds of $11,875,000, and pursuant to the conversion of outstanding convertible promissory notes in the amount of $11,582,000, at 85% of the issuance price, or $0.238 per share. Investors received warrants to purchase up to the number of shares of common stock equal to fifty percent (50%) of the number of shares of Series E preferred stock purchased by such investor. The shares of Series E preferred stock will convert into an aggregate of 91,071,250 shares of common stock upon the consummation of this offering. The table below sets forth the number of shares of Series E preferred stock sold to our directors, executive officers and holders of more than 5% of our capital stock:

Name
  Number of
Warrants
  Number of
Shares
  Aggregate
Purchase
Price
 

Entities associated with John B. Simpson, Ph.D., M.D. 

    3,571,410     7,142,821   $ 2,000,000  

Entities associated with John D. Simpson

    892,839     1,785,678   $ 500,000  

Lucas Venture Group IX, LLC

    2,811,244     5,622,489   $ 1,574,307  

Matthew Ferguson

    310,304     620,609   $ 155,205  

2013 Bridge Loan

       In October 2013, November 2013, May 2014 and July 2014, we issued subordinated convertible promissory notes with an aggregate principal amount of $18,192,224. The subordinated convertible promissory notes accrued interest at the rate of the 30-day LIBOR rate plus 6% per annum subject to 20% internal rate of return. The table below sets forth the amount of subordinated convertible promissory notes sold to our directors, executive officers and holders of more than 5% of our capital stock:

Name
  Principal Amount
of Notes
 

Lucas Venture Group IX, LLC

  $ 2,522,193.57  

James McElwee

  $ 50,000  

Matthew Ferguson

  $ 100,000  

Entities associated with Jim and Carolyn Milgard

  $ 3,000,000  

       From September 2014 to November 2014, the outstanding principal and interest accrued under certain of the subordinated convertible promissory notes converted into shares of Series E preferred stock at a conversion price of $0.238 per share. The table below sets forth the number of shares of

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Series E preferred stock issued to our directors, executive officers and holders of more than 5% of our capital stock in connection with this conversion of subordinated convertible promissory notes:

Name
  Number of
Shares
 

Lucas Venture Group IX, LLC

    11,052,901  

James McElwee

    221,019  

Himanshu Patel

    642,181  

Matthew Ferguson

    620,609  

Series D Preferred Stock Financing

       In June 2012, August 2012 and September 2012, we issued an aggregate of 32,045,784 shares of our Series D preferred stock at a price per share of $1.16. The shares of Series D preferred stock will convert into an aggregate of            shares of common stock upon the consummation of this offering. The table below sets forth the number of shares of Series D preferred stock sold to our directors, executive officers and holders of more than 5% of our capital stock:

Name
  Number of
Shares
  Aggregate
Purchase
Price
 

Entities associated with John B. Simpson, Ph.D., M.D. 

    1,724,138   $ 2,000,001  

Entities associated with John D. Simpson

    862,069   $ 1,000,001  

Entities associated with Donald A. Lucas

    3,781,420   $ 4,386,447  

James McElwee

    200,000   $ 232,000  

Entities associated with Jim and Carolyn Milgard

    4,310,345   $ 5,000,001  

Series C Preferred Stock Financing

       In November 2011, we issued an aggregate of 1,561,571 shares of our Series C preferred stock at a price per share of $0.89. The shares of Series C preferred stock will convert into an aggregate of                        shares of common stock upon the consummation of this offering. The table below sets forth the number of shares of Series C preferred stock sold to our directors, executive officers and holders of more than 5% of our capital stock:

Name
  Number of
Shares
  Aggregate
Purchase
Price
 

Entities associated with John B. Simpson, Ph.D., M.D. 

    3,393,042   $ 3,019,808  

Lucas Venture Group IX, LLC

    2,247,191   $ 2,000,000  

Investors Rights Agreement

       In September 2014, in connection with the initial closing of our Series E preferred stock financing, we entered into an amended and restated investors' rights agreement with certain holders of our preferred stock, including entities with which certain of our directors are affiliated. As of September 30, 2014, the holders of 271,711,667 shares of our common stock, including the shares of common stock issuable upon the conversion of our preferred stock and upon the exercise of outstanding warrants, are entitled to registration of their shares under the Securities Act. For a more detailed description of these registration rights, see "Description of Capital Stock—Registration Rights."

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Voting Agreement

       We are party to a voting agreement under which certain holders of our capital stock, including entities with which certain of our directors are affiliated, have agreed to vote their shares on certain matters, including with respect to the election of directors. Upon the closing of this offering, the voting agreement will terminate and none of our stockholders will have any special rights regarding the election or designation of members of our board of directors or the voting of capital stock of the company.

Right of First Refusal and Co-Sale Agreement

       We are a party to an amended and restated right of first refusal and co-sale agreement with certain holders of our capital stock, including entities with which certain of our directors are affiliated, which imposes restrictions on the transfer of our capital stock. Upon the closing of this offering, the right of first refusal and co-sale agreement will terminate and the restrictions on the transfer of our capital stock set forth in this agreement will no longer apply.

Indemnification Agreements

       We plan to enter into indemnification agreements with each of our directors and executive officers. These agreements, among other things, will require us to indemnify each director and executive officer to the fullest extent permitted by Delaware law, including indemnification of expenses such as attorneys' fees, judgments, penalties, fines and settlement amounts incurred by the director or officer in any action or proceedings, including any action or proceeding by or in right of us, arising out of the person's service as a director or officer.

Directed Share Program

       The underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, consultants and other parties related to us as part of a directed share program. We do not currently know the extent to which these related persons will participate in our directed share program, if at all.

Policies and Procedures for Related Party Transactions

       Our board of directors will adopt a policy, effective upon the closing of this offering, that our executive officers, directors, nominees for election as a director, beneficial owners of more than 5% of any class of our common stock and any members of the immediate family of any of the foregoing persons are not permitted to enter into a related person transaction with us without the prior consent of our audit committee. Any request for us to enter into a transaction with an executive officer, director, nominee for election as a director, beneficial owner of more than 5% of any class of our common stock or any member of the immediate family of any of the foregoing persons in which the amount involved exceeds $120,000 and such person would have a direct or indirect interest must first be presented to our audit committee for review, consideration and approval. In approving or rejecting any such proposal, our audit committee is to consider the material facts of the transaction, including, but not limited to, whether the transaction is on terms no less favorable than terms generally available to an unaffiliated third party under the same or similar circumstances and the extent of the related person's interest in the transaction. We did not have a formal review and approval policy for related party transactions at the time of any of the transactions described above. However, all of the transactions described above were entered into after presentation, consideration and approval by our board of directors and/or our audit committee.

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PRINCIPAL STOCKHOLDERS

       The following table provides information concerning beneficial ownership of our common stock as of November 30, 2014, by:

       The percentage of shares beneficially owned is computed on the basis of 257,629,377 shares of our common stock outstanding as of November 30, 2014, which reflects the assumed conversion of all of our outstanding shares of preferred stock into an aggregate of 246,680,843 shares of common stock. Percentage ownership of our common stock after the offering assumes the sale of             shares by us in this offering.

       Beneficial ownership is determined in accordance with the rules of the SEC, and generally includes voting power and/or investment power with respect to the securities held. Shares of common stock subject to options and warrants currently exercisable or exercisable within 60 days of November 30, 2014, are deemed outstanding and beneficially owned by the person holding such options or warrants for purposes of computing the number of shares and percentage beneficially owned by such person, but are not deemed outstanding for purposes of computing the percentage beneficially owned by any other person.

       Except as indicated in the footnotes to this table, the persons or entities named have sole voting and investment power with respect to all shares of our common stock shown as beneficially owned by

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them. Except as indicated in the footnotes to this table, the address for each beneficial owner is c/o Avinger, Inc., 400 Chesapeake Drive, Redwood City, CA 94063.

 
  Shares Beneficially Owned Prior to the Offering   Shares Beneficially Owned After the Offering  
Name of Beneficial Owner
  Number of
Shares
  Percentage   Number of
Shares
  Percentage  

5% and Greater Stockholders

                         

Entities affiliated with John B. Simpson (1)

    59,089,070     22.62 %            

Funds affiliated with Lucas Venture Group (2)

    34,859,904     13.04 %            

Jim and Carolyn Milgard Living Trust u/t/d 3/14/2001 as amended (3)

    18,803,476     7.25 %            

Named Executive Officers and Directors

                         

Jeffrey M. Soinski

          *              

John B. Simpson, Ph.D., M.D. (4)

    60,389,070     23.01 %            

Matthew Ferguson (5)

    2,819,670     1.09              

Sougata Banerjee (6)

    989,516     *              

John D. Simpson (7)

    10,875,415     4.18 %            

Donald A. Lucas (8)

    35,059,904     13.11 %            

James B. McElwee (9)

    1,144,855     *              

James G. Cullen (10)

    520,819     *              

All executive officers and directors as a group (13 individuals)

    132,616,375     47.05 %            

*
Represents ownership of less than 1%

(1)
Includes warrants to purchase 3,571,410 shares of common stock. John B. Simpson has sole voting and dispositive power with respect to shares held by the Simpson Family Trust, GIGL Investments II, L.P., GIGL Investments L.P., and FoxHollow ACLP. John B. Simpson disclaims beneficial ownership in GIGL Investments II, L.P., GIGL Investments L.P., and FoxHollow ACLP, except to the extent of his pecuniary interest therein.

(2)
Includes 24,247,597 shares and warrants to purchase 9,688,369 shares of common stock held by Lucas Venture Group IX, LLC and 923,438 shares held by Lucas Venture Group III, LP. Mr. Lucas disclaims beneficial ownership of these shares, except to the extent of his pecuniary interest in the named funds.

(3)
Includes warrants to purchase 1,607,142 shares of common stock.

(4)
Includes 47,817,932 shares and warrants to purchase 3,571,410 shares of common stock held by John B. Simpson & Rita Lynn Simpson, Trustees of the Simpson Family Trust Dated 1/12/90, 1,578,066 shares held by GIGL II Investments, L.P., 1,038,385 shares held by GIGL Investments, L.P., 5,083,277 shares held by FoxHollow ACLP, and 1,300,000 shares issuable upon exercise of options exercisable within 60 days of November 30, 2014.

(5)
Includes warrants to purchase 363,875 shares of common stock and 1,835,186 shares issuable upon exercise of options and warrants exercisable within 60 days of November 30, 2014.

(6)
Includes 989,516 shares issuable upon exercise of options exercisable within 60 days of November 30, 2014.

(7)
Includes 8,428,972 shares and warrants to purchase 892,839 shares of common stock held by John David Simpson, Trustee of the John David Simpson Family Trust Dated 12/9/08 and 1,553,604 shares issuable upon exercise of options exercisable within 60 days of November 30, 2014.

(8)
Includes 24,247,597 shares and warrants to purchase 9,688,869 shares of common stock held by Lucas Ventures Group IX, LLC and 923,438 shares held by Lucas Venture Group III, LP and 200,000 shares issuable upon exercise of options exercisable within 60 days of November 30, 2014.

(9)
Includes warrants to purchase 204,258 of common stock and 300,000 shares issuable upon exercise of options and warrants exercisable within 60 days of November 30, 2014.

(10)
Includes 520,819 shares held by 2000 James Cullen Generation Skipping Family Trust. Mr. Cullen disclaims beneficial ownership in 2000 James Cullen Generation Skipping Family Trust, except to the extent of his pecuniary interest therein.

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UNDERWRITING

       Canaccord Genuity Inc. and Cowen and Company, LLC are acting as representatives of each of the underwriters named below. Subject to the terms and conditions set forth in an underwriting agreement among us and the underwriters, we have agreed to sell to the underwriters, and each of the underwriters has agreed, severally and not jointly, to purchase from us, the number of shares of our common stock set forth opposite its name below.

Underwriters
  Number of
Shares
 

Canaccord Genuity Inc. 

                

Cowen and Company, LLC

                

Oppenheimer & Co. Inc. 

                

BTIG, LLC

                

Stephens Inc. 

                
       

Total

                
       
       

       Subject to the terms and conditions set forth in the underwriting agreement, the underwriters have agreed, severally and not jointly, to purchase all of the shares sold under the underwriting agreement if any of these shares are purchased. If an underwriter defaults, the underwriting agreement provides that the purchase commitments of the nondefaulting underwriters may be increased or the underwriting agreement may be terminated.

       We have agreed to indemnify the several underwriters against certain liabilities, including liabilities under the Securities Act relating to losses or claims resulting from material misstatements in or omissions from this prospectus, the registration statement of which this prospectus is a part, certain free writing prospectuses and testing-the-waters communications that may be used in the offering and in any marketing materials used in connection with this offering and to contribute to payments the underwriters may be required to make in respect of those liabilities.

       The underwriters are offering the shares, subject to prior sale, when, as and if issued to and accepted by them, subject to approval of legal matters by their counsel, including the validity of the shares, and other conditions contained in the underwriting agreement, such as the receipt by the underwriters of officers' certificates and legal opinions. The underwriters reserve the right to withdraw, cancel or modify offers to the public and to reject orders in whole or in part.

Commissions and Discounts

       The representatives have advised us that the underwriters propose initially to offer the shares to the public at the public offering price set forth on the cover page of this prospectus and to dealers at that price less a concession not in excess of $        per share. The underwriters also may allow, and dealers may reallow, a concession not in excess of $        per share to brokers and dealers. After the initial offering, the public offering price, concession or any other term of this offering may be changed.

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       The following table shows the public offering price, underwriting discount and proceeds before expenses to us. The information assumes either no exercise or full exercise by the underwriters of their overallotment option.

 
   
  Total  
 
  Per
Share
  Without
Overallotment
Exercise
  With
Overallotment
Exercise
 

Public offering price

  $               $                $               

Underwriting discount paid by us

                                                  

Proceeds, before expenses, to us

                                                  

       The expenses of this offering, not including the underwriting discount, are estimated at $        , which includes approximately $        that we have agreed to reimburse to the underwriters for certain FINRA-related expenses incurred by them in connection with this offering.

Overallotment Option

       We have granted an option to the underwriters to purchase up to        additional shares at the public offering price, less the underwriting discount to cover overallotments, if any. The underwriters may exercise this option for 30 days from the date of this prospectus solely to cover any overallotments. If the underwriters exercise this option, each will be obligated, subject to conditions contained in the underwriting agreement, to purchase a number of additional shares proportionate to that underwriter's initial amount reflected in the above table.

No Sales of Similar Securities

       We have agreed that during a period of 180 days from the date of this prospectus, we will not, without the prior written consent of Canaccord Genuity Inc. and Cowen and Company, LLC, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock or file any registration statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of shares of our common stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of shares of common stock or such other securities, in cash or otherwise, subject to certain exceptions.

       All of our executive officers and directors and substantially all of our other existing security holders have agreed that they will not, without the prior written consent of Canaccord Genuity Inc. and Cowen and Company, LLC, offer, sell, contract to sell, pledge or otherwise transfer or dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by them or any of their affiliates or any person in privity with them or any of their affiliates), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the SEC in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder with respect to, any shares of our common stock or any securities convertible into, or exercisable or exchangeable for our common stock, or publicly announce an intention to effect any such transaction, for a period from the date of this

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prospectus until, and including the date that is, 180 days after the date of this prospectus. Each of the lock-up agreements contains certain exceptions, including the establishment of a Rule 10b5-1 trading plan, provided that (i) such plan does not provide for the transfer of shares of common stock during the 180-day period and (ii) no public announcement or filing under the Exchange Act is required or voluntarily made regarding the establishment of such plan. This lock-up provision applies to shares of our common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition; provided, however, that if the person is not one of our officers or directors, the lock-up provision will generally not apply to shares of our common stock acquired in the directed share program instituted in connection with this offering, or in open market transactions after the completion of this offering. Certain of our employees, including our executive officers, and directors may enter into Rule 10b5-1 trading plans.

       Canaccord Genuity Inc. and Cowen and Company LLC may, in their discretion, release any of the securities subject to these lock-up agreements at any time without notice.

Directed Share Program

       At our request, the underwriters have reserved, at the initial public offering price, up to 5% of the shares of our common stock in this offering for sale to our directors, officers, employees, consultants and other parties related to us as part of a directed share program. We will offer these shares to the extent permitted under applicable regulations in the United States and in various countries. Pursuant to the underwriting agreement, the sales will be made by                                    through a directed share program. The number of shares of common stock available for sale in this offering will be reduced to the extent that such persons purchase such reserved shares. Any reserved shares not so purchased will be offered by the underwriters on the same basis as the other shares offered hereby. We have agreed to indemnify                                    in connection with the directed share program, including for the failure of any participant to pay for its shares. Other than the underwriting discount described on the front cover of this prospectus, the underwriters will not be entitled to any commission with respect to shares of common stock sold pursuant to the directed share program. Shares offered in the directed share program will not be subject to lock-up agreements, with the exception of the shares to be issued to directors, officers, certain employees and certain existing stockholders who are already subject to lock-up agreements, as described above.

The NASDAQ Stock Market Listing

       We have applied to list our common stock on The NASDAQ Stock Market under the symbol "AVGR." In order to meet the requirements for listing on that exchange, the underwriters have undertaken to sell a minimum number of shares to a minimum number of beneficial owners as required by that exchange.

       Before this offering, there has been no public market for our common stock. The initial public offering price will be determined through negotiations among us and the Representatives. In addition to prevailing market conditions, the factors to be considered in determining the initial public offering price are:

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       An active trading market for the shares may not develop. It is also possible that after this offering the shares will not trade in the public market at or above the initial public offering price.

       The underwriters do not expect to sell more than 5% of the shares in the aggregate to accounts over which they exercise discretionary authority.

Price Stabilization, Short Positions and Penalty Bids

       Until the distribution of the shares is completed, SEC rules may limit underwriters and selling group members from bidding for and purchasing shares of our common stock. However, the Representatives may engage in transactions that stabilize the price of our common stock, such as bids or purchases to peg, fix or maintain that price.

       In connection with this offering, the underwriters may purchase and sell shares of our common stock in the open market. These transactions may include short sales, purchases on the open market to cover positions created by short sales and stabilizing transactions. Short sales involve the sale by the underwriters of a greater number of shares than they are required to purchase in this offering. "Covered" short sales are sales made in an amount not greater than the underwriters' overallotment option described above. The underwriters may close out any covered short position by either exercising their overallotment option or purchasing shares in the open market. In determining the source of shares to close out the covered short position, the underwriters will consider, among other things, the price of shares available for purchase in the open market as compared to the price at which they may purchase shares through the overallotment option. "Naked" short sales are sales in excess of the overallotment option. The underwriters must close out any naked short position by purchasing shares in the open market. A naked short position is more likely to be created if the underwriters are concerned that there may be downward pressure on the price of our common stock in the open market after pricing that could adversely affect investors who purchase in this offering. Stabilizing transactions consist of various bids for or purchases of shares of our common stock made by the underwriters in the open market prior to the closing of this offering.

       The underwriters may also impose a penalty bid. This occurs when a particular underwriter repays to the underwriters a portion of the underwriting discount received by it because the Representatives have repurchased shares sold by or for the account of such underwriter in stabilizing or short covering transactions.

       Similar to other purchase transactions, the underwriters' purchases to cover the syndicate short sales may have the effect of raising or maintaining the market price of our common stock or preventing or limiting a decline in the market price of our common stock. As a result, the price of our common stock may be higher than the price that might otherwise exist in the open market. The underwriters may conduct these transactions on The NASDAQ Stock Market, in the over-the-counter market or otherwise.

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       Neither we nor any of the underwriters make any representation or prediction as to the direction or magnitude of any effect that the transactions described above may have on the price of our common stock. In addition, neither we nor any of the underwriters make any representation that the representatives will engage in these transactions or that these transactions, once commenced, will not be discontinued without notice.

Electronic Offer, Sale and Distribution of Shares

       In connection with this offering, certain of the underwriters or securities dealers may distribute prospectuses by electronic means, such as e-mail. In addition, one or more of the underwriters may facilitate Internet distribution for this offering to certain of their Internet subscription customers. Any such underwriter may allocate a limited number of shares for sale to its online brokerage customers. An electronic prospectus is available on the Internet websites maintained by any such underwriter. Other than the prospectus in electronic format, the information on the websites of any such underwriter is not part of this prospectus.

Other Relationships

       The underwriters and their respective affiliates are full service financial institutions engaged in various activities, which may include securities trading, commercial and investment banking, financial advisory, investment management, investment research, principal investment, hedging, financing and brokerage activities. Certain of the underwriters and their affiliates have engaged in, and may in the future engage in, investment banking and other commercial dealings in the ordinary course of business with us or our affiliates. They have received, or may in the future receive, customary fees and commissions for these transactions.

       In the ordinary course of their various business activities, the underwriters and their respective affiliates may make or hold a broad array of investments and actively trade debt and equity securities (or related derivative securities) and financial instruments (including bank loans) for their own account and for the accounts of their customers, and such investment and securities activities may involve securities and/or instruments of the issuer. The underwriters and their respective affiliates may also make investment recommendations and/or publish or express independent research views in respect of such securities or instruments and may at any time hold, or recommend to clients that they acquire, long and/or short positions in such securities and instruments.

Notice to Prospective Investors in the European Economic Area, or EEA

       In relation to each Member State of the EEA which has implemented the Prospectus Directive, each, a Relevant Member State, an offer to the public of any shares which are the subject of this offering may not be made in that Relevant Member State, except that an offer to the public in that Relevant Member State of any shares may be made at any time under the following exemptions under the Prospectus Directive, if they have been implemented in that Relevant Member State:

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provided that no such offer of shares shall result in a requirement for the publication by us or any representative of a prospectus pursuant to Article 3 of the Prospectus Directive.

       Any person making or intending to make any offer of shares within the EEA should only do so in circumstances in which no obligation arises for us or any of the underwriters to produce a prospectus for such offer. Neither we nor the underwriters have authorized, nor do they authorize, the making of any offer of shares through any financial intermediary, other than offers made by the underwriters which constitute the final offering of shares contemplated in this prospectus.

       For the purposes of this provision, and your representation below, the expression an "offer to the public" in relation to any shares in any Relevant Member State means the communication in any form and by any means of sufficient information on the terms of the offer and any shares to be offered so as to enable an investor to decide to purchase any shares, as the same may be varied in that Relevant Member State by any measure implementing the Prospectus Directive in that Relevant Member State and the expression "Prospectus Directive" means Directive 2003/71/EC and includes any relevant implementing measure in each Relevant Member State.

       Each person in a Relevant Member State who receives any communication in respect of, or who acquires any shares under, the offer of shares contemplated by this prospectus will be deemed to have represented, warranted and agreed to and with us and each underwriter that:

Notice to Prospective Investors in the United Kingdom

       In the United Kingdom, this document is being distributed only to, and is directed only at, and any offer subsequently made may only be directed at persons who are "qualified investors" (as defined in the Prospectus Directive) (a) who have professional experience in matters relating to investments falling within Article 19(5) of the Financial Services and Markets Act 2000 (Financial Promotion) Order 2005, as amended (the "Order") and/or (b) who are high net worth companies (or persons to whom it may otherwise be lawfully communicated) falling within Article 49(2)(a) to (d) of the Order (all such persons together being referred to as "relevant persons"). This document must not be acted on or relied on in the United Kingdom by persons who are not relevant persons. In the

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United Kingdom, any investment or investment activity to which this document relates is only available to, and will be engaged in with, relevant persons.

Notice to Prospective Investors in Switzerland

       This document, as well as any other material relating to the shares which are the subject of this offering, do not constitute an issue prospectus pursuant to Article 652a and/or 1156 of the Swiss Code of Obligations. The shares will not be listed on the SIX Swiss Exchange and, therefore, the documents relating to the shares, including, but not limited to, this document, do not claim to comply with the disclosure standards of the listing rules of SIX Swiss Exchange and corresponding prospectus schemes annexed to the listing rules of the SIX Swiss Exchange. The shares are being offered in Switzerland by way of a private placement, i.e., to a small number of selected investors only, without any public offer and only to investors who do not purchase the shares with the intention to distribute them to the public. The investors will be individually approached by us from time to time. This document, as well as any other material relating to the shares, is personal and confidential and do not constitute an offer to any other person. This document may only be used by those investors to whom it has been handed out in connection with this offering and may neither directly nor indirectly be distributed or made available to other persons without our express consent. It may not be used in connection with any other offer and shall in particular not be copied and/or distributed to the public in (or from) Switzerland.

Notice to Prospective Investors in the Dubai International Financial Centre

       This document relates to an exempt offer in accordance with the Offered Securities Rules of the Dubai Financial Services Authority. This document is intended for distribution only to persons of a type specified in those rules. It must not be delivered to, or relied on by, any other person. The Dubai Financial Services Authority has no responsibility for reviewing or verifying any documents in connection with exempt offers. The Dubai Financial Services Authority has not approved this document nor taken steps to verify the information set out in it, and has no responsibility for it. The shares which are the subject of this offering may be illiquid and/or subject to restrictions on their resale. Prospective purchasers of the shares offered should conduct their own due diligence on the shares. If you do not understand the contents of this document you should consult an authorized financial adviser.

Notice to Prospective Investors in Hong Kong

       This prospectus has not been approved by or registered with the Securities and Futures Commission of Hong Kong or the Registrar of Companies of Hong Kong. The shares will not be offered or sold in Hong Kong other than (a) to "professional investors" as defined in the Securities and Futures Ordinance (Cap. 571) of Hong Kong and any rules made under that Ordinance; or (b) in other circumstances which do not result in the document being a "prospectus" as defined in the Companies Ordinance (Cap. 32) of Hong Kong or which do not constitute an offer to the public within the meaning of that Ordinance. No advertisement, invitation or document relating to the shares which is directed at, or the contents of which are likely to be accessed or read by, the public of Hong Kong (except if permitted to do so under the securities laws of Hong Kong) has been issued or will be issued in Hong Kong or elsewhere other than with respect to shares which are or are intended to be disposed of only to persons outside Hong Kong or only to "professional investors" as defined in the Securities and Futures Ordinance and any rules made under that Ordinance.

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Notice to Prospective Investors in Singapore

       This prospectus has not been registered as a prospectus with the Monetary Authority of Singapore. Accordingly, this prospectus and any other document or material in connection with the offer or sale, or invitation for subscription or purchase, of the shares may not be circulated or distributed, nor may the shares be offered or sold, or be made the subject of an invitation for subscription or purchase, whether directly or indirectly, to persons in Singapore other than (i) to an institutional investor under Section 274 of the Securities and Futures Act (Chapter 289), or SFA, (ii) to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA or (iii) otherwise pursuant to, and in accordance with the conditions of, any other applicable provision of the SFA. Where the shares are subscribed or purchased under Section 275 by a relevant person which is: (a) a corporation (which is not an accredited investor) the sole business of which is to hold investments and the entire share capital of which is owned by one or more individuals, each of whom is an accredited investor; or (b) a trust (where the trustee is not an accredited investor) whose sole purpose is to hold investments and each beneficiary is an accredited investor, then shares, debentures and units of shares and debentures of that corporation or the beneficiaries' rights and interest in that trust shall not be transferable for 6 months after that corporation or that trust has acquired the shares under Section 275 except: (i) to an institutional investor under Section 274 of the SFA or to a relevant person, or any person pursuant to Section 275(1A), and in accordance with the conditions, specified in Section 275 of the SFA; (ii) where no consideration is given for the transfer; or (iii) by operation of law.

Notice to Prospective Investors in Japan

       The shares have not been and will not be registered under the Financial Instruments and Exchange Law of Japan (Law No. 25 of 1948, as amended) and, accordingly, will not be offered or sold, directly or indirectly, in Japan, or for the benefit of any Japanese Person or to others for re-offering or resale, directly or indirectly, in Japan or to any Japanese Person, except in compliance with all applicable laws, regulations and ministerial guidelines promulgated by relevant Japanese governmental or regulatory authorities in effect at the relevant time. For the purposes of this paragraph, "Japanese Person" shall mean any person resident in Japan, including any corporation or other entity organized under the laws of Japan.

Notice to Prospective Investors in Australia

       No prospectus, disclosure document, offering material or advertisement in relation to our common stock has been lodged with the Australian Securities and Investments Commission or the Australian Stock Exchange Limited. Accordingly, a person may not (a) make, offer or invite applications for the issue, sale or purchase of shares of our common stock within, to or from Australia (including an offer or invitation which is received by a person in Australia) or (b) distribute or publish this prospectus or any other prospectus, disclosure document, offering material or advertisement relating to our common stock in Australia, unless (i) the minimum aggregate consideration payable by each offeree is the U.S. dollar equivalent of at least A$500,000 (disregarding monies lent by the offeror or its associates) or the offer otherwise does not require disclosure to investors in accordance with Part 6D.2 of the Corporations Act 2001 (CWLTH) of Australia; and (ii) such action complies with all applicable laws and regulations.

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DESCRIPTION OF CAPITAL STOCK

        The following summary describes our capital stock and the material provisions of our amended and restated certificate of incorporation and our amended and restated bylaws, which will become effective immediately prior to the consummation of this offering, the amended and restated investors rights agreement to which we and certain of our stockholders are parties, and of the Delaware General Corporation Law. This summary does not purport to be complete and is qualified in its entirety by the provisions of our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated investors rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part. For a complete description, you should refer to our amended and restated certificate of incorporation, amended and restated bylaws and amended and restated investors rights agreement, copies of which have been filed as exhibits to the registration statement of which this prospectus is a part.

General

       Immediately prior to the consummation of this offering, we will file our amended and restated certificate of incorporation that authorizes 100,000,000 shares of common stock, $0.001 par value per share, and 5,000,000 shares of preferred stock, $0.001 par value per share. As of September 30, 2014, there were outstanding:

       After giving effect to the sale of common stock offered in this offering there will be            shares of common stock outstanding.

Common Stock

Voting Rights

       Each holder of our common stock is entitled to one vote for each share on all matters submitted to a vote of the stockholders, including the election of directors. Our stockholders do not have cumulative voting rights in the election of directors. Accordingly, holders of a majority of the voting shares are able to elect all of the directors.

Dividends

       Subject to preferences that may be applicable to any then outstanding preferred stock, holders of our common stock are entitled to receive dividends, if any, as may be declared from time to time by our board of directors out of legally available funds. We do not have any plans to pay dividends to our stockholders.

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Liquidation

       In the event of our liquidation, dissolution or winding up, holders of our common stock will be entitled to share ratably in the net assets legally available for distribution to stockholders after the payment of all of our debts and other liabilities and the satisfaction of any liquidation preference granted to the holders of any then outstanding shares of preferred stock.

Rights and Preferences

       Holders of our common stock have no preemptive, conversion, subscription or other rights, and there are no redemption or sinking fund provisions applicable to our common stock. The rights, preferences and privileges of the holders of our common stock are subject to and may be adversely affected by the rights of the holders of shares of any series of our preferred stock that we may designate in the future.

Fully Paid and Nonassessable

       All of our outstanding shares of common stock are, and the shares of common stock to be issued in this offering will be, fully paid and nonassessable.

Preferred Stock

       Immediately prior to the consummation of this offering, all outstanding shares of our preferred stock will be converted into shares of our common stock. Upon the consummation of this offering, our board of directors will have the authority, without further action by our stockholders, to issue up to 5,000,000 shares of preferred stock in one or more series and to fix the rights, preferences, privileges and restrictions thereof. These rights, preferences and privileges could include dividend rights, conversion rights, voting rights, terms of redemption, liquidation preferences, sinking fund terms and the number of shares constituting, or the designation of, such series, any or all of which may be greater than the rights of common stock. The issuance of our preferred stock could adversely affect the voting power of holders of common stock and the likelihood that such holders will receive dividend payments and payments upon our liquidation. In addition, the issuance of preferred stock could have the effect of delaying, deferring or preventing a change in control of our company or other corporate action. Immediately after consummation of this offering, no shares of preferred stock will be outstanding, and we have no present plan to issue any shares of preferred stock.

Warrants

       As of September 30, 2014, there were outstanding warrants to purchase 47,297,276 shares of our Common stock at an exercise price of $0.28 per share. Warrants to purchase 9,745,766 shares of our common stock are exercisable at any time prior to the completion of our initial public offering. We issued these warrants in connection with the sales of convertible promissory notes from October 2013 through July 2014. Warrants to purchase 37,551,510 shares of our common stock do not expire upon the initial public offering and are exercisable until September 2, 2019. We issued these warrants in connection with the sale of our Series E preferred stock on September 2, 2014.

Convertible Promissory Notes

       As of September 30, 2014, we had outstanding $12.4 million aggregate principal amount and accrued interest under convertible promissory notes, which may, at the option of each holder thereof, convert into shares of our common stock upon completion of this offering, at a conversion price equal to 85% of the initial public offering price. Assuming an initial public offering price of $            the

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principal amount and interest accrued as of September 30, 2014, under the convertible promissory notes, would be convertible into            shares of our common stock.

Registration Rights

       After the closing of this offering, the holders of approximately            shares of our common stock will be entitled to certain rights with respect to the registration of such shares under the Securities Act. In the event that we propose to register any of our securities under the Securities Act, either for our own account or for the account of other security holders, these holders are entitled to notice of such registration and are entitled to include their common stock in such registration, subject to certain marketing and other limitations. Beginning six (6) months after the closing of this offering, the holders of at least 50% of these securities have the right to require us, on not more than two occasions, to file a registration statement on Form S-1 under the Securities Act in order to register the resale of their shares of common stock. We may, in certain circumstances, defer such registrations and the underwriters have the right, subject to certain limitations, to limit the number of shares included in any underwritten offering. Further, the holders of at least 30% of these securities may require us to register the resale of all or a portion of their shares on a Registration Statement on Form S-3, subject to certain conditions and limitations. In addition, the holders of these securities have certain "piggyback" registration rights. If we propose to register any of our equity securities under the Securities Act other than pursuant to the registration rights noted above or specified excluded registrations, holders may require us to include all or a portion of their registrable securities in the registration and in any related underwriting. In an underwritten offering, the managing underwriter, if any, has the right, subject to specified conditions, to limit the number of registrable securities such holders may include. Additionally, piggyback registrations are subject to delay or termination of the registration under certain circumstances. The underwriters named in this prospectus have notified us that no holders of registration rights will be permitted to include any of their shares in this offering.

Anti-Takeover Effects or Provisions of our Amended and Restated Certificate of Incorporation, our Amended and Restated Bylaws and Delaware Law

       Some provisions of Delaware law and our amended and restated certificate of incorporation and our amended and restated bylaws that will be in effect immediately prior to the consummation of this offering contain provisions that could make the following transactions more difficult: acquisition of us by means of a tender offer; acquisition of us by means of a proxy contest or otherwise; or removal of our incumbent officers and directors. It is possible that these provisions could make it more difficult to accomplish or could deter transactions that stock holders may otherwise consider to be in their best interest or in our best interests, including transactions that might result in a premium over the market price for our shares.

       These provisions, summarized below, are expected to discourage coercive takeover practices and inadequate takeover bids. These provisions are also designed to encourage persons seeking to acquire control of us to first negotiate with our board of directors. We believe that the benefits of increased protection of our potential ability to negotiate with the proponent of a non-friendly or unsolicited proposal to acquire or restructure us outweigh the disadvantages of discouraging these proposals because negotiation of these proposals could result in an improvement of their terms.

Delaware Anti-Takeover Statute

       We are subject to Section 203 of the General Corporation Law of the State of Delaware, which prohibits a Delaware corporation from engaging in any business combination with any interested

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stockholder for a period of three years after the date that such stockholder became an interested stockholder, with the following exceptions:

       In general, Section 203 defines business combination to include the following:

       In general, Section 203 defines interested stockholder as an entity or person beneficially owning 15% or more of the outstanding voting stock of the corporation or any entity or person affiliated with or controlling or controlled by such entity or person.

Undesignated Preferred Stock

       The ability to authorize undesignated preferred stock makes it possible for our board of directors to issue preferred stock with voting or other rights or preferences that could impede the success of any attempt to acquire us. These and other provisions may have the effect of deterring hostile takeovers or delaying changes in control or management of our company.

Special Stockholder Meetings

       Our amended and restated bylaws will provide that a special meeting of stockholders may be called only by our board of directors, the chairperson of our board of directors, or our Chief Executive Officer or President. This provision might delay the ability of our stockholders to force consideration of a proposal or for stockholders controlling a majority of our capital stock to take any action, including the removal of directors.

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Requirements for Advance Notification of Stockholder Nominations and Proposals

       Our amended and restated bylaws will establish advance notice procedures with respect to stockholder proposals and the nomination of candidates for election as directors, other than nominations made by or at the direction of the board of directors or a committee of the board of directors. Our amended and restated bylaws will also specify certain requirements regarding the form and content of a stockholder's notice.

Elimination of Stockholder Action by Written Consent

       Our amended and restated certificate of incorporation will eliminate the right of stockholders to act by written consent without a meeting. As a result, a holder controlling a majority of our capital stock would not be able to amend our amended and restated bylaws or remove directors without holding a meeting of our stockholders called in accordance with our amended and restated bylaws.

Classified Board; Election and Removal of Directors

       Our amended and restated certificate of incorporation and amended and restated bylaws will authorize only our board of directors to fill vacant directorships, including newly created seats. In addition, the number of directors constituting our board of directors will be permitted to be set only by a resolution adopted by our board of directors. These provisions would prevent a stockholder from increasing the size of our board of directors and then gaining control of our board of directors by filling the resulting vacancies with its own nominees. This makes it more difficult to change the composition of our board of directors but promotes continuity of management.

       Upon the consummation of this offering, our board of directors will be divided into three classes. The directors in each class will serve for a three-year term, one class being elected each year by our stockholders, with staggered three-year terms. Only one class of directors will be elected at each annual meeting of our stockholders, with the other classes continuing for the remainder of their respective three-year terms. Because our stockholders do not have cumulative voting rights, our stockholders holding a majority of the shares of common stock outstanding will be able to elect all of our directors. In addition, our amended and restated certificate of incorporation will provide that directors may only be removed for cause. For more information on the classified board, see "Management—Board of Directors." This system of electing and removing directors may tend to discourage a third party from making a tender offer or otherwise attempting to obtain control of us, because it generally makes it more difficult for stockholders to replace a majority of the directors.

Choice of Forum

       Our amended and restated certificate of incorporation will provide that, unless we consent in writing to the selection of an alternative forum, the Court of Chancery of the State of Delaware will be the exclusive forum for any derivative action or proceeding brought on our behalf, any action asserting a breach of fiduciary duty, any action asserting a claim against us arising pursuant to the Delaware General Corporation Law, our amended and restated certificate of incorporation or our amended and restated bylaws, or any action asserting a claim against us that is governed by the internal affairs doctrine.

Amendment of Charter Provisions

       The amendment of any of the above provisions, except for the provision making it possible for our board of directors to issue preferred stock, would require approval by holders of at least 66 2 / 3 % of the voting power of our then outstanding voting stock.

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       The provisions of the Delaware General Corporation Law, our amended and restated certificate of incorporation and our amended and restated bylaws may have the effect of discouraging others from attempting hostile takeovers and, as a consequence, they may also inhibit temporary fluctuations in the market price of our common stock that often result from actual or rumored hostile takeover attempts. These provisions may also have the effect of preventing changes in our management. It is possible that these provisions could make it more difficult to accomplish transactions that stockholders may otherwise deem to be in their best interests.

Limitations on Liability and Indemnification Matters

       For a discussion of liability and indemnification, see "Management—Limitation on Liability and Indemnification Matters."

NASDAQ Stock Market Listing

       We have applied to list our common stock on The NASDAQ Stock Market under the symbol "AVGR."

Transfer Agent

       The transfer agent for our common stock is            . The transfer agent's address is            . Our shares of common stock will be issued in uncertificated form only, subject to limited circumstances.

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SHARES ELIGIBLE FOR FUTURE SALE

       Prior to this offering, there has been no public market for our common stock, and we cannot predict the effect, if any, that market sales of shares of our common stock or the availability of shares of our common stock for sale will have on the market price of our common stock prevailing from time to time. Future sales of our common stock in the public market, or the availability of such shares for sale in the public market, could adversely affect market prices prevailing from time to time. As described below, only a limited number of shares will be available for sale shortly after this offering due to contractual and legal restrictions on resale. Nevertheless, sales of our common stock in the public market after such restrictions lapse, or the perception that those sales may occur, could adversely affect the prevailing market price at such time and our ability to raise equity capital in the future.

       Following the completion of this offering, based on the number of shares of our capital stock outstanding as September 30, 2014, we will have a total of            shares of our common stock outstanding. Of these outstanding shares, all of the shares of common stock sold in this offering, plus any shares sold upon exercise of the underwriters' option to purchase up to an additional            shares of common stock from us in this offering, will be freely tradable, except that any shares purchased in this offering by our affiliates, as that term is defined in Rule 144 under the Securities Act, would only be able to be sold in compliance with the Rule 144 limitations described below.

       The remaining outstanding shares of our common stock will be deemed "restricted securities" as defined in Rule 144. Restricted securities may be sold in the public market only if they are registered or if they qualify for an exemption from registration under Rule 144 or Rule 701 under the Securities Act, which rules are summarized below. In addition, holders of all or substantially all of our equity securities have entered into or will enter into lock-up agreements with the underwriters under which they have agreed, subject to specific exceptions, not to sell any of our stock for at least 180 days following the date of this prospectus, as described below. As a result of these agreements, subject to the provisions of Rule 144 or Rule 701, based on an assumed offering date of            , 2015, shares will be available for sale in the public market as follows:

Lock-Up Agreements

       We have agreed that during a period of 180 days from the date of this prospectus, we will not, without the prior written consent of Canaccord Genuity Inc. and Cowen and Company, LLC, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of our common stock or any securities convertible into or exercisable or exchangeable for shares of our common stock or file any registration statement under the Securities Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of shares of our common stock, whether any such swap or transaction described in clause (i) or (ii) above is to be settled by delivery of shares of common stock or such other securities, in cash or otherwise, subject to certain exceptions.

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       All of our executive officers and directors and substantially all of our other existing security holders have agreed that they will not, without the prior written consent of Canaccord Genuity Inc. and Cowen and Company, LLC, offer, sell, contract to sell, pledge or otherwise transfer or dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by them or any of their affiliates or any person in privity with them or any of their affiliates), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the SEC in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Exchange Act, and the rules and regulations of the SEC promulgated thereunder with respect to, any shares of our common stock or any securities convertible into, or exercisable or exchangeable for our common stock, or publicly announce an intention to effect any such transaction, for a period from the date of this prospectus until, and including the date that is, 180 days after the date of this prospectus. Each of the lock-up agreements contains certain exceptions, including the establishment of a Rule 10b5-1 trading plan, provided that (i) such plan does not provide for the transfer of shares of common stock during the 180-day period and (ii) no public announcement or filing under the Exchange Act is required or voluntarily made regarding the establishment of such plan. This lock-up provision applies to shares of our common stock owned now or acquired later by the person executing the agreement or for which the person executing the agreement later acquires the power of disposition; provided, however, that if the person is not one of our officers or directors, the lock-up provision will generally not apply to shares of our common stock acquired in the directed share program instituted in connection with this offering, or in open market transactions after the completion of this offering. Certain of our employees, including our executive officers, and directors may enter into such trading plans.

       Canaccord Genuity Inc. and Cowen and Company LLC may, in their discretion, release any of the securities subject to these lock-up agreements at any time without notice.

       Following the expiration of the lock-up period, and assuming that the representatives of the underwriters do not release any parties from these agreements, all of the shares of our common stock that are restricted securities or are held by our affiliates as of the date of this prospectus will be eligible for sale in the public market subject to the limitations of Rule 144 under the Securities Act.

Rule 144

       In general, under Rule 144 as currently in effect, once we have been subject to the public company reporting requirements of Section 13 or Section 15(d) of the Exchange Act for at least 90 days, a person who is not deemed to have been one of our affiliates for purposes of the Securities Act at any time during the 90 days preceding a sale and who has beneficially owned the shares proposed to be sold for at least six months, including the holding period of any prior owner other than our affiliates, is entitled to sell those shares without complying with the manner of sale, volume limitation or notice provisions of Rule 144, subject to compliance with the public information requirements of Rule 144. If such a person has beneficially owned the shares proposed to be sold for at least one year, including the holding period of any prior owner other than our affiliates, then that person would be entitled to sell those shares without complying with any of the requirements of Rule 144.

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       In general, under Rule 144, as currently in effect, and upon expiration of the lock-up agreements described above, our affiliates or persons selling shares on behalf of our affiliates are entitled to sell within any three-month period, a number of shares that does not exceed the greater of:

provided, in each case, that we have been subject to the Exchange Act periodic reporting requirements for at least 90 days before the sale. Sales under Rule 144 by our affiliates or persons selling shares on behalf of our affiliates are also subject to certain manner of sale provisions and notice requirements and to the availability of current public information about us.

Rule 701

       Rule 701 generally allows a stockholder who purchased shares of our common stock pursuant to a written compensatory plan or contract and who is not deemed to have been an affiliate of our company during the immediately preceding 90 days to sell these shares in reliance upon Rule 144, but without being required to comply with the public information, holding period, volume limitation or notice provisions of Rule 144. Rule 701 also permits affiliates of our company to sell their Rule 701 shares under Rule 144 without complying with the holding period requirements of Rule 144. All holders of Rule 701 shares, however, are required by that rule to wait until 90 days after the date of this prospectus before selling those shares pursuant to Rule 701.

Registration Rights

       Pursuant to an investor rights agreement, the holders of up to            shares of our common stock (including shares issuable upon the conversion of our outstanding preferred stock immediately prior to the completion of this offering), or their transferees, will be entitled to certain rights with respect to the registration of the offer and sale of those shares under the Securities Act. See the section titled "Description of Capital Stock—Registration Rights" for a description of these registration rights. If the offer and sale of these shares is registered, the shares will be freely tradable without restriction under the Securities Act, and a large number of shares may be sold into the public market.

Stock and Option Plans

       Following the completion of this offering, we intend to file a registration statement on Form S-8 under the Securities Act to register shares of our common stock issued or reserved for issuance under our 2009 Stock Plan, 2014 Equity Incentive Plan and 2014 Employee Stock Purchase Plan (the "Plans"). The registration statement on Form S-8 will become effective immediately upon filing, and shares covered by such registration statement will thereupon be eligible for sale in the public markets, subject to vesting restrictions, the lock-up agreements described above and Rule 144 limitations applicable to affiliates. See "Executive Compensation—Employee Benefit and Stock Plans" for additional information.

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MATERIAL U.S. FEDERAL INCOME AND ESTATE TAX CONSEQUENCES FOR
NON-U.S. HOLDERS OF OUR COMMON STOCK

       The following is a general discussion of the material U.S. federal income tax consequences to non-U.S. holders with respect to their ownership and disposition of shares of our common stock purchased in this offering. This discussion is for general information only, is not tax advice, and does not purport to be a complete analysis of all potential tax considerations. Accordingly, all prospective non-U.S. holders of our common stock should consult their own tax advisors with respect to the U.S. federal, state, local and non-U.S. tax consequences of the purchase, ownership and disposition of our common stock. This discussion is based on current provisions of the U.S. Internal Revenue Code of 1986, as amended, (the "Code"), existing and proposed U.S. Treasury Regulations promulgated thereunder, current administrative rulings and judicial decisions, in effect as of the date of this prospectus, all of which are subject to change, possibly with retroactive effect, or to differing interpretation. Any change could alter the tax consequences to non-U.S. holders described in this prospectus. We assume in this discussion that a non-U.S. holder holds shares of our common stock as a capital asset within the meaning of Section 1221 of the Code (generally, property held for investment).

       This discussion does not address all aspects of U.S. federal income taxation that may be relevant to a particular non-U.S. holder in light of that non-U.S. holder's individual circumstances, nor does it address any aspects of state, local or non-U.S. income taxes or any non-income taxes. This discussion also does not address the potential application of the alternative minimum tax, the tax on net investment income, or any specific tax consequences that may be relevant to a non-U.S. holder in light of such holder's particular circumstances and does not address the special tax rules applicable to particular non-U.S. holders, such as:

       In addition, if a partnership or entity classified as a partnership for U.S. federal tax purposes holds our common stock, the tax treatment of a partner generally will depend on the status of the

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partner and upon the activities of the partnership. Accordingly, partnerships that hold our common stock, and partners or members in such partnerships should consult their tax advisors. There can be no assurance that the Internal Revenue Service ("IRS") will not challenge one or more of the tax consequences described herein, and we have not obtained, and do not intend to obtain, an opinion of counsel or ruling from the IRS with respect to the U.S. federal income tax consequences to a non-U.S. holder of the purchase, ownership or disposition of our common stock. We urge prospective investors to consult with their own tax advisors regarding the U.S. federal, state, local and non-U.S. income and other tax considerations of purchasing, owning and disposing of shares of our common stock.

Non-U.S. Holder Defined

       For purposes of this discussion, except as modified for estate tax purposes, a non-U.S. holder means a beneficial owner of our common stock, other than a partnership or other entity classified as a partnership for U.S. federal income tax purposes, that is not, for U.S. federal income tax purposes,:

Distributions on Our Common Stock

       We have not made any distributions on our common stock and we do not have any plans to make any distributions on our common stock. However, if we do make distributions on our common stock, those payments generally will constitute dividends for U.S. federal income tax purposes to the extent paid from our current or accumulated earnings and profits, as determined under U.S. federal income tax principles. If a distribution exceeds both our current and accumulated earnings and profits, the excess will be treated as a tax-free return of the non-U.S. holder's capital, and will reduce such holder's basis in our common stock, but not below zero. Any remaining excess will be treated as capital gain, subject to the tax treatment described below in "—Gain on Sale, Exchange or Other Disposition of Our Common Stock." Dividends paid to a non-U.S. holder generally will be subject to withholding of U.S. federal income tax at a 30% rate or such lower rate as may be provided by an applicable income tax treaty between the United States and such holder's country of residence.

       Dividends that are treated as effectively connected with a trade or business conducted by a non-U.S. holder within the United States (and, if an applicable income tax treaty so provides, are also attributable to a permanent establishment or a fixed base maintained within the United States by such non-U.S. holder) are generally exempt from the 30% withholding tax if the non-U.S. holder satisfies applicable certification and disclosure requirements. However, such U.S. effectively connected income, net of specified deductions and credits, is taxed at the same graduated U.S. federal income tax rates applicable to U.S. persons. Any U.S. effectively connected income received by a non-U.S. holder that is a corporation may also, under certain circumstances, be subject to an additional branch profits tax at a 30% rate or such lower rate as may be provided by an applicable income tax treaty between the United States and such holder's country of residence.

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       In order to claim the benefit of a tax treaty or to claim exemption from withholding because dividends paid on our common stock are effectively connected with the conduct of a trade or business in the United States, a non-U.S. holder must provide a properly executed IRS Form W-8BEN or IRS Form W-8BEN-E for treaty benefits or IRS Form W-8ECI for effectively connected income, or such successor forms as the IRS designates, prior to the payment of dividends. These forms must be periodically updated. If a non-U.S. holder holds our common stock through a financial institution or other agent acting on such holder's behalf, the non-U.S. holder will be required to provide appropriate documentation to the agent, which then will be required to provide certification to us or our paying agent, either directly or through other intermediaries. Non-U.S. holders may be eligible to obtain a refund of any excess amounts withheld by timely filing an appropriate claim for refund with the IRS.

Gain on Sale, Exchange or Other Disposition of Our Common Stock

       Subject to the discussion below regarding backup withholding and foreign accounts, a non-U.S. holder generally will not be subject to any U.S. federal income tax on any gain realized upon such holder's sale, exchange or other disposition of shares of our common stock unless:

       We believe that we have not been and are not currently, and we do not anticipate becoming in the future, a USRPHC for U.S. federal income tax purposes, and the remainder of this discussion so assumes. Because the determination of whether we are a USRPHC depends on the fair market value of our U.S. real property relative to the fair market value of our other business assets, there can be no assurance that we will not become a USRPHC in the future. Even if we are or become a USRPHC, however, as long as our common stock is regularly traded on an established securities market, as to which there can be no assurance, such common stock will be treated as U.S. real property interests only if a non-U.S. holder actually or constructively holds more than 5% of such regularly-traded common stock at any time during the shorter of the five-year period preceding such holder's disposition of, or such holder's holding period for, our common stock.

Federal Estate Tax

       Shares of our common stock beneficially owned by an individual who is not a citizen or resident of the United States (as defined for U.S. federal estate tax purposes) at the time of death will generally be included in the decedent's gross estate for U.S. federal estate tax purposes, unless an applicable estate tax treaty provides otherwise.

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Backup Withholding and Information Reporting

       Generally, we must report annually to the IRS the amount of dividends paid to each non-U.S. holder, their name and address, and the amount of tax withheld, if any. A similar report will be sent to each non-U.S. holder. Pursuant to applicable income tax treaties or other agreements, the IRS may make these reports available to tax authorities in such non-U.S. holder's country of residence.

       Payments of dividends on or of proceeds from the disposition of our common stock may be subject to additional information reporting and backup withholding at a current rate of 28% unless a non-U.S. holder establishes an exemption, for example, by properly certifying its non-U.S. status on an IRS Form W-8BEN or another appropriate version of IRS Form W-8. Notwithstanding the foregoing, backup withholding and information reporting may apply if either we or our paying agent has actual knowledge, or reason to know, that such holder is a U.S. person.

       Backup withholding is not an additional tax; rather, the U.S. federal income tax liability of persons subject to backup withholding will be reduced by the amount of tax withheld. If withholding results in an overpayment of taxes, a refund or credit may generally be obtained from the IRS, provided that the required information is furnished to the IRS in a timely manner.

Foreign Accounts

       The Foreign Account Tax Compliance Act, or FATCA, generally imposes a U.S. federal withholding tax of 30% on dividends on and the gross proceeds from a sale or other disposition of our common stock, paid to a "foreign financial institution" (as specially defined under these rules), unless such institution enters into an agreement with the U.S. government to, among other things, withhold on certain payments and to collect and provide to the U.S. tax authorities substantial information regarding the U.S. account holders of such institution (which includes certain equity and debt holders of such institution, as well as certain account holders that are foreign entities with U.S. owners) or otherwise establishes an exemption. FATCA also generally imposes a U.S. federal withholding tax of 30% on dividends on and the gross proceeds from a sale or other disposition of our common stock paid to a "non-financial foreign entity" (as specifically defined for purposes of these rules) unless such entity provides the withholding agent with a certification identifying certain substantial direct and indirect U.S. owners of the entity, certifies that there are none or otherwise establishes an exemption. The withholding provisions under FATCA generally apply to dividends on our common stock, and under current transitional rules are expected to apply with respect to the gross proceeds from a sale or other disposition of our common stock on or after January 1, 2017. Under certain circumstances, a non-U.S. holder might be eligible for refunds or credits of such taxes. An intergovernmental agreement between the United States and an applicable foreign country may modify the requirements described in this paragraph. Prospective investors are encouraged to consult with their own tax advisors regarding the possible implications of FATCA on their investment in our common stock.

        Each prospective investor should consult its own tax advisor regarding the particular U.S. federal, state and local and non-U.S. tax consequences of purchasing, holding and disposing of our common stock, including the consequences of any proposed change in applicable laws.

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LEGAL MATTERS

       Wilson Sonsini Goodrich & Rosati, P.C., Palo Alto, California will pass upon the validity of the shares of common stock offered by this prospectus. Certain members of, and investment partnerships comprised of members of, and persons associated with, Wilson Sonsini Goodrich &Rosati, P.C. own an interest representing less than 1% of the shares of our common stock. Jones Day is acting as counsel for the underwriters.


EXPERTS

       Ernst & Young LLP, independent registered public accounting firm, has audited our financial statements at December 31, 2012 and 2013, and for each of the two years in the period ended December 31, 2013, as set forth in their report thereon which contains an explanatory paragraph describing conditions that raise substantial doubt about our ability to continue as a going concern as described in Note 1 to the financial statements. We have included our financial statements and schedule in the prospectus and elsewhere in the registration statement in reliance on Ernst & Young LLP's report, given on their authority as experts in accounting and auditing.


WHERE YOU CAN FIND MORE INFORMATION

       We have filed a registration statement on Form S-1 with the SEC for the stock we are offering by this prospectus. This prospectus does not include all of the information contained in the registration statement. You should refer to the registration statement and its exhibits for additional information. Whenever we make reference in this prospectus to any of our contracts, agreements or other documents, the references are not necessarily complete and you should refer to the exhibits attached to the registration statement for copies of the actual contract, agreement or other document. When we complete this offering, we will also be required to file annual, quarterly and special reports, proxy statements and other information with the SEC.

       You can read our SEC filings, including the registration statement, over the Internet at the SEC's web site at www.sec.gov. You may also read and copy any document we file with the SEC at its public reference facilities at 100 F Street, N.E., Washington, DC 20549. You may also obtain copies of the documents at prescribed rates by writing to the Public Reference Section of the SEC at 100 F Street, N.E., Washington, DC 20549. Please call the SEC at 1-800-SEC-0330 for further information on the operation of the public reference facilities.

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AVINGER, INC.

INDEX TO FINANCIAL STATEMENTS

As of December 31, 2012 and 2013, and September 30, 2014 (unaudited) and the
Years Ended December 31, 2012 and 2013 and
Nine month periods ended September 30, 2013 and 2014 (unaudited)

Report of Independent Registered Public Accounting Firm

  F-2

Financial Statements:

 
 

Balance Sheets

  F-3

Statements of Operations and Comprehensive Loss

  F-4

Statements of Convertible Preferred Stock and Stockholders' Deficit

  F-5

Statements of Cash Flows

  F-6

Notes to Financial Statements

  F-7

F-1


Table of Contents


REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

The Board of Directors and Stockholders of Avinger, Inc.

       We have audited the accompanying balance sheets of Avinger, Inc. as of December 31, 2012 and 2013, and the related statements of operations and comprehensive loss, convertible preferred stock and stockholders' deficit, and cash flows for each of the two years in the period ended December 31, 2013. Our audits also included the financial statement schedule included in Item 16(b). These financial statements and schedule are the responsibility of the Company's management. Our responsibility is to express an opinion on these financial statements and schedule based on our audits.

       We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Company's internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Company's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

       In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of Avinger, Inc. at December 31, 2012 and 2013, and the results of its operations and its cash flows for each of the two years in the period ended December 31, 2013, in conformity with U.S. generally accepted accounting principles. Also, in our opinion, the related financial statement schedule, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

       The accompanying financial statements have been prepared assuming that the Company will continue as a going concern. As discussed in Note 1 to the financial statements, the Company's recurring losses from operations and its need for additional capital raise substantial doubt about its ability to continue as a going concern. Management's plans in regard to these matters are also described in Note 1. The financial statements do not include any adjustments that might result from the outcome of this uncertainty.

/s/ Ernst & Young LLP

Redwood City, California
November 6, 2014

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AVINGER, INC.

BALANCE SHEETS

(In thousands, except share and per share data)

 
  As of December 31,    
   
 
 
  September 30,
2014
  September 30,
2014
Pro Forma
 
 
  2012   2013  
 
   
   
  (unaudited)
 

Assets

                         

Current assets:

                         

Cash and cash equivalents

  $ 20,617   $ 12,221   $ 12,213        

Accounts receivable, net of allowance for doubtful accounts of $54, $20 and $20 at December 31, 2012 and 2013, and September 30, 2014 (unaudited), respectively

    1,228     1,627     1,898        

Inventories

    3,517     4,741     4,338        

Prepaid expenses and other current assets

    781     1,011     934        
                     

Total current assets

    26,143     19,600     19,383        

Property and equipment, net

   
3,991
   
4,858
   
2,915
       

Other assets

    190     550     766        
                     

Total assets

  $ 30,324   $ 25,008   $ 23,064        
                     
                     

Liabilities, convertible preferred stock and stockholders' deficit

                         

Current liabilities:

                         

Accounts payable

  $ 1,251   $ 996   $ 1,099        

Accrued compensation

    993     1,274     1,554        

Accrued expenses and other current liabilities

    1,437     1,456     3,459        
                     

Total current liabilities

    3,681     3,726     6,112        

Long-term borrowings

   
   
20,052
   
20,323
       

Convertible notes and accrued interest

        13,731     12,416        

Other long-term liabilities

    628     627     359        
                     

Total liabilities

    4,309     38,136     39,210        

Commitments and contingencies (Note 10)

   
 
   
 
   
 
   
 
 

Convertible preferred stock issuable in series, par value of $0.001

   
 
   
 
   
 
   
 
 

Shares authorized: 120,095,785 at December 31, 2012 and 2013, 195,524,356 at September 30, 2014 (unaudited), actual, none pro forma (unaudited)

                         

Shares issued and outstanding: 116,604,302 at December 31, 2012 and 2013, and 191,707,370 at September 30, 2014 (unaudited), actual, none pro forma (unaudited)

                         

Liquidation preference: $97,190 at December 31, 2012 and 2013 and $181,305 at September 30, 2014 (unaudited)

    99,659     99,654     119,769   $  
                     

Stockholders' deficit:

                         

Preferred stock, par value of $0.001

                         

Shares authorized: none at December 31, 2012 and 2013, and September 30, 2014 (unaudited), actual

                         

Shares issued and outstanding: none at December 31, 2012 and 2013, and September 30, 2014 (unaudited), actual

                 

Common stock, par value of $0.001

                         

Shares authorized: 165,000,000 at December 31, 2012, 169,310,345 at December 31, 2013 and 320,000,000 at September 30, 2014 (unaudited), actual

                         

Shares issued and outstanding: 10,400,751, 10,832,767 and 10,936,034 at December 31, 2012 and 2013, and September 30, 2014 (unaudited), respectively, actual, 235,350,425 pro forma (unaudited)

    10     11     11     235  

Additional paid-in capital

    1,014     1,776     2,472     122,017  

Accumulated deficit

    (74,668 )   (114,569 )   (138,398 )   (138,398 )
                   

Total stockholders' deficit

    (73,644 )   (112,782 )   (135,915 ) $ (16,146 )
                   
                         

Total liabilities, convertible preferred stock, and stockholders' deficit

  $ 30,324   $ 25,008   $ 23,064        
                     
                     

   

See accompanying notes.

F-3


Table of Contents


AVINGER, INC.

STATEMENTS OF OPERATIONS AND COMPREHENSIVE LOSS

(In thousands, except per share data)

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Revenues

  $ 8,560   $ 12,964   $ 9,568   $ 8,140  

Cost of revenues

    4,151     8,205     5,860     4,941  
                   

Gross profit

    4,409     4,759     3,708     3,199  
                   

Operating expenses:

   
 
   
 
   
 
   
 
 

Research and development

    15,416     15,973     12,664     8,350  

Selling, general and administrative

    22,848     25,758     20,578     12,900  
                   

Total operating expenses

    38,264     41,731     33,242     21,250  
                   

Loss from operations

    (33,855 )   (36,972 )   (29,534 )   (18,051 )

Interest income

   
25
   
11
   
10
   
1
 

Interest expense

    (6 )   (2,934 )   (1,773 )   (4,905 )

Other income (expense), net

    (19 )   5     8     (837 )
                   

Loss before provision for income taxes

    (33,855 )   (39,890 )   (31,289 )   (23,792 )

Provision for income taxes

    9     11     12     37  
                   

Net loss and comprehensive loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Net loss per share, basic and diluted

 
$

(3.60

)

$

(3.80

)

$

(3.00

)

$

(2.20

)
                   
                   

Weighted average common shares used to compute net loss per share, basic and diluted

   
9,416
   
10,512
   
10,438
   
10,836
 
                   
                   

Pro forma net loss per share, basic and diluted (unaudited)

        $ (0.31 )       $ (0.17 )
                       
                       

Weighted average common shares used to compute pro forma net loss per share, basic and diluted (unaudited)

          127,116           138,475  
                       
                       

   

See accompanying notes.

F-4


Table of Contents

AVINGER, INC.
STATEMENTS OF CONVERTIBLE PREFERRED STOCK AND STOCKHOLDERS' DEFICIT
(In thousands, except share data)

 
  Series A Convertible
Preferred Stock
  Series A-1 Convertible
Preferred Stock
  Series B Convertible
Preferred Stock
  Series C Convertible
Preferred Stock
  Series D Convertible
Preferred Stock
  Series E Convertible
Preferred Stock
   
   
   
   
   
 
 
  Common Stock    
   
   
 
 
  Additional
Paid-In
Capital
  Accumulated
Deficit
  Total
Stockholders'
Deficit
 
 
  Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount   Shares   Amount  

Balance at December 31, 2011

   
14,696,775
 
$

6,183
   
10,135,609
 
$

6,649
   
33,998,229
 
$

27,272
   
25,321,351
 
$

22,450
   
 
$

   
 
$

   
9,049,598
 
$

10
 
$

381
 
$

(40,804

)

$

(40,413

)

Issuance of common stock, net of repurchases

                                                    1,351,153           184         184  

Employee stock-based compensation

                                                            449         449  

Repurchase of Series C Convertible Preferred Stock and issuance costs

                            (56,179 )   (53 )                                    

Issuance of Series D Convertible Preferred Stock, net of issuance costs

                                    32,508,517     37,158                              

Net and comprehensive loss

                                                                (33,864 )   (33,864 )
                                                                       

Balance at December 31, 2012

    14,696,775     6,183     10,135,609     6,649     33,998,229     27,272     25,265,172     22,397     32,508,517     37,158             10,400,751     10     1,014     (74,668 )   (73,644 )

Issuance of common stock, net of repurchases

                                                    432,016     1     108         109  

Employee stock-based compensation

                                                            654         654  

Series D Convertible Preferred Stock issuance costs

                                        (5 )                              

Net and comprehensive loss

                                                                (39,901 )   (39,901 )
                                                                       

Balance at December 31, 2013

    14,696,775     6,183     10,135,609     6,649     33,998,229     27,272     25,265,172     22,397     32,508,517     37,153             10,832,767     11     1,776     (114,569 )   (112,782 )

Issuance of common stock (unaudited)

                                                    103,267         24         24  

Employee stock-based compensation (unaudited)

                                                            509         509  

Issuance of Series E Convertible Preferred Stock, net of issuance costs (unaudited)

                                            75,103,068     20,115                      

Issuance of common stock warrants (unaudited)

                                                            129         129  

Reclass of warrant liability to additional paid-in capital (unaudited)

                                                            34         34  

Net and comprehensive loss (unaudited)

                                                                (23,829 )   (23,829 )
                                                                       

Balance at September 30, 2014 (unaudited)

    14,696,775   $ 6,183     10,135,609   $ 6,649     33,998,229   $ 27,272     25,265,172   $ 22,397     32,508,517   $ 37,153     75,103,068   $ 20,115     10,936,034   $ 11   $ 2,472   $ (138,398 ) $ (135,915 )
                                                                       
                                                                       

See accompanying notes.

F-5


Table of Contents


AVINGER, INC.

STATEMENTS OF CASH FLOWS

(In thousands)

 
  Year Ended
December 31,
  Nine Months Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Cash flows from operating activities

                         

Net loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )

Adjustments to reconcile net loss to net cash used in operating activities:

                         

Depreciation and amortization

    772     1,501     1,081     1,132  

Amortization of debt issuance costs and debt discount

        133     82     167  

Stock-based compensation

    449     654     512     509  

Remeasurement of warrant and embedded derivatives

        1         (67 )

Noncash interest expense

        1,221     690     2,999  

Loss on extinguishment of convertible notes

                892  

Provision for doubtful accounts receivable

    36     45     62      

Provision for excess and obsolete inventories

    1     15     54     (47 )

Changes in operating assets and liabilities:

                         

Accounts receivable

    (182 )   (443 )   (916 )   (271 )

Inventories

    (3,851 )   (3,069 )   (3,547 )   1,298  

Prepaid expenses and other current assets

    (123 )   (230 )   (168 )   69  

Other assets

        139     124     (326 )

Accounts payable

    162     (275 )   133     104  

Accrued compensation

    271     281     261     279  

Accrued expenses and other current liabilities

    952     (523 )   (353 )   1,511  

Other liabilities

    143     (204 )   (153 )   (168 )
                   

Net cash used in operating activities

    (35,234 )   (40,655 )   (33,439 )   (15,748 )
                   

Cash flows from investing activities

   
 
   
 
   
 
   
 
 

Purchase of property and equipment

    (288 )   (496 )   (811 )   (37 )
                   

Net cash used in investing activities

    (288 )   (496 )   (811 )   (37 )
                   

Cash flows from financing activities

   
 
   
 
   
 
   
 
 

Principal paydown of capital lease obligations

    (9 )   (18 )   (13 )   (14 )

Proceeds from borrowings, net of issuance costs

        19,281     19,281      

Proceeds from convertible notes, net of issuance costs

        13,399         4,700  

Proceeds from the issuance of convertible preferred stock, net of issuance costs

    37,106     (5 )   (5 )   11,074  

Proceeds from the issuance of common stock

    206     98     64     17  
                   

Net cash provided by financing activities

    37,303     32,755     19,327     15,777  
                   

Net change in cash and cash equivalents

    1,781     (8,396 )   (14,923 )   (8 )

Cash and cash equivalents, beginning of period

    18,836     20,617     20,617     12,221  
                   

Cash and cash equivalents, end of period

  $ 20,617   $ 12,221   $ 5,694   $ 12,213  
                   
                   

Supplemental disclosure of cash flow information

   
 
   
 
   
 
   
 
 

Cash paid for interest

  $ 6   $ 1,587   $ 1,001   $ 1,743  
                   
                   

Noncash investing and financing activities:

                         

Conversion of convertible notes and accrued interest into Series E convertible preferred stock

  $   $   $   $ 7,794  
                   
                   

Landlord paid tenant improvements

    369              
                   
                   

Accounts payable for purchases of property and equipment

    200     20          
                   
                   

Capital lease obligations for property and equipment

    25     23     23      
                   
                   

Reclassification of stock options early exercised to liability

    39              
                   
                   

Vesting of common stock subject to repurchase

    21     10     7     7  
                   
                   

Embedded derivatives associated with convertible notes

        179          
                   
                   

Issuance of common stock warrants

        1         129  
                   
                   

Reclass of warrant liability to additional paid-in capital

                34  
                   
                   

Transfer between inventories and property and equipment

    1,341     1,829     2,371     (848 )
                   
                   

   

See accompanying notes.

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AVINGER, INC.

Notes to Financial Statements

1. Organization

Organization, Nature of Business

       Avinger, Inc. (the "Company"), a Delaware corporation, was founded in March 2007 by cardiologist and medical device entrepreneur Dr. John B. Simpson. The Company designs, manufactures and sells image-guided, catheter-based systems that are used by physicians to treat patients with peripheral arterial disease ("PAD"). Patients with PAD have a build-up of plaque in the arteries that supply blood to the arms and legs. The Company manufactures and sells a suite of products in the United States and in select European markets. The Company has developed its lumivascular platform, which integrates OCT visualization with interventional catheters and is the industry's only system that provides real-time intravascular imaging during the treatment portion of PAD procedures. The Company's lumivascular platform consists of a capital component, Lightbox, as well as a variety of disposable catheter products. The Company's current products include its non-imaging catheters, Wildcat and Kittycat, as well as its lumivascular platform products, Ocelot, Ocelot PIXL and Ocelot MVRX, all of which are designed to allow physicians to penetrate a total blockage in an artery, known as a chronic total occlusion ("CTO"). The Company is also developing Pantheris, its image-guided atherectomy device, designed to allow physicians to remove arterial plaque in PAD patients with precision. Pantheris is currently undergoing a U.S. clinical trial intended to support a 510(k) submission to the U.S. Food and Drug Administration ("FDA") in the second half of 2015. The Company is located in Redwood City, California.

Liquidity Matters

       The accompanying financial statements have been prepared assuming that the Company will continue as a going concern, which contemplates the realization of assets and the satisfaction of liabilities in the normal course of business. In the course of its activities, the Company has incurred losses and negative cash flows from operations since its inception. As of September 30, 2014, the Company had an accumulated deficit of $138,398,000 (unaudited). The Company expects to incur losses for the foreseeable future. The Company believes that its cash and cash equivalents of $12,213,000 at September 30, 2014 (unaudited) and expected revenues will be sufficient to allow the Company to fund its current operations until at least December 31, 2014. The Company will seek additional sources of funding in the form of debt financing or equity issuances. However, there can be no assurance that the Company will be successful in acquiring additional funding at levels sufficient to fund its operations. If the Company is unable to raise additional capital in sufficient amounts or on terms acceptable to it, the Company may have to significantly reduce its operations or delay, scale back or discontinue the development of one or more of its products. The factors discussed above, taken together with the Company's limited cash, raise substantial doubt about the Company's ability to continue as a going concern. The financial statements do not include any adjustments that might result from the outcome of this uncertainty. The Company's ultimate success will largely depend on its continued development of innovative medical technologies, its ability to successfully commercialize its products and its ability to raise significant additional funding.

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Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies

Basis of Presentation

       The financial statements have been prepared in accordance with United States generally accepted accounting principles ("U.S. GAAP") and pursuant to the rules and regulations of the United States Securities and Exchange Commission ("SEC").

Use of Estimates

       The preparation of financial statements in conformity with U.S. GAAP requires management to make estimates and assumptions that affect the amounts and disclosures reported in the financial statements. Management uses significant judgment when making estimates related to its common stock valuation and related stock-based compensation, the valuation of the common stock warrants, the valuation of compound embedded derivatives, provisions for doubtful accounts receivable and excess and obsolete inventories, clinical trial accruals, and its reserves for sales returns and warranty costs. Management bases its estimates on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, the results of which form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. Actual results could differ from those estimates.

Unaudited Interim Financial Statements

       The accompanying balance sheet as of September 30, 2014, the statements of operations and comprehensive loss and cash flows for the nine months ended September 30, 2013 and 2014, and the statements of convertible preferred stock and stockholders' deficit for the nine months ended September 30, 2014, are unaudited. The financial data and other information disclosed in these notes to the financial statements related to September 30, 2014, and the nine months ended September 30, 2013 and 2014, are also unaudited. The unaudited interim financial statements have been prepared on the same basis as the annual financial statements and, in the opinion of management, reflect all adjustments, which include only normal recurring adjustments, necessary to state fairly the Company's financial position as of September 30, 2014, and the results of its operations and cash flows for the nine months ended September 30, 2013 and 2014. The results for the nine months ended September 30, 2014, are not necessarily indicative of results to be expected for the year ending December 31, 2014, or for any other interim period or for any future year.

Unaudited Pro Forma Information

       On November 3, 2014, the Company's Board of Directors authorized the management of the Company to file a registration statement with the SEC for the Company to sell shares of its common stock to the public. Pro forma basic and diluted net loss per share and pro forma convertible preferred stock and stockholders' equity have been computed to give effect to the assumed conversion of the 116,604,302 and 191,707,370 (unaudited) shares of convertible preferred stock outstanding as of December 31, 2013 and September 30, 2014, into 116,604,302 and 224,414,391 (unaudited) shares of common stock in connection with the Company's proposed initial public offering ("IPO"), respectively. The pro forma information does not include the shares expected to be sold and related proceeds to be received from the IPO. For purposes of the pro forma basic and diluted net loss per

F-8


Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

share, all shares of convertible preferred stock have been treated as though they had been converted to common stock in all periods in which such shares were outstanding.

Fair Value of Financial Instruments

       The Company has evaluated the estimated fair value of its financial instruments as of December 31, 2012 and 2013, and September 30, 2014. Financial instruments consist of cash and cash equivalents, accounts receivable and payable, and other current liabilities, borrowings, convertible notes, warrant liabilities and embedded derivatives. The carrying amounts of cash and cash equivalents, accounts receivable and payable, and other current liabilities approximate their respective fair values because of the short-term nature of those instruments. Based upon the borrowing terms and conditions currently available to the Company, the carrying values of the borrowings and convertible notes approximate fair value. Fair value accounting is applied to the warrant liabilities and embedded derivatives that are recorded at fair value in the financial statements.

Cash and Cash Equivalents

       The Company considers all highly liquid investments with an original maturity of three months or less at the time of purchase to be cash equivalents. Cash equivalents are considered available-for-sale marketable securities and are recorded at fair value, based on quoted market prices. As of December 31, 2012 and 2013, and September 30, 2014, the Company's cash equivalents are entirely comprised of investments in money market funds. Any related unrealized gains and losses are recorded in other comprehensive income (loss) and included as a separate component of stockholders' deficit. There were no unrealized gains and losses as of December 31, 2012 and 2013, and September 30, 2014. Any realized gains and losses and interest and dividends on available-for-sale securities are included in interest income or expense and computed using the specific identification cost method.

Restricted Cash

       At December 31, 2012 and 2013, and September 30, 2014 a deposit of $255,000 was restricted from withdrawal. The restricted cash secures obligations of the Company associated with its corporate credit card. The restricted deposit account is included in prepaid expenses and other current assets.

Concentration of Credit Risk, and Other Risks and Uncertainties

       Financial instruments that potentially subject the Company to credit risk consist of cash and cash equivalents and accounts receivable to the extent of the amounts recorded on the balance sheets.

       The Company's policy is to invest in cash and cash equivalents, consisting of money market funds. These financial instruments are held in Company accounts at one financial institution. The counterparties to the agreements relating to the Company's investments consist of financial institutions of high credit standing.

       The Company provides for uncollectible amounts when specific credit problems arise. Management's estimates for uncollectible amounts have been adequate, and management believes that

F-9


Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

all significant credit risks have been identified at December 31, 2012 and 2013, and September 30, 2014.

       The Company's accounts receivable are due from a variety of health care organizations in the United States and select European markets. At December 31, 2012 and 2013, and September 30, 2014, there were none, three and two (unaudited), respectively, customers that represented 10% or more of the Company's accounts receivable. For the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, there were no customers that represented 10% or more of revenues. Disruption of sales orders or a deterioration of financial condition of its customers would have a negative impact on the Company's financial position and results of operations.

       The Company commenced in-house manufacture of certain commercial products in December 2012, including the production of the Ocelot family of catheters. Certain of the Company's product components and sub-assemblies continue to be manufactured by sole suppliers. Disruption in component or sub-assembly supply from these manufacturers or from in-house production would have a negative impact on the Company's financial position and results of operations.

       The Company is subject to certain risks, including that its devices may not be approved or cleared for marketing by governmental authorities or be successfully marketed. There can be no assurance that the Company's products will continue to be accepted in the marketplace, nor can there be any assurance that any future devices can be developed or manufactured at an acceptable cost and with appropriate performance characteristics. The Company is also subject to risks common to companies in the medical device industry, including, but not limited to, new technological innovations, dependence upon third-party payors to provide adequate coverage and reimbursement, dependence on key personnel and suppliers, protection of proprietary technology, product liability claims, and compliance with government regulations.

       Existing or future devices developed by the Company may require approvals or clearances from the FDA or international regulatory agencies. In addition, in order to continue the Company's operations, compliance with various federal and state laws is required. If the Company were denied or delayed in receiving such approvals or clearances, it may be necessary to adjust operations to align with the Company's currently approved portfolio. If clearance for the products in the current portfolio were withdrawn by the FDA, this may have a material adverse impact on the Company.

Accounts Receivable

       Trade accounts receivable are recorded at the invoiced amount and do not bear interest. The allowance for doubtful accounts is the Company's best estimate of the amount of probable credit losses in the Company's existing accounts receivable. The Company determines the allowance for doubtful accounts based upon an aging of accounts receivable, historical experience, and management judgment. Accounts receivable balances are reviewed individually for collectability. To date, the Company has not experienced significant credit-related losses.

F-10


Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Inventories

       Inventories are valued at the lower of cost or market. Cost is determined using the first-in, first-out method for all inventories. The Company's policy is to write down inventory that has become obsolete, inventory that has a cost basis in excess of its expected net realizable value, and inventory in excess of expected requirements. The estimate of excess quantities is subjective and primarily dependent on the estimates of future demand for a particular product. If the estimate of future demand is too high, the Company may have to increase the reserve for excess inventory for that product and record a charge to the cost of revenues. Inventory used in clinical trials is expensed at the time of production and recorded as research and development expense. Prior to receiving FDA approval, costs related to purchases of materials and the manufacturing of the product are recorded as research and development expense. All direct manufacturing costs incurred after FDA approval are capitalized into inventory.

Property and equipment

       Property and equipment are recorded at cost. Repairs and maintenance costs are expensed as incurred. Depreciation and amortization are calculated using the straight-line method over the estimated useful lives of the assets of three to five years. Depreciation expense includes the amortization of assets acquired under capital leases and equipment located at customer sites. Equipment held by customers comprises the Lightbox located at customer sites under a lease agreement and is recorded at cost. Upon execution of a lease agreement, the related equipment is reclassified from inventory to the property and equipment account. Depreciation expense for equipment held by customers is recorded as a component of cost of revenues. Leasehold improvements and assets recorded under capital leases are amortized using the straight-line method over the shorter of the lease term or estimated useful economic life of the asset.

Deferred Initial Public Offering Costs

       Deferred offering costs, which primarily consist of direct incremental legal and accounting fees relating to the IPO, are capitalized. The deferred offering costs will be offset against IPO proceeds upon the consummation of the offering. In the event the offering is terminated, deferred offering costs will be expensed. As of September 30, 2014, $337,000 (unaudited) of deferred offering costs were capitalized in other assets on the balance sheet. No deferred offering costs were capitalized as of December 31, 2013.

Impairment of Long-Lived Assets

       The Company reviews long-lived assets, including property and equipment, for impairment whenever events or changes in business circumstances indicate that the carrying amount of the assets may not be fully recoverable. If indicators of impairment exist, an impairment loss would be recognized when estimated undiscounted future cash flows expected to result from the use of the asset and its eventual disposition are less than its carrying amount. Impairment, if any, is measured as the amount by which the carrying amount of the long-lived asset exceeds its fair value. The Company has not recorded any impairment of long-lived assets since inception.

F-11


Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Convertible Preferred Stock

       The Company records its convertible preferred stock at fair value on the dates of issuance, net of issuance costs. A redemption event will only occur upon the liquidation or winding up of the Company, a greater than 50% change in control, or sale of substantially all of the assets of the Company. In the event of a change of control of the Company, proceeds received from the sale of such shares will be distributed in accordance with the liquidation preferences set forth in the Company's amended and restated certificate of incorporation unless the holders of convertible preferred stock otherwise agree or have converted their shares into shares of common stock. Therefore, convertible preferred stock is classified outside of stockholders' deficit on the balance sheets as events triggering the liquidation preferences are not solely within the Company's control. The Company has elected not to adjust the carrying values of the convertible preferred stock to the redemption value of such shares since it is uncertain whether or when a redemption event will occur. Subsequent adjustments to increase the carrying values to the redemption values will be made when it becomes probable that such redemption will occur.

Warrant Liability and Embedded Derivative Instruments

       The Company accounts for its warrants for shares of common stock in accordance with the accounting guidance for derivatives. The accounting guidance provides a two-step model to be applied in determining whether a financial instrument is indexed to an entity's own stock and, therefore, qualifies for a scope exception. The two-step model requires a contract for a financial instrument to be both (1) indexed to the entity's own stock and (2) classified in the stockholders' deficit section of the balance sheet. If a financial instrument qualifies for a scope exception, it would not be considered a derivative financial instrument.

       As the price per share of the common stock warrants issued with the convertible notes was not fixed until the issuance of the Series E Convertible Preferred Stock in September 2014, these warrants were initially classified as a derivative liability. As a derivative liability, the warrants were initially recorded at fair value and were subject to remeasurement at each balance sheet date until September 2014. Any change in fair value as a result of a remeasurement was recognized as a component of other income (expense), net in the statements of operations and comprehensive loss. The Company re-evaluated the terms of the common stock warrants issued with the convertible notes after the issuance of the Series E Convertible Preferred Stock in September 2014 and determined that they then met the first criterion of the two-step model. Accordingly, the associated current fair value of the warrant liability was reclassified to additional paid-in capital in the stockholders' deficit section of the balance sheet at that time, thus satisfying the second criterion of the two-step model.

       The Company records a compound derivative asset or liability related to redemption features embedded within the outstanding convertible notes. The convertible notes issued in 2013 and 2014 included features which were determined to be embedded derivatives requiring bifurcation and separate accounting. The embedded derivatives were initially recorded at fair value and are subject to remeasurement as of each balance sheet date. Any change in fair value is recognized as a component of other income (expense), net in the statements of operations and comprehensive loss.

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Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Revenue Recognition

       The Company's revenues are derived from (1) sale of its Lightbox (2) sale of disposables, which consist of catheters and accessories, and (3) sale of customer service contracts. The Company recognizes revenue in accordance with Accounting Standards Codification ("ASC") 605-10, Revenue Recognition, when persuasive evidence of an arrangement exists, the fee is fixed or determinable, collection of the fee is probable and delivery has occurred. For all sales, the Company uses either a signed agreement or a binding purchase order as evidence of an arrangement.

       The Company's revenue recognition policies generally result in revenue recognition at the following points:

    1.
    Lighbox sales: The Company sells its products directly to hospitals and medical centers. Provided all other criteria for revenue recognition have been met, the Company recognizes revenue for Lightbox sales directly to end customers when delivery and acceptance occurs, which is defined as receipt by the Company of an executed form by the customer acknowledging that the training and installation process is complete.

    2.
    Sales of disposables: Disposable revenues consist of sales of the Company's catheters and accessories and are recognized when the product has shipped, risk of loss and title has passed to the customer and collectability is reasonably assured.

    3.
    Service revenue: Service revenue is recognized ratably over the term of the service period. To date service revenue has been insignificant.

       The Company offers its customers the ability to purchase or lease its Lightbox. The Company recovers the cost of providing the leased Lightbox through a premium in the amount charged for its disposable products in comparison to a standalone purchase. When a Lightbox is placed under a lease agreement, the Company retains title to the equipment and it remains capitalized on its balance sheet under property and equipment. Depreciation expense on these leased Lightboxes is recorded to cost of revenues on a straight-line basis. The costs to maintain these leased Lightboxes are charged to cost of revenues as incurred.

       The Company evaluates its lease agreements and accounts for these contracts under the guidance in ASC 840, Leases and ASC 605-25, Revenue Recognition—Multiple Element Arrangements . The guidance requires arrangement consideration to be allocated between a lease deliverable and a non-lease deliverable based upon the relative selling-price of the deliverables, using a specific hierarchy. The hierarchy is as follows: vendor-specific objective evidence of fair value of the respective elements, third-party evidence of selling price, or best estimate of selling price ("BESP"). The Company allocates arrangement consideration using BESP.

       The Company assessed whether the embedded lease is an operating lease or sales-type lease. Based on the Company's assessment of the guidance and given that any payments under the lease agreements are dependent upon contingent future sales, it was determined that collectability of the

F-13


Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

minimum lease payments is not reasonably predictable. Accordingly, the Company concluded the embedded lease did not meet the criteria of a sales-type lease and accounts for it as an operating lease. The Company recognizes revenue allocated to the lease as the contingent disposable product purchases are delivered and are included in revenues within the statement of operations and comprehensive loss.

       The Company estimates reductions in revenue for potential returns of products by customers. In making such estimates, management analyzes historical returns, current economic trends and changes in customer demand and acceptance of its products. The Company expenses shipping and handling costs as incurred and includes them in the cost of revenues. In those cases where the Company bills shipping and handling costs to customers, it will classify the amounts billed as a component of revenue.

Cost of Revenues

       Cost of revenues consists primarily of manufacturing overhead costs, material costs and direct labor. A significant portion of the Company's cost of revenues currently consists of manufacturing overhead costs. These overhead costs include the cost of quality assurance, material procurement, inventory control, facilities, equipment and operations supervision and management. Cost of revenues also includes depreciation expense for the Lightboxes under lease agreements and certain direct costs such as shipping costs.

Product Warranty Costs

       The Company typically offers a one-year warranty for parts and labor on its products commencing upon the transfer of title and risk of loss to the customer. The Company accrues for the estimated cost of product warranties upon invoicing its customers, based on historical results. The warranty obligation is affected by product failure rates, material usage and service delivery costs incurred in correcting a product failure. Should actual product failure rates, material usage or service delivery costs differ from these estimates, revisions to the estimated warranty liability would be required. Periodically the Company assesses the adequacy of its recorded warranty liabilities and adjusts the amounts as necessary. Warranty provisions and claims are summarized as follows (in thousands):

 
  Year Ended
December 31,
  Nine Months
Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Balance beginning of period

  $   $ 11   $ 11   $ 105  

Warranty provision

    11     230     137     97  

Usage

        (136 )   (81 )   (55 )
                   

Balance end of period

  $ 11   $ 105   $ 67   $ 147  
                   
                   

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Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Research and Development

       The Company expenses research and development costs as incurred. Research and development expenses include personnel and personnel-related costs, costs associated with pre-clinical and clinical development activities, and costs for prototype products that are manufactured prior to market approval for that prototype product; internal and external costs associated with the Company's regulatory compliance and quality assurance functions, including the costs of outside consultants and contractors that assist in the process of submitting and maintaining regulatory filings; and overhead costs, including allocated facility and related expenses.

Clinical Trials

       The Company accrues and expenses costs for its clinical trial activities performed by third parties, including clinical research organizations and other service providers, based upon estimates of the work completed over the life of the individual study in accordance with associated agreements. The Company determines these estimates through discussion with internal personnel and outside service providers as to progress or stage of completion of trials or services pursuant to contracts with clinical research organizations and other service providers and the agreed-upon fee to be paid for such services.

Advertising Costs

       The Company expenses advertising costs as incurred. Advertising costs include design and production costs, including website development, physician and patient testimonial videos, written media campaigns, and other items. Advertising costs of approximately $732,000 and $321,000 were expensed during the years ended December 31, 2012 and 2013, respectively, and $204,000 (unaudited) and $558,000 (unaudited) during the nine months ended September 30, 2013 and 2014, respectively.

Common Stock Valuation and Stock-Based Compensation

       Stock-based awards issued to employees are recorded at fair value as of the grant date using the Black-Scholes option-pricing model and recognized as expense on a straight-line basis over the vesting period of the award. Because noncash stock-based compensation expense is based on awards ultimately expected to vest, it is reduced by an estimate for future forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, in subsequent periods if actual forfeitures differ from estimates.

       The fair value of the Company's common stock is determined by its Board of Directors with assistance from management and third-party valuation specialists. Management's approach to estimate the fair value of the Company's common stock is consistent with the methods outlined in the American Institute of Certified Public Accountants Practice Aid, Valuation of Privately-Held-Company Equity Securities Issued as Compensation . Management considers several factors to estimate enterprise value, including significant milestones that would generally contribute to increases in the value of the Company's common stock.

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Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

Foreign Currency

       The Company records net gains and losses resulting from foreign exchange transactions as a component of foreign currency exchange losses in other income (expense), net. During the year ended December 31, 2012 the Company recorded $8,000 of foreign currency exchange net losses and $11,000 of net gains during the year ended December 31, 2013. During the nine months ended September 30, 2013 and 2014, the Company recorded $8,000 (unaudited) of foreign currency exchange net gains and $11,000 (unaudited) of foreign currency exchange net losses, respectively.

Income Taxes

       The Company utilizes the liability method of accounting for income taxes. Under this method, deferred tax assets and liabilities are determined based on differences between financial reporting and tax reporting bases of assets and liabilities and are measured using enacted tax rates and laws that are expected to be in effect when the differences are expected to reverse. Valuation allowances are established when necessary to reduce deferred tax assets to the amounts expected to be realized. The Company's policy is to record interest and penalties on uncertain tax positions as income tax expense when they occur. During the years ended December 31, 2012 and 2013, the Company did not recognize accrued interest or penalties related to unrecognized tax benefits.

Net Loss and Unaudited Pro Forma Net Loss per Share

       Basic net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock outstanding during the period, without consideration for potential dilutive common shares. Diluted net loss per share is computed by dividing the net loss by the weighted average number of shares of common stock and dilutive potential shares of common stock outstanding during the period. Common stock shares subject to repurchase are excluded from the calculations as the continued vesting of such shares is contingent upon the holders' continued service to the Company. For the computation of net loss per share, common stock shares subject to repurchase of 202,917, 56,250, 63,750 (unaudited) and 33,750 (unaudited) were excluded from the calculations as of December 31, 2012 and 2013, and as of September 30, 2013 and 2014, respectively. Since the Company was in a loss position for all periods presented, basic net loss per share is the same as diluted net loss per share as the inclusion of all potential dilutive common shares would have been anti-dilutive.

       The Company allocates no loss to participating securities because they have no contractual obligation to share in the losses of the Company. The shares of the Company's convertible preferred stock participate in any dividends declared by the Company and are therefore considered to be participating securities.

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Table of Contents


AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

       Net loss per share was determined as follows (in thousands, except per share data):

 
  Year Ended December 31,   Nine Months Ended September 30,  
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Net loss

  $ (33,864 ) $ (39,901 ) $ (31,301 ) $ (23,829 )
                   
                   

Weighted average common stock outstanding

    9,416     10,512     10,438     10,836  
                   
                   

Net loss per share, basic and diluted

  $ (3.60 ) $ (3.80 ) $ (3.00 ) $ (2.20 )
                   
                   

       In addition to the outstanding convertible notes (Note 8), the following potentially dilutive securities outstanding have been excluded from the computations of diluted weighted average shares outstanding because such securities have an antidilutive impact due to losses reported, in common stock equivalent shares:

 
  December 31,   September 30,  
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Convertible preferred stock outstanding

    116,604,302     116,604,302     116,604,302     191,707,370  

Common stock options

    14,096,958     17,949,721     18,853,245     14,257,803  

Common stock warrants

        2,322,776         47,297,276  
                   

    130,701,260     136,876,799     135,457,547     253,262,449  
                   
                   

       The unaudited pro forma basic and diluted net loss per share for the year ended December 31, 2013, and the nine months ended September 30, 2014, have been computed using the weighted average number of shares of common stock outstanding after giving pro forma effect to the assumed conversion of all shares of convertible preferred stock upon an IPO by treating all shares of convertible preferred stock as if they had been converted to common stock in all periods in which such shares were actually outstanding. In addition, the weighted average common shares used to compute pro forma net loss per share for the nine months ended September 30, 2014 reflect 32,707,021 additional shares due to an anti-dilution adjustment. As the issuance price of the Series E Convertible Preferred Stock was lower than the conversion price of previously issued series of Convertible Preferred Stock, the conversion prices of the affected series of Convertible Preferred Stock was reduced which will result in the issuance of an increased number of shares of common stock upon conversion of such series of Convertible Preferred Stock. For the purposes of the weighted average common shares computation the 32,707,021 shares were assumed to be outstanding contemporaneous with the close of the Series E Convertible Preferred Stock on September 2, 2014. The following table sets forth the computation of the Company's unaudited pro forma basic and

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AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

diluted net loss per share during the year ended December 31, 2013, and nine months ended September 30, 2014 (in thousands, except per share data):

 
  Year Ended
December 31, 2013
  Nine Months Ended
September 30, 2014
 
 
  (unaudited)
  (unaudited)
 

Net loss and pro forma net loss

  $ (39,901 ) $ (23,829 )
           
           

Weighted average common stock outstanding

    10,512     10,836  

Pro forma weighted average convertible preferred stock outstanding

    116,604     127,639  
           

Weighted average common shares used to compute pro forma net loss per share, basic and diluted

    127,116     138,475  
           
           

Pro forma net loss per share, basic and diluted

  $ (0.31 ) $ (0.17 )
           
           

Comprehensive Loss

       For the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, there was no difference between comprehensive loss and the Company's net loss.

Segment and Geographical Information

       The Company operates in one segment. Primarily all of the Company's long-lived assets are based in the United States. Long-lived assets are comprised of property and equipment. For the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, 98%, 98%, 98% (unaudited) and 99% (unaudited), respectively, of the Company's revenues, were in the United States, based on the shipping location of the external customer.

Recent Accounting Pronouncements

       In May 2014, the Financial Accounting Standards Board ("FASB") issued Accounting Standards Update ("ASU") No. 2014-09, Revenue from Contracts with Customers: Topic 606 (ASU 2014-09), to supersede nearly all existing revenue recognition guidance under U.S. GAAP. The core principle of ASU 2014-09 is to recognize revenues when promised goods or services are transferred to customers in an amount that reflects the consideration that is expected to be received for those goods or services. ASU 2014-09 defines a five step process to achieve this core principle and, in doing so, it is possible more judgment and estimates may be required within the revenue recognition process than required under existing U.S. GAAP, including identifying performance obligations in the contract, estimating the amount of variable consideration to include in the transaction price and allocating the transaction price to each separate performance obligation. ASU 2014-09 is effective for the Company in the fiscal year ended December 31, 2017 using either of two methods: (i) retrospective to each prior reporting period presented with the option to elect certain practical expedients as defined within ASU 2014-09; or (ii) retrospective with the cumulative effect of initially applying ASU 2014-09

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AVINGER, INC.

Notes to Financial Statements (Continued)

2. Summary of Significant Accounting Policies (Continued)

recognized at the date of initial application and providing certain additional disclosures as defined per ASU 2014-09. The Company is currently evaluating the impact of the pending adoption of ASU 2014-09 on its financial statements.

       In August 2014, the FASB issued ASU No. 2014-15—Disclosure of Uncertainties about an Entity's Ability to Continue as a Going Concern under ASC Subtopic 205-40, Presentation of Financial Statements—Going Concern. ASU No. 2014-15 provides guidance about management's responsibility to evaluate whether there is substantial doubt about an entity's ability to continue as a going concern and to provide related footnote disclosures. Management's evaluation should be based on relevant conditions and events that are known or reasonably knowable at the date that the financial statements are issued (or at the date that the financial statements are available to be issued when applicable). Substantial doubt about an entity's ability to continue as a going concern exists when relevant conditions and events, considered in the aggregate, indicate that it is probable that the entity will be unable to meet its obligations as they become due within one year after the date that the financial statements are issued (or available to be issued). ASU No. 2014-15 is effective for the Company in the fiscal year ended December 31, 2016 and early adoption is permitted. The Company is currently evaluating the impact of the pending adoption of ASU 2014-15 on its financial statements.

3. Fair Value Measurements

       The Company measures certain financial assets and liabilities at fair value on a recurring basis, including cash equivalents, common stock warrants and the derivative instruments related to redemption features embedded within its outstanding convertible notes. Fair value is an exit price, representing the amount that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants. As such, fair value is a market-based measurement that should be determined based on assumptions that market participants would use in pricing an asset or a liability. A three-tier fair value hierarchy is established as a basis for considering such assumptions and for inputs used in the valuation methodologies in measuring fair value:

       Level 1—Quoted prices in active markets for identical assets or liabilities.

       Level 2—Inputs other than quoted prices included within Level 1 that are observable, either directly or indirectly, such as quoted prices for similar assets or liabilities; quoted prices in markets that are not active; or other inputs that are observable or can be corroborated by observable market data for substantially the full term of the assets or liabilities.

       Level 3—Unobservable inputs that are supported by little or no market activity and that are significant to the fair value of the assets or liabilities.

       As of December 31, 2012 and 2013, and September 30, 2014, cash equivalents and restricted cash were all categorized as Level 1 and consisted of money market funds. The Company issued convertible notes in 2013 and 2014 (Note 8). In connection with the convertible notes, the Company agreed to issue warrants to purchase shares of its common stock. As the price per share of the common stock warrants was not fixed until the issuance of the Series E Convertible Preferred Stock in

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AVINGER, INC.

Notes to Financial Statements (Continued)

3. Fair Value Measurements (Continued)

September 2014, they were classified as a derivative liability and were subject to remeasurement at each balance sheet date until September 2014. The convertible notes also contained redemption features which were determined to be a compound embedded derivative requiring fair value accounting. The common stock warrant liability and embedded derivatives in the convertible notes were categorized as Level 3. When a determination is made to classify a financial instrument within Level 3, the determination is based upon the significance of the unobservable inputs to the overall fair value measurement. However, Level 3 financial instruments typically include, in addition to the unobservable inputs, observable inputs (that is, components that are actively quoted and can be validated to external sources). Any change in fair value is recognized as a component of other income (expense), net, on the statements of operations and comprehensive loss.

       There were no transfers in or out of Level 1 and Level 2 fair value measurements during the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2014.

Common Stock Warrant Liability

       The following table sets forth a summary of the changes in the estimated fair value of the Company's common stock warrant liability, which represents a financial instrument classified as Level 3. Accordingly, the expense in the table below includes changes in fair value due in part to observable factors that are part of the Level 3 methodology (in thousands):

 
  Year Ended
December 31,
2013
  Nine Months Ended
September 30,
2014
 
 
   
  (unaudited)
 

Fair value—beginning of period

  $   $ (6 )

Issuance of warrants

    (1 )    

Change in fair value recorded in other income (expense), net

    (5 )   (28 )

Reclass of warrant liability to additional paid-in capital

        34  
           

Fair value—end of period

  $ (6 ) $  
           
           

       The fair value of the common stock warrants was determined by using an option pricing model to allocate the total enterprise value to the various securities within the Company's capital structure. The model's inputs reflect assumptions that market participants would use in pricing the instrument in a current period transaction and included:

 
  Year Ended
December 31,
2013
  Nine Months Ended
September 30,
2014
 
 
   
  (unaudited)
 

Time to liquidity (years)

    2.0     0.7  

Expected volatility

    55 %   45 %

Discounted cash flow rate

    25 %   23 %

Risk-free interest rate

    0.38 %   0.07 %

Marketability discount rate

    23 %   17 %

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AVINGER, INC.

Notes to Financial Statements (Continued)

3. Fair Value Measurements (Continued)

       The time to liquidity input was based on the Company's estimate of when potential liquidity could be provided to stockholders. The volatility factor was based on the average historic price volatility for publicly-traded industry peers. The discounted cash flow rate takes into consideration a company specific risk premium, market risk premium and an assumed risk free rate of return. The risk-free interest rate was based on the yields of U.S. Treasury securities with maturities similar to the time to liquidity. The marketability discount is used to reflect that private company securities are generally less liquid than the securities of a public company. These assumptions are inherently subjective and involve significant management judgment. Generally, increases (decreases) in the fair value of the underlying common stock would result in a directionally similar impact to the fair value measurement. As of December 31, 2013, the common stock warrant liability is included in other long-term liabilities on the balance sheet. As the price per share of the common stock warrants was not fixed until the issuance of the Series E Convertible Preferred Stock in September 2014, they were classified as a derivative liability and were subject to remeasurement at each balance sheet date. Contemporaneous with the Series E Convertible Preferred Stock issuance, the Company determined that these common stock warrants met the requirements for equity classification and the fair value of the common stock warrant liability was reclassified to additional paid-in capital.

Embedded Derivatives in Convertible Notes

       The following table sets forth a summary of the changes in the estimated fair value of the Company's compound embedded derivative associated with its convertible notes, which represent a financial instrument classified as Level 3. Accordingly, the income (expense) in the table below includes changes in fair value due in part to observable factors that are part of the Level 3 methodology (in thousands):

 
  Year Ended
December 31,
2013
  Nine Months Ended
September 30,
2014
 
 
   
  (unaudited)
 

Fair value—beginning of period

  $   $ (175 )

Issuance of convertible notes

    (179 )    

Change in fair value recorded in other income (expense), net

    4     95  
           

Fair value—end of period

  $ (175 ) $ (80 )
           
           

       The Company determined the value of the compound derivative utilizing a Monte Carlo Simulation model. The inputs used to determine the estimated fair value of the derivative instrument include the probability of an underlying event triggering the embedded derivative occurring and its timing. The fair value measurement is based upon significant inputs not observable in the market. The inputs included the probability that the Company would need to raise additional equity in 2014, as well as various financing and exit events in 2015. These assumptions are inherently subjective and

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AVINGER, INC.

Notes to Financial Statements (Continued)

3. Fair Value Measurements (Continued)

involve significant management judgment. The following table summarizes these various assumptions as of the issuance date and as of December 31, 2013 and September 30, 2014:

 
  October / November
2013 Issuance
  December 31,
2013
  September 30,
2014
 
 
   
   
  (unaudited)
 

Equity financing in 2014

    100.0 %   100.0 %   100.0 %

Equity financing in 2015

    53.2 %   58.2 %   47.4 %

Liquidation

    1.4 %   1.5 %   1.0 %

Initial public offering

    24.2 %   16.7 %   32.1 %

Change of control

    22.6 %   25.1 %   20.5 %

       The compound embedded derivative liability is included in other long-term liabilities as of December 31, 2013 and as of September 30, 2014, on the balance sheets.

4. Inventories

       Inventories consisted of the following (in thousands):

 
  December 31    
 
 
  September 30,
2014
 
 
  2012   2013  
 
   
   
  (unaudited)
 

Raw materials

  $ 1,259   $ 2,563   $ 2,413  

Work-in-process

    453     181     39  

Finished products

    1,805     1,997     1,886  
               

Total inventories

  $ 3,517   $ 4,741   $ 4,338  
               
               

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AVINGER, INC.

Notes to Financial Statements (Continued)

5. Property and Equipment, Net

       Property and equipment, net, consisted of the following (in thousands):

 
  December 31    
 
 
  September 30,
2014
 
 
  2012   2013  
 
   
   
  (unaudited)
 

Computer software

  $ 254   $ 314   $ 320  

Computer equipment

    620     775     807  

Machinery and equipment

    2,493     2,840     2,909  

Furniture and fixtures

    430     535     542  

Leasehold improvements

    622     653     655  

Equipment held by customers

    1,169     2,534     1,264  
               

    5,588     7,651     6,497  

Less: Accumulated depreciation and amortization

    (1,597 )   (2,813 )   (3,582 )

Add: Construction-in-progress

        20      
               

  $ 3,991   $ 4,858   $ 2,915  
               
               

       Depreciation expense for the years ended December 31, 2012 and 2013, was $772,000 and $1,501,000, respectively, and $1,081,000 (unaudited) and $1,132,000 (unaudited) for the nine months ended September 30, 2013 and 2014, respectively. Amortization of capital leased assets included in depreciation for the years ended December 31, 2012 and 2013, was $13,000 and $16,000, respectively, and $11,000 (unaudited) and $13,000 (unaudited) for the nine months ended September 30, 2013 and 2014, respectively. Property and equipment includes certain equipment that is leased to customers and located at customer premises. The Company retains the ownership of the leased equipment and has the right to remove the equipment if it is not being utilized according to expectations. Depreciation expense relating to the leased equipment held by customers of $14,000, $425,000, $284,000 (unaudited) and $314,000 (unaudited) was recorded in cost of revenues during the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, respectively. The net book value of this equipment was $1,003,000, $2,216,000 and $976,000 (unaudited) at December 31, 2012 and 2013, and at September 30, 2014, respectively.

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AVINGER, INC.

Notes to Financial Statements (Continued)

6. Accrued Expenses and Other Current Liabilities

       Accrued expenses and other current liabilities consisted of the following (in thousands):

 
  December 31    
 
 
  September 30,
2014
 
 
  2012   2013  
 
   
   
  (unaudited)
 

Accrued professional services

  $ 58   $ 132   $ 1,068  

Accrued consulting fees

    360     20     63  

Accrued travel expenses

    169     150     204  

Accrued sales, use and other taxes

    36     91     76  

Accrued clinical trial costs

    271     23     181  

Accrued interest payable

        571     1,086  

Sales return allowance

    235     88     76  

Accrued warranty

    11     105     147  

Other accrued liabilities

    297     276     558  
               

  $ 1,437   $ 1,456   $ 3,459  
               
               

7. Borrowings

       On April 18, 2013, the Company entered into a Credit Agreement ("Agreement") with PDL BioPharma, Inc. ("PDL") whereby PDL agreed to loan up to $40,000,000. Contemporaneous with the execution of the Agreement the Company borrowed an initial $20,000,000 ("Term Note"). Under the terms of the Agreement, if the Company achieved certain net revenue milestones prior to September 30, 2014, the Company would be eligible to borrow an additional amount between $10,000,000 and $20,000,000 (net of fees) at the Company's election. The Company did not achieve the net revenue milestones and accordingly, there are no additional available funds to borrow under the Agreement.

       The Term Note matures on April 18, 2018, has a stated interest rate of 12.0% per annum and can be prepaid by the Company at any time. A fee of 1.0% ($200,000) of the original principal amount is payable upon maturity or prepayment in full of the Term Note, and is being amortized into the Term Note. The Company pays interest-only through the first ten quarters and, thereafter, will commence repayment of principal in equal installments including accrued and unpaid interest, payable each quarter. Under the terms of the Agreement, for the first eight quarterly interest payments, or through 2015, on the Term Note the Company may elect to convert an amount of interest, up to 1.5% per annum, into additional loans, referred to as paid-in-kind, or PIK, loans. The PIK loans will accrue, be capitalized and compounded, and added to the aggregate principal balance of the Term Note. In addition to the interest and principal payments, the Company also pays a royalty, referred to as Assigned Interests, equal to 1.8% of the Company's quarterly net revenues. Upon prepayment of the Term Note, the Company's obligations relating to Assigned Interests continue, and will be payable

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AVINGER, INC.

Notes to Financial Statements (Continued)

7. Borrowings (Continued)

through the maturity date at a reduced rate of 0.9% of the quarterly net revenues, subject to certain quarterly minimum mandatory amounts as follows (in thousands), which are payable quarterly:

Year Ending December 31,
  Mandatory
Minimum
Quarterly
Payment
 

2014

  $ 176  

2015

    305  

2016

    305  

2017

    305  

2018

    310  
       

  $ 1,401  
       
       

       The Term Note grants PDL a security interest in substantially all current and future assets of the Company and contains customary affirmative covenants and customary negative covenants limiting the Company's ability to, among other things and for so long as any amounts are due and owing under the Agreement, dispose of assets, undergo a change in control, merge or consolidate, enter into certain transactions with affiliates, make acquisitions, incur debt, incur liens, pay dividends, repurchase stock and make investments, in each case subject to certain exceptions. Additionally, even if the Term Note is prepaid, until there are no further obligations relating to Assigned Interests, it must comply with certain affirmative covenants and negative covenants limiting its ability to, among other things, undergo a change in control and dispose of assets, in each case subject to certain exceptions. The Agreement and the security interest agreement also contain customary events of default including, among others, payment defaults, breaches of covenants, bankruptcy and insolvency events, cross defaults with certain material indebtedness, defaults upon the entry of certain judgments against the Company, and breaches of representations and warranties. Upon an event of default, all obligations may become immediately due and payable and the stated interest rate would likely be increased to a default rate of 14.0% per annum.

       The Company incurred fees and legal expenses of $519,000 in connection with the Agreement, which have been recorded as deferred financing costs on the accompanying balance sheets and are amortized using the effective interest method. The Company also paid $200,000 in fees to PDL upon origination of the Term Note, which is reflected as a discount on the debt and is being accreted over the life of the Term Note. The Company calculated an effective interest rate of 27.2% upon origination of the Term Note based on its best estimate of future cash outflows. The Company reviews its estimate of forecasted Assigned Interests payable each quarter and revisions to estimated cash flows are reflected using the retrospective method. Under the retrospective method, the Company computes a new effective interest rate based on the original carrying amount, actual cash flows to date, and remaining estimated cash flows over the maturity of the Term Note. The new effective interest rate, 18.8% (unaudited) as of September 30, 2014, is then used to adjust the carrying amount to the present value of the revised estimated cash flows, discounted at the new effective interest rate. For the year ended December 31, 2013 and the nine months ended September 30, 2013 and 2014, the

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AVINGER, INC.

Notes to Financial Statements (Continued)

7. Borrowings (Continued)

Company incurred interest expense of $2,492,000, $1,767,000 (unaudited) and $2,618,000 (unaudited), respectively. The Company is required to provide audited annual financial statements to PDL. The Company was not in compliance with this covenant and obtained a waiver from PDL to provide the 2012 and the 2013 audited financial statements by November 15, 2014. As the Company has cured this default prior to the extended due date, the Term Note has been classified as a long-term liability on the balance sheet.

       Principal and PIK loan repayments of the Term Note as of December 31, 2013 and September 30, 2014 are as follows (in thousands):

Period Ending December 31,
  December 31, 2013   September 30, 2014  
 
   
  (unaudited)
 

2014

  $   $  

2015

    2,000     2,000  

2016

    8,000     8,000  

2017

    8,000     8,000  

2018

    2,000     2,000  
           

    20,000     20,000  

Add: Paid-in-kind interest

    217     452  
           

    20,217     20,452  

Less: Amount representing debt discount

    (165 )   (129 )
           

    20,052     20,323  

Less: Current portion of long-term borrowings

         
           

Long-term borrowings, net of current portion

  $ 20,052   $ 20,323  
           
           

8. Convertible Notes

       On October 29, 2013, the Company entered into a Note and Warrant Purchase Agreement (the "Convertible Note Agreement"), as amended in May 2014, with certain existing convertible preferred stockholders, third-parties and employees for the issuance of convertible notes for up to an aggregate principal amount of $25,000,000. Under the terms of the Convertible Note Agreement, the Company issued convertible notes in October and November 2013 for total proceeds of $13,472,000, an additional $4,220,000 in May 2014, and an additional $500,000 in July 2014. The convertible notes bear interest at a rate of 30-day LIBOR, plus 6% per annum subject to a minimum internal rate of return of 20%. The notes will mature and the accrued interest thereon will become payable on the earlier of: (i) October 29, 2018, (ii) an event of default, or (iii) a change of control event.

       The principal and accrued interest on the notes are convertible, at the option of the holder, upon a future issuance of the Company's convertible preferred stock or common stock (the "Equity Financing") into that same stock at a conversion price equal to 85% of the price paid by other investors in the financing event. If the holder does not elect to convert the notes upon the closing of an Equity Financing, and such financing raises net proceeds of at least $20,000,000, the Company may

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AVINGER, INC.

Notes to Financial Statements (Continued)

8. Convertible Notes (Continued)

repay the notes at 125% of the outstanding principal and accrued and unpaid interest. Upon a change of control, the Company will repay the holder, at the election of such holder, a payment equal to the greater of (i) 125% of the outstanding principal and accrued and unpaid interest, (ii) an amount equal to the return the holders of Series D preferred stock would be entitled to receive in such change of control, or (iii) the amount providing the investor with a 20% minimum internal rate of return, provided that in the event that the change of control includes any contingent payments based on future performance, the amount due and payable under clause (ii) will be recalculated at the time each installment or contingent payment is made.

       In conjunction with the issuance of the convertible notes, the Company issued warrants to purchase up to the number of shares of common stock equal to 15% of the principal amount of the convertible notes divided by an exercise price per share equal to the lesser of $0.87 per share, or the price per share paid by the investors in the first bona fide preferred stock financing subsequent to the date of the convertible notes. Upon the Series E Convertible Preferred Stock issuance in September 2014, the exercise price per share was fixed at $0.28 per share and the Company issued warrants to purchase a total of 9,745,766 shares of common stock. The warrants are immediately exercisable and expire upon the earlier of September 2019, the closing of the Company's IPO or upon the consummation of a change of control of the Company. The estimated fair value of the warrants upon issuance, of $1,000, was based on an option pricing model. The Company recorded the fair value of the warrants at issuance as a debt discount and as a warrant liability. The debt discount is being accreted using the effective interest method as additional interest expense over the term of the convertible notes.

       The convertible notes have redemption features that were determined to be compound embedded derivatives requiring bifurcation and separate accounting. The fair value of the compound embedded derivative upon issuance was determined to be a liability of $179,000. The fair value of these derivative instruments was recognized as an additional discount and as a derivative liability on the balance sheets upon issuance of the convertible notes. The compound embedded derivative associated with the convertible notes requires periodic re-measurements to fair value while the instruments are still outstanding.

       Through September 30, 2014, the Company incurred total debt issuance costs of $93,000 (unaudited) in connection with the issuance of the convertible notes. The deferred issuance costs will be amortized over the term of the convertible notes.

       In September 2014, in connection with the issuance of the Series E Convertible Preferred Stock, $7,794,000 of the outstanding convertible notes and accrued interest thereon was converted into shares of Series E Convertible Preferred Stock (Note 11). Upon the conversion of the convertible notes, the Company recorded a loss from the extinguishment of the debt in the amount of $892,000 (unaudited) which is reflected in other income (expense), net in the statement of operations and comprehensive loss.

       The Company's accrued interest associated with the convertible notes amounted to $433,000 and $1,881,000 (unaudited) as of December 31, 2013 and September 30, 2014, respectively, based on the minimum internal rate of return of 20%.

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AVINGER, INC.

Notes to Financial Statements (Continued)

9. Capital Leases

       Capital lease obligations consist of leased office equipment. As of December 31, 2012 and 2013, and as of September 30, 2014, the aggregate amount of capital leases recorded within property and equipment, net, on the accompanying balance sheet is $25,000, $29,000 and $16,000 (unaudited), respectively. The current portion of the capital lease obligations is included in accrued liabilities and the balance included within other long-term liabilities represents the long-term portion.

       The future minimum lease payments as of December 31, 2013 and September 30, 2014, are as follows (in thousands):

Period ending December 31,
  December 31,
2013
  September 30,
2014
 
 
   
  (unaudited)
 

2014

  $ 21   $ 5  

2015

    12     12  

2016

    2     2  
           

Total minimum payments

    35     19  

Less: Amount representing future interest

    4     2  
           

Present value of minimum lease payments

  $ 31   $ 17  
           
           

10. Commitments and Contingencies

Lease Commitments

       The Company's operating lease obligations primarily consist of leased office, laboratory, and manufacturing space under a non-cancelable operating lease that expires in November 2016. The lease agreement includes two renewal provisions allowing the Company to extend this lease for additional periods of three years each. In addition to the minimum future lease commitments presented below, the lease requires the Company to pay property taxes, insurance, maintenance, and repair costs. The lease includes a rent holiday concession and escalation clauses for increased rent over the lease term. Rent expense is recognized using the straight-line method over the term of the lease. The Company records deferred rent calculated as the difference between rent expense and the cash rental payments. In connection with the facility lease, the landlord also provided incentives of $369,000 to the Company in the form of leasehold improvements. These amounts have been reflected as deferred rent and are being amortized as a reduction to rent expense over the term of the Company's operating lease. Rent expense was $1,003,000 and $922,000 for the years ended December 31, 2012 and 2013, and $691,000 (unaudited) and $691,000 (unaudited) for the nine months ended September 30, 2013 and 2014, respectively.

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AVINGER, INC.

Notes to Financial Statements (Continued)

10. Commitments and Contingencies (Continued)

       The future minimum lease payments as of December 31, 2013 and September 30, 2014, are as follows (in thousands):

Period ending December 31,
  December 31,
2013
  September 30,
2014
 
 
   
  (unaudited)
 

2014

  $ 1,092   $ 275  

2015

    1,125     1,125  

2016

    1,060     1,060  
           

Total minimum payments

  $ 3,277   $ 2,460  
           
           

Purchase Obligations

       Purchase obligations consist of agreements to purchase goods and services entered into in the ordinary course of business. The Company had noncancellable commitments to suppliers for purchases totaling $1,316,000 and $535,000 (unaudited) as of December 31, 2013 and September 30, 2014, respectively.

Indemnification

       In the normal course of business, the Company enters into contracts and agreements that contain a variety of representations and warranties and may provide for indemnification of the counterparty. The Company's exposure under these agreements is unknown because it involves claims that may be made against it in the future, but have not yet been made. To date, the Company has not been subject to any claims or been required to defend any action related to its indemnification obligations.

       In accordance with the Company's amended and restated certificate of incorporation and its amended and restated bylaws, the Company has indemnification obligations to its officers and directors, subject to some limits, with respect to their service in such capacities. The Company has also entered into indemnification agreements with its directors and certain of its officers. To date, the Company has not been subject to any claims, and it maintains director and officer insurance that may enable it to recover a portion of any amounts paid for future potential claims. The Company's exposure under these agreements is unknown because it involves claims that may be made against it in the future, but have not yet been made. The Company believes that the fair value of these indemnification obligations is minimal, and accordingly, it has not recognized any liabilities relating to these obligations for any period presented.

Legal Proceedings

       The Company was not party to any legal proceedings at December 31, 2013 and September 30, 2014. The Company assesses, in conjunction with its legal counsel, the need to record a liability for litigation and contingencies. Reserve estimates are recorded when and if it is determined that a loss-related matter is both probable and reasonably estimable.

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AVINGER, INC.

Notes to Financial Statements (Continued)

10. Commitments and Contingencies (Continued)

       On February 15, 2014, the Company entered into an engagement letter with a financial advisor which provided for such firm to serve as its placement agent and for the Company to make certain payments to them in connection with its Series E Convertible Preferred Stock financing. After the entry into such engagement letter, the financial advisor did not provide the level of service the Company was expecting and was not responsible for introducing the Company to any of the Series E Convertible Preferred Stock investors. The former financial advisor is asserting that it is entitled to compensation for the sale of securities to all new investors in the Company's Series E Convertible Preferred Stock financing following the date the Company signed the engagement letter. On October 20, 2014, the Company received an invoice for a transaction fee of $1,000,000 and reimbursement of the former financial advisor's out-of-pocket expenses. The Company has determined that approximately $685,000 should be accrued in the financial statements as of September 30, 2014. A corresponding liability and additional Series E Convertible Preferred Stock issuance costs are reflected in the accompanying balance sheet as of September 30, 2014. See Note 17.

11. Convertible Preferred Stock

       At December 31, 2013, convertible preferred stock authorized and outstanding consisted of the following (in thousands except share amounts):

Series
  Shares
Authorized
  Shares
Issued and
Outstanding
  Carrying
Value
  Preferential
Liquidation
Value
 

Series A

    14,696,775     14,696,775   $ 6,183   $ 6,212  

Series A-1

    10,135,609     10,135,609     6,649     3,243  

Series B

    33,998,229     33,998,229     27,272     27,539  

Series C

    25,265,172     25,265,172     22,397     22,486  

Series D

    36,000,000     32,508,517     37,153     37,710  
                   

    120,095,785     116,604,302   $ 99,654   $ 97,190  
                   
                   

       As of December 31, 2013, the rights, privileges, and preferences of the Company's Series A, Series A-1, Series B, Series C and Series D Convertible Preferred Stock (together, "Convertible Preferred Stock") were as follows:

Conversion

       Shares of Convertible Preferred Stock are convertible into shares of common stock at the holders' option at any time or automatically (i) immediately prior to the closing of a firmly underwritten public offering in which the offering price per share is not less than $2.32 and the aggregate gross proceeds received by the Company are not less than $25,000,000 or (ii) upon receipt by the Company of a written request for such conversion from the holders of the majority of the Convertible Preferred Stock then outstanding, voting as a single class and on an as-converted basis. Each share of Series A, Series A-1, Series B, Series C, and Series D Convertible Preferred Stock is convertible into the number of fully paid, non-assessable shares of common stock that results from dividing the original issue price per share of $0.4227, $0.32, $0.81, $0.89, and $1.16, respectively, by the conversion price in

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

effect for each series of Convertible Preferred Stock at the time of conversion. At December 31, 2013, the conversion prices of the Series A, Series A-1, Series B, Series C, and Series D Convertible Preferred Stock were $0.4227, $0.32, $0.81, $0.89, and $1.16 per share, respectively. Upon any increase or decrease of the conversion price for any series of Convertible Preferred Stock, the conversion rate for such series shall be appropriately increased or decreased. The shares are subject to adjustment upon a recapitalization, including upon any stock dividend, stock split, combination of shares, reorganization, recapitalization, or other similar events. If the Company issues or sells shares of common stock for an effective price that is lower than the applicable conversion price of a series of Convertible Preferred Stock, the conversion price of the affected series of Convertible Preferred Stock will be reduced pursuant to a defined adjustment formula.

Dividends

       Holders of Series A, Series A-1, Series B, Series C, and Series D Convertible Preferred Stock are entitled to receive dividends, when, as, and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the dividend rate of $0.03382, $0.026, $0.0648, $0.0712, and $0.0928 per share, per annum, respectively (subject to adjustment from time to time for recapitalization), payable in preference and priority to any declaration or payment of any distribution on common stock of the Company in such calendar year. No distributions shall be made with respect to the common stock unless dividends on the Convertible Preferred Stock have been declared in accordance with the preferences stated herein and all declared dividends on the Convertible Preferred Stock have been paid or set aside for payment to the Convertible Preferred Stock holders. The right to receive dividends on shares of Convertible Preferred Stock is not cumulative, and no right to dividends shall accrue to holders of Convertible Preferred Stock by reason of the fact that dividends on said shares are not declared or paid. Payment of any dividends to the holders of Convertible Preferred Stock shall be on a pro rata, pari passu basis in proportion to the dividend rates for each series of Convertible Preferred Stock. As long as any of the Convertible Preferred Stock is issued and outstanding, the Company may not declare or pay dividends without first obtaining the approval of the holders of more than sixty percent (60%) of the outstanding shares of Convertible Preferred Stock. Since inception, no dividends have been declared or paid.

Voting

       Each holder of shares of Convertible Preferred Stock is entitled to voting rights equivalent to the number of shares of common stock into which the respective shares of Convertible Preferred Stock are convertible. Certain financing, merger or acquisition, disposition or liquidation and recapitalization transactions require the vote of a majority of the shares of the outstanding Convertible Preferred Stock, as does any amendment to the Company's certificate of incorporation.

       The holders of common stock and Series A Convertible Preferred Stock shall each be entitled to elect one member of the Board of Directors. The holders of Series B, Series C, and Series D Convertible Preferred Stock voting together shall be entitled to elect one member of the Board of Directors. The holders of common and Convertible Preferred Stock voting together as a single class

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

on an as-converted-into-common-stock basis shall be entitled to elect one member of the Board of Directors.

Liquidation Preference

       In the event of a liquidation or winding up of the Company, whether voluntary or involuntary, the holders of Convertible Preferred Stock shall be entitled to receive their liquidation preference on a pari passu basis, prior and in preference to any distribution of any of the assets of the Company to the holders of common stock, plus any declared or accrued but unpaid dividends on such shares, or such lesser amounts as approved by the holders of the majority of the outstanding shares of Convertible Preferred Stock. The remaining assets shall be distributed among the holders of the common stock on a pro rata basis based on the number of shares of common stock held by them.

       Shares of Convertible Preferred Stock shall not be entitled to be converted into shares of common stock in order to participate in any distribution as shares of common stock without first foregoing participation in such distribution as Convertible Preferred Stock.

       If assets are insufficient to make payments in full to all holders of Convertible Preferred Stock, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the holders of the Convertible Preferred Stock.

Redemption

       The convertible preferred shares do not have redemption rights in favor of the Company or the holder thereof.

       In September 2014, the Company issued a total of 75,103,068 shares of Series E Convertible Preferred Stock at $0.28 per share for cash proceeds of $11,860,000, and pursuant to the conversion of outstanding convertible promissory notes in the amount of $7,794,000, at 85% of the issuance price, or $0.238 per share. At September 30, 2014, convertible preferred stock authorized and outstanding consisted of the following (unaudited and in thousands except share amounts):

Series
  Shares
Authorized
  Shares
Issued and
Outstanding
  Carrying
Value
  Preferential
Liquidation
Value
 

Series A

    14,696,775     14,696,775     6,183     6,212  

Series A-1

    10,135,609     10,135,609     6,649     3,243  

Series B

    33,998,229     33,998,229     27,272     27,539  

Series C

    25,265,172     25,265,172     22,397     22,486  

Series D

    36,000,000     32,508,517     37,153     37,710  

Series E

    75,428,571     75,103,068     20,115     84,115  
                   

    195,524,356     191,707,370     119,769     181,305  
                   
                   

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

       As of September 30, 2014, the rights, privileges, and preferences of the Company's Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock were as follows:

Conversion

       Shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock are convertible into shares of common stock at the holders' option at any time or automatically (i) immediately prior to the closing of a firmly underwritten public offering in which the offering price per share is not less than $0.56 and the aggregate gross proceeds received by the Company are not less than $50,000,000 or (ii) upon receipt by the Company of a written request for such conversion from the holders of the majority of the Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock then outstanding, voting as a single class and on an as-converted basis. Each share of Series A, Series A-1, Series B, Series C, Series D, and Series E Convertible Preferred Stock shall be convertible into the number of fully paid, non-assessable shares of common stock that results from dividing the original issue price per share of $0.4227, $0.32, $0.81, $0.89, $1.16 and $0.28, respectively, by the conversion price in effect for Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock at the time of the conversion. Upon any increase or decrease of the conversion price for the Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock, the conversion rate for such series shall be appropriately increased or decreased.

       The issuance price of the Series E Convertible Preferred Stock was lower than the conversion price of previously issued Convertible Preferred Stock. Accordingly, the conversion prices of the affected series of Convertible Preferred Stock was reduced pursuant to a defined adjustment formula which will result in the issuance of an increased number of shares of common stock upon conversion of such series of Convertible Preferred Stock. At September 30, 2014, the adjusted conversion prices of the Series A, Series A-1 Series B, Series C and Series D Convertible Preferred Stock were $0.368, $0.300, $0.623, $0.676 and $0.854 per share, respectively. At September 30, 2014, the conversion price of the Series E Convertible Preferred Stock was $0.28 per share. As of September 30, 2014, the increased number of shares of common stock upon conversion of each series of Convertible Preferred Stock and the Series E Convertible Preferred Stock is as follows (unaudited):

Series
  Actual Shares
Issued and
Outstanding
  As Converted
Shares Issued
And
Outstanding
  Additional
Shares Due to
Anti-Dilution
Adjustment
 

Series A

    14,696,775     16,888,652     2,191,877  

Series A 1

    10,135,609     10,806,586     670,977  

Series B

    33,998,229     44,189,538     10,191,309  

Series C

    25,265,172     33,266,652     8,001,480  

Series D

    32,508,517     44,159,895     11,651,378  

Series E

    75,103,068     75,103,068      
               

    191,707,370     224,414,391     32,707,021  
               
               

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

       The shares are subject to adjustment upon a recapitalization, which shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, or other similar events.

Dividends

       The holders of Series E Convertible Preferred Stock are entitled to receive dividends at the rate of $0.0224 per share per annum when and if declared by the Board of Directors. After payment of the aforementioned preferential amount to the holders of the Series E Convertible Preferred stock, the holders of Series A, Series A-1, Series B, Series C, and Series D Convertible Preferred Stock are entitled to receive dividends, when, and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the dividend rate of $0.03382, $0.026, $0.0648, $0.0712, and $0.0928 per share, per annum, respectively, on a pari passu basis (subject to adjustment from time to time for recapitalization), payable in preference and priority to any declaration or payment of any distribution on common stock of the Company in such calendar year. No distributions shall be made with respect to the common stock unless dividends on the Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock have been declared in accordance with the preferences stated herein and all declared dividends on the Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock have been paid or set aside for payment to these stockholders. The right to receive dividends on shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock is not cumulative, and no right to dividends accrues to holders of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock by reason of the fact that dividends on said shares are not declared or paid. As long as any of the Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock is issued and outstanding, the Company may not declare or pay dividends without first obtaining the approval of the holders of more than sixty percent (60%) of the outstanding shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock. Since inception, no dividends have been declared or paid.

Voting

       Each holder of shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock is entitled to voting rights equivalent to the number of shares of common stock into which the respective shares are convertible and votes together as one class with the common stock, except as provided by law or under the Company's certificate of incorporation. Certain financing, acquisition, disposition, and recapitalization transactions require the vote of a majority of the shares of the outstanding Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock.

Liquidation Preference

       In the event of a liquidation, dissolution or winding up of the Company, whether voluntary or involuntary, the holders of Series E Convertible Preferred Stock are entitled to receive a per share liquidation preference in the amount of $1.12 plus all declared and unpaid dividends on such shares prior and in preference to any distribution or payment is made to the holders of the Series A, Series A-1, Series B, Series C, and Series D Convertible Preferred Stock. If upon the liquidation,

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

dissolution or winding up of the Company, the assets are insufficient to make payments in full to the holders of Series E Convertible Preferred Stock, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the holders of the Series E Convertible Preferred Stock.

       After payment of the full Series E liquidation preference, the holders of the Series A, Series A-1, Series B, Series C and Series D Convertible Preferred Stock shall be entitled to receive a per share liquidation preference on a pari passu basis in the amount of $0.4227, $0.32, $0.81, $0.89, and $1.16, respectively, plus all declared and unpaid dividends on such shares, prior and in preference to any distribution or payout of any of the assets of the Company to the holders of common stock. If assets are insufficient to make payments in full to all holders of Series A, Series A 1, Series B, Series C, and Series D Convertible Preferred Stock, then the entire assets of the Company legally available for distribution will be distributed with equal priority and pro rata among the holders of the Series A,
Series A-1, Series B, Series C, and Series D Convertible Preferred Stock.

       The remaining assets shall be distributed among the holders of the common stock on a pro rata basis based on the number of shares of common stock held by them.

       Shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock shall not be entitled to be converted into shares of common stock in order to participate in any distribution as shares of common stock without first foregoing participation in such distribution as Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock.

Redemption

       The convertible preferred shares do not have redemption rights in favor of the Company or the holder thereof.

2012 Preferred Stock Plan

       The 2012 Preferred Stock Plan (the "2012 Plan") was adopted on July 19, 2012. The 2012 Plan was established to allow employees the opportunity to participate in the Series D Convertible Preferred Stock issuance. Under the 2012 Plan, 5,689,596 shares were authorized for issuance. In September 2012, the Company granted 899,014 fully vested options to purchase shares of Series D Convertible Preferred Stock at $1.16 per share. In September 2012, 462,733 of the options were exercised, the remaining options to purchase 436,281 shares expired unexercised at that time and were returned to the 2012 Plan. As of December 31, 2012 and 2013, and September 30, 2014, there were 5,226,863 shares available for grant and no options were outstanding under the 2012 Plan.

       On November 3, 2014, the Company's Board of Directors approved the termination of the 2012 Plan effective immediately.

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AVINGER, INC.

Notes to Financial Statements (Continued)

11. Convertible Preferred Stock (Continued)

2014 Preferred Stock Plan

       In August 2014, the Company's Board of Directors adopted the 2014 Preferred Stock Plan (the "2014 Plan"). The 2014 Plan provides for the grant of ISOs and NSOs to purchase shares of Series E Convertible Preferred Stock. ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, consultants and directors. ISOs and NSOs may be granted with exercise prices at not less than 100% of the fair value of the Series E Convertible Preferred Stock on the date of grant. Pursuant to the 2014 Plan, the exercise price of ISOs granted to a stockholder, who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the stock of the Company, shall be not less than 110% of the fair market value per share of stock on the date of grant. The Company's Board of Directors determines the expiration of the options but in no case will options be exercisable more than ten years from the date of grant. Under the 2014 Plan, 4,000,000 shares were authorized for issuance. In August 2014, the Company granted 2,630,682 fully vested options to purchase shares of Series E Convertible Preferred Stock at $0.28 per share. In September 2014, 2,348,634 of the options were exercised. As of September 30, 2014, there were 1,369,318 shares available for grant and 282,048 options were outstanding under the 2014 Plan. The remaining options to purchase 282,048 shares expired in October 2014.

12. Stockholders' Deficit

Common Stock

       At December 31, 2013 the Company's certificate of incorporation, as amended and restated, authorizes the Company to issue 169,310,345 shares of common stock with $0.001 par value. Holders of common stock are entitled to one vote per share on all matters to be voted upon by the stockholders. Common stockholders are entitled to dividends when and if declared by the Board of Directors, subject to the preferences that may be applicable to any outstanding shares of Series A, Series A-1, Series B, Series C, Series D and Series E Convertible Preferred Stock. No dividends have been declared to date.

       In September 2014, the Company amended and restated its certificate of incorporation, to authorize the Company to issue 320,000,000 shares of common stock with $0.001 par value. At September 30, 2014, 10,936,034 shares of common stock (unaudited) were issued and outstanding.

Restricted Stock

       In May 2012, the Company entered into two Restricted Stock Purchase Agreements with two individuals in return for certain intellectual property ("IP") and ongoing consulting services. 75,000 shares of common stock were issued under each Restricted Stock Purchase Agreement for a total of 150,000 shares at a fair market value of $0.33 per share for a total purchase price of $49,500. The shares are subject to repurchase at cost, or $0.33 per share, with 20% being released from the repurchase option at the date of assignment of the IP and 1/48th of the remaining 80% being released monthly thereafter. Stock compensation expense of $49,500, representing the intrinsic value of the shares was recorded to consulting expense in 2012. Since it was not possible to value the IP, this

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AVINGER, INC.

Notes to Financial Statements (Continued)

12. Stockholders' Deficit (Continued)

noncash compensation expense was calculated at the fair market value of the shares of $0.33 per share.

       As of December 31, 2013 and September 30, 2014, a total of 56,250 and 33,750 (unaudited) shares, respectively, were subject to repurchase, at cost, under the Restricted Stock Purchase Agreements.

Common Stock Warrants

       In connection with the issuance of the Company's Series E Convertible Preferred Stock in September 2014, the Company issued warrants, to each investor who purchased shares of Series E Convertible Preferred Stock, to purchase up to the number of shares of common stock equal to:

    50% of the number of shares of the Company's Series E Convertible Preferred Stock purchased on or prior to September 2, 2014.

    25% of the number of shares of the Company's Series E Convertible Preferred Stock purchased after September 2, 2014.

       In connection with the issuance of the Company's Series E Convertible Preferred Stock in September 2014, the Company issued warrants, to the holders of the outstanding convertible notes, to purchase up to the number of shares of common stock equal to:

    50% of the number of shares of the Company's Series E Preferred Stock purchased through the conversion of an outstanding convertible note on or prior to September 15, 2014.

    25% of the number of shares of the Company's Series E Preferred Stock purchased through the conversion of an outstanding convertible note after September 15, 2014.

       As of September 30, 2014, the Company issued warrants to purchase an aggregate of 37,551,510 (unaudited) shares of common stock. The warrants are immediately exercisable, at an exercise price per share of $0.28, and expire upon the earlier of September 2, 2019 or upon the consummation of a change of control of the Company. The Company determined that these common stock warrants meet the requirements for equity classification. Accordingly, the common stock warrants were recorded at their allocated fair value of $129,000 (unaudited) within stockholders' deficit.

2009 Stock Plan

       The Avinger, Inc. 2009 Stock Plan, as adopted March 25, 2009 (the "2009 Plan"), provides for the grant of incentive stock options ("ISOs") and nonstatutory stock options ("NSOs") to purchase common shares. ISOs may be granted only to Company employees (including officers and directors who are also employees). NSOs may be granted to Company employees, consultants and directors. ISOs and NSOs may be granted with exercise prices at not less than 100% of the fair value of the common stock on the date of grant. Pursuant to the 2009 Plan, the exercise price of ISOs granted to a stockholder, who, at the time of grant, owns stock representing more than 10% of the voting power of all classes of the stock of the Company, shall be not less than 110% of the fair market value per share of common stock on the date of grant. The Company's Board of Directors determines the vesting schedule of the options. Options granted generally vest over four years and expire ten years from the date of grant.

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AVINGER, INC.

Notes to Financial Statements (Continued)

12. Stockholders' Deficit (Continued)

       Activity under the 2009 Plan is set forth below:

 
   
  Options Outstanding  
 
  Shares
Available for
Grant
  Number of
Shares
  Weighted
Average
Exercise Price
  Aggregate
Intrinsic Value
(in thousands)
 

Balance at December 31, 2011

    3,829,381     13,500,293   $ 0.22   $ 1,447  

Additional shares reserved

    5,000,000                  

Granted

    (5,765,928 )   5,765,928   $ 0.40        

Exercised

          (1,201,153 ) $ 0.16        

Cancelled

    3,968,110     (3,968,110 ) $ 0.22        
                       

Balance at December 31, 2012

    7,031,563     14,096,958   $ 0.30   $ 2,226  

Granted

    (12,258,038 )   12,258,038   $ 0.45        

Exercised

        (548,683 ) $ 0.18        

Cancelled

    7,856,592     (7,856,592 ) $ 0.41        

Shares repurchased

    116,667       $ 0.33        
                       

Balance at December 31, 2013

    2,746,784     17,949,721   $ 0.36   $  

Additional shares reserved (unaudited)

    9,619,388                  

Granted (unaudited)

    (350,000 )   350,000   $ 0.45        

Exercised (unaudited)

        (103,267 ) $ 0.17        

Cancelled (unaudited)

    3,938,651     (3,938,651 ) $ 0.36        
                       

Balance at September 30, 2014 (unaudited)

    15,954,823     14,257,803   $ 0.36   $ 2  
                       
                       

       Additional information related to the status of options as of December 31, 2013 is summarized as follows:

Options Outstanding and Vested as of December 31, 2013  
Options Outstanding   Options Vested  
Exercise
Price
  Options
Outstanding
  Weighted
Average
Remaining
Contractual Life
  Weighted
Average
Exercise
Price
  Number
Vested
  Weighted
Average
Exercise
Price
 
$ 0.09     323,223     5.65   $ 0.09     323,223   $ 0.09  
$ 0.11     1,803,469     6.59   $ 0.11     1,668,815   $ 0.11  
$ 0.28     3,570,777     7.57   $ 0.28     2,644,040   $ 0.28  
$ 0.33     3,096,784     8.34   $ 0.33     1,590,517   $ 0.33  
$ 0.45     8,153,191     9.33   $ 0.45     271,978   $ 0.45  
$ 0.49     1,002,277     9.08   $ 0.49     554,416   $ 0.49  
                               
        17,949,721     8.45   $ 0.36     7,052,989   $ 0.27  
                               
                               

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AVINGER, INC.

Notes to Financial Statements (Continued)

12. Stockholders' Deficit (Continued)

       Additional information related to the status of options as of September 30, 2014 (unaudited) is summarized as follows:

Options Outstanding and Vested as of September 30, 2014 (unaudited)  
Options Outstanding   Options Exercisable  
Exercise
Price
  Options
Outstanding
  Weighted
Average
Remaining
Contractual Life
  Weighted
Average
Exercise
Price
  Number
Exercisable
  Weighted
Average
Exercise
Price
 
$ 0.09     222,012     4.69   $ 0.09     222,012   $ 0.09  
$ 0.11     1,123,875     5.62   $ 0.11     1,123,770   $ 0.11  
$ 0.28     3,157,966     6.79   $ 0.28     2,853,347   $ 0.28  
$ 0.33     2,667,403     7.49   $ 0.33     1,920,485   $ 0.33  
$ 0.45     6,575,381     8.56   $ 0.45     2,104,731   $ 0.45  
$ 0.49     511,166     8.00   $ 0.49     312,277   $ 0.49  
                               
        14,257,803     7.66   $ 0.36     8,536,622   $ 0.31  
                               
                               

       The weighted-average grant date fair value of stock options granted during the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2014 was $0.19, $0.16, and $0.01 (unaudited) per share, respectively. As of December 31, 2013 and September 30, 2014, the aggregate intrinsic value of options outstanding and vested was none and $2,000 (unaudited), respectively. The aggregate intrinsic value of options exercised was $332,000 and $153,000 during the years ended December 31, 2012 and 2013, respectively, and none (unaudited) during the nine months ended 2014. The aggregate intrinsic value was calculated as the difference between the exercise prices of the underlying options and the estimated fair value of the common stock on the date of exercise. Because of the Company's net operating losses, the Company did not realize any tax benefits from share-based payment arrangements for the years ended December 31, 2012 and 2013 and the nine months ended September 30, 2013 and 2014.

Early Exercise of Options

       Stock options granted under the Company's stock option plan may provide option holders the right to elect to exercise unvested options in exchange for restricted common stock. Unvested shares in the amounts of 116,667 at December 31, 2012, none at December 31, 2013, and none (unaudited) at September 30, 2014, were subject to a repurchase right held by the Company at the original issuance price in the event the optionee's service is terminated either voluntarily or involuntarily. As of December 31, 2012 and 2013, and September 30, 2014, the liability amount was $38,500, none, and none (unaudited), respectively.

13. Stock-Based Compensation

       The Company estimates the fair value of stock-based compensation on the date of grant using the Black-Scholes option-pricing model. The Black-Scholes model determines the fair value of stock-based payment awards based on the fair market value of the Company's common stock on the date of grant

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AVINGER, INC.

Notes to Financial Statements (Continued)

13. Stock-Based Compensation (Continued)

and is affected by assumptions regarding a number of complex and subjective variables. These variables include, but are not limited to, the fair value of the Company's common stock, and the volatility over the expected term of the awards. The Company has opted to use the "simplified method" for estimating the expected term of options, whereby the expected term equals the arithmetic average of the vesting term and the original contractual term of the option. Due to the Company's limited operating history and a lack of company specific historical and implied volatility data, the Company has based its estimate of expected volatility on the historical volatility of a group of similar companies that are publicly traded. When selecting these public companies on which it has based its expected stock price volatility, the Company selected companies with comparable characteristics to it, including enterprise value, stage of development, risk profile, and position within the industry as well as selecting companies with historical share price information sufficient to meet the expected life of the stock-based awards. The historical volatility data was computed using the daily closing prices for the selected companies' shares during the equivalent period of the calculated expected term of the share-based payments. The Company will continue to analyze the historical stock price volatility and expected term assumptions as more historical data for the Company's common stock becomes available. The risk-free rate assumption is based on the U.S. Treasury instruments with maturities similar to the expected term of the Company's stock options. The expected dividend assumption is based on the Company's history of not paying dividends and its expectation that it will not declare dividends for the foreseeable future.

       As stock-based compensation expense recognized in the financial statements is based on awards ultimately expected to vest, it has been reduced for estimated forfeitures. Forfeitures are estimated at the time of grant and revised, if necessary, over the service period to the extent that actual forfeitures differ, or are expected to differ, from prior estimates. Forfeitures are estimated based on estimated future employee turnover and historical experience. The fair value for the Company's employee stock options was estimated at the date of grant using the Black-Scholes valuation model with the following average assumptions:

 
  Year Ended December 31,   Nine Months
Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Expected term (years)

    6.9     6.9     6.8     7.0  

Expected volatility

    48.7 %   52.1 %   50.9 %   50.0 %

Risk-free interest rate

    1.2 %   1.4 %   1.1 %   2.1 %

Dividend rate

                 

       As of December 31, 2012 and 2013, the total unamortized compensation expense related to stock-based awards granted to employees and directors was $1,442,000 and $1,528,000, which is expected to be amortized over the next 2.82 and 2.70 years, respectively. As of September 30, 2014, the total unamortized compensation expense related to stock-based awards granted to employees and directors was $774,000 (unaudited), which is expected to be amortized over the next 2.03 years.

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AVINGER, INC.

Notes to Financial Statements (Continued)

13. Stock-Based Compensation (Continued)

       Total stock-based compensation expense recognized, before taxes, during the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, is as follows (in thousands):

 
  Year Ended December 31,   Nine Months
Ended
September 30,
 
 
  2012   2013   2013   2014  
 
   
   
  (unaudited)
 

Cost of revenues

  $ 51   $ 62   $ 55   $ 46  

Research and development expenses

    123     165     113     127  

Selling, general and administrative expenses

    275     427     344     336  
                   

  $ 449   $ 654   $ 512   $ 509  
                   
                   

14. Income Taxes

       For the years ended December 31, 2012 and 2013, the Company's provision for income taxes consisted of state income tax expense of $9,000 and $11,000, respectively.

       A reconciliation of the statutory U.S. federal rate to the Company's effective tax rate is as follows (in thousands):

 
  Year Ended
December 31,
 
 
  2012   2013  

Tax at federal statutory rate

  $ (11,507 ) $ (13,563 )

State taxes, net of federal benefit

    10     11  

Permanent differences

    235     298  

Change in valuation allowance

    11,648     13,450  

Research credits

    (377 )   (179 )

Other

        (6 )
           

Provision for taxes

  $ 9   $ 11  
           
           

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AVINGER, INC.

Notes to Financial Statements (Continued)

14. Income Taxes (Continued)

       Significant components of the Company's net deferred tax assets as of December 31, 2012 and 2013 consist of the following (in thousands):

 
  As of December 31,  
 
  2012   2013  

Deferred tax assets:

             

Federal, state, and foreign net operating losses

  $ 25,770   $ 40,807  

Research and other credits

    1,455     1,771  

Fixed assets

        2  

Other

    861     1,391  
           

Total deferred tax assets

    28,086     43,971  

Less: Valuation allowance

    (27,988 )   (43,915 )
           

Deferred tax liabilities:

             

Fixed assets

    (98 )    

Interest

        (56 )
           

Net deferred tax assets

  $   $  
           
           

       The valuation allowance increased by $13,675,000 and $15,927,000 during the years ended December 31, 2012 and 2013, respectively.

       As of December 31, 2013, the Company had federal net operating loss carryforwards of approximately $104,464,000, which begin to expire in 2027, and state net operating loss carryforwards of approximately $99,681,000, which begin to expire in 2014.

       As of December 31, 2013, the Company had federal research and development credit carryforwards of approximately $1,494,000, which expire in the years 2027 through 2033, and state research and development credit carryforwards of approximately $1,569,000. The state research and development credit can be carried forward indefinitely.

       Federal and state tax laws impose substantial restrictions on the utilization of the net operating loss, and credit carryforwards in the event of an ownership change as defined in Section 382 of the Internal Revenue Code. Accordingly, the Company's ability to utilize these carryforwards may be limited as a result of such ownership change. Such a limitation could result in the expiration of carryforwards before they are utilized.

       The Company had unrecognized tax benefits of approximately $592,000 and $919,000, as of December 31, 2012 and 2013, of which $462,000 and $759,000, respectively, would affect the effective tax rate if recognized, before consideration of the valuation allowance.

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AVINGER, INC.

Notes to Financial Statements (Continued)

14. Income Taxes (Continued)

       A reconciliation of the unrecognized tax benefits from January 1, 2012 through December 31, 2013 is as follows (in thousands):

 
  As of December 31,  
 
  2012   2013  

Balance at beginning of year

  $ 430   $ 592  

Additions based on tax positions related to current year

    162     165  

Additions for tax positions of prior years

        162  
           

Balance at end of year

  $ 592   $ 919  
           
           

       The Company does not expect a significant change to its unrecognized tax benefits over the next twelve months. The unrecognized tax benefits may increase or change during the next twelve months for items that arise in the ordinary course of business.

       The Company files income tax returns in the U.S. federal jurisdiction and various state jurisdictions. In the normal course of business, the Company is subject to examination by taxing authorities throughout the nation. The Company is not currently under audit by the Internal Revenue Service or other similar state and local authorities. All tax years remain open to examination by major taxing jurisdictions to which the Company is subject.

15. Related-Party Transactions

       The Company entered into an agreement with JBS Consulting, LLC ("JBS Consulting") regarding the use of a private aircraft owned by JBS Consulting for company business-related travel by the Company's directors, officers and employees. Dr. John B. Simpson, the Company's founder and CEO, is the president and managing officer of JBS Consulting. Pursuant to the agreement, JBS Consulting will be reimbursed for the cost of first class airfare for all flights in connection with company business-related travel by Dr. John B. Simpson and the cost of coach airfare for all flights in connection with company business-related travel by other directors, officers, and employees. For the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, JBS Consulting provided private plane service to the Company totaling approximately $611,000, $568,000, $544,000 (unaudited) and none (unaudited), respectively.

       During the year ended December 31, 2013, and the nine months ended September 30, 2013 and 2014, the Company purchased marketing services from Recreation, Inc., a brand strategy and design agency headquartered in San Francisco, California for $107,000, none (unaudited) and $542,000 (unaudited), respectively. John D. Simpson, the Company's Vice President of Sales and a member of the Company's Board of Directors, is the Chief Executive Officer of Recreation, Inc. and is the son of Dr. John B. Simpson, the Company's founder and Chief Executive Officer. As of December 31, 2013 and September 30, 2014, amounts due to Recreation, Inc., included in accounts payable, were $56,000 and $53,000 (unaudited), respectively.

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AVINGER, INC.

Notes to Financial Statements (Continued)

15. Related-Party Transactions (Continued)

       During the years ended December 31, 2012 and 2013, and the nine months ended September 30, 2013 and 2014, Baysinger Search & Associates, Inc. (Baysinger), a company whose management includes the wife of the Company's then-Vice President of Sales, provided recruiting services to the Company totaling approximately $140,000, $146,000, $116,000 (unaudited) and none (unaudited).

       From October 2013 through July 2014, the Company entered into convertible notes with certain investors, including existing stockholders, some members of the Board of Directors and their affiliated companies and some members of management for a total aggregate principal amount of $18,192,000 (Note 8) and issued warrants to purchase shares of the Company's common stock at an exercise price of $0.28 per share. The issuance of $5,122,000 of the total aggregate principal amount of the convertible notes was considered a related-party transaction. As of December 31, 2013 and September 30, 2014, the carrying value of the related-party convertible notes was $4,719,000 and $5,695,000 (unaudited), respectively. For the year ended December 31, 2013 and the nine months ended September 30, 2014, the Company recognized $140,000 and $708,000 (unaudited), respectively, of interest expense related to the related-party convertible notes within interest expense in the Company's statements of operations and comprehensive loss.

16. 401(K) Plan

       The Company has a qualified retirement plan under section 401(k) of the Internal Revenue Code ("IRC") under which participants may contribute up to 100% of their eligible compensation, subject to maximum deferral limits specified by the IRC. The Company may make a discretionary matching contribution to the 401(k) plan, and may make a discretionary employer contribution to each eligible employee each year. Eligible employees vest in the Company's contributions over a graded six year schedule. To date, the Company has made no contributions to the 401(k) plan.

17. Subsequent Events (unaudited)

Amended and Restated Certificate of Incorporation

       In November 2014, the Company amended and restated its certificate of incorporation to increase the total number of shares authorized for issuance from 515,524,356 to 1,067,414,519 shares. Under the terms of the amended certificate of incorporation, the number of shares of common stock available for issuance was increased to 700,000,000 shares and the number of shares designated as Series E Convertible Preferred Stock was increased to 186,768,156.

2009 Stock Plan

       In November 2014, subject to the approval of the Company's stockholders, the Company's Board of Directors increased the number of shares of common stock authorized for issuance under the 2009 Plan by 33,164,739 shares, from 32,485,673 shares to 65,650,412 shares.

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AVINGER, INC.

Notes to Financial Statements (Continued)

17. Subsequent Events (unaudited) (Continued)

2014 Preferred Stock Plan

       In November 2014, the Company's Board of Directors approved the grant of 17,857 fully-vested options to purchase shares of Series E Convertible Preferred Stock at $0.28 per share. The options were fully exercised in November 2014.

Series E Convertible Preferred Stock Issuance

       In December 2014, the Company amended its Series E Convertible Preferred Stock Purchase agreement to provide for the issuance of common stock warrants to each investor who purchased shares of Series E Convertible Preferred Stock equal to 50% of the number of shares of the Company's Series E Convertible Preferred Stock purchased by such investor. As with the common stock warrants previously issued, any new common stock warrants are immediately exercisable, at an exercise price of $0.28 per share, and expire upon the earlier of September 2, 2019 or upon consummation of a change in control of the Company. This amendment had no impact on the common stock warrants previously issued to Series E Convertible Preferred Stock investors as of September 30, 2014.

       In November 2014, the Company issued a total of 15,915,325 shares of Series E Convertible Preferred Stock pursuant to the conversion of outstanding convertible promissory notes in the amount of $3,788,000, at 85% of the issuance price, or $0.238 per share.

       In connection with the issuance of the Company's Series E Convertible Preferred Stock in November 2014, the Company issued common stock warrants to each investor who acquired shares of Series E Convertible Preferred Stock equal to 50% of the number of shares of the Company's Series E Convertible Preferred Stock acquired by such investor. The warrants are immediately exercisable, at an exercise price per share of $0.28, and expire upon the earlier of September 2, 2019 or upon the consummation of a change of control of the Company.

Legal Proceedings

       In December 2014, the Company and its former financial advisor agreed to amend and to terminate their engagement letter, effective immediately. Pursuant to the terms of the amended engagement letter, the Company agreed to pay the former financial advisor a transaction fee of $650,000, which shall be paid in four equal quarterly installments starting on December 31, 2014, and ending on September 30, 2015 and $35,000 for reimbursement of the former financial advisor's out-of-pocket expenses, which were due upon execution of the amendment. The Company had accrued approximately $685,000 in the financial statements as of September 30, 2014 for this matter. A corresponding liability and additional Series E Convertible Preferred Stock issuance costs were reflected in the accompanying balance sheet as of September 30, 2014.

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PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 13.    Other Expenses of Issuance and Distribution.

       The following table sets forth all expenses to be paid by the registrant, other than estimated underwriting discounts and commissions, in connection with this offering. All amounts shown are estimates except for the registration fee, the FINRA filing fee and The NASDAQ Stock Market listing fee.

 
  Amount
to be Paid
 

SEC registration fee

  $ 8,017.80  

FINRA filing fee

    11,750.00  

The NASDAQ Stock Market listing fee

       

Printing and engraving

       

Legal fees and expenses

       

Accounting fees and expenses

       

Blue sky fees and expenses

       

Transfer agent and registrar fees

       

Miscellaneous

       
       

Total

  $           
       
       

Item 14.    Indemnification of Officers and Directors.

       Section 145 of the Delaware General Corporation Law, or DGCL, provides, in effect, that any person made a party to any action by reason of the fact that he is or was a director, officer, employee or agent of ours may, and in certain cases must, be indemnified by us against, in the case of a non-derivative action, judgments, fines, amounts paid in settlement, and reasonable expenses (including attorneys' fees) incurred by him as a result of such action, and in the case of a derivative action, against expenses (including attorneys' fees), if in either type of action he acted in good faith and in a manner he reasonably believed to be in or not opposed to our best interests. This indemnification does not apply, (i) in a derivative action, to matters as to which it is adjudged that the director, officer, employee or agent is liable to us, unless upon court order it is determined that, despite such adjudication of liability, but in view of all the circumstances of the case, he is fairly and reasonably entitled to indemnity for expenses, and, (ii) in a non-derivative action, to any criminal proceeding in which such person had no reasonable cause to believe his conduct was unlawful.

       Article VIII of our current amended and restated certificate of incorporation and Article         of the amended and restated certificate of incorporation that we expect our board of directors and stockholders to approve in connection with this offering will provide for the indemnification of directors to the fullest extent permissible under Delaware law.

       Article V of our current bylaws, as amended, and Article         of the amended and restated bylaws that we expect our board of directors and stockholders to approve in connection with this offering will provide for the indemnification of officers, directors and third parties acting on our behalf if such person acted in good faith and in a manner reasonably believed to be in and not opposed to our best interest and, with respect to any criminal action or proceeding, the indemnified party had no reason to believe his or her conduct was unlawful.

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       We have entered into indemnification agreements with certain of our directors, executive officers and others, in addition to indemnification provided for in our bylaws. Prior to the completion of this offering, we expect to enter into new indemnification agreements with each of our directors, executive officers and certain other officers, which will contain similar provisions.

       The Underwriting Agreement (Exhibit 1.1 hereto) provides for indemnification by the underwriters of us and our executive officers and directors, and by us of the underwriters for certain liabilities, including liabilities arising under the Securities Act.

       We have purchased and intend to maintain insurance on behalf of any person who is or was a director or officer against any loss arising from any claim asserted against him or her and incurred by him or her in any such capacity, subject to certain exclusions. Prior to the completion of this offering, we will procure additional insurance to provide coverage to our directors and officers against loss arising from claims relating to, among other things, public securities matters.

       See also the undertakings set out in response to Item 17 herein.

Item 15.    Recent Sales of Unregistered Securities.

       We have issued and sold the following securities since December 1, 2011:

    1.
    From January 2012 to January 2014 we granted options to purchase 18,373,966 shares of our common stock with exercise prices ranging from $0.33 to $0.50 per share, 108,578 of which were exercised at $0.33 per share and 12,500 of which were exercised at $0.45 per share.

    2.
    From June 2012 to November 2012, we issued and sold to 41 accredited investors an aggregate of 32,045,784 shares of Series D preferred stock (convertible into an aggregate of 32,045,784 shares of common stock as of the issuance of the Series D preferred stock) at a purchase price per share of $1.16.

    3.
    In September 2012, we granted options to purchase 899,014 shares of our Series D preferred stock at $1.16 per share, 462,733 of which were exercised at $1.16 per share.

    4.
    From October 2013 to July 2014, we issued convertible promissory notes to 43 accredited investors in an aggregate principal amount of $18,192,224 with an interest rate of the 30-day LIBOR plus 6%. In connection therewith, we issued warrants to purchase 9,745,766 shares of our common stock at an exercise price of $0.28.

    5.
    From September 2014 to November 2014 we issued and sold to 65 accredited investors an aggregate of 88,669,759 shares of Series E preferred stock (convertible into an aggregate of 88,669,759 shares of common stock) at a purchase price per share of $0.28 or, for purchasers who were investing by converting their promissory notes, at a price per share of $0.238. In connection therewith, we issued warrants to purchase an aggregate of 44,334,861 shares of our common stock at an exercise price of $0.28 per share for an aggregate warrant purchase price of approximately $680.

    6.
    From August 2014 to November 2014, we granted options to purchase 2,648,539 shares of our Series E preferred stock at $0.28 per share, 2,401,491 of which were exercised at $0.28 per share. In connection therewith, we issued warrants to purchase an aggregate of 1,200,740 shares of our common stock at an exercise price of $0.28 per share for an aggregate warrant purchase price of approximately $440.

       The sales of the above securities were deemed to be exempt from registration under the Securities Act with respect to items 2, 4 and 5 above in reliance on Section 4(2) of the Securities Act,

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or Regulation D promulgated thereunder, and with respect to items 1, 3 and 6 above in reliance on Rule 701 promulgated under Section 3(b) of the Securities Act as transactions by an issuer not involving a public offering or transactions pursuant to compensatory benefit plans and contracts relating to compensation as provided under such Rule 701. The recipients of securities in each such transaction represented their intention to acquire the securities for investment only and not with a view to or for sale in connection with any distribution thereof and appropriate legends were affixed to the share certificates and warrants issued in such transactions. All recipients had adequate access, through their relationships with us, to information about us.

Item 16.    Exhibits and Financial Statement Schedules

    (a)
    Exhibits.

Exhibit
Number
  Exhibit Title
  1.1   Form of Underwriting Agreement.

 

3.1

 

Amended and Restated Certificate of Incorporation of the registrant (Delaware) as currently in effect.

 

3.2

*

Amended and Restated Certificate of Incorporation of the registrant (Delaware) to be effective upon closing of the offering.

 

3.3

 

Bylaws of the registrant as currently in effect.

 

3.4

*

Bylaws of the registrant to be effective upon the closing of the offering.

 

3.5

 

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the registrant (Delaware) filed November 20, 2014.

 

4.1

*

Specimen Common Stock certificate of the registrant.

 

5.1

*

Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

 

10.1

*

Form of Indemnification Agreement for directors and executive officers.

 

10.2

 

2009 Stock Plan and Form of Option Agreement thereunder.

 

10.3

 

2014 Preferred Stock Plan.

 

10.4

*

2014 Equity Incentive Plan.

 

10.5

*

2014 Employee Stock Purchase Plan.

 

10.6

 

Amended and Restated Investors' Rights Agreement dated September 2, 2014 by and among the registrant and certain stockholders.

 

10.7

 

Lease Agreement, dated July 30, 2010, by and between the registrant and HCP LS Redwood City, LLC for office space located at 400 and 600 Chesapeake Drive, Redwood City, California.

 

10.8

 

First Amendment to Lease Agreement dated September 30, 2011 by and between registrant and HCP LS Redwood City, LLC.

 

10.9

 

Credit Agreement dated April 18, 2013 by and between registrant and PDL Biopharma.

 

10.10

 

Security Agreement dated April 18, 2013 by and between registrant and PDL BioPharma.

 

10.11

 

Employment Letter dated November 5, 2014 by and between registrant and John B. Simpson.

 

10.12

 

Employment Letter dated April 2, 2014 by and between registrant and John D. Simpson.

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Exhibit
Number
  Exhibit Title
  10.13   Employment Letter dated December 29, 2010 by and between registrant and Matthew B. Ferguson.

 

10.14

 

Employment Letter dated November 28, 2011 by and between registrant and Sougata Banerjee.

 

10.15

 

Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and John B. Simpson.

 

10.16

 

Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and Matthew B. Ferguson.

 

10.17

 

Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and Sougata Banerjee.

 

10.18

 

Note and Warrant Purchase Agreement dated October 29, 2013 by and between registrant and holders of convertible promissory notes.

 

10.19

 

Amendment No. 1 to the Note and Warrant Purchase Agreement dated May 6, 2014 by and between registrant and holders of convertible promissory notes.

 

10.20

 

Employment Letter dated December 17, 2014 by and between registrant and Jeffrey M. Soinski.

 

23.1

 

Consent of Independent Registered Public Accounting Firm.

 

23.2

*

Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1).

 

24.1

 

Power of Attorney (see page II-6).

Previously submitted.

*
To be filed by amendment.
    (b)
    Financial Statement Schedules.

       All other schedules have been omitted because the information required to be set forth therein is not applicable or is shown in the financial statements or notes thereto.

Schedule II—Valuation and Qualifying Accounts

Description
  Balance at
Beginning
of Year
  Additions   Deductions   Balance at
End of Year
 

Allowance for doubtful accounts receivable:

                         

Fiscal year ended December 31, 2012

  $ 30   $ 36   $ 12   $ 54  

Fiscal year ended December 31, 2013

  $ 54   $ 45   $ 79   $ 20  

Allowance for sales returns:

   
 
   
 
   
 
   
 
 

Fiscal year ended December 31, 2012

  $   $ 235   $   $ 235  

Fiscal year ended December 31, 2013

  $ 235   $ 310   $ 457   $ 88  

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Item 17.    Undertakings.

       The undersigned Registrant hereby undertakes to provide to the underwriters at the closing specified in the underwriting agreement certificates in such denominations and registered in such names as required by the underwriters to permit prompt delivery to each purchaser.

       Insofar as indemnification for liabilities arising under the Securities Act of 1933 may be permitted to directors, officers and controlling persons of the registrant pursuant to the foregoing provisions, or otherwise, the registrant has been advised that in the opinion of the Securities and Exchange Commission such indemnification is against public policy as expressed in the Act and is, therefore, unenforceable. In the event that a claim for indemnification against such liabilities (other than the payment by the registrant of expenses incurred or paid by a director, officer or controlling person of the registrant in the successful defense of any action, suit or proceeding) is asserted by such director, officer or controlling person in connection with the securities being registered, the registrant will, unless in the opinion of its counsel the matter has been settled by controlling precedent, submit to a court of appropriate jurisdiction the question whether such indemnification by it is against public policy as expressed in the Act and will be governed by the final adjudication of such issue.

       The undersigned Registrant hereby undertakes that:

       (1)   For purposes of determining any liability under the Securities Act of 1933, the information omitted from the form of prospectus filed as part of this registration statement in reliance upon Rule 430A and contained in a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1) or (4) or 497(h) under the Securities Act shall be deemed to be part of this registration statement as of the time it was declared effective.

       (2)   For the purpose of determining any liability under the Securities Act of 1933, each post-effective amendment that contains a form of prospectus shall be deemed to be a new registration statement relating to the securities offered therein, and the offering of such securities at that time shall be deemed to be the initial bona fide offering thereof.

II-5


Table of Contents


SIGNATURES

       Pursuant to the requirements of the Securities Act of 1933, the registrant has duly caused this registration statement to be signed on its behalf by the undersigned, thereunto duly authorized, in Redwood City, State of California, on the 30 day of December, 2014.

    AVINGER, INC.

 

 

By:

 

/s/ JEFFREY M. SOINSKI

Jeffrey M. Soinski
Chief Executive Officer


POWER OF ATTORNEY

       KNOW ALL PERSONS BY THESE PRESENTS, that each person whose signature appears below hereby constitutes and appoints John B. Simpson, Ph.D., M.D. and Matthew B. Ferguson, and each of them acting individually, as his true and lawful attorneys-in-fact and agents, with full power of each to act alone, with full powers of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, to sign the Registration Statement filed herewith and any and all amendments to said Registration Statement (including post-effective amendments and any related registration statements thereto filed pursuant to Rule 462 and otherwise), and file the same, with all exhibits thereto, and other documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agents, with full power of each to act alone, full power and authority to do and perform each and every act and thing requisite and necessary to be done in connection therewith, as fully for all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or his or their substitutes, may lawfully do or cause to be done by virtue hereof.

       Pursuant to the requirements of the Securities Act of 1933, this registration statement has been signed by the following persons in the capacities and on the dates indicated:

Signature
 
Title
 
Date

 

 

 

 

 
/s/ JEFFREY M. SOINSKI

Jeffrey M. Soinski
  Chief Executive Officer (Principal Executive Officer); Director   December 30, 2014

/s/ MATTHEW B. FERGUSON

Matthew B. Ferguson

 

Chief Financial Officer and Chief Business Officer
(Principal Financial and Accounting Officer)

 

December 30, 2014

 

Donald A. Lucas

 

Director

 

 

II-6


Table of Contents

Signature
 
Title
 
Date

 

 

 

 

 
/s/ JOHN B. SIMPSON

John B. Simpson, Ph.D., M.D.
  Executive Chairman of the Board of Directors; Director   December 30, 2014

/s/ JAMES B. MCELWEE

James B. McElwee

 

Director

 

December 30, 2014

/s/ JOHN D. SIMPSON

John D. Simpson

 

Director

 

December 30, 2014

/s/ JAMES G. CULLEN

James G. Cullen

 

Director

 

December 30, 2014

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Table of Contents


EXHIBIT INDEX

Exhibit
Number
  Exhibit Title
  1.1   Form of Underwriting Agreement.

 

3.1

 

Amended and Restated Certificate of Incorporation of the registrant (Delaware) as currently in effect.

 

3.2

*

Amended and Restated Certificate of Incorporation of the registrant (Delaware) to be effective upon closing of the offering.

 

3.3

 

Bylaws of the registrant as currently in effect.

 

3.4

*

Bylaws of the registrant to be effective upon the closing of the offering.

 

3.5

 

Certificate of Amendment of Amended and Restated Certificate of Incorporation of the registrant (Delaware) filed November 20, 2014.

 

4.1

*

Specimen Common Stock certificate of the registrant.

 

5.1

*

Opinion of Wilson Sonsini Goodrich & Rosati, Professional Corporation.

 

10.1

*

Form of Indemnification Agreement for directors and executive officers.

 

10.2

 

2009 Stock Plan and Form of Option Agreement thereunder.

 

10.3

 

2014 Preferred Stock Plan.

 

10.4

*

2014 Equity Incentive Plan.

 

10.5

*

2014 Employee Stock Purchase Plan.

 

10.6

 

Amended and Restated Investors' Rights Agreement dated September 2, 2014 by and among the registrant and certain stockholders.

 

10.7

 

Lease Agreement, dated July 30, 2010, by and between the registrant and HCP LS Redwood City, LLC for office space located at 400 and 600 Chesapeake Drive, Redwood City, California.

 

10.8

 

First Amendment to Lease Agreement dated September 30, 2011 by and between registrant and HCP LS Redwood City, LLC.

 

10.9

 

Credit Agreement dated April 18, 2013 by and between registrant and PDL Biopharma.

 

10.10

 

Security Agreement dated April 18, 2013 by and between registrant and PDL BioPharma.

 

10.11

 

Employment Letter dated November 5, 2014 by and between registrant and John B. Simpson.

 

10.12

 

Employment Letter dated April 2, 2014 by and between registrant and John D. Simpson.

 

10.13

 

Employment Letter dated December 29, 2010 by and between registrant and Matthew B. Ferguson.

 

10.14

 

Employment Letter dated November 28, 2011 by and between registrant and Sougata Banerjee.

 

10.15

 

Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and John B. Simpson.

 

10.16

 

Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and Matthew B. Ferguson.

Table of Contents

Exhibit
Number
  Exhibit Title
  10.17   Change of Control and Severance Agreement dated March 1, 2012 by and between registrant and Sougata Banerjee.

 

10.18

 

Note and Warrant Purchase Agreement dated October 29, 2013 by and between registrant and holders of convertible promissory notes.

 

10.19

 

Amendment No. 1 to the Note and Warrant Purchase Agreement dated May 6, 2014 by and between registrant and holders of convertible promissory notes.

 

10.20

 

Employment Letter dated December 17, 2014 by and between registrant and Jeffrey M. Soinski.

 

23.1

 

Consent of Independent Registered Public Accounting Firm.

 

23.2

*

Consent of Wilson Sonsini Goodrich & Rosati, Professional Corporation (See Exhibit 5.1).

 

24.1

 

Power of Attorney (see page II-6).

Previously submitted.

*
To be filed by amendment.



Exhibit 1.1

 

AVINGER, INC.

 

(a Delaware corporation)

 

[          ] Shares of Common Stock

 

UNDERWRITING AGREEMENT

 

, 2015

 

Canaccord Genuity Inc.

Cowen and Company, LLC

as Representatives of the several Underwriters

 

c/o Canaccord Genuity Inc.

350 Madison Avenue

New York, NY  10017

 

c/o Cowen and Company, LLC

599 Lexington Avenue, 27 th  Floor

New York, NY  10022

 

Ladies and Gentlemen:

 

Avinger, Inc., a Delaware corporation (the “ Company ”), confirms its agreement with Canaccord Genuity Inc.  (“ Canaccord ”), Cowen and Company, LLC (“ Cowen ”) and each of the other underwriters named in Schedule A hereto (collectively, the “ Underwriters ,” which term shall also include any underwriter substituted as provided in Section 10 hereof), for whom Canaccord and Cowen are acting as representatives (in such capacity, the “ Representatives ”), with respect to (i) the sale by the Company and the purchase by the Underwriters, acting severally and not jointly, of the respective numbers of shares of common stock, par value $0.001 per share, of the Company (the “ Common Stock ”) set forth in Schedule A hereto and (ii) the grant by the Company to the Underwriters, acting severally and not jointly, of the option described in Section 2(b)  hereof to purchase all or any part of [          ] additional shares of Common Stock to cover over-allotments, if any, pursuant to this Underwriting Agreement (this “ Agreement ”). The aforesaid [          ] shares of Common Stock (the “ Initial Securities ”) to be purchased by the Underwriters and all or any part of the [          ] shares of Common Stock subject to the option described in Section 2(b)  hereof (the “ Option Securities ”) are herein called, collectively, the “ Securities .”

 

The Representatives have agreed to reserve a portion of the Initial Securities to be purchased by the Underwriters under this Agreement, up to [          ] shares of the Initial Securities, for sale to the Company’s directors, officers, employees, consultants and other parties related to the Company (collectively, “ Participants ”), as set forth in the Prospectus (as hereinafter defined) under the heading “Underwriting” (the “ Directed Share Program ”).  The Directed Share Program shall be administered by Fidelity Capital Markets, a division of National Financial Services LLC. The Initial Securities to be sold pursuant to the Directed Share Program are referred to hereinafter as the “ Directed Shares .”  Any Directed Shares not orally confirmed for purchase by any Participant by 9:00 a.m., New York City time on the business day following the day that this Agreement is executed will be offered to the public by the Underwriters as set forth in the Prospectus.

 

The Company understands that the Underwriters propose to make a public offering of the Securities as soon as the Representatives deem advisable after this Agreement has been executed and delivered.

 

The Company has filed with the Securities and Exchange Commission (the “ Commission ”) a registration statement on Form S-1 (No. 333-[          ]), including the related preliminary prospectus or prospectuses, covering the registration of the sale of the Securities under the Securities Act of 1933, as amended (the “ 1933 Act ”). Promptly after execution and delivery of this Agreement, the Company will prepare and file a prospectus in accordance with the provisions of Rule 430A (“ Rule 430A ”) of the rules and regulations of the Commission under the 1933 Act (the “ 1933 Act Regulations ”) and Rule 424(b) (“ Rule 424(b) ”) of the 1933 Act Regulations. The information included in such prospectus that was omitted from such registration statement at the time it became

 



 

effective but that is deemed to be part of such registration statement at the time it became effective pursuant to Rule 430A(b) is herein called the “ Rule 430A Information .” Such registration statement, including the amendments thereto, the exhibits thereto and any schedules thereto, at the time it became effective, and including the Rule 430A Information, is herein called the “ Registration Statement .” Any registration statement filed pursuant to Rule 462(b) of the 1933 Act Regulations is herein called the “ Rule 462(b) Registration Statement ” and, after such filing, the term “Registration Statement” shall include the Rule 462(b) Registration Statement. Each prospectus used prior to the effectiveness of the Registration Statement, and each prospectus that omitted the Rule 430A Information that was used after such effectiveness and prior to the execution and delivery of this Agreement is herein called a “ preliminary prospectus .” The final prospectus, in the form first furnished to the Underwriters for use in connection with the offering of the Securities, is herein called the “ Prospectus .” For purposes of this Agreement, all references to the Registration Statement, any preliminary prospectus, the Prospectus or any amendment or supplement to any of the foregoing shall be deemed to include the copy filed with the Commission pursuant to its Electronic Data Gathering, Analysis and Retrieval system or any successor system (“ EDGAR ”).

 

As used in this Agreement:

 

Applicable Time ” means [          ] [P./A.M.], New York City time, on [          ], 2015 or such other time as agreed by the Company and the Representatives.

 

General Disclosure Package ” means any Issuer General Use Free Writing Prospectuses issued at or prior to the Applicable Time, the most recent preliminary prospectus that is distributed to investors prior to the Applicable Time and the information included on Schedule B-1 hereto, all considered together.

 

Issuer Free Writing Prospectus ” means any “issuer free writing prospectus,” as defined in Rule 433 of the 1933 Act Regulations (“ Rule 433 ”), including without limitation any “free writing prospectus” (as defined in Rule 405 of the 1933 Act Regulations (“ Rule 405 ”)) relating to the Securities that is (i) required to be filed with the Commission by the Company, (ii) a “road show that is a written communication” within the meaning of Rule 433(d)(8)(i), whether or not required to be filed with the Commission, or (iii) exempt from filing with the Commission pursuant to Rule 433(d)(5)(i) because it contains a description of the Securities or of the offering that does not reflect the final terms, in each case in the form filed or required to be filed with the Commission or, if not required to be filed, in the form retained in the Company’s records pursuant to Rule 433(g).

 

Issuer General Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is intended for general distribution to prospective investors (other than a “ bona fide electronic road show,” as defined in Rule 433 (the “ Bona Fide Electronic Road Show ”)), as evidenced by its being specified in Schedule B-2 hereto.

 

Issuer Limited Use Free Writing Prospectus ” means any Issuer Free Writing Prospectus that is not an Issuer General Use Free Writing Prospectus.

 

SECTION 1. Representations and Warranties .

 

(a)  Representations and Warranties by the Company . The Company represents and warrants to each Underwriter as of the date hereof, the Applicable Time, the Closing Time (as defined below) and any Date of Delivery (as defined below), and agrees with each Underwriter, as follows:

 

(i)  Registration Statement and Prospectuses . Each of the Registration Statement and any amendment thereto has been declared effective under the 1933 Act. No stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated. The Company has complied with each request (if any) from the Commission for additional information.

 

Each of the Registration Statement and any post-effective amendment thereto, at the time it became effective, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus, the Prospectus and any amendment or supplement thereto, at the

 

 

2



 

time each was filed with the Commission, complied in all material respects with the requirements of the 1933 Act and the 1933 Act Regulations. Each preliminary prospectus delivered by the Company to the Underwriters for use in connection with this offering and the Prospectus was or will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(ii)  Accurate Disclosure . Neither the Registration Statement nor any amendment thereto, at its effective time, at the Closing Time or at any Date of Delivery, contained, contains or will contain an untrue statement of a material fact or omitted, omits or will omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading. As of the Applicable Time, neither (A) the General Disclosure Package nor (B) any individual Issuer Limited Use Free Writing Prospectus, when considered together with the General Disclosure Package, included an untrue statement of a material fact or omitted to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading. Neither the Prospectus nor any amendment or supplement thereto (including any prospectus wrapper), as of its issue date, at the time of any filing with the Commission pursuant to Rule 424(b), at the Closing Time or at any Date of Delivery, included, includes or will include an untrue statement of a material fact or omitted, omits or will omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

The representations and warranties in this Section 1(a)(ii) shall not apply to statements in or omissions from the Registration Statement (or any amendment thereto), the General Disclosure Package, the Prospectus (or any amendment or supplement thereto) or any Issuer Free Writing Prospectus made in reliance upon and in conformity with written information furnished to the Company by any Underwriter through the Representatives expressly for use therein. For purposes of this Agreement, the only information so furnished shall be the statements relating to the concession figures under the heading “Underwriting-Commissions and Discounts” and statements relating to stabilization under the heading “Underwriting-Price Stabilization, Short Positions and Penalty Bids” in each case contained in the Prospectus (collectively, the “ Underwriter Information ”).

 

(iii)  Issuer Free Writing Prospectuses . No Issuer Free Writing Prospectus conflicts or will conflict with the information contained in the Registration Statement or the Prospectus, and any preliminary or other prospectus deemed to be a part thereof that has not been superseded or modified. The Company has made available a Bona Fide Electronic Road Show in compliance with Rule 433(d)(8)(ii) such that no filing of any “road show” (as defined in Rule 433(h)) is required in connection with the offering of the Securities.

 

(iv)  Company Not Ineligible Issuer . At the time of filing the Registration Statement and any post-effective amendment thereto, at the earliest time thereafter that the Company or another offering participant made a bona fide offer (within the meaning of Rule 164(h)(2) of the 1933 Act Regulations) of the Securities and at the date hereof, the Company was not and is not an “ineligible issuer,” as defined in Rule 405, without taking account of any determination by the Commission pursuant to Rule 405 that it is not necessary that the Company be considered an ineligible issuer.

 

(v)  Emerging Growth Company Status . From the time of the initial confidential submission of the Registration Statement to the Commission on November 6, 2014 (or, if earlier, the first date on which the Company engaged directly or through any person authorized to act on its behalf in any Testing-the-Waters Communication) through the date hereof, the Company has been and is an “emerging growth company” as defined in Section 2(a) of the Securities Act (an “ Emerging Growth Company ”). “ Testing-the-Waters Communications ” means any oral or written communication with potential investors and undertaken in reliance on Section 5(d) of the Securities Act. “ Written Testing-the-Waters Communication ” means any Testing-the-Waters Communication that is a written communication within the meaning of Rule 405 under the Securities Act.

 

(vi)  Testing-the-Waters Materials . The Company has not engaged in any Testing-the-Waters Communication other than Testing-the-Waters Communications with the consent of the Representatives with entities that are qualified institutional buyers within the meaning of Rule 144A under the Securities Act or institutions that are accredited investors within the meaning of Rule 501 under the Securities Act and has not authorized anyone other than the Representatives to engage in Testing-the-Waters Communications.  The

 

3



 

Company reconfirms that the Representatives have been authorized to act on its behalf in undertaking Testing-the-Waters Communications. The Company has not distributed or approved for distribution any Written Testing-the-Waters Communications other than those listed on Schedule C hereto.  Each Written Testing-the-Waters Communication does not conflict with the information contained in the Registration Statement or the General Disclosure Package, complied in all material respects with the applicable provisions of the Securities Act and, when taken together with the General Disclosure Package as of the Applicable Time, did not, and as of the Closing Time and as of any Date of Delivery, as the case may be, will not, include an untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading.

 

(vii)  Independent Accountants . Ernst & Young LLP, who certified the financial statements and supporting schedules included in the Registration Statement, the General Disclosure Package and the Prospectus are independent public accountants as required by the 1933 Act, the 1933 Act Regulations and the Public Company Accounting Oversight Board.

 

(viii)  Financial Statements; Non-GAAP Financial Measures . The financial statements included in the Registration Statement, the General Disclosure Package and the Prospectus, together with the related schedules and notes, present fairly, in all material respects, the financial position of the Company at the dates indicated and its results of operations, stockholders’ equity and cash flows for the periods specified; said financial statements have been prepared in conformity with U.S. generally accepted accounting principles (“ GAAP ”) applied on a consistent basis throughout the periods involved (except for any preparation of non-GAAP measures). The supporting schedules, if any, present fairly in all material respects in accordance with GAAP the information required to be stated therein. The selected financial data and the summary financial information included in the Registration Statement, the General Disclosure Package and the Prospectus present fairly the information shown therein and have been compiled on a basis consistent with that of the audited financial statements included therein. Except as included therein, no historical or pro forma financial statements or supporting schedules are required to be included in the Registration Statement, the General Disclosure Package or the Prospectus under the 1933 Act or the 1933 Act Regulations. All disclosures contained in the Registration Statement, the General Disclosure Package or the Prospectus regarding “non-GAAP financial measures” (as such term is defined by the rules and regulations of the Commission) comply with Regulation G of the Securities Exchange Act of 1934, as amended (the “ 1934 Act ”), and Item 10 of Regulation S-K of the 1933 Act, to the extent applicable.

 

(ix)  No Material Adverse Change in Business . Except as otherwise stated therein, since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, (A) there has been no material adverse change in the condition, financial or otherwise, or in the earnings, business affairs or business prospects of the Company, whether or not arising in the ordinary course of business (a “ Material Adverse Effect ”), (B) there have been no transactions entered into by the Company, other than those in the ordinary course of business, which are material to the Company, and (C) there has been no dividend or distribution of any kind declared, paid or made by the Company on any class of its capital stock.

 

(x)  Good Standing of the Company . The Company is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware.  The Company has requisite corporate power and authority to own, lease and operate its properties and to conduct its business as described in the Registration Statement, the General Disclosure Package and the Prospectus and to enter into and perform its obligations under this Agreement; and the Company is duly qualified as a foreign corporation to transact business and is in good standing in each other jurisdiction in which such qualification is required, whether by reason of the ownership or leasing of property or the conduct of business, except where the failure so to qualify or to be in good standing would not result in a Material Adverse Effect.

 

(xi)  Subsidiaries . The Company does not have, and has not had, any subsidiaries.

 

(xii)  Capitalization . The authorized, issued and outstanding shares of capital stock of the Company are as set forth in the Registration Statement, the General Disclosure Package and the Prospectus under the caption “Capitalization”. The outstanding shares of capital stock of the Company have been duly authorized and validly issued and are fully paid and non-assessable. None of the outstanding shares of capital stock of the

 

4



 

Company were issued in violation of the preemptive or other similar rights of any securityholder of the Company. Except as described in or expressly contemplated by the Registration Statement, the General Disclosure Package and the Prospectus, there are no outstanding rights (including, without limitation, pre-emptive rights), warrants or options to acquire, or instruments convertible into or exchangeable for, any shares of capital stock or other equity interest in the Company, or any contract, commitment, agreement, understanding or arrangement of any kind relating to the issuance of any capital stock of the Company, any such convertible or exchangeable securities or any such rights, warrants or options.

 

(xiii)        Stock Options.   With respect to the outstanding stock options (the “ Stock Options ”) granted pursuant to the stock-based compensation plans of the Company (the “ Company Stock Plans ”), (i) each Stock Option intended to qualify as an “incentive stock option” under Section 422 of the Internal Revenue Code of 1986 , as amended (the “ Code ”), so qualified, (ii) each grant of a Stock Option was duly authorized no later than the date on which the grant of such Stock Option was by its terms to be effective (the “ Grant Date ”) by all necessary corporate action, including, as applicable, approval by the board of directors of the Company (or a duly constituted and authorized committee thereof) and any required stockholder approval by the necessary number of votes or written consents, and the award agreement governing such grant (if any) was duly executed and delivered by each party thereto, (iii) each such grant was made in accordance with the terms of the Company Stock Plans and all other applicable laws and regulatory rules or requirements, except where the failure to comply with such laws, regulatory rules or requirements would not result in a Material Adverse Effect, and (iv) each such grant was properly accounted for in accordance with GAAP in the financial statements (including the related notes) of the Company included in the Registration Statement, the General Disclosure Package and the Prospectus, to the extent required under GAAP to be accounted for in such financial statements.

 

(xiv)  Authorization of Agreement . This Agreement has been duly authorized, executed and delivered by the Company.

 

(xv)  Authorization and Description of Securities . The Securities to be purchased by the Underwriters from the Company have been duly authorized for issuance and sale to the Underwriters pursuant to this Agreement and, when issued and delivered by the Company pursuant to this Agreement against payment of the consideration set forth herein, will be validly issued and fully paid and non-assessable; and the issuance of the Securities is not subject to the preemptive or other similar rights of any securityholder of the Company.. The capital stock of the Company conforms in all material respects to all statements relating thereto contained in the Registration Statement, the General Disclosure Package and the Prospectus and such description conforms in all material respects to the rights set forth in the instruments defining the same. No holder of Securities will be subject to personal liability solely by reason of being such a holder.

 

(xvi)  Registration Rights . There are no persons with registration rights or other similar rights to have any securities registered for sale pursuant to the Registration Statement or otherwise registered for sale or sold by the Company under the 1933 Act pursuant to this Agreement, other than those rights that have been disclosed in the Registration Statement, the General Disclosure Package and the Prospectus and have been waived or satisfied.

 

(xvii)  Absence of Violations, Defaults and Conflicts . The Company is not (A) in violation of its charter or by-laws, (B) in default in the performance or observance of any obligation, agreement, covenant or condition contained in any contract, indenture, mortgage, deed of trust, loan or credit agreement, note, lease or other agreement or instrument to which the Company is a party or by which it may be bound or to which any of the properties or assets of the Company is subject (collectively, “ Agreements and Instruments ”), except for such defaults that would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect, or (C) in violation of any law, statute, rule, regulation, judgment, order, writ or decree of any arbitrator, court, governmental body, regulatory body, administrative agency or other authority, body or agency having jurisdiction over the Company or any of its properties, assets or operations (each, a “ Governmental Entity ”), except for such violations that would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect. The execution, delivery and performance of this Agreement and the consummation of the transactions contemplated herein and in the Registration Statement, the General Disclosure Package and the Prospectus (including the issuance and sale of the Securities and the use of the proceeds from the sale of the Securities as described therein under the caption “Use of Proceeds”) and compliance by the Company with

 

5



 

its obligations hereunder have been duly authorized by all necessary corporate action and do not and will not, whether with or without the giving of notice or passage of time or both, conflict with or constitute a breach of, or default or Repayment Event (as defined below) under, or result in the creation or imposition of any lien, charge or encumbrance upon any properties or assets of the Company pursuant to, the Agreements and Instruments (except for such conflicts, breaches, defaults or Repayment Events or liens, charges or encumbrances that would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect), nor will such action result in any violation of (i) the provisions of the charter or by-laws of the Company or (ii) any law, statute, rule, regulation, judgment, order, writ or decree of any Governmental Entity, except with respect to clause (ii), such violations as would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect. As used herein, a “ Repayment Event ” means any event or condition which gives the holder of any note, debenture or other evidence of indebtedness (or any person acting on such holder’s behalf) the right to require the repurchase, redemption or repayment of all or a portion of such indebtedness by the Company.

 

(xviii)  Absence of Labor Dispute . No labor dispute with the employees of the Company exists or, to the knowledge of the Company, is imminent, and the Company has no knowledge of any existing or imminent labor dispute by the employees of any of its principal suppliers, manufacturers, customers or contractors.

 

(xix)  Absence of Proceedings . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, there is no action, suit, proceeding, inquiry or investigation before or brought by any Governmental Entity now pending or, to the knowledge of the Company, threatened against the Company, which would reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect, or which would reasonably be expected to, singly or in the aggregate, materially and adversely affect the consummation of the transactions contemplated in this Agreement or the performance by the Company of its obligations hereunder.

 

(xx)  Accuracy of Exhibits . There are no contracts or documents which are required to be described in the Registration Statement, the General Disclosure Package or the Prospectus or to be filed as exhibits to the Registration Statement which have not been so described and filed as required.

 

(xxi)  Absence of Further Requirements . No filing with, or authorization, approval, consent, license, order, registration, qualification or decree of, any Governmental Entity is necessary or required for the performance by the Company of its obligations hereunder, in connection with the offering, issuance or sale of the Securities hereunder or the consummation of the transactions contemplated by this Agreement, except such as have been already obtained or as may be required under the 1933 Act, the 1933 Act Regulations, the rules of the NASDAQ Stock Market LLC, state securities laws or the rules of the Financial Industry Regulatory Authority, Inc. (“ FINRA ”).

 

(xxii)  Possession of Licenses and Permits . The Company possesses such permits, licenses, certificates, approvals, clearances, consents and other authorizations (collectively, “ Governmental Licenses ”) issued by the appropriate Governmental Entities necessary to conduct the business now operated by them, including, without limitation, all such Governmental Licenses required by the United States Food and Drug Administration (the “ FDA ”) and CE marking approval in the European Union, except where the failure so to possess would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect. The Company is in compliance with the terms and conditions of all Governmental Licenses and, to the Company’s knowledge, no event has occurred which allows, or after notice or lapse of time would allow, revocation or termination thereof or result in any other material impairment of the rights of the holder of any Government License, except where the failure so to comply would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect. All of the Governmental Licenses are valid and in full force and effect. The Company (a) has not received notice of any ongoing claim, action, suit, proceeding, hearing, enforcement, investigation, arbitration or other action from any U.S. or non-U.S. Governmental Entity or third party alleging that any product, operation or activity is in violation of any Health Care Laws (as defined below) or Governmental Licenses and has no knowledge that any such Governmental Entity or third party is considering any such claim, litigation, arbitration, action, suit, investigation or proceeding; (b) has not received notice that the FDA or any other Governmental Entity has taken, is taking or intends to take regulatory action, including, without limitation, any FDA Form 483 notice of adverse finding, warning letter, untitled letter or similar correspondence or notice, and has no knowledge that the FDA or any other

 

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Governmental Entity is considering such action; (c) has not, either voluntarily or involuntarily, initiated, conducted, or issued or caused to be initiated, conducted or issued, any recall, safety alert, or similar notice or action relating to any alleged product defect or violation of Health Care Laws; and (d) is not a party to any corporate integrity agreement, deferred prosecution agreement, monitoring agreement, consent decree, settlement order, or similar agreements, or has any reporting obligations pursuant to any such agreement, plan or correction or other remedial measure entered into with any Governmental Entity. Neither the Company nor its officers, directors, employees, agents or contractors have been or are currently excluded from participation in the Medicare and Medicaid programs or any other state or federal health care program.

 

(xxiii)  Compliance with Healthcare Laws . Except as would not reasonably be expected to have a Material Adverse Effect, the Company is conducting its business in compliance with all applicable health care laws, rules, and regulations of each jurisdiction in which it conducts its business (collectively, the “ Health Care Laws ”), including, without limitation, (A) the Federal Food, Drug and Cosmetic Act (21 U.S.C. §§ 301 et seq. ), and the rules and regulations promulgated thereunder (as amended, collectively, the “ FFDCA ”), (B) all applicable federal and state fraud and abuse laws, including, without limitation, the federal Anti-Kickback Statute (42 U.S.C. § 1320a-7(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)), Sections 1320a-7 and 1320a-7a of Title 42 of the United States Code and the regulations promulgated pursuant to such statutes, (C) the administrative simplification provisions of the Health Insurance Portability and Accountability Act of 1996 (18 U.S.C. §§669, 1035, 1347 and 1518; 42 U.S.C. §1320d et seq.) as amended by the Health Information Technology for Economic and Clinical Health Act of 2009 and the regulations promulgated thereunder, (D) the Medicare Prescription Drug, Improvement, and Modernization Act of 2003 (42 U.S.C. §1395w-101 et seq.) and the regulations promulgated thereunder, (E) the Patient Protection and Affordable Care Act, as amended by the Health Care and Education Affordability Reconciliation Act of 2010, (F) Medicare (Title XVIII of the Social Security Act) and the regulations promulgated thereunder, and (G) Medicaid (Title XIX of the Social Security Act) and the regulations promulgated thereunder, each of such applicable laws, rules and regulations as may be amended from time to time.

 

(xxiv)  Clinical Studies . The clinical, pre-clinical and other studies and tests conducted by or on behalf of the Company or in which the Company or its products or product candidates has participated, were and, if still pending, are being conducted in accordance with experimental protocols, procedures and controls and with all applicable local, state, federal and foreign laws, rules, regulations and guidances, including, without limitation, the FFDCA. None of the descriptions of the tests and preclinical and clinical studies, conducted by or on behalf of the Company contained in the Registration Statement, the General Disclosure Package and the Prospectus contains an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading. The Company is not aware of any studies, tests or trials the results of which the Company believes reasonably call into question the study, test or trial results described or referred to in the Registration Statement, the General Disclosure Package and the Prospectus when viewed in the context in which such results are described and the clinical state of development. Except to the extent disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no investigational device exemption filed by or on behalf of the Company with the FDA or a Governmental Entity has been terminated or suspended by the FDA or Governmental Entity, and neither the FDA nor any Governmental Entity has commenced, or, to the knowledge of the Company, threatened to initiate, any action to place a clinical hold order on, or otherwise terminate or suspend any ongoing studies, tests or preclinical or clinical trials or investigations conducted or proposed to be conducted by or on behalf of the Company.

 

(xxv)  Fraud and Abuse . The Company is not the subject of any pending or, to the knowledge of the Company, threatened investigation in respect of the Company or the Company’s products, 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. Neither the Company nor, to the knowledge of the Company, any of its officers, employees or agents has been convicted of any crime or engaged in any conduct that could result in a debarment or exclusion (A) under 21 U.S.C. Section 335a, or (B) any similar applicable law. As of the date hereof, except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, no claims, actions, proceedings or investigations that would reasonably be expected to result in such a debarment or exclusion are pending against the Company or, to the

 

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knowledge of the Company, any of its officers, employees or agent, or, to the knowledge of the Company, threatened against the Company or any of its officers, employees or agents.

 

(xxvi)  Title to Property . The Company has good and marketable title to all real property owned by it and good title or valid leases to all personal property owned by it, in each case, free and clear of all mortgages, pledges, liens, security interests, claims, restrictions or encumbrances (except for customary easements and rights of way) of any kind except such as (A) are described in the Registration Statement, the General Disclosure Package and the Prospectus or (B) do not, singly or in the aggregate, materially affect the value of such property and do not materially interfere with the use made and proposed to be made of such property by the Company; and all of the leases and subleases material to the business of the Company and under which the Company holds properties described in the Registration Statement, the General Disclosure Package or the Prospectus, are in full force and effect, and the Company has not received any written notice of any material claim of any sort that has been asserted by anyone adverse to the rights of the Company under any of the leases or subleases mentioned above, or affecting or questioning the rights of the Company to the continued possession of the leased or subleased premises under any such lease or sublease.

 

(xxvii)  Possession of Intellectual Property . Except as would not reasonably be expected to have a Material Adverse Effect, (i)  the Company owns all right, title and interest in or otherwise have the right to use all patents, inventions, copyrights, know-how (including trade secrets and other unpatented and/or unpatentable proprietary or confidential information, systems or procedures), trademarks, service marks, trade names and other intellectual property rights (collectively, “ Intellectual Property ”) that is necessary for, used or held for use in, or otherwise exploited in connection with, the conduct of the business now operated by them and as proposed to be operated, and (ii) to the Company’s knowledge, the Company is not infringing, misappropriating, diluting or otherwise violating the Intellectual Property of any third party. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus or as would not reasonably be expected to have a Material Adverse Effect, (i) no action, suit, claim, or other proceeding is pending, or to the Company’s knowledge, is threatened, alleging that the Company is infringing, misappropriating, diluting, or otherwise violating the Intellectual Property of any third party in any respect, (ii) to the Company’s knowledge, no third party is infringing, misappropriating, diluting, or otherwise violating the Company’s Intellectual Property in any respect, and (iii) no action, suit, claim, or other proceeding is pending, or to the Company’s knowledge, is threatened, challenging the validity, enforceability, scope, registration, ownership or use of any Intellectual Property of the Company that is, singly or in the aggregate, necessary to its business (with the exception of office actions in connection with applications for the registration or issuance of such Intellectual Property).

 

(xxviii)  Environmental Laws . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus or would not reasonably be expected to, singly or in the aggregate, result in a Material Adverse Effect, (A)  the Company is not in violation of any federal, state, local or foreign statute, law, rule, regulation, ordinance, code, policy or rule of common law or any judicial or administrative interpretation thereof, including any judicial or administrative order, consent, decree or judgment, relating to pollution or protection of human health, the environment (including, without limitation, ambient air, surface water, groundwater, land surface or subsurface strata) or wildlife, including, without limitation, laws and regulations relating to the release or threatened release of chemicals, pollutants, contaminants, wastes, toxic substances, hazardous substances, petroleum or petroleum products, asbestos-containing materials or mold (collectively, “ Hazardous Materials ”) or to the manufacture, processing, distribution, use, treatment, storage, disposal, transport or handling of Hazardous Materials (collectively, “ Environmental Laws ”), (B) the Company has all permits, authorizations and approvals required under any applicable Environmental Laws and is in compliance with their requirements, (C) there are no pending or, to the knowledge of the Company, threatened administrative, regulatory or judicial actions, suits, demands, demand letters, claims, liens, notices of noncompliance or violation, investigation or proceedings relating to any Environmental Law against the Company and (D) to the knowledge of the Company, there are no existing events, conditions or facts that would reasonably be expected to form the basis of an order for clean-up or remediation, or an action, suit or proceeding by any private party or Governmental Entity, against or affecting the Company relating to Hazardous Materials or any Environmental Laws.

 

(xxix)  Disclosure Controls .  Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, the Company maintains an effective system of “disclosure controls and

 

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procedures” (as defined in Rule 13a-15(e) of the Exchange Act) that complies with the requirements of the Exchange Act and that has been designed to ensure that information required to be disclosed by the Company in reports that it files or submits under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Commission’s rules and forms, including controls and procedures designed to ensure that such information is accumulated and communicated to the Company’s management as appropriate to allow timely decisions regarding required disclosure.

 

(xxx)  Accounting Controls . Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, the Company maintains effective internal control over financial reporting (as defined under Rule 13a-15 and 15d-15 of the rules and regulations of the Commission under the 1934 Act (the “ 1934 Act Regulations ”)) and a system of internal accounting controls sufficient to provide reasonable assurances that (A) transactions are executed in accordance with management’s general or specific authorization; (B) transactions are recorded as necessary to permit preparation of financial statements in conformity with GAAP and to maintain accountability for assets; (C) access to assets is permitted only in accordance with management’s general or specific authorization; and (D) the recorded accountability for assets is compared with the existing assets at reasonable intervals and appropriate action is taken with respect to any differences. Except as described in the Registration Statement, the General Disclosure Package and the Prospectus, since the end of the Company’s most recent audited fiscal year, there has been (1) no material weakness in the Company’s internal control over financial reporting (whether or not remediated) and (2) no change in the Company’s internal control over financial reporting that has materially affected, or is reasonably likely to materially affect, the Company’s internal control over financial reporting.

 

(xxxi)  Payment of Taxes . All United States federal income tax returns of the Company required by law to be filed have been filed and all taxes shown by such returns or otherwise assessed, which are due and payable, have been paid, except assessments against which appeals have been or will be promptly taken and as to which adequate reserves have been provided other than as would not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect. The Company has filed all other tax returns that are required to have been filed by them pursuant to applicable foreign, state, local or other law except insofar as the failure to file such returns would not result in a Material Adverse Effect, and has paid all taxes due pursuant to such returns or pursuant to any assessment received by the Company, except for such taxes, if any, as are being contested in good faith and as to which adequate reserves have been established by the Company, other than as would not reasonably be expected to, singly or in the aggregate, have a Material Adverse Effect. Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the charges, accruals and reserves on the books of the Company in respect of any income and corporation tax liability for any years not finally determined are believed to be adequate to meet any assessments or re-assessments for additional income tax for any years not finally determined, except to the extent of any inadequacy that would not reasonably be expected to result in a Material Adverse Effect.

 

(xxxii)  Insurance . The Company carries or is entitled to the benefits of insurance, with reputable insurers, in such amounts and covering such risks as is reasonably prudent and customary in the businesses in which it is engaged, and all such insurance is in full force and effect. The Company has no reason to believe that it will not be able (A) to renew its existing insurance coverage as and when such policies expire or (B) to obtain comparable coverage from similar institutions as may be necessary or appropriate to conduct its business as now conducted and at a cost that would not result in a Material Adverse Effect. The Company has not been denied the issuance of any material insurance policies which it has sought or for which it has applied in the prior three years, except for any applications still pending.

 

(xxxiii)  Investment Company Act . The Company is not required, and upon the issuance and sale of the Securities as herein contemplated and the application of the net proceeds therefrom as described in the Registration Statement, the General Disclosure Package and the Prospectus will not be required, to register as an “investment company” under the Investment Company Act of 1940, as amended (the “ 1940 Act ”).

 

(xxxiv)  Absence of Manipulation . Neither the Company nor any affiliate of the Company has taken, nor will the Company or any affiliate take, directly or indirectly, any action which is designed, or would reasonably be expected, to cause or result in, or which constitutes, the stabilization or manipulation of the price of any security of the Company to facilitate the sale or resale of the Securities.

 

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(xxxv)  No Integration . The Company has not sold or issued any securities that would be integrated with the offering of the Common Stock contemplated by this Agreement pursuant to the Securities Act, the rules and regulations thereunder or the interpretations thereof by the Commission.

 

(xxxvi)  ERISA . Other than as would not, singly or in the aggregate, reasonably be expected to result in a Material Adverse Effect and except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, (i) no “employee benefit plan” (as defined in Section 3(3) of ERISA), for which the Company would have any liability (whether absolute or contingent) (each a “ Plan ”) has experienced a failure to satisfy the “minimum funding standard” (as defined in Section 302 of the Employee Retirement Income Security Act of 1974, as amended, (“ ERISA ”) or Section 412 of the Code), or other event of the kind described in Section 4043(c) of ERISA (other than events with respect to which the 30-day notice requirement under Section 4043 of ERISA has been waived) or any similar minimum funding failure event with respect to any Plan (other than a Plan that under applicable law is required to be funded by a trust or funding vehicle maintained exclusively by a governmental authority) that is maintained outside of the United States primarily for the benefit of persons substantially all of whom are nonresident aliens (ii) each Plan is in compliance in all respects with applicable law, including, without limitation, ERISA and the Code; (iii) other than in the ordinary course, neither the Company nor any trade or business, whether or not incorporated, that, together with the Company, would be deemed to be a “single employer” within the meaning of Section 4001(b)(1) of ERISA or Section 414(b), 414(c), 414(m) or 414(o) of the Code has incurred or reasonably expects to incur any liability with respect to any Plan (A) under Title IV of ERISA or (B) in respect of any post-employment health, medical or life insurance benefits for former, current or future employees of the Company, except as required to avoid excise tax under Section 4980B of the Code and except, on a case by case basis, limited extensions of health insurance benefits (for a period of no more than 18 months post-employment) to former employees receiving severance payments from the Company; and (iv) each Plan that is intended to be qualified under Section 401(a) of the Code is so qualified and nothing has occurred, whether by action or by failure to act, which could cause the loss of such qualification. The Company is not, nor at any time during the last three years has the Company been, a party to any collective bargaining agreement or other labor agreement with respect to employees of the Company. There are no pending, or, to the Company’s knowledge, threatened, activities or proceedings by any labor union or similar entity to organize any employees of the Company. No labor dispute with, or labor strike, work stoppage or other material labor disturbance by, the employees of the Company exists or to the Company’s knowledge is imminent.

 

(xxxvii)  Foreign Corrupt Practices Act . Neither the Company nor, to the knowledge of the Company, any director, officer, agent, employee, affiliate or other person acting on behalf of the Company has taken any action, directly or indirectly, that would result in a violation by such persons of the Foreign Corrupt Practices Act of 1977, as amended, and the rules and regulations thereunder (the “ FCPA ”), including, without limitation, making use of the mails or any means or instrumentality of interstate commerce corruptly in furtherance of an offer, payment, promise to pay or authorization of the payment of any money, or other property, gift, promise to give, or authorization of the giving of anything of value to any “foreign official” (as such term is defined in the FCPA) or any foreign political party or official thereof or any candidate for foreign political office, in contravention of the FCPA and the Company and, to the knowledge of the Company, its affiliates have conducted their businesses in compliance with the FCPA and have instituted and maintain policies and procedures designed to ensure, and which are reasonably expected to continue to ensure, continued compliance therewith.

 

(xxxviii)  Money Laundering Laws . The operations of the Company are and have been conducted at all times in compliance with applicable financial recordkeeping and reporting requirements of the Currency and Foreign Transactions Reporting Act of 1970, as amended, the money laundering statutes of all applicable jurisdictions, the rules and regulations thereunder and any related or similar rules, regulations or guidelines, issued, administered or enforced by any Governmental Entity (collectively, the “ Money Laundering Laws ”); and no action, suit or proceeding by or before any Governmental Entity involving the Company with respect to the Money Laundering Laws is pending or, to the knowledge of the Company, threatened.

 

(xxxix)  OFAC . Neither the Company nor, to the knowledge of the Company, its directors, officers, agents, employees, affiliates or representatives (each, a “ Person ” ) are currently the subject of sanctions administered or enforced by the United States Government, including, without limitation, the U.S. Department of the Treasury’s Office of Foreign Assets Control (“ OFAC ”), the United Nations Security Council, the

 

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European Union, Her Majesty’s Treasury, or other relevant sanctions authority applicable to the Company (collectively, “ Sanctions ”), nor is the Company located, organized or resident in a country or territory that is the subject of Sanctions; and the Company does not intend to, directly or indirectly, use the proceeds of the sale of the Securities, or lend, contribute or otherwise make available such proceeds to any subsidiaries, joint venture partners or other Person, to fund any activities of or business with any Person, or in any country or territory, that, at the time of such funding, is the subject of Sanctions or in any other manner that will result in a violation by any Person (including any Person participating in the transaction, whether as underwriter, advisor, investor or otherwise) of Sanctions.

 

(xl) Lending Relationship . Except as disclosed in the Registration Statement, the General Disclosure Package and the Prospectus, the Company (A) does not have any material lending or other relationship with any bank or lending affiliate of any Underwriter and (B) does not intend to use any of the proceeds from the sale of the Securities to repay any outstanding debt owed to any affiliate of any Underwriter.

 

(xli) Statistical and Market-Related Data . Any statistical and market-related data included in the Registration Statement, the General Disclosure Package or the Prospectus are based on or derived from sources that the Company believes, after reasonable inquiry, to be reliable and accurate in all material respects and, to the extent required, the Company has obtained the written consent to the use of such data from such sources.

 

(xlii) Accuracy of Descriptions . The statements set forth in the Registration Statement, the General Disclosure Package and the Prospectus under the caption “Description of Capital Stock,” insofar as they purport to constitute a summary of the terms of the Common Stock and under the caption “Certain U.S. Federal Tax Considerations Applicable to Non-U.S. Holders” insofar as they purport to describe the provisions of the laws and documents referred to therein, are accurate, complete and fair summaries.

 

(xliii) Stock Exchange Listing . The Common Stock (including the Securities) has been approved for listing on the NASDAQ Stock Market LLC, subject only to official notice of issuance.

 

(xliv) Maintenance of Rating . The Company does not have any securities rated by any “nationally recognized statistical rating organization” (as defined for purposes of Rule 436(g) under the 1933 Act).

 

(xlv) Related Party Transactions . There are no business relationships or related-party transactions involving the Company or any other person required to be described in the Registration Statement, any preliminary prospectus, the Prospectus and the General Disclosure Package which have not been described as required. The General Disclosure Package contains in all material respects the same description of the matters set forth in the preceding sentence contained in the Prospectus.

 

(xlvi) Brokers . Except for the underwriting discounts and commissions payable to the Underwriters as described in the Registration Statement, the General Disclosure Package and the Prospectus, there is no broker, finder or other party that is entitled to receive from the Company any brokerage or finder’s fee or other fee or commission as a result of any transactions contemplated by this Agreement.

 

(xlvii) No Stabilization .  The Company has not taken, directly or indirectly, any action designed to or that could reasonably be expected to cause or result in any stabilization or manipulation of the price of the Securities.

 

(xliii) Margin Rules .  The application of the proceeds received by the Company from the issuance, sale and delivery of the Securities as described in the Registration Statement, the General Disclosure Package and the Prospectus will not violate Regulation T, U or X of the Board of Governors of the Federal Reserve System or any other regulation of such Board of Governors.

 

(xlix) Forward-Looking Statements .  No forward-looking statement (within the meaning of Section 27A of the Securities Act) contained in the Registration Statement, the General Disclosure Package or the Prospectus has been made or reaffirmed by the Company without a reasonable basis or has been disclosed by the Company other than in good faith.

 

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(l)  Sarbanes-Oxley Act .  There is and has been no failure on the part of the Company or, to the knowledge of the Company, any of the Company’s directors or officers, in their capacities as such, to comply with any applicable provision of the Sarbanes-Oxley Act of 2002 and the rules and regulations promulgated in connection therewith, including Section 402 related to loans.

 

(li) FINRA Affiliations .  There are no affiliations or associations between any member of FINRA and any of the Company’s officers, directors, 5% or greater securityholders or any beneficial owner of the Company’s unregistered equity securities that were acquired during the 180-day period immediately preceding the initial submission date of the Registration Statement.

 

(lii) Directed Share Program .  (i) The Registration Statement, the General Disclosure Package, the Prospectus, any Preliminary Prospectus and any Issuer Free Writing Prospectuses comply in all material respects, and any further amendments or supplements thereto will comply in all material respects, with any applicable laws or regulations of foreign jurisdictions in which the General Disclosure Package, the Prospectus, any preliminary prospectus and any Issuer Free Writing Prospectus, as amended or supplemented, if applicable, are distributed in connection with the Directed Share Program, and (ii) no authorization, approval, consent, license, order, registration or qualification of or with any government, governmental instrumentality or court, other than such as have been obtained, is necessary under the securities laws and regulations of foreign jurisdictions in which the Directed Shares are offered outside the United States.  The Company has not offered, or caused the Underwriters to offer, Securities to any person pursuant to the Directed Share Program with the specific intent to unlawfully influence (i) a customer or supplier of the Company to alter the customer or supplier’s level or type of business with the Company, or (ii) a trade journalist or publication to write or publish favorable information about the Company or its products.

 

(b)  Officer’s Certificates . Any certificate signed by any officer of the Company delivered to the Representatives or to counsel for the Underwriters shall be deemed a representation and warranty by the Company (and not by such officer in his or her personal capacity) to each Underwriter as to the matters covered thereby.

 

SECTION 2. Purchase of the Securities by the Underwriters .

 

(a)  Initial Securities . On the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company agrees to sell to each Underwriter, severally and not jointly, and each Underwriter, severally and not jointly, agrees to purchase from the Company, at the price per share set forth in Schedule A hereto, that number of Initial Securities set forth in Schedule A hereto opposite the name of such Underwriter, plus any additional number of Initial Securities which such Underwriter may become obligated to purchase pursuant to the provisions of Section 10 hereof.

 

(b)  Option Securities . In addition, on the basis of the representations and warranties herein contained and subject to the terms and conditions herein set forth, the Company hereby grants an option to the Underwriters, severally and not jointly, to purchase up to an additional [          ] shares of Common Stock, at the price per share set forth in Schedule A hereto, less an amount per share equal to any dividends or distributions declared by the Company and payable on the Initial Securities but not payable on the Option Securities. The option hereby granted will expire 30 days after the date hereof and may be exercised in whole or in part at any time upon notice by the Representatives to the Company setting forth the number of Option Securities as to which the several Underwriters are then exercising the option and the time and date of payment and delivery for such Option Securities. Any such time and date of delivery (a “ Date of Delivery ”) shall be determined by the Representatives, but shall not be later than seven full business days after the exercise of said option, nor in any event prior to the Closing Time. If the option is exercised as to all or any portion of the Option Securities, each of the Underwriters, acting severally and not jointly, will purchase that proportion of the total number of Option Securities then being purchased which the number of Initial Securities set forth in Schedule A hereto opposite the name of such Underwriter bears to the total number of Initial Securities, subject, in each case, to such adjustments as the Representatives in their sole discretion shall make to eliminate any sales or purchases of fractional shares.

 

(c)  Payment . Payment of the purchase price for, and delivery of, the Initial Securities shall be made at the offices of Jones Day, 1755 Embarcadero Road, Palo Alto, CA 94303, or at such other place as shall be agreed upon by the Representatives and the Company, at 9:00 A.M. (New York City time) on [          ], 2015 (unless postponed in accordance with the provisions of Section 10 hereof), or such other time not later than ten business days after such

 

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date as shall be agreed upon by the Representatives and the Company (such time and date of payment and delivery being herein called “ Closing Time ”). Delivery of the Securities shall be made through the facilities of The Depository Trust Company (“ DTC ”) unless the Representatives shall otherwise instruct.

 

In addition, in the event that any or all of the Option Securities are purchased by the Underwriters, payment of the purchase price for, and delivery of, such Option Securities shall be made at the above-mentioned offices, or at such other place as shall be agreed upon by the Representatives and the Company, on each Date of Delivery as specified in the notice from the Representatives to the Company.

 

Payment shall be made to the Company by wire transfer of immediately available funds to bank accounts designated by the Company against delivery to the Representatives for the respective accounts of the Underwriters of the Securities to be purchased by them. It is understood that each Underwriter has authorized the Representatives, for its account, to accept delivery of, receipt for, and make payment of the purchase price for, the Initial Securities and the Option Securities, if any, which it has agreed to purchase. Each of the Representatives, individually and not as representative of the Underwriters, may (but shall not be obligated to) make payment of the purchase price for the Initial Securities or the Option Securities, if any, to be purchased by any Underwriter whose funds have not been received by the Closing Time or the relevant Date of Delivery, as the case may be, but such payment shall not relieve such Underwriter from its obligations hereunder.

 

(d)  Denominations; Registration . The Initial Securities and the Option Securities, if any, shall be in such denominations and registered in such names as the Representatives may request in writing at least one full business day before the Closing Time or the relevant Date of Delivery, as the case may be.

 

SECTION 3. Covenants of the Company . The Company covenants with each Underwriter as follows:

 

(a)  Compliance with Securities Regulations and Commission Requests . The Company, subject to Section 3(b)  hereof, will comply with the requirements of Rule 430A, and will notify the Representatives promptly, and confirm the notice in writing, (i) when any post-effective amendment to the Registration Statement shall have been filed or been declared effective or any amendment or supplement to the Prospectus, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communications shall have been filed or distributed, (ii) of the receipt of any comments from the Commission, (iii) of any request by the Commission for any amendment to the Registration Statement or any amendment or supplement to the Prospectus or for additional information, including, but not limited to, any request for information concerning any Testing-the-Waters Communication, (iv) of the issuance by the Commission of any stop order suspending the effectiveness of the Registration Statement or any post-effective amendment or of any order preventing or suspending the use of any preliminary prospectus, the Prospectus or any Written Testing-the-Waters Communications, or of the suspension of the qualification of the Securities for offering or sale in any jurisdiction, or of the initiation or threatening of any proceedings for any of such purposes or of any examination pursuant to Section 8(d)  or 8(e)  of the 1933 Act concerning the Registration Statement, (v) of the occurrence of any event or development at any time when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172 of the 1933 Act Regulations (“ Rule 172 ”), would be) required by the 1933 Act to be delivered in connection with sales of the Securities (the “ Prospectus Delivery Period ”) as a result of which the Prospectus, the General Disclosure Package, any Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication as then amended or supplemented would include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing when the Prospectus, the General Disclosure Package, any such Issuer Free Writing Prospectus or any Written Testing-the-Waters Communication is delivered to a purchaser, not misleading; and (vi) if the Company becomes the subject of a proceeding under Section 8A of the 1933 Act in connection with the offering of the Securities. The Company will effect all filings required under Rule 424(b), in the manner and within the time period required by Rule 424(b) (without reliance on Rule 424(b)(8)), and will take such steps as it deems necessary to ascertain promptly whether the form of prospectus transmitted for filing under Rule 424(b) was received for filing by the Commission and, in the event that it was not, it will promptly file such prospectus. The Company will use commercially reasonable efforts to prevent the issuance of any such order suspending the effectiveness of the Registration Statement, preventing or suspending the use of any preliminary prospectus, the Prospectus or any Written Testing-the-Waters Communication or suspending any such qualification of the Securities and, if any such order is issued, will use commercially reasonable efforts to obtain as soon as possible the withdrawal thereof.

 

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(b)  Continued Compliance with Securities Laws . The Company will comply with the 1933 Act and the 1933 Act Regulations so as to permit the completion of the distribution of the Securities as contemplated in this Agreement and in the Registration Statement, the General Disclosure Package and the Prospectus. If at any time during the Prospectus Delivery Period any event shall occur or condition shall exist as a result of which it is necessary, in the opinion of counsel for the Underwriters or for the Company, to (i) amend the Registration Statement in order that the Registration Statement will not include an untrue statement of a material fact or omit to state a material fact required to be stated therein or necessary to make the statements therein not misleading, (ii) amend or supplement the General Disclosure Package or the Prospectus in order that the General Disclosure Package or the Prospectus, as the case may be, will not include any untrue statement of a material fact or omit to state a material fact necessary in order to make the statements therein not misleading in the light of the circumstances existing at the time it is delivered to a purchaser or (iii) amend the Registration Statement or amend or supplement the General Disclosure Package or the Prospectus, as the case may be, in order to comply with the requirements of the 1933 Act or the 1933 Act Regulations, the Company will promptly (A) give the Representatives notice of such event, (B) prepare any amendment or supplement as may be necessary to correct such statement or omission or to make the Registration Statement, the General Disclosure Package or the Prospectus comply with such requirements and, a reasonable amount of time prior to any proposed filing or use, furnish the Representatives with copies of any such amendment or supplement and (C) file with the Commission any such amendment or supplement; provided that the Company shall not file or use any such amendment or supplement to which the Representatives or counsel for the Underwriters shall reasonably object unless the Company reasonably believes that the failure to file or use such amendment or supplement would constitute a violation of law or subject it to liability. The Company will furnish to the Underwriters such number of copies of such amendment or supplement as the Underwriters may reasonably request. The Company has given the Representatives notice of any filings made pursuant to the 1934 Act or 1934 Act Regulations within 48 hours prior to the Applicable Time; the Company will give the Representatives notice of its intention to make any such filing from the Applicable Time to the Closing Time and will furnish the Representatives with copies of any such documents a reasonable amount of time prior to such proposed filing, as the case may be, and will not file or use any such document to which the Representatives or counsel for the Underwriters shall reasonably object unless the Company reasonably believes that the failure to file or use such amendment or supplement would constitute a violation of law or subject it to liability.

 

(c)  Delivery of Registration Statements . The Company has furnished or will deliver to the Representatives and to counsel for the Underwriters, without charge, signed copies of the Registration Statement as originally filed and each amendment thereto (including exhibits filed therewith) and signed copies of all consents and certificates of experts, and will also deliver to the Representatives, without charge, a conformed copy of the Registration Statement as originally filed and each amendment thereto (without exhibits) for each of the Underwriters. The copies of the Registration Statement and each amendment thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(d)  Delivery of Prospectuses . The Company has delivered to each Underwriter, without charge, as many copies of each preliminary prospectus as the Representatives may reasonably request on behalf of the Underwriters, and the Company hereby consents to the use of such copies for purposes permitted by the 1933 Act. The Company will furnish to each Underwriter, without charge, during the period when a prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, such number of copies of the Prospectus (as amended or supplemented) as such Underwriter may reasonably request. The Prospectus and any amendments or supplements thereto furnished to the Underwriters will be identical to the electronically transmitted copies thereof filed with the Commission pursuant to EDGAR, except to the extent permitted by Regulation S-T.

 

(e)  Blue Sky Qualifications . The Company will use its commercially reasonable efforts, in cooperation with the Underwriters, to qualify the Securities for offering and sale under the applicable securities laws of such states and other jurisdictions (domestic or foreign) as the Representatives may designate and to maintain such qualifications in effect so long as required to complete the distribution of the Securities; provided , however , that the Company shall not be obligated to file any general consent to service of process or to qualify as a foreign corporation or as a dealer in securities in any jurisdiction in which it is not so qualified or to subject itself to taxation in respect of doing business in any jurisdiction in which it is not otherwise so subject.

 

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(f)  Rule 158 . The Company will timely file such reports pursuant to the 1934 Act as are necessary in order to make generally available to its securityholders as soon as practicable an earnings statement for the purposes of, and to provide to the Underwriters the benefits contemplated by, the last paragraph of Section 11(a) of the 1933 Act.

 

(g)  Use of Proceeds . The Company will use the net proceeds received by it from the sale of the Securities in the manner specified in the Registration Statement, the General Disclosure Package and the Prospectus under “Use of Proceeds.”

 

(h)  Listing . The Company will use its commercially reasonable efforts to effect and maintain the listing of the Common Stock (including the Securities) on the NASDAQ Stock Market LLC.

 

(i)  Restriction on Sale of Securities . During a period of 180 days from the date of the Prospectus (the “ Lock-Up Period ”), the Company will not, without the prior written consent of Canaccord and Cowen, (i) directly or indirectly, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase or otherwise transfer or dispose of any shares of Common Stock or any securities convertible into or exercisable or exchangeable for shares of Common Stock or file any registration statement under the 1933 Act with respect to any of the foregoing or (ii) enter into any swap or any other agreement or any transaction that transfers, in whole or in part, directly or indirectly, the economic consequence of ownership of shares of Common Stock, whether any such swap or transaction described in clause (i)  or (ii)  above is to be settled by delivery of shares of Common Stock or such other securities, in cash or otherwise. The foregoing sentence shall not apply to (A) the Securities to be sold hereunder, (B) any shares of Common Stock issued by the Company upon the exercise of an option or warrant or the conversion of a security outstanding on the date hereof and referred to in the Registration Statement, the General Disclosure Package and the Prospectus, (C) shares of Common Stock issued by the Company as a result of anti-dilution provisions in the Company’s amended and restated certificate of incorporation as then in effect, or (D) any shares of Common Stock issued or options to purchase Common Stock granted pursuant to employee benefit plans of the Company referred to in the Registration Statement, the General Disclosure Package and the Prospectus; provided that, in each case, the recipient of such shares of Common Stock or other securities is subject to substantially the same restrictions as those contained in this Section 3(i) .

 

(j) If Canaccord and Cowen, in their sole discretion, agree to release or waive the restrictions set forth in a lock-up agreement described in Section 5(i)  hereof for an officer or director of the Company and provides the Company with notice of the impending release or waiver at least three business days before the effective date of the release or waiver, the Company agrees to announce the impending release or waiver by a press release substantially in the form of Exhibit C hereto through a major news service at least two business days before the effective date of the release or waiver. The provisions of this Section 3(j)  shall not apply if (i) the release or waiver is effected solely to permit a transfer not for consideration and (ii) the transferee has agreed in writing to be bound by the same terms set forth in the lock-up agreement described in Section 5(i)  hereof to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

(k)  Reporting Requirements . The Company, during the period when a Prospectus relating to the Securities is (or, but for the exception afforded by Rule 172, would be) required to be delivered under the 1933 Act, will file all documents required to be filed with the Commission pursuant to the 1934 Act within the time periods required by the 1934 Act and 1934 Act Regulations. Additionally, the Company shall report the use of proceeds from the issuance of the Securities to the extent required under Rule 463 under the 1933 Act.

 

(l)  Issuer Free Writing Prospectuses . The Company agrees that, unless it obtains the prior written consent of the Representatives, it will not make any offer relating to the Securities that would constitute an Issuer Free Writing Prospectus or that would otherwise constitute a “free writing prospectus,” or a portion thereof, required to be filed by the Company with the Commission or retained by the Company under Rule 433; provided that the Representatives will be deemed to have consented to the Issuer Free Writing Prospectuses listed on Schedule B-2 hereto and any “road show that is a written communication” within the meaning of Rule 433(d)(8)(i) that has been reviewed by the Representatives. The Company represents that it has treated or agrees that it will treat each such free writing prospectus consented to, or deemed consented to, by the Representatives as an “issuer free writing prospectus,” as defined in Rule 433. The Company represents that it has complied and will comply with the applicable requirements of Rule 433 with respect thereto, including timely filing with the Commission where required, legending and record keeping. If at any time following issuance of an Issuer Free Writing Prospectus there

 

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occurred or occurs an event or development as a result of which such Issuer Free Writing Prospectus conflicted or would conflict with the information contained in the Registration Statement, any preliminary prospectus or the Prospectus or included or would include an untrue statement of a material fact or omitted or would omit to state a material fact necessary in order to make the statements therein, in the light of the circumstances existing at that subsequent time, not misleading, the Company will promptly notify the Representatives and will promptly amend or supplement, at its own expense, such Issuer Free Writing Prospectus to eliminate or correct such conflict, untrue statement or omission.

 

(m)  Emerging Growth Company Status. The Company will promptly notify the Representatives if the Company ceases to be an Emerging Growth Company at any time prior to the later of (a) completion of the distribution of the Shares within the meaning of the Securities Act and (b) completion of the 180-day restricted period referred to in Section 3(i)  hereof.

 

(n)  Directed Share Program . The Company will comply with all applicable securities and other laws, rules and regulations in each jurisdiction in which the Directed Shares are offered in connection with the Directed Share Program.

 

SECTION 4. Payment of Expenses .

 

(a)  Expenses . The Company will pay or cause to be paid all expenses incident to the performance of its obligations under this Agreement, including (i) the preparation, printing and filing of the Registration Statement (including financial statements and exhibits) as originally filed and each amendment thereto, (ii) the preparation, printing and delivery to the Underwriters of copies of each preliminary prospectus, each Issuer Free Writing Prospectus and the Prospectus and any amendments or supplements thereto and any costs associated with electronic delivery of any of the foregoing by the Underwriters to investors, (iii) the preparation, issuance and delivery of the Securities pursuant to this Agreement, including any stock or other transfer taxes and any stamp or other duties payable upon the sale, issuance or delivery of the Securities to the Underwriters or the sale of the Securities by the Underwriters, (iv) the fees and disbursements of the Company’s counsel, accountants and other advisors, (v) the qualification of the Securities under securities laws in accordance with the provisions of Section 3(e)  hereof, including filing fees and the fees and disbursements of counsel for the Underwriters in connection therewith and in connection with the preparation of a blue sky survey and any supplement thereto, provided however that such fees and disbursements of counsel for the Underwriters shall not exceed $50,000, (vi) the fees and expenses of any transfer agent or registrar for the Securities, (vii) the reasonable out-of-pocket costs and expenses of the Company relating to investor presentations or any “road show” undertaken in connection with the marketing of the Securities, including without limitation, expenses associated with the production of road show slides and graphics, fees and expenses of any consultants engaged by the Company in connection with the road show presentations, travel and lodging expenses of the representatives and employees of the Company and any such consultants, and 50% of the cost of any private aircraft chartered or used in connection with the road show, (viii) the filing fees incident to, and the reasonable fees and disbursements of counsel to the Underwriters in connection with, the review by FINRA of the terms of the sale of the Securities, (ix) the fees and expenses incurred in connection with the listing of the Securities on the NASDAQ Stock Market LLC, (x) the costs and expenses (including, without limitation, any damages or other amounts payable in connection with legal or contractual liability) associated with the reforming of any contracts for sale of the Securities made by the Underwriters caused by a breach of the representation contained in the third sentence of Section 1(a)(ii) hereof and (xi) all costs and expenses of the Directed Share Program incurred by the Underwriters, including the fees and disbursements of counsel for the Underwriters and stamp duties, similar taxes or duties or other taxes, if any. It is understood and agreed that except as otherwise provided in this Section 4(a), the Underwriters shall pay all of their costs and expenses, including fees and disbursements of their counsel, stock transfer taxes payable on their resale of any of the Securities, travel and lodging costs and expenses of the Representatives related to the road show, any advertising expenses connected with any offers made and 50% of the cost of any aircraft chartered in connection with the road show described in clause (vii) above.

 

(b)  Termination of Agreement . If this Agreement is terminated by the Representatives in accordance with the provisions of Section 5 , Section 9(a)(i) , 9(a)(iii)  or Section 11 hereof, the Company shall reimburse the Underwriters for their out-of-pocket expenses, including the fees and disbursements of counsel for the Underwriters.

 

SECTION 5. Conditions of Underwriters’ Obligations . The obligations of the several Underwriters hereunder are subject to the accuracy of the representations and warranties of the Company contained herein or in certificates

 

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of any officer of the Company delivered pursuant to the provisions hereof, to the performance by the Company of the covenants and other obligations hereunder, and to the following further conditions:

 

(a)  Effectiveness of Registration Statement; Rule 430A Information . The Registration Statement, including any Rule 462(b) Registration Statement, has been declared effective and, at the Closing Time, no stop order suspending the effectiveness of the Registration Statement or any post-effective amendment thereto has been issued under the 1933 Act, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to the Company’s knowledge, contemplated; and the Company has complied with each request (if any) from the Commission for additional information to the reasonable satisfaction of counsel to the Company and counsel to the Underwriters. A prospectus containing the Rule 430A Information shall have been filed with the Commission in the manner and within the time frame required by Rule 424(b) without reliance on Rule 424(b)(8) or a post-effective amendment providing such information shall have been filed with, and declared effective by, the Commission in accordance with the requirements of Rule 430A.

 

(b)  Opinion of Counsel for Company . At the Closing Time, the Representatives shall have received the favorable opinions, dated as of the Closing Time and relating to the Initial Securities, of Wilson Sonsini Goodrich & Rosati, counsel for the Company, in the form and substance set forth in Exhibit A hereto.

 

(c)  Opinion of Counsel for Underwriters . At the Closing Time, the Representatives shall have received the favorable opinion, dated the Closing Time, of Jones Day, counsel for the Underwriters, together with signed or reproduced copies of such letter for each of the other Underwriters, in form and substance reasonably satisfactory to the Representatives, and such counsel shall have received such papers and information as they may reasonably request to enable them to pass upon such matters.

 

(d)  Officers’ Certificate . At the Closing Time, there shall not have been, since the date hereof or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, any Material Adverse Effect, and the Representatives shall have received a certificate of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company, dated the Closing Time, to the effect that (i) there has been no such Material Adverse Effect, (ii) the representations and warranties of the Company in this Agreement are true and correct with the same force and effect as though expressly made at and as of the Closing Time, (iii) the Company has complied with all agreements and satisfied all conditions on its part to be performed or satisfied at or prior to the Closing Time, and (iv) no stop order suspending the effectiveness of the Registration Statement under the 1933 Act has been issued, no order preventing or suspending the use of any preliminary prospectus or the Prospectus has been issued and no proceedings for any of those purposes have been instituted or are pending or, to their knowledge, contemplated.

 

(e)  Accountant’s Comfort Letter . At the time of the execution of this Agreement, the Representatives shall have received from Ernst & Young LLP a letter, dated such date, in form and substance satisfactory to the Representatives, together with signed or reproduced copies of such letter for each of the other Underwriters containing statements and information of the type ordinarily included in accountants’ “comfort letters” to underwriters with respect to the financial statements and certain financial information contained in the Registration Statement, the General Disclosure Package and the Prospectus.

 

(f)  Bring-down Comfort Letter . At the Closing Time, the Representatives shall have received from Ernst & Young LLP a letter, dated as of the Closing Time, to the effect that they reaffirm the statements made in the letter furnished pursuant to subsection (e) of this Section 5 , except that the specified date referred to shall be a date not more than three business days prior to the Closing Time.

 

(g)  Approval of Listing . At the Closing Time, the Securities shall have been approved for listing on the NASDAQ Stock Market LLC, subject only to official notice of issuance.

 

(h)  No Objection . FINRA has confirmed that it has not raised any objection with respect to the fairness and reasonableness of the underwriting terms and arrangements relating to the offering of the Securities.

 

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(i)  Lock-up Agreements . At the date of this Agreement, the Representatives shall have received an agreement substantially in the form of Exhibit B hereto signed by the persons listed on Schedule D hereto.

 

(j)  Conditions to Purchase of Option Securities . In the event that the Underwriters exercise their option provided in Section 2(b)  hereof to purchase all or any portion of the Option Securities, the representations and warranties of the Company contained herein and the statements in any certificates furnished by the Company hereunder shall be true and correct as of each Date of Delivery and, at the relevant Date of Delivery, the Representatives shall have received:

 

(i)  Officers’ Certificate . A certificate, dated such Date of Delivery, of the Chief Executive Officer or the President of the Company and of the chief financial or chief accounting officer of the Company confirming that the certificate delivered at the Closing Time pursuant to Section 5(e)  hereof remains true and correct as of such Date of Delivery.

 

(ii)  Opinion of Counsel for Company . If requested by the Representatives, the favorable opinion of Wilson Sonsini Goodrich & Rosati, counsel for the Company, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(b)  hereof.

 

(iii)  Opinion of Counsel for Underwriters . If requested by the Representatives, the favorable opinion of Jones Day, counsel for the Underwriters, dated such Date of Delivery, relating to the Option Securities to be purchased on such Date of Delivery and otherwise to the same effect as the opinion required by Section 5(c)  hereof.

 

(vi)  Bring-down Comfort Letter . If requested by the Representatives, a letter from Ernst & Young LLP, in form and substance satisfactory to the Representatives and dated such Date of Delivery, substantially in the same form and substance as the letter furnished to the Representatives pursuant to Section 5(f)  hereof, except that the “specified date” in the letter furnished pursuant to this paragraph shall be a date not more than three business days prior to such Date of Delivery.

 

(k)  Additional Documents . At the Closing Time and at each Date of Delivery (if any), the Representatives and counsel for the Underwriters shall have been furnished with such documents and opinions as they may reasonably require for the purpose of enabling them to pass upon the issuance and sale of the Securities as herein contemplated, or in order to evidence the accuracy of any of the representations or warranties, or the fulfillment of any of the conditions, herein contained; and all proceedings taken by the Company in connection with the issuance and sale of the Securities as herein contemplated shall be reasonably satisfactory in form and substance to the Representatives and counsel for the Underwriters.

 

(l)  Termination of Agreement . If any condition specified in this Section 5 shall not have been fulfilled when and as required to be fulfilled, this Agreement, or, in the case of any condition to the purchase of Option Securities on a Date of Delivery which is after the Closing Time, the obligations of the several Underwriters to purchase the relevant Option Securities, may be terminated by the Representatives by notice to the Company at any time at or prior to the Closing Time or such Date of Delivery, as the case may be, and such termination shall be without liability of any party to any other party except as provided in Section 4 hereof and except that Sections 1 , 6 , 7 , 8 , 15 and 16 shall survive any such termination and remain in full force and effect.

 

(m)  Delivery of Prospectuses . The Company shall have complied with the provisions of Section 3(d)  hereof with respect to the furnishing of prospectuses on the business day next succeeding the date hereof.

 

SECTION 6. Indemnification .

 

(a)  Indemnification of Underwriters . The Company agrees to indemnify and hold harmless each Underwriter, its affiliates (as such term is defined in Rule 501(b) under the 1933 Act (each, an “ Affiliate ”)), its selling agents and each person, if any, who controls any Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act as follows:

 

(i) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, arising out of any untrue statement or alleged untrue statement of a material fact contained in the Registration Statement (or any amendment thereto), including the Rule 430A Information, or the omission or alleged omission therefrom

 

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of a material fact required to be stated therein or necessary to make the statements therein not misleading or arising out of any untrue statement or alleged untrue statement of a material fact included (A) in any preliminary prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto), (B) in any materials or information provided to investors by, or with the prior written approval of, the Company in connection with the marketing of the offering of the Securities (“ Marketing Materials ”), including any roadshow or investor presentations made to investors by the Company (whether in person or electronically), or (C) in any material prepared by or with the consent of the Company for distribution to Participants in connection with the Directed Share Program (“ Directed Share Program Materials ”), or the omission or alleged omission in any preliminary prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus, the General Disclosure Package, the Prospectus, in any Marketing Materials or in any Directed Share Program Materials of a material fact necessary in order to make the statements therein, in the light of the circumstances under which they were made, not misleading;

 

(ii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, to the extent of the aggregate amount paid in settlement of any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or of any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission; provided that (subject to Section 6(d)  below) any such settlement is effected with the written consent of the Company;

 

(iii) against any and all loss, liability, claim, damage and expense whatsoever, as incurred, (A) caused by the failure of any Participant to pay for and accept delivery of Directed Shares that the Participant agreed to purchase or (B) related to, arising out of, or in connection with the Directed Share Program; and

 

(iv) against any and all expense whatsoever, as incurred (including the fees and disbursements of one counsel (in addition to any relevant local counsel) chosen by Canaccord and Cowen), reasonably incurred in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue statement or omission, or any such alleged untrue statement or omission, to the extent that any such expense is not paid under (i),   (ii)  or (iii)  above;

 

provided , however , that this indemnity agreement shall not apply to any loss, liability, claim, damage or expense to the extent arising out of any untrue statement or omission or alleged untrue statement or omission made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, any preliminary prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.

 

(b)  Indemnification of Company, Directors and Officers . Each Underwriter severally and not jointly agrees to indemnify and hold harmless the Company, its directors, each of its officers who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act against any and all loss, liability, claim, damage and expense described in the indemnity contained in subsection (a) of this Section, as incurred, but only with respect to untrue statements or omissions, or alleged untrue statements or omissions, made in the Registration Statement (or any amendment thereto), including the Rule 430A Information, any preliminary prospectus, any Written Testing-the-Waters Communication, any Issuer Free Writing Prospectus, the General Disclosure Package or the Prospectus (or any amendment or supplement thereto) in reliance upon and in conformity with the Underwriter Information.

 

(c)  Actions against Parties; Notification . Each indemnified party shall give notice as promptly as reasonably practicable to each indemnifying party of any action commenced against it in respect of which indemnity may be sought hereunder, but failure to so notify an indemnifying party shall not relieve such indemnifying party from any liability hereunder to the extent it is not materially prejudiced as a result thereof and in any event shall not relieve it from any liability which it may have otherwise than on account of this indemnity agreement. In the case of parties indemnified pursuant to Sections 6(a)  above, counsel to the indemnified parties shall be selected by Canaccord and Cowen, and, in the case of parties indemnified pursuant to Section 6(b)  above, counsel to the indemnified parties shall be selected by the Company. An indemnifying party may participate at its own expense in the defense of any such action; provided , however , that counsel to the indemnifying party shall not (except with the consent of the

 

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indemnified party) also be counsel to the indemnified party. In no event shall the indemnifying parties be liable for fees and expenses of more than one counsel (in addition to any relevant local counsel) separate from their own counsel for all indemnified parties in connection with any one action or separate but similar or related actions in the same jurisdiction arising out of the same general allegations or circumstances. No indemnifying party shall, without the prior written consent of the indemnified parties, settle or compromise or consent to the entry of any judgment with respect to any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever in respect of which indemnification or contribution could be sought under this Section 6 or Section 7 hereof (whether or not the indemnified parties are actual or potential parties thereto), unless such settlement, compromise or consent (i) includes an unconditional release of each indemnified party from all liability arising out of such litigation, investigation, proceeding or claim and (ii) does not include a statement as to or an admission of fault, culpability or a failure to act by or on behalf of any indemnified party.

 

(d)  Settlement without Consent if Failure to Reimburse . If at any time an indemnified party shall have requested an indemnifying party to reimburse the indemnified party for fees and expenses of counsel, such indemnifying party agrees that it shall be liable for any settlement of the nature contemplated by Section 6(a)(ii)  hereof effected without its written consent if (i) such settlement is entered into more than 60 days after receipt by such indemnifying party of the aforesaid request, (ii) such indemnifying party shall have received notice of the terms of such settlement at least 30 days prior to such settlement being entered into and (iii) such indemnifying party shall not have reimbursed such indemnified party in accordance with such request prior to the date of such settlement.

 

SECTION 7. Contribution . If the indemnification provided for in Section 6 hereof is for any reason unavailable to or insufficient to hold harmless an indemnified party in respect of any losses, liabilities, claims, damages or expenses referred to therein, then each indemnifying party shall contribute to the aggregate amount of such losses, liabilities, claims, damages and expenses incurred by such indemnified party, as incurred, (i) in such proportion as is appropriate to reflect the relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, from the offering of the Securities pursuant to this Agreement or (ii) if the allocation provided by clause (i)  above is not permitted by applicable law, in such proportion as is appropriate to reflect not only the relative benefits referred to in clause (i)  above but also the relative fault of the Company, on the one hand, and of the Underwriters, on the other hand, in connection with the statements or omissions which resulted in such losses, liabilities, claims, damages or expenses, as well as any other relevant equitable considerations.

 

The relative benefits received by the Company, on the one hand, and the Underwriters, on the other hand, in connection with the offering of the Securities pursuant to this Agreement shall be deemed to be in the same respective proportions as the total net proceeds from the offering of the Securities pursuant to this Agreement (before deducting expenses) received by the Company, on the one hand, and the total underwriting discount received by the Underwriters, on the other hand, in each case as set forth on the cover of the Prospectus, bear to the aggregate initial public offering price of the Securities as set forth on the cover of the Prospectus.

 

The relative fault of the Company, on the one hand, and the Underwriters, on the other hand, shall be determined by reference to, among other things, whether any such untrue or alleged untrue statement of a material fact or omission or alleged omission to state a material fact relates to information supplied by the Company or by the Underwriters and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

The Company and the Underwriters agree that it would not be just and equitable if contribution pursuant to this Section 7 were determined by pro rata allocation (even if the Underwriters were treated as one entity for such purpose) or by any other method of allocation which does not take account of the equitable considerations referred to above in this Section 7 . The aggregate amount of losses, liabilities, claims, damages and expenses incurred by an indemnified party and referred to above in this Section 7 shall be deemed to include any legal or other expenses reasonably incurred by such indemnified party in investigating, preparing or defending against any litigation, or any investigation or proceeding by any governmental agency or body, commenced or threatened, or any claim whatsoever based upon any such untrue or alleged untrue statement or omission or alleged omission.

 

Notwithstanding the provisions of this Section 7 , no Underwriter shall be required to contribute any amount in excess of the underwriting commissions received by such Underwriter in connection with the Securities underwritten by it and distributed to the public.

 

20


 

No person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the 1933 Act) shall be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation.

 

For purposes of this Section 7 , each person, if any, who controls an Underwriter within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act and each Underwriter’s Affiliates and selling agents shall have the same rights to contribution as such Underwriter, and each director of the Company, each officer of the Company who signed the Registration Statement, and each person, if any, who controls the Company within the meaning of Section 15 of the 1933 Act or Section 20 of the 1934 Act shall have the same rights to contribution as the Company. The Underwriters’ respective obligations to contribute pursuant to this Section 7 are several in proportion to the number of Initial Securities set forth opposite their respective names in Schedule A hereto and not joint.

 

SECTION 8. Representations, Warranties and Agreements to Survive . All representations, warranties and agreements contained in this Agreement or in certificates of officers of the Company submitted pursuant hereto, shall remain operative and in full force and effect regardless of (i) any investigation made by or on behalf of any Underwriter or its Affiliates or selling agents, any person controlling any Underwriter, its officers and directors, or any person controlling the Company and (ii) delivery of and payment for the Securities.

 

SECTION 9. Termination of Agreement .

 

(a)  Termination . The Representatives may terminate this Agreement, by notice to the Company, at any time at or prior to the Closing Time (i) if there has been, in the judgment of Canaccord and Cowen, since the time of execution of this Agreement or since the respective dates as of which information is given in the Registration Statement, the General Disclosure Package or the Prospectus, a Material Adverse Effect, or (ii) if there has occurred any material adverse change in the financial markets in the United States or the international financial markets, any outbreak of hostilities or escalation thereof or other calamity or crisis or any change or development involving a prospective change in national or international political, financial or economic conditions, in each case the effect of which is such as to make it, in the judgment of Canaccord and Cowen, impracticable or inadvisable to proceed with the completion of the offering or to enforce contracts for the sale of the Securities, or (iii) if trading in any securities of the Company has been suspended or materially limited by the Commission or the NASDAQ Stock Market LLC, or (iv) if trading generally on the New York Stock Exchange or on the NASDAQ Stock Market LLC has been suspended or materially limited, or minimum or maximum prices for trading have been fixed, or maximum ranges for prices have been required, by any of said exchanges or by order of the Commission, FINRA or any other governmental authority, or (v) a material disruption has occurred in commercial banking or securities settlement or clearance services in the United States or with respect to Clearstream or Euroclear systems in Europe, or (vi) if a banking moratorium has been declared by either federal or New York authorities.

 

(b)  Liabilities . If this Agreement is terminated pursuant to this Section 9 , such termination shall be without liability of any party to any other party except as provided in Section 4 hereof, and provided further that Sections 1 , 6 , 7 , 8 , 9(b) , 11 , 15 and 16 shall survive such termination and remain in full force and effect.

 

SECTION 10. Default by One or More of the Underwriters . If one or more of the Underwriters shall fail at the Closing Time or a Date of Delivery to purchase the Securities which it or they are obligated to purchase under this Agreement (the “ Defaulted Securities ”), the Representatives shall have the right, within 24 hours thereafter, make arrangements for one or more of the non-defaulting Underwriters, or any other underwriters reasonably satisfactory to the Company, to purchase all, but not less than all, of the Defaulted Securities in such amounts as may be agreed upon and upon the terms herein set forth; if, however, the Representatives shall not have completed such arrangements within such 24-hour period, then:

 

(i) if the number of Defaulted Securities does not exceed 10% of the number of Securities to be purchased on such date, each of the non-defaulting Underwriters shall be obligated, severally and not jointly, to purchase the full amount thereof in the proportions that their respective underwriting obligations hereunder bear to the underwriting obligations of all non-defaulting Underwriters, or

 

(ii) if the number of Defaulted Securities equals or exceeds 10% of the number of Securities to be purchased on such date, this Agreement or, with respect to any Date of Delivery which occurs after the Closing Time, the obligation of the Underwriters to purchase, and the Company to sell, the Option Securities to be purchased and sold on such Date of Delivery shall terminate without liability on the part of any non-

 

21



 

defaulting Underwriter. Any termination of this Agreement pursuant to this Section 10 shall be without liability on the part of the Company, except that the Company will continue to be liable for the payment of expenses as set forth in Section 4 hereof and provided further that Sections 1 , 6 , 7 , 8 , 9(b) , 11 , 15 and 16 shall survive such termination and remain in full force and effect.

 

No action taken pursuant to this Section 10 shall relieve any defaulting Underwriter from liability in respect of its default.

 

In the event of any such default which does not result in a termination of this Agreement or, in the case of a Date of Delivery which is after the Closing Time, which does not result in a termination of the obligation of the Underwriters to purchase and the Company to sell the relevant Option Securities, as the case may be, either (i) the Representatives or (ii) the Company shall have the right to postpone the Closing Time or the relevant Date of Delivery, as the case may be, for a period not exceeding seven days in order to effect any required changes in the Registration Statement, the General Disclosure Package or the Prospectus or in any other documents or arrangements.

 

SECTION 11. Default by the Company .  If the Company shall fail at the Closing Time or a Date of Delivery, as the case may be, to sell the number of Securities that it is obligated to sell hereunder, then this Agreement shall terminate without any liability on the part of any nondefaulting party; provided, however, that the provisions of Sections 1 , 4 , 6 , 7 , 8 , 9(b) , 11 , 15 and 16 shall remain in full force and effect. No action taken pursuant to this Section shall relieve the Company from liability, if any, in respect of such default.

 

SECTION 12. Notices . All notices and other communications hereunder shall be in writing and shall be deemed to have been duly given if mailed or transmitted by any standard form of telecommunication. Notices to the Underwriters shall be directed to the Representatives c/o Canaccord Genuity Inc., 350 Madison Avenue, New York, New York, 10017, Attention: Syndicate Department, and c/o Cowen and Company LLC, 599 Lexington Avenue, 27 th  Floor, New York NY 10022, Attention: General Counsel (facsimile: (646) 562-1269; and notices to the Company shall be directed to it at Avinger, Inc., 400 Chesapeake Drive, Redwood City, CA 94063, Attention: Chief Financial Officer (facsimile: (650) 241-7900).

 

In accordance with the requirements of the USA Patriot Act (Title III of Pub. L. 107-56 (signed into law October 26, 2001)), the Underwriters are required to obtain, verify and record information that identifies their respective clients, including the Company, which information may include the name and address of their respective clients, as well as other information that will allow the Underwriters to properly identify their respective clients.

 

SECTION 13. No Advisory or Fiduciary Relationship . The Company acknowledges and agrees that (a) the purchase and sale of the Securities pursuant to this Agreement, including the determination of the initial public offering price of the Securities and any related discounts and commissions, is an arm’s-length commercial transaction between the Company, on the one hand, and the several Underwriters, on the other hand, (b) in connection with the offering of the Securities and the process leading thereto, each Underwriter is and has been acting solely as a principal and is not the agent or fiduciary of the Company or its respective stockholders, creditors, employees or any other party, (c) no Underwriter has assumed or will assume an advisory or fiduciary responsibility in favor of the Company with respect to the offering of the Securities or the process leading thereto (irrespective of whether such Underwriter has advised or is currently advising the Company on other matters) and no Underwriter has any obligation to the Company with respect to the offering of the Securities except the obligations expressly set forth in this Agreement, (d) the Underwriters and their respective affiliates may be engaged in a broad range of transactions that involve interests that differ from those of the Company, and (e) the Underwriters have not provided any legal, accounting, regulatory or tax advice with respect to the offering of the Securities and the Company has consulted its own respective legal, accounting, regulatory and tax advisors to the extent it deemed appropriate.

 

SECTION 14. Parties . This Agreement shall each inure to the benefit of and be binding upon the Underwriters, the Company and their respective successors. Nothing expressed or mentioned in this Agreement is intended or shall be construed to give any person, firm or corporation, other than the Underwriters, the Company and their respective successors and the controlling persons and officers and directors referred to in Sections 6 and 7 and their heirs and legal representatives, any legal or equitable right, remedy or claim under or in respect of this Agreement or any provision herein contained. This Agreement and all conditions and provisions hereof are intended to be for the sole and exclusive benefit of the Underwriters, the Company and their respective successors, and said controlling persons

 

22



 

and officers and directors and their heirs and legal representatives, and for the benefit of no other person, firm or corporation. No purchaser of Securities from any Underwriter shall be deemed to be a successor by reason merely of such purchase.  In all dealings hereunder, the Representatives, acting jointly, shall act on behalf of each of the Underwriters, and the parties hereto shall be entitled to act and rely upon any statement, request, notice or agreement on behalf of any Underwriter made or given by the Representatives, acting jointly.

 

SECTION 15. Trial by Jury . The Company (on its behalf and, to the extent permitted by applicable law, on behalf of its stockholders and affiliates) and each of the Underwriters hereby irrevocably waives, to the fullest extent permitted by applicable law, any and all right to trial by jury in any legal proceeding arising out of or relating to this Agreement or the transactions contemplated hereby.

 

SECTION 16. GOVERNING LAW . THIS AGREEMENT AND ANY CLAIM, CONTROVERSY OR DISPUTE ARISING UNDER OR RELATED TO THIS AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED IN ACCORDANCE WITH THE LAWS OF, THE STATE OF NEW YORK WITHOUT REGARD TO ITS CHOICE OF LAW PROVISIONS.

 

SECTION 17. TIME . TIME SHALL BE OF THE ESSENCE OF THIS AGREEMENT. EXCEPT AS OTHERWISE SET FORTH HEREIN, SPECIFIED TIMES OF DAY REFER TO NEW YORK CITY TIME.

 

SECTION 18. Partial Unenforceability . The invalidity or unenforceability of any Section, paragraph or provision of this Agreement shall not affect the validity or enforceability of any other Section, paragraph or provision hereof. If any Section, paragraph or provision of this Agreement is for any reason determined to be invalid or unenforceable, there shall be deemed to be made such minor changes (and only such minor changes) as are necessary to make it valid and enforceable.

 

SECTION 19. Counterparts . This Agreement may be executed in any number of counterparts, each of which shall be deemed to be an original, but all such counterparts shall together constitute one and the same Agreement.

 

SECTION 20. Effect of Headings . The Section headings herein are for convenience only and shall not affect the construction hereof.

 

SECTION 21. Entire Agreement . This Agreement supersedes all prior agreements and understandings (whether written or oral) between the Company and the Underwriters with respect to the subject matter hereof.

 

[ Remainder of the page intentionally left blank; signature page follows ]

 

23



 

If the foregoing is in accordance with your understanding of our agreement, please sign and return to the Company a counterpart hereof, whereupon this instrument, along with all counterparts, will become a binding agreement among the Underwriters and the Company in accordance with its terms.

 

 

Very truly yours,

 

 

 

 

 

AVINGER, INC.

 

 

 

 

 

By:

 

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

CONFIRMED AND ACCEPTED,

 

as of the date first above written:

 

 

 

CANACCORD GENUITY INC.

 

 

 

By:

 

 

 

Authorized Signatory

 

 

 

COWEN AND COMPANY, LLC

 

 

 

By:

 

 

 

Authorized Signatory

 

 

For themselves and as Representatives of the other Underwriters named in Schedule A hereto.

 



 

Schedule A

 

Name of Underwriter

 

Number of
Initial Securities

 

Canaccord Genuity Inc

 

 

 

 

 

 

 

Cowen and Company, LLC

 

 

 

 

 

 

 

Oppenheimer & Co, Inc.

 

 

 

 

 

 

 

BTIG, LLC

 

 

 

 

 

 

 

Total

 

 

 

 

Price per share:  $ [          ]

 



 

Schedule B-1

 

PRICING TERMS

 



 

Schedule B-2

 

FREE WRITING PROSPECTUSES

 


 

Schedule C

 

WRITTEN TESTING-THE-WATERS COMMUNICATIONS

 

Presentation dated December  [          ], 2014 used for meetings with qualified institutional buyers and accredited investors held on December [          ], 2014.

 



 

Schedule D

 

LIST OF PERSONS AND ENTITIES SUBJECT TO LOCK-UP

 



 

Exhibit A

 

OPINION OF WILSON SONSINI GOODRICH & ROSATI

 



 

Exhibit B

 

FORM OF LOCK-UP AGREEMENT

 

Canaccord Genuity Inc.

Cowen and Company, LLC

 

As Representatives of
the several Underwriters listed in
the Underwriting Agreement

referred to below

 

c/o Canaccord Genuity Inc.
350 Madison Avenue
New York, New York 10017

 

c/o Cowen and Company, LLC
599 Lexington Avenue, 27th Floor

New York, NY 10022

 

Ladies and Gentlemen:

 

This letter is being delivered to you in connection with the proposed Underwriting Agreement (the “Underwriting Agreement”), between Avinger, Inc., a Delaware corporation (the “Company”), and you, as representatives of a group of Underwriters named therein (the “Underwriters”), relating to an underwritten public offering (the “Offering”) of common stock, par value $0.001 per share, of the Company (the “Common Stock”).

 

In order to induce you and the other Underwriters to enter into the Underwriting Agreement, the undersigned will not, without the prior written consent of Canaccord Genuity Inc. and Cowen and Company, LLC (the “Representatives”), on behalf of the Underwriters, offer, sell, contract to sell, pledge or otherwise transfer or dispose of (or enter into any transaction which is designed to, or might reasonably be expected to, result in the disposition of (whether by actual disposition or effective economic disposition due to cash settlement or otherwise) by the undersigned or any affiliate of the undersigned or any person in privity with the undersigned or any affiliate of the undersigned), directly or indirectly, including the filing (or participation in the filing) of a registration statement with the Securities and Exchange Commission in respect of, or establish or increase a put equivalent position or liquidate or decrease a call equivalent position within the meaning of Section 16 of the Securities Exchange Act of 1934, as amended, and the rules and regulations of the Securities and Exchange Commission promulgated thereunder (the “Exchange Act”) with respect to, any shares of Common Stock or any securities convertible into, or exercisable or exchangeable for Common Stock, or publicly announce an intention to effect any such transaction, for a period from the date hereof until, and including the date that is, 180 days after the date of the Underwriting Agreement (the “Lock-Up Period”).  The restrictions described in the foregoing sentence shall not apply to:

 

a.               If the undersigned is not an officer or director of the Company, transactions relating to shares of Common Stock acquired in a directed share program instituted in connection with the Offering or in open market transactions after the completion of the Offering, provided that no filing under the Exchange Act shall be required or shall be voluntarily made in connection with subsequent sales of Common Stock acquired in such manner;

 

b.               the transfer of shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (i) to the spouse, domestic partner, parent, sibling, child or grandchild of the undersigned or any other person with whom the undersigned has a relationship by blood, marriage or adoption not more remote than first cousin (each, an “immediate family member”) or to a trust, or other entity formed for estate planning purposes, formed for the direct or indirect benefit of the undersigned or of an immediate family member of

 



 

the undersigned; (ii) by bona fide gift, will or intestacy; (iii) if the undersigned is a corporation, partnership, limited liability company or other business entity (A) to another corporation, partnership, limited liability company or other business entity that controls, is controlled by or is under common control with the undersigned or (B) as part of a disposition, transfer or distribution by the undersigned to its members, limited partners or equity holders; or (iv) if the undersigned is a trust, to a trustor or beneficiary of the trust; provided that in the case of any transfer or distribution pursuant to this clause (b), (1) each transferee, trustee, donee or distributee shall sign and deliver a lock-up letter substantially in the form of this letter for the balance of the Lock-Up Period, and (2) no filing under the Exchange Act shall be required or shall be voluntarily made during the Lock-Up Period;

 

c.                the receipt by the undersigned from the Company of shares of Common Stock (the “Plan Shares”) upon the vesting of restricted stock awards or exercise of options to purchase the Company’s securities issued pursuant to the Company’s equity incentive plans or the transfer of shares of Common Stock or any securities convertible into Common Stock to the Company upon a vesting event of the Company’s securities or upon the exercise of options or warrants to purchase the Company’s securities, in each case on a “cashless” or “net exercise” basis or to cover tax obligations of the undersigned in connection with such vesting or exercise, provided that no filing under the Exchange Act shall be required or shall be voluntarily made during the Lock-Up Period and provided further, that the Plan Shares shall be subject to the terms of this letter;

 

d.               the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock to the Company, pursuant to agreements under which the Company has the option to repurchase such shares or securities or a right of first refusal with respect to transfers of such shares or securities;

 

e.                the establishment of a trading plan pursuant to Rule 10b5 1 under the Exchange Act for the transfer of shares of Common Stock, provided that (i) such plan does not provide for the transfer of Common Stock during the Lock-Up Period and (ii) no public announcement or filing under the Exchange Act is required of or voluntarily made by or on behalf of the undersigned or the Company regarding the establishment of such plan;

 

f.                 the conversion of the outstanding preferred stock of the Company into shares of Common Stock of the Company, provided that such shares of Common Stock remain subject to the terms of this letter; or

 

g.                the transfer of shares of Common Stock or any security convertible into or exercisable or exchangeable for Common Stock that occurs by operation of law including pursuant to a qualified domestic order or in connection with a divorce settlement, provided that the transferee signs and delivers a lock-up letter substantially in the form of this letter for the balance of the Lock-Up Period, and provided further, that no filing under the Exchange Act shall be required or shall be voluntarily made during the Lock-Up Period.

 

In addition, the undersigned hereby waives any rights the undersigned may have to require registration of Common Stock in connection with the filing of a registration statement relating to the Offering.  The undersigned further agrees that, for the Lock-Up Period, the undersigned will not, without the prior written consent of the Representatives on behalf of the Underwriters, make any demand for, or exercise any right with respect to, the registration of Common Stock or any other securities of the Company that are substantially similar to Common Stock (including any securities that derive value therefrom), or any securities convertible into or exercisable or exchangeable for Common Stock, or warrants or other rights to purchase Common Stock or any such other securities. In addition, the undersigned hereby waives any and all preemptive rights, participation rights, resale rights, rights of first refusal and similar rights that the undersigned may have in connection with the Offering or with any issuance or sale by the Company of any equity or other securities before the Offering.

 

If the undersigned is an officer or director of the Company, the undersigned further agrees that the foregoing restrictions shall be equally applicable to any issuer-directed shares or any other shares of Common Stock the undersigned may purchase in the Offering.

 

If the undersigned is an officer or director of the Company, (i) each of the Representatives on behalf of the Underwriters agrees that, at least three business days before the effective date of any release or waiver of the foregoing restrictions in connection with a transfer of shares of Common Stock, the Representatives on behalf of the Underwriters will notify the Company of the impending release or waiver, and (ii) the Company has agreed, or will agree, in the Underwriting Agreement to announce the impending release or waiver by press release through

 

32



 

a major news service at least two business days before the effective date of the release or waiver.  Any release or waiver granted by the Representatives on behalf of the Underwriters hereunder to any such officer or director shall only be effective two business days after the publication date of such press release.  The provisions of this paragraph will not apply if (a) the release or waiver is effected solely to permit a transfer not for consideration and (b) the transferee has agreed in writing to be bound by the same terms described in this letter to the extent and for the duration that such terms remain in effect at the time of the transfer.

 

In the event that either of the Representatives withdraws from or declines to participate in the Offering, all references to the Representatives contained in this agreement shall be deemed to refer to the sole Representative that continues to participate in the Offering (the “Sole Representative”), and, in such event, any written consent, waiver or notice given or delivered in connection with this agreement by the Sole Representative shall be deemed to be sufficient and effective for all purposes under this agreement.

 

In furtherance of the foregoing, the Company, and any duly appointed transfer agent for the registration or transfer of the securities described herein, are hereby authorized to decline to make any transfer of securities if such transfer would constitute a violation or breach of this agreement.

 

The undersigned hereby represents and warrants that the undersigned has full power and authority to enter into this agreement. All authority herein conferred or agreed to be conferred shall survive the death or incapacity of the undersigned and any obligations of the undersigned shall be binding upon the successors, assigns, heirs or personal representatives of the undersigned.

 

If for any reason the Underwriting Agreement shall be terminated prior to the Closing Date (as defined in the Underwriting Agreement), the agreement set forth above shall likewise be terminated.

 

 

Yours very truly,

 

33



 

Exhibit C

 

FORM OF PRESS RELEASE

TO BE ISSUED PURSUANT TO SECTION 3(j)

 




Exhibit 3.1

 

AMENDED AND RESTATED

 

CERTIFICATE OF INCORPORATION OF

 

AVINGER, INC.

 

Avinger, Inc., a corporation organized and existing under the laws of the State of Delaware (the “ Corporation ”), certifies that:

 

A.                                     The name of the Corporation is Avinger, Inc. and that this Corporation was originally incorporated pursuant to the General Corporation Law of the State of Delaware on March 8, 2007 under the name Avinger, Inc.

 

B.                                     This Amended and Restated Certificate of Incorporation was duly adopted in accordance with Sections 242 and 245 of the General Corporation Law of the State of Delaware, and has been duly approved by the written consent of the stockholders of the Corporation in accordance with Section 228 of the General Corporation Law of the State of Delaware.

 

C.                                     The text of the Certificate of Incorporation is amended and restated to read as set forth in EXHIBIT A attached hereto.

 

IN WITNESS WHEREOF, Avinger, Inc. has caused this Amended and Restated Certificate of Incorporation to be signed by John B. Simpson, Ph.D., M.D., a duly authorized officer of the Corporation, on September 2, 2014.

 

 

/s/ John B. Simpson

 

John B. Simpson, Ph.D., M.D.

 

President and Chief Executive Officer

 



 

EXHIBIT A

 

ARTICLE I

 

The name of the corporation is Avinger, Inc. (the “ Company ”).

 

ARTICLE II

 

The address of the Company’s registered office in the State of Delaware is Corporation Trust Center, 1209 Orange Street, Wilmington, New Castle County, Delaware 19801. The name of its registered agent at such address is The Corporation Trust Company.

 

ARTICLE III

 

The purpose of the Company is to engage in any lawful act or activity for which corporations may be organized under the Delaware General Corporation Law, as the same exists or as may hereafter be amended from time to time.

 

ARTICLE IV

 

The total number of shares of stock that the Corporation shall have authority to issue is 515,524,356 shares, consisting of 320,000,000 shares of Common Stock, $0.001 par value per share (the “ Common Stock ”), and 195,524,356 shares of Preferred Stock, $0.001 par value per share (the “ Preferred Stock ”). The first series of Preferred Stock shall be designated “ Series A Preferred Stock ” and shall consist of 14,696,775 shares, $0.001 par value per share. The second series of Preferred Stock shall be designated “ Series A-1 Preferred Stock ” and shall consist of 10,135,609 shares, $0.001 par value per share. The third series of Preferred Stock shall be designated “ Series B Preferred Stock ” and shall consist of 33,998,229 shares, $0.001 par value per share. The fourth series of Preferred Stock shall be designated “ Series C Preferred Stock ” and shall consist of 25,265,172 shares, $0.001 par value per share. The fifth series of Preferred Stock shall be designated “ Series D Preferred Stock ” and shall consist of 36,000,000 shares, $0.001 par value per share. The sixth series of Preferred Stock shall be designated “ Series E Preferred Stock ” and shall consist of 75,428,571 shares, $0.001 par value per share.

 

The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as set forth below:

 

ARTICLE V

 

The terms and provisions of the Common Stock and Preferred Stock are as follows:

 

1.               Definitions. For purposes of this Article V , the following definitions shall apply:

 



 

(a)                                  Board of Directors ” shall mean the Board of Directors of the Corporation.

 

(b)                                  Conversion Price ” shall mean $0.4227 per share for the Series A Preferred Stock, $0.32 per share for the Series A-1 Preferred Stock, $0.81 per share for the Series B Preferred Stock, $0.89 per share for the Series C Preferred Stock, $1.16 per share for the Series D Preferred Stock, and $0.28 per share for the Series E Preferred Stock (each subject to adjustment from time to time for Recapitalizations and as otherwise set forth elsewhere herein).

 

(c)                                   Convertible Securities ” shall mean any evidences of indebtedness, shares or other securities convertible into or exchangeable for Common Stock.

 

(d)                                  Corporation ” shall mean Avinger, Inc.

 

(e)                                   Distribution ” shall mean the transfer of cash or other property without consideration whether by way of dividend or otherwise, other than dividends on Common Stock payable in Common Stock, or the purchase or redemption of shares of the Corporation by the Corporation for cash or property other than: (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchase of capital stock of the Corporation in connection with the settlement of disputes with any stockholder, and (iv) any other repurchase or redemption of capital stock of the Corporation approved by the holders of the Common Stock and Preferred Stock of the Corporation voting as separate classes.

 

(f)                                    Dividend Rate ” shall mean an annual rate of $0.03382 per share for the Series A Preferred Stock, $0.026 per share for the Series A-1 Preferred Stock, $0.0648 per share for the Series B Preferred Stock, $0.0712 per share for the Series C Preferred Stock, $0.0928 per share for the Series D Preferred Stock, and $0.0224 per share for the Series E Preferred Stock (each subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(g)                                   Junior Preferred Stock ” shall mean the Series A Preferred Stock, the Series A-1 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, and the Series D Preferred Stock.

 

(h)                                  Liquidation Preference ” shall mean $0.4227 per share for the Series A Preferred Stock, $0.32 per share for the Series A-1 Preferred Stock, $0.81 per share for the Series B Preferred Stock, $0.89 per share for the Series C Preferred Stock, $1.16 per share for the Series D Preferred Stock and $1.12 per share for the Series E Preferred Stock (each subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(i)                                      Options ” shall mean rights, options or warrants to subscribe for, purchase or otherwise acquire Common Stock or Convertible Securities.

 

(j)                                     Original Issue Price ” shall mean $0.4227 per share for the Series A Preferred Stock, $0.32 per share for the Series A-1 Preferred Stock, $0.81 per share for the Series B

 

2



 

Preferred Stock, $0.89 per share for the Series C Preferred Stock, $1.16 per share for the Series D Preferred Stock and $0.28 per share for the Series E Preferred Stock (each subject to adjustment from time to time for Recapitalizations as set forth elsewhere herein).

 

(k)                                  Preferred Stock ” shall mean the Series A Preferred Stock, the Series A-1 Preferred Stock, the Series B Preferred Stock, the Series C Preferred Stock, the Series D Preferred Stock, and the Series E Preferred Stock.

 

(l)                                      Recapitalization ” shall mean any stock dividend, stock split, combination of shares, reorganization, recapitalization, reclassification or other similar event.

 

2.                                       Dividends.

 

(a)                                  Series E Preferred Stock. In any calendar year, the holders of outstanding shares of Series E Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Board of Directors of the Corporation, out of any assets at the time legally available therefor, in an amount up to the Dividend Rate specified for such shares of Series E Preferred Stock payable in preference and priority to any declaration or payment of any dividend on Junior Preferred Stock or Common Stock of the Corporation. No Distributions shall be made with respect to the Common Stock or Junior Preferred Stock unless dividends on the Series E Preferred Stock have been declared in accordance with the preferences stated herein and all declared dividends on the Series E Preferred Stock have been paid or set aside for payment to the Series E Preferred Stock holders. The right to receive dividends on shares of the Series E Preferred Stock shall not be cumulative, and no right to dividends shall accrue to holders of the Series E Preferred Stock by reason of the fact that dividends on said shares are not declared or paid.

 

(b)                                  Junior Preferred Stock. In any calendar year, the holders of outstanding shares of Junior Preferred Stock shall be entitled to receive dividends, when, as and if declared by the Board of Directors, out of any assets at the time legally available therefor, at the Dividend Rate specified for such shares of Junior Preferred Stock payable in preference and priority to any declaration or payment of any Distribution on Common Stock of the Corporation in such calendar year. No Distributions shall be made with respect to the Common Stock unless dividends on the Junior Preferred Stock have been declared in accordance with the preferences stated herein and all declared dividends on the Junior Preferred Stock have been paid or set aside for payment to the Junior Preferred Stock holders. The right to receive dividends on shares of the Junior Preferred Stock shall not be cumulative, and no right to dividends shall accrue to holders of Junior Preferred Stock by reason of the fact that dividends on said shares are not declared or paid. Payment of any dividends to the holders of the Junior Preferred Stock shall be on a pro rata , pari passu basis in proportion to the Dividend Rates for each series of Junior Preferred Stock.

 

(c)                                   Common Stock. Dividends may be paid on the Common Stock when, as and if declared by the Board of Directors, subject to the prior dividend rights of the Preferred Stock and to Section 6.

 

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(d)                                  Non-Cash Distributions. Whenever a Distribution provided for in this Section 2 shall be payable in property other than cash, the value of such Distribution shall be deemed to be the fair market value of such property as determined in good faith by the Board of Directors.

 

(e)                                   Consent to Certain Distributions. As authorized by Section 402.5(c) of the California Corporations Code, if Section 502 or Section 503 of the California Corporations Code is applicable to a payment made by the Corporation then such applicable section or sections shall not apply if such payment is a payment made by the Corporation in connection with (i) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries upon termination of their employment or services pursuant to agreements providing for the right of said repurchase, (ii) repurchases of Common Stock issued to or held by employees, officers, directors or consultants of the Corporation or its subsidiaries pursuant to rights of first refusal contained in agreements providing for such right, (iii) repurchases of Common Stock or Preferred Stock in connection with the settlement of disputes with any stockholder, (iv) any other repurchase or redemption of Common Stock or Preferred Stock approved by the holders of Preferred Stock of the Corporation.

 

3.                                       Liquidation Rights.

 

(a)                                  Series E Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, the holders of the Series E Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Junior Preferred Stock or the Common Stock by reason of their ownership of such stock, an amount per share for each share of Series E Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of the Series E Preferred Stock and (ii) all declared or accrued but unpaid dividends (if any) on such share of the Series E Preferred Stock, or such lesser amount as may be approved by the holders of the majority of the outstanding shares of the Series E Preferred Stock (the aggregate amount payable pursuant to this sentence is hereinafter referred to as the “ Series E Preference Amount ”). If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation legally available for distribution to the holders of the Series E Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3(a), then the entire assets of the Corporation legally available for distribution shall be distributed with equal priority and pro rata among the holders of the Series E Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(a).

 

(b)                                  Junior Preferred Stock Liquidation Preference. In the event of any liquidation, dissolution or winding up of the Corporation, either voluntary or involuntary, after the payment of the Series E Preference Amount, the holders of the Junior Preferred Stock shall be entitled to receive, prior and in preference to any Distribution of any of the assets of the Corporation to the holders of the Common Stock by reason of their ownership of such stock, an amount per share for each share of Junior Preferred Stock held by them equal to the sum of (i) the Liquidation Preference specified for such share of Junior Preferred Stock and (ii) all declared or accrued but unpaid dividends (if any) on such share of Junior Preferred Stock, or such lesser amount as may be approved by the holders of the majority of the outstanding shares of the Junior Preferred Stock. If upon the liquidation, dissolution or winding up of the Corporation, the assets of the Corporation

 

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legally available for distribution to the holders of the Junior Preferred Stock are insufficient to permit the payment to such holders of the full amounts specified in this Section 3(b), then the entire assets of the Corporation legally available for distribution after the payment of the Series E Preference Amount shall be distributed with equal priority and pro rata among the holders of the Junior Preferred Stock in proportion to the full amounts they would otherwise be entitled to receive pursuant to this Section 3(b).

 

(c)                                   Remaining Assets. After the payment or setting aside for payment to the holders of Preferred Stock of the full amounts specified in Section 3(a) and 3(b), the entire remaining assets of the Corporation legally available for distribution shall be distributed pro rata to holders of the Common Stock of the Corporation in proportion to the number of shares of Common Stock held by them.

 

(d)                                  Shares not Treated as Both Preferred Stock and Common Stock in any Distribution. Shares of Preferred Stock shall not be entitled to be converted into shares of Common Stock in order to participate in any Distribution, or series of Distributions, as shares of Common Stock, without first foregoing participation in the Distribution, or series of Distributions, as shares of Preferred Stock.

 

(e)                                   Reorganization. For purposes of this Section 3, a liquidation, dissolution or winding up of the Corporation shall be deemed to be occasioned by, or to include, (i) the acquisition of the Corporation by another entity by means of any transaction or series of related transactions to which the Corporation is party (including, without limitation, any stock acquisition, reorganization, merger or consolidation but excluding any sale of stock for capital raising purposes) other than a transaction or series of related transactions in which the holders of the voting securities of the Corporation outstanding immediately prior to such transaction or series of related transactions retain, immediately after such transaction or series of related transactions, as a result of shares in the Corporation held by such holders prior to such transaction or series of related transactions, at least a majority of the total voting power represented by the outstanding voting securities of the Corporation or such other surviving or resulting entity (or if the Corporation or such other surviving or resulting entity is a wholly-owned subsidiary immediately following such acquisition, its parent), (ii) a sale, lease or other disposition of all or substantially all of the assets of the Corporation and its subsidiaries taken as a whole by means of any transaction or series of related transactions, except where such sale, lease or other disposition is to a wholly-owned subsidiary of the Corporation; or (iii) any liquidation, dissolution or winding up of the Corporation, whether voluntary or involuntary (each, a “ Liquidation Event ”).

 

(f)                                    Valuation of Non-Cash Consideration. If any assets of the Corporation distributed to stockholders in connection with any liquidation, dissolution, or winding up of the Corporation are other than cash, then the value of such assets shall be their fair market value as determined in good faith by the Board of Directors, except that any publicly-traded securities to be distributed to stockholders in a liquidation, dissolution, or winding up of the Corporation shall be valued as follows:

 

(i)                                      if the securities are then traded on a national securities exchange, then the value of the securities shall be deemed to be the average of the closing prices of the securities on

 

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such exchange over the ten (10) trading day period ending five (5) trading days prior to the Distribution; and

 

(ii)                                   if the securities are actively traded over-the-counter, then the value of the securities shall be deemed to be the average of the closing bid prices of the securities over the ten (10) trading day period ending five (5) trading days prior to the Distribution.

 

In the event of a merger or other acquisition of the Corporation by another entity, the Distribution date shall be deemed to be the date such transaction closes.

 

For the purposes of this subsection 3(f), “ trading day ” shall mean any day which the exchange or system on which the securities to be distributed are traded is open and “ closing prices ” or “ closing bid prices ” shall be deemed to be: (i) for securities traded primarily on the New York Stock Exchange, the American Stock Exchange or a Nasdaq market, the last reported trade price or sale price, as the case may be, at 4:00 p.m., New York time, on that day and (ii) for securities listed or traded on other exchanges, markets and systems, the market price as of the end of the regular hours trading period that is generally accepted as such for such exchange, market or system. If, after the date hereof, the benchmark times generally accepted in the securities industry for determining the market price of a stock as of a given trading day shall change from those set forth above, the fair market value shall be determined as of such other generally accepted benchmark times.

 

4.                                       Conversion. The holders of the Preferred Stock shall have conversion rights as follows:

 

(a)                                  Right to Convert. Each share of Preferred Stock shall be convertible, at the option of the holder thereof, at any time after the date of issuance of such share at the office of the Corporation or any transfer agent for the Preferred Stock, into that number of fully-paid, nonassessable shares of Common Stock determined by dividing the Original Issue Price for the relevant series of Preferred Stock by the Conversion Price for such series of Preferred Stock. (The number of shares of Common Stock into which each share of Preferred Stock may be converted is hereinafter referred to as the “ Conversion Rate ” for each such series.) Upon any decrease or increase in the Conversion Price for any series of Preferred Stock, as described in this Section 4, the Conversion Rate for such series shall be appropriately increased or decreased.

 

(b)                                  Automatic Conversion. Each share of Preferred Stock shall automatically be converted into fully-paid, non-assessable shares of Common Stock at the then effective Conversion Rate for such share (i) immediately prior to the closing of a firm commitment underwritten initial public offering pursuant to an effective registration statement filed under the Securities Act of 1933, as amended (the “ Securities Act ”), covering the offer and sale of the Corporation’s Common Stock, provided that the offering price per share is not less than $0.56 (as adjusted for Recapitalizations) and the aggregate gross proceeds to the Corporation are not less than $50,000,000, or (ii) upon the receipt by the Corporation of a written request for such conversion from the holders of a majority of the Preferred Stock then outstanding (voting as a single class and on an as-converted basis), or, if later, the effective date for conversion specified in such requests (each of the events referred to in (i) and (ii) are referred to herein as an “ Automatic Conversion Event ”).

 

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(c)                                   Mechanics of Conversion. No fractional shares of Common Stock shall be issued upon conversion of Preferred Stock. In lieu of any fractional shares to which the holder would otherwise be entitled, the Corporation shall pay cash equal to such fraction multiplied by the then fair market value of a share of Common Stock as determined by the Board of Directors. For such purpose, all shares of Preferred Stock held by each holder of Preferred Stock shall be aggregated, and any resulting fractional share of Common Stock shall be paid in cash. Before any holder of Preferred Stock shall be entitled to convert the same into full shares of Common Stock, and to receive certificates therefor, he shall either (A) surrender the certificate or certificates therefor, duly endorsed, at the office of the Corporation or of any transfer agent for the Preferred Stock or (B) notify the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and execute an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates, and shall give written notice to the Corporation at such office that he elects to convert the same; provided, however, that on the date of an Automatic Conversion Event, the outstanding shares of Preferred Stock shall be converted automatically without any further action by the holders of such shares and whether or not the certificates representing such shares are surrendered to the Corporation or its transfer agent; provided further , however, that the Corporation shall not be obligated to issue certificates evidencing the shares of Common Stock issuable upon such Automatic Conversion Event unless either the certificates evidencing such shares of Preferred Stock are delivered to the Corporation or its transfer agent as provided above, or the holder notifies the Corporation or its transfer agent that such certificates have been lost, stolen or destroyed and executes an agreement satisfactory to the Corporation to indemnify the Corporation from any loss incurred by it in connection with such certificates. On the date of the occurrence of an Automatic Conversion Event, each holder of record of shares of Preferred Stock shall be deemed to be the holder of record of the Common Stock issuable upon such conversion, notwithstanding that the certificates representing such shares of Preferred Stock shall not have been surrendered at the office of the Corporation, that notice from the Corporation shall not have been received by any holder of record of shares of Preferred Stock, or that the certificates evidencing such shares of Common Stock shall not then be actually delivered to such holder.

 

The Corporation shall, as soon as practicable after such delivery, or after such agreement and indemnification, issue and deliver at such office to such holder of Preferred Stock, a certificate or certificates for the number of shares of Common Stock to which the holder shall be entitled as aforesaid, a check payable to the holder in the amount of any cash amounts payable as the result of a conversion into fractional shares of Common Stock, and an amount equal to all dividends declared or accrued but unpaid payable in shares of Common Stock at the Conversion Price in effect at the time of the conversion. Such conversion shall be deemed to have been made immediately prior to the close of business on the date of such surrender of the shares of Preferred Stock to be converted, and the person or persons entitled to receive the shares of Common Stock issuable upon such conversion shall be treated for all purposes as the record holder or holders of such shares of Common Stock on such date; provided, however, that if the conversion is in connection with an underwritten offer of securities registered pursuant to the Securities Act or a merger, sale, financing, or liquidation of the Corporation or other event, the conversion may, at the option of any holder tendering Preferred Stock for conversion, be conditioned upon the closing of such transaction or upon the occurrence of such event, in which case the person(s) entitled to receive the Common Stock issuable upon such conversion of the Preferred Stock shall not be deemed to have converted such

 

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Preferred Stock until immediately prior to the closing of such transaction or the occurrence of such event.

 

(d)                                  Adjustments to Conversion Price for Diluting Issues.

 

(i)                                      Special Definition. For purposes of this paragraph 4(d), “ Additional Shares of Common ” shall mean all shares of Common Stock issued (or, pursuant to paragraph 4(d)(iii), deemed to be issued) by the Corporation after the filing of this Amended and Restated Certificate of Incorporation, other than issuances or deemed issuances of:

 

(1)                                  shares of Common Stock upon the conversion of the Preferred Stock;

 

(2)                                  shares of Common Stock and options, warrants or other rights to purchase Common Stock issued or issuable to employees, officers or directors of, or consultants or advisors to the Corporation or any subsidiary pursuant to stock grants, restricted stock purchase agreements, option plans, purchase plans, incentive programs or similar arrangements (as adjusted for Recapitalizations), shares of or options, warrants or other rights to purchase Common Stock net of any stock repurchases or expired or terminated options pursuant to the terms of any option plan, restricted stock purchase agreement or similar arrangement;

 

(3)                                  shares of Common Stock upon the exercise or conversion of Options or Convertible Securities;

 

(4)                                  shares of Common Stock issued or issuable as a dividend or distribution on Preferred Stock or pursuant to any event for which adjustment is made pursuant to paragraph 4(e), 4(f) or 4(g) hereof;

 

(5)                                  shares of Common Stock issued or issuable in a registered public offering under the Securities Act pursuant to which all outstanding shares of Preferred Stock are automatically converted into Common Stock pursuant to an Automatic Conversion Event;

 

(6)                                  shares of Common Stock issued or issuable pursuant to the acquisition of another corporation by the Corporation by merger, purchase of substantially all of the assets or other reorganization, including pursuant to an Agreement and Plan of Reorganization by and between the Corporation and Sawtooth Labs, Inc., or to a joint venture agreement approved by the Board of Directors;

 

(7)                                  shares of Common Stock issued or issuable to banks, equipment lessors or other financial institutions pursuant to a debt financing or commercial leasing transaction approved by the Board of Directors;

 

(8)                                  shares of Common Stock issued or issuable in connection with any settlement of any action, suit, proceeding or litigation approved by the Board of Directors;

 

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(9)                                  shares of Common Stock issued or issuable in connection with sponsored research, collaboration, technology license, development, OEM, marketing or other similar agreements or strategic partnerships approved by the Board of Directors; and

 

(10)                           shares of Common Stock issued or issuable to suppliers or third party service providers in connection with the provision of goods or services pursuant to transactions approved by the Board of Directors.

 

(ii)                                   No Adjustment of Conversion Price. No adjustment in the Conversion Price of a particular series of Preferred Stock shall be made in respect of the issuance of Additional Shares of Common unless the consideration per share (as determined pursuant to paragraph 4(d)) for an Additional Share of Common issued or deemed to be issued by the Corporation is less than the Conversion Price in effect on the date of, and immediately prior to such issue, for such series of Preferred Stock.

 

(iii)                                Deemed Issue of Additional Shares of Common.  In the event the Corporation at any time or from time to time after the date of the filing of this Amended and Restated Certificate of Incorporation shall issue any Options or Convertible Securities or shall fix a record date for the determination of holders of any class of securities entitled to receive any such Options or Convertible Securities, then the maximum number of shares (as set forth in the instrument relating thereto without regard to any provisions contained therein for a subsequent adjustment of such number) of Common Stock issuable upon the exercise of such Options or, in the case of Convertible Securities, the conversion or exchange of such Convertible Securities or, in the case of Options for Convertible Securities, the exercise of such Options and the conversion or exchange of the underlying securities, shall be deemed to have been issued as of the time of such issue or, in case such a record date shall have been fixed, as of the close of business on such record date, provided that in any such case in which shares are deemed to be issued:

 

(1)          no further adjustment in the Conversion Price of any series of Preferred Stock shall be made upon the subsequent issue of Convertible Securities or shares of Common Stock in connection with the exercise of such Options or conversion or exchange of such Convertible Securities;

 

(2)                                  if such Options or Convertible Securities by their terms provide, with the passage of time or otherwise, for any change in the consideration payable to the Corporation or in the number of shares of Common Stock issuable upon the exercise, conversion or exchange thereof (other than a change pursuant to the anti-dilution provisions of such Options or Convertible Securities such as this Section 4(d) or pursuant to Recapitalization provisions of such Options or Convertible Securities such as Sections 4(e), 4(f) and 4(g) hereof), the Conversion Price of each series of Preferred Stock and any subsequent adjustments based thereon shall be recomputed to reflect such change as if such change had been in effect as of the original issue thereof (or upon the occurrence of the record date with respect thereto);

 

(3)                                  no readjustment pursuant to clause (2) above shall have the effect of increasing the Conversion Price of a series of Preferred Stock to an amount above the Conversion Price that would have resulted from any other issuances of Additional Shares of

 

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Common and any other adjustments provided for herein between the original adjustment date and such readjustment date;

 

(4)                                  upon the expiration of any such Options or any rights of conversion or exchange under such Convertible Securities which shall not have been exercised, the Conversion Price of each series of Preferred Stock computed upon the original issue thereof (or upon the occurrence of a record date with respect thereto) and any subsequent adjustments based thereon shall, upon such expiration, be recomputed as if:

 

(a)                                  in the case of Convertible Securities or Options for Common Stock, the only Additional Shares of Common issued were the shares of Common Stock, if any, actually issued upon the exercise of such Options or the conversion or exchange of such Convertible Securities and the consideration received therefor was the consideration actually received by the Corporation for the issue of such exercised Options plus the consideration actually received by the Corporation upon such exercise or for the issue of all such Convertible Securities which were actually converted or exchanged, plus the additional consideration, if any, actually received by the Corporation upon such conversion or exchange, and

 

(b)                                  in the case of Options for Convertible Securities, only the Convertible Securities, if any, actually issued upon the exercise thereof were issued at the time of issue of such Options, and the consideration received by the Corporation for the Additional Shares of Common deemed to have been then issued was the consideration actually received by the Corporation for the issue of such exercised Options, plus the consideration deemed to have been received by the Corporation (determined pursuant to Section 4(d)(v) hereof) upon the issue of the Convertible Securities with respect to which such Options were actually exercised; and

 

(5)                                  if such record date shall have been fixed and such Options or Convertible Securities are not issued on the date fixed therefor, the adjustment previously made in the Conversion Price which became effective on such record date shall be canceled as of the close of business on such record date, and thereafter the Conversion Price shall be adjusted pursuant to this paragraph 4(d) as of the actual date of their issuance.

 

(iv)                               Adjustment of Conversion Price Upon Issuance of Additional Shares of Common. In the event this Corporation shall issue Additional Shares of Common (including Additional Shares of Common deemed to be issued pursuant to paragraph 4(d)) without consideration or for a consideration per share less than the applicable Conversion Price of a series of Preferred Stock in effect on the date of and immediately prior to such issue, then, the Conversion Price of the affected series of Preferred Stock shall be reduced, concurrently with such issue, to a price (calculated to the nearest cent) determined by multiplying such Conversion Price by a fraction, the numerator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of shares which the aggregate consideration received by the Corporation for the total number of Additional Shares of Common so issued would purchase at such Conversion Price, and the denominator of which shall be the number of shares of Common Stock outstanding immediately prior to such issue plus the number of such Additional Shares of Common so issued. Notwithstanding the foregoing, the Conversion Price shall not be reduced at such time if the amount of such reduction would be less than $0.01, but any such amount shall be carried

 

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forward, and a reduction will be made with respect to such amount at the time of, and together with, any subsequent reduction which, together with such amount and any other amounts so carried forward, equal $0.01 or more in the aggregate. For the purposes of this Subsection 4(d), all shares of Common Stock issuable upon conversion of all outstanding shares of Preferred Stock and the exercise and/or conversion of any other outstanding Convertible Securities and all outstanding Options shall be deemed to be outstanding.

 

(v)                                  Determination of Consideration. For purposes of this subsection 4(d), the consideration received by the Corporation for the issue (or deemed issue) of any Additional Shares of Common shall be computed as follows:

 

(1)          Cash and Property. Such consideration shall:

 

(a)                                  insofar as it consists of cash, be computed at the aggregate amount of cash received by the Corporation before deducting any reasonable discounts, commissions or other expenses allowed, paid or incurred by the Corporation for any underwriting or otherwise in connection with such issuance;

 

(b)                                  insofar as it consists of property other than cash, be computed at the fair market value thereof at the time of such issue, as determined in good faith by the Board of Directors; and

 

(c)                                   in the event Additional Shares of Common are issued together with other shares or securities or other assets of the Corporation for consideration which covers both, be the proportion of such consideration so received, computed as provided in clauses (a) and (b) above, as reasonably determined in good faith by the Board of Directors.

 

(2)                                  Options and Convertible Securities. The consideration per share received by the Corporation for Additional Shares of Common deemed to have been issued pursuant to paragraph 4(d) shall be determined by dividing:

 

(a)                                  the total amount, if any, received or receivable by the Corporation as consideration for the issue of such Options or Convertible Securities, plus the minimum aggregate amount of additional consideration (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such consideration) payable to the Corporation upon the exercise of such Options or the conversion or exchange of such Convertible Securities, or in the case of Options for Convertible Securities, the exercise of such Options for Convertible Securities and the conversion or exchange of such Convertible Securities by,

 

(b)                                  the maximum number of shares of Common Stock (as set forth in the instruments relating thereto, without regard to any provision contained therein for a subsequent adjustment of such number) issuable upon the exercise of such Options or the conversion or exchange of such Convertible Securities.

 

(e)                                   Adjustments for Subdivisions or Combinations of Common Stock. In the event the outstanding shares of Common Stock shall be subdivided (by stock split, by payment of a

 

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stock dividend or otherwise), into a greater number of shares of Common Stock, the Conversion Price of each series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Common Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Common Stock, the Conversion Prices in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

 

(f)                                    Adjustments for Subdivisions or Combinations of Preferred Stock. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be subdivided (by stock split, by payment of a stock dividend or otherwise), into a greater number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such subdivision shall, concurrently with the effectiveness of such subdivision, be proportionately decreased. In the event the outstanding shares of Preferred Stock or a series of Preferred Stock shall be combined (by reclassification or otherwise) into a lesser number of shares of Preferred Stock, the Dividend Rate, Original Issue Price and Liquidation Preference of the affected series of Preferred Stock in effect immediately prior to such combination shall, concurrently with the effectiveness of such combination, be proportionately increased.

 

(g)                                   Adjustments for Reclassification, Exchange and Substitution. Subject to Section 3 (“ Liquidation Rights ”), if the Common Stock issuable upon conversion of the Preferred Stock shall be changed into the same or a different number of shares of any other class or classes of stock, whether by capital reorganization, reclassification or otherwise (other than a subdivision or combination of shares provided for above), then, in any such event, in lieu of the number of shares of Common Stock which the holders would otherwise have been entitled to receive each holder of such Preferred Stock shall have the right thereafter to convert such shares of Preferred Stock into a number of shares of such other class or classes of stock which a holder of the number of shares of Common Stock deliverable upon conversion of such series of Preferred Stock immediately before that change would have been entitled to receive in such reorganization or reclassification, all subject to further adjustment as provided herein with respect to such other shares.

 

(h)                                  Certificate as to Adjustments. Upon the occurrence of each adjustment or readjustment of the Conversion Price pursuant to this Section 4, the Corporation at its expense shall promptly compute such adjustment or readjustment in accordance with the terms hereof and furnish to each holder of Preferred Stock a certificate setting forth such adjustment or readjustment and showing in detail the facts upon which such adjustment or readjustment is based. The Corporation shall, upon the written request at any time of any holder of Preferred Stock, furnish or cause to be furnished to such holder a like certificate setting forth (i) such adjustments and readjustments, (ii) the Conversion Price at the time in effect and (iii) the number of shares of Common Stock and the amount, if any, of other property which at the time would be received upon the conversion of Preferred Stock.

 

(i)                                      Waiver of Adjustment of Conversion Price. Notwithstanding anything herein to the contrary, any downward adjustment of the Conversion Price of any series of Preferred Stock may be waived by the consent or vote of the holders of the majority of the outstanding shares of such

 

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series either before or after the issuance causing the adjustment. Any such waiver shall bind all future holders of shares of such series of Preferred Stock.

 

(j)                                     Notices of Record Date. In the event that this Corporation shall propose at any time:

 

(i)                                      to declare any Distribution upon its Common Stock, whether in cash, property, stock or other securities, whether or not a regular cash dividend and whether or not out of earnings or earned surplus;

 

(ii)                                   to effect any reclassification or recapitalization of its Common Stock outstanding involving a change in the Common Stock; or

 

(iii)                                to voluntarily liquidate or dissolve or to enter into any transaction deemed to be a liquidation, dissolution or winding up of the corporation pursuant to Section 3(e);

 

then, in connection with each such event, this Corporation shall send to the holders of the Preferred Stock prior written notice of the date on which a record shall be taken for such Distribution (and specifying the date on which the holders of Common Stock shall be entitled thereto and, if applicable, the amount and character of such Distribution) or for determining rights to vote in respect of the matters referred to in (ii) and (iii) above.

 

Such written notice shall be given by first class mail (or express courier), postage prepaid, addressed to the holders of Preferred Stock at the address for each such holder as shown on the books of the Corporation and shall be deemed given on the date such notice is mailed.

 

The notice provisions set forth in this section may be shortened or waived prospectively or retrospectively by the consent or vote of the holders of a majority of the Series A Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, and Series D Preferred Stock (voting together as a single class and on an as-converted basis).

 

(k)                                  Reservation of Stock Issuable Upon Conversion. The Corporation shall at all times reserve and keep available out of its authorized but unissued shares of Common Stock solely for the purpose of effecting the conversion of the shares of the Preferred Stock, such number of its shares of Common Stock as shall from time to time be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock; and if at any time the number of authorized but unissued shares of Common Stock shall not be sufficient to effect the conversion of all then outstanding shares of the Preferred Stock, the Corporation will take such corporate action as may, in the opinion of its counsel, be necessary to increase its authorized but unissued shares of Common Stock to such number of shares as shall be sufficient for such purpose.

 

5.                                       Voting.

 

(a)                                  Restricted Class Voting. Except as otherwise expressly provided herein, required by law or pursuant to agreement, the holders of Preferred Stock and the holders of Common Stock shall vote together and not as separate classes.

 

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(b)                                  No Series Voting. Other than as provided herein, required by law or pursuant to agreement, there shall be no series voting.

 

(c)                                   Preferred Stock. Each holder of Preferred Stock shall be entitled to the number of votes equal to the number of shares of Common Stock into which the shares of Preferred Stock held by such holder could be converted as of the record date. The holders of shares of the Preferred Stock shall be entitled to vote on all matters on which the Common Stock shall be entitled to vote. Holders of Preferred Stock shall be entitled to notice of any stockholders’ meeting in accordance with the Bylaws of the Corporation. Fractional votes shall not, however, be permitted and any fractional voting rights resulting from the above formula (after aggregating all shares into which shares of Preferred Stock held by each holder could be converted), shall be disregarded.

 

(d)                                  Adjustment in Authorized Common Stock. The number of authorized shares of Common Stock may be increased or decreased (but not below the number of shares of Common Stock then outstanding) by an affirmative vote of the holders of a majority of the stock of the Corporation.

 

(e)                                   Common Stock. Each holder of shares of Common Stock shall be entitled to one vote for each share thereof held.

 

6.                                       Amendments and Changes. Notwithstanding anything to the contrary set forth herein, as long as any of the Preferred Stock shall be issued and outstanding, the Corporation shall not, without first obtaining the approval (by vote or written consent as provided by law) of the holders of at least sixty percent (60%) of the outstanding shares of the Preferred Stock:

 

(a)                                  amend, alter or repeal any provision of the Certificate of Incorporation or bylaws of the Corporation (including pursuant to a merger) if such action would adversely alter the rights, preferences, privileges or powers of, or restrictions provided for the benefit of the Preferred Stock or any series thereof;

 

(b)                                  increase or decrease (other than for decreases resulting from conversion of the Preferred Stock) the authorized number of shares of Common Stock, Preferred Stock or any series thereof;

 

(c)                                   authorize or create (by reclassification or otherwise) or issue or obligate itself to issue any new class or series of equity security (including any security convertible into or exercisable for any equity security) having rights, preferences or privileges with respect to dividends or payments upon liquidation senior to or on a parity with any series of Preferred Stock or having voting rights other than those granted to the Preferred Stock generally;

 

(d)                                  authorize the issuance of or issue any debt security, or otherwise incur or guarantee any indebtedness in excess of $500,000 other than trade payables incurred in the ordinary course of business, unless approved by the Board of Directors;

 

(e)                                   enter into any transaction or series of related transactions deemed to be a liquidation, dissolution or winding up of the Corporation pursuant to Section 3(e);

 

14



 

(f)                                    authorize a merger, acquisition or sale of substantially all of the assets of the Corporation or any of its subsidiaries (other than a merger exclusively to effect a change of domicile of the Corporation);

 

(g)                                   voluntarily liquidate or dissolve;

 

(h)                                  increase or decrease the size of the Board of Directors;

 

(i)                                      terminate the employment of John B. Simpson;

 

(j)                                     pay or declare any dividends;

 

(k)                                  redeem or otherwise purchase any of the Corporation’s Preferred Stock; or

 

(l)                                      amend this Section 6.

 

7.                                       Reissuance of Preferred Stock. In the event that any shares of Preferred Stock shall be converted pursuant to Section 4 or otherwise repurchased by the Corporation, the shares so converted, redeemed or repurchased shall be cancelled and shall not be issuable by this Corporation.

 

8.                                       Notices. Any notice required by the provisions of this ARTICLE V to be given to the holders of Preferred Stock shall be deemed given if deposited in the United States mail, postage prepaid, and addressed to each holder of record at such holder’s address appearing on the books of the Corporation.

 

ARTICLE VI

 

In furtherance and not in limitation of the powers conferred by statute, the board of directors of the Company is expressly authorized to make, alter, amend or repeal the bylaws of the Company.

 

ARTICLE VII

 

Elections of directors need not be by written ballot unless otherwise provided in the bylaws of the Company.

 

ARTICLE VIII

 

To the fullest extent permitted by the Delaware General Corporation Law, as the same exists or as may hereafter be amended from time to time, a director of the Company shall not be personally liable to the Company or its stockholders for monetary damages for breach of fiduciary duty as a director. If the Delaware General Corporation Law is amended to authorize corporate action further eliminating or limiting the personal liability of directors, then the liability of a director of the Company shall be eliminated or limited to the fullest extent permitted by the Delaware General Corporation Law, as so amended.

 

The Company shall indemnify, to the fullest extent permitted by applicable law, any director or officer of the Company who was or is a party or is threatened to be made a party to any

 

15



 

threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding. The Company shall be required to indemnify a person in connection with a Proceeding initiated by such person only if the Proceeding was authorized by the Board.

 

The Company shall have the power to indemnify, to the extent permitted by the Delaware General Corporation Law, as it presently exists or may hereafter be amended from time to time, any employee or agent of the Company who was or is a party or is threatened to be made a party to any Proceeding by reason of the fact that he or she is or was a director, officer, employee or agent of the Company or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, including service with respect to employee benefit plans, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with any such Proceeding.

 

Neither any amendment nor repeal of this Article, nor the adoption of any provision of this Amended and Restated Certificate of Incorporation inconsistent with this Article, shall eliminate or reduce the effect of this Article in respect of any matter occurring, or any cause of action, suit or claim accruing or arising or that, but for this Article, would accrue or arise, prior to such amendment, repeal or adoption of an inconsistent provision.

 

* * * * * * *

 

16




Exhibit 3.3

 

BYLAWS OF

 

AVINGER, INC.

 

Adopted December 29, 2009

 

As Amended November 23, 2010

 



 

TABLE OF CONTENTS

 

 

Page

 

 

ARTICLE I — MEETINGS OF STOCKHOLDERS

1

 

 

1.1

Place of Meetings

1

1.2

Annual Meeting

1

1.3

Special Meeting

1

1.4

Notice of Stockholders’ Meetings

1

1.5

Quorum

2

1.6

Adjourned Meeting; Notice

2

1.7

Conduct of Business

2

1.8

Voting

2

1.9

Stockholder Action by Written Consent Without a Meeting

3

1.10

Record Date for Stockholder Notice; Voting; Giving Consents

4

1.11

Proxies

4

1.12

List of Stockholders Entitled to Vote

4

 

 

 

ARTICLE II — DIRECTORS

5

 

 

2.1

Powers

5

2.2

Number of Directors

5

2.3

Election, Qualification and Term of Office of Directors

5

2.4

Resignation and Vacancies

5

2.5

Place of Meetings; Meetings by Telephone

6

2.6

Conduct of Business

6

2.7

Regular Meetings

6

2.8

Special Meetings; Notice

6

2.9

Quorum; Voting

7

2.10

Board Action by Written Consent Without a Meeting

7

2.11

Fees and Compensation of Directors

7

2.12

Removal of Directors

7

 

 

 

ARTICLE III — COMMITTEES

8

 

 

3.1

Committees of Directors

8

3.2

Committee Minutes

8

3.3

Meetings and Actions of Committees

8

3.4

Subcommittees

9

 

 

 

ARTICLE IV — OFFICERS

9

 

 

4.1

Officers

9

4.2

Appointment of Officers

9

4.3

Subordinate Officers

9

4.4

Removal and Resignation of Officers

9

4.5

Vacancies in Offices

9

4.6

Representation of Shares of Other Corporations

9

4.7

Authority and Duties of Officers

10

 



 

TABLE OF CONTENTS

(Continued)

 

 

Page

 

 

ARTICLE V — INDEMNIFICATION

10

 

 

5.1

Indemnification of Directors and Officers in Third Party Proceedings

10

5.2

Indemnification of Directors and Officers in Actions by or in the Right of the Company

10

5.3

Successful Defense

10

5.4

Indemnification of Others

11

5.5

Advanced Payment of Expenses

11

5.6

Limitation on Indemnification

11

5.7

Determination; Claim

12

5.8

Non-Exclusivity of Rights

12

5.9

Insurance

12

5.10

Survival

12

5.11

Effect of Repeal or Modification

12

5.12

Certain Definitions

12

 

 

 

ARTICLE VI — STOCK

13

 

 

6.1

Stock Certificates; Partly Paid Shares

13

6.2

Special Designation on Certificates

13

6.3

Lost Certificates

14

6.4

Dividends

14

6.5

Stock Transfer Agreements

14

6.6

Registered Stockholders

14

6.7

Transfers

14

 

 

 

ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

15

 

 

7.1

Notice of Stockholder Meetings

15

7.2

Notice by Electronic Transmission

15

7.3

Notice to Stockholders Sharing an Address

16

7.4

Notice to Person with Whom Communication is Unlawful

16

7.5

Waiver of Notice

16

 

 

 

ARTICLE VIII — GENERAL MATTERS

16

 

 

8.1

Fiscal Year

16

8.2

Seal

16

8.3

Annual Report

16

8.4

Construction; Definitions

16

 

 

 

ARTICLE IX — AMENDMENTS

17

 

ii



 

BYLAWS

 

ARTICLE I — MEETINGS OF STOCKHOLDERS

 

1.1                                Place of Meetings .  Meetings of stockholders of Avinger, Inc. (the “ Company ”) shall be held at any place, within or outside the State of Delaware, determined by the Company’s board of directors (the “ Board ”). The Board may, in its sole discretion, determine that a meeting of stockholders shall not be held at any place, but may instead be held solely by means of remote communication as authorized by Section 211(a)(2) of the Delaware General Corporation Law (the “ DGCL ”). In the absence of any such designation or determination, stockholders’ meetings shall be held at the Company’s principal executive office.

 

1.2                                Annual Meeting .  An annual meeting of stockholders shall be held for the election of directors at such date and time as may be designated by resolution of the Board from time to time. Any other proper business may be transacted at the annual meeting. The Company shall not be required to hold an annual meeting of stockholders, provided that (i) the stockholders are permitted to act by written consent under the Company’s certificate of incorporation and these bylaws, (ii) the stockholders take action by written consent to elect directors and (iii) the stockholders unanimously consent to such action or, if such consent is less than unanimous, all of the directorships to which directors could be elected at an annual meeting held at the effective time of such action are vacant and are filled by such action.

 

1.3                                Special Meeting .  A special meeting of the stockholders may be called at any time by the Board, Chairperson of the Board, Chief Executive Officer or President (in the absence of a Chief Executive Officer) or by one or more stockholders holding shares in the aggregate entitled to cast not less than 10% of the votes at that meeting.

 

If any person(s) other than the Board calls a special meeting, the request shall:

 

(i)                                      be in writing;

 

(ii)                                   specify the time of such meeting and the general nature of the business proposed to be transacted; and

 

(iii)                                be delivered personally or sent by registered mail or by facsimile transmission to the Chairperson of the Board, the Chief Executive Officer, the President (in the absence of a Chief Executive Officer) or the Secretary of the Company.

 

The officer(s) receiving the request shall cause notice to be promptly given to the stockholders entitled to vote at such meeting, in accordance with these bylaws, that a meeting will be held at the time requested by the person or persons calling the meeting. No business may be transacted at such special meeting other than the business specified in such notice to stockholders. Nothing contained in this paragraph of this section 1.3 shall be construed as limiting, fixing, or affecting the time when a meeting of stockholders called by action of the Board may be held.

 

1.4                                Notice of Stockholders’ Meetings .  Whenever stockholders are required or permitted to take any action at a meeting, a written notice of the meeting shall be given which shall state the place, if any, date and hour of the meeting, the means of remote communication, if any, by which stockholders and proxy

 



 

holders may be deemed to be present in person and vote at such meeting, and, in the case of a special meeting, the purpose or purposes for which the meeting is called. Except as otherwise provided in the DGCL, the certificate of incorporation or these bylaws, the written notice of any meeting of stockholders shall be given not less than 10 nor more than 60 days before the date of the meeting to each stockholder entitled to vote at such meeting.

 

1.5                                Quorum .  Except as otherwise provided by law, the certificate of incorporation or these bylaws, at each meeting of stockholders the presence in person or by proxy of the holders of shares of stock having a majority of the votes which could be cast by the holders of all outstanding shares of stock entitled to vote at the meeting shall be necessary and sufficient to constitute a quorum. Where a separate vote by a class or series or classes or series is required, a majority of the outstanding shares of such class or series or classes or series, present in person or represented by proxy, shall constitute a quorum entitled to take action with respect to that vote on that matter, except as otherwise provided by law, the certificate of incorporation or these bylaws.

 

If, however, such quorum is not present or represented at any meeting of the stockholders, then either (i) the chairperson of the meeting, or (ii) the stockholders entitled to vote at the meeting, present in person or represented by proxy, shall have the power to adjourn the meeting from time to time, in the manner provided in section 1.6 , until a quorum is present or represented.

 

1.6                                Adjourned Meeting; Notice .  Any meeting of stockholders, annual or special, may adjourn from time to time to reconvene at the same or some other place, and notice need not be given of the adjourned meeting if the time, place, if any, thereof, and the means of remote communications, if any, by which stockholders and proxy holders may be deemed to be present in person and vote at such adjourned meeting are announced at the meeting at which the adjournment is taken. At the adjourned meeting, the Company may transact any business which might have been transacted at the original meeting. If the adjournment is for more than 30 days, or if after the adjournment a new record date is fixed for the adjourned meeting, a notice of the adjourned meeting shall be given to each stockholder of record entitled to vote at the meeting.

 

1.7                                Conduct of Business .  Meetings of stockholders shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by the Chief Executive Officer, or in the absence of the foregoing persons by the President, or in the absence of the foregoing persons by a Vice President, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting. The chairperson of any meeting of stockholders shall determine the order of business and the procedure at the meeting, including such regulation of the manner of voting and the conduct of business.

 

1.8                                Voting .  The stockholders entitled to vote at any meeting of stockholders shall be determined in accordance with the provisions of section 1.10 of these bylaws, subject to Section 217 (relating to voting rights of fiduciaries, pledgors and joint owners of stock) and Section 218 (relating to voting trusts and other voting agreements) of the DGCL.

 

Except as may be otherwise provided in the certificate of incorporation, each stockholder entitled to vote at any meeting of stockholders shall be entitled to one vote for each share of capital stock held by such stockholder which has voting power upon the matter in question. Voting at meetings of stockholders need not be by written ballot and, unless otherwise required by law, need not be conducted by inspectors of election unless so determined by the holders of shares of stock having a majority of the votes which could be cast by

 

2



 

the holders of all outstanding shares of stock entitled to vote thereon which are present in person or by proxy at such meeting. If authorized by the Board, such requirement of a written ballot shall be satisfied by a ballot submitted by electronic transmission (as defined in section 7.2 of these bylaws), provided that any such electronic transmission must either set forth or be submitted with information from which it can be determined that the electronic transmission was authorized by the stockholder or proxy holder.

 

Except as otherwise required by law, the certificate of incorporation or these bylaws, in all matters other than the election of directors, the affirmative vote of a majority of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the subject matter shall be the act of the stockholders. Except as otherwise required by law, the certificate of incorporation, these bylaws or agreement, directors shall be elected by a plurality of the voting power of the shares present in person or represented by proxy at the meeting and entitled to vote on the election of directors. Where a separate vote by a class or series or classes or series is required, in all matters other than the election of directors, the affirmative vote of the majority of shares of such class or series or classes or series present in person or represented by proxy at the meeting shall be the act of such class or series or classes or series, except as otherwise provided by law, the certificate of incorporation or these bylaws.

 

1.9                                Stockholder Action by Written Consent Without a Meeting .  Unless otherwise provided in the certificate of incorporation, any action required by the DGCL to be taken at any annual or special meeting of stockholders of a corporation, or any action which may be taken at any annual or special meeting of such stockholders, may be taken without a meeting, without prior notice, and without a vote, if a consent or consents in writing, setting forth the action so taken, shall be signed by the holders of outstanding stock having not less than the minimum number of votes that would be necessary to authorize or take such action at a meeting at which all shares entitled to vote thereon were present and voted.

 

An electronic transmission (as defined in section 7.2 ) consenting to an action to be taken and transmitted by a stockholder or proxy holder, or by a person or persons authorized to act for a stockholder or proxy holder, shall be deemed to be written, signed and dated for purposes of this section, provided that any such electronic transmission sets forth or is delivered with information from which the Company can determine (i) that the electronic transmission was transmitted by the stockholder or proxy holder or by a person or persons authorized to act for the stockholder or proxy holder and (ii) the date on which such stockholder or proxy holder or authorized person or persons transmitted such electronic transmission.

 

In the event that the Board shall have instructed the officers of the Company to solicit the vote or written consent of the stockholders of the Company, an electronic transmission of a stockholder written consent given pursuant to such solicitation may be delivered to the Secretary or the President of the Company or to a person designated by the Secretary or the President. The Secretary or the President of the Company or a designee of the Secretary or the President shall cause any such written consent by electronic transmission to be reproduced in paper form and inserted into the corporate records.

 

Prompt notice of the taking of the corporate action without a meeting by less than unanimous written consent shall be given to those stockholders who have not consented in writing and who, if the action had been taken at a meeting, would have been entitled to notice of the meeting if the record date for such meeting had been the date that written consents signed by a sufficient number of holders to take the action were delivered to the Company as provided in Section 228 of the DGCL. In the event that the action which is consented to is such as would have required the filing of a certificate under any provision of the DGCL, if such action had been voted on by stockholders at a meeting thereof, the certificate filed under such provision shall state, in lieu of any statement required by such provision concerning any vote of stockholders, that written consent has been given in accordance with Section 228 of the DGCL.

 

3



 

1.10                         Record Date for Stockholder Notice; Voting; Giving Consents .  In order that the Company may determine the stockholders entitled to notice of or to vote at any meeting of stockholders or any adjournment thereof, or entitled to express consent to corporate action in writing without a meeting, or entitled to receive payment of any dividend or other distribution or allotment of any rights, or entitled to exercise any rights in respect of any change, conversion or exchange of stock or for the purpose of any other lawful action, the Board may fix a record date, which record date shall not precede the date upon which the resolution fixing the record date is adopted by the Board and which record date:

 

(i)                                      in the case of determination of stockholders entitled to notice of or to vote at any meeting of stockholders or adjournment thereof, shall, unless otherwise required by law, not be more than sixty nor less than ten days before the date of such meeting;

 

(ii)                                   in the case of determination of stockholders entitled to express consent to corporate action in writing without a meeting, shall not be more than ten days after the date upon which the resolution fixing the record date is adopted by the Board; and

 

(iii)                                in the case of determination of stockholders for any other action, shall not be more than 60 days prior to such other action.

 

If no record date is fixed by the Board:

 

(i)                                      the record date for determining stockholders entitled to notice of or to vote at a meeting of stockholders shall be at the close of business on the day next preceding the day on which notice is given, or, if notice is waived, at the close of business on the day next preceding the day on which the meeting is held;

 

(ii)                                   the record date for determining stockholders entitled to express consent to corporate action in writing without a meeting when no prior action of the Board is required by law, shall be the first date on which a signed written consent setting forth the action taken or proposed to be taken is delivered to the Company in accordance with applicable law, or, if prior action by the Board is required by law, shall be at the close of business on the day on which the Board adopts the resolution taking such prior action; and

 

(iii)                                the record date for determining stockholders for any other purpose shall be at the close of business on the day on which the Board adopts the resolution relating thereto.

 

A determination of stockholders of record entitled to notice of or to vote at a meeting of stockholders shall apply to any adjournment of the meeting, provided that the Board may fix a new record date for the adjourned meeting.

 

1.11                         Proxies .  Each stockholder entitled to vote at a meeting of stockholders or to express consent or dissent to corporate action in writing without a meeting may authorize another person or persons to act for such stockholder by proxy authorized by an instrument in writing or by a transmission permitted by law filed in accordance with the procedure established for the meeting, but no such proxy shall be voted or acted upon after three years from its date, unless the proxy provides for a longer period. The revocability of a proxy that states on its face that it is irrevocable shall be governed by the provisions of Section 212 of the DGCL.

 

1.12                         List of Stockholders Entitled to Vote .  The officer who has charge of the stock ledger of the Company shall prepare and make, at least ten days before every meeting of stockholders, a complete list of the stockholders entitled to vote at the meeting, arranged in alphabetical order, and showing the address of

 

4



 

each stockholder and the number of shares registered in the name of each stockholder. The Company shall not be required to include electronic mail addresses or other electronic contact information on such list. Such list shall be open to the examination of any stockholder, for any purpose germane to the meeting for a period of at least ten days prior to the meeting: (i) on a reasonably accessible electronic network, provided that the information required to gain access to such list is provided with the notice of the meeting, or (ii) during ordinary business hours, at the Company’s principal place of business. In the event that the Company determines to make the list available on an electronic network, the Company may take reasonable steps to ensure that such information is available only to stockholders of the Company. If the meeting is to be held at a place, then the list shall be produced and kept at the time and place of the meeting during the whole time thereof, and may be examined by any stockholder who is present. If the meeting is to be held solely by means of remote communication, then the list shall also be open to the examination of any stockholder during the whole time of the meeting on a reasonably accessible electronic network, and the information required to access such list shall be provided with the notice of the meeting.

 

ARTICLE II — DIRECTORS

 

2.1                                Powers .  The business and affairs of the Company shall be managed by or under the direction of the Board, except as may be otherwise provided in the DGCL or the certificate of incorporation.

 

2.2                                Number of Directors .  The Board shall consist of one or more members, each of whom shall be a natural person. Unless the certificate of incorporation fixes the number of directors, the number of directors shall be determined from time to time by resolution of the Board. No reduction of the authorized number of directors shall have the effect of removing any director before that director’s term of office expires.

 

2.3                                Election, Qualification and Term of Office of Directors .  Except as provided in section 2.4 of these bylaws, and subject to sections 1.2 and 1.9 of these bylaws, directors shall be elected at each annual meeting of stockholders. Directors need not be stockholders unless so required by the certificate of incorporation or these bylaws. The certificate of incorporation or these bylaws may prescribe other qualifications for directors. Each director shall hold office until such director’s successor is elected and qualified or until such director’s earlier death, resignation or removal.

 

2.4                                Resignation and Vacancies .  Any director may resign at any time upon notice given in writing or by electronic transmission to the Company. A resignation is effective when the resignation is delivered unless the resignation specifies a later effective date or an effective date determined upon the happening of an event or events. A resignation which is conditioned upon the director failing to receive a specified vote for reelection as a director may provide that it is irrevocable. Unless otherwise provided in the certificate of incorporation, these bylaws or agreement, when one or more directors resign from the Board, effective at a future date, a majority of the directors then in office, including those who have so resigned, shall have power to fill such vacancy or vacancies, the vote thereon to take effect when such resignation or resignations shall become effective.

 

Unless otherwise provided in the certificate of incorporation or these bylaws:

 

(i)                                      Vacancies and newly created directorships resulting from any increase in the authorized number of directors elected by all of the stockholders having the right to vote as a single class may be filled by a majority of the directors then in office, although less than a quorum, or by a sole remaining director.

 

5



 

(ii)                                   Whenever the holders of any class or classes of stock or series thereof are entitled to elect one or more directors by the provisions of the certificate of incorporation or agreement, vacancies and newly created directorships of such class or classes or series may be filled by a majority of the directors elected by such class or classes or series thereof then in office, or by a sole remaining director so elected, except as provided in the certificate of incorporation or any such agreement.

 

If at any time, by reason of death or resignation or other cause, the Company should have no directors in office, then any officer or any stockholder or an executor, administrator, trustee or guardian of a stockholder, or other fiduciary entrusted with like responsibility for the person or estate of a stockholder, may call a special meeting of stockholders in accordance with the provisions of the certificate of incorporation or these bylaws, or may apply to the Court of Chancery for a decree summarily ordering an election as provided in Section 211 of the DGCL.

 

If, at the time of filling any vacancy or any newly created directorship, the directors then in office constitute less than a majority of the whole Board (as constituted immediately prior to any such increase), the Court of Chancery may, upon application of any stockholder or stockholders holding at least 10% of the voting stock at the time outstanding having the right to vote for such directors, summarily order an election to be held to fill any such vacancies or newly created directorships, or to replace the directors chosen by the directors then in office as aforesaid, which election shall be governed by the provisions of Section 211 of the DGCL as far as applicable.

 

A director elected to fill a vacancy shall be elected for the unexpired term of his or her predecessor in office and until such director’s successor is elected and qualified, or until such director’s earlier death, resignation or removal.

 

2.5                                Place of Meetings; Meetings by Telephone .  The Board may hold meetings, both regular and special, either within or outside the State of Delaware.

 

Unless otherwise restricted by the certificate of incorporation or these bylaws, members of the Board, or any committee designated by the Board, may participate in a meeting of the Board, or any committee, by means of conference telephone or other communications equipment by means of which all persons participating in the meeting can hear each other, and such participation in a meeting shall constitute presence in person at the meeting.

 

2.6                                Conduct of Business .  Meetings of the Board shall be presided over by the Chairperson of the Board, if any, or in his or her absence by the Vice Chairperson of the Board, if any, or in the absence of the foregoing persons by a chairperson designated by the Board, or in the absence of such designation by a chairperson chosen at the meeting. The Secretary shall act as secretary of the meeting, but in his or her absence the chairperson of the meeting may appoint any person to act as secretary of the meeting.

 

2.7                                Regular Meetings .  Regular meetings of the Board may be held without notice at such time and at such place as shall from time to time be determined by the Board.

 

2.8                                Special Meetings; Notice .  Special meetings of the Board for any purpose or purposes may be called at any time by the Chairperson of the Board, the Chief Executive Officer, the President, the Secretary or any two directors.

 

6



 

Notice of the time and place of special meetings shall be:

 

(i)                                      delivered personally by hand, by courier or by telephone;

 

(ii)                                   sent by United States first-class mail, postage prepaid;

 

(iii)                                sent by facsimile; or

 

(iv)                               sent by electronic mail,

 

directed to each director at that director’s address, telephone number, facsimile number or electronic mail address, as the case may be, as shown on the Company’s records.

 

If the notice is (i) delivered personally by hand, by courier or by telephone, (ii) sent by facsimile or (iii) sent by electronic mail, it shall be delivered or sent at least 24 hours before the time of the holding of the meeting. If the notice is sent by United States mail, it shall be deposited in the United States mail at least four days before the time of the holding of the meeting. Any oral notice may be communicated to the director. The notice need not specify the place of the meeting (if the meeting is to be held at the Company’s principal executive office) nor the purpose of the meeting.

 

2.9                                Quorum; Voting .  At all meetings of the Board, a majority of the total authorized number of directors shall constitute a quorum for the transaction of business. If a quorum is not present at any meeting of the Board, then the directors present thereat may adjourn the meeting from time to time, without notice other than announcement at the meeting, until a quorum is present. A meeting at which a quorum is initially present may continue to transact business notwithstanding the withdrawal of directors, if any action taken is approved by at least a majority of the required quorum for that meeting.

 

The vote of a majority of the directors present at any meeting at which a quorum is present shall be the act of the Board, except as may be otherwise specifically provided by statute, the certificate of incorporation or these bylaws.

 

If the certificate of incorporation provides that one or more directors shall have more or less than one vote per director on any matter, every reference in these bylaws to a majority or other proportion of the directors shall refer to a majority or other proportion of the votes of the directors.

 

2.10                         Board Action by Written Consent Without a Meeting .  Unless otherwise restricted by the certificate of incorporation or these bylaws, any action required or permitted to be taken at any meeting of the Board, or of any committee thereof, may be taken without a meeting if all members of the Board or committee, as the case may be, consent thereto in writing or by electronic transmission and the writing or writings or electronic transmission or transmissions are filed with the minutes of proceedings of the Board or committee. Such filing shall be in paper form if the minutes are maintained in paper form and shall be in electronic form if the minutes are maintained in electronic form.

 

2.11                         Fees and Compensation of Directors .  Unless otherwise restricted by the certificate of incorporation or these bylaws, the Board shall have the authority to fix the compensation of directors.

 

2.12                         Removal of Directors .  Unless otherwise restricted by statute, the certificate of incorporation, these bylaws or agreement, any director or the entire Board may be removed, with or without cause, by the holders of a majority of the shares then entitled to vote at an election of directors.

 

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No reduction of the authorized number of directors shall have the effect of removing any director prior to the expiration of such director’s term of office.

 

ARTICLE III — COMMITTEES

 

3.1                                Committees of Directors .  The Board may designate one or more committees, each committee to consist of one or more of the directors of the Company. The Board may designate one or more directors as alternate members of any committee, who may replace any absent or disqualified member at any meeting of the committee. In the absence or disqualification of a member of a committee, the member or members thereof present at any meeting and not disqualified from voting, whether or not such member or members constitute a quorum, may unanimously appoint another member of the Board to act at the meeting in the place of any such absent or disqualified member. Any such committee, to the extent provided in the resolution of the Board or in these bylaws, shall have and may exercise all the powers and authority of the Board in the management of the business and affairs of the Company, and may authorize the seal of the Company to be affixed to all papers that may require it; but no such committee shall have the power or authority to (i) approve or adopt, or recommend to the stockholders, any action or matter (other than the election or removal of directors) expressly required by the DGCL to be submitted to stockholders for approval, or (ii) adopt, amend or repeal any bylaw of the Company.

 

3.2                                Committee Minutes .  Each committee shall keep regular minutes of its meetings and report the same to the Board when required.

 

3.3                                Meetings and Actions of Committees .  Meetings and actions of committees shall be governed by, and held and taken in accordance with, the provisions of:

 

(i)                                      section 2.5 (Place of Meetings; Meetings by Telephone);

 

(ii)                                   section 2.7 (Regular Meetings);

 

(iii)                                section 2.8 (Special Meetings; Notice);

 

(iv)                               section 2.9 (Quorum; Voting);

 

(v)                                  section 2.10 (Board Action by Written Consent Without a Meeting); and

 

(vi)                               section 7.5 (Waiver of Notice)

 

with such changes in the context of those bylaws as are necessary to substitute the committee and its members for the Board and its members. However :

 

(i)                                      the time of regular meetings of committees may be determined either by resolution of the Board or by resolution of the committee;

 

(ii)                                   special meetings of committees may also be called by resolution of the Board; and

 

(iii)                                notice of special meetings of committees shall also be given to all alternate members, who shall have the right to attend all meetings of the committee. The Board may adopt rules for the government of any committee not inconsistent with the provisions of these bylaws.

 

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Any provision in the certificate of incorporation providing that one or more directors shall have more or less than one vote per director on any matter shall apply to voting in any committee or subcommittee, unless otherwise provided in the certificate of incorporation or these bylaws.

 

3.4                                Subcommittees .  Unless otherwise provided in the certificate of incorporation, these bylaws or the resolutions of the Board designating the committee, a committee may create one or more subcommittees, each subcommittee to consist of one or more members of the committee, and delegate to a subcommittee any or all of the powers and authority of the committee.

 

ARTICLE IV — OFFICERS

 

4.1                                Officers .  The officers of the Company shall be a President and a Secretary. The Company may also have, at the discretion of the Board, a Chairperson of the Board, a Vice Chairperson of the Board, a Chief Executive Officer, one or more Vice Presidents, a Chief Financial Officer, a Treasurer, one or more Assistant Treasurers, one or more Assistant Secretaries, and any such other officers as may be appointed in accordance with the provisions of these bylaws. Any number of offices may be held by the same person.

 

4.2                                Appointment of Officers .  The Board shall appoint the officers of the Company, except such officers as may be appointed in accordance with the provisions of section 4.3 of these bylaws.

 

4.3                                Subordinate Officers .  The Board may appoint, or empower the Chief Executive Officer or, in the absence of a Chief Executive Officer, the President, to appoint, such other officers and agents as the business of the Company may require. Each of such officers and agents shall hold office for such period, have such authority, and perform such duties as are provided in these bylaws or as the Board may from time to time determine.

 

4.4                                Removal and Resignation of Officers .  Any officer may be removed, either with or without cause, by an affirmative vote of the majority of the Board at any regular or special meeting of the Board or, except in the case of an officer chosen by the Board, by any officer upon whom such power of removal may be conferred by the Board.

 

Any officer may resign at any time by giving written notice to the Company. Any resignation shall take effect at the date of the receipt of that notice or at any later time specified in that notice. Unless otherwise specified in the notice of resignation, the acceptance of the resignation shall not be necessary to make it effective. Any resignation is without prejudice to the rights, if any, of the Company under any contract to which the officer is a party.

 

4.5                                Vacancies in Offices .  Any vacancy occurring in any office of the Company shall be filled by the Board or as provided in section 4.3 .

 

4.6                                Representation of Shares of Other Corporations .  Unless otherwise directed by the Board, the President or any other person authorized by the Board or the President is authorized to vote, represent and exercise on behalf of the Company all rights incident to any and all shares of any other corporation or corporations standing in the name of the Company. The authority granted herein may be exercised either by such person directly or by any other person authorized to do so by proxy or power of attorney duly executed by such person having the authority.

 

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4.7                                Authority and Duties of Officers .  Except as otherwise provided in these bylaws, the officers of the Company shall have such powers and duties in the management of the Company as may be designated from time to time by the Board and, to the extent not so provided, as generally pertain to their respective offices, subject to the control of the Board.

 

ARTICLE V — INDEMNIFICATION

 

5.1                                Indemnification of Directors and Officers in Third Party Proceedings .  Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action, suit or proceeding, whether civil, criminal, administrative or investigative (a “ Proceeding ”) (other than an action by or in the right of the Company) by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, against expenses (including attorneys’ fees), judgments, fines and amounts paid in settlement actually and reasonably incurred by such person in connection with such Proceeding if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had no reasonable cause to believe such person’s conduct was unlawful. The termination of any Proceeding by judgment, order, settlement, conviction, or upon a plea of nolo contendere or its equivalent, shall not, of itself, create a presumption that the person did not act in good faith and in a manner which such person reasonably believed to be in or not opposed to the best interests of the Company, and, with respect to any criminal action or proceeding, had reasonable cause to believe that such person’s conduct was unlawful.

 

5.2                                Indemnification of Directors and Officers in Actions by or in the Right of the Company .  Subject to the other provisions of this Article V , the Company shall indemnify, to the fullest extent permitted by the DGCL, as now or hereinafter in effect, any person who was or is a party or is threatened to be made a party to any threatened, pending or completed action or suit by or in the right of the Company to procure a judgment in its favor by reason of the fact that such person is or was a director or officer of the Company, or is or was a director or officer of the Company serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection with the defense or settlement of such action or suit if such person acted in good faith and in a manner such person reasonably believed to be in or not opposed to the best interests of the Company; except that no indemnification shall be made in respect of any claim, issue or matter as to which such person shall have been adjudged to be liable to the Company unless and only to the extent that the Court of Chancery or the court in which such action or suit was brought shall determine upon application that, despite the adjudication of liability but in view of all the circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses which the Court of Chancery or such other court shall deem proper.

 

5.3                                Successful Defense .  To the extent that a present or former director or officer of the Company has been successful on the merits or otherwise in defense of any action, suit or proceeding described in section 5.1 or section 5.2 , or in defense of any claim, issue or matter therein, such person shall be indemnified against expenses (including attorneys’ fees) actually and reasonably incurred by such person in connection therewith.

 

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5.4                                Indemnification of Others .  Subject to the other provisions of this Article V , the Company shall have power to indemnify its employees and agents to the extent not prohibited by the DGCL or other applicable law. The Board shall have the power to delegate to such person or persons the determination of whether employees or agents shall be indemnified.

 

5.5                                Advanced Payment of Expenses .  Expenses (including attorneys’ fees) incurred by an officer or director of the Company in defending any Proceeding shall be paid by the Company in advance of the final disposition of such Proceeding upon receipt of a written request therefor (together with documentation reasonably evidencing such expenses) and an undertaking by or on behalf of the person to repay such amounts if it shall ultimately be determined that the person is not entitled to be indemnified under this Article V or the DGCL. Such expenses (including attorneys’ fees) incurred by former directors and officers or other employees and agents may be so paid upon such terms and conditions, if any, as the Company deems appropriate. The right to advancement of expenses shall not apply to any Proceeding for which indemnity is excluded pursuant to these bylaws, but shall apply to any Proceeding referenced in section 5.6(ii)  or 5.6(iii)  prior to a determination that the person is not entitled to be indemnified by the Company.

 

Notwithstanding the foregoing, unless otherwise determined pursuant to section 5.8 , no advance shall be made by the Company to an officer of the Company (except by reason of the fact that such officer is or was a director of the Company, in which event this paragraph shall not apply) in any Proceeding if a determination is reasonably and promptly made (i) by a majority vote of the directors who are not parties to such Proceeding, even though less than a quorum, or (ii) by a committee of such directors designated by majority vote of such directors, even though less than a quorum, or (iii) if there are no such directors, or if such directors so direct, by independent legal counsel in a written opinion, that facts known to the decision-making party at the time such determination is made demonstrate clearly and convincingly that such person acted in bad faith or in a manner that such person did not believe to be in or not opposed to the best interests of the Company.

 

5.6                                Limitation on Indemnification .  Subject to the requirements in section 5.3 and the DGCL, the Company shall not be obligated to indemnify any person pursuant to this Article V in connection with any Proceeding (or any part of any Proceeding):

 

(i)                                      for which payment has actually been made to or on behalf of such person under any statute, insurance policy, indemnity provision, vote or otherwise, except with respect to any excess beyond the amount paid;

 

(ii)                                   for an accounting or disgorgement of profits pursuant to Section 16(b) of the Securities Exchange Act of 1934, as amended, or similar provisions of federal, state or local statutory law or common law, if such person is held liable therefor (including pursuant to any settlement arrangements);

 

(iii)                                for any reimbursement of the Company by such person of any bonus or other incentive-based or equity-based compensation or of any profits realized by such person from the sale of securities of the Company, as required in each case under the Securities Exchange Act of 1934, as amended (including any such reimbursements that arise from an accounting restatement of the Company pursuant to Section 304 of the Sarbanes-Oxley Act of 2002 (the “ Sarbanes-Oxley Act ”), or the payment to the Company of profits arising from the purchase and sale by such person of securities in violation of Section 306 of the Sarbanes-Oxley Act), if such person is held liable therefor (including pursuant to any settlement arrangements);

 

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(iv)                               initiated by such person, including any Proceeding (or any part of any Proceeding) initiated by such person against the Company or its directors, officers, employees, agents or other indemnitees, unless (a) the Board authorized the Proceeding (or the relevant part of the Proceeding) prior to its initiation, (b) the Company provides the indemnification, in its sole discretion, pursuant to the powers vested in the Company under applicable law, (c) otherwise required to be made under section 5.7 or (d) otherwise required by applicable law; or

 

(v)                                  if prohibited by applicable law.

 

5.7                                Determination; Claim .  If a claim for indemnification or advancement of expenses under this Article V is not paid by the Company or on its behalf within 90 days after receipt by the Company of a written request therefor, the claimant shall be entitled to an adjudication by a court of competent jurisdiction of his or her entitlement to such indemnification or advancement of expenses. To the extent not prohibited by law, the Company shall indemnify such person against all expenses actually and reasonably incurred by such person in connection with any action for indemnification or advancement of expenses from the Company under this Article V , to the extent such person is successful in such action, and, if requested by such person, shall advance such expenses to such person, subject to the provisions of Section 5.5. In any such suit, the Company shall, to the fullest extent not prohibited by law, have the burden of proving that the claimant is not entitled to the requested indemnification or advancement of expenses.

 

5.8                                Non-Exclusivity of Rights .  The indemnification and advancement of expenses provided by, or granted pursuant to, this Article V shall not be deemed exclusive of any other rights to which those seeking indemnification or advancement of expenses may be entitled under the certificate of incorporation or any statute, bylaw, agreement, vote of stockholders or disinterested directors or otherwise, both as to action in such person’s official capacity and as to action in another capacity while holding such office. The Company is specifically authorized to enter into individual contracts with any or all of its directors, officers, employees or agents respecting indemnification and advancement of expenses, to the fullest extent not prohibited by the DGCL or other applicable law.

 

5.9                                Insurance .  The Company may purchase and maintain insurance on behalf of any person who is or was a director, officer, employee or agent of the Company, or is or was serving at the request of the Company as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise against any liability asserted against such person and incurred by such person in any such capacity, or arising out of such person’s status as such, whether or not the Company would have the power to indemnify such person against such liability under the provisions of the DGCL.

 

5.10                         Survival .  The rights to indemnification and advancement of expenses conferred by this Article V shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of the heirs, executors and administrators of such a person.

 

5.11                         Effect of Repeal or Modification .  Any amendment, alteration or repeal of this Article V shall not adversely affect any right or protection hereunder of any person in respect of any act or omission occurring prior to such amendment, alteration or repeal.

 

5.12                         Certain Definitions .  For purposes of this Article V , references to the “ Company ” shall include, in addition to the resulting corporation, any constituent corporation (including any constituent of a constituent) absorbed in a consolidation or merger which, if its separate existence had continued, would have had power and authority to indemnify its directors, officers, employees or agents, so that any person who is or was a director, officer, employee or agent of such constituent corporation, or is or was serving at the request

 

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of such constituent corporation as a director, officer, employee or agent of another corporation, partnership, joint venture, trust or other enterprise, shall stand in the same position under the provisions of this Article V with respect to the resulting or surviving corporation as such person would have with respect to such constituent corporation if its separate existence had continued. For purposes of this Article V , references to “ other enterprises ” shall include employee benefit plans; references to “ fines ” shall include any excise taxes assessed on a person with respect to an employee benefit plan; and references to “ serving at the request of the Company ” shall include any service as a director, officer, employee or agent of the Company which imposes duties on, or involves services by, such director, officer, employee or agent with respect to an employee benefit plan, its participants or beneficiaries; and a person who acted in good faith and in a manner such person reasonably believed to be in the interest of the participants and beneficiaries of an employee benefit plan shall be deemed to have acted in a manner “ not opposed to the best interests of the Company ” as referred to in this Article V .

 

ARTICLE VI — STOCK

 

6.1                                Stock Certificates; Partly Paid Shares .  The shares of the Company shall be represented by certificates, provided that the Board may provide by resolution or resolutions that some or all of any or all classes or series of its stock shall be uncertificated shares. Any such resolution shall not apply to shares represented by a certificate until such certificate is surrendered to the Company. Every holder of stock represented by certificates shall be entitled to have a certificate signed by, or in the name of the Company by the Chairperson of the Board or Vice-Chairperson of the Board, or the President or a Vice-President, and by the Treasurer or an Assistant Treasurer, or the Secretary or an Assistant Secretary of the Company representing the number of shares registered in certificate form. Any or all of the signatures on the certificate may be a facsimile. In case any officer, transfer agent or registrar who has signed or whose facsimile signature has been placed upon a certificate has ceased to be such officer, transfer agent or registrar before such certificate is issued, it may be issued by the Company with the same effect as if such person were such officer, transfer agent or registrar at the date of issue. The Company shall not have power to issue a certificate in bearer form.

 

The Company may issue the whole or any part of its shares as partly paid and subject to call for the remainder of the consideration to be paid therefor. Upon the face or back of each stock certificate issued to represent any such partly paid shares, or upon the books and records of the Company in the case of uncertificated partly paid shares, the total amount of the consideration to be paid therefor and the amount paid thereon shall be stated. Upon the declaration of any dividend on fully paid shares, the Company shall declare a dividend upon partly paid shares of the same class, but only upon the basis of the percentage of the consideration actually paid thereon.

 

6.2                                Special Designation on Certificates .  If the Company is authorized to issue more than one class of stock or more than one series of any class, then the powers, the designations, the preferences, and the relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights shall be set forth in full or summarized on the face or back of the certificate that the Company shall issue to represent such class or series of stock; provided that, except as otherwise provided in Section 202 of the DGCL, in lieu of the foregoing requirements there may be set forth on the face or back of the certificate that the Company shall issue to represent such class or series of stock, a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Within a reasonable time after the issuance or transfer of uncertificated stock, the

 

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Company shall send to the registered owner thereof a written notice containing the information required to be set forth or stated on certificates pursuant to this section 6.2 or Sections 156, 202(a) or 218(a) of the DGCL or with respect to this section 6.2 a statement that the Company will furnish without charge to each stockholder who so requests the powers, designations, preferences and relative, participating, optional or other special rights of each class of stock or series thereof and the qualifications, limitations or restrictions of such preferences and/or rights. Except as otherwise expressly provided by law, the rights and obligations of the holders of uncertificated stock and the rights and obligations of the holders of certificates representing stock of the same class and series shall be identical.

 

6.3                                Lost Certificates .  Except as provided in this section 6.3 , no new certificates for shares shall be issued to replace a previously issued certificate unless the latter is surrendered to the Company and cancelled at the same time. The Company may issue a new certificate of stock or uncertificated shares in the place of any certificate theretofore issued by it, alleged to have been lost, stolen or destroyed, and the Company may require the owner of the lost, stolen or destroyed certificate, or such owner’s legal representative, to give the Company a bond sufficient to indemnify it against any claim that may be made against it on account of the alleged loss, theft or destruction of any such certificate or the issuance of such new certificate or uncertificated shares.

 

6.4                                Dividends .  The Board, subject to any restrictions contained in the certificate of incorporation or applicable law, may declare and pay dividends upon the shares of the Company’s capital stock. Dividends may be paid in cash, in property, or in shares of the Company’s capital stock, subject to the provisions of the certificate of incorporation.

 

The Board may set apart out of any of the funds of the Company available for dividends a reserve or reserves for any proper purpose and may abolish any such reserve.

 

6.5                                Stock Transfer Agreements .  The Company shall have power to enter into and perform any agreement with any number of stockholders of any one or more classes of stock of the Company to restrict the transfer of shares of stock of the Company of any one or more classes owned by such stockholders in any manner not prohibited by the DGCL.

 

6.6                                Registered Stockholders .  The Company:

 

(i)                                      shall be entitled to recognize the exclusive right of a person registered on its books as the owner of shares to receive dividends and to vote as such owner;

 

(ii)                                   shall be entitled to hold liable for calls and assessments the person registered on its books as the owner of shares; and

 

(iii)                                shall not be bound to recognize any equitable or other claim to or interest in such share or shares on the part of another person, whether or not it shall have express or other notice thereof, except as otherwise provided by the laws of Delaware.

 

6.7                                Transfers .  Transfers of record of shares of stock of the Company shall be made only upon its books by the holders thereof, in person or by an attorney duly authorized, and, if such stock is certificated, upon the surrender of a certificate or certificates for a like number of shares, properly endorsed or accompanied by proper evidence of succession, assignation or authority to transfer.

 

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ARTICLE VII — MANNER OF GIVING NOTICE AND WAIVER

 

7.1                                Notice of Stockholder Meetings .  Notice of any meeting of stockholders, if mailed, is given when deposited in the United States mail, postage prepaid, directed to the stockholder at such stockholder’s address as it appears on the Company’s records. An affidavit of the Secretary or an Assistant Secretary of the Company or of the transfer agent or other agent of the Company that the notice has been given shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

7.2                                Notice by Electronic Transmission .  Without limiting the manner by which notice otherwise may be given effectively to stockholders pursuant to the DGCL, the certificate of incorporation or these bylaws, any notice to stockholders given by the Company under any provision of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a form of electronic transmission consented to by the stockholder to whom the notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any such consent shall be deemed revoked if:

 

(i)                                      the Company is unable to deliver by electronic transmission two consecutive notices given by the Company in accordance with such consent; and

 

(ii)                                   such inability becomes known to the Secretary or an Assistant Secretary of the Company or to the transfer agent, or other person responsible for the giving of notice.

 

However, the inadvertent failure to treat such inability as a revocation shall not invalidate any meeting or other action.

 

Any notice given pursuant to the preceding paragraph shall be deemed given:

 

(i)                                      if by facsimile telecommunication, when directed to a number at which the stockholder has consented to receive notice;

 

(ii)                                   if by electronic mail, when directed to an electronic mail address at which the stockholder has consented to receive notice;

 

(iii)                                if by a posting on an electronic network together with separate notice to the stockholder of such specific posting, upon the later of (A) such posting and (B) the giving of such separate notice; and

 

(iv)                               if by any other form of electronic transmission, when directed to the stockholder.

 

An affidavit of the Secretary or an Assistant Secretary or of the transfer agent or other agent of the Company that the notice has been given by a form of electronic transmission shall, in the absence of fraud, be prima facie evidence of the facts stated therein.

 

An “ electronic transmission ” means any form of communication, not directly involving the physical transmission of paper, that creates a record that may be retained, retrieved, and reviewed by a recipient thereof, and that may be directly reproduced in paper form by such a recipient through an automated process.

 

Notice by a form of electronic transmission shall not apply to Sections 164, 296, 311, 312 or 324 of the DGCL.

 

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7.3                                Notice to Stockholders Sharing an Address .  Except as otherwise prohibited under the DGCL, without limiting the manner by which notice otherwise may be given effectively to stockholders, any notice to stockholders given by the Company under the provisions of the DGCL, the certificate of incorporation or these bylaws shall be effective if given by a single written notice to stockholders who share an address if consented to by the stockholders at that address to whom such notice is given. Any such consent shall be revocable by the stockholder by written notice to the Company. Any stockholder who fails to object in writing to the Company, within 60 days of having been given written notice by the Company of its intention to send the single notice, shall be deemed to have consented to receiving such single written notice.

 

7.4                                Notice to Person with Whom Communication is Unlawful .  Whenever notice is required to be given, under the DGCL, the certificate of incorporation or these bylaws, to any person with whom communication is unlawful, the giving of such notice to such person shall not be required and there shall be no duty to apply to any governmental authority or agency for a license or permit to give such notice to such person. Any action or meeting which shall be taken or held without notice to any such person with whom communication is unlawful shall have the same force and effect as if such notice had been duly given. In the event that the action taken by the Company is such as to require the filing of a certificate under the DGCL, the certificate shall state, if such is the fact and if notice is required, that notice was given to all persons entitled to receive notice except such persons with whom communication is unlawful.

 

7.5                                Waiver of Notice .  Whenever notice is required to be given under any provision of the DGCL, the certificate of incorporation or these bylaws, a written waiver, signed by the person entitled to notice, or a waiver by electronic transmission by the person entitled to notice, whether before or after the time of the event for which notice is to be given, shall be deemed equivalent to notice. Attendance of a person at a meeting shall constitute a waiver of notice of such meeting, except when the person attends a meeting for the express purpose of objecting at the beginning of the meeting, to the transaction of any business because the meeting is not lawfully called or convened. Neither the business to be transacted at, nor the purpose of, any regular or special meeting of the stockholders need be specified in any written waiver of notice or any waiver by electronic transmission unless so required by the certificate of incorporation or these bylaws.

 

ARTICLE VIII — GENERAL MATTERS

 

8.1                                Fiscal Year .  The fiscal year of the Company shall be fixed by resolution of the Board and may be changed by the Board.

 

8.2                                Seal .  The Company may adopt a corporate seal, which shall be in such form as may be approved from time to time by the Board. The Company may use the corporate seal by causing it or a facsimile thereof to be impressed or affixed or in any other manner reproduced.

 

8.3                                Annual Report .  The Company shall cause an annual report to be sent to the stockholders of the Company to the extent required by applicable law. If and so long as there are fewer than 100 holders of record of the Company’s shares, the requirement of sending an annual report to the stockholders of the Company is expressly waived (to the extent permitted under applicable law).

 

8.4                                Construction; Definitions .  Unless the context requires otherwise, the general provisions, rules of construction, and definitions in the DGCL shall govern the construction of these bylaws. Without limiting the generality of this provision, the singular number includes the plural, the plural number includes the singular, and the term “person” includes both a corporation and a natural person.

 

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ARTICLE IX — AMENDMENTS

 

These bylaws may be adopted, amended or repealed by the stockholders entitled to vote. However, the Company may, in its certificate of incorporation, confer the power to adopt, amend or repeal bylaws upon the directors. The fact that such power has been so conferred upon the directors shall not divest the stockholders of the power, nor limit their power to adopt, amend or repeal bylaws.

 

A bylaw amendment adopted by stockholders which specifies the votes that shall be necessary for the election of directors shall not be further amended or repealed by the Board.

 

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Exhibit 3.5

 

CERTIFICATE OF AMENDMENT OF

 

AMENDED AND RESTATED CERTIFICATE OF INCORPORATION

 

OF AVINGER, INC.

 

John B. Simpson, Ph.D., M.D. certifies that:

 

1.                                       He is the President and Chief Executive Officer of Avinger, Inc., a Delaware corporation.

 

2.                                       Article IV of the Amended and Restated Certificate of Incorporation of the corporation shall be amended in its entirety and replaced with the following:

 

“The total number of shares of stock that the Corporation shall have authority to issue is 1,006,863,941 shares, consisting of 700,000,000 shares of Common Stock, $0.001 par value per share (the “ Common Stock ”), and 306,863,941 shares of Preferred Stock, $0.001 par value per share (the “ Preferred Stock ”). The first series of Preferred Stock shall be designated “ Series A Preferred Stock ” and shall consist of 14,696,775 shares, $0.001 par value per share. The second series of Preferred Stock shall be designated “ Series A-1 Preferred Stock ” and shall consist of 10,135,609 shares, $0.001 par value per share. The third series of Preferred Stock shall be designated “ Series B Preferred Stock ” and shall consist of 33,998,229 shares, $0.001 par value per share. The fourth series of Preferred Stock shall be designated “ Series C Preferred Stock ” and shall consist of 25,265,172 shares, $0.001 par value per share. The fifth series of Preferred Stock shall be designated “ Series D Preferred Stock ” and shall consist of 36,000,000 shares, $0.001 par value per share. The sixth series of Preferred Stock shall be designated “ Series E Preferred Stock ” and shall consist of 186,768,156 shares, $0.001 par value per share.

 

The rights, preferences, privileges and restrictions granted to or imposed upon the Common Stock and Preferred Stock are as set forth below:”

 

3.                                       The foregoing Certificate of Amendment of the Amended and Restated Certificate of Incorporation has been duly approved by the Board of Directors and by the required vote of stockholders in accordance with Section 242 of the Delaware General Corporation Law.

 

IN WITNESS WHEREOF, the corporation has caused this Certificate of Amendment to be signed by its President and Chief Executive Officer, this 20 th  day of November, 2014.

 

 

 

/s/ John B. Simpson, Ph.D., M.D.

 

John B. Simpson, Ph.D., M.D.

 

President and Chief Executive Officer

 




Exhibit 10.2

 

AVINGER, INC.

 

2009 STOCK PLAN

 

ADOPTED ON MARCH 25, 2009

 

AS AMENDED ON SEPTEMBER 28, 2009, DECEMBER 29, 2009,

JULY 1, 2010, OCTOBER, 21 2010, JULY 29, 2011, JUNE 28, 2012,

AUGUST, 29 2014, AND NOVEMBER 3, 2014

 



 

TABLE OF CONTENTS

 

 

Page

 

 

SECTION 1.

Establishment And Purpose

1

 

 

SECTION 2.

Administration

1

(a)

Committees of the Board of Directors

1

(b)

Authority of the Board of Directors

1

 

 

SECTION 3.

Eligibility

1

(a)

General Rule

1

(b)

Ten-Percent Stockholders

1

 

 

SECTION 4.

Stock Subject To Plan

2

(a)

Basic Limitation

2

(b)

Additional Shares

2

 

 

SECTION 5.

Terms And Conditions Of Awards Or Sales

2

(a)

Stock Purchase Agreement

2

(b)

Duration of Offers and Nontransferability of Rights

2

(c)

Purchase Price

2

(d)

Withholding Taxes

2

(e)

Restrictions on Transfer of Shares

2

 

 

SECTION 6.

Terms And Conditions Of Options

3

(a)

Stock Option Agreement

3

(b)

Number of Shares

3

(c)

Exercise Price

3

(d)

Exercisability

3

(e)

Basic Term

3

(f)

Termination of Service (Except by Death)

3

(g)

Leaves of Absence

4

(h)

Death of Optionee

4

(i)

Restrictions on Transfer of Shares

4

(j)

Transferability of Options

4

(k)

Withholding Taxes

5

(l)

No Rights as a Stockholder

5

(m)

Modification, Extension and Assumption of Options

5

 

 

SECTION 7.

Payment For Shares

5

(a)

General Rule

5

(b)

Services Rendered

5

(c)

Promissory Note

5

(d)

Surrender of Stock

5

(e)

Exercise/Sale

6

(f)

Other Forms of Payment

6

 

i



 

SECTION 8.

Adjustment Of Shares

6

(a)

General

6

(b)

Mergers and Consolidations

6

(c)

Reservation of Rights

7

 

 

SECTION 9.

Securities Law Requirements

7

 

 

SECTION 10.

No Retention Rights

7

 

 

SECTION 11.

Duration and Amendments

8

(a)

Term of the Plan

8

(b)

Right to Amend or Terminate the Plan

8

(c)

Effect of Amendment or Termination

8

 

 

SECTION 12.

Definitions

8

 

ii



 

AVINGER, INC. 2009 STOCK PLAN

 

SECTION 1.                          ESTABLISHMENT AND PURPOSE .

 

The purpose of the Plan is to offer selected persons an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company’s Stock.  The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares.  Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Section 422 of the Code.

 

Capitalized terms are defined in Section 12.

 

SECTION 2.                          ADMINISTRATION .

 

(a)                                  Committees of the Board of Directors .  The Plan may be administered by one or more Committees.  Each Committee shall consist of one or more members of the Board of Directors who have been appointed by the Board of Directors.  Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it.  If no Committee has been appointed, the entire Board of Directors shall administer the Plan.  Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.

 

(b)                                  Authority of the Board of Directors .  Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan.  All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee.

 

SECTION 3.                          ELIGIBILITY .

 

(a)                                  General Rule .  Only Employees, Outside Directors and Consultants shall be eligible for the grant of Nonstatutory Options or the direct award or sale of Shares.  Only Employees shall be eligible for the grant of ISOs.

 

(b)                                  Ten-Percent Stockholders .  A person who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the date of grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the date of grant.  For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

 



 

SECTION 4.                          STOCK SUBJECT TO PLAN .

 

(a)                                  Basic Limitation .  Not more than 65,650,412 Shares may be issued under the Plan (subject to Subsection (b) below and Section 8(a)).  All of these Shares may be issued upon the exercise of ISOs.  The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan.  The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.  Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.

 

(b)                                  Additional Shares .  In the event that Shares previously issued under the Plan are reacquired by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan.  In the event that an outstanding Option or other right for any reason expires or is canceled, the Shares allocable to the unexercised portion of such Option or other right shall be added to the number of Shares then available for issuance under the Plan.

 

SECTION 5.                          TERMS AND CONDITIONS OF AWARDS OR SALES .

 

(a)                                  Stock Purchase Agreement .  Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company.  Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement.  The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical.

 

(b)                                  Duration of Offers and Nontransferability of Rights .  Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days after the grant of such right was communicated to the Purchaser by the Company.  Such right shall not be transferable and shall be exercisable only by the Purchaser to whom such right was granted.

 

(c)                                   Purchase Price .  The Board of Directors shall determine the Purchase Price of Shares to be offered under the Plan at its sole discretion.  The Purchase Price shall be payable in a form described in Section 7.

 

(d)                                  Withholding Taxes .  As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such purchase.

 

(e)                                   Restrictions on Transfer of Shares .  Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine.  Such restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.

 

2



 

SECTION 6.                          TERMS AND CONDITIONS OF OPTIONS .

 

(a)                                  Stock Option Agreement .  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company.  The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Option Agreement.  The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

 

(b)                                  Number of Shares .  Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8.  The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.

 

(c)                                   Exercise Price .  Each Stock Option Agreement shall specify the Exercise Price.  The Exercise Price of any Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant, and in the case of an ISO a higher percentage may be required by Section 3(b).  Subject to the preceding sentence, the Exercise Price shall be determined by the Board of Directors at its sole discretion.  The Exercise Price shall be payable in a form described in Section 7.

 

(d)                                  Exercisability .  Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable.  No Option shall be exercisable unless the Optionee (i) has delivered an executed copy of the Stock Option Agreement to the Company or (ii) otherwise agrees to be bound by the terms of the Stock Option Agreement.  The Board of Directors shall determine the exercisability provisions of the Stock Option Agreement at its sole discretion.  All of an Optionee’s Options shall become exercisable in full if Section 8(b)(iv) applies.

 

(e)                                   Basic Term .  The Stock Option Agreement shall specify the term of the Option.  The term shall not exceed 10 years from the date of grant, and in the case of an ISO a shorter term may be required by Section 3(b).  Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.

 

(f)                                    Termination of Service (Except by Death) .  If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following occasions:

 

(i)                                      The expiration date determined pursuant to Subsection (e) above;

 

(ii)                                   The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such later date as the Board of Directors may determine; or

 

(iii)                                The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.

 

3



 

The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).  The balance of such Options shall lapse when the Optionee’s Service terminates.  In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).

 

(g)                                  Leaves of Absence .  For purposes of Subsection (f) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).

 

(h)                                  Death of Optionee .  If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:

 

(i)                                      The expiration date determined pursuant to Subsection (e) above; or

 

(ii)                                   The date 12 months after the Optionee’s death, or such later date as the Board of Directors may determine.

 

All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death (or became exercisable as a result of the death) and the underlying Shares had vested before the Optionee’s death (or vested as a result of the Optionee’s death).  The balance of such Options shall lapse when the Optionee dies.

 

(i)                                     Restrictions on Transfer of Shares .  Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine.  Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.

 

(j)                                     Transferability of Options .  An Option shall be transferable by the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as provided in the next sentence.  If the applicable Stock Option Agreement so provides, a Nonstatutory Option shall also be transferable by gift or domestic relations order

 

4



 

to a Family Member of the Optionee.  An ISO may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative.

 

(k)                                  Withholding Taxes .  As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.  The Optionee shall also make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.

 

(l)                                     No Rights as a Stockholder .  An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.

 

(m)                              Modification, Extension and Assumption of Options .  Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.

 

SECTION 7.                          PAYMENT FOR SHARES .

 

(a)                                  General Rule .  The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7.

 

(b)                                  Services Rendered .  At the discretion of the Board of Directors, Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award.

 

(c)                                   Promissory Note .  At the discretion of the Board of Directors, all or a portion of the Purchase Price or Exercise Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note.  The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon.  The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code.  Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.

 

(d)                                  Surrender of Stock .  At the discretion of the Board of Directors, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee.  Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when the Option is exercised.

 

5


 

(e)                                   Exercise/Sale .  To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.

 

(f)                                    Other Forms of Payment .  To the extent that a Stock Purchase Agreement or Stock Option Agreement so provides, the Purchase Price or Exercise Price of Shares issued under the Plan may be paid in any other form permitted by the Delaware General Corporation Law, as amended.

 

SECTION 8.                          ADJUSTMENT OF SHARES .

 

(a)                                  General .  In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a reclassification, or any other increase or decrease in the number of issued shares of Stock effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made in each of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option and (iii) the Exercise Price under each outstanding Option.  In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a recapitalization, a spin-off, or a similar occurrence, the Board of Directors at its sole discretion may make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option; provided, however, that the Board of Directors shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code.

 

(b)                                  Mergers and Consolidations .  In the event that the Company is a party to a merger or consolidation, all Shares acquired under the Plan and all Options shall be subject to the agreement of merger or consolidation.  Such agreement need not treat all Options in an identical manner, and it shall provide for one or more of the following with respect to each Option:

 

(i)                                      The continuation of the Option by the Company (if the Company is the surviving corporation).

 

(ii)                                   The assumption of the Option by the surviving corporation or its parent in a manner that complies with Section 424(a) of the Code (whether or not the Option is an ISO).

 

(iii)                                The substitution by the surviving corporation or its parent of a new option for the Option in a manner that complies with Section 424(a) of the Code (whether or not the Option is an ISO).

 

6



 

(iv)                               Full exercisability of the Option and full vesting of the Shares subject to the Option, followed by the cancellation of the Option.  The full exercisability of the Option and full vesting of the Shares subject to the Option may be contingent on the closing of such merger or consolidation.  The Optionee shall be able to exercise the Option during a period of not less than five full business days preceding the closing date of such merger or consolidation, unless (A) a shorter period is required to permit a timely closing of such merger or consolidation and (B) such shorter period still offers the Optionee a reasonable opportunity to exercise the Option.  Any exercise of the Option during such period may be contingent on the closing of such merger or consolidation.

 

(v)                                  The cancellation of the Option and a payment to the Optionee equal to the excess of (A) the Fair Market Value of the Shares subject to the Option (whether or not the Option is then exercisable or such Shares are then vested) as of the closing date of such merger or consolidation over (B) the Exercise Price of the Option.  Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates when the Option would have become exercisable or such Shares would have vested.  Such payment may be subject to vesting based on the Optionee’s continuing Service, provided that the vesting schedule shall not be less favorable to the Optionee than the schedule under which the Option would have become exercisable or such Shares would have vested.  If the Exercise Price of the Shares subject to the Option exceeds the Fair Market Value of such Shares, then the Option may be cancelled without making a payment to the Optionee.  For purposes of this Paragraph (v), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

 

(c)                                   Reservation of Rights .  Except as provided in this Section 8, an Optionee or Purchaser shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class.  Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option.  The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

SECTION 9.                          SECURITIES LAW REQUIREMENTS .

 

Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated

 

7



 

thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.

 

SECTION 10.                   NO RETENTION RIGHTS .

 

Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Purchaser or Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.

 

SECTION 11.                   DURATION AND AMENDMENTS .

 

(a)                                  Term of the Plan .  The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to the approval of the Company’s stockholders.  If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any grants, exercises or sales that have already occurred under the Plan shall be rescinded and no additional grants, exercises or sales shall thereafter be made under the Plan.  The Plan shall terminate automatically 10 years after the later of (i) the date when the Board of Directors adopted the Plan or (ii) the date when the Board of Directors approved the most recent increase in the number of Shares reserved under Section 4 that was also approved by the Company’s stockholders.  The Plan may be terminated on any earlier date pursuant to Subsection (b) below.

 

(b)                                  Right to Amend or Terminate the Plan .  The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan shall be subject to the approval of the Company’s stockholders if it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 8) or (ii) materially changes the class of persons who are eligible for the grant of ISOs.  Stockholder approval shall not be required for any other amendment of the Plan.  If the stockholders fail to approve an increase in the number of Shares reserved under Section 4 within 12 months after its adoption by the Board of Directors, then any grants, exercises or sales that have already occurred in reliance on such increase shall be rescinded and no additional grants, exercises or sales shall thereafter be made in reliance on such increase.

 

(c)                                   Effect of Amendment or Termination .  No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination.  The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.

 

SECTION 12.                   DEFINITIONS .

 

(a)                                  Board of Directors ” shall mean the Board of Directors of the Company, as constituted from time to time.

 

8



 

(b)                                  Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

(c)                                   Committee ” shall mean a committee of the Board of Directors, as described in Section 2(a).

 

(d)                                  Company ” shall mean Avinger, Inc., a Delaware corporation.

 

(e)                                   Consultant ” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

 

(f)                                    Disability ” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.

 

(g)                                   Employee ” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

 

(h)                                  Exercise Price ” shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.

 

(i)                                      Fair Market Value ” shall mean the fair market value of a Share, as determined by the Board of Directors in accordance with applicable law.  Such determination shall be conclusive and binding on all persons.

 

(j)                                     Family Member ” shall mean (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, (ii) any person sharing the Optionee’s household (other than a tenant or employee), (iii) a trust in which persons described in Clause (i) or (ii) have more than 50% of the beneficial interest, (iv) a foundation in which persons described in Clause (i) or (ii) or the Optionee control the management of assets and (v) any other entity in which persons described in Clause (i) or (ii) or the Optionee own more than 50% of the voting interests.

 

(k)                                  ISO ” shall mean an employee incentive stock option described in Section 422(b) of the Code.

 

(l)                                      Nonstatutory Option ” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

 

(m)                              Option ” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.

 

(n)                                  Optionee ” shall mean a person who holds an Option.

 

(o)                                  Outside Director ” shall mean a member of the Board of Directors who is not an Employee.

 

9



 

(p)                                  Parent ” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

(q)                                  Plan ” shall mean this Avinger, Inc. 2009 Stock Plan.

 

(r)                                     Purchase Price ” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.

 

(s)                                    Purchaser ” shall mean a person to whom the Board of Directors has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

 

(t)                                     Service ” shall mean service as an Employee, Outside Director or Consultant.

 

(u)                                  Share ” shall mean one share of Stock, as adjusted in accordance with Section 8 (if applicable).

 

(v)                                  Stock ” shall mean the Common Stock of the Company.

 

(w)                                Stock Option Agreement ” shall mean the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

 

(x)                                  Stock Purchase Agreement ” shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan that contains the terms, conditions and restrictions pertaining to the acquisition of such Shares.

 

(y)                                  Subsidiary ” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

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AVINGER, INC. 2009 STOCK PLAN

 

NOTICE OF STOCK OPTION GRANT (EARLY EXERCISE)

 

The Optionee has been granted the following option to purchase shares of the Common Stock of Avinger, Inc.:

 

 

Name of Optionee:

 

«Name»

 

 

 

 

 

Total Number of Shares:

 

«TotalShares»

 

 

 

 

 

 

 

Type of Option:

 

«ISO»

 

Incentive Stock Option (ISO)

 

 

 

 

 

 

 

 

 

«NSO»

 

Nonstatutory Stock Option (NSO)

 

 

 

 

 

 

 

Exercise Price per Share:

 

$«PricePerShare»

 

 

 

 

 

Date of Grant:

 

«DateGrant»

 

 

 

 

 

Date Exercisable:

 

This option may be exercised at any time after the Date of Grant for all or any part of the Shares subject to this option.

 

 

 

 

 

Vesting Commencement Date:

 

«VestComDate»

 

 

 

 

 

Vesting Schedule:

 

The Right of Repurchase shall lapse with respect to the first 25% of the Shares subject to this option when the Optionee completes 12 months of continuous Service beginning with the Vesting Commencement Date set forth above. The Right of Repurchase shall lapse with respect to an additional 1/48 th  of the Shares subject to this option when the Optionee completes each month of continuous Service thereafter.

 

 

 

 

 

Expiration Date:

 

«ExpDate» . This option expires earlier if the Optionee’s Service terminates earlier, as provided in Section 6 of the Stock Option Agreement.

 

By signing below, the Optionee and the Company agree that this option is granted under, and governed by the terms and conditions of, the 2009 Stock Plan and the Stock Option Agreement.  Both of these documents are attached to, and made a part of, this Notice of Stock Option Grant.  Section 14 of the Stock Option Agreement includes important acknowledgements of the Optionee .

 

OPTIONEE:

 

AVINGER, INC.

 

 

 

 

 

 

 

 

By:

 

 

 

Title:

 

 



 

THE OPTION GRANTED PURSUANT TO THIS AGREEMENT AND THE SHARES ISSUABLE UPON THE EXERCISE THEREOF HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.

 

AVINGER, INC. 2009 STOCK PLAN:

STOCK OPTION AGREEMENT

 

SECTION 1.  GRANT OF OPTION.

 

(a)                        Option .  On the terms and conditions set forth in the Notice of Stock Option Grant and this Agreement, the Company grants to the Optionee on the Date of Grant the option to purchase at the Exercise Price the number of Shares set forth in the Notice of Stock Option Grant.  The Exercise Price is agreed to be at least 100% of the Fair Market Value per Share on the Date of Grant (110% of Fair Market Value if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies).  This option is intended to be an ISO or an NSO, as provided in the Notice of Stock Option Grant.

 

(b)                        $100,000 Limitation .  Even if this option is designated as an ISO in the Notice of Stock Option Grant, it shall be deemed to be an NSO to the extent (and only to the extent) required by the $100,000 annual limitation under Section 422(d) of the Code.

 

(c)                         Stock Plan and Defined Terms .  This option is granted pursuant to the Plan, a copy of which the Optionee acknowledges having received.  The provisions of the Plan are incorporated into this Agreement by this reference.  Capitalized terms are defined in Section 15 of this Agreement.

 

SECTION 2.  RIGHT TO EXERCISE.

 

(a)                        Exercisability .  Subject to Subsection (b) below and the other conditions set forth in this Agreement, all or part of this option may be exercised prior to its expiration at the time or times set forth in the Notice of Stock Option Grant.  Shares purchased by exercising this option may be subject to the Right of Repurchase under Section 7.

 

(b)                        Stockholder Approval .  Any other provision of this Agreement notwithstanding, no portion of this option shall be exercisable at any time prior to the approval of the Plan by the Company’s stockholders.

 



 

SECTION 3.  NO TRANSFER OR ASSIGNMENT OF OPTION.

 

Except as otherwise provided in this Agreement, this option and the rights and privileges conferred hereby shall not be sold, pledged or otherwise transferred (whether by operation of law or otherwise) and shall not be subject to sale under execution, attachment, levy or similar process.

 

SECTION 4.  EXERCISE PROCEDURES.

 

(a)                        Notice of Exercise .  The Optionee or the Optionee’s representative may exercise this option by giving written notice to the Company pursuant to Section 13(c).  The notice shall specify the election to exercise this option, the number of Shares for which it is being exercised and the form of payment.  The person exercising this option shall sign the notice.  In the event that this option is being exercised by the representative of the Optionee, the notice shall be accompanied by proof (satisfactory to the Company) of the representative’s right to exercise this option.  The Optionee or the Optionee’s representative shall deliver to the Company, at the time of giving the notice, payment in a form permissible under Section 5 for the full amount of the Purchase Price.  In the event of a partial exercise of this option, Shares shall be deemed to have been purchased in the order in which they vest in accordance with the Notice of Stock Option Grant.

 

(b)                        Issuance of Shares .  After receiving a proper notice of exercise, the Company shall cause to be issued one or more certificates evidencing the Shares for which this option has been exercised.  Such Shares shall be registered (i) in the name of the person exercising this option, (ii) in the names of such person and his or her spouse as community property or as joint tenants with the right of survivorship or (iii) with the Company’s consent, in the name of a revocable trust.  In the case of Restricted Shares, the Company shall cause such certificates to be deposited in escrow under Section 7(c).  In the case of other Shares, the Company shall cause such certificates to be delivered to or upon the order of the person exercising this option.

 

(c)                         Withholding Taxes .  In the event that the Company determines that it is required to withhold any tax as a result of the exercise of this option, the Optionee, as a condition to the exercise of this option, shall make arrangements satisfactory to the Company to enable it to satisfy all withholding requirements.  The Optionee shall also make arrangements satisfactory to the Company to enable it to satisfy any withholding requirements that may arise in connection with the vesting or disposition of Shares purchased by exercising this option.

 

SECTION 5.  PAYMENT FOR STOCK.

 

(a)                        Cash .  All or part of the Purchase Price may be paid in cash or cash equivalents.

 

(b)                        Surrender of Stock .  At the discretion of the Board of Directors, all or any part of the Purchase Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee.  Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when this option is exercised.

 

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(c)                         Exercise/Sale .  All or part of the Purchase Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.  However, payment pursuant to this Subsection (c) shall be permitted only if (i) Stock then is publicly traded and (ii) such payment does not violate applicable law.

 

SECTION 6.  TERM AND EXPIRATION.

 

(a)                        Basic Term .  This option shall in any event expire on the expiration date set forth in the Notice of Stock Option Grant, which date is 10 years after the Date of Grant (five years after the Date of Grant if this option is designated as an ISO in the Notice of Stock Option Grant and Section 3(b) of the Plan applies).

 

(b)                        Termination of Service (Except by Death) .  If the Optionee’s Service terminates for any reason other than death, then this option shall expire on the earliest of the following occasions:

 

(i)                        The expiration date determined pursuant to Subsection (a) above;

 

(ii)                     The date three months after the termination of the Optionee’s Service for any reason other than Disability; or

 

(iii)                  The date six months after the termination of the Optionee’s Service by reason of Disability.

 

The Optionee may exercise all or part of this option at any time before its expiration under the preceding sentence, but only to the extent that this option is exercisable for vested Shares on or before the date when the Optionee’s Service terminates.  When the Optionee’s Service terminates, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares.  In the event that the Optionee dies after termination of Service but before the expiration of this option, all or part of this option may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option was exercisable for vested Shares on or before the date when the Optionee’s Service terminated.

 

(c)                         Death of the Optionee .  If the Optionee dies while in Service, then this option shall expire on the earlier of the following dates:

 

(i)                        The expiration date determined pursuant to Subsection (a) above; or

 

(ii)                     The date 12 months after the Optionee’s death.

 

All or part of this option may be exercised at any time before its expiration under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has

 

3



 

acquired this option directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that this option is exercisable for vested Shares on or before the date of the Optionee’s death.  When the Optionee dies, this option shall expire immediately with respect to the number of Shares for which this option is not yet exercisable and with respect to any Restricted Shares.

 

(d)                        Part-Time Employment and Leaves of Absence .  If the Optionee commences working on a part-time basis, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant in accordance with the Company’s part-time work policy or the terms of an agreement between the Optionee and the Company pertaining to his or her part-time schedule.  If the Optionee goes on a leave of absence, then the Company may adjust the vesting schedule set forth in the Notice of Stock Option Grant in accordance with the Company’s leave of absence policy or the terms of such leave.  Except as provided in the preceding sentence, Service shall be deemed to continue for any purpose under this Agreement while the Optionee is on a bona fide leave of absence, if (i) such leave was approved by the Company in writing and (ii) continued crediting of Service for such purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).  Service shall be deemed to terminate when such leave ends, unless the Optionee immediately returns to active work.

 

(e)                         Notice Concerning ISO Treatment .  Even if this option is designated as an ISO in the Notice of Stock Option Grant, it ceases to qualify for favorable tax treatment as an ISO to the extent that it is exercised:

 

(i)                        More than three months after the date when the Optionee ceases to be an Employee for any reason other than death or permanent and total disability (as defined in Section 22(e)(3) of the Code);

 

(ii)                     More than 12 months after the date when the Optionee ceases to be an Employee by reason of permanent and total disability (as defined in Section 22(e)(3) of the Code); or

 

(iii)                  More than three months after the date when the Optionee has been on a leave of absence for 90 days, unless the Optionee’s reemployment rights following such leave were guaranteed by statute or by contract.

 

SECTION 7.  RIGHT OF REPURCHASE.

 

(a)                        Scope of Repurchase Right .  Until they vest in accordance with the Notice of Stock Option Grant and Subsection (b) below, the Shares acquired under this Agreement shall be Restricted Shares and shall be subject to the Company’s Right of Repurchase.  The Company, however, may decline to exercise its Right of Repurchase or may exercise its Right of Repurchase only with respect to a portion of the Restricted Shares.  The Company may exercise its Right of Repurchase only during the Repurchase Period following the termination of the Optionee’s Service, but the Right of Repurchase may be exercised automatically under Subsection (d) below.  If the Right of Repurchase is exercised, the Company shall pay the Optionee an amount equal to the lower of (i) the Exercise Price of each Restricted

 

4



 

Share being repurchased or (ii) the Fair Market Value of such Restricted Share at the time the Right of Repurchase is exercised.

 

(b)                        Lapse of Repurchase Right .  The Right of Repurchase shall lapse with respect to the Restricted Shares in accordance with the vesting schedule set forth in the Notice of Stock Option Grant.

 

(c)                         Escrow .  Upon issuance, the certificate(s) for Restricted Shares shall be deposited in escrow with the Company to be held in accordance with the provisions of this Agreement.  Any additional or exchanged securities or other property described in Subsection (f) below shall immediately be delivered to the Company to be held in escrow.  All ordinary cash dividends on Restricted Shares (or on other securities held in escrow) shall be paid directly to the Optionee and shall not be held in escrow.  Restricted Shares, together with any other assets held in escrow under this Agreement, shall be (i) surrendered to the Company for repurchase upon exercise of the Right of Repurchase or the Right of First Refusal or (ii) released to the Optionee upon his or her request to the extent that the Shares have ceased to be Restricted Shares (but not more frequently than once every six months).  In any event, all Shares that have ceased to be Restricted Shares, together with any other vested assets held in escrow under this Agreement, shall be released within 90 days after the earlier of (i) the termination of the Optionee’s Service or (ii) the lapse of the Right of First Refusal.

 

(d)                        Exercise of Repurchase Right .  The Company shall be deemed to have exercised its Right of Repurchase automatically for all Restricted Shares as of the commencement of the Repurchase Period, unless the Company during the Repurchase Period notifies the holder of the Restricted Shares pursuant to Section 13(c) that it will not exercise its Right of Repurchase for some or all of the Restricted Shares.  The Company shall pay to the holder of the Restricted Shares the purchase price determined under Subsection (a) above for the Restricted Shares being repurchased.  Payment shall be made in cash or cash equivalents and/or by canceling indebtedness to the Company incurred by the Optionee in the purchase of the Restricted Shares.  The certificate(s) representing the Restricted Shares being repurchased shall be delivered to the Company.

 

(e)                         Termination of Rights as Stockholder .  If the Right of Repurchase is exercised in accordance with this Section 7 and the Company makes available the consideration for the Restricted Shares being repurchased, then the person from whom the Restricted Shares are repurchased shall no longer have any rights as a holder of the Restricted Shares (other than the right to receive payment of such consideration).  Such Restricted Shares shall be deemed to have been repurchased pursuant to this Section 7, whether or not the certificate(s) for such Restricted Shares have been delivered to the Company or the consideration for such Restricted Shares has been accepted.

 

(f)                          Additional or Exchanged Securities and Property .  In the event of a merger or consolidation of the Company with or into another entity, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason

 

5



 

of such transaction exchanged for, or distributed with respect to, any Restricted Shares shall immediately be subject to the Right of Repurchase.  Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Restricted Shares.  Appropriate adjustments shall also be made to the price per share to be paid upon the exercise of the Right of Repurchase, provided that the aggregate purchase price payable for the Restricted Shares shall remain the same.  In the event of a merger or consolidation of the Company with or into another entity or any other corporate reorganization, the Right of Repurchase may be exercised by the Company’s successor.

 

(g)                         Transfer of Restricted Shares .  The Optionee shall not transfer, assign, encumber or otherwise dispose of any Restricted Shares without the Company’s written consent, except as provided in the following sentence.  The Optionee may transfer Restricted Shares to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.  If the Optionee transfers any Restricted Shares, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.

 

(h)                        Assignment of Repurchase Right .  The Board of Directors may freely assign the Company’s Right of Repurchase, in whole or in part.  Any person who accepts an assignment of the Right of Repurchase from the Company shall assume all of the Company’s rights and obligations under this Section 7.

 

SECTION 8.  RIGHT OF FIRST REFUSAL.

 

(a)                        Right of First Refusal .  In the event that the Optionee proposes to sell, pledge or otherwise transfer to a third party any Shares acquired under this Agreement, or any interest in such Shares, the Company shall have the Right of First Refusal with respect to all (and not less than all) of such Shares.  If the Optionee desires to transfer Shares acquired under this Agreement, the Optionee shall give a written Transfer Notice to the Company describing fully the proposed transfer, including the number of Shares proposed to be transferred, the proposed transfer price, the name and address of the proposed Transferee and proof satisfactory to the Company that the proposed sale or transfer will not violate any applicable federal, State or foreign securities laws.  The Transfer Notice shall be signed both by the Optionee and by the proposed Transferee and must constitute a binding commitment of both parties to the transfer of the Shares.  The Company shall have the right to purchase all, and not less than all, of the Shares on the terms of the proposal described in the Transfer Notice (subject, however, to any change in such terms permitted under Subsection (b) below) by delivery of a notice of exercise of the Right of First Refusal within 30 days after the date when the Transfer Notice was received by the Company.

 

(b)                        Transfer of Shares .  If the Company fails to exercise its Right of First Refusal within 30 days after the date when it received the Transfer Notice, the Optionee may, not later than 90 days following receipt of the Transfer Notice by the Company, conclude a transfer of the Shares subject to the Transfer Notice on the terms and conditions described in the Transfer Notice, provided that any such sale is made in compliance with applicable federal, State and

 

6



 

foreign securities laws and not in violation of any other contractual restrictions to which the Optionee is bound.  Any proposed transfer on terms and conditions different from those described in the Transfer Notice, as well as any subsequent proposed transfer by the Optionee, shall again be subject to the Right of First Refusal and shall require compliance with the procedure described in Subsection (a) above.  If the Company exercises its Right of First Refusal, the parties shall consummate the sale of the Shares on the terms set forth in the Transfer Notice within 60 days after the date when the Company received the Transfer Notice (or within such longer period as may have been specified in the Transfer Notice); provided, however, that in the event the Transfer Notice provided that payment for the Shares was to be made in a form other than cash or cash equivalents paid at the time of transfer, the Company shall have the option of paying for the Shares with cash or cash equivalents equal to the present value of the consideration described in the Transfer Notice.

 

(c)                         Additional or Exchanged Securities and Property .  In the event of a merger or consolidation of the Company with or into another entity, any other corporate reorganization, a stock split, the declaration of a stock dividend, the declaration of an extraordinary dividend payable in a form other than stock, a spin-off, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities, any securities or other property (including cash or cash equivalents) that are by reason of such transaction exchanged for, or distributed with respect to, any Shares subject to this Section 8 shall immediately be subject to the Right of First Refusal.  Appropriate adjustments to reflect the exchange or distribution of such securities or property shall be made to the number and/or class of the Shares subject to this Section 8.

 

(d)                        Termination of Right of First Refusal .  Any other provision of this Section 8 notwithstanding, in the event that the Stock is readily tradable on an established securities market when the Optionee desires to transfer Shares, the Company shall have no Right of First Refusal, and the Optionee shall have no obligation to comply with the procedures prescribed by Subsections (a) and (b) above.

 

(e)                         Permitted Transfers .  This Section 8 shall not apply to (i) a transfer by beneficiary designation, will or intestate succession or (ii) a transfer to one or more members of the Optionee’s Immediate Family or to a trust established by the Optionee for the benefit of the Optionee and/or one or more members of the Optionee’s Immediate Family, provided in either case that the Transferee agrees in writing on a form prescribed by the Company to be bound by all provisions of this Agreement.  If the Optionee transfers any Shares acquired under this Agreement, either under this Subsection (e) or after the Company has failed to exercise the Right of First Refusal, then this Agreement shall apply to the Transferee to the same extent as to the Optionee.

 

(f)                          Termination of Rights as Stockholder .  If the Company makes available, at the time and place and in the amount and form provided in this Agreement, the consideration for the Shares to be purchased in accordance with this Section 8, then after such time the person from whom such Shares are to be purchased shall no longer have any rights as a holder of such Shares (other than the right to receive payment of such consideration in accordance with this Agreement).  Such Shares shall be deemed to have been purchased in accordance with the

 

7


 

applicable provisions hereof, whether or not the certificate(s) therefor have been delivered as required by this Agreement.

 

(g)                         Assignment of Right of First Refusal .  The Board of Directors may freely assign the Company’s Right of First Refusal, in whole or in part.  Any person who accepts an assignment of the Right of First Refusal from the Company shall assume all of the Company’s rights and obligations under this Section 8.

 

SECTION 9.  LEGALITY OF INITIAL ISSUANCE.

 

No Shares shall be issued upon the exercise of this option unless and until the Company has determined that:

 

(a)                        It and the Optionee have taken any actions required to register the Shares under the Securities Act or to perfect an exemption from the registration requirements thereof;

 

(b)                        Any applicable listing requirement of any stock exchange or other securities market on which Stock is listed has been satisfied; and

 

(c)                         Any other applicable provision of federal, State or foreign law has been satisfied.

 

SECTION 10.  NO REGISTRATION RIGHTS.

 

The Company may, but shall not be obligated to, register or qualify the sale of Shares under the Securities Act or any other applicable law.  The Company shall not be obligated to take any affirmative action in order to cause the sale of Shares under this Agreement to comply with any law.

 

SECTION 11.  RESTRICTIONS ON TRANSFER OF SHARES.

 

(a)                        Securities Law Restrictions .  Regardless of whether the offering and sale of Shares under the Plan have been registered under the Securities Act or have been registered or qualified under the securities laws of any State, the Company at its discretion may impose restrictions upon the sale, pledge or other transfer of such Shares (including the placement of appropriate legends on stock certificates or the imposition of stop-transfer instructions) if, in the judgment of the Company, such restrictions are necessary or desirable in order to achieve compliance with the Securities Act, the securities laws of any State or any other law.

 

(b)                        Market Stand-Off .  In connection with any underwritten public offering by the Company of its equity securities pursuant to an effective registration statement filed under the Securities Act, including the Company’s initial public offering, the Optionee or a Transferee shall not directly or indirectly sell, make any short sale of, loan, hypothecate, pledge, offer, grant or sell any option or other contract for the purchase of, purchase any option or other contract for the sale of, or otherwise dispose of or transfer, or agree to engage in any of the foregoing transactions with respect to, any Shares acquired under this Agreement without the prior written consent of the Company or its managing underwriter.  Such restriction (the “Market Stand-Off”)

 

8



 

shall be in effect for such period of time following the date of the final prospectus for the offering as may be requested by the Company or such underwriter.  In no event, however, shall such period exceed 180 days plus such additional period as may reasonably be requested by the Company or such underwriter to accommodate regulatory restrictions on (i) the publication or other distribution of research reports or (ii) analyst recommendations and opinions, including (without limitation) the restrictions set forth in Rule 2711(f)(4) of the National Association of Securities Dealers and Rule 472(f)(4) of the New York Stock Exchange, as amended, or any similar successor rules.  The Market Stand-Off shall in any event terminate two years after the date of the Company’s initial public offering.  In the event of the declaration of a stock dividend, a spin-off, a stock split, an adjustment in conversion ratio, a recapitalization or a similar transaction affecting the Company’s outstanding securities without receipt of consideration, any new, substituted or additional securities which are by reason of such transaction distributed with respect to any Shares subject to the Market Stand-Off, or into which such Shares thereby become convertible, shall immediately be subject to the Market Stand-Off.  In order to enforce the Market Stand-Off, the Company may impose stop-transfer instructions with respect to the Shares acquired under this Agreement until the end of the applicable stand-off period.  The Company’s underwriters shall be beneficiaries of the agreement set forth in this Subsection (b).  This Subsection (b) shall not apply to Shares registered in the public offering under the Securities Act.

 

(c)                         Investment Intent at Grant .  The Optionee represents and agrees that the Shares to be acquired upon exercising this option will be acquired for investment, and not with a view to the sale or distribution thereof.

 

(d)                        Investment Intent at Exercise .  In the event that the sale of Shares under the Plan is not registered under the Securities Act but an exemption is available that requires an investment representation or other representation, the Optionee shall represent and agree at the time of exercise that the Shares being acquired upon exercising this option are being acquired for investment, and not with a view to the sale or distribution thereof, and shall make such other representations as are deemed necessary or appropriate by the Company and its counsel.

 

(e)                         Legends .  All certificates evidencing Shares purchased under this Agreement shall bear the following legend:

 

“THE SHARES REPRESENTED HEREBY MAY NOT BE SOLD, ASSIGNED, TRANSFERRED, ENCUMBERED OR IN ANY MANNER DISPOSED OF, EXCEPT IN COMPLIANCE WITH THE TERMS OF A WRITTEN AGREEMENT BETWEEN THE COMPANY AND THE REGISTERED HOLDER OF THE SHARES (OR THE PREDECESSOR IN INTEREST TO THE SHARES).  SUCH AGREEMENT GRANTS TO THE COMPANY CERTAIN RIGHTS OF FIRST REFUSAL UPON AN ATTEMPTED TRANSFER OF THE SHARES AND CERTAIN REPURCHASE RIGHTS UPON TERMINATION OF SERVICE WITH THE COMPANY.  THE SECRETARY OF THE COMPANY WILL UPON WRITTEN REQUEST FURNISH A COPY OF SUCH AGREEMENT TO THE HOLDER HEREOF WITHOUT CHARGE.”

 

9



 

All certificates evidencing Shares purchased under this Agreement in an unregistered transaction shall bear the following legend (and such other restrictive legends as are required or deemed advisable under the provisions of any applicable law):

 

“THE SHARES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933, AS AMENDED, AND MAY NOT BE SOLD, PLEDGED, OR OTHERWISE TRANSFERRED WITHOUT AN EFFECTIVE REGISTRATION THEREOF UNDER SUCH ACT OR AN OPINION OF COUNSEL, SATISFACTORY TO THE COMPANY AND ITS COUNSEL, THAT SUCH REGISTRATION IS NOT REQUIRED.”

 

(f)                          Removal of Legends .  If, in the opinion of the Company and its counsel, any legend placed on a stock certificate representing Shares sold under this Agreement is no longer required, the holder of such certificate shall be entitled to exchange such certificate for a certificate representing the same number of Shares but without such legend.

 

(g)                         Administration .  Any determination by the Company and its counsel in connection with any of the matters set forth in this Section 11 shall be conclusive and binding on the Optionee and all other persons.

 

SECTION 12.  ADJUSTMENT OF SHARES.

 

In the event of any transaction described in Section 8(a) of the Plan, the terms of this option (including, without limitation, the number and kind of Shares subject to this option and the Exercise Price) shall be adjusted as set forth in Section 8(a) of the Plan.  In the event that the Company is a party to a merger or consolidation, this option shall be subject to the agreement of merger or consolidation, as provided in Section 8(b) of the Plan.

 

SECTION 13.  MISCELLANEOUS PROVISIONS.

 

(a)                        Rights as a Stockholder .  Neither the Optionee nor the Optionee’s representative shall have any rights as a stockholder with respect to any Shares subject to this option until the Optionee or the Optionee’s representative becomes entitled to receive such Shares by filing a notice of exercise and paying the Purchase Price pursuant to Sections 4 and 5.

 

(b)                        No Retention Rights .  Nothing in this option or in the Plan shall confer upon the Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Optionee) or of the Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.

 

(c)                         Notice .  Any notice required by the terms of this Agreement shall be given in writing.  It shall be deemed effective upon (i) personal delivery, (ii) deposit with the United States Postal Service, by registered or certified mail, with postage and fees prepaid or (iii) deposit with Federal Express Corporation, with shipping charges prepaid.  Notice shall be addressed to the Company at its principal executive office and to the Optionee at the address that he or she most recently provided to the Company in accordance with this Subsection (c).

 

10



 

(d)                        Modifications and Waivers .  No provision of this Agreement shall be modified, waived or discharged unless the modification, waiver or discharge is agreed to in writing and signed by the Optionee and by an authorized officer of the Company (other than the Optionee).  No waiver by either party of any breach of, or of compliance with, any condition or provision of this Agreement by the other party shall be considered a waiver of any other condition or provision or of the same condition or provision at another time.

 

(e)                         Entire Agreement .  The Notice of Stock Option Grant, this Agreement and the Plan constitute the entire contract between the parties hereto with regard to the subject matter hereof.  They supersede any other agreements, representations or understandings (whether oral or written and whether express or implied) that relate to the subject matter hereof.

 

(f)                          Choice of Law .  This Agreement shall be governed by, and construed in accordance with, the laws of the State of Delaware, as such laws are applied to contracts entered into and performed in such State.

 

SECTION 14.  ACKNOWLEDGEMENTS OF THE OPTIONEE.

 

(a)                        Tax Consequences .  The Optionee agrees that the Company does not have a duty to design or administer the Plan or its other compensation programs in a manner that minimizes the Optionee’s tax liabilities.  The Optionee shall not make any claim against the Company or its Board of Directors, officers or employees related to tax liabilities arising from this option or the Optionee’s other compensation.  In particular, the Optionee acknowledges that this option is exempt from Section 409A of the Code only if the Exercise Price is at least equal to the Fair Market Value per Share on the Date of Grant.  Since Shares are not traded on an established securities market, the determination of their Fair Market Value is made by the Board of Directors or by an independent valuation firm retained by the Company.  The Optionee acknowledges that there is no guarantee in either case that the Internal Revenue Service will agree with the valuation, and the Optionee shall not make any claim against the Company or its Board of Directors, officers or employees in the event that the Internal Revenue Service asserts that the valuation was too low.

 

(b)                        Electronic Delivery of Documents .  The Optionee agrees that the Company may deliver by email all documents relating to the Company, the Plan or this option and all other documents that the Company is required to deliver to its security holders (including, without limitation, disclosures that may be required by the Securities and Exchange Commission).  The Optionee also agrees that the Company may deliver these documents by posting them on a website maintained by the Company or by a third party under contract with the Company.  If the Company posts these documents on a website, it shall notify the Optionee by email.

 

(c)                         No Notice of Expiration Date .  The Optionee agrees that the Company and its officers, employees, attorneys and agents do not have any obligation to notify him or her prior to the expiration of this option pursuant to Section 6, regardless of whether this option will expire at the end of its full term or on an earlier date related to the termination of the Optionee’s Service.  The Optionee further agrees that he or she has the sole responsibility for monitoring the expiration of this option and for exercising this option, if at all, before it expires.  This

 

11



 

Subsection (c) shall supersede any contrary representation that may have been made, orally or in writing, by the Company or by an officer, employee, attorney or agent of the Company.

 

SECTION 15.  DEFINITIONS.

 

(a)                        Agreement ” shall mean this Stock Option Agreement.

 

(b)                        Board of Directors ” shall mean the Board of Directors of the Company, as constituted from time to time or, if a Committee has been appointed, such Committee.

 

(c)                         Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

(d)                        Committee ” shall mean a committee of the Board of Directors, as described in Section 2 of the Plan.

 

(e)                         Company ” shall mean Avinger, Inc., a Delaware corporation.

 

(f)                          Consultant ” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

 

(g)                         Date of Grant ” shall mean the date of grant specified in the Notice of Stock Option Grant, which date shall be the later of (i) the date on which the Board of Directors resolved to grant this option or (ii) the first day of the Optionee’s Service.

 

(h)                        Disability ” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.

 

(i)                            Employee ” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

 

(j)                           Exercise Price ” shall mean the amount for which one Share may be purchased upon exercise of this option, as specified in the Notice of Stock Option Grant.

 

(k)                        Fair Market Value ” shall mean the fair market value of a Share, as determined by the Board of Directors in good faith.  Such determination shall be conclusive and binding on all persons.

 

(l)                            Immediate Family ” shall mean any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, sibling, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law and shall include adoptive relationships.

 

(m)                    ISO ” shall mean an employee incentive stock option described in Section 422(b) of the Code.

 

(n)                        Notice of Stock Option Grant ” shall mean the document so entitled to which this Agreement is attached.

 

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(o)                        NSO ” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

 

(p)                        Optionee ” shall mean the person named in the Notice of Stock Option Grant.

 

(q)                        Outside Director ” shall mean a member of the Board of Directors who is not an Employee.

 

(r)                           Parent ” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

(s)                          Plan ” shall mean the Avinger, Inc. 2009 Stock Plan, as in effect on the Date of Grant.

 

(t)                           Purchase Price ” shall mean the Exercise Price multiplied by the number of Shares with respect to which this option is being exercised.

 

(u)                        Repurchase Period ” shall mean a period of 90 consecutive days commencing on the date when the Optionee’s Service terminates for any reason, including (without limitation) death or disability.

 

(v)                        Restricted Share ” shall mean a Share that is subject to the Right of Repurchase.

 

(w)                      Right of First Refusal ” shall mean the Company’s right of first refusal described in Section 8.

 

(x)                        Right of Repurchase ” shall mean the Company’s right of repurchase described in Section 7.

 

(y)                        Securities Act ” shall mean the Securities Act of 1933, as amended.

 

(z)                         Service ” shall mean service as an Employee, Outside Director or Consultant.

 

(aa)                 Share ” shall mean one share of Stock, as adjusted in accordance with Section 8 of the Plan (if applicable).

 

(bb)                 Stock ” shall mean the Common Stock of the Company.

 

(cc)                   Subsidiary ” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.

 

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(dd)                 Transferee ” shall mean any person to whom the Optionee has directly or indirectly transferred any Share acquired under this Agreement.

 

(ee)                   Transfer Notice ” shall mean the notice of a proposed transfer of Shares described in Section 8.

 

14




Exhibit 10.3

 

AVINGER, INC.

 

2014 PREFERRED STOCK PLAN

 

ADOPTED ON AUGUST 29, 2014

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

SECTION 1.

Establishment And Purpose

1

 

 

 

SECTION 2.

Administration

1

(a)

Committees of the Board of Directors

1

(b)

Authority of the Board of Directors

1

 

 

 

SECTION 3.

Eligibility

1

(a)

General Rule

1

(b)

Ten-Percent Stockholders

1

 

 

 

SECTION 4.

Stock Subject To Plan

2

(a)

Basic Limitation

2

(b)

Additional Shares

2

 

 

 

SECTION 5.

Terms And Conditions Of Awards Or Sales

2

(a)

Stock Purchase Agreement

2

(b)

Duration of Offers and Nontransferability of Rights

2

(c)

Purchase Price

2

(d)

Withholding Taxes

2

(e)

Restrictions on Transfer of Shares

2

 

 

 

SECTION 6.

Terms And Conditions Of Options

3

(a)

Stock Option Agreement

3

(b)

Number of Shares

3

(c)

Exercise Price

3

(d)

Exercisability

3

(e)

Basic Term

3

(f)

Termination of Service (Except by Death)

3

(g)

Leaves of Absence

4

(h)

Death of Optionee

4

(i)

Restrictions on Transfer of Shares

4

(j)

Transferability of Options

4

(k)

Withholding Taxes

5

(l)

No Rights as a Stockholder

5

(m)

Modification, Extension and Assumption of Options

5

 

 

 

SECTION 7.

Payment For Shares

5

(a)

General Rule

5

(b)

Services Rendered

5

(c)

Promissory Note

5

(d)

Surrender of Stock

5

(e)

Exercise/Sale

6

(f)

Other Forms of Payment

6

 

i



 

SECTION 8.

Adjustment Of Shares

6

(a)

General

6

(b)

Mergers and Consolidations

6

(c)

Reservation of Rights

7

(d)

Automatic Conversion of Preferred Stock

7

 

 

 

SECTION 9.

Securities Law Requirements

8

 

 

 

SECTION 10.

No Retention Rights

8

 

 

 

SECTION 11.

Duration and Amendments

8

(a)

Term of the Plan

8

(b)

Right to Amend or Terminate the Plan

8

(c)

Effect of Amendment or Termination

9

 

 

 

SECTION 12.

Definitions

9

 

ii



 

AVINGER, INC. 2014 PREFERRED STOCK PLAN

 

SECTION 1.                          ESTABLISHMENT AND PURPOSE .

 

The purpose of the Plan is to offer selected persons an opportunity to acquire a proprietary interest in the success of the Company, or to increase such interest, by purchasing Shares of the Company’s Stock.  The Plan provides both for the direct award or sale of Shares and for the grant of Options to purchase Shares.  Options granted under the Plan may include Nonstatutory Options as well as ISOs intended to qualify under Section 422 of the Code.

 

Capitalized terms are defined in Section 12.

 

SECTION 2.                          ADMINISTRATION .

 

(a)                                  Committees of the Board of Directors .  The Plan may be administered by one or more Committees.  Each Committee shall consist of one or more members of the Board of Directors who have been appointed by the Board of Directors.  Each Committee shall have such authority and be responsible for such functions as the Board of Directors has assigned to it.  If no Committee has been appointed, the entire Board of Directors shall administer the Plan.  Any reference to the Board of Directors in the Plan shall be construed as a reference to the Committee (if any) to whom the Board of Directors has assigned a particular function.

 

(b)                                  Authority of the Board of Directors .  Subject to the provisions of the Plan, the Board of Directors shall have full authority and discretion to take any actions it deems necessary or advisable for the administration of the Plan.  All decisions, interpretations and other actions of the Board of Directors shall be final and binding on all Purchasers, all Optionees and all persons deriving their rights from a Purchaser or Optionee.

 

SECTION 3.                          ELIGIBILITY .

 

(a)                                  General Rule .  Only Employees, Outside Directors and Consultants shall be eligible for the grant of Nonstatutory Options or the direct award or sale of Shares.  Only Employees shall be eligible for the grant of ISOs.

 

(b)                                  Ten-Percent Stockholders .  A person who owns more than 10% of the total combined voting power of all classes of outstanding stock of the Company, its Parent or any of its Subsidiaries shall not be eligible for the grant of an ISO unless (i) the Exercise Price is at least 110% of the Fair Market Value of a Share on the date of grant and (ii) such ISO by its terms is not exercisable after the expiration of five years from the date of grant.  For purposes of this Subsection (b), in determining stock ownership, the attribution rules of Section 424(d) of the Code shall be applied.

 



 

SECTION 4.                          STOCK SUBJECT TO PLAN .

 

(a)                                  Basic Limitation .  Not more than 4,000,000 Shares may be issued under the Plan (subject to Subsection (b) below and Section 8(a)).  All of these Shares may be issued upon the exercise of ISOs.  The number of Shares that are subject to Options or other rights outstanding at any time under the Plan shall not exceed the number of Shares that then remain available for issuance under the Plan.  The Company, during the term of the Plan, shall at all times reserve and keep available sufficient Shares to satisfy the requirements of the Plan.  Shares offered under the Plan may be authorized but unissued Shares or treasury Shares.

 

(b)                                  Additional Shares .  In the event that Shares previously issued under the Plan are reacquired by the Company, such Shares shall be added to the number of Shares then available for issuance under the Plan.  In the event that an outstanding Option or other right for any reason expires or is canceled, the Shares allocable to the unexercised portion of such Option or other right shall be added to the number of Shares then available for issuance under the Plan.

 

SECTION 5.                          TERMS AND CONDITIONS OF AWARDS OR SALES .

 

(a)                                  Stock Purchase Agreement .  Each award or sale of Shares under the Plan (other than upon exercise of an Option) shall be evidenced by a Stock Purchase Agreement between the Purchaser and the Company.  Such award or sale shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Purchase Agreement.  The provisions of the various Stock Purchase Agreements entered into under the Plan need not be identical.

 

(b)                                  Duration of Offers and Nontransferability of Rights .  Any right to acquire Shares under the Plan (other than an Option) shall automatically expire if not exercised by the Purchaser within 30 days after the grant of such right was communicated to the Purchaser by the Company.  Such right shall not be transferable and shall be exercisable only by the Purchaser to whom such right was granted.

 

(c)                                   Purchase Price .  The Board of Directors shall determine the Purchase Price of Shares to be offered under the Plan at its sole discretion.  The Purchase Price shall be payable in a form described in Section 7.

 

(d)                                  Withholding Taxes .  As a condition to the purchase of Shares, the Purchaser shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such purchase.

 

(e)                                   Restrictions on Transfer of Shares .  Any Shares awarded or sold under the Plan shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine.  Such restrictions shall be set forth in the applicable Stock Purchase Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.

 

2



 

SECTION 6.                          TERMS AND CONDITIONS OF OPTIONS .

 

(a)                                  Stock Option Agreement .  Each grant of an Option under the Plan shall be evidenced by a Stock Option Agreement between the Optionee and the Company.  The Option shall be subject to all applicable terms and conditions of the Plan and may be subject to any other terms and conditions which are not inconsistent with the Plan and which the Board of Directors deems appropriate for inclusion in a Stock Option Agreement.  The provisions of the various Stock Option Agreements entered into under the Plan need not be identical.

 

(b)                                  Number of Shares .  Each Stock Option Agreement shall specify the number of Shares that are subject to the Option and shall provide for the adjustment of such number in accordance with Section 8.  The Stock Option Agreement shall also specify whether the Option is an ISO or a Nonstatutory Option.

 

(c)                                   Exercise Price .  Each Stock Option Agreement shall specify the Exercise Price.  The Exercise Price of any Option shall not be less than 100% of the Fair Market Value of a Share on the date of grant, and in the case of an ISO a higher percentage may be required by Section 3(b).  Subject to the preceding sentence, the Exercise Price shall be determined by the Board of Directors at its sole discretion.  The Exercise Price shall be payable in a form described in Section 7.

 

(d)                                  Exercisability .  Each Stock Option Agreement shall specify the date when all or any installment of the Option is to become exercisable.  No Option shall be exercisable unless the Optionee (i) has delivered an executed copy of the Stock Option Agreement to the Company or (ii) otherwise agrees to be bound by the terms of the Stock Option Agreement.  The Board of Directors shall determine the exercisability provisions of the Stock Option Agreement at its sole discretion.  All of an Optionee’s Options shall become exercisable in full if Section 8(b)(iv) applies.

 

(e)                                   Basic Term .  The Stock Option Agreement shall specify the term of the Option.  The term shall not exceed 10 years from the date of grant, and in the case of an ISO a shorter term may be required by Section 3(b).  Subject to the preceding sentence, the Board of Directors at its sole discretion shall determine when an Option is to expire.

 

(f)                                    Termination of Service (Except by Death) .  If an Optionee’s Service terminates for any reason other than the Optionee’s death, then the Optionee’s Options shall expire on the earliest of the following occasions:

 

(i)                                      The expiration date determined pursuant to Subsection (e) above;

 

(ii)                                   The date three months after the termination of the Optionee’s Service for any reason other than Disability, or such later date as the Board of Directors may determine; or

 

(iii)                                The date six months after the termination of the Optionee’s Service by reason of Disability, or such later date as the Board of Directors may determine.

 

3



 

The Optionee may exercise all or part of the Optionee’s Options at any time before the expiration of such Options under the preceding sentence, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).  The balance of such Options shall lapse when the Optionee’s Service terminates.  In the event that the Optionee dies after the termination of the Optionee’s Service but before the expiration of the Optionee’s Options, all or part of such Options may be exercised (prior to expiration) by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s Service terminated (or became exercisable as a result of the termination) and the underlying Shares had vested before the Optionee’s Service terminated (or vested as a result of the termination).

 

(g)                                  Leaves of Absence .  For purposes of Subsection (f) above, Service shall be deemed to continue while the Optionee is on a bona fide leave of absence, if such leave was approved by the Company in writing and if continued crediting of Service for this purpose is expressly required by the terms of such leave or by applicable law (as determined by the Company).

 

(h)                                  Death of Optionee .  If an Optionee dies while the Optionee is in Service, then the Optionee’s Options shall expire on the earlier of the following dates:

 

(i)                                      The expiration date determined pursuant to Subsection (e) above; or

 

(ii)                                   The date 12 months after the Optionee’s death, or such later date as the Board of Directors may determine.

 

All or part of the Optionee’s Options may be exercised at any time before the expiration of such Options under the preceding sentence by the executors or administrators of the Optionee’s estate or by any person who has acquired such Options directly from the Optionee by beneficiary designation, bequest or inheritance, but only to the extent that such Options had become exercisable before the Optionee’s death (or became exercisable as a result of the death) and the underlying Shares had vested before the Optionee’s death (or vested as a result of the Optionee’s death).  The balance of such Options shall lapse when the Optionee dies.

 

(i)                                     Restrictions on Transfer of Shares .  Any Shares issued upon exercise of an Option shall be subject to such special forfeiture conditions, rights of repurchase, rights of first refusal and other transfer restrictions as the Board of Directors may determine.  Such restrictions shall be set forth in the applicable Stock Option Agreement and shall apply in addition to any restrictions that may apply to holders of Shares generally.

 

(j)                                     Transferability of Options .  An Option shall be transferable by the Optionee only by (i) a beneficiary designation, (ii) a will or (iii) the laws of descent and distribution, except as provided in the next sentence.  If the applicable Stock Option Agreement so provides, a Nonstatutory Option shall also be transferable by gift or domestic relations order

 

4



 

to a Family Member of the Optionee.  An ISO may be exercised during the lifetime of the Optionee only by the Optionee or by the Optionee’s guardian or legal representative.

 

(k)                                  Withholding Taxes .  As a condition to the exercise of an Option, the Optionee shall make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with such exercise.  The Optionee shall also make such arrangements as the Board of Directors may require for the satisfaction of any federal, state, local or foreign withholding tax obligations that may arise in connection with the disposition of Shares acquired by exercising an Option.

 

(l)                                     No Rights as a Stockholder .  An Optionee, or a transferee of an Optionee, shall have no rights as a stockholder with respect to any Shares covered by the Optionee’s Option until such person becomes entitled to receive such Shares by filing a notice of exercise and paying the Exercise Price pursuant to the terms of such Option.

 

(m)                              Modification, Extension and Assumption of Options .  Within the limitations of the Plan, the Board of Directors may modify, extend or assume outstanding Options or may accept the cancellation of outstanding Options (whether granted by the Company or another issuer) in return for the grant of new Options for the same or a different number of Shares and at the same or a different Exercise Price.  The foregoing notwithstanding, no modification of an Option shall, without the consent of the Optionee, impair the Optionee’s rights or increase the Optionee’s obligations under such Option.

 

SECTION 7.                          PAYMENT FOR SHARES .

 

(a)                                  General Rule .  The entire Purchase Price or Exercise Price of Shares issued under the Plan shall be payable in cash or cash equivalents at the time when such Shares are purchased, except as otherwise provided in this Section 7.

 

(b)                                  Services Rendered .  At the discretion of the Board of Directors, Shares may be awarded under the Plan in consideration of services rendered to the Company, a Parent or a Subsidiary prior to the award.

 

(c)                                   Promissory Note .  At the discretion of the Board of Directors, all or a portion of the Purchase Price or Exercise Price (as the case may be) of Shares issued under the Plan may be paid with a full-recourse promissory note.  The Shares shall be pledged as security for payment of the principal amount of the promissory note and interest thereon.  The interest rate payable under the terms of the promissory note shall not be less than the minimum rate (if any) required to avoid the imputation of additional interest under the Code.  Subject to the foregoing, the Board of Directors (at its sole discretion) shall specify the term, interest rate, amortization requirements (if any) and other provisions of such note.

 

(d)                                  Surrender of Stock .  At the discretion of the Board of Directors, all or any part of the Exercise Price may be paid by surrendering, or attesting to the ownership of, Shares that are already owned by the Optionee.  Such Shares shall be surrendered to the Company in good form for transfer and shall be valued at their Fair Market Value as of the date when the Option is exercised.

 

5


 

(e)                                   Exercise/Sale .  To the extent that a Stock Option Agreement so provides, and if Stock is publicly traded, all or part of the Exercise Price and any withholding taxes may be paid by the delivery (on a form prescribed by the Company) of an irrevocable direction to a securities broker approved by the Company to sell Shares and to deliver all or part of the sales proceeds to the Company.

 

(f)                                    Other Forms of Payment .  To the extent that a Stock Purchase Agreement or Stock Option Agreement so provides, the Purchase Price or Exercise Price of Shares issued under the Plan may be paid in any other form permitted by the Delaware General Corporation Law, as amended.

 

SECTION 8.                          ADJUSTMENT OF SHARES .

 

(a)                                  General .  In the event of a subdivision of the outstanding Stock, a declaration of a dividend payable in Shares, a combination or consolidation of the outstanding Stock into a lesser number of Shares, a reclassification, or any other increase or decrease in the number of issued shares of Stock effected without receipt of consideration by the Company, proportionate adjustments shall automatically be made in each of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option and (iii) the Exercise Price under each outstanding Option.  In the event of a declaration of an extraordinary dividend payable in a form other than Shares in an amount that has a material effect on the Fair Market Value of the Stock, a recapitalization, a spin-off, or a similar occurrence, the Board of Directors at its sole discretion may make appropriate adjustments in one or more of (i) the number of Shares available for future grants under Section 4, (ii) the number of Shares covered by each outstanding Option or (iii) the Exercise Price under each outstanding Option; provided, however, that the Board of Directors shall in any event make such adjustments as may be required by Section 25102(o) of the California Corporations Code.

 

(b)                                  Mergers and Consolidations .  In the event that the Company is a party to a merger or consolidation, all Shares acquired under the Plan and all Options shall be subject to the agreement of merger or consolidation.  Such agreement need not treat all Options in an identical manner, and it shall provide for one or more of the following with respect to each Option:

 

(i)                   The continuation of the Option by the Company (if the Company is the surviving corporation).

 

(ii)                The assumption of the Option by the surviving corporation or its parent in a manner that complies with Section 424(a) of the Code (whether or not the Option is an ISO).

 

(iii)             The substitution by the surviving corporation or its parent of a new option for the Option in a manner that complies with Section 424(a) of the Code (whether or not the Option is an ISO).

 

6



 

(iv)            Full exercisability of the Option and full vesting of the Shares subject to the Option, followed by the cancellation of the Option.  The full exercisability of the Option and full vesting of the Shares subject to the Option may be contingent on the closing of such merger or consolidation.  The Optionee shall be able to exercise the Option during a period of not less than five full business days preceding the closing date of such merger or consolidation, unless (A) a shorter period is required to permit a timely closing of such merger or consolidation and (B) such shorter period still offers the Optionee a reasonable opportunity to exercise the Option.  Any exercise of the Option during such period may be contingent on the closing of such merger or consolidation.

 

(v)               The cancellation of the Option and a payment to the Optionee equal to the excess of (A) the Fair Market Value of the Shares subject to the Option (whether or not the Option is then exercisable or such Shares are then vested) as of the closing date of such merger or consolidation over (B) the Exercise Price of the Option.  Such payment shall be made in the form of cash, cash equivalents, or securities of the surviving corporation or its parent with a Fair Market Value equal to the required amount.  Subject to Section 409A of the Code, such payment may be made in installments and may be deferred until the date or dates when the Option would have become exercisable or such Shares would have vested.  Such payment may be subject to vesting based on the Optionee’s continuing Service, provided that the vesting schedule shall not be less favorable to the Optionee than the schedule under which the Option would have become exercisable or such Shares would have vested.  If the Exercise Price of the Shares subject to the Option exceeds the Fair Market Value of such Shares, then the Option may be cancelled without making a payment to the Optionee.  For purposes of this Paragraph (v), the Fair Market Value of any security shall be determined without regard to any vesting conditions that may apply to such security.

 

(c)                                   Reservation of Rights .  Except as provided in this Section 8, an Optionee or Purchaser shall have no rights by reason of (i) any subdivision or consolidation of shares of stock of any class, (ii) the payment of any dividend or (iii) any other increase or decrease in the number of shares of stock of any class.  Any issuance by the Company of shares of stock of any class, or securities convertible into shares of stock of any class, shall not affect, and no adjustment by reason thereof shall be made with respect to, the number or Exercise Price of Shares subject to an Option.  The grant of an Option pursuant to the Plan shall not affect in any way the right or power of the Company to make adjustments, reclassifications, reorganizations or changes of its capital or business structure, to merge or consolidate or to dissolve, liquidate, sell or transfer all or any part of its business or assets.

 

(d)                                  Automatic Conversion of Preferred Stock .  In the event of the automatic conversion of the Preferred Stock into Common Stock in accordance with the terms of the Certificate of Incorporation, each outstanding Option and each outstanding right to acquire Shares under the Plan immediately prior to such automatic conversion which remain outstanding following such automatic conversion will be exercisable, following such automatic conversion, for that number of shares of Common Stock into which each outstanding share of Preferred

 

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Stock was converted at the time of such automatic conversion, and the exercise or purchase price for each such share of Common Stock following such automatic conversion will be adjusted as deemed appropriate by the Board of Directors in its sole discretion.

 

SECTION 9.                          SECURITIES LAW REQUIREMENTS .

 

Shares shall not be issued under the Plan unless the issuance and delivery of such Shares comply with (or are exempt from) all applicable requirements of law, including (without limitation) the Securities Act of 1933, as amended, the rules and regulations promulgated thereunder, state securities laws and regulations, and the regulations of any stock exchange or other securities market on which the Company’s securities may then be traded.

 

SECTION 10.                   NO RETENTION RIGHTS .

 

Nothing in the Plan or in any right or Option granted under the Plan shall confer upon the Purchaser or Optionee any right to continue in Service for any period of specific duration or interfere with or otherwise restrict in any way the rights of the Company (or any Parent or Subsidiary employing or retaining the Purchaser or Optionee) or of the Purchaser or Optionee, which rights are hereby expressly reserved by each, to terminate his or her Service at any time and for any reason, with or without cause.

 

SECTION 11.                   DURATION AND AMENDMENTS .

 

(a)                                  Term of the Plan .  The Plan, as set forth herein, shall become effective on the date of its adoption by the Board of Directors, subject to the approval of the Company’s stockholders.  If the stockholders fail to approve the Plan within 12 months after its adoption by the Board of Directors, then any grants, exercises or sales that have already occurred under the Plan shall be rescinded and no additional grants, exercises or sales shall thereafter be made under the Plan.  The Plan shall terminate automatically 10 years after the later of (i) the date when the Board of Directors adopted the Plan or (ii) the date when the Board of Directors approved the most recent increase in the number of Shares reserved under Section 4 that was also approved by the Company’s stockholders.  The Plan may be terminated on any earlier date pursuant to Subsection (b) below.

 

(b)                                  Right to Amend or Terminate the Plan .  The Board of Directors may amend, suspend or terminate the Plan at any time and for any reason; provided, however, that any amendment of the Plan shall be subject to the approval of the Company’s stockholders if it (i) increases the number of Shares available for issuance under the Plan (except as provided in Section 8) or (ii) materially changes the class of persons who are eligible for the grant of ISOs.  Stockholder approval shall not be required for any other amendment of the Plan.  If the stockholders fail to approve an increase in the number of Shares reserved under Section 4 within 12 months after its adoption by the Board of Directors, then any grants, exercises or sales that have already occurred in reliance on such increase shall be rescinded and no additional grants, exercises or sales shall thereafter be made in reliance on such increase.

 

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(c)                                   Effect of Amendment or Termination .  No Shares shall be issued or sold under the Plan after the termination thereof, except upon exercise of an Option granted prior to such termination.  The termination of the Plan, or any amendment thereof, shall not affect any Share previously issued or any Option previously granted under the Plan.

 

SECTION 12.                   DEFINITIONS .

 

(a)                                  Board of Directors ” shall mean the Board of Directors of the Company, as constituted from time to time.

 

(b)                                  Certificate of Incorporation ” means the Amended and Restated Certificate of Incorporation of the Company.

 

(c)                                   Code ” shall mean the Internal Revenue Code of 1986, as amended.

 

(d)                                  Committee ” shall mean a committee of the Board of Directors, as described in Section 2(a).

 

(e)                                   Common Stock ” shall mean the common stock of the Company.

 

(f)                                    Company ” shall mean Avinger, Inc., a Delaware corporation.

 

(g)                                   Consultant ” shall mean a person who performs bona fide services for the Company, a Parent or a Subsidiary as a consultant or advisor, excluding Employees and Outside Directors.

 

(h)                                  Disability ” shall mean that the Optionee is unable to engage in any substantial gainful activity by reason of any medically determinable physical or mental impairment.

 

(i)                                      Employee ” shall mean any individual who is a common-law employee of the Company, a Parent or a Subsidiary.

 

(j)                                     Exercise Price ” shall mean the amount for which one Share may be purchased upon exercise of an Option, as specified by the Board of Directors in the applicable Stock Option Agreement.

 

(k)                                  Fair Market Value ” shall mean the fair market value of a Share, as determined by the Board of Directors in accordance with applicable law.  Such determination shall be conclusive and binding on all persons.

 

(l)                                      Family Member ” shall mean (i) any child, stepchild, grandchild, parent, stepparent, grandparent, spouse, former spouse, sibling, niece, nephew, mother-in-law, father-in-law, son-in-law, daughter-in-law, brother-in-law or sister-in-law, including adoptive relationships, (ii) any person sharing the Optionee’s household (other than a tenant or employee), (iii) a trust in which persons described in Clause (i) or (ii) have more than 50% of the beneficial interest, (iv) a foundation in which persons described in Clause (i) or (ii) or the Optionee control

 

9



 

the management of assets and (v) any other entity in which persons described in Clause (i) or (ii) or the Optionee own more than 50% of the voting interests.

 

(m)                              ISO ” shall mean an employee incentive stock option described in Section 422(b) of the Code.

 

(n)                                  Nonstatutory Option ” shall mean a stock option not described in Sections 422(b) or 423(b) of the Code.

 

(o)                                  Option ” shall mean an ISO or Nonstatutory Option granted under the Plan and entitling the holder to purchase Shares.

 

(p)                                  Optionee ” shall mean a person who holds an Option.

 

(q)                                  Outside Director ” shall mean a member of the Board of Directors who is not an Employee.

 

(r)                                     Parent ” shall mean any corporation (other than the Company) in an unbroken chain of corporations ending with the Company, if each of the corporations other than the Company owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Parent on a date after the adoption of the Plan shall be considered a Parent commencing as of such date.

 

(s)                                    Plan ” shall mean this Avinger, Inc. 2014 Preferred Stock Plan.

 

(t)                                     Preferred Stock ” shall mean the Series E Preferred Stock of the Company.

 

(u)                                  Purchase Price ” shall mean the consideration for which one Share may be acquired under the Plan (other than upon exercise of an Option), as specified by the Board of Directors.

 

(v)                                  Purchaser ” shall mean a person to whom the Board of Directors has offered the right to acquire Shares under the Plan (other than upon exercise of an Option).

 

(w)                                Service ” shall mean service as an Employee, Outside Director or Consultant.

 

(x)                                  Share ” shall mean one share of Preferred Stock or, on and after the conversion of the Preferred Stock into Common Stock, a share of the Common Stock, in either case, as adjusted in accordance with Section 8 (if applicable).

 

(y)                                  Stock ” shall mean the Preferred Stock of the Company or, on and after the conversion of the Preferred Stock into Common Stock, the Common Stock of the Company.

 

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(z)                                   Stock Option Agreement ” shall mean the agreement between the Company and an Optionee that contains the terms, conditions and restrictions pertaining to the Optionee’s Option.

 

(aa)                           Stock Purchase Agreement ” shall mean the agreement between the Company and a Purchaser who acquires Shares under the Plan that contains the terms, conditions and restrictions pertaining to the acquisition of such Shares.

 

(bb)                           Subsidiary ” shall mean any corporation (other than the Company) in an unbroken chain of corporations beginning with the Company, if each of the corporations other than the last corporation in the unbroken chain owns stock possessing 50% or more of the total combined voting power of all classes of stock in one of the other corporations in such chain.  A corporation that attains the status of a Subsidiary on a date after the adoption of the Plan shall be considered a Subsidiary commencing as of such date.

 

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Exhibit 10.6

 

AVINGER, INC.

 

AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

September 2, 2014

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

1.     Registration Rights

1

1.1

Definitions

1

1.2

Request for Registration

3

1.3

Company Registration

4

1.4

Form S-3 Registration

6

1.5

Obligations of the Company

7

1.6

Information from Holder

9

1.7

Expenses of Registration

9

1.8

Delay of Registration

9

1.9

Indemnification

9

1.10

Reports Under the 1934 Act

11

1.11

Assignment of Registration Rights

12

1.12

Limitations on Subsequent Registration Rights

12

1.13

“Market Stand-Off” Agreement

12

1.14

Termination of Registration Rights

13

 

 

 

2.     Covenants of the Company

14

2.1

Delivery of Financial Statements

14

2.2

Inspection

15

2.3

Observer Rights

15

2.4

Termination of Information, Inspection and Observer Covenants

15

2.5

Right of First Offer

15

2.6

“Bad Actor” Disqualification

17

 

 

 

3.     Legend

17

 

 

 

4.     Miscellaneous

17

4.1

Successors and Assigns

17

4.2

Governing Law

17

4.3

Counterparts; Facsimile

17

4.4

Titles and Subtitles

17

4.5

Notices

17

4.6

Expenses

18

4.7

Entire Agreement; Amendments and Waivers

18

4.8

Severability

18

4.9

Aggregation of Stock

18

4.10

Additional Investors

18

4.11

Further Assurances

18

 

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AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

 

THIS AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT (the “ Agreement ”) is made as of September 2, 2014, by and among Avinger, Inc., a Delaware corporation (the “ Company ”), and the investors listed on Schedule A hereto, each of which is herein referred to as an “ Investor ” and collectively as the “ Investors, ” and the holders of Common Stock (as defined below) listed on Schedule B hereto, each of which is herein referred to as a “ Common Holder ” and collectively as the “ Common Holders ”.

 

RECITALS

 

WHEREAS , the Company and the Investors are parties to that certain Series E Preferred Stock Purchase Agreement of even date herewith (the “ Series E Agreement ”);

 

WHEREAS , certain of the Investors hold shares of the Company’s Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Stock or shares of Common Stock issued upon conversion thereof (the “ Existing Investors ”) and possess certain registration rights, information rights, rights of first refusal and other rights pursuant to an Amended and Restated Investors’ Rights Agreement dated as of June 29, 2012 by and between the Company and such Existing Investors (the “ Prior Rights Agreement ”);

 

WHEREAS , the Existing Investors desire to terminate the Prior Rights Agreement and further desire that this Agreement supersedes and replaces the Prior Rights Agreement in its entirety; and

 

WHEREAS , in order to induce the Investors to purchase Series E Preferred Stock, par value $0.001 per share (the “ Series E Preferred Stock ”), and invest funds in the Company pursuant to the Series E Agreement, the Investors, the Common Holders and the Company hereby agree that this Agreement shall supersede and replace the Prior Rights Agreement in its entirety and govern the rights of the Investors and the Common Holders to cause the Company to register shares of Common Stock, par value $0.001 per share (the “ Common Stock ”), issued or issuable to them and certain other matters as set forth herein.

 

NOW, THEREFORE, THE PARTIES HEREBY AGREE AS FOLLOWS :

 

1.                                       Registration Rights .  The Company covenants and agrees as follows:

 

1.1                                Definitions .  For purposes of this Agreement:

 

(a)                                  The term “ Act ” means the Securities Act of 1933, as amended.

 

(b)                                  The term “ Affiliate ” means, with respect to any specified person, any other person who or which, directly or indirectly, controls, is controlled by, or is under common control with such specified person, including, without limitation, any general partner, officer, director or manager of such person and any venture capital fund now or hereafter existing that is controlled by one or more general partners or managing members of, or is under common investment management with, such person.

 



 

(c)                                   The term “ Form S-3 ” means such form under the Act as in effect on the date hereof or any registration form under the Act subsequently adopted by the SEC that permits inclusion or incorporation of substantial information by reference to other documents filed by the Company with the SEC.

 

(d)                                  The term “ Free Writing Prospectus ” means a free-writing prospectus, as defined in Rule 405.

 

(e)                                   The term “ Holder ” means any person owning or having the right to acquire Registrable Securities or any assignee thereof in accordance with Section 1.11 hereof; provided , however , that the Common Holders shall not be deemed to be Holders for purposes of Sections 1.2, 1.4, 1.12 and 4.7.

 

(f)                                    The term “ Initial Offering ” means the Company’s first firm commitment underwritten public offering of its Common Stock under the Act.

 

(g)                                   The term “ 1934 Act ” means the Securities Exchange Act of 1934, as amended.

 

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

 

(i)                                      The term “ Preferred Stock ” means, collectively, the Company’s Series A Preferred Stock, Series A-1 Preferred Stock, Series B Preferred Stock, Series C Preferred Stock, Series D Preferred Stock, and Series E Preferred Stock.

 

(j)                                     The term “ Registrable Securities ” means (i) the Common Stock issuable or issued upon conversion of the Preferred Stock, (ii) the 10,891,972 shares of Common Stock issued to the Common Holders; provided , however , that such shares of Common Stock shall not be deemed Registrable Securities for the purposes of Sections 1.2, 1.4, 1.12, 2.1, 2.2, 2.5 and 4.7 and (iii) any Common Stock of the Company issued as (or issuable upon the conversion or exercise of any warrant, right or other security that is issued as) a dividend or other distribution with respect to, or in exchange for, or in replacement of, the shares referenced in (i) and (ii) above, excluding in all cases, however, any Registrable Securities sold by a person in a transaction in which his rights under this Section 1 are not assigned.  In addition, the number of shares of Registrable Securities outstanding shall equal the aggregate of the number of shares of Common Stock outstanding that are, and the number of shares of Common Stock issuable pursuant to then exercisable or convertible securities that are, Registrable Securities.

 

(k)                                  The term “ Restated Certificate ” shall mean the Company’s Amended and Restated Certificate of Incorporation, as amended and/or restated from time to time.

 

(l)                                      The term “ Rule 144 ” shall mean Rule 144 under the Act.

 

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(m)                              The term “ Rule 144(b)(1)(i) ” shall mean subsection (b)(1)(i) of Rule 144 under the Act as it applies to persons who have held shares for more than a specified period of time.

 

(n)                                  The term “ Rule 405 ” shall mean Rule 405 under the Act.

 

(o)                                  The term “ SEC ” shall mean the Securities and Exchange Commission.

 

1.2                                Request for Registration .

 

(a)                                  Subject to the conditions of this Section 1.2, if the Company shall receive at any time after the earlier of (i) five (5) years after the date of this Agreement or (ii) six (6) months after the effective date of the Initial Offering, a written request from the Holders of fifty percent (50%) or more of the Registrable Securities then outstanding (for purposes of this Section 1.2, the “ Initiating Holders ”) that the Company file a registration statement under the Act covering the registration of Registrable Securities with an anticipated aggregate offering price of at least $25,000,000, then the Company shall, within twenty (20) days of the receipt thereof, give written notice of such request to all Holders, and subject to the limitations of this Section 1.2, use all commercially reasonable efforts to effect, as soon as practicable, the registration under the Act of all Registrable Securities that the Holders request to be registered in a written request received by the Company within twenty (20) days of the mailing of the Company’s notice pursuant to this Section 1.2(a).

 

(b)                                  If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.2, and the Company shall include such information in the written notice referred to in Section 1.2(a).  In such event the right of any Holder to include its Registrable Securities in such registration shall be conditioned upon such Holder’s participation in such underwriting and the inclusion of such Holder’s Registrable Securities in the underwriting (unless otherwise mutually agreed by at least a majority in interest of the Initiating Holders and such Holder) to the extent provided herein.  All Holders proposing to distribute their securities through such underwriting shall enter into an underwriting agreement in customary form with the underwriter or underwriters selected for such underwriting by those Initiating Holders holding at a majority of the Registrable Securities held by all Initiating Holders (which underwriter or underwriters shall be reasonably acceptable to the Company).  Notwithstanding any other provision of this Section 1.2, if the underwriter advises the Company that marketing factors require a limitation on the number of securities underwritten (including Registrable Securities), then the Company shall so advise all Holders of Registrable Securities that would otherwise be underwritten pursuant hereto, and the number of shares that may be included in the underwriting shall be allocated to the Holders of such Registrable Securities pro rata based on the number of Registrable Securities held by all such Holders (including the Initiating Holders).  In no event shall any Registrable Securities be excluded from such underwriting unless all other securities are first excluded.  Any Registrable Securities excluded or withdrawn from such underwriting shall be withdrawn from the registration.

 

3



 

(c)                                   Notwithstanding the foregoing, the Company shall not be required to effect a registration pursuant to this Section 1.2:

 

(i)                                      in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, unless the Company is already subject to service in such jurisdiction and except as may be required under the Act; or

 

(ii)                                   after the Company has effected two (2) registrations pursuant to this Section 1.2, and such registrations have been declared or ordered effective; or

 

(iii)                                during the period starting with the date sixty (60) days prior to the Company’s good faith estimate of the date of the filing of and ending on a date one hundred eighty (180) days following the effective date of a Company-initiated registration subject to Section 1.3 below, provided that the Company is actively employing in good faith all commercially reasonable efforts to cause such registration statement to become effective; or

 

(iv)                               if the Initiating Holders propose to dispose of Registrable Securities that may be registered on Form S-3 pursuant to Section 1.4 hereof; or

 

(v)                                  if the Company shall furnish to Holders requesting a registration statement pursuant to this Section 1.2 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board of Directors stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the Initiating Holders, provided that such right shall be exercised by the Company not more than once in any twelve (12) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such ninety (90) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered).

 

1.3                                Company Registration .

 

(a)                                  If (but without any obligation to do so) the Company proposes to register (including for this purpose a registration effected by the Company for stockholders other than the Holders) any of its stock or other securities under the Act in connection with the public offering of such securities (other than (i) a registration relating to a demand pursuant to Section 1.2 or (ii) a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of

 

4



 

the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered), the Company shall, at such time, promptly give each Holder written notice of such registration.  Upon the written request of each Holder given within twenty (20) days after mailing of such notice by the Company in accordance with Section 4.5, the Company shall, subject to the provisions of Section 1.3(c), use all commercially reasonable efforts to cause to be registered under the Act all of the Registrable Securities that each such Holder requests to be registered.

 

(b)                                  Right to Terminate Registration .  The Company shall have the right to terminate or withdraw any registration initiated by it under this Section 1.3 prior to the effectiveness of such registration whether or not any Holder has elected to include securities in such registration.  The expenses of such withdrawn registration shall be borne by the Company in accordance with Section 1.7 hereof.

 

(c)                                   Underwriting Requirements .  In connection with any offering involving an underwriting of shares of the Company’s capital stock, the Company shall not be required under this Section 1.3 to include any of the Holders’ securities in such underwriting unless they accept the terms of the underwriting as agreed upon between the Company and the underwriters selected by the Company (or by other persons entitled to select the underwriters) and enter into an underwriting agreement in customary form with such underwriters, and then only in such quantity as the underwriters determine in their sole discretion will not jeopardize the success of the offering by the Company.  If the total amount of securities, including Registrable Securities, requested by stockholders to be included in such offering exceeds the amount of securities sold other than by the Company that the underwriters determine in their sole discretion is compatible with the success of the offering, then the Company shall be required to include in the offering only that number of such securities, including Registrable Securities, that the underwriters determine in their sole discretion will not jeopardize the success of the offering. In no event shall any Registrable Securities be excluded from such offering unless all other stockholders’ securities have been first excluded.  In the event that the underwriters determine that less than all of the Registrable Securities requested to be registered can be included in such offering, then the Registrable Securities that are included in such offering shall be apportioned pro rata among the selling Holders based on the number of Registrable Securities held by all selling Holders or in such other proportions as shall mutually be agreed to by all such selling Holders.  Notwithstanding the foregoing, in no event shall (i) the amount of securities of the selling Holders included in the offering be reduced below twenty percent (20%) of the total amount of securities included in such offering, unless such offering is the Initial Offering, in which case the selling Holders may be excluded if the underwriters make the determination described above and no other stockholder’s securities are included in such offering or (ii) any securities held by a Common Holder be included in such offering if any Registrable Securities held by any Holder (and that such Holder has requested to be registered) are excluded from such offering.  For purposes of the preceding sentence concerning apportionment, for any selling stockholder that is a Holder of Registrable Securities and that is a venture capital fund, partnership or corporation, the affiliated venture capital funds, partners, retired partners and stockholders of such Holder, or the estates and family members of any such partners and retired partners and any trusts for the benefit of any of the foregoing persons shall be deemed to be a single “selling Holder,” and any pro rata reduction with respect to such “selling Holder” shall be

 

5



 

based upon the aggregate amount of Registrable Securities owned by all such related entities and individuals.

 

1.4                                Form S-3 Registration .  In case the Company shall receive from the Holders of at least thirty percent (30%) of the Registrable Securities (for purposes of this Section 1.4, the “ S-3 Initiating Holders ”) a written request or requests that the Company effect a registration on Form S-3 and any related qualification or compliance with respect to all or a part of the Registrable Securities owned by such Holder or Holders, the Company shall:

 

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

 

(b)                                  use all commercially reasonable efforts to effect, as soon as practicable, such registration and all such qualifications and compliances as may be so requested and as would permit or facilitate the sale and distribution of all or such portion of such Holders’ Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any other Holders joining in such request as are specified in a written request given within fifteen (15) days after receipt of such written notice from the Company, provided , however , that the Company shall not be obligated to effect any such registration, qualification or compliance, pursuant to this Section 1.4:

 

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

 

(ii)                                   if the Holders, together with the holders of any other securities of the Company entitled to inclusion in such registration, propose to sell Registrable Securities and such other securities (if any) at an aggregate price to the public (net of any underwriters’ discounts or commissions) of less than $5,000,000;

 

(iii)                                if the Company shall furnish to all Holders requesting a registration statement pursuant to this Section 1.4 a certificate signed by the Company’s Chief Executive Officer or Chairman of the Board of Directors stating that in the good faith judgment of the Board of Directors of the Company, it would be seriously detrimental to the Company and its stockholders for such registration statement to be effected at such time, in which event the Company shall have the right to defer such filing for a period of not more than ninety (90) days after receipt of the request of the S-3 Initiating Holders, provided that such right shall be exercised by the Company not more than once in any twelve (12) month period and provided further that the Company shall not register any securities for the account of itself or any other stockholder during such ninety (90) day period (other than a registration relating solely to the sale of securities of participants in a Company stock plan, a registration relating to a corporate reorganization or transaction under Rule 145 of the Act, a registration on any form that does not include substantially the same information as would be required to be included in a registration statement covering the sale of the Registrable Securities, or a registration in which the only Common Stock being registered is Common Stock issuable upon conversion of debt securities that are also being registered);

 

6



 

(iv)                               if the Company has, within the twelve (12) month period preceding the date of such request, already effected two (2) registrations on Form S-3 pursuant to this Section 1.4.

 

(c)                                   If the S-3 Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the Company as a part of their request made pursuant to this Section 1.4 and the Company shall include such information in the written notice referred to in Section 1.4(a).  The provisions of Section 1.2(b) shall be applicable to such request (with the substitution of Section 1.4 for references to Section 1.2).

 

(d)                                  Subject to the foregoing, the Company shall file a registration statement covering the Registrable Securities and other securities so requested to be registered as soon as practicable after receipt of the request or requests of the S-3 Initiating Holders.  Registrations effected pursuant to this Section 1.4 shall not be counted as requests for registration effected pursuant to Section 1.2.

 

1.5                                Obligations of the Company .  Whenever required under this Section 1 to effect the registration of any Registrable Securities, the Company shall, as expeditiously as reasonably possible:

 

(a)                                  prepare and file with the SEC a registration statement with respect to such Registrable Securities and use all commercially reasonable efforts to cause such registration statement to become effective, and, upon the request of the Holders of at least a majority of the Registrable Securities registered thereunder, keep such registration statement effective for a period of up to one hundred twenty (120) days or, if earlier, until the distribution contemplated in the Registration Statement has been completed;

 

(b)                                  prepare and file with the SEC such amendments and supplements to such registration statement and the prospectus used in connection with such registration statement as may be necessary to comply with the provisions of the Act with respect to the disposition of all securities covered by such registration statement;

 

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

 

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

 

(e)                                   in the event of any underwritten public offering, enter into and perform its obligations under an underwriting agreement, in usual and customary form, with the managing underwriter of such offering;

 

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(f)                                    notify each Holder of Registrable Securities covered by such registration statement at any time when a prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) relating thereto is required to be delivered under the Act of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein or necessary to make the statements therein not misleading in the light of the circumstances then existing, and, at the request of any such Holder, the Company will, as soon as reasonably practicable, file and furnish to all such Holders a supplement or amendment to such prospectus or Free Writing Prospectus (to the extent prepared by or on behalf of the Company) so that, as thereafter delivered to the purchasers of such Registrable Securities, such prospectus will not contain an untrue statement of a material fact or omit to state any fact necessary to make the statements therein not misleading in light of the circumstances under which they were made;

 

(g)                                   cause all such Registrable Securities registered pursuant to this Section 1 to be listed on a national exchange or trading system and on each securities exchange and trading system on which similar securities issued by the Company are then listed; and

 

(h)                                  provide a transfer agent and registrar for all Registrable Securities registered pursuant to this Agreement and a CUSIP number for all such Registrable Securities, in each case not later than the effective date of such registration.

 

Notwithstanding the provisions of this Section 1, the Company shall be entitled to postpone or suspend, for a reasonable period of time, the filing, effectiveness or use of, or trading under, any registration statement if the Company shall determine that any such filing or the sale of any securities pursuant to such registration statement would in the good faith judgment of the Board of Directors of the Company:

 

(i)                                      materially impede, delay or interfere with any material pending or proposed financing, acquisition, corporate reorganization or other similar transaction involving the Company for which the Board of Directors of the Company has authorized negotiations;

 

(ii)                                   materially adversely impair the consummation of any pending or proposed material offering or sale of any class of securities by the Company; or

 

(iii)                                require disclosure of material nonpublic information that, if disclosed at such time, would be materially harmful to the interests of the Company and its stockholders; provided , however , that during any such period all executive officers and directors of the Company are also prohibited from selling securities of the Company (or any security of any of the Company’s subsidiaries or affiliates).

 

In the event of the suspension of effectiveness of any registration statement pursuant to this Section 1.5, the applicable time period during which such registration statement is to remain effective shall be extended by that number of days equal to the number of days the effectiveness of such registration statement was suspended.

 

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1.6                                Information from Holder .  It shall be a condition precedent to the obligations of the Company to take any action pursuant to this Section 1 with respect to the Registrable Securities of any selling Holder that such Holder shall furnish to the Company such information regarding itself, the Registrable Securities held by it, and the intended method of disposition of such securities as shall be reasonably required to effect the registration of such Holder’s Registrable Securities.

 

1.7                                Expenses of Registration .  All expenses other than underwriting discounts and commissions incurred in connection with registrations, filings or qualifications pursuant to Sections 1.2, 1.3 and 1.4, including, without limitation, all registration, filing and qualification fees, printers’ and accounting fees, fees and disbursements of counsel for the Company and the reasonable fees and disbursements of one counsel for the selling Holders (not to exceed $50,000) shall be borne by the Company.  Notwithstanding the foregoing, the Company shall not be required to pay for any expenses of any registration proceeding begun pursuant to Section 1.2 or Section 1.4 if the registration request is subsequently withdrawn at the request of the Holders of at least a majority of the Registrable Securities to be registered (in which case all participating Holders shall bear such expenses pro rata based upon the number of Registrable Securities that were to be included in the withdrawn registration), provided , however , that if at the time of such withdrawal, the Holders have learned of a material adverse change in the condition, business or prospects of the Company from that known to the Holders at the time of their request and have withdrawn the request with reasonable promptness following disclosure by the Company of such material adverse change, then the Holders shall not be required to pay any of such expenses and shall retain their rights pursuant to Section 1.2 and 1.4.  All expenses incurred in connection with a registration requested pursuant to Section 1.4, including, without limitation, all registration, filing, qualification, printer’s and accounting fees and the reasonable fees and disbursements of counsel for the selling Holder or Holders and counsel for the Company, shall be borne pro rata by the Holder or Holders participating in such registration effected pursuant to Section 1.4.

 

1.8                                Delay of Registration .  No Holder shall have any right to obtain or seek an injunction restraining or otherwise delaying any such registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1.

 

1.9                                Indemnification .  In the event any Registrable Securities are included in a registration statement under this Section 1:

 

(a)                                  To the extent permitted by law, the Company will indemnify and hold harmless each Holder, the partners, members, officers, directors and stockholders of each Holder, legal counsel and accountants for each Holder, any underwriter (as defined in the Act) for such Holder and each person, if any, who controls such Holder or underwriter within the meaning of the Act or the 1934 Act, against any losses, claims, damages or liabilities (joint or several) to which they may become subject under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, insofar as such losses, claims, damages, or liabilities (or actions in respect thereof) arise out of or are based upon any of the following statements, omissions or violations (collectively a “ Violation ”):  (i) any untrue statement or alleged untrue statement of a material fact contained in such registration statement, including any preliminary prospectus, final prospectus, or Free Writing Prospectus contained therein or any amendments or supplements thereto, any issuer information (as defined in Rule 433 of the Act)

 

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filed or required to be filed pursuant to Rule 433(d) under the Act or any other document incident to such registration prepared by or on behalf of the Company or used or referred to by the Company, (ii) the omission or alleged omission to state in such registration statement a material fact required to be stated therein, or necessary to make the statements therein not misleading or (iii) any violation or alleged violation by the Company of the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, and the Company will reimburse each such Holder, underwriter, controlling person or other aforementioned person for any legal or other expenses reasonably incurred by them in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided , however , that the indemnity agreement contained in this subsection 1.9(a) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Company (which consent shall not be unreasonably withheld), nor shall the Company be liable in any such case for any such loss, claim, damage, liability or action to the extent that it arises out of or is based upon a Violation that occurs in reliance upon and in conformity with written information furnished expressly for use in connection with such registration by any such Holder, underwriter, controlling person or other aforementioned person.

 

(b)                                  To the extent permitted by law, each selling Holder will indemnify and hold harmless the Company, each of its directors, each of its officers who has signed the registration statement, each person, if any, who controls the Company within the meaning of the Act, legal counsel and accountants for the Company, any underwriter, any other Holder selling securities in such registration statement and any controlling person of any such underwriter or other Holder, against any losses, claims, damages or liabilities (joint or several) to which any of the foregoing persons may become subject, under the Act, the 1934 Act, any state securities laws or any rule or regulation promulgated under the Act, the 1934 Act or any state securities laws, insofar as such losses, claims, damages or liabilities (or actions in respect thereto) arise out of or are based upon any Violation, in each case to the extent (and only to the extent) that such Violation occurs in reliance upon and in conformity with written information furnished by such Holder expressly for use in connection with such registration; and each such Holder will reimburse any person intended to be indemnified pursuant to this subsection 1.9(b) for any legal or other expenses reasonably incurred by such person in connection with investigating or defending any such loss, claim, damage, liability or action as such expenses are incurred; provided , however , that the indemnity agreement contained in this subsection 1.9(b) shall not apply to amounts paid in settlement of any such loss, claim, damage, liability or action if such settlement is effected without the consent of the Holder (which consent shall not be unreasonably withheld), and provided that in no event shall any indemnity under this subsection 1.9(b) exceed the net proceeds from the offering received by such Holder.

 

(c)                                   Promptly after receipt by an indemnified party under this Section 1.9 of notice of the commencement of any action (including any governmental action) for which a party may be entitled to indemnification, such indemnified party will, if a claim in respect thereof is to be made against any indemnifying party under this Section 1.9, deliver to the indemnifying party a written notice of the commencement thereof and the indemnifying party shall have the right to participate in and, to the extent the indemnifying party so desires, jointly with any other indemnifying party similarly noticed, to assume the defense thereof with counsel mutually satisfactory to the parties; provided , however , that an indemnified party (together with

 

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all other indemnified parties that may be represented without conflict by one counsel) shall have the right to retain one (1) separate counsel, with the fees and expenses to be paid by the indemnifying party, if representation of such indemnified party by the counsel retained by the indemnifying party would be inappropriate due to actual or potential differing interests between such indemnified party and any other party represented by such counsel in such proceeding.  The failure to deliver written notice to the indemnifying party within a reasonable time of the commencement of any such action, if prejudicial to its ability to defend such action, shall relieve such indemnifying party of liability to the indemnified party under this Section 1.9 to the extent of such prejudice, but the omission to so deliver written notice to the indemnifying party will not relieve it of any liability that it may have to any indemnified party otherwise than under this Section 1.9.

 

(d)                                  If the indemnification provided for in this Section 1.9 is held by a court of competent jurisdiction to be unavailable to an indemnified party with respect to any loss, liability, claim, damage or expense referred to herein, then the indemnifying party, in lieu of indemnifying such indemnified party hereunder, shall contribute to the amount paid or payable by such indemnified party as a result of such loss, liability, claim, damage or expense in such proportion as is appropriate to reflect the relative fault of the indemnifying party on the one hand and the indemnified party on the other hand in connection with the statements or omissions that resulted in such loss, liability, claim, damage or expense, as well as any other relevant equitable considerations; provided , however , that (i) no contribution by any Holder, when combined with any amounts paid by such Holder pursuant to Section 1.9(b), shall exceed the net proceeds from the offering received by such Holder and (ii) no person guilty of fraudulent misrepresentation (within the meaning of Section 11(f) of the Act) will be entitled to contribution from any person who was not guilty of such fraudulent misrepresentation; and provided further that in no event shall a Holder’s liability pursuant to this Section 1.9(d), when combined with the amounts paid or payable by such Holder pursuant to Section 1.9(b), exceed the proceeds from the offering received by such Holder (net of any expenses paid by such Holder).  The relative fault of the indemnifying party and the indemnified party shall be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission or alleged omission to state a material fact relates to information supplied by the indemnifying party or by the indemnified party and the parties’ relative intent, knowledge, access to information and opportunity to correct or prevent such statement or omission.

 

(e)                                   Notwithstanding the foregoing, to the extent that the provisions on indemnification and contribution contained in the underwriting agreement entered into in connection with the underwritten public offering are in conflict with the foregoing provisions, the provisions in the underwriting agreement shall control.

 

(f)                                    The obligations of the Company and Holders under this Section 1.9 shall survive the completion of any offering of Registrable Securities in a registration statement under this Section 1 and otherwise.

 

1.10                         Reports Under the 1934 Act .  With a view to making available to the Holders the benefits of Rule 144 and any other rule or regulation of the SEC that may at any time permit a Holder to sell securities of the Company to the public without registration or pursuant to a registration on Form S-3, the Company agrees to:

 

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(a)                                  make and keep public information available, as those terms are understood and defined in Rule 144, at all times after the effective date of the Initial Offering;

 

(b)                                  file with the SEC in a timely manner all reports and other documents required of the Company under the Act and the 1934 Act; and

 

(c)                                   furnish to any Holder, so long as the Holder owns any Registrable Securities, forthwith upon request (i) a written statement by the Company that it has complied with the reporting requirements of Rule 144 (at any time after ninety (90) days after the effective date of the first registration statement filed by the Company), the Act and the 1934 Act (at any time after it has become subject to such reporting requirements), or that it qualifies as a registrant whose securities may be resold pursuant to Form S-3 (at any time after it so qualifies), (ii) a copy of the most recent annual or quarterly report of the Company and such other reports and documents so filed by the Company and (iii) such other information as may be reasonably requested to avail any Holder of any rule or regulation of the SEC that permits the selling of any such securities without registration or pursuant to such form.

 

1.11                         Assignment of Registration Rights .  The rights to cause the Company to register Registrable Securities pursuant to this Section 1 may be assigned (but only with all related obligations) by a Holder to a transferee or assignee of such securities that (i) is an Affiliate, subsidiary, parent, partner, limited partner, retired partner or stockholder of a Holder, (ii) is a Holder’s family member or trust for the benefit of an individual Holder, or (iii) after such assignment or transfer, holds at least thirty percent (30%) of the Registrable Securities originally required by such transferring Holder (or all Registrable Securities held by such transferring Holder, if less) (appropriately adjusted for any stock split, dividend, combination or other recapitalization), provided :  (a) the Company is, within a reasonable time after such transfer, furnished with written notice of the name and address of such transferee or assignee and the securities with respect to which such registration rights are being assigned; (b) such transferee or assignee agrees in writing to be bound by and subject to the terms and conditions of this Agreement, including, without limitation, the provisions of Section 1.13 below; and (c) such assignment shall be effective only if immediately following such transfer the further disposition of such securities by the transferee or assignee is restricted under the Act.

 

1.12                         Limitations on Subsequent Registration Rights .  From and after the date of this Agreement, the Company shall not, without the prior written consent of the Holders holding at least a majority of the Registrable Securities then held by all Holders, enter into any agreement with any holder or prospective holder of any securities of the Company that would allow such holder or prospective holder (a) to include any of such securities in any registration filed under Section 1.2, Section 1.3 or Section 1.14 hereof, unless under the terms of such agreement, such holder or prospective holder may include such securities in any such registration only to the extent that the inclusion of such securities will not reduce the amount of the Registrable Securities of the Holders that are included or (b) to demand registration of their securities.

 

1.13                         “Market Stand-Off” Agreement .

 

(a)                                  Each Holder hereby agrees that it will not, without the prior written consent of the managing underwriter, during the period commencing on the date of the final

 

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prospectus relating to the Company’s Initial Offering and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (l80) days) (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether such shares or any such securities are then owned by the Holder or are thereafter acquired) held immediately prior to the effectiveness of the Registration Statement for such offering, or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of the Common Stock, whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of Common Stock or other securities, in cash or otherwise.  The underwriters in connection with the Company’s Initial Offering are intended third-party beneficiaries of this Section 1.13 and shall have the right, power and authority to enforce the provisions hereof as though they were a party hereto.  Each Holder further agrees to execute such agreements as may be reasonably requested by the underwriters in the Company’s Initial Offering that are consistent with this Section 1.13 or that are necessary to give further effect thereto provided such agreement imposes no restrictions on such Holder which are more onerous than those imposed on any other Holder.

 

In order to enforce the foregoing covenant, the Company may impose stop-transfer instructions with respect to the Registrable Securities of each Holder (and the shares or securities of every other person subject to the foregoing restriction) until the end of such period.  Notwithstanding the foregoing, if (i) during the last seventeen (17) days of the one hundred eighty (180)-day restricted period, the Company issues an earnings release or material news or a material event relating to the Company occurs; or (ii) prior to the expiration of the one hundred eighty (180)-day restricted period, the Company announces that it will release earnings results during the sixteen (16)-day period beginning on the last day of the one hundred eighty (180)-day period, the restrictions imposed by this Section 1.13 shall continue to apply until the expiration of the eighteen (18)-day period beginning on the issuance of the earnings release or the occurrence of the material news or material event.

 

(b)                                  Each Holder agrees that a legend reading substantially as follows shall be placed on all certificates representing all Registrable Securities of each Holder (and the shares or securities of every other person subject to the restriction contained in this Section 1.13):

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD AFTER THE EFFECTIVE DATE OF THE ISSUER’S REGISTRATION STATEMENT FILED UNDER THE ACT, AS AMENDED, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SECURITIES, A COPY OF WHICH MAY BE OBTAINED AT THE ISSUER’S PRINCIPAL OFFICE.  SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES.

 

1.14                         Termination of Registration Rights .  No Holder shall be entitled to exercise any right provided for in this Section 1 (a) after five (5) years following the consummation of the Initial Offering, (b) as to any Holder, such earlier time after the Initial

 

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Offering at which such Holder (i) can sell all shares held by it in compliance with Rule 144(b)(1)(i) or (ii) holds one percent (1%) or less of the Company’s outstanding Common Stock and all Registrable Securities held by such Holder (together with any Affiliate of the Holder with whom such Holder must aggregate its sales under Rule 144) can be sold in any three (3) month period without registration in compliance with Rule 144 or (c) after the consummation of a Liquidation Event, as that term is defined in the Restated Certificate.

 

2.                                       Covenants of the Company .

 

2.1                                Delivery of Financial Statements .  The Company shall, upon request, deliver to each Investor (or transferee of an Investor) that holds at least 1,000,000 shares of Registrable Securities (appropriately adjusted for any stock split, dividend, combination or other recapitalization) (a “ Major Investor ”):

 

(a)                                  as soon as practicable, but in any event within one hundred eighty (180) days after the end of each fiscal year of the Company, for the fiscal years following December 31, 2013, an income statement for such fiscal year, a balance sheet of the Company and statement of stockholders’ equity as of the end of such year, and a statement of cash flows for such year, such year-end financial reports to be in reasonable detail, prepared in accordance with generally accepted accounting principles (“ GAAP ”), and, as determined and approved by the Company’s Board of Directors, audited and certified by independent public accountants of nationally recognized standing selected by the Company;

 

(b)                                  as soon as practicable, but in any event within forty-five (45) days after the end of each of the first three (3) quarters of each fiscal year of the Company, an unaudited income statement, statement of cash flows for such fiscal quarter and an unaudited balance sheet as of the end of such fiscal quarter, all prepared in accordance with GAAP (except that such financial statements may (i) be subject to normal year-end audit adjustments and (ii) not contain all notes thereto that may be required in accordance with GAAP); and

 

(c)                                   such other information relating to the financial condition, business or corporate affairs of the Company as the Major Investor may from time to time request, provided , however , that the Company shall not be obligated under this subsection (c) or any other subsection of Section 2.1 to provide information that (i) it deems in good faith to be a trade secret or similar confidential information or (ii) the disclosure of which would adversely affect the attorney-client privilege between the Company and its counsel.

 

(d)                                  Notwithstanding anything else in this Section 2.1 to the contrary, the Company may cease providing the information set forth in this Section 2.1 during the period starting with the date thirty (30) days before the Company’s good-faith estimate of the date of filing of a registration statement if it reasonably concludes it must do so to comply with the SEC rules applicable to such registration statement and related offering; provided that the Company’s covenants under this Section 2.1 shall be reinstated at such time as the Company is no longer actively employing its commercially reasonable efforts to cause such registration statement to become effective.

 

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2.2                                Inspection .  The Company shall permit each Major Investor, at such Major Investor’s expense, to visit and inspect the Company’s properties, to examine and make copies of its books of account and records and to discuss the Company’s affairs, finances and accounts with its officers, all at such reasonable times as may be requested by the Major Investor; provided , however , that the Company shall not be obligated pursuant to this Section 2.2 to provide access to any information that it reasonably considers to be a trade secret or similar confidential information.

 

2.3                                Observer Rights .  As long as Black Diamond Ventures XVIII LLC owns not less than twenty five percent (25%) of the shares of the Series E Preferred Stock it is purchasing under the Purchase Agreement (or an equivalent amount of Common Stock issued upon conversion thereof), the Company shall invite a representative of Black Diamond Ventures XVIII LLC to attend all meetings of its Board of Directors in a nonvoting observer capacity and, in this respect, shall give such representative copies of all notices, minutes, consents, and other materials that it provides to its directors; provided, however, that such representative shall agree to hold in confidence and trust and to act in a fiduciary manner with respect to all information so provided; and provided further, that the Company reserves the right to withhold any information and to exclude such representative from any meeting or portion thereof if access to such information or attendance at such meeting could adversely affect the attorney-client privilege between the Company and its counsel or result in disclosure of trade secrets or a conflict of interest, or if such Investor or its representative is a competitor of the Company.

 

2.4                                Termination of Information, Inspection and Observer Covenants .  The covenants set forth in Sections 2.1, 2.2 and 2.3 shall terminate and be of no further force or effect upon the earlier to occur of (a) the consummation of the sale of securities pursuant to a registration statement filed by the Company under the Act in connection with the firm commitment underwritten offering of its securities to the general public, (b) when the Company first becomes subject to the periodic reporting requirements of Sections 12(g) or 15(d) of the 1934 Act, whichever event shall first occur or (c) the consummation of a Liquidation Event, as that term is defined in the Restated Certificate.

 

2.5                                Right of First Offer .  Subject to the terms and conditions specified in this Section 2.5, the Company hereby grants to each Major Investor a right of first offer with respect to future sales by the Company of its Shares (as hereinafter defined).  For purposes of this Section 2.5, the term “ Major Investor ” includes any general partners and affiliates of a Major Investor.  A Major Investor shall be entitled to apportion the right of first offer hereby granted it among itself and its partners and Affiliates in such proportions as it deems appropriate.

 

Each time the Company proposes to offer any shares of, or securities convertible into or exchangeable or exercisable for any shares of, its capital stock (“ Shares ”), the Company shall first make an offering of such Shares to each Major Investor in accordance with the following provisions:

 

(a)                                  The Company shall deliver a notice in accordance with Section 4.5 (“ Notice ”) to the Major Investors stating (i) its bona fide intention to offer such Shares, (ii) the number of such Shares to be offered and (iii) the price and terms upon which it proposes to offer such Shares.

 

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(b)                                  By written notification received by the Company within twenty (20) calendar days after the giving of Notice, each Major Investor may elect to purchase, at the price and on the terms specified in the Notice, up to that portion of such Shares that equals the proportion that the number of shares of Common Stock that are Registrable Securities issued and held by such Major Investor (assuming full conversion and exercise of all convertible and exercisable securities then outstanding) bears to the total number of shares of Common Stock of the Company then outstanding (assuming full conversion and exercise of all convertible and exercisable securities then outstanding) issued and held, or issuable upon conversion of the Preferred Stock then held, by all the Major Investors.

 

(c)                                   If all Shares that Major Investors are entitled to obtain pursuant to subsection 2.5(b) are not elected to be obtained as provided in subsection 2.5(b) hereof, the Company may, during the ninety (90) day period following the expiration of the period provided in subsection 2.5(b) hereof, offer the remaining unsubscribed portion of such Shares to any person or persons at a price not less than that, and upon terms no more favorable to the offeree than those, specified in the Notice.  If the Company does not enter into an agreement for the sale of the Shares within such period, or if such agreement is not consummated within sixty (60) days of the execution thereof, the right provided hereunder shall be deemed to be revived and such Shares shall not be offered unless first reoffered to the Major Investors in accordance herewith.

 

(d)                                  The right of first offer in this Section 2.5 shall not be applicable to (i) the issuance or sale of shares of Common Stock (or options therefor) (appropriately adjusted for any stock split, dividend, combination or other recapitalization) to employees, directors, consultants and other service providers for the primary purpose of soliciting or retaining their services pursuant to plans or agreements approved by the Company’s Board of Directors, (ii) the issuance of securities pursuant to a Qualified Public Offering (as defined in the Company’s Amended and Restated Certificate of Incorporation (as amended from time to time), (iii) the issuance of securities pursuant to the conversion or exercise of convertible or exercisable securities, (iv) the issuance of securities in connection with a bona fide business acquisition of or by the Company, whether by merger, consolidation, sale of assets, sale or exchange of stock or otherwise, (v) the issuance and sale of Series E Preferred Stock pursuant to the Series E Agreement, or (vi) the issuance of stock, warrants or other securities or rights to persons or entities with which the Company has business relationships, provided such issuances are approved by the Company’s Board of Directors and are primarily for other than equity financing purposes.  In addition to the foregoing, the right of first offer in this Section 2.5 shall not be applicable with respect to any Major Investor in any subsequent offering of Shares if (i) at the time of such offering, the Major Investor is not an “accredited investor,” as that term is then defined in Rule 501(a) of the Act and (ii) such offering of Shares is otherwise being offered only to accredited investors.

 

(e)                                   The rights provided in this Section 2.5 may not be assigned or transferred by any Major Investor; provided , however , that a Major Investor that is a venture capital fund may assign or transfer such rights to its Affiliates.

 

(f)                                    The covenants set forth in this Section 2.5 shall terminate and be of no further force or effect upon the consummation of (i) the Company’s sale of its Common Stock or other securities pursuant to Registration Statement under the Act (other than a registration

 

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statement relating either to the sale of securities to employees of the Company pursuant to its stock option, stock purchase or similar plan or a SEC Rule 145 transaction) or (ii) a Liquidation Event, as that term is defined in the Restated Certificate.

 

2.6                                “Bad Actor” Disqualification .  Each party to this Agreement will promptly notify each other party to this Agreement in writing if it or, to its knowledge, any person specified in Rule 506(d)(1) under the Act becomes subject to any “bad actor” disqualifications described in Rule 406(d)(1)(i) through (viii) under the Act .

 

3.                                       Legend .  The Company shall cause the legend set forth below, or a legend substantially equivalent thereto, to be placed upon any certificates or other documents or instruments evidencing ownership of Registrable Securities owned by a Holder:

 

THE SECURITIES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO AN AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT BY AND BETWEEN THE ORIGINAL HOLDER OF THESE SECURITIES AND THE COMPANY.  A COPY OF SUCH AGREEMENT IS ON FILE AT THE PRINCIPAL OFFICE OF THE COMPANY.

 

4.                                       Miscellaneous .

 

4.1                                Successors and Assigns .  Except as otherwise provided herein, the terms and conditions of this Agreement shall inure to the benefit of and be binding upon the respective successors and assigns of the parties (including transferees of any shares of Registrable Securities).  Nothing in this Agreement, express or implied, is intended to confer upon any party other than the parties hereto or their respective successors and assigns any rights, remedies, obligations or liabilities under or by reason of this Agreement, except as expressly provided in this Agreement.

 

4.2                                Governing Law .  This Agreement shall be governed by and construed under the laws of the State of California as applied to agreements among California residents entered into and to be performed entirely within California.

 

4.3                                Counterparts; Facsimile .  This Agreement may be executed and delivered by facsimile or electronic signature and in two (2) or more counterparts, each of which shall be deemed an original, but all of which together shall constitute one (1) and the same instrument.

 

4.4                                Titles and Subtitles .  The titles and subtitles used in this Agreement are used for convenience only and are not to be considered in construing or interpreting this Agreement.

 

4.5                                Notices .  All notices and other communications given or made pursuant hereto shall be in writing and shall be deemed effectively given upon the earlier to occur of actual receipt or:  (a) upon personal delivery to the party to be notified, (b) when sent by confirmed electronic mail or facsimile if sent during normal business hours of the recipient; if not, then on the next business day, (c) five (5) days after having been sent by registered or certified mail, return receipt requested, postage prepaid, or (d) one (1) day after deposit with a

 

17



 

nationally recognized overnight courier, specifying next day delivery, with written verification of receipt.  All communications shall be sent to the respective parties at the addresses set forth on the signature pages attached hereto (or at such other addresses as shall be specified by notice given in accordance with this Section 4.5).

 

4.6                                Expenses .  If any action at law or in equity is necessary to enforce or interpret the terms of this Agreement, the prevailing party shall be entitled to reasonable attorneys’ fees, costs and necessary disbursements in addition to any other relief to which such party may be entitled.

 

4.7                                Entire Agreement; Amendments and Waivers .  This Agreement amends, restates and replaces the Prior Rights Agreement in its entirety. This Agreement (including the Schedules hereto, if any) constitutes the full and entire understanding and agreement among the parties with regard to the subjects hereof and thereof.  Any term of this Agreement (other than Section 2.1, Section 2.2, Section 2.4 and Section 2.5) may be amended and the observance of any term of this Agreement may be waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Investors holding at least sixty percent (60%) of the Registrable Securities.  The provisions of Section 2.1, Section 2.2, Section 2.4 and Section 2.5 may be amended or waived (either generally or in a particular instance and either retroactively or prospectively) only with the written consent of the Company and the Major Investors holding at least sixty percent (60%) of the Registrable Securities that are held by all of the Major Investors.  Any amendment or waiver effected in accordance with this paragraph shall be binding upon each holder of any Registrable Securities, each future holder of all such Registrable Securities and the Company; provided , that if any amendment or waiver would adversely affect any particular Holder or Major Investor in a manner that is different from the other Holders or Major Investors, as applicable, then such amendment or waiver shall also require the prior written consent of such adversely affected Holder(s) or Major Investor(s).

 

4.8                                Severability .  Whenever possible, each provision of this Agreement shall be interpreted in such manner as to be effective and valid under applicable law, but if any provision of this Agreement shall be held to be prohibited by or invalid under applicable law, such provision shall be ineffective only to the extent of such prohibition or invalidity, without invalidating the remainder of such provision or the remaining provisions of this Agreement.

 

4.9                                Aggregation of Stock .  All shares of Registrable Securities held or acquired by affiliated entities (including affiliated venture capital funds or venture capital funds under common investment management) or persons shall be aggregated together for the purpose of determining the availability of any rights under this Agreement.

 

4.10                         Additional Investors .  Notwithstanding Section 4.7, no consent shall be necessary to add additional Investors as signatories to this Agreement, provided that such Investors have purchased Series E Preferred Stock pursuant to the subsequent closing provisions of Section 1.3 of the Series E Agreement.

 

4.11                         Further Assurances .  Each party agrees to execute and deliver such additional documents and instruments and to perform such additional acts as may be reasonably

 

18



 

necessary or appropriate to effectuate, carry out and perform all of the terms, provisions, and conditions of this Agreement and the transactions contemplated hereby.

 

[ signature pages to follow ]

 

19


 

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

 

 

“COMPANY”

 

 

 

 

 

AVINGER, INC.

 

a Delaware corporation

 

 

 

 

 

 

 

By:

/s/ John B. Simpson

 

 

John B. Simpson, Ph.D., M.D.

 

 

President and Chief Executive Officer

 

 

 

 

Address:

400 Chesapeake

 

 

Redwood City, CA 94063

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

BLACK DIAMOND VENTURES XVIII, LLC

 

 

 

 

 

 

/s/ Christopher B. Lucas

 

 

 

By: Black Diamond Ventures Manager XVIII, LLC

 

 

 

Name:

Christopher B. Lucas

 

 

 

 

Title:

Managing Director

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

CARSON KALIN

 

 

 

 

 

By:

/s/ Carson Kalin

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

HIMANSHU PATEL

 

 

 

 

 

By:

/s/ Himanshu Patel

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

ROATH FAMILY TRUST, KENNETH B. ROATH, TRUSTEE

 

 

 

 

 

By:

/s/ Kenneth B. Roath

 

 

 

 

Name:

/s/ Kenneth B. Roath

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

S N INVESTORS LLC

 

 

 

 

 

By:

/s/ Kenneth Novack

 

 

 

 

 

 

 

Name:

Kenneth  Novack

 

 

 

 

 

 

 

Title:

Manager

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

CAROLE G. CORFMAN

 

 

 

 

 

By:

/s/ Carole G. Corfman

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

LAURENCE ZUNG DESCENDANTS TRUST U/D/A 12/17/02

 

 

 

By:

/s/ Laurence Zung

 

 

 

 

Name:

Laurence Zung

 

 

 

 

Title:

Grantor

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

THOMAS RENYI

 

 

 

 

 

By:

/s/ Thomas Renyi

 

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

“INVESTORS

 

 

 

 

 

JOHN B. SIMPSON & RITA LYNN SIMPSON, TRUSTEES OF THE SIMPSON FAMILY TRUST DATED 1/12/90

 

 

 

 

 

By:

/s/ John B. Simpson

 

 

 

 

Name:

John B. Simpson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

BRIGHT HORIZON INVESTMENTS, LLC

 

 

 

 

 

By:

/s/ Charles F. Haywood

 

 

 

 

Name:

Charles F. Haywood

 

 

 

 

Title:

Manager

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

JOHN P. DUFFY

 

 

 

By:

/s/ John P. Duffy

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

 

 

JOHN D. NEWHOUSE, JR.

 

 

 

 

 

By:

/s/ John D. Newhouse, Jr.

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

THE SCHEUER-FRAEDRICK 2000 TRUST

 

 

 

 

 

By:

/s/ Lee C. Scheuer

 

 

 

 

Name:

Lee C. Scheuer

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

GREGORY C. ROBERTSON

 

 

 

 

 

By:

/s/ Gregory C. Robertson

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

CHARLES F. PREUSS AND BARBARA R. PREUSS 1993 TRUST

 

 

 

 

 

By:

/s/ Charles F. Preuss

 

 

 

 

Name:

Charles F. Preuss

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS

 

 

 

 

 

GAP INVESTMENTS PTS LTD

 

 

 

 

 

By:

/s/ Ajoy Khandheria

 

 

 

 

Name:

Ajoy Khandheria

 

 

 

 

Title:

Director

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“COMMON HOLDERS

 

 

 

 

 

HIMANSHU PATEL

 

 

 

 

 

By:

/s/ Himanshu Patel

 

 

 

 

 

JOHN B. SIMPSON AND RITA LYNN SIMPSON, TRUSTEES OF THE SIMPSON FAMILY TRUST DATED 1/12/90

 

 

 

 

 

By:

/s/ John B. Simpson

 

 

 

 

Name:

John B. Simpson

 

 

 

 

Title:

Trustee

 

 

 

 

 

JOHN DAVID SIMPSON, TRUSTEE OF JOHN DAVID SIMPSON TRUST DATED 12/9/08

 

 

 

 

 

By:

/s/ John David Simpson

 

 

 

 

Name:

John David Simpson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

 

“INVESTORS”

 

 

 

 

 

STEPHEN GULYAS

 

 

 

 

 

By:

/s/ Stephen Gulyas

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

 

“INVESTORS”

 

 

 

 

 

MICHAEL CHANG

 

 

 

 

 

By:

/s/ Michael Chang

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MCCOLLUM FAMILY TRUST DTD DEC 1981

 

 

 

 

 

 

 

By:

/s/ Robert McCollum

 

 

 

 

Name:

Robert McCollum

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

CHARLES R. HOGAN AND NANCY M. HOGAN

 

 

 

 

 

By:

/s/ Charles R. Hogan

 

 

 

 

 

 

 

By:

/s/ Nancy M. Hogan

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

LUCAS VENTURE GROUP IX, LLC

 

 

 

 

 

 

 

By:

/s/ Donald A. Lucas

 

 

 

 

Name:

Donald A. Lucas

 

 

 

 

Title:

Managing Member

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ALFRED W. MORDECAI

 

 

 

 

 

By:

/s/ Alfred W. Mordecai

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ALLEN MENACHEM

 

 

 

 

 

By:

/s/ Allen Menachem

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

JOHN DAVID SIMPSON, TRUSTEE OF JOHN DAVID SIMPSON TRUST DATED 12/9/08

 

 

 

 

 

 

 

By:

/s/ John David Simpson

 

 

 

 

Name:

John David Simpson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ANTHONY J. AND DEBORAH R. BERNARD 2001 REVOCABLE FAMILY TRUST

 

 

 

 

 

 

 

By:

/s/ Deborah R. Bernard

 

 

 

 

Name:

Deborah R. Bernard

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

WILLIAM BUTLER

 

 

 

 

 

By:

/s/ William Butler

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

HENRY BUZGON

 

 

 

 

 

By:

/s/ Henry Buzgon

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

“INVESTORS”

 

 

 

 

 

BRYAN WESLEY COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

By:

/s/ Robert Courson

 

 

 

 

Name:

Robert Courson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

M & A COURSON FAMILY LIVING TRUST

 

 

 

 

 

By:

/s/ Michael Courson

 

 

 

 

Name:

Michael Courson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MICHAEL SCOTT COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

By:

/s/ Michael Courson

 

 

 

 

Name:

Michael Courson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MARK THOMAS COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

By:

/s/ Robert Courson

 

 

 

 

Name:

Robert Courson

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ROBERT AND KATHERINE COURSON

 

 

 

 

 

By:

/s/ Robert Courson

 

 

 

 

 

 

 

By:

/s/ Katherine Courson

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

KATHERINE COURSON

 

 

 

 

 

By:

/s/ Katherine Courson

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

IRA SERVICES TRUST CO CFBO KEVIN CULLINANE

 

 

 

 

 

By:

/s/ Kevin Cullinane

 

 

 

 

Name:

Kevin Cullinane

 

 

 

 

Title:

Beneficiary

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ROBERT S. & RITA DELUE 1995 REVOCABLE FAMILY TRUST

 

 

 

 

 

By:

/s/ Robert S. Delue

 

 

 

 

Name:

Robert S. Delue

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

GRANT M. CONWAY

 

 

 

 

 

By:

/s/ Grant M. Conway

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

JOSEPH W. REID, JR.

 

 

 

 

 

By:

/s/ Joseph W. Reid, Jr.

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

“INVESTORS”

 

 

 

 

 

PATRICK MUCK, M.D.

 

 

 

 

 

By:

/s/ Patrick Muck

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

EASTERN POULTRY DISTRIBUTORS, INC.

 

 

 

 

 

By:

/s/ Grant M. Conway

 

 

 

 

Name:

Grant M. Conway

 

 

 

 

Title:

COD

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MATTHEW FERGUSON

 

 

 

 

 

By:

/s/ Matthew Ferguson

 

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MATTHEW RECHT

 

 

 

 

 

By:

/s/ Matthew Recht

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

FLP TRAFALGAR II, L.P.

 

 

 

 

 

By:

/s/ C. Preston Butcher

 

 

 

 

Name:

C. Preston Butcher

 

 

 

 

Title:

General Partner

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MICHAEL & ATHIA GIOTINIS
REVOCABLE TRUST

 

 

 

 

 

By:

/s/ Michael Giotinis

 

 

 

 

Name:

Michael Giotinis

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

JOSEPH J. GIRAUDO

 

 

 

 

 

By:

/s/ Joseph J. Giraudo

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

SYLVIA KAMENSKI

 

 

 

 

 

By:

/s/ Sylvia Kamenski

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

PEARL KEARLEY

 

 

 

 

 

By:

/s/ Pearl Kearley

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

LIVE OAK VENTURES LLC

 

 

 

By:

/s/ Charles R. Schwab

 

 

 

 

Name:

Charles R. Schwab

 

 

 

 

Title:

Manager/Member

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

“INVESTORS”

 

 

 

 

 

JAMES B. MCELWEE

 

 

 

 

 

By:

/s/ James B. McElwee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

MOHAMMAD REZAIAN

 

 

 

 

 

By:

/s/ Mohammad Rezaian

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

GAUTAM SHRIKHANDE

 

 

 

 

 

By:

/s/ Gautam Shrikhande

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

DR. GREGORY C. ROBERTSON

 

 

 

 

 

By:

/s/ Gregory C. Robertson

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

IRA SERVICES TRUST CO CFBO
DANIEL J. ROSENBLEDT IRA
ROLLOVER

 

 

 

 

 

By:

/s/ Daniel J. Rosenbledt

 

 

 

 

Name:

Daniel J. Rosenbledt

 

 

 

 

Title:

Beneficiary

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

DANIEL J. ROSENBLEDT, TRUSTEE OF
THE ROSENBLEDT PIE TRUST DATED
MARCH 15, 2000

 

 

 

 

 

By:

/s/ Daniel J. Rosenbledt

 

 

 

 

Name:

Daniel J. Rosenbledt

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

THOMAS E. RUEGER, SR.

 

 

 

 

 

By:

/s/ Thomas E. Rueger, Sr.

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

THOMAS E. RUEGER, JR.

 

 

 

 

 

By:

/s/ Thomas E. Rueger, Jr.

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

IRA SERVICES TRUST CO CFBO MARK
SCAFINE

 

 

 

 

 

By:

/s/ Mark Scafine

 

 

 

 

Name:

Mark Scafine

 

 

 

 

Title:

Beneficiary

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

DAVID SHVARTS & EMILIA M.
SHVARTS TTEES OF THE THE
SHVARTS LTA, DTD 9-26-94

 

 

 

 

 

By:

/s/ David Shvarts

 

 

 

 

Name:

David Shvarts

 

 

 

 

Title:

Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

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

 

 

“INVESTORS”

 

 

 

 

 

REVOCABLE TRUST OF WILLIAM
RICHARD BEASLEY AND GERALDINE
LUCILLE BEASLEY DATED
SEPTEMBER 14, 1995

 

 

 

 

 

By:

/s/ William Beasley

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

BENJAMIN A ELDER AND EMILY T
ELDER, AS CO-TRUSTEES OF THE
ELDER LIVING TRUST, DATED
NOVEMBER 25, 2009

 

 

 

 

 

By:

/s/ Emily Elder

 

 

 

 

Name:

Emily Elder

 

 

 

 

Title:

Co-Trustee

 

 

 

 

 

 

 

By:

/s/ Benjamin Elder

 

 

 

 

Name:

Benjamin Elder

 

 

 

 

Title:

Co-Trustee

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

TODD SCHEUER

 

 

 

 

 

By:

/s/ Todd Scheuer

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

KEYOOR M. SHAH

 

 

 

 

 

By:

/s/ Keyoor M. Shah

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

ISAAC AND ANA GARAZI

 

 

 

 

 

By:

/s/ Ana Garazi

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

NITISH AMIN

 

 

 

 

 

By:

/s/ Nitish Amin

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS”

 

 

 

 

 

JEFFREY LEGGE

 

 

 

 

 

By:

/s/ Jeffrey Legge

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 

 



 

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

 

 

“COMMON HOLDERS

 

 

 

 

 

JEFFREY LEGGE

 

 

 

 

 

By:

/s/ Jeffrey Legge

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 



 

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

 

 

“INVESTORS

 

 

 

HARD EIGHT INVESTMENT GROUP,
LLC

 

 

 

By:

/s/ Daniel Nunn

 

 

 

Name:

Daniel Nunn

 

 

 

Title:

Managing Member

 

SIGNATURE PAGE TO AMENDED AND RESTATED INVESTORS’ RIGHTS AGREEMENT

FOR AVINGER, INC.

 


 

SCHEDULE A

 

SCHEDULE OF INVESTORS

 

Black Diamond Ventures XVIII, LLC

 

MICA Capital II, LLC

 

McCollum Family Trust dtd Dec. 1981

 

John R. Delfino

 

James Milgard

 

MZ Partners, LLC

 

Roath Family Trust, Kenneth B. Roath Trustee

 

Laurence Zung Descendants Trust

 

Mica Capital, LLC

 

John P. Pigott

 

Ramzan Muhammad Zakir

 

Tea E. Acuff

 

Robert Moreno

 

Richard R. Heuser MD IRA FCC as Custodian

 

Joseph A. Quintana

 

Gaston Rivera

 

Foxhollow ACLP

 

John B. Simpson & Rita Lynn Simpson, Trustees of the Simpson Family Trust Dated 1/12/90

 

Bright Horizon Investments, LLC

 

Muzzy Holdings LLC

 

Jeffrey C. Haywood

 

John D. Newhouse, Jr.

 



 

John D. Newhouse

 

Kristen Pate Ramirez

 

Peter F. Haywood

 

Stephen E. Pate

 

Eastern Investment Partners IV Avinger LLC

 

Carole G. Corfman

 

Mark E. Georgeson

 

Roath Family Investment Fund #1

 

The Scheuer-Fraedrick 2000 Trust

 

Gregory C. Robertson

 

S N Investors LLC

 

BWO, LLC

 

Muzzy Holdings LLC

 

Thomas Renyi

 

GIGL Investments, L.P.

 

Assaf Family Trust DTD. 3/24/05

 

Cardiology Investments LLC

 

Mark E. Georgeson

 

Stevan Himmelstein

 

Charles F. Preuss and Barbara R. Preuss 1993 Trust

 

WS Investment Company LLC (2010A)

 

Jeffrey C. Haywood

 

Michael Terner

 

WS Investment Company (2011A)

 

Charles R. Hogan and Nancy M. Hogan

 



 

Watts Capital Partners, LLC

 

Lucas Venture Group IX, LLC

 

Mitchell J. Milias

 

Alfred W. Mordecai

 

John R. Delfino

 

Jim and Carolyn Milgard Living Trust u/t/d

 

Kenneth Rizzotto

 

James Cullen

 

John David Simpson, Trustee of John David Simpson Trust Dated 12/9/08

 

Gilbert Investments, LLC

 

C. Ted McCarter IRA Bankers Trust Company, Custodian

 

MSSB C/F Gregory C. Robertson

 



 

SCHEDULE B

 

SCHEDULE OF COMMON HOLDERS

 

Himanshu Patel

 

John B. Simpson and Rita Lynn Simpson, Trustees of the Simpson Family Trust Dated 1/12/90

 

John David Simpson, Trustee of John David Simpson Trust Dated 12/9/08

 

Jeffrey Legge

 




Exhibit 10.7

 

LEASE

 

BRITANNIA SEAPORT CENTER

 

HCP LS REDWOOD CITY, LLC,

 

a Delaware limited liability company

 

as Landlord,

 

and

 

AVINGER, INC.,

 

a Delaware corporation,

 

as Tenant.

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

1.

PREMISES, BUILDING, PROJECT, AND COMMON AREAS

4

2.

LEASE TERM; OPTION TERM

6

3.

BASE RENT

8

4.

ADDITIONAL RENT

8

5.

USE OF PREMISES

14

6.

SERVICES AND UTILITIES

19

7.

REPAIRS

20

8.

ADDITIONS AND ALTERATIONS

21

9.

COVENANT AGAINST LIENS

22

10.

INSURANCE

22

11.

DAMAGE AND DESTRUCTION

24

12.

NON-WAIVER

25

13.

CONDEMNATION

26

14.

ASSIGNMENT AND SUBLETTING

26

15.

SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

29

16.

HOLDING OVER

30

17.

ESTOPPEL CERTIFICATES

30

18.

SUBORDINATION

30

19.

DEFAULTS; REMEDIES

31

20.

COVENANT OF QUIET ENJOYMENT

33

21.

SECURITY DEPOSIT

33

22.

SUBSTITUTION OF OTHER PREMISES

34

23.

SIGNS

34

24.

COMPLIANCE WITH LAW

34

25.

LATE CHARGES

35

26.

LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

35

27.

ENTRY BY LANDLORD

35

28.

TENANT PARKING

36

29.

MISCELLANEOUS PROVISIONS

36

 

 

EXHIBITS

 

 

 

A

OUTLINE OF PREMISES

B

INTENTIONALLY OMITTED [BRITANNIA SEAPORT CENTER - TENANT WORK LETTER]

C

FORM OF NOTICE OF LEASE TERM DATES

D

RULES AND REGULATIONS

E

FORM OF TENANT’S ESTOPPEL CERTIFICATE

F

INTENTIONALLY OMITTED

G

ENVIRONMENTAL QUESTIONNAIRE

 

i



 

INDEX

 

 

 

 

Page(s)

 

 

Abatement Event

3

Accountant

3

Additional Rent

3

Advocate Arbitrators

3

Alterations

3

Applicable Laws

3

Bank Prime Loan

3

Base Rent

3

Brokers

3

Builder’s All Risk

3

Building

3

Building Systems

3

Clean-up

3

Closure Letter

3

Common Areas

3

Comparable Buildings

3

Comparable Transactions

3

Concessions

3

Contemplated Effective Date

3

Contemplated Transfer Space

3

Control

3

Direct Expenses

3

Eligibility Period

3

Environmental Assessment

3

Environmental Laws

3

Environmental Questionnaire

3

Environmental Report

3

Estimate

3

Estimated Direct Expenses

3

Estimate Statement

3

Expense Year

3

Fair Rental Value

3

First Class Life Sciences Projects

2

First Offer Notice

3

First Offer Space

3

First Offer Space Lease

3

Force Majeure

3

Fundamental Terms

3

Hazardous Materials

3

Hazardous Materials Claims

3

HVAC

3

Intention to Transfer Notice

3

Landlord

1

Landlord Parties

3

Landlord Repair Notice

3

Landlord Repair Obligation

3

Lease

1

Lease Commencement Date

3

Lease Expiration Date

3

Lease Term

3

Lease Year

3

Lines

3

 

ii



 

INDEX

(Continued)

 

 

Page

 

 

Mail

3

Major Required Repair or Replacement

3

Net Worth

3

Neutral Arbitrator

3

New Improvements

3

Notices

3

Operating Expenses

3

Option Conditions

3

Option Rent

3

Option Term

3

Original Tenant

3

Outside Agreement Date

3

PCBs

3

Permitted Assignee

3

Permitted Transferee

3

Premises

3

Preventative Maintenance Records

3

Prior Lease

3

Project

3

Release or Released or Releases

3

rent

3

Security Deposit

3

Service Contract

3

Statement

3

Subject Space

3

Summary

1

Tax Expenses

3

Tenant

1

Tenant’s Agents

3

Tenant’s Repair Obligations

3

Tenant’s Share

3

Tenant’s Subleasing Costs

3

Transferee

3

Transfer Notice

3

Transfer Premium

3

Transfers

3

TRIPLE NET

3

Underlying Documents

3

worth at the time of award

3

 

iii



 

SEAPORT CENTRE

 

LEASE

 

This Lease (the “ Lease ”), dated as of the date set forth in Section 1 of the Summary of Basic Lease Information (the “ Summary ”), below, is made by and between HCP LS REDWOOD CITY, LLC , a Delaware limited partnership (“ Landlord ”), and AVINGER, INC ., a Delaware corporation (“ Tenant ”).

 

SUMMARY OF BASIC LEASE INFORMATION

 

TERMS OF LEASE

 

DESCRIPTION

 

 

 

 

 

1.

 

Date:

 

July 30, 2010

 

 

 

 

 

2.

 

Premises ( Article 1 ).

 

 

 

 

 

 

 

 

 

2.1                                Building:

 

That certain building containing approximately 19,600 rentable square feet of space located at 400 Chesapeake Drive, Redwood City, California 94063.

 

 

 

 

 

 

 

2.2                                Premises:

 

The entire Building, containing approximately 19,600 rentable square feet of space, as further set forth in Exhibit A to the Lease.

 

 

 

 

 

3.

 

Lease Term ( Article 2 ).

 

 

 

 

 

 

 

 

 

3.1                                Length of Term:

 

Five (5) years.

 

 

 

 

 

 

 

3.2                                Lease Commencement Date:

 

The date upon which this Lease is fully executed and delivered by Landlord and Tenant.

 

 

 

 

 

 

 

3.3                                Rent Commencement Date:

 

The later of (i) December 1, 2010, and (ii) the date the Premises are “Ready for Occupancy”, as defined in the Tenant Work Letter.

 

 

 

 

 

 

 

3.4                                Lease Expiration Date:

 

The day prior to the fifth (5th) anniversary of the Rent Commencement Date.

 



 

4.                                       Base Rent ( Article 3 ):

 

Prior to the Rent Commencement Date, Tenant shall pay Base Rent for to the Premises in the amount of $19,040.00 per month (which was the amount due and owing for such period under the “Prior Lease”, as that term is defined in Section 1.3 of the Lease.  Commencing on the Rent Commencement Date, and continuing through the Lease Term, Tenant shall pay Base Rent for the Premises in the amounts set forth below.

 

Lease Year

 

Annual Base Rent

 

Monthly
Installment
of Base Rent

 

Monthly Base
Rent
per Rentable
Square Foot

 

1*

 

$

442,176.00

 

$

36,848.00

 

$

1.88

 

2

 

$

455,441.28

 

$

37,953.44

 

$

1.9364

 

3

 

$

469,106.40

 

$

39,092.20

 

$

1.9945

 

4

 

$

483,171.36

 

$

40,264.28

 

$

2.0543

 

5

 

$

497,683.20

 

$

41,473.60

 

$

2.1160

 

 


*Note: Notwithstanding the amounts set forth in the chart above, during the first six (6) months of the Lease Term, monthly Base Rent for the Premises shall be as set forth below:

 

Month 1:  $19,040.00.

 

Months 2 and 3:  $21,808.00

 

Months 4 through 6:  $28,200.00

 

5.

 

Tenant Improvement Allowance:

 

None, but Landlord shall construct the Tenant Improvements in the Premises in accordance with the terms of the Tenant Work Letter attached hereto as Exhibit B .

 

 

 

 

 

6.

 

NNN Lease

 

In addition to the Base Rent, Tenant shall be responsible to pay Tenant’s Share of Direct Expenses in accordance with the terms of Article 4 of the Lease.

 

 

 

 

 

7.

 

Tenant’s Share ( Article 4 ):

 

100% of the Building.

 

 

 

 

 

8.

 

Permitted Use ( Article 5 ):

 

The Premises shall be used only for general office, research and development, engineering, laboratory, manufacturing, storage and/or warehouse uses, including, but not limited to, administrative offices and other lawful uses reasonably related to or incidental to such specified uses, all (i) consistent with first class life sciences projects in the Redwood City, California area (“ First Class Life Sciences Projects ”), and (ii) in compliance with, and subject to, applicable laws and the terms of this Lease.

 

 

 

 

 

9.

 

Security Deposit ( Article 21 ):

 

$82,947.20

 

2



 

10.

 

Parking Pass Ratio ( Article 28 ):

 

Three (3) unreserved parking spaces for every 1,000 rentable square feet of the Premises, subject to the terms of Article 28 of the Lease.

 

 

 

 

 

11.

 

Address of Tenant ( Section 29.18 ):

 

Avinger, Inc.

400 Chesapeake Drive

Redwood City, California 94063

Attention:                                                 

 

 

 

 

 

12.

 

Address of Landlord ( Section 29.18 ):

 

See Section 29.18 of the Lease.

 

 

 

 

 

13.

 

Broker(s) ( Section 29.24 ):

 

Cornish & Carey and CB Richard Ellis.

 

3


 

1.                                       PREMISES, BUILDING, PROJECT, AND COMMON AREAS

 

1.1                                Premises, Building, Project and Common Areas .

 

1.1.1                      The Premises .  Landlord hereby leases to Tenant and Tenant hereby leases from Landlord the premises set forth in Section 2.2 of the Summary (the “ Premises ”).  The outline of the Premises is set forth in Exhibit A attached hereto and each floor or floors of the Premises has the number of rentable square feet as set forth in Section 2.2 of the Summary, which shall not be changed except in connection with a change in the physical size of the Premises.  The parties hereto agree that the lease of the Premises is upon and subject to the terms, covenants and conditions herein set forth, and Tenant covenants as a material part of the consideration for this Lease to keep and perform each and all of such terms, covenants and conditions by it to be kept and performed and that this Lease is made upon the condition of such performance.  The parties hereto hereby acknowledge that the purpose of Exhibit A is to show the approximate location of the Premises in the “Building,” as that term is defined in Section 1.1.2 , below, only, and such Exhibit is not meant to constitute an agreement, representation or warranty as to the construction of the Premises, the precise area thereof or the specific location of the “Common Areas,” as that term is defined in Section 1.1.3 , below, or the elements thereof or of the accessways to the Premises or the “Project,” as that term is defined in Section 1.1.2 , below.  Tenant shall accept the Premises in its presently existing “as-is” condition and Landlord shall not be obligated to provide or pay for any improvement work or services related to the improvement of the Premises except as otherwise expressly set forth in this Lease or in the Tenant Work Letter attached hereto as Exhibit B .  Landlord shall cause the plumbing, electrical systems, fire sprinkler system, lighting, air conditioning and heating systems and all other building systems serving the Premises, including the roof membrane to be in good operating condition and repair as of the Lease Commencement Date ( provided that Tenant acknowledges that any required repairs to the roof membrane may not be completed until December 31, 2010, which shall not affect the occurrence of the Lease Commencement Date).  Any failure of the Premises to be in such condition on delivery shall be remedied by Landlord at Landlord’s sole cost and expense provided that Tenant notifies Landlord of such failure within one hundred eighty (180) days following the Lease Commencement Date.

 

1.1.2                      The Building and The Project .  The Premises are a part of the building set forth in Section 2.1 of the Summary (the “ Building ”).  The term “ Project ,” as used in this Lease, shall mean (i) the Building and the Common Areas, (ii) the land (which is improved with landscaping, parking facilities and other improvements) upon which the Building and the Common Areas are located, (iii) the other buildings located in the project known as “Brittania Seaport Centre”, and the land upon which such adjacent buildings are located, and (iv) at Landlord’s discretion, any additional real property, areas, land, buildings or other improvements added thereto outside of the Project.

 

1.1.3                      Common Areas .  Tenant shall have the non-exclusive right to use in common with other tenants in the Project, and subject to the rules and regulations referred to in Article 5 of this Lease, those portions of the Project which are provided, from time to time, for use in common by Landlord, Tenant and any other tenants of the Project (such areas, together with such other portions of the Project designated by Landlord, in its discretion, including certain areas designated for the exclusive use of certain tenants, or to be shared by Landlord and certain tenants, are collectively referred to herein as the “ Common Areas ”).  The manner in which the Common Areas are maintained and operated shall be at the sole discretion of Landlord and the use thereof shall be subject to such rules, regulations and restrictions as Landlord may make from time to time.  Landlord reserves the right to close temporarily, make alterations or additions to, or change the location of elements of the Project and the Common Areas, provided that, in connection therewith, Landlord shall perform such closures, alterations, additions or changes in a commercially reasonable manner and, in connection therewith, shall use commercially reasonable efforts to minimize any material interference with Tenant’s use of and access to the Premises, and shall not reduce the number of parking spaces available to Tenant.

 

1.2                                Stipulation of Rentable Square Feet of Premises .  For purposes of this Lease, “rentable square feet” of the Premises shall be deemed as set forth in Section 2.2 of the Summary.

 

1.3                                Prior Lease .  Tenant has been occupying a portion of the Premises pursuant to that certain direct lease (the “ Prior Lease ”), comprised of that certain Sublease Agreement dated June 16, 2008 between Rubicor Medical, Inc., a Delaware Corporation, and Sawtooth Labs, LLC (predecessor in interest to Tenant), converted to a direct lease by letter

 

4



 

dated January 26, 2010.  Effective as of the Lease Commencement Date, the Prior Lease shall be terminated and of no further force or effect, provided that Tenant shall remain liable for all amounts due under the Prior Lease with respect to the period prior to the Lease Commencement Date.

 

1.4                                Right of First Offer .

 

1.4.1                      Right of First Offer .  Subject to the terms and conditions of this Section 1.4 , Landlord hereby grants to the Tenant originally named in this Lease (the “ Original Tenant ”), a one-time right of first offer with respect to all of the space in the building located at 600 Chesapeake Drive (the “ First Offer Space ”).  Notwithstanding anything contained in this Section 1.4 to the contrary, Tenant’s right of first offer under this Section 1.4 shall be subject and subordinate to all of the rights of the existing tenant of the First Offer Space, Rubicor Medical, LLC, and to any extension of the existing lease of the First Offer Space.

 

1.4.2                      Procedure for Lease .

 

1.4.2.1            Procedure for Offer .  Subject to the terms hereof, Landlord shall notify Tenant (the “ First Offer Notice ”) prior to entering into any lease with a third party for the First Offer Space, which notice shall include base rent, allowance amounts if any, and length of teen for Landlord would be willing to lease the First Offer Space (the “ Fundamental Terms ”).  Pursuant to such First Offer Notice, Landlord shall offer to lease to Tenant the applicable First Offer Space on the Fundamental Terms.

 

1.4.2.2            Procedure for Acceptance .  If Tenant wishes to exercise Tenant’s right of first offer with respect to the First Offer Space described in the First Offer Notice, then within ten (10) days after delivery of the First Offer Notice to Tenant, Tenant shall deliver notice to Landlord of Tenant’s irrevocable exercise of its right of first offer with respect to all of the First Offer Space described in the First Offer Notice on the Fundamental Terms provided for therein.  If Tenant does not so notify Landlord within such ten (10) day period of Tenant’s exercise of its first offer right, then Landlord shall be free to negotiate and enter into a lease for the First Offer Space to anyone whom it desires on terms that, on a net effective basis, are not more than five percent (5%) more favorable to the tenant than the Fundamental Terms provided in the First Offer Notice.  Prior to entering into a lease on terms more than 10% more favorable than the Fundamental Terms, Landlord shall first re-offer such space to Tenant on such more favorable terms, as provided in this Section 1.4 .

 

1.4.2.3            Construction In First Offer Space .  Subject to the Fundamental Terms provided to Tenant for the First Offer Space, Tenant shall take the First Offer Space in its “as is” condition, and Landlord shall not be obligated to provide or pay for any improvement of the First Offer Space.

 

1.4.2.4            Lease of First Offer Space .  If Tenant timely exercises Tenant’s right of first offer to lease First Offer Space as set forth herein, Landlord and Tenant shall within thirty (30) days thereafter enter into a new and separate lease (the “ First Offer Space Lease ”) for such First Offer Space pursuant to this Section 1.4 .  Tenant’s lease of such First Offer Space shall be upon the express terms set forth in the First Offer Notice, but otherwise upon the same general terms and conditions set forth in this Lease and this Section 1.4 .  The First Offer Space Lease shall not contain the rights set forth in Section 2.2 , below, unless such rights were set forth in the First Offer Notice.  The term of Tenant’s lease of the First Offer Space shall commence and terminate on the dates set forth in the First Offer Notice.

 

1.4.2.5            Termination of First Offer Right .  The rights contained in this Section 1.4 shall be personal to the Original Tenant and may only be exercised if the Original Tenant then directly occupies at least seventy five percent (75%) of the Premises.  The right to lease First Offer Space as provided in this Section 1.4 may not be exercised if, as of the date of the attempted exercise of the expansion option by Tenant, or, at Landlord’s option, as of the scheduled date of delivery of such First Offer Space to Tenant, Tenant is in default under this Lease, beyond any applicable notice and cure period.  The right to lease First Offer Space shall terminate (i) at such time as Landlord is no longer the owner of the First Offer Space, and (ii) if Tenant does not elect to lease the First Offer Space following Landlord’s delivery of a First Offer Notice to Tenant (subject to the terms of Section 1.4.2.2 , above).

 

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2.                                       LEASE TERM; OPTION TERM

 

2.1                                Lease Term .  The terms and provisions of this Lease shall be effective as of the date of this Lease.  The term of this Lease (the “ Lease Term ”) shall be as set forth in Section 3.1 of the Summary, shall commence on the date set forth in Section 3.2 of the Summary (the “ Lease Commencement Date ”), and shall terminate on the date set forth in Section 3.3 of the Summary (the “ Lease Expiration Date ”) unless this Lease is sooner terminated as hereinafter provided.  For purposes of this Lease, the term “ Lease Year ” shall mean each consecutive twelve (12) month period during the Lease Term, provided that the first Lease Year shall commence on the Lease Commencement Date, and end as of the end of the twelfth (12th) month following the Rent Commencement Date.  At any time during the Lease Term, Landlord may deliver to Tenant a notice in the form as set forth in Exhibit C , attached hereto, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within ten (10) business days of receipt thereof

 

2.2                                Option Term .

 

2.2.1                      Option Right .  Landlord hereby grants to the originally named Tenant herein (“ Original Tenant ”), and its “Permitted Assignees”, as that term is defined in Section 14.8 , below, two (2) options to extend the Lease Term for a period of three (3) years (each, an “ Option Term ”), which option shall be irrevocably exercised only by written notice delivered by Tenant to Landlord not more than twelve (12) months nor less than nine (9) months prior to the expiration of the initial Lease Term or initial Option Term, as applicable, provided that the following conditions (the “ Option Conditions ”) are satisfied: (i) as of the date of delivery of such notice, Tenant is not in default under this Lease, after the expiration of any applicable notice and cure period; (ii) as of the end of the Lease Term, Tenant is not in default under this Lease, after the expiration of any applicable notice and cure period; (iii) Tenant has not previously been in default under this Lease, after the expiration of any applicable notice and cure period, more than twice; and (iv) the Lease then remains in full force and effect and Original Tenant or a Permitted Assignee occupies the entire Premises at the time the option to extend is exercised and as of the commencement of the Option Term.  Landlord may, at Landlord’s option, exercised in Landlord’s sole and absolute discretion, waive any of the Option Conditions in which case the option, if otherwise properly exercised by Tenant, shall remain in full force and effect.  Upon the proper exercise of such option to extend, and provided that Tenant satisfies all of the Option Conditions (except those, if any, which are waived by Landlord), the Lease Term, as it applies to the Premises, shall be extended for a period of three (3) years.  The rights contained in this Section 2.2 shall be personal to Original Tenant and any Permitted Assignees, and may be exercised by Original Tenant or such Permitted Assignees (and not by any assignee, sublessee or other “Transferee,” as that term is defined in Section 14.1 of this Lease, of Tenant’s interest in this Lease).

 

2.2.2                      Option Rent .  The Base Rent payable by Tenant during the first (1st) year of the Option Term (the “ Option Rent ”) shall be equal to the greater of (i) 103% of the Base Rent payable during the final month of the initial Lease Term, and (ii) the “Fair Rental Value,” as that term is defined below, for the Premises as of the commencement date of the Option Term.  The Option Rent shall thereafter increase during the Option Term by three percent (3%) per year.  The “ Fair Rental Value ,” as used in this Lease, shall be equal to the annual rent per rentable square foot (including additional rent and considering any “base year” or “expense stop” applicable thereto), including all escalations, at which tenants (pursuant to leases consummated within the twelve (12) month period preceding the first day of the Option Term), are leasing non-sublease, non-encumbered, non-equity space which is not significantly greater or smaller in size than the subject space, for a comparable lease term, in an arm’s length transaction, which comparable space is located in the “ Comparable Buildings ,” as that term is defined in this Section 2.2.2 , below (transactions satisfying the foregoing criteria shall be known as the “ Comparable Transactions ”), taking into consideration the following concessions (the “ Concessions ”): (a) rental abatement concessions, if any, being granted such tenants in connection with such comparable space; (b) tenant improvements or allowances provided or to be provided for such comparable space, and taking into account the value, if any, of the existing improvements in the subject space (other than improvements installed by Tenant at Tenant’s sole cost and expense), such value to be based upon the age, condition, design, quality of finishes and layout of the improvements and the extent to which the same can be utilized by a general office user other than Tenant; and (c) other reasonable monetary concessions being granted such tenants in connection with such comparable space.  The Fair Rental Value shall additionally include a determination as to whether, and if so to what extent, Tenant must provide Landlord with financial security, such as a letter of credit or guaranty, for Tenant’s

 

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Rent obligations in connection with Tenant’s lease of the Premises during the Option Term.  Such determination shall be made by reviewing the extent of financial security then generally being imposed in Comparable Transactions from tenants of comparable financial condition and credit history to the then existing financial condition and credit history of Tenant (with appropriate adjustments to account for differences in the then-existing financial condition of Tenant and such other tenants).  The Concessions (A) shall be reflected in the effective rental rate (which effective rental rate shall take into consideration the total dollar value of such Concessions as amortized on a straight-line basis over the applicable term of the Comparable Transaction (in which case such Concessions evidenced in the effective rental rate shall not be granted to Tenant)) payable by Tenant, or (B) at Landlord’s election, all such Concessions shall be granted to Tenant in kind.  The term “ Comparable Buildings ” shall mean the Building and those other class A life sciences buildings which are comparable to the Building in terms of age (based upon the date of completion of construction or major renovation of to the building), quality of construction, level of services and amenities, size and appearance, and are located in Redwood City, California and the surrounding commercial area.

 

2.2.3                      Determination of Option Rent .  In the event Tenant timely and appropriately exercises an option to extend the Lease Term, Landlord shall notify Tenant of Landlord’s determination of the Option Rent on or before the Lease Expiration Date.  If Tenant, on or before the date which is ten (10) days following the date upon which Tenant receives Landlord’s determination of the Option Rent, in good faith objects to Landlord’s determination of the Option Rent, then Landlord and Tenant shall attempt to agree upon the Option Rent using their best good-faith efforts.  If Landlord and Tenant fail to reach agreement within ten (10) days following Tenant’s objection to the Option Rent (the “ Outside Agreement Date ”), then each party shall make a separate determination of the Option Rent, as the case may be, within five (5) days, and such determinations shall be submitted to arbitration in accordance with Sections 2.2.3.1 through 2.2.3.7 , below.  If Tenant fails to object to Landlord’s determination of the Option Rent within the time period set forth herein, then Tenant shall be deemed to have objected to Landlord’s determination of Option Rent.

 

2.2.3.1            Landlord and Tenant shall each appoint one arbitrator who shall be, at the option of the appointing party, a real estate broker, appraiser or attorney who shall have been active over the five (5) year period ending on the date of such appointment in the leasing or appraisal, as the case may be, of other class A life sciences buildings located in the Redwood City market area.  The determination of the arbitrators shall be limited solely to the issue of whether Landlord’s or Tenant’s submitted Option Rent is the closest to the actual Option Rent, taking into account the requirements of Section 2.2.2 of this Lease, as determined by the arbitrators.  Each such arbitrator shall be appointed within fifteen (15) days after the Outside Agreement Date.  Landlord and Tenant may consult with their selected arbitrators prior to appointment and may select an arbitrator who is favorable to their respective positions.  The arbitrators so selected by Landlord and Tenant shall be deemed “ Advocate Arbitrators .”

 

2.2.3.2            The two (2) Advocate Arbitrators so appointed shall be specifically required pursuant to an engagement letter within ten (10) days of the date of the appointment of the last appointed Advocate Arbitrator to agree upon and appoint a third arbitrator (“ Neutral Arbitrator ”) who shall be qualified under the same criteria set forth hereinabove for qualification of the two Advocate Arbitrators, except that neither the Landlord or Tenant or either parties’ Advocate Arbitrator may, directly or indirectly, consult with the Neutral Arbitrator prior or subsequent to his or her appearance.  The Neutral Arbitrator shall be retained via an engagement letter jointly prepared by Landlord’s counsel and Tenant’s counsel.

 

2.2.3.3            The three arbitrators shall, within thirty (30) days of the appointment of the Neutral Arbitrator, reach a decision as to whether the parties shall use Landlord’s or Tenant’s submitted Option Rent, and shall notify Landlord and Tenant thereof.

 

2.2.3.4            The decision of the majority of the three arbitrators shall be binding upon Landlord and Tenant.

 

2.2.3.5            If either Landlord or Tenant fails to appoint an Advocate Arbitrator within fifteen (15) days after the Outside Agreement Date, then either party may petition the presiding judge of the Superior Court of San Mateo County to appoint such Advocate Arbitrator subject to the criteria in Section 2.2.3.1 of this Lease, or if he or

 

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she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such Advocate Arbitrator.

 

2.2.3.6            If the two (2) Advocate Arbitrators fail to agree upon and appoint the Neutral Arbitrator, then either party may petition the presiding judge of the Superior Court of San Mateo County to appoint the Neutral Arbitrator, subject to criteria in Section 2.2.3.12 of this Lease, or if he or she refuses to act, either party may petition any judge having jurisdiction over the parties to appoint such arbitrator.

 

2.2.3.7            The cost of the arbitration shall be paid by Landlord and Tenant equally.

 

2.2.3.8            In the event that the Option Rent shall not have been determined pursuant to the terms hereof prior to the commencement of the Option Term, Tenant shall be required to pay the Option Rent initially provided by Landlord to Tenant, and upon the final determination of the Option Rent, the payments made by Tenant shall be reconciled with the actual amounts of Option Rent due, and the appropriate party shall make any corresponding payment to the other party.

 

3.                                       BASE RENT

 

Tenant shall pay, without prior notice or demand, to Landlord or Landlord’s agent at the management office of the Project, or, at Landlord’s option, at such other place as Landlord may from time to time designate in writing, by a check for currency which, at the time of payment, is legal tender for private or public debts in the United States of America, base rent (“ Base Rent ”) as set forth in Section 4 of the Summary, payable in equal monthly installments as set forth in Section 4 of the Summary in advance on or before the first day of each and every calendar month during the Lease Term, without any setoff or deduction whatsoever.  If any Rent payment date (including the Lease Commencement Date) falls on a day of the month other than the first day of such month or if any payment of Rent is for a period which is shorter than one month, the Rent for any fractional month shall accrue on a daily basis for the period from the date such payment is due to the end of such calendar month or to the end of the Lease Term at a rate per day which is equal to 1/365 of the applicable annual Rent.  All other payments or adjustments required to be made under the terms of this Lease that require proration on a time basis shall be prorated on the same basis.

 

4.                                       ADDITIONAL RENT

 

4.1                                General Terms .  In addition to paying the Base Rent specified in Article 3 of this Lease, Tenant shall pay “ Tenant’s Share ” of the annual “ Direct Expenses ,” as those terms are defined in Sections 4.2.6 and 4.2.2   of this Lease, respectively.  Such payments by Tenant, together with any and all other amounts payable by Tenant to Landlord pursuant to the terms of this Lease, are hereinafter collectively referred to as the “ Additional Rent ”, and the Base Rent and the Additional Rent are herein collectively referred to as “ Rent .” All amounts due under this Article 4 as Additional Rent shall be payable for the same periods and in the same manner as the Base Rent.  Without limitation on other obligations of Tenant which survive the expiration of the Lease Term, the obligations of Tenant to pay the Additional Rent provided for in this Article 4 shall survive the expiration of the Lease Term.

 

4.2                                Definitions of Key Terms Relating to Additional Rent .  As used in this Article 4 , the following terms shall have the meanings hereinafter set forth:

 

4.2.1                      Intentionally Omitted.

 

4.2.2                      Direct Expenses ” shall mean “ Operating Expenses ” and “ Tax Expenses .”

 

4.2.3                      Expense Year ” shall mean each calendar year in which any portion of the Lease Term falls, through and including the calendar year in which the Lease Term expires, provided that Landlord, upon notice to Tenant, may change the Expense Year from time to time to any other twelve (12) consecutive month period, and, in the event of

 

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any such change, Tenant’s Share of Direct Expenses shall be equitably adjusted for any Expense Year involved in any such change.

 

4.2.4                      Operating Expenses ” shall mean all expenses, costs and amounts of every kind and nature which Landlord pays or accrues during any Expense Year because of or in connection with the ownership, management, maintenance, security, repair, replacement, restoration or operation of the Project, or any portion thereof.  Without limiting the generality of the foregoing, Operating Expenses shall specifically include any and all of the following: (i) the cost of supplying all utilities, the cost of operating, repairing, maintaining, and renovating the utility, telephone, mechanical, sanitary, storm drainage, and elevator systems, and the cost of maintenance and service contracts in connection therewith; (ii) the cost of licenses, certificates, permits and inspections and the cost of contesting any governmental enactments which may affect Operating Expenses, and the costs incurred in connection with a governmentally mandated transportation system management program or similar program; (iii) the cost of premiums for all insurance carried by Landlord in connection with the Project as reasonably determined by Landlord; (iv) the cost of landscaping, relamping, and all supplies, tools, equipment and materials used in the operation, repair and maintenance of the Project, or any portion thereof; (v) the cost of parking area operation, repair, restoration, and maintenance; (vi) fees and other costs, including management and/or incentive fees, consulting fees, legal fees and accounting fees, of all contractors and consultants in connection with the management, operation, maintenance and repair of the Project; (vii) payments under any equipment rental agreements and the fair rental value of any management office space; (viii) subject to item (f), below, wages, salaries and other compensation and benefits, including taxes levied thereon, of all persons engaged in the operation, maintenance and security of the Project; (ix) costs under any instrument pertaining to the sharing of costs by the Project; (x) operation, repair, maintenance and replacement of all systems and equipment and components thereof of the Project ( provided that any capital expenditure shall be amortized as provided in item (xiii), below); (xi) the cost of janitorial, alarm, security and other services, replacement of wall and floor coverings, ceiling tiles and fixtures in common areas, maintenance and replacement of curbs and walkways, repair to roofs and re-roofing ( provided that any capital expenditure shall be amortized as provided in item (xiii), below); (xii) amortization (including reasonable interest on the unamortized cost) over such period of time as Landlord shall reasonably determine, of the cost of acquiring or the rental expense of personal property used in the maintenance, operation and repair of the Project, or any portion thereof; (xiii) the cost of capital improvements or other costs incurred in connection with the Project (A) which are intended to reduce expenses in the operation or maintenance of the Project, or any portion thereof, or to reduce current or future Operating Expenses or to enhance the safety or security of the Project or its occupants, (B) that are required to comply with present or anticipated mandatory conservation programs, (C) which are replacements or modifications of nonstructural items, including any systems or equipment serving the Premises, or (D) that are required under any governmental law or regulation that was not in force or effect as of the Commencement Date; provided , however , that any capital expenditure shall be amortized (including reasonable interest on the amortized cost as reasonably determined by Landlord) over the reasonable useful life of such item; and (xiv) costs, fees, charges or assessments imposed by, or resulting from any mandate imposed on Landlord by, any federal, state or local government for fire and police protection, trash removal, community services, or other services which do not constitute “Tax Expenses” as that term is defined in Section 4.2.5 , below, and (xv) payments under any easement, license, operating agreement, declaration, restrictive covenant, or instrument pertaining to the sharing of costs by the Building, including, without limitation, any covenants, conditions and restrictions affecting the property, and reciprocal easement agreements affecting the property, any parking licenses, and any agreements with transit agencies affecting the Property (collectively, “ Underlying Documents ”).  Costs incurred as a result of insurance deductible amounts shall be included in Operating Expenses only in the manner provided in this Section 4.2.4 , and only to the extent otherwise allowed to be included in Operating Expenses by this Section 4.2.4 .  Notwithstanding the foregoing, for purposes of this Lease, Operating Expenses shall not, however, include:

 

(a)                                  costs, including legal fees, space planners’ fees, advertising and promotional expenses, and brokerage fees incurred in connection with the original construction or development, or original or future leasing of the Project, and costs, including permit, license and inspection costs, incurred with respect to the installation of tenant improvements made for new tenants initially occupying space in the Project after the Lease Commencement Date or incurred in renovating or otherwise improving, decorating, painting or redecorating vacant space for tenants or other occupants of the Project (excluding, however, such costs relating to any common areas of the Project or parking facilities);

 

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(b)                                  except as set forth in items (xii), (xiii), and (xiv) above, and except for the amortization of any “Major Required Repair or Replacement” as defined in Section 7.1 , below, depreciation, interest and principal payments on mortgages and other debt costs, if any, penalties and interest, costs of capital repairs, replacements and alterations, and costs of capital improvements and equipment;

 

(c)                                   costs for which the Landlord is reimbursed by any tenant or occupant of the Project or by insurance by its carrier or any tenant’s carrier or by anyone else, and electric power costs for which any tenant directly contracts with the local public service company;

 

(d)                                  any bad debt loss, rent loss, or reserves for bad debts or rent loss;

 

(e)                                   costs associated with the operation of the business of the partnership or entity which constitutes the Landlord, as the same are distinguished from the costs of operation of the Project (which shall specifically include, but not be limited to, accounting costs associated with the operation of the Project).  Costs associated with the operation of the business of the partnership or entity which constitutes the Landlord include costs of partnership accounting and legal matters, costs of defending any lawsuits with any mortgagee (except as the actions of the Tenant may be in issue), costs of selling, syndicating, financing, mortgaging or hypothecating any of the Landlord’s interest in the Project, and costs incurred in connection with any disputes between Landlord and its employees, between Landlord and Project management, or between Landlord and other tenants or occupants;

 

(f)                                    the wages and benefits of any employee who does not devote substantially all of his or her employed time to the Project unless such wages and benefits are prorated to reflect time spent on operating and managing the Project vis-a-vis time spent on matters unrelated to operating and managing the Project; provided , that in no event shall Operating Expenses for purposes of this Lease include wages and/or benefits attributable to personnel above the level of Project manager;

 

(g)                                   amount paid as ground rental for the Project by the Landlord;

 

(h)                                  except for a Project management fee to the extent allowed pursuant to item (v) below, overhead and profit increment paid to the Landlord or to subsidiaries or affiliates of the Landlord for services in the Project to the extent the same exceeds the costs of such services rendered by qualified, first-class unaffiliated third parties on a competitive basis;

 

(i)                                      any compensation paid to clerks, attendants or other persons in commercial concessions operated by the Landlord, provided that any compensation paid to any concierge at the Project shall be includable as an Operating Expense;

 

(j)                                     rentals and other related expenses incurred in leasing air conditioning systems, elevators or other equipment which if purchased the cost of which would be excluded from Operating Expenses as a capital cost, except equipment not affixed to the Project which is used in providing janitorial or similar services and, further excepting from this exclusion such equipment rented or leased to remedy or ameliorate an emergency condition in the Project;

 

(k)                                  all items and services for which Tenant or any other tenant in the Project reimburses Landlord or which Landlord provides selectively to one or more tenants (other than Tenant) without reimbursement;

 

(l)                                      any costs expressly excluded from Operating Expenses elsewhere in this Lease;

 

(m)                              rent for any office space occupied by Project management personnel to the extent the size or rental rate of such office space exceeds the size or fair market rental value of office space occupied by management personnel of the comparable buildings in the vicinity of the Building, with adjustment where appropriate for the size of the applicable project;

 

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(n)                                  costs incurred to comply with laws relating to the removal of hazardous material (as defined under applicable law) which was in existence in the Building or on the Project prior to the Lease Commencement Date, and was of such a nature that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions that it then existed in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto; and costs incurred to remove, remedy, contain, or treat hazardous material, which hazardous material is brought into the Building or onto the Project after the date hereof by Landlord or any other tenant of the Project and is of such a nature, at that time, that a federal, State or municipal governmental authority, if it had then had knowledge of the presence of such hazardous material, in the state, and under the conditions, that it then exists in the Building or on the Project, would have then required the removal of such hazardous material or other remedial or containment action with respect thereto;

 

(o)                                  the cost of special services, goods or materials provided to any other tenant of the Project, and not provided to Tenant;

 

(p)                                  repairs, alterations, additions, improvements or replacements needed to rectify or correct any defects in the original design, construction, materials or workmanship of the Project or common areas;

 

(q)                                  Landlord’s general overhead expenses not related to the Project;

 

(r)                                     legal fees, accountants’ fees (other than normal bookkeeping expenses) and other expenses incurred in connection with disputes of tenants or other occupants of the Project or associated with the enforcement of the terms of any leases with tenants or the defense of Landlord’s title to or interest in the Project or any part thereof;

 

(s)                                    costs incurred due to a violation by Landlord or any other tenant of the Project of the terms and conditions of a lease;

 

(t)                                     self-insurance retentions;

 

(u)                                  any reserve funds; and

 

(v)                                  any management fees in excess of the greater of (i) those fees typically charged by owners of comparable buildings in Redwood City, California, and (ii) three percent (3%) of gross revenues.

 

If Landlord is not furnishing any particular work or service (the cost of which, if performed by Landlord, would be included in Operating Expenses) to a tenant who has undertaken to perform such work or service in lieu of the performance thereof by Landlord, Operating Expenses shall be deemed to be increased by an amount equal to the additional Operating Expenses which would reasonably have been incurred during such period by Landlord if it had at its own expense furnished such work or service to such tenant.  If the Project is not at least one hundred percent (100%) occupied during all or a portion of any Expense Year, Landlord shall make an appropriate adjustment to the components of Operating Expenses which vary in accordance with occupancy levels for such year to determine the amount of Operating Expenses that would have been incurred had the Project been one hundred percent (100%) occupied; and the amount so determined shall be deemed to have been the amount of Operating Expenses for such year.

 

4.2.5                      Taxes .

 

4.2.5.1            Tax Expenses ” shall mean all federal, state, county, or local governmental or municipal taxes, fees, charges or other impositions of every kind and nature, whether general, special, ordinary or extraordinary (including, without limitation, real estate taxes, general and special assessments, transit taxes, leasehold taxes or taxes based upon the receipt of rent, including gross receipts or sales taxes applicable to the receipt of rent, unless required to be paid by Tenant, personal property taxes imposed upon the fixtures, machinery, equipment,

 

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apparatus, systems and equipment, appurtenances, furniture and other personal property used in connection with the Project, or any portion thereof), which shall be paid or accrued during any Expense Year (without regard to any different fiscal year used by such governmental or municipal authority) because of or in connection with the ownership, leasing and operation of the Project, or any portion thereof.

 

4.2.5.2            Tax Expenses shall include, without limitation: (i) Any tax on the rent, right to rent or other income from the Project, or any portion thereof, or as against the business of leasing the Project, or any portion thereof; (ii) Any assessment, tax, fee, levy or charge in addition to, or in substitution, partially or totally, of any assessment, tax, fee, levy or charge previously included within the definition of real property tax; (iii) Any assessment, tax, fee, levy, or charge allocable to or measured by the area of the Premises or the Rent payable hereunder, including, without limitation, any business or gross income tax or excise tax with respect to the receipt of such rent, or upon or with respect to the possession, leasing, operating, management, maintenance, alteration, repair, use or occupancy by Tenant of the Premises, or any portion thereof; and (iv) Any assessment, tax, fee, levy or charge, upon this transaction or any document to which Tenant is a party, creating or transferring an interest or an estate in the Premises or the improvements thereon.

 

4.2.5.3            Any costs and expenses (including, without limitation, reasonable attorneys’ and consultants’ fees) incurred in attempting to protest, reduce or minimize Tax Expenses shall be included in Tax Expenses in the Expense Year such expenses are incurred.  Tax refunds shall be credited against Tax Expenses and refunded to Tenant regardless of when received, based on the Expense Year to which the refund is applicable, provided that in no event shall the amount to be refunded to Tenant for any such Expense Year exceed the total amount paid by Tenant as Additional Rent under this Article 4 for such Expense Year.  The foregoing sentence shall survive the expiration or earlier termination of this Lease.  If Tax Expenses for any period during the Lease Term or any extension thereof are increased after payment thereof for any reason, including, without limitation, error or reassessment by applicable governmental or municipal authorities, Tenant shall pay Landlord upon demand Tenant’s Share of any such increased Tax Expenses.  Notwithstanding anything to the contrary contained in this Section 4.2.5 , there shall be excluded from Tax Expenses (i) all excess profits taxes, franchise taxes, gift taxes, capital stock taxes, inheritance and succession taxes, estate taxes, transfer tax or fee, federal and state income taxes, and other taxes to the extent applicable to Landlord’s general or net income (as opposed to rents, receipts or income attributable to operations at the Project), (ii) any items included as Operating Expenses, and (iii) any items paid by Tenant under Section 4.5 of this Lease.

 

4.2.6                      Tenant’s Share ” shall mean the percentage set forth in Section 7 of the Summary.

 

4.3                                Allocation of Direct Expenses .  The parties acknowledge that the Building is a part of a multi-building project and that the costs and expenses incurred in connection with the Project (i.e., the Direct Expenses) should be shared between the tenants of the Building and the tenants of the other buildings in the Project.  Accordingly, as set forth in Section 4.2 above, Direct Expenses (which consist of Operating Expenses and tax Expenses) are determined annually for the Project as a whole, and a portion of the Direct Expenses, which portion shall be determined by Landlord on an equitable basis, shall be allocated to the Building (as opposed to other buildings in the Project).  Such portion of Direct Expenses allocated to the Building shall include all Direct Expenses attributable solely to the Building and an equitable portion of the Direct Expenses attributable to the Project as a whole.

 

4.4                                Calculation and Payment of Additional Rent .  In the event Tenant extends the Lease Term, pursuant to Section 2.2 , above, or otherwise, then Tenant shall pay to Landlord, in the manner set forth in Section 4.4.1 , below, and as Additional Rent, Tenant’s Share of Direct Expenses for each Expense Year.

 

4.4.1                      Statement of Actual Direct Expenses and Payment by Tenant .  Landlord shall endeavor to give to Tenant within six (6) months following the end of each Expense Year, a statement (the “ Statement ”) which shall state the Direct Expenses incurred or accrued for such preceding Expense Year, and which shall indicate the amount of Tenant’s Share of Direct Expenses.  Upon receipt of the Statement for each Expense Year commencing or ending during the Lease Term, Tenant shall pay, with its next installment of Base Rent due, the full amount of Tenant’s Share of Direct Expenses for such Expense Year, less the amounts, if any, paid during such Expense Year as “ Estimated Direct Expenses ,” as that term is defined in Section 4.4.2 , below, and if Tenant paid more as Estimated Direct Expenses than

 

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the actual Tenant’s Share of Direct Expenses, Tenant shall receive a credit in the amount of Tenant’s overpayment against Rent next due under this Lease.  The failure of Landlord to timely furnish the Statement for any Expense Year shall not prejudice Landlord or Tenant from enforcing its rights under this Article 4 .  Even though the Lease Term has expired and Tenant has vacated the Premises, when the final determination is made of Tenant’s Share of Direct Expenses for the Expense Year in which this Lease terminates, Tenant shall pay to Landlord such amount within thirty (30) days, and if Tenant paid more as Estimated Direct Expenses than the actual Tenant’s Share of Direct Expenses, Landlord shall, within thirty (30) days, deliver a check payable to Tenant in the amount of the overpayment.  The provisions of this Section 4.4.1 shall survive the expiration or earlier termination of the Lease Term.  Notwithstanding the immediately preceding sentence, Tenant shall not be responsible for Tenant’s Share of any Direct Expenses attributable to any Expense Year which are first billed to Tenant more than two (2) calendar years after the earlier of the expiration of the applicable Expense Year or the Lease Expiration Date, provided that in any event Tenant shall be responsible for Tenant’s Share of Direct Expenses levied by any governmental authority or by any public utility companies at any time following the Lease Expiration Date which are attributable to any Expense Year ( provided that Landlord delivers Tenant a bill for such amounts within two (2) years following Landlord’s receipt of the bill therefor).

 

4.4.2                      Statement of Estimated Direct Expenses .  In addition, Landlord shall endeavor to give Tenant a yearly expense estimate statement (the “ Estimate Statement ”) which shall set forth Landlord’s reasonable estimate (the “ Estimate ”) of what the total amount of Direct Expenses for the then-current Expense Year shall be and the estimated Tenant’s Share of Direct Expenses (the “ Estimated Direct Expenses ”).  The failure of Landlord to timely furnish the Estimate Statement for any Expense Year shall not preclude Landlord from enforcing its rights to collect any Estimated Direct Expenses under this Article 4 , nor shall Landlord be prohibited from revising any Estimate Statement or Estimated Direct Expenses theretofore delivered to the extent necessary.  Thereafter, Tenant shall pay, with its next installment of Base Rent due, a fraction of the Estimated Direct Expenses for the then-current Expense Year (reduced by any amounts paid pursuant to the last sentence of this Section 4.4.2 ).  Such fraction shall have as its numerator the number of months which have elapsed in such current Expense Year, including the month of such payment, and twelve (12) as its denominator.  Until a new Estimate Statement is furnished (which Landlord shall have the right to deliver to Tenant at any time), Tenant shall pay monthly, with the monthly Base Rent installments, an amount equal to one-twelfth (1/12) of the total Estimated Direct Expenses set forth in the previous Estimate Statement delivered by Landlord to Tenant.

 

4.5                                Taxes and Other Charges for Which Tenant Is Directly Responsible .  Tenant shall be liable for and shall pay ten (10) days before delinquency, taxes levied against Tenant’s equipment, furniture, fixtures and any other personal property located in or about the Premises.  If any such taxes on Tenant’s equipment, furniture, fixtures and any other personal property are levied against Landlord or Landlord’s property or if the assessed value of Landlord’s property is increased by the inclusion therein of a value placed upon such equipment, furniture, fixtures or any other personal property and if Landlord pays the taxes based upon such increased assessment, which Landlord shall have the right to do regardless of the validity thereof but only under proper protest if requested by Tenant, Tenant shall upon demand repay to Landlord the taxes so levied against Landlord or the proportion of such taxes resulting from such increase in the assessment, as the case may be.

 

4.6                                Landlord’s Books and Records .  Within one hundred twenty (120) days after receipt of a Statement by Tenant, if Tenant disputes the amount of Additional Rent set forth in the Statement, an independent certified public accountant (which accountant is a member of a nationally recognized accounting firm and is not working on a contingency fee basis), designated and paid for by Tenant and reasonably approved by Landlord, may, after reasonable notice to Landlord and at reasonable times, inspect Landlord’s records with respect to the Statement at Landlord’s offices in the San Francisco Bay Area, provided that Tenant is not then in default under this Lease and Tenant has paid all amounts required to be paid under the applicable Estimate Statement and Statement, as the case may be.  In connection with such inspection, Tenant and Tenant’s agents must agree in advance to follow Landlord’s reasonable rules and procedures regarding inspections of Landlord’s records, and shall execute a commercially reasonable confidentiality agreement regarding such inspection.  Tenant’s failure to dispute the amount of Additional Rent set forth in any Statement within one hundred twenty (120) days of Tenant’s receipt of such Statement shall be deemed to be Tenant’s approval of such Statement and Tenant, thereafter, waives the right or ability to dispute the amounts set forth in such Statement.  If after such inspection, Tenant still disputes such Additional Rent, a determination as to the proper amount

 

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shall be made, at Tenant’s expense, by an independent certified public accountant (the “ Accountant ”) selected by Landlord and subject to Tenant’s reasonable approval; provided that if such determination by the Accountant proves that Direct Expenses were overstated by more than three percent (3%), then the cost of the Accountant and the cost of such determination shall be paid for by Landlord.  Tenant hereby acknowledges that Tenant’s sole right to inspect Landlord’s books and records and to contest the amount of Direct Expenses payable by Tenant shall be as set forth in this Section 4.6 , and Tenant hereby waives any and all other rights pursuant to applicable law to inspect such books and records and/or to contest the amount of Direct Expenses payable by Tenant.

 

5.                                       USE OF PREMISES

 

5.1                                Permitted Use .  Tenant shall use the Premises solely for the Permitted Use set forth in Section 8 of the Summary and Tennant shall not use or permit the Premises or the Project to be used for any other purpose or purposes whatsoever without the prior written consent of Landlord, which may be withheld in Landlord’s sole discretion.

 

5.2                                Prohibited Uses .  Tenant further covenants and agrees that Tenant shall not use, or suffer or permit any person or persons to use, the Premises or any part thereof for any use or purpose contrary to the provisions of the Rules and Regulations set forth in Exhibit D , attached hereto, or in violation of the laws of the United States of America, the State of California, or the ordinances, regulations or requirements of the local municipal or county governing body or other lawful authorities having jurisdiction over the Project, including, without limitation, any such laws, ordinances, regulations or requirements relating to hazardous materials or substances, as those terms are defined by applicable laws now or hereafter in effect, or any Underlying Documents.  Tenant shall not do or permit anything to be done in or about the Premises which will in any way damage the reputation of the Project or obstruct or interfere with the rights of other tenants or occupants of the Building, or injure or annoy them or use or allow the Premises to be used for any improper, unlawful or objectionable purpose, nor shall Tenant cause, maintain or permit any nuisance in, on or about the Premises.  Tenant shall comply with, and Tenant’s rights and obligations under the Lease and Tenant’s use of the Premises shall be subject and subordinate to, all recorded easements, covenants, conditions, and restrictions now or hereafter affecting the Project.

 

5.3                                Intentionally Deleted .

 

5.4                                Hazardous Materials .

 

5.4.1                      Tenant’s Obligations .

 

5.4.1.1            Prohibitions .  As a material inducement to Landlord to enter into this Lease with Tenant, Tenant has fully and accurately completed Landlord’s Pre-Leasing Environmental Exposure Questionnaire (the “ Environmental Questionnaire ”), which is attached as Exhibit G .  Tenant hereby represents, warrants and covenants that except for those chemicals or materials, and their respective quantities, specifically listed on the Environmental Questionnaire, and except for Hazardous Materials used in connection with Tenant’s operations in the Premises in compliance with applicable Environmental Laws, neither Tenant nor Tenant’s employees, contractors and subcontractors of any tier, entities with a contractual relationship with Tenant (other than Landlord), or any entity acting as an agent or sub-agent of Tenant (collectively, “ Tenant’s Agents ”) will produce, use, store or generate any “Hazardous Materials,” as that term is defined below, on, under or about the Premises, nor cause or permit any Hazardous Material to be brought upon, placed, stored, manufactured, generated, blended, handled, recycled, used or “Released,” as that term is defined below, on, in, under or about the Premises.  If any information provided to Landlord by Tenant on the Environmental Questionnaire, or otherwise relating to information concerning Hazardous Materials is false, incomplete, or misleading in any material respect, the same shall be deemed a default by Tenant under this Lease.  Upon Landlord’s request, or in the event of any material change in Tenant’s use of Hazardous Materials at the Premises, Tenant shall deliver to Landlord an updated Environmental Questionnaire at least once a year.  Landlord’s prior written consent shall be required to any Hazardous Materials use for the Premises not described on the initial Environmental Questionnaire, such consent not to be unreasonably withheld.  If Landlord fails to respond to a request for consent within five (5) business days, Tenant may send a “reminder notice”.  If Landlord fails to respond to such request within three (3) business days after delivery of the “reminder notice”, then Landlord shall be deemed to have consented to such request.  Tenant shall not install or permit

 

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any underground storage tank on the Premises.  In addition, Tenant agrees that it: (i) shall not cause or suffer to occur, the Release of any Hazardous Materials at, upon, under or within the Premises or any contiguous or adjacent premises; and (ii) shall not engage in activities at the Premises that cause an unreasonable imposition of potential liability upon Tenant or Landlord or the creation of an environmental lien or use restriction upon the Premises.  For purposes of this Lease, “ Hazardous Materials ” means all flammable explosives, petroleum and petroleum products, waste oil, radon, radioactive materials, toxic pollutants, asbestos, polychlorinated biphenyls (“ PCBs ”), medical waste, chemicals known to cause cancer or reproductive toxicity, pollutants, contaminants, hazardous wastes, toxic substances or related materials, including without limitation any chemical, element, compound, mixture, solution, substance, object, waste or any combination thereof, which is or may be hazardous to human health, safety or to the environment due to its radioactivity, ignitability, corrosiveness, reactivity, explosiveness, toxicity, carcinogenicity, infectiousness or other harmful or potentially harmful properties or effects, or defined as, regulated as or included in, the definition of “hazardous substances,” “hazardous wastes,” “hazardous materials,” or “toxic substances” under any Environmental Laws.  The term “Hazardous Materials” for purposes of this Lease shall also include any mold, fungus or spores, whether or not the same is defined, listed, or otherwise classified as a “hazardous material” under any Environmental Laws, if such mold, fungus or spores may pose a risk to human health or the environment or negatively impact the value of the Premises.  For purposes of this Lease, “ Release ” or “ Released ” or “ Releases ” shall mean any release, deposit, discharge, emission, leaking, spilling, seeping, migrating, injecting, pumping, pouring, emptying, escaping, dumping, disposing, or other movement of Hazardous Materials into the environment.

 

5.4.1.2            Notices to Landlord .  Unless Tenant is required by applicable laws to give earlier notice to Landlord, Tenant shall notify Landlord in writing as soon as possible but in no event later than five (5) days after (i) the occurrence of any actual, alleged or threatened Release of any Hazardous Material in, on, under, from, about or in the vicinity of the Premises (whether past or present), regardless of the source or quantity of any such Release, or (ii) Tenant becomes aware of any regulatory actions, inquiries, inspections, investigations, directives, or any cleanup, compliance, enforcement or abatement proceedings (including any threatened or contemplated investigations or proceedings) relating to or potentially affecting the Premises, or (iii) Tenant becomes aware of any claims by any person or entity relating to any Hazardous Materials in, on, under, from, about or in the vicinity of the Premises, whether relating to damage, contribution, cost recovery, compensation, loss or injury.  Collectively, the matters set forth in clauses (i), (ii) and (iii) above are hereinafter referred to as “ Hazardous Materials Claims ”.  Tenant shall promptly forward to Landlord copies of all orders, notices, permits, applications and other communications and reports in connection with any Hazardous Materials Claims.  Additionally, each party shall promptly advise the other in writing of the advising party’s discovery of any occurrence or condition on, in, under or about the Premises or Project that could subject Tenant or Landlord to any liability, or restrictions on ownership, occupancy, transferability or use of the Premises or Project under any “Environmental Laws,” as that term is defined below.  Tenant shall not enter into any legal proceeding or other action, settlement, consent decree or other compromise with respect to any Hazardous Materials Claims without first notifying Landlord of Tenant’s intention to do so and affording Landlord the opportunity to join and participate, as a party if Landlord so elects, in such proceedings and in no event shall Tenant enter into any agreements which are binding on Landlord or the Premises without Landlord’s prior written consent.  Landlord shall have the right to appear at and participate in, any and all legal or other administrative proceedings concerning any Hazardous Materials Claim.  For purposes of this Lease, “ Environmental Laws ” means all applicable present and future laws relating to the protection of human health, safety, wildlife or the environment, including, without limitation, (i) all requirements pertaining to reporting, licensing, permitting, investigation and/or remediation of emissions, discharges, Releases, or threatened Releases of Hazardous Materials, whether solid, liquid, or gaseous in nature, into the air, surface water, groundwater, or land, or relating to the manufacture, processing, distribution, use, treatment, storage, disposal, transport, or handling of Hazardous Materials; and (ii) all requirements pertaining to the health and safety of employees or the public.  Environmental Laws include, but are not limited to, the Comprehensive Environmental Response, Compensation and Liability Act of 1980, 42 USC § 9601, et seq., the Hazardous Materials Transportation Authorization Act of 1994, 49 USC § 5101, et seq., the Solid Waste Disposal Act, as amended by the Resource Conservation and Recovery Act of 1976, and Hazardous and Solid Waste Amendments of 1984, 42 USC § 6901, et seq., the Federal Water Pollution Control Act, as amended by the Clean Water Act of 1977, 33 USC § 1251, et seq., the Clean Air Act of 1966, 42 USC § 7401, et seq., the Toxic Substances Control Act of 1976, 15 USC § 2601, et seq., the Safe Drinking Water Act of 1974, 42 USC §§ 300f through 300j, the Occupational Safety and Health Act of 1970, as amended, 29 USC § 651 et seq., the Oil Pollution Act of 1990, 33 USC § 2701 et seq., the Emergency Planning and Community Right-To-Know Act of

 

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1986, 42 USC § 11001 et seq., the National Environmental Policy Act of 1969, 42 USC § 4321 et seq., the Federal Insecticide, Fungicide and Rodenticide Act of 1947, 7 USC § 136 et seq., California Carpenter-Presley-Tanner Hazardous Substance Account Act, California Health & Safety Code §§ 25300 et seq., Hazardous Materials Release Response Plans and Inventory Act, California Health & Safety Code, §§ 25500 et seq., Underground Storage of Hazardous Substances provisions, California Health & Safety Code, §§ 25280 et seq., California Hazardous Waste Control Law, California Health & Safety Code, §§ 25100 et seq., and any other state or local law counterparts, as amended, as such applicable laws, are in effect as of the Lease Commencement Date, or thereafter adopted, published, or promulgated.

 

5.4.1.3            Releases of Hazardous Materials .  If, due to the acts or omissions of Tenant or any Tenant’s Agent, any Release of any Hazardous Material in, on, under, from or about the Premises shall occur at any time during the Lease and/or if any other Hazardous Material condition exists at the Premises that requires response actions of any kind, in addition to notifying Landlord as specified above, Tenant, at its own sole cost and expense, shall (i) immediately comply with any and all reporting requirements imposed pursuant to any and all Environmental Laws, (ii) provide a written certification to Landlord indicating that Tenant has complied with all applicable reporting requirements, (iii) take any and all necessary investigation, corrective and remedial action in accordance with any and all applicable Environmental Laws, utilizing an environmental consultant approved by Landlord, all in accordance with the provisions and requirements of this Section 5.4 , including, without limitation, Section 5.4.4 , and (iv) take any such additional investigative, remedial and corrective actions as Landlord shall in its reasonable discretion deem necessary such that the Premises are remediated to a condition allowing the same uses of the Premises as are allowed as of the Lease Commencement Date, all in accordance with the provisions and requirements of this Section 5.4 .  Landlord may, as required by any and all Environmental Laws, report a Release of any Hazardous Material caused by Tenant or any Tenant’s Agent to the appropriate governmental authority, identifying Tenant as the responsible party.  Tenant shall deliver to Landlord copies of all administrative orders, notices, demands, directives or other communications directed to Tenant from any governmental authority with respect to any Release of Hazardous Materials in, on, under, from, or about the Premises, together with copies of all investigation, assessment, and remediation plans and reports prepared by or on behalf of Tenant in response to any such regulatory order or directive.

 

5.4.1.4            Indemnification .

 

5.4.1.4.1                                                  In General .  Without limiting in any way Tenant’s obligations under any other provision of this Lease, Tenant shall be solely responsible for and shall protect, defend, indemnify and hold the Landlord Parties harmless from and against any and all claims, judgments, losses, damages, costs, expenses, penalties, enforcement actions, taxes, fines, remedial actions, liabilities (including, without limitation, actual attorneys’ fees, litigation, arbitration and administrative proceeding costs, expert and consultant fees and laboratory costs) including, without limitation, consequential damages and sums paid in settlement of claims (“ Hazardous Materials Claims ”), which arise during or after the Lease Term, whether foreseeable or unforeseeable, directly or indirectly arising out of or attributable to the presence, use, generation, manufacture, treatment, handling, refining, production, processing, storage, Release or presence of Hazardous Materials in, on, under or about the Premises by Tenant, except to the extent such liabilities result from the gross negligence or willful misconduct of Landlord following the Lease Commencement Date, and except to the extent caused by the presence of Hazardous Materials in, on or under the Premises on the date of this Lease and not caused by Tenant or any Tenant’s Agent.  The foregoing obligations of Tenant shall include, including without limitation: (i) the costs of any required or necessary removal, repair, cleanup or remediation of the Premises, and the preparation and implementation of any closure, removal, remedial or other required plans; (ii) judgments for personal injury or property damages; and (iii) all costs and expenses incurred by Landlord in connection therewith.  Landlord likewise shall protect, defend, indemnify and hold Tenant harmless from any Hazardous Materials Claims to the extent caused by or arising from any Hazardous Materials in, on or under the Premises on the date of this Lease and not caused by Tenant or any Tenant’s Agent, and for any Release after the date of this Lease caused by Landlord Parties.

 

5.4.1.4.2                                                  Limitations .  Notwithstanding anything in Section 5.4.1.4 , above, to the contrary, Tenant’s indemnity of Landlord as set forth in Section 5.4.1.4 , above, shall not be applicable to claims based upon “Existing Hazardous Materials,” as that term is defined in Section 5.4.7 , below, except to the extent that Tenant’s construction activities (not including the initial construction of the Tenant Improvements by Landlord pursuant to the

 

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Tenant Work Letter) and/or Tenant’s other acts or omissions (including Tenant’s failure to remove, remediate or otherwise treat or “Clean-up,” as that term is defined in Section 5.4.7 , below, the subject Existing Hazardous Materials during the tenancy of the Premises) caused or exacerbated the subject claim.

 

5.4.1.5            Compliance with Environmental Laws .  Without limiting the generality of Tenant’s obligation to comply with applicable laws as otherwise provided in this Lease, Tenant shall, at its sole cost and expense, comply with all Environmental Laws applicable to Tenant’s Hazardous Materials.  Tenant shall obtain and maintain any and all necessary permits, licenses, certifications and approvals appropriate or required for the use, handling, storage, and disposal of any Hazardous Materials used, stored, generated, transported, handled, blended, or recycled by Tenant on the Premises.  Landlord shall have a continuing right, without obligation, to require Tenant to obtain, and to review and inspect any and all such permits, licenses, certifications and approvals, together with copies of any and all Hazardous Materials management plans and programs, any and all Hazardous Materials risk management and pollution prevention programs, and any and all Hazardous Materials emergency response and employee training programs respecting Tenant’s use of Hazardous Materials.  Upon request of Landlord, Tenant shall deliver to Landlord a narrative description explaining the nature and scope of Tenant’s activities involving Hazardous Materials and showing to Landlord’s satisfaction compliance with all Environmental Laws and the terms of this Lease.

 

5.4.2                      Assurance of Performance .

 

5.4.2.1            Environmental Assessments In General .  Landlord may, but shall not be required to, engage from time to time such contractors as Landlord determines to be appropriate to perform “Environmental Assessments,” as that term is defined below, to ensure Tenant’s compliance with the requirements of this Lease with respect to Hazardous Materials.  For purposes of this Lease, “ Environmental Assessment ” means an assessment including, without limitation: (i) an environmental site assessment conducted in accordance with the then-current standards of the American Society for Testing and Materials and meeting the requirements for satisfying the “all appropriate inquiries” requirements; and (ii) sampling and testing of the Premises based upon potential recognized environmental conditions or areas of concern or inquiry identified by the environmental site assessment.

 

5.4.2.2            Costs of Environmental Assessments .  All costs and expenses incurred by Landlord in connection with any such Environmental Assessment initially shall be paid by Landlord; provided that if any such Environmental Assessment shows that Tenant has failed to comply with the provisions of this Section 5.4 , then all of the costs and expenses of such Environmental Assessment shall be reimbursed by Tenant as Additional Rent within thirty (30) days after receipt of written demand therefor.

 

5.4.3                      Tenant’s Obligations upon Surrender .  At the expiration or earlier termination of the Lease Term, Tenant, at Tenant’s sole cost and expense, shall: (i) cause an Environmental Assessment of the Premises to be conducted in accordance with Section 15.3 ; (ii) cause all Hazardous Materials to be removed from the Premises and disposed of in accordance with all Environmental Laws and as necessary to allow the Premises to be used for the same uses of the Premises as are allowed as of the Lease Commencement Date; and (iii) cause to be removed all containers installed or used by Tenant or Tenant’s Agents to store any Hazardous Materials on the Premises, and cause to be repaired any damage to the Premises caused by such removal.

 

5.4.4                      Clean-up .

 

5.4.4.1            Environmental Reports; Clean-Up .  If any written report, including any report containing results of any Environmental Assessment (an “ Environmental Report ”) shall indicate (i) the presence of any Hazardous Materials as to which Tenant has a removal or remediation obligation under this Section 5.4 , and (ii) that as a result of same, the investigation, characterization, monitoring, assessment, repair, closure, remediation, removal, or other clean-up (the “ Clean-up ”) of any Hazardous Materials is required, Tenant shall immediately prepare and submit to Landlord within thirty (30) days after receipt of the Environmental Report a comprehensive plan, subject to Landlord’s written approval, specifying the actions to be taken by Tenant to perform the Clean-up so that the Premises are restored to the conditions required by this Lease.  Upon Landlord’s approval of the Clean-up plan, Tenant shall, at Tenant’s sole cost and expense, without limitation on any rights and remedies of Landlord under this Lease, immediately implement

 

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such plan with a consultant reasonably acceptable to Landlord and proceed to Clean-Up Hazardous Materials in accordance with all applicable laws and as required by such plan and this Lease.  If, within thirty (30) days after receiving a copy of such Environmental Report, Tenant fails either (a) to complete such Clean-up, or (b) with respect to any Clean-up that cannot be completed within such thirty-day period, fails to proceed with diligence to prepare the Clean-up plan and complete the Clean-up as promptly as practicable, then Landlord shall have the right, but not the obligation, and without waiving any other rights under this Lease, to carry out any Clean-up recommended by the Environmental Report or required by any governmental authority having jurisdiction over the Premises, and recover all of the costs and expenses thereof from Tenant as Additional Rent, payable within ten (10) days after receipt of written demand therefor.

 

5.4.4.2            No Rent Abatement .  In the event that Tenant’s failure to complete the Clean-up prevents or delays a third party from occupying the Premises, Tenant shall continue to pay all Rent due or accruing under this Lease during any Clean-up, and shall not be entitled to any reduction, offset or deferral of any Base Rent or Additional Rent due or accruing under this Lease during any such Clean-up.

 

5.4.4.3            Surrender of Premises .  Tenant shall complete any Clean-up prior to surrender of the Premises upon the expiration or earlier termination of this Lease, and shall fully comply with all Environmental Laws and requirements of any governmental authority with respect to such completion, including, without limitation, fully comply with any requirement to file a risk assessment, mitigation plan or other information with any such governmental authority in conjunction with the Clean-up prior to such surrender.  Tenant shall obtain and deliver to Landlord a letter or other written determination from the overseeing governmental authority confirming that the Clean-up has been completed in accordance with all requirements of such governmental authority and that no further response action of any kind is required for the unrestricted use of the Premises (“ Closure Letter ”).  Upon the expiration or earlier termination of this Lease, Tenant shall also be obligated to close all permits obtained in connection with Hazardous Materials in accordance with applicable laws.

 

5.4.4.4            Failure to Timely Clean-Up .  Should any Clean-up for which Tenant is responsible not be completed, or should Tenant not receive the Closure Letter and any governmental approvals required under Environmental Laws in conjunction with such Clean-up prior to the expiration or earlier termination of this Lease, and Tenant’s failure to receive the Closure Letter is prohibiting Landlord from leasing the Premises or any part thereof to a third party, or prevents the occupancy or use of the Premises or any part thereof by a third party, then Tenant shall be liable to Landlord as a holdover tenant (as more particularly provided in Article 16 ) until Tenant has fully complied with its obligations under this Section 5.4 .

 

5.4.5                      Confidentiality .  Unless compelled to do so by applicable law, Tenant agrees that Tenant shall not disclose, discuss, disseminate or copy any information, data, findings, communications, conclusions and reports regarding the environmental condition of the Premises to any Person (other than Tenant’s consultants, attorneys, property managers and employees that have a need to know such information), including any governmental authority, without the prior written consent of Landlord.  In the event Tenant reasonably believes that disclosure is compelled by applicable law, it shall provide Landlord ten (10) days’ advance notice of disclosure of confidential information so that Landlord may attempt to obtain a protective order.  Tenant may additionally release such information to bona fide prospective investors, purchasers or lenders, subject to any such parties’ written agreement to be bound by the terms of this Section 5.4 .

 

5.4.6                      Copies of Environmental Reports .  Within thirty (30) days of receipt thereof, Tenant shall provide Landlord with a copy of any and all environmental assessments, audits, studies and reports regarding Tenant’s activities with respect to the Premises, or ground water beneath the Land, or the environmental condition or Clean-up thereof.  Tenant shall be obligated to provide Landlord with a copy of such materials without regard to whether such materials are generated by Tenant or prepared for Tenant, or how Tenant comes into possession of such materials.

 

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5.4.7                      Intentionally Omitted .

 

5.4.8                      Signs, Response Plans, Etc .  Tenant shall be responsible for posting on the Premises any signs required under applicable Environmental Laws applicable to Tenant’s Hazardous Materials.  Tenant shall also complete and file any business response plans or inventories required by any applicable laws.  Tenant shall concurrently file a copy of any such business response plan or inventory with Landlord.

 

5.4.9                      Survival .  Each covenant, agreement, representation, warranty and indemnification made by Tenant set forth in this Section 5.4 shall survive the expiration or earlier termination of this Lease and shall remain effective until all of Tenant’s obligations under this Section 5.4 have been completely performed and satisfied.

 

6.                                       SERVICES AND UTILITIES

 

6.1                                Tenant Provided Services .  Tenant will be responsible, at its sole cost and expense, for the furnishing of all services and utilities to the Premises, including, but not limited to heating, ventilation and air-conditioning, electricity, water, telephone, janitorial and interior Building security services.

 

6.1.1                      All utilities (including without limitation, electricity, gas, sewer and water) to the Building are separately metered at the Premises and shall be paid directly by Tenant to the applicable utility provider.

 

6.1.2                      Landlord shall not provide janitorial or trash services for the Premises.  Tenant shall be solely responsible for performing all janitorial and trash services and other cleaning of the Premises, all in compliance with applicable laws.  In the event such service is provided by a third party janitorial service, and not by employees of Tenant, such service shall be a janitorial service approved in advance by Landlord.  The janitorial and cleaning of the Premises shall be adequate to maintain the Premises in a manner consistent with Comparable Buildings.

 

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.  Provided that Landlord agrees to provide and maintain and keep in continuous service utility connections to the Project, including electricity, water and sewage connections, Landlord shall have no obligation to provide any services or utilities to the Building, including, but not limited to heating, ventilation and air-conditioning, electricity, water, telephone, janitorial and interior Building security services.

 

Tenant shall cooperate fully with Landlord at all times and abide by all regulations and requirements that Landlord may reasonably prescribe for the proper functioning and protection of the HVAC, electrical, mechanical and plumbing systems.  Provided that Landlord agrees to provide and maintain and keep in continuous service utility connections to the Project, including electricity, water and sewage connections, Landlord shall have no obligation to provide any services or utilities to the Building, including, but not limited to heating, ventilation and air-conditioning, electricity, water, telephone, janitorial and interior Building security services.

 

6.2                                Intentionally Omitted .

 

6.3                                Interruption of Use .  Tenant agrees that Landlord shall not be liable for damages, by abatement of Rent or otherwise, for failure to furnish or delay in furnishing any service (including telephone and telecommunication services), or for any diminution in the quality or quantity thereof, when such failure or delay or diminution is occasioned, in whole or in part, by breakage, repairs, replacements, or improvements, by any strike, lockout or other labor trouble, by inability to secure electricity, gas, water, or other fuel at the Building or Project after reasonable effort to do so, by any riot or other dangerous condition, emergency, accident or casualty whatsoever, by act or default of Tenant or other parties, or by any other cause not under Landlord’s reasonable control; and such failures or delays or diminution shall never be deemed to constitute an eviction or disturbance of Tenant’s use and possession of the Premises or relieve Tenant from paying Rent or performing any of its obligations under this Lease.  Furthermore, Landlord shall not be liable under any circumstances for a loss of, or injury to, property or for injury to, or interference with, Tenant’s business, including, without limitation, loss of profits, however occurring, through or in connection with or incidental to a failure to furnish any of the services or utilities as set forth in this Article 6 .

 

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6.4                                Triple Net Lease .  Landlord and Tenant acknowledge that, except as otherwise provided to the contrary in this Lease, it is their intent and agreement that this Lease be a “ TRIPLE NET ” lease and that as such, the provisions contained in this Lease are intended to pass on to Tenant or reimburse Landlord for the costs and expenses reasonably associated with this Lease, the Building and the Project, and Tenant’s operation therefrom.  To the extent such costs and expenses payable by Tenant cannot be charged directly to, and paid by, Tenant, such costs and expenses shall be paid by Landlord but reimbursed by Tenant as Additional Rent.

 

7.                                       REPAIRS

 

7.1                                Tenant Repair Obligations .  Tenant shall, throughout the Term, at its sole cost and expense, maintain, repair, replace and improve as required, the Premises and Building and every part thereof in a good standard of maintenance, repair and replacement as required, and in good and sanitary condition, all in accordance with the standards of First Class Life Sciences Projects, except for Landlord Repair Obligations, whether or not such maintenance, repair, replacement or improvement is required in order to comply with applicable Laws (“ Tenant’s Repair Obligations ”), including, without limitation, the following: (1) glass, windows, window frames, window casements (including the repairing, resealing, cleaning and replacing of both interior and exterior windows) and skylights; (2) interior and exterior doors, door frames and door closers; (3) interior lighting (including, without limitation, light bulbs and ballasts); (4) the plumbing, sewer, drainage, electrical, fire protection, elevator, escalator, life safety and security systems and equipment, existing heating, ventilation and air-conditioning (“ HVAC ”) systems, and all other mechanical, electrical and communications systems and equipment (collectively, the “ Building Systems ”), including without limitation (i) any specialty or supplemental Building Systems installed by or for Tenant and (ii) all electrical facilities and equipment, including lighting fixtures, lamps, fans and any exhaust equipment and systems, electrical motors and all other appliances and equipment of every kind and nature located in, upon or about the Premises; (5) all communications systems serving the Premises; (6) all of Tenant’s security systems in or about or serving the Premises; (7) Tenant’s signage; (8) interior demising walls and partitions (including painting and wall coverings), equipment, floors, and any roll-up doors, ramps and dock equipment; and (9) the non-structural portions of the roof of the Building, including the roof membrane and coverings.  Tenant’s Repair Obligations also includes the routine maintenance of the load bearing and exterior walls of the Building, including, without limitation, any painting, sealing, patching and waterproofing of such walls.  Tenant shall additionally be responsible, at Tenant’s sole cost and expense, to furnish all expendables, including light bulbs, paper goods and soaps, used in the Premises, and, to the extent that Landlord notifies Tenant in writing of its intention to no longer arrange for such monitoring, cause the fire alarm systems serving the Premises to be monitored by a monitoring or protective services firm approved by Landlord in writing.  Tenant shall have the benefit of all contract warranties available to Landlord regarding the HVAC systems and equipment.  Notwithstanding the foregoing, in the event that any portion of the Building Systems, including the Building HVAC systems, reasonably requires repair or replacement during the Lease Term (not including any specialty or supplemental Building Systems installed by or for Tenant, and not including any Landlord Repair Obligation set forth in Section 7.3 , below), for any reason other than Tenant’s failure to adequately maintain and repair the same as required by the terms of this Lease, and the total cost of such repair or replacement exceeds $25,000 (the “ Major Required Repair or Replacement ”), then Landlord shall make the Major Required Repair or Replacement at Landlord’s cost and expense, provided that such cost and expense shall be amortized over the reasonable useful life of such Major Required Repair or Replacement and included in Operating Expenses payable by Tenant under the terms of Article 4 , above, during the applicable period of the remaining Lease Term and any Option Term.

 

7.2                                Service Contracts .  All Building Systems, including HVAC, elevators, main electrical, plumbing and fire/life-safety systems, shall be maintained, repaired and replaced by Tenant (i) in a commercially reasonable first-class condition, (ii) in accordance with any applicable manufacturer specifications relating to any particular component of such Building Systems, (iii) in accordance with applicable Laws.  Tenant shall contract with a qualified, experienced professional third party service companies (a “ Service Contract ”).  Tenant shall regularly, in accordance with commercially reasonable standards, generate and maintain preventive maintenance records relating to each Building’s mechanical and main electrical systems, including life safety, elevators and the central plant (“ Preventative Maintenance Records ”).  In addition, upon Landlord’s request, Tenant shall deliver a copy of all current Service Contracts to Landlord and/or a copy of the Preventative Maintenance Records, Notwithstanding the foregoing, Tenant may, at Tenant’s option, request that Landlord hold the Service Contract with respect to the HVAC systems, in which

 

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event Landlord shall do so, and shall be responsible for the maintenance, repair and replacement of the HVAC system, provided that all costs incurred by Landlord in connection therewith shall be included in Operating Expenses, subject to the provision of the last sentence of Section 7.1 , above.

 

7.3                                Landlord Repair Obligations .  Landlord shall be responsible for repairs to the exterior walls, foundation and roof of the Building, the structural portions of the floors of the Building, except to the extent that such repairs are required due to the negligence or willful misconduct of Tenant (the “ Landlord Repair Obligation ”); provided , however , that if such repairs are due to the negligence or willful misconduct of Tenant, Landlord shall nevertheless make such repairs at Tenant’s expense, or, if covered by Landlord’s insurance, Tenant shall only be obligated to pay any deductible in connection therewith.

 

8.                                       ADDITIONS AND ALTERATIONS

 

8.1                                Landlord’s Consent to Alterations .  Tenant may not make any improvements, alterations, additions or changes to the Premises or any mechanical, plumbing or HVAC facilities or systems pertaining to the Premises (collectively, the “ Alterations ”) without first procuring the prior written consent of Landlord to such Alterations, which consent shall be requested by Tenant not less than five (5) business days prior to the commencement thereof, and which consent shall not be unreasonably withheld, conditioned or delayed by Landlord, provided it shall be deemed reasonable for Landlord to withhold its consent to any Alteration which adversely affects the structural portions or the systems or equipment of the Building or is visible from the exterior of the Building.  Notwithstanding the foregoing, Tenant shall be permitted to make Alterations following five (5) business days’ notice to Landlord, but without Landlord’s prior consent, to the extent that such Alterations (i) do not affect the Building systems or equipment, (ii) are not visible from the exterior of the Building, and (iii) cost less than $50,000.00 for a particular job of work.

 

8.2                                Manner of Construction .  Landlord may impose, as a condition of its consent to any and all Alterations or repairs of the Premises or about the Premises, such requirements as Landlord in its reasonable discretion may deem desirable, including, but not limited to, the requirement that Tenant utilize for such purposes only contractors, subcontractors, materials, mechanics and materialmen selected by Tenant and approved by Landlord (which approval shall not be unreasonably withheld, conditioned or delayed), the requirement that upon Landlord’s request (subject to the terms of Section 8.5 , below), Tenant shall, at Tenant’s expense, remove such Alterations upon the expiration or any early termination of the Lease Term (and Tenant shall have no removal or restoration obligations with respect to the Tenant Improvements to be constructed by Landlord in accordance with the Tenant Work Letter).  Tenant shall construct such Alterations and perform such repairs in a good and workmanlike manner, in conformance with any and all applicable federal, state, county or municipal laws, rules and regulations and pursuant to a valid building permit, issued by the city in which the Building is located (or other applicable governmental authority).  Tenant shall not use (and upon notice from Landlord shall cease using) contractors, services, workmen, labor, materials or equipment that, in Landlord’s reasonable judgment, would disturb labor harmony with the workforce or trades engaged in performing other work, labor or services in or about the Building or the Common Areas.  Upon completion of any Alterations (or repairs), Tenant shall deliver to Landlord final lien waivers from all contractors, subcontractors and materialmen who performed such work.  In addition to Tenant’s obligations under Article 9 of this Lease, upon completion of any Alterations, Tenant agrees to cause a Notice of Completion to be recorded in the office of the Recorder of the County of Santa Clara in accordance with Section 3093 of the Civil Code of the State of California or any successor statute, and Tenant shall deliver to the Project construction manager a reproducible copy of the “ as built ” drawings of the Alterations as well as all permits, approvals and other documents issued by any governmental agency in connection with the Alterations.

 

8.3                                Payment for Improvements .  If Tenant orders any work directly from Landlord, Tenant shall pay to Landlord an amount equal to three percent (3%) of the cost of such work to compensate Landlord for all overhead, general conditions, fees and other costs and expenses arising from Landlord’s involvement with such work.  If Tenant does not order any work directly from Landlord, Tenant shall reimburse Landlord for Landlord’s reasonable, actual, out-of-pocket costs and expenses actually incurred in connection with Landlord’s review of such work.

 

8.4                                Construction Insurance .  In addition to the requirements of Article 10 of this Lease, in the event that Tenant makes any Alterations, prior to the commencement of such Alterations, Tenant shall provide Landlord with

 

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evidence that Tenant carries “ Builder’s All Risk ” insurance (to the extent that the cost of the work shall exceed $100,000.00) in an amount approved by Landlord covering the construction of such Alterations, and such other insurance as Landlord may reasonably require, it being understood and agreed that all of such Alterations shall be insured by Tenant pursuant to Article 10 of this Lease immediately upon completion thereof.  In addition, Tenant’s contractors and subcontractors shall be required to carry Commercial General Liability Insurance in an amount approved by Landlord and otherwise in accordance with the requirements of Article 10 of this Lease and such general liability insurance shall name the Landlord Parties as additional insureds.  Landlord may, in its discretion, require Tenant to obtain a lien and completion bond or some alternate form of security satisfactory to Landlord in an amount sufficient to ensure the lien-free completion of such Alterations and naming Landlord as a co-obligee.

 

8.5                                Landlord’s Property .  All Alterations, improvements, fixtures, equipment and/or appurtenances which may be installed or placed in or about the Premises, from time to time, shall be at the sole cost of Tenant and Alterations, improvements and fixtures shall be and become the property of Landlord and remain in place at the Premises following the expiration or earlier termination of this Lease.  Furthermore, Landlord may, by written notice to Tenant given concurrently with Landlord’s consent to installation, require Tenant at the end of the Lease Term, at Tenant’s expense, to remove any Alterations and/or improvements and/or systems and equipment within the Premises and to repair any damage to the Premises and Building caused by such removal and return the affected portion of the Premises to a building standard tenant improved condition as determined by Landlord.  If Tenant fails to complete any required removal and/or to repair any damage caused by the removal of any Alterations and/or improvements and/or systems and equipment in the Premises and return the affected portion of the Premises to a condition comparable to that which existed upon Landlord’s delivery of the Premises to Tenant, normal wear and tear and damage by casualty excepted, Landlord may do so and may charge the actual and reasonable cost thereof to Tenant.  Tenant hereby protects, defends, indemnifies and holds Landlord harmless from any liability, cost, obligation, expense or claim of lien in any manner relating to the installation, placement, removal or financing of any such Alterations, improvements, fixtures and/or equipment in, on or about the Premises, which obligations of Tenant shall survive the expiration or earlier termination of this Lease.

 

9.                                       COVENANT AGAINST LIENS

 

Tenant shall keep the Project and Premises free from any liens or encumbrances arising out of the work performed, materials furnished or obligations incurred by or on behalf of Tenant, and shall protect, defend, indemnify and hold Landlord harmless from and against any claims, liabilities, judgments or costs (including, without limitation, reasonable attorneys’ fees and costs) arising out of same or in connection therewith.  Tenant shall give Landlord notice at least twenty (20) days prior to the commencement of any such work on the Premises (or such additional time as may be necessary under applicable laws) to afford Landlord the opportunity of posting and recording appropriate notices of non-responsibility (to the extent applicable pursuant to then applicable laws).  Tenant shall remove any such lien or encumbrance by bond or otherwise within ten (10) business days after notice by Landlord, and if Tenant shall fail to do so, Landlord may pay the amount necessary to remove such lien or encumbrance, without being responsible for investigating the validity thereof.

 

10.                                INSURANCE

 

10.1                         Indemnification and Waiver .  Except to the extent arising from the gross negligence or willful misconduct of Landlord or Landlord Parties, or Landlord’s breach of the terms of this Lease, Tenant hereby assumes all risk of damage to property or injury to persons in, upon or about the Premises from any cause whatsoever (including, but not limited to, any personal injuries resulting from a slip and fall in, upon or about the Premises) and agrees that Landlord, its lenders, partners, subpartners and their respective officers, agents, servants, employees, and independent contractors (collectively, “ Landlord Parties ”) shall not be liable for, and are hereby released from any responsibility for, any damage either to person or property or resulting from the loss of use thereof, which damage is sustained by Tenant or by other persons claiming through Tenant.  Tenant shall indemnify, defend, protect, and hold harmless the Landlord Parties from any and all loss, cost, damage, injury, expense and liability (including without limitation court costs and reasonable attorneys’ fees) during the Lease Term, or any period of Tenant’s occupancy of the Premises prior to the commencement or after the expiration of the Lease Term, incurred in connection with or arising from any cause in, on or

 

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about the Premises (including, but not limited to, a slip and fall), any acts, omissions or negligence of Tenant or of any person claiming by, through or under Tenant, or of the contractors, agents, servants, employees, invitees, guests or licensees of Tenant or any such person, in, on or about the Project or any breach of the terms of this Lease, either prior to, during, or after the expiration of the Lease Term, provided that the terms of the foregoing indemnity shall not apply to the gross negligence or willful misconduct of Landlord, or Landlord’s Parties, or Landlord’s breach of this Lease.  Should Landlord be named as a defendant in any suit brought against Tenant in connection with or arising out of Tenant’s occupancy of the Premises, Tenant shall pay to Landlord its reasonable costs and expenses incurred in such suit, including without limitation, its actual professional fees such as reasonable appraisers’, accountants’ and attorneys’ fees.  The provisions of this Section 10.1 shall survive the expiration or sooner termination of this Lease with respect to any claims or liability arising in connection with any event occurring prior to such expiration or termination.

 

10.2                         Landlord’s Property Insurance .  Landlord shall carry commercial general liability insurance with respect to the Building during the Lease Term, and shall further insure the Building, Premises (including the Tenant Improvements) and the Project during the Lease Term (for the full replacement value to the extent consistent with the practices of landlords of comparable buildings) against loss or damage due to fire and other casualties covered within the classification of fire and extended coverage, vandalism coverage and malicious mischief, sprinkler leakage, water damage and special extended coverage.  Such coverage shall be in such amounts, from such companies, and on such other terms and conditions, as Landlord may from time to time reasonably determine.  Additionally, at the option of Landlord, such insurance coverage may include the risks of earthquakes and/or flood damage, terrorist acts and additional hazards, a rental loss endorsement and one or more loss payee endorsements in favor of the holders of any mortgages or deeds of trust encumbering the interest of Landlord in the Building or the ground or underlying lessors of the Building, or any portion thereof.  Tenant shall, at Tenant’s expense, comply with all insurance company requirements pertaining to the use of the Premises.  If Tenant’s conduct or use of the Premises for any purpose other than customary, general office use causes any increase in the premium for such insurance policies then Tenant shall reimburse Landlord for any such increase.  Tenant, at Tenant’s expense, shall comply with all rules, orders, regulations or requirements of the American Insurance Association (formerly the National Board of Fire Underwriters) and with any similar body.

 

10.3                         Tenant’s Insurance .  Tenant shall maintain the following coverages in the following amounts.

 

10.3.1               Commercial General Liability Insurance covering the insured against claims of bodily injury, personal injury and property damage (including loss of use thereof) arising out of Tenant’s operations, products/completed operations, and contractual liability, and including products and completed operations coverage, for limits of liability of not less than:

 

Bodily Injury and

 

$5,000,000 each occurrence

Property Damage Liability

 

$5,000,000 annual aggregate

 

 

 

Personal Injury Liability

 

$1,000,000 each occurrence

 

10.3.2               Property Insurance covering (i) all office furniture, business and trade fixtures, office equipment, free-standing cabinet work, movable partitions, merchandise and all other items of Tenant’s property on the Premises installed by, for, or at the expense of Tenant, and (ii) Alterations made by or on behalf of Tenant following the Substantial Completion of the Tenant Improvements (the “ New Improvements ”).  Such insurance shall be written on an “ all risks ” of physical loss or damage basis, for the full replacement cost value (subject to reasonable deductible amounts) new without deduction for depreciation of the covered items and in amounts that meet any co-insurance clauses of the policies of insurance and shall include coverage for damage or other loss caused by fire or other peril including, but not limited to, vandalism and malicious mischief, theft, water damage of any type, including sprinkler leakage, bursting or stoppage of pipes, and explosion.

 

10.3.3               Business Income Interruption for one (1) year plus Extra Expense insurance in such amounts as will reimburse Tenant for actual direct or indirect loss of earnings attributable to the risks outlined in Section 10.3.2 above.

 

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10.3.4               Worker’s Compensation and Employer’s Liability or other similar insurance pursuant to all applicable state and local statutes and regulations.  The policy will include a waiver of subrogation in favor of the Landlord Parties.

 

10.4                         Form of Policies .  The minimum limits of policies of insurance required of Tenant under this Lease shall in no event limit the liability of Tenant under this Lease.  Such insurance shall (i) name Landlord, its subsidiaries and affiliates, Landlord’s managing agent and any other party the Landlord so specifies, as an additional insured or loss payee, as applicable, including Landlord’s managing agent, if any; (ii) cover the liability assumed by Tenant under this Lease; (iii) be issued by an insurance company having a rating of not less than A:VIII in Best’s Insurance Guide or which is otherwise acceptable to Landlord and licensed to do business in the State of California; (iv) be primary insurance as to all claims thereunder and provide that any insurance carried by Landlord is excess and is non-contributing with any insurance required of Tenant; (v) be in form and content reasonably acceptable to Landlord; and (vi) provide that said insurer shall endeavor to provide written notice to Landlord and any mortgagee of Landlord, to the extent such names are furnished to Tenant, of cancellation of any policy at least 10 days prior to the cancellation being effective.  Tenant shall deliver said policy or policies or certificates thereof to Landlord on or before the earlier to occur of (A) the Lease Commencement Date, and (B) the date upon which Tenant is first provided access to the Premises, and at least ten (10) days before the expiration dates thereof.  In the event Tenant shall fail to procure such insurance, or to deliver such policies or certificate within ten (10) days after written notice from Landlord, Landlord may, at its option, procure such policies for the account of Tenant, and the cost thereof shall be paid to Landlord within five (5) days after delivery to Tenant of bills therefor.

 

10.5                         Subrogation .  Landlord and Tenant intend that their respective property loss risks shall be borne by reasonable insurance carriers to the extent above provided, and Landlord and Tenant hereby agree to look solely to, and seek recovery only from, their respective insurance carriers in the event of a property loss to the extent that such coverage is agreed to be provided hereunder.  The parties each hereby waive all rights and claims against each other for such losses, and waive all rights of subrogation of their respective insurers.

 

10.6                         Additional Insurance Obligations .  Tenant shall carry and maintain during the entire Lease Term, at Tenant’s sole cost and expense, increased amounts of insurance only to the extent required by any institutional lender or mortgagee on the Building.

 

11.                                DAMAGE AND DESTRUCTION

 

11.1                         Repair of Damage to Premises by Landlord .  Tenant shall promptly notify Landlord of any damage to the Premises resulting from fire or any other casualty.  If the Premises or any Common Areas serving or providing access to the Premises shall be damaged by fire or other casualty, Landlord shall promptly and diligently, subject to reasonable delays for insurance adjustment or other matters beyond Landlord’s reasonable control, and subject to all other terms of this Article 11 , restore the Base Building, such Common Areas and the Premises (including the Tenant Improvements).  Such restoration shall be to substantially the same condition of the Premises, Base Building and the Common Areas prior to the casualty, except for modifications required by zoning and building codes and other laws or by the holder of a mortgage on the Building or Project or any other modifications to the Common Areas deemed desirable by Landlord, which are consistent with the character of the Project, provided that access to the Premises shall not be materially impaired.  Upon the occurrence of any damage to the Premises, upon notice (the “ Landlord Repair Notice ”) to Tenant from Landlord, Tenant shall assign to Landlord (or to any party designated by Landlord) all insurance proceeds payable to Tenant under Tenant’s insurance- required under Section 10.3.2(ii)  of this Lease.  Landlord shall not be liable for any inconvenience or annoyance to Tenant or its visitors, or injury to Tenant’s business resulting in any way from such damage or the repair thereof; provided however , that if such fire or other casualty shall have damaged the Premises or Common Areas necessary to Tenant’s occupancy, and the Premises are not occupied by Tenant as a result thereof, then during the time and to the extent the Premises are unfit for occupancy, the Rent shall be abated in proportion to the ratio that the amount of rentable square feet of the Premises which is unfit for occupancy for the purposes permitted under this Lease bears to the total rentable square feet of the Premises.

 

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11.2                         Landlord’s Option to Repair .  Notwithstanding the terms of Section 11.1 of this Lease, Landlord may elect not to rebuild and/or restore the Premises and/or Project, and instead terminate this Lease, by notifying Tenant in writing of such termination within sixty (60) days after the date of discovery of the damage, such notice to include a termination date giving Tenant sixty (60) days to vacate the Premises, but Landlord may so elect only if the Building shall be damaged by fire or other casualty or cause, and one or more of the following conditions is present: (i) in Landlord’s reasonable judgment, repairs cannot reasonably be completed within one hundred eighty (180) days after the date of discovery of the damage (when such repairs are made without the payment of overtime or other premiums); (ii) the holder of any mortgage on the Building or Project or ground lessor with respect to the Building or Project shall require that the insurance proceeds or any portion thereof be used to retire the mortgage debt, or shall terminate the ground lease, as the case may be; (iii) at least Two Hundred Fifty Thousand and 00/100 Dollars ($250,000.00) of damage is not fully covered by Landlord’s insurance policies; or (v) the damage occurs during the last twelve (12) months of the Lease Term; provided , however , that if Landlord does not elect to terminate this Lease pursuant to Landlord’s termination right as provided above, and the repairs cannot, in the reasonable opinion of Landlord, be completed within one hundred eighty (180) days after being commenced, Tenant may elect, no earlier than sixty (60) days after the date of the damage and not later than ninety (90) days after the date of such damage, to terminate this Lease by written notice to Landlord effective as of the date specified in the notice, which date shall not be less than thirty (30) days nor more than sixty (60) days after the date such notice is given by Tenant.  Notwithstanding the provisions of this Section 11.2 , Tenant shall have the right to terminate this Lease under this Section 11.2 only if each of the following conditions is satisfied: (a) the damage to the Project by fire or other casualty was not caused by the gross negligence or intentional act of Tenant or its partners or subpartners and their respective officers, agents, servants, employees, and independent contractors; (b) as a result of the damage, Tenant cannot reasonably conduct business from the Premises; and, (c) as a result of the damage to the Project, Tenant does not occupy or use the Premises at all.  In addition, Tenant may terminate this Lease if the damage to the Premises occurs during the last twelve (12) months of the Lease Term, and, as a result of such damage, Tenant cannot reasonably conduct business from the Premises for a period of thirty (30) days or more.

 

11.3                         Waiver of Statutory Provisions .  The provisions of this Lease, including this Article 11 , constitute an express agreement between Landlord and Tenant with respect to any and all damage to, or destruction of, all or any part of the Premises, the Building or the Project, and any statute or regulation of the State of California, including, without limitation, Sections 1932(2) and 1933(4) of the California Civil Code, with respect to any rights or obligations concerning damage or destruction in the absence of an express agreement between the parties, and any other statute or regulation, now or hereafter in effect, shall have no application to this Lease or any damage or destruction to all or any part of the Premises, the Building or the Project.

 

12.                                NON-WAIVER

 

No provision of this Lease shall be deemed waived by either party hereto unless expressly waived in a writing signed thereby.  The waiver by either party hereto of any breach of any term, covenant or condition herein contained shall not be deemed to be a waiver of any subsequent breach of same or any other term, covenant or condition herein contained.  The subsequent acceptance of Rent hereunder by Landlord shall not be deemed to be a waiver of any preceding breach by Tenant of any term, covenant or condition of this Lease, other than the failure of Tenant to pay the particular Rent so accepted, regardless of Landlord’s knowledge of such preceding breach at the time of acceptance of such Rent.  No acceptance of a lesser amount than the Rent herein stipulated shall be deemed a waiver of Landlord’s right to receive the full amount due, nor shall any endorsement or statement on any check or payment or any letter accompanying such check or payment be deemed an accord and satisfaction, and Landlord may accept such check or payment without prejudice to Landlord’s right to recover the full amount due.  No receipt of monies by Landlord from Tenant after the termination of this Lease shall in any way alter the length of the Lease Term or of Tenant’s right of possession hereunder, or after the giving of any notice shall reinstate, continue or extend the Lease Term or affect any notice given Tenant prior to the receipt of such monies, it being agreed that after the service of notice or the commencement of a suit, or after final judgment for possession of the Premises, Landlord may receive and collect any Rent due, and the payment of said Rent shall not waive or affect said notice, suit or judgment.

 

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13.                                CONDEMNATION

 

If the whole or any part of the Premises, Building or Project shall be taken by power of eminent domain or condemned by any competent authority for any public or quasi-public use or purpose, or if any adjacent property or street shall be so taken or condemned, or reconfigured or vacated by such authority in such manner as to require the use, reconstruction or remodeling of any part of the Premises, Building or Project, or if Landlord shall grant a deed or other instrument in lieu of such taking by eminent domain or condemnation, Landlord shall have the option to terminate this Lease effective as of the date possession is required to be surrendered to the authority.  Tenant shall not because of such taking assert any claim against Landlord or the authority for any compensation because of such taking and Landlord shall be entitled to the entire award or payment in connection therewith, except that Tenant shall have the right to file any separate claim available to Tenant for any taking of Tenant’s personal property and fixtures belonging to Tenant and removable by Tenant upon expiration of the Lease Term pursuant to the terms of this Lease, and for moving expenses, so long as such claims do not diminish the award available to Landlord, its ground lessor with respect to the Building or Project or its mortgagee, and such claim is payable separately to Tenant.  All Rent shall be apportioned as of the date of such termination.  If any part of the Premises shall be taken, and this Lease shall not be so terminated, the Rent shall be proportionately abated.  Tenant hereby waives any and all rights it might otherwise have pursuant to Section 1265.130 of The California Code of Civil Procedure.  Notwithstanding anything to the contrary contained in this Article 13 , in the event of a temporary taking of all or any portion of the Premises for a period of one hundred and eighty (180) days or less, and provided that such temporary taking does not materially preclude or unreasonably diminish Tenant’s ability to conduct business from the Premises, then this Lease shall not terminate but the Base Rent and the Additional Rent shall be abated for the period of such taking in proportion to the ratio that the amount of rentable square feet of the Premises taken bears to the total rentable square feet of the Premises.  Landlord shall be entitled to receive the entire award made in connection with any such temporary taking, provided , however , that Tenant shall be entitled to a share of the award for any loss of fixtures and improvements and for moving and other reasonable expenses that do not otherwise reduce Landlord’s recovery.

 

14.                                ASSIGNMENT AND SUBLETTING

 

14.1                         Transfers .  Except as specifically permitted in Section 14.8 , below, Tenant shall not, without the prior written consent of Landlord, assign, mortgage, pledge, hypothecate, encumber, or permit any lien to attach to, or otherwise transfer, this Lease or any interest hereunder, permit any assignment, or other transfer of this Lease or any interest hereunder by operation of law, sublet the Premises or any part thereof, or enter into any license or concession agreements or otherwise permit the occupancy or use of the Premises or any part thereof by any persons other than Tenant and its employees and contractors (all of the foregoing are hereinafter sometimes referred to collectively as “ Transfers ” and any person to whom any Transfer is made or sought to be made is hereinafter sometimes referred to as a “ Transferee ”).  If Tenant desires Landlord’s consent to any Transfer, Tenant shall notify Landlord in writing, which notice (the “ Transfer Notice ”) shall include (i) the proposed effective date of the Transfer, which shall not be less than twenty (20) days nor more than one hundred eighty (180) days after the date of delivery of the Transfer Notice, (ii) a description of the portion of the Premises to be transferred (the “ Subject Space ”), (iii) all of the terms of the proposed Transfer and the consideration therefor, including calculation of the “Transfer Premium”, as that term is defined in Section 14.3 below, in connection with such Transfer, the name and address of the proposed Transferee, and a copy of all existing executed and/or proposed documentation pertaining to the proposed Transfer, and (iv) current financial statements of the proposed Transferee certified by an officer, partner or owner thereof, business credit and personal references and history of the proposed Transferee and any other information reasonably required by Landlord which will enable Landlord to determine the financial responsibility, character, and reputation of the proposed Transferee, nature of such Transferee’s business and proposed use of the Subject Space.  Any Transfer made without Landlord’s prior written consent shall, at Landlord’s option, be null, void and of no effect, and shall, at Landlord’s option, constitute a default by Tenant under this Lease.  Whether or not Landlord consents to any proposed Transfer, Tenant shall pay Landlord’s reasonable review and processing fees, as well as any reasonable professional fees (including, without limitation, attorneys’, accountants’, architects’, engineers’ and consultants’ fees) incurred by Landlord (not to exceed $3,000 in the aggregate), within thirty (30) days after written request by Landlord.

 

14.2                         Landlord’s Consent .  Landlord shall not unreasonably withhold, condition or delay its consent to any proposed Transfer of the Subject Space to the Transferee on the terms specified in the Transfer Notice.  Without limitation as to other reasonable grounds for withholding consent, the parties hereby agree that it shall be reasonable

 

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under this Lease and under any applicable law for Landlord to withhold consent to any proposed Transfer where one or more of the following apply:

 

14.2.1               The Transferee is of a character or reputation or engaged in a business which is not consistent with the quality of the Building or the Project;

 

14.2.2               The Transferee is either a governmental agency or instrumentality thereof;

 

14.2.3               The Transferee is not a party of reasonable financial worth and/or financial stability in light of the responsibilities to be undertaken in connection with the Transfer on the date consent is requested;

 

14.2.4               The proposed Transfer would cause a violation of another lease for space in the Project, or would give an occupant of the Project a right to cancel its lease; or

 

14.2.5               Either the proposed Transferee, or any person or entity which directly or indirectly, controls, is controlled by, or is under common control with, the proposed Transferee, is negotiating with Landlord or has negotiated with Landlord during the six (6) month period immediately preceding the date Landlord receives the Transfer Notice, to lease space in the Project, and Landlord has comparable space available for lease at the time.

 

If Landlord consents to any Transfer pursuant to the terms of this Section 14.2 (and does not exercise any recapture rights Landlord may have under Section 14.4 of this Lease), Tenant may within six (6) months after Landlord’s consent, but not later than the expiration of said six-month period, enter into such Transfer of the Premises or portion thereof, upon substantially the same terms and conditions as are set forth in the Transfer Notice furnished by Tenant to Landlord pursuant to Section 14.1 of this Lease, provided that if there are any changes in the terms and conditions from those specified in the Transfer Notice (i) such that Landlord would initially have been entitled to refuse its consent to such Transfer under this Section 14.2 , Tenant shall again submit the Transfer to Landlord for its approval and other action under this Article 14 (including Landlord’s right of recapture, if any, under Section 14.4 of this Lease).  Notwithstanding anything to the contrary in this Lease, if Tenant or any proposed Transferee claims that Landlord has unreasonably withheld or delayed its consent under Section 14.2 or otherwise has breached or acted unreasonably under this Article 14 , their sole remedies shall be a suit for contract damages (other than damages for injury to, or interference with, Tenant’s business including, without limitation, loss of profits, however occurring) or declaratory judgment and an injunction for the relief sought, and Tenant hereby waives all other remedies, including, without limitation, any right at law or equity to terminate this Lease, on its own behalf and, to the extent permitted under all applicable laws, on behalf of the proposed Transferee.

 

14.3                         Transfer Premium .  If Landlord consents to a Transfer, as a condition thereto which the parties hereby agree is reasonable, Tenant shall pay to Landlord fifty percent (50%) of any “Transfer Premium,” as that term is defined in this Section 14.3 , received by Tenant from such Transferee.  “ Transfer Premium ” shall mean all rent, additional rent or other consideration payable by such Transferee in connection with the Transfer in excess of the Rent and Additional Rent payable by Tenant under this Lease during the term of the Transfer on a per rentable square foot basis if less than all of the Premises is transferred, after deducting the reasonable expenses incurred by Tenant for (i) any changes, alterations and improvements to the Premises in connection with the Transfer, (ii) any free base rent reasonably provided to the Transferee in connection with the Transfer ( provided that such free rent shall be deducted only to the extent the same is included in the calculation of total consideration payable by such Transferee), and (iii) any brokerage commissions in connection with the Transfer and (iv) legal fees reasonably incurred in connection with the Transfer (collectively, “ Tenant’s Subleasing Costs ”).  “Transfer Premium” shall also include, but not be limited to, key money, bonus money or other cash consideration paid by Transferee to Tenant in connection with such Transfer, and any payment in excess of fair market value for services rendered by Tenant to Transferee or for assets, fixtures, inventory, equipment, or furniture transferred by Tenant to Transferee in connection with such Transfer.  The determination of the amount of Landlord’s applicable share of the Transfer Premium shall be made on a monthly basis as rent or other consideration is received by Tenant under the Transfer.

 

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14.4                         Landlord’s Option as to Subject Space .  Notwithstanding anything to the contrary contained in this Article 14 , in the event Tenant contemplates a Transfer which, together with all prior Transfers then remaining in effect, would cause seventy-five percent (75%) or more of the Premises to be Transferred for the then remaining Lease Term (assuming all sublease renewal or extension rights are exercised), Tenant shall give Landlord notice (the “ Intention to Transfer Notice ”) of such contemplated Transfer (whether or not the contemplated Transferee or the terms of such contemplated Transfer have been determined).  The Intention to Transfer Notice shall specify the portion of and amount of rentable square feet of the Premises which Tenant intends to Transfer (the “ Contemplated Transfer Space ”), the contemplated date of commencement of the Contemplated Transfer (the “ Contemplated Effective Date ”), and the contemplated length of the term of such contemplated Transfer, and shall specify that such Intention to Transfer Notice is delivered to Landlord pursuant to this Section 14.4 in order to allow Landlord to elect to recapture the Contemplated Transfer Space.  Thereafter, Landlord shall have the option, by giving written notice to Tenant within twenty (20) days after receipt of any Intention to Transfer Notice, to recapture the Contemplated Transfer Space.  Such recapture shall cancel and terminate this Lease with respect to such Contemplated Transfer Space as of the Contemplated Effective Date.  In the event of a recapture by Landlord, if this Lease shall be canceled with respect to less than the entire Premises, the Rent reserved herein shall be prorated on the basis of the number of rentable square feet retained by Tenant in proportion to the number of rentable square feet contained in the Premises, and this Lease as so amended shall continue thereafter in full force and effect, and upon request of either party, the parties shall execute written confirmation of the same.

 

14.5                         Effect of Transfer .  If Landlord consents to a Transfer, (i) the terms and conditions of this Lease shall in no way be deemed to have been waived or modified, (ii) such consent shall not be deemed consent to any further Transfer by either Tenant or a Transferee, (iii) Tenant shall deliver to Landlord, promptly after execution, an original executed copy of all documentation pertaining to the Transfer in form reasonably acceptable to Landlord, (iv) Tenant shall furnish upon Landlord’s request a complete statement, certified by an independent certified public accountant, or Tenant’s chief financial officer, setting forth in detail the computation of any Transfer Premium Tenant has derived and shall derive from such Transfer, and (v) no Transfer relating to this Lease or agreement entered into with respect thereto, whether with or without Landlord’s consent, shall relieve Tenant or any guarantor of the Lease from any liability under this Lease, including, without limitation, in connection with the Subject Space.  Landlord or its authorized representatives shall have the right at all reasonable times to audit the books, records and papers of Tenant relating to any Transfer, and shall have the right to make copies thereof.  If the Transfer Premium respecting any Transfer shall be found understated, Tenant shall, within thirty (30) days after demand, pay the deficiency, and if understated by more than two percent (2%), Tenant shall pay Landlord’s costs of such audit.

 

14.6                         Intentionally Omitted .

 

14.7                         Occurrence of Default .  Any Transfer hereunder shall be subordinate and subject to the provisions of this Lease, and if this Lease shall be terminated during the term of any Transfer, Landlord shall have the right to: (i) treat such Transfer as cancelled and repossess the Subject Space by any lawful means, or (ii) require that such Transferee attorn to and recognize Landlord as its landlord under any such Transfer.  If Tenant shall be in default under this Lease, Landlord is hereby irrevocably authorized, as Tenant’s agent and attorney-in-fact, to direct any Transferee to make all payments under or in connection with the Transfer directly to Landlord (which Landlord shall apply towards Tenant’s obligations under this Lease) until such default is cured.  Such Transferee shall rely on any representation by Landlord that Tenant is in default hereunder, without any need for confirmation thereof by Tenant.  Upon any assignment, the assignee shall assume in writing all obligations and covenants of Tenant thereafter to be performed or observed under this Lease.  No collection or acceptance of rent by Landlord from any Transferee shall be deemed a waiver of any provision of this Article 14 or the approval of any Transferee or a release of Tenant from any obligation under this Lease, whether theretofore or thereafter accruing.  In no event shall Landlord’s enforcement of any provision of this Lease against any Transferee be deemed a waiver of Landlord’s right to enforce any term of this Lease against Tenant or any other person.  If Tenant’s obligations hereunder have been guaranteed, Landlord’s consent to any Transfer shall not be effective unless the guarantor also consents to such Transfer.

 

14.8                         Non-Transfers .  Notwithstanding anything to the contrary contained in this Article 14 , (i) an assignment or subletting of all or a portion of the Premises to an affiliate of Tenant (an entity which is controlled by,

 

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controls, or is under common control with, Tenant), (ii) an assignment of the Premises to an entity which acquires all or substantially all of the assets or interests (partnership, stock or other) of Tenant, (iii) an assignment of the Premises to an entity which is the resulting entity of a merger or consolidation of Tenant, or (iv) a sale of corporate shares of capital stock in Tenant in connection with an initial public offering of Tenant’s stock on a nationally-recognized stock exchange (collectively, a “ Permitted Transferee ”), shall not be deemed a Transfer under this Article 14 , provided that (A) following execution Tenant notifies Landlord of any such assignment or sublease and promptly supplies Landlord with any documents or information requested by Landlord regarding such assignment or sublease or such affiliate, (B) such assignment or sublease is not a subterfuge by Tenant to avoid its obligations under this Lease, (C) such Permitted Transferee shall be of a character and reputation consistent with the quality of the Building, and (D) such Permitted Transferee shall have a tangible net worth (not including goodwill as an asset) computed in accordance with generally accepted accounting principles (“ Net Worth ”) at least equal to the Net Worth of Tenant on the day immediately preceding the effective date of such assignment or sublease.  An assignee of Tenant’s entire interest that is also a Permitted Transferee may also be known as a “ Permitted Assignee .” “ Control ,” as used in this Section 14.8 , shall mean the ownership, directly or indirectly, of at least fifty-one percent (51%) of the voting securities of, or possession of the right to vote, in the ordinary direction of its affairs, of at least fifty-one percent (51%) of the voting interest in, any person or entity.  No such permitted assignment or subletting shall serve to release Tenant from any of its obligations under this Lease.

 

15.                                SURRENDER OF PREMISES; OWNERSHIP AND REMOVAL OF TRADE FIXTURES

 

15.1                         Surrender of Premises .  No act or thing done by Landlord or any agent or employee of Landlord during the Lease Term shall be deemed to constitute an acceptance by Landlord of a surrender of the Premises unless such intent is specifically acknowledged in writing by Landlord.  The delivery of keys to the Premises to Landlord or any agent or employee of Landlord shall not constitute a surrender of the Premises or effect a termination of this Lease, whether or not the keys are thereafter retained by Landlord, and notwithstanding such delivery Tenant shall be entitled to the return of such keys at any reasonable time upon request until this Lease shall have been properly terminated.  The voluntary or other surrender of this Lease by Tenant, whether accepted by Landlord or not, or a mutual termination hereof, shall not work a merger, and at the option of Landlord shall operate as an assignment to Landlord of all subleases or subtenancies affecting the Premises or terminate any or all such sublessees or subtenancies.

 

15.2                         Removal of Tenant Property by Tenant .  Upon the expiration of the Lease Term, or upon any earlier termination of this Lease, Tenant shall, subject to the provisions of this Article 15 , quit and surrender possession of the Premises to Landlord in as good order and condition as when Tenant took possession and as thereafter improved by Landlord and/or Tenant, reasonable wear and tear and repairs which are specifically made the responsibility of Landlord hereunder excepted.  Upon such expiration or termination, Tenant shall, without expense to Landlord, remove or cause to be removed from the Premises all debris and rubbish, and such items of furniture, equipment, free-standing cabinet work, movable partitions and other articles of personal property owned by Tenant or installed or placed by Tenant at its expense in the Premises, and such similar articles of any other persons claiming under Tenant, as Landlord may, in its sole discretion, require to be removed, and Tenant shall repair at its own expense all damage to the Premises resulting from such removal.

 

15.3                         Environmental Assessment .  In the event that, during the Lease Term, Tenant elects to use any portion of the Premises for research and development, engineering, and/or laboratory purposes, then in connection with its surrender of the Premises, Tenant shall submit to Landlord, at least thirty (30) days prior to the expiration date of this Lease (or in the event of an earlier termination of this Lease, as soon as reasonably possible following such termination), an environmental Assessment of the Premises by a competent and experienced environmental engineer or engineering firm reasonably satisfactory to Landlord (pursuant to a contract approved by Landlord and providing that Landlord can rely on the Environmental Assessment), which (i) evidences that the Premises are in a clean and safe condition and free and clear of any Hazardous Materials; and (ii) includes a review of the Premises by an environmental consultant for asbestos, mold, fungus, spores, and other moisture conditions, on-site chemical use, and lead-based paint.  If such Environmental Assessment reveals that remediation or Clean-up is required under any Environmental Laws, Tenant shall submit a remediation plan prepared by a recognized environmental consultant and shall be responsible for all costs of remediation and Clean-up, as more particularly provided in Section 5.4 , above.

 

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16.                                HOLDING OVER

 

If Tenant holds over after the expiration of the Lease Term or earlier termination thereof, with the express or implied consent of Landlord, such tenancy shall be from month-to-month only, and shall not constitute a renewal hereof or an extension for any further term.  If Tenant holds over after the expiration of the Lease Term of earlier termination thereof, without the express or implied consent of Landlord, such tenancy shall be deemed to be a tenancy by sufferance only, and shall not constitute a renewal hereof or an extension for any further term, and Base Rent shall be payable at a monthly rate equal to one hundred fifty percent (150%) of the Base Rent applicable during the last rental period of the Lease Term under this Lease.  Such month-to-month tenancy or tenancy by sufferance, as the case may be, shall be subject to every other applicable term, covenant and agreement contained herein.  Nothing contained in this Article 16 shall be construed as consent by Landlord to any holding over by Tenant, and Landlord expressly reserves the right to require Tenant to surrender possession of the Premises to Landlord as provided in this Lease upon the expiration or other termination of this Lease.  The provisions of this Article 16 shall not be deemed to limit or constitute a waiver of any other rights or remedies of Landlord provided herein or at law.  If Tenant fails to surrender the Premises upon the termination or expiration of this Lease, in addition to any other liabilities to Landlord accruing therefrom, Tenant shall protect, defend, indemnify and hold Landlord harmless from all loss, costs (including reasonable attorneys’ fees) and liability resulting from such failure, including, without limiting the generality of the foregoing, any claims made by any succeeding tenant founded upon such failure to surrender and any lost profits to Landlord resulting therefrom.

 

17.                                ESTOPPEL CERTIFICATES

 

Within ten (10) business days following a request in writing by Landlord, Tenant shall execute, acknowledge and deliver to Landlord an estoppel certificate, which, as submitted by Landlord, shall be substantially in the form of Exhibit E , attached hereto (or such other form as may be required by any prospective mortgagee or purchaser of the Project, or any portion thereof), indicating therein any exceptions thereto that may exist at that time, and shall also contain any other information reasonably requested by Landlord or Landlord’s mortgagee or prospective mortgagee.  Any such certificate may be relied upon by any prospective mortgagee or purchaser of all or any portion of the Project.  Tenant shall execute and deliver whatever other instruments may be reasonably required for such purposes.  At any time during the Lease Term, Landlord may require Tenant to provide Landlord with a current financial statement and financial statements of the two (2) years prior to the current financial statement year.  Such statements shall be prepared in accordance with generally accepted accounting principles and, if such is the normal practice of Tenant, shall be audited by an independent certified public accountant.  Failure of Tenant to timely execute, acknowledge and deliver such estoppel certificate or other instruments shall constitute an acceptance of the Premises and an acknowledgment by Tenant that statements included in the estoppel certificate are true and correct, without exception.

 

18.                                SUBORDINATION

 

This Lease shall be subject and subordinate to all present and future ground or underlying leases of the Building or Project and to the lien of any mortgage, trust deed or other encumbrances now or hereafter in force against the Building or Project or any part thereof, if any, and to all renewals, extensions, modifications, consolidations and replacements thereof, and to all advances made or hereafter to be made upon the security of such mortgages or trust deeds, unless the holders of such mortgages, trust deeds or other encumbrances, or the lessors under such ground lease or underlying leases, require in writing that this Lease be superior thereto.  Tenant covenants and agrees in the event any proceedings are brought for the foreclosure of any such mortgage or deed in lieu thereof (or if any ground lease is terminated), to attorn, without any deductions or set-offs whatsoever, to the lienholder or purchaser or any successors thereto upon any such foreclosure sale or deed in lieu thereof (or to the ground lessor), if so requested to do so by such purchaser or lienholder or ground lessor, and to recognize such purchaser or lienholder or ground lessor as the lessor under this Lease, provided such lienholder or purchaser or ground lessor shall agree to accept this Lease and not disturb Tenant’s occupancy, so long as Tenant timely pays the rent and observes and performs the terms, covenants and conditions of this Lease to be observed and performed by Tenant.  Landlord’s delivery to Tenant of commercially reasonable non-disturbance agreement(s) in favor of Tenant from any ground lessors, mortgage holders or lien holders of Landlord who come into existence following the date hereof but prior to the expiration of the Lease Term shall be in consideration of, and a condition precedent to, Tenant’s agreement to subordinate this Lease to any such ground lease,

 

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mortgage or lien.  Landlord’s interest herein may be assigned as security at any time to any lienholder.  Tenant shall, within ten (10) business days of request by Landlord, execute such further instruments or assurances as Landlord may reasonably deem necessary to evidence or confirm the subordination or superiority of this Lease to any such mortgages, trust deeds, ground leases or underlying leases.  Tenant waives the provisions of any current or future statute, rule or law which may give or purport to give Tenant any right or election to terminate or otherwise adversely affect this Lease and the obligations of the Tenant hereunder in the event of any foreclosure proceeding or sale.  Landlord represents that, as of the date of this Lease, there are no ground or underlying leases or liens of any mortgage or trust deed encumbering the Building or Project.  Landlord hereby represents and warrants to Tenant that, as of the date of this Lease, there is no deed of trust or mortgage encumbering the Building.

 

19.                                DEFAULTS; REMEDIES

 

19.1                         Events of Default .  The occurrence of any of the following shall constitute a default of this Lease by Tenant:

 

19.1.1               Any failure by Tenant to pay any Rent or any other charge required to be paid under this Lease, or any part thereof, when due unless such failure is cured within five (5) business days after notice; or

 

19.1.2               Except where a specific time period is otherwise set forth for Tenant’s performance in this Lease, in which event the failure to perform by Tenant within such time period shall be a default by Tenant under this Section  19.1.2 , any failure by Tenant to observe or perform any other provision, covenant or condition of this Lease to be observed or performed by Tenant where such failure continues for thirty (30) days after written notice thereof from Landlord to Tenant; provided that if the nature of such default is such that the same cannot reasonably be cured within a thirty (30) day period, Tenant shall not be deemed to be in default if it diligently commences such cure within such period and thereafter diligently proceeds to rectify and cure such default; or

 

19.1.3               The failure by Tenant to observe or perform according to the provisions of Articles 5 , 14 , 17 or 18 of this Lease where such failure continues for more than two (2) business days after notice from Landlord.

 

The notice periods provided herein are in lieu of, and not in addition to, any notice periods provided by law.

 

19.2                         Remedies Upon Default .  Upon the occurrence of any event of default by Tenant, Landlord shall have, in addition to any other remedies available to Landlord at law or in equity (all of which remedies shall be distinct, separate and cumulative), the option to pursue any one or more of the following remedies, each and all of which shall be cumulative and nonexclusive, without any notice or demand whatsoever.

 

19.2.1               Terminate this Lease, in which event Tenant shall immediately surrender the Premises to Landlord, and if Tenant fails to do so, Landlord may, without prejudice to any other remedy which it may have for possession or arrearages in rent, enter upon and take possession of the Premises and expel or remove Tenant and any other person who may be occupying the Premises or any part thereof, without being liable for prosecution or any claim or damages therefor; and Landlord may recover from Tenant the following:

 

(i)                                                  The worth at the time of award of the unpaid rent which has been earned at the time of such termination; plus

 

(ii)                                               The worth at the time of award of the amount by which the unpaid rent which would have been earned after termination until the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

(iii)                                            The worth at the time of award of the amount by which the unpaid rent for the balance of the Lease Term after the time of award exceeds the amount of such rental loss that Tenant proves could have been reasonably avoided; plus

 

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(iv)                                           Any otter amount necessary to compensate Landlord for all the detriment proximately caused by Tenant’s failure to perform its obligations under this Lease or which in the ordinary course of things would be likely to result therefrom, specifically including but not limited to, brokerage commissions and advertising expenses incurred, expenses of remodeling the Premises or any portion thereof for a new tenant, whether for the same or a different use, and any special concessions made to obtain a new tenant; and

 

(v)                                              At Landlord’s election, such other amounts in addition to or in lieu of the foregoing as may be permitted from time to time by applicable law.

 

The term “ rent ” as used in this Section 19.2 shall be deemed to be and to mean all sums of every nature required to be paid by Tenant pursuant to the terms of this Lease, whether to Landlord or to others.  As used in Sections 19.2.1(i)  and (ii) , above, the “ worth at the time of award ” shall be computed by allowing interest at the rate set forth in Article 25 of this Lease, but in no case greater than the maximum amount of such interest permitted by law.  As used in Section 19.2.1(iii)  above, the “worth at the time of award” shall be computed by discounting such amount at the discount rate of the Federal Reserve Bank of San Francisco at the time of award plus one percent (1%).

 

19.2.2               Landlord shall have the remedy described in California Civil Code Section 1951.4 (lessor may continue lease in effect after lessee’s breach and abandonment and recover rent as it becomes due, if lessee has the right to sublet or assign, subject only to reasonable limitations).  Accordingly, if Landlord does not elect to terminate this Lease on account of any default by Tenant, Landlord may, from time to time, without terminating this Lease, enforce all of its rights and remedies under this Lease, including the right to recover all rent as it becomes due.

 

19.2.3               Landlord shall at all times have the rights and remedies (which shall be cumulative with each other and cumulative and in addition to those rights and remedies available under sections 19.2.1 and 19.2.2 , above, or any law or other provision of this Lease), without prior demand or notice except as required by applicable law, to seek any declaratory, injunctive or other equitable relief, and specifically enforce this Lease, or restrain or enjoin a violation or breach of any provision hereof

 

19.3                         Subleases of Tenant .  Whether or not Landlord elects to terminate this Lease on account of any default by Tenant, as set forth in this Article 19 , Landlord shall have the right to terminate any and all subleases, licenses, concessions or other consensual arrangements for possession entered into by Tenant and affecting the Premises or may, in Landlord’s sole discretion, succeed to Tenant’s interest in such subleases, licenses, concessions or arrangements.  In the event of Landlord’s election to succeed to Tenant’s interest in any such subleases, licenses, concessions or arrangements, Tenant shall, as of the date of notice by Landlord of such election, have no further right to or interest in the rent or other consideration receivable thereunder.

 

19.4                         Efforts to Relet .  No re-entry or repossession, repairs, maintenance, changes, alterations and additions, reletting, appointment of a receiver to protect Landlord’s interests hereunder, or any other action or omission by Landlord shall be construed as an election by Landlord to terminate this Lease or Tenant’s right to possession, or to accept a surrender of the Premises, nor shall same operate to release Tenant in whole or in part from any of Tenant’s obligations hereunder, unless express written notice of such intention is sent by Landlord to Tenant.  Tenant hereby irrevocably waives any right otherwise available under any law to redeem or reinstate this Lease.

 

19.5                         Landlord Default .

 

19.5.1               General .  Notwithstanding anything to the contrary set forth in this Lease, Landlord shall not be in default in the performance of any obligation required to be performed by Landlord pursuant to this Lease unless Landlord fails to perform such obligation within thirty (30) days after the receipt of notice from Tenant specifying in detail Landlord’s failure to perform; provided , however , if the nature of Landlord’s obligation is such that more than thirty (30) days are required for its performance, then Landlord shall not be in default under this Lease if it shall commence such performance within such thirty (30) day period and thereafter diligently pursue the same to completion.

 

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Upon any such default by Landlord under this Lease, Tenant may, except as otherwise specifically provided in this Lease to the contrary, exercise any of its rights provided at law or in equity.

 

19.5.2               Abatement of Rent .  In the event that Tenant is prevented from using, and does not use, the Premises or any portion thereof, as a result of (i) any repair, maintenance or alteration performed by Landlord, or which Landlord failed to perform, after the Lease Commencement Date and required by this Lease, which substantially interferes with Tenant’s use of the Premises, or (ii) any failure to provide services, utilities or access to the Premises as required by this Lease (either such set of circumstances as set forth in items (i) or (ii), above, to be known as an “ Abatement Event ”), then Tenant shall give Landlord notice of such Abatement Event, and if such Abatement Event continues for five (5) consecutive business days after Landlord’s receipt of any such notice (the “ Eligibility Period ”) and either (A) Landlord does not diligently commence and pursue to completion the remedy of such Abatement Event or (B) Landlord receives proceeds from its rental interruption insurance which covers such Abatement Event, then the Base Rent, Tenant’s Share of Direct Expenses, and Tenant’s obligation to pay for parking (to the extent not utilized by Tenant) shall be abated or reduced, as the case may be, after expiration of the Eligibility Period for such time that Tenant continues to be so prevented from using, and does not use for the normal conduct of Tenant’s business, the Premises or a portion thereof, in the proportion that the rentable area of the portion of the Premises that Tenant is prevented from using, and does not use, bears to the total rentable area of the Premises; provided , however , in the event that Tenant is prevented from using, and does not use, a portion of the Premises for a period of time in excess of the Eligibility Period and the remaining portion of the Premises is not sufficient to allow Tenant to effectively conduct its business therein, and if Tenant does not conduct its business from such remaining portion, then for such time after expiration of the Eligibility Period during which Tenant is so prevented from effectively conducting its business therein, the Base Rent and Tenant’s Share of Direct Expenses for the entire Premises and Tenant’s obligation to pay for parking shall be abated for such time as Tenant continues to be so prevented from using, and does not use, the Premises.  If, however, Tenant reoccupies any portion of the Premises during such period, the Rent allocable to such reoccupied portion, based on the proportion that the rentable area of such reoccupied portion of the Premises bears to the total rentable area of the Premises, shall be payable by Tenant from the date Tenant reoccupies such portion of the Premises.  To the extent an Abatement Event is caused by an event covered by Articles 11 or 13 of this Lease, then Tenant’s right to abate rent shall be governed by the terms of such Article 11 or 13 , as applicable, and the Eligibility Period shall not be applicable thereto.  Such right to abate Base Rent and Tenant’s Share of Direct Expenses shall be Tenant’s sole and exclusive remedy for rent abatement at law or in equity for an Abatement Event.  Except as provided in this Section 19.5.2 , nothing contained herein shall be interpreted to mean that Tenant is excused from paying Rent due hereunder.

 

20.                                COVENANT OF QUIET ENJOYMENT

 

Landlord covenants that Tenant, on paying the Rent, charges for services and other payments herein reserved and on keeping, observing and performing all the other terms, covenants, conditions, provisions and agreements herein contained on the part of Tenant to be kept, observed and performed, shall, during the Lease Term, peaceably and quietly have, hold and enjoy the Premises subject to the terms, covenants, conditions, provisions and agreements hereof without interference by any persons lawfully claiming by or through Landlord.  The foregoing covenant is in lieu of any other covenant express or implied.

 

21.                                SECURITY DEPOSIT

 

Concurrently with Tenant’s execution of this Lease, Tenant shall deposit with Landlord a security deposit (the “ Security Deposit ”) in the amount set forth in Section 9 of the Summary, as security for the faithful performance by Tenant of all of its obligations under this Lease.  If Tenant defaults with respect to any provisions of this Lease, including, but not limited to, the provisions relating to the payment of Rent, the removal of property and the repair of resultant damage, Landlord may, without notice to Tenant, but shall not be required to apply all or any part of the Security Deposit for the payment of any Rent or any other sum in default and Tenant shall, upon demand therefor, restore the Security Deposit to its original amount.  Any unapplied portion of the Security Deposit shall be returned to Tenant, or, at Landlord’s option, to the last assignee of Tenant’s interest hereunder, within sixty (60) days following the expiration of the Lease Term.  Tenant shall not be entitled to any interest on the Security Deposit.  Tenant hereby irrevocably waives and relinquishes any and all rights, benefits, or protections, if any, Tenant now has, or in the future

 

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may have, under Section 1950.7 of the California Civil Code (excluding subsection 1950.7(b)), any successor statute, and all other provisions of law, now or hereafter in effect, including, but not limited to, any provision of law which (i) establishes the time frame by which a landlord must refund a security deposit under a lease, and/or (ii) provides that a landlord may claim from a security deposit only those sums reasonably necessary to remedy defaults in the payment of rent, to repair damage caused by a tenant or to clean the subject premises.  Tenant acknowledges and agrees that (a) any statutory time frames for the return of a security deposit are superseded by the express period identified in this Article 21 , above, and (b) rather than be so limited, Landlord may claim from the Security Deposit (1) any and all sums expressly identified in this Article 21 , above, and (2) any additional sums reasonably necessary to compensate Landlord for any and all losses or damages caused by Tenant’s default of this Lease, including, but not limited to, all damages or rent due upon termination of Lease pursuant to Section 1951.2 of the California Civil Code.

 

22.                                SUBSTITUTION OF OTHER PREMISES

 

Intentionally Omitted.

 

23.                                SIGNS

 

23.1                         Exterior Signage .  Subject to Landlord’s prior written approval, in its reasonable discretion, and provided all signs are in keeping with the quality, design and style of the Building and Project, Tenant, at its sole cost and expense, may (i) install identification signage on one (1) panel, as designated by Landlord, on the existing monument sign located at the exterior of the Project, and (ii) install identification signage near the main entrance of the Building.  All permitted signs shall be maintained by Tenant at its expense in a good and safe condition and appearance.  Upon the expiration or earlier termination of this Lease, Tenant shall remove all of its signs at Tenant’s sole cost and expense.  Tenant shall repair any damage to the Premises or Project, inside or outside, resulting from the erection, maintenance or removal of any signs.

 

23.2                         Prohibits Signage and Other Items .  Any signs, notices, logos, pictures, names or advertisements which are installed and that have not been separately approved by Landlord may be removed without notice by Landlord at the sole expense of Tenant.  Tenant may not install any signs on the exterior or roof of the Project or the Common Areas.  Any signs, window coverings, or blinds (even if the same are located behind the Landlord-approved window coverings for the Building), or other items visible from the exterior of the Premises or Building, shall be subject to the prior approval of Landlord, in its sole discretion, except as permitted by Section 23.1 .

 

24.                                COMPLIANCE WITH LAW

 

Tenant shall not do anything or suffer anything to be done in or about the Premises or the Project which will in any way conflict with any law, statute, ordinance or other governmental rule, regulation or requirement now in force or which may hereafter be enacted or promulgated (collectively, “ Applicable Laws ”).  Following Landlord’s Substantial Completion of the Tenant Improvements, at Tenant’s sole cost and expense, Tenant shall promptly comply with all such Applicable Laws which relate to (i) Tenant’s use of the Premises, (ii) any Alterations made by Tenant to the Premises, or (iii) the Base Building, but as to the Base Building, only to the extent such obligations are triggered by Alterations made by Tenant to the Premises to the extent such Alterations are not normal and customary business office improvements, or Tenant’s use of the Premises for non-general office or life-science use.  Following Landlord’s Substantial Completion of the Tenant Improvements, Tenant shall be responsible, at its sole cost and expense, to make all alterations to the Premises as are required to comply with the Applicable Laws to the extent required in this Article 24 .  Notwithstanding the foregoing terms of this Article 24 to the contrary, Tenant may defer such compliance with Applicable Laws while Tenant contests, in a court of proper jurisdiction, in good faith, the applicability of such Applicable Laws to the Premises or Tenant’s specific use or occupancy of the Premises; provided , however , Tenant may only defer such compliance if such deferral shall not (a) prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, (b) prohibit Landlord from obtaining or maintaining a certificate of occupancy for the Building or any portion thereof, (c) unreasonably and materially affect the safety of the employees and/or invitees of Landlord or Tenant, (d) create a significant health hazard for the employees and/or invitees of Landlord or Tenant, (e) otherwise materially and adversely affect Tenant’s use of or access to the Buildings or the Premises, or (f) impose material obligations, liability, fines, or

 

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penalties upon Landlord, or would materially and adversely affect the use of or access to the Building by Landlord.  The judgment of any court of competent jurisdiction or the admission of Tenant in any judicial action, regardless of whether Landlord is a party thereto, that Tenant has violated any of said governmental measures, shall be conclusive of that fact as between Landlord and Tenant.  Landlord shall comply with all Applicable Laws relating to the Base Building, provided that compliance with such Applicable Laws is not the responsibility of Tenant under this Lease, and provided further that Landlord’s failure to comply therewith would prohibit Tenant from obtaining or maintaining a certificate of occupancy for the Premises, or would unreasonably and materially affect the safety of Tenant’s employees or create a significant health hazard for Tenant’s employees, or would otherwise materially and adversely affect Tenant’s use of or access to the Premises.  Landlord shall be permitted to include in Operating Expenses any costs or expenses incurred by Landlord under this Article 24 to the extent not prohibited by the terms of Section 4.2.7 above.

 

25.                                LATE CHARGES

 

If any installment of Rent or any other sum due from Tenant shall not be received by Landlord or Landlord’s designee within five (5) business days after Tenant’s receipt of written notice from Landlord that said amount is due, then Tenant shall pay to Landlord a late charge equal to five percent (5%) of the overdue amount plus any reasonable attorneys’ fees incurred by Landlord by reason of Tenant’s failure to pay Rent and/or other charges when due hereunder.  Notwithstanding the foregoing, Landlord shall not charge Tenant a late charge for the first (1st) late payment in any twelve (12) month period (but in no event with respect to any subsequent late payment in any twelve (12) month period) during the Lease Term that Tenant fails to timely pay Rent or another sum due under this Lease, provided that such late payment is made within three (3) days following the expiration of the five (5) business day period following written notice.  The late charge shall be deemed Additional Rent and the right to require it shall be in addition to all of Landlord’s other rights and remedies hereunder or at law and shall not be construed as liquidated damages or as limiting Landlord’s remedies in any manner In addition to the late charge described above, any Rent or other amounts owing hereunder which are not paid within ten (10) days after the date they are due shall bear interest from the date when due until paid at a rate per annum equal to the lesser of (i) the annual “ Bank Prime Loan ” rate cited in the Federal Reserve Statistical Release Publication G.13(415), published on the first Tuesday of each calendar month (or such other comparable index as Landlord and Tenant shall reasonably agree upon if such rate ceases to be published) plus four (4) percentage points, and (ii) the highest rate permitted by applicable law.

 

26.                                LANDLORD’S RIGHT TO CURE DEFAULT; PAYMENTS BY TENANT

 

26.1                         Landlord’s Cure .  All covenants and agreements to be kept or performed by Tenant under this Lease shall be performed by Tenant at Tenant’s sole cost and expense and without any reduction of Rent, except to the extent, if any, otherwise expressly provided herein.  If Tenant shall fail to perform any obligation under this Lease, and such failure shall continue in excess of the time allowed under Section 19.1.2 , above, unless a specific time period is otherwise stated in this Lease, Landlord may, but shall not be obligated to, make any such payment or perform any such act on Tenant’s part without waiving its rights based upon any default of Tenant and without releasing Tenant from any obligations hereunder.

 

26.2                         Tenant’s Reimbursement .  Except as may be specifically provided to the contrary in this Lease, Tenant shall pay to Landlord, upon delivery by Landlord to Tenant of statements therefor: (i) sums equal to expenditures reasonably made and obligations incurred by Landlord in connection with the remedying by Landlord of Tenant’s defaults pursuant to the provisions of Section 26.1 ; (ii) sums equal to all losses, costs, liabilities, damages and expenses referred to in Article 10 of this Lease; and (iii) sums equal to all expenditures made and obligations incurred by Landlord in collecting or attempting to collect the Rent or in enforcing or attempting to enforce any rights of Landlord under this Lease or pursuant to law, including, without limitation, all reasonable legal fees and other amounts so expended.  Tenant’s obligations under this Section 26.2 shall survive the expiration or sooner termination of the Lease Term.

 

27.                                ENTRY BY LANDLORD

 

Landlord reserves the right at all reasonable times and upon not less than one (1) day’s prior notice to Tenant (except in the case of an emergency) to enter the Premises to (i) inspect them; (ii) show the Premises to prospective

 

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purchasers, or to current or prospective mortgagees, ground or underlying lessors or insurers or, during the last twelve (12) months of the Lease Term, to prospective tenants; (iii) post notices of nonresponsibility (to the extent applicable pursuant to then applicable law); or (iv) alter, improve or repair the Premises or the Building, or for structural alterations, repairs or improvements to the Building or the Building’s systems and equipment.  Provided that Landlord employs commercially reasonable efforts to minimize interference with the conduct of Tenant’s business in connection with entries into the Premises, Landlord may make any such entries without the abatement of Rent, except as otherwise provided in this Lease, and shall take such reasonable steps as required to accomplish the stated purposes. In an emergency, Landlord shall have the right to use any means that Landlord may deem proper to open the doors in and to the Premises.  Any entry into the Premises by Landlord in the manner hereinbefore described shall not be deemed to be a forcible or unlawful entry into, or a detainer of, the Premises, or an actual or constructive eviction of Tenant from any portion of the Premises.  Tenant shall have the right to have an employee of Tenant accompany Landlord in connection with any such entry, except in the event of an emergency.

 

28.                                TENANT PARKING

 

Tenant shall have the right, without the payment of any parking charge or fee (other than as a reimbursement of operating expenses to the extent allowed pursuant to the terms or Article 4 of this Lease, above), commencing on the Lease Commencement Date, to use the amount of unreserved parking spaces set forth in Section 10 of the Summary, on a monthly basis throughout the Lease Term, which parking spaces shall pertain to the on-site and/or off-site, as the case may be, parking facility (or facilities) which serve the Project.  Notwithstanding the foregoing, Tenant shall be responsible for the full amount of any taxes imposed by any governmental authority in connection with the renting of such parking spaces by Tenant or the use of the parking facility by Tenant.  Tenant’s continued right to use the parking spaces is conditioned upon Tenant abiding by all rules and regulations which are prescribed from time to time for the orderly operation and use of the parking facility where the parking spaces are located (including any sticker or other identification system established by Landlord and the prohibition of vehicle repair and maintenance activities in the parking facilities), and shall cooperate in seeing that Tenant’s employees and visitors also comply with such rules and regulations.  Tenant’s use of the Project parking facility shall be at Tenant’s sole risk and Tenant acknowledges and agrees that Landlord shall have no liability whatsoever for damage to the vehicles of Tenant, its employees and/or visitors, or for other personal injury or property damage or theft relating to or connected with the parking rights granted herein or any of Tenant’s, its employees’ and/or visitors’ use of the parking facilities.

 

29.                                MISCELLANEOUS PROVISIONS

 

29.1                         Terms; Captions .  The words “ Landlord ” and “ Tenant ” as used herein shall include the plural as well as the singular.  The necessary grammatical changes required to make the provisions hereof apply either to corporations or partnerships or individuals, men or women, as the case may require, shall in all cases be assumed as though in each case fully expressed.  The captions of Articles and Sections are for convenience only and shall not be deemed to limit, construe, affect or alter the meaning of such Articles and Sections.

 

29.2                         Binding Effect .  Subject to all other provisions of this Lease, each of the covenants, conditions and provisions of this Lease shall extend to and shall, as the case may require, bind or inure to the benefit not only of Landlord and of Tenant, but also of their respective heirs, personal representatives, successors or assigns, provided this clause shall not permit any assignment by Tenant contrary to the provisions of Article 14 of this Lease.

 

29.3                         No Air Rights .  No rights to any view or to light or air over any property, whether belonging to Landlord or any other person, are granted to Tenant by this Lease.  If at any time any windows of the Premises are temporarily darkened or the light or view therefrom is obstructed by reason of any repairs, improvements, maintenance or cleaning in or about the Project, the same shall be without liability to Landlord and without any reduction or diminution of Tenant’s obligations under this Lease.

 

29.4                         Modification of Lease .  Should any current or prospective mortgagee or ground lessor for the Building or Project require a modification of this Lease, which modification will not cause an increased cost or expense to Tenant or in any other way materially and adversely change the rights and obligations of Tenant hereunder, then and

 

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in such event, Tenant agrees that this Lease may be so modified and agrees to execute whatever documents are reasonably required therefor and to deliver the same to Landlord within ten (10) business days following a request therefor.  At the request of Landlord or any mortgagee or ground lessor, Tenant agrees to execute a short form of Lease and deliver the same to Landlord within ten (10) business days following the request therefor.

 

29.5                         Transfer of Landlord’s Interest .  Tenant acknowledges that Landlord has the right to transfer all or any portion of its interest in the Project or Building and in this Lease, and Tenant agrees that in the event of any such transfer, Landlord shall automatically be released from all liability under this Lease and Tenant agrees to look solely to such transferee for the performance of Landlord’s obligations hereunder after the date of transfer and such transferee shall be deemed to have fully assumed and be liable for all obligations of this Lease to be performed by Landlord, including the return of any Security Deposit, and Tenant shall attorn to such transferee.

 

29.6                         Prohibition Against Recording .  Except as provided in Section 29.4 of this Lease, neither this Lease, nor any memorandum, affidavit or other writing with respect thereto, shall be recorded by Tenant or by anyone acting through, under or on behalf of Tenant.

 

29.7                         Landlord’s Title .  Landlord’s title is and always shall be paramount to the title of Tenant.  Nothing herein contained shall empower Tenant to do any act which can, shall or may encumber the title of Landlord.

 

29.8                         Relationship of Parties .  Nothing contained in this Lease shall be deemed or construed by the parties hereto or by any third party to create the relationship of principal and agent, partnership, joint venturer or any association between Landlord and Tenant.

 

29.9                         Application of Payments .  Landlord shall have the right to apply payments received from Tenant pursuant to this Lease, regardless of Tenant’s designation of such payments, to satisfy any obligations of Tenant hereunder, in such order and amounts as Landlord, in its sole discretion, may elect.

 

29.10                  Time of Essence .  Time is of the essence with respect to the performance of every provision of this Lease in which time of performance is a factor.

 

29.11                  Partial Invalidity .  If any term, provision or condition contained in this Lease shall, to any extent, be invalid or unenforceable, the remainder of this Lease, or the application of such term, provision or condition to persons or circumstances other than those with respect to which it is invalid or unenforceable, shall not be affected thereby, and each and every other term, provision and condition of this Lease shall be valid and enforceable to the fullest extent possible permitted by law.

 

29.12                  No Warranty .  In executing and delivering this Lease, Tenant has not relied on any representations, including, but not limited to, any representation as to the amount of any item comprising Additional Rent or the amount of the Additional Rent in the aggregate or that Landlord is furnishing the same services to other tenants, at all, on the same level or on the same basis, or any warranty or any statement of Landlord which is not set forth herein or in one or more of the exhibits attached hereto.

 

29.13                  Landlord Exculpation .  The liability of Landlord or the Landlord Parties to Tenant for any default by Landlord under this Lease or arising in connection herewith or with Landlord’s operation, management, leasing, repair, renovation, alteration or any other matter relating to the Project or the Premises shall be limited solely and exclusively to an amount which is equal to the interest of Landlord in the Project.  Neither Landlord, nor any of the Landlord Parties shall have any personal liability therefor, and Tenant hereby expressly waives and releases such personal liability on behalf of itself and all persons claiming by, through or under Tenant.  The limitations of liability contained in this Section 29.13 shall inure to the benefit of Landlord’s and the Landlord Parties’ present and future partners, beneficiaries, officers, directors, trustees, shareholders, agents and employees, and their respective partners, heirs, successors and assigns.  Under no circumstances shall any present or future partner of Landlord (if Landlord is a partnership), or trustee or beneficiary (if Landlord or any partner of Landlord is a trust), have any liability for the performance of Landlord’s

 

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obligations under this Lease.  Notwithstanding any contrary provision herein, neither Landlord nor the Landlord Parties shall be liable under any circumstances for injury or damage to, or interference with, Tenant’s business, including but not limited to, loss of profits, loss of rents or other revenues, loss of business opportunity, loss of goodwill or loss of use, in each case, however occurring.

 

29.14                  Entire Agreement .  It is understood and acknowledged that there are no oral agreements between the parties hereto affecting this Lease and this Lease constitutes the parties’ entire agreement with respect to the leasing of the Premises and supersedes and cancels any and all previous negotiations, arrangements, brochures, agreements and understandings, if any, between the parties hereto or displayed by Landlord to Tenant with respect to the subject matter thereof, and none thereof shall be used to interpret or construe this Lease.  None of the terms, covenants, conditions or provisions of this Lease can be modified, deleted or added to except in writing signed by the parties hereto.

 

29.15                  Right to Lease .  Landlord reserves the absolute right to effect such other tenancies in the Project as Landlord in the exercise of its sole business judgment shall determine to best promote the interests of the Building or Project.  Tenant does not rely on the fact, nor does Landlord represent, that any specific tenant or type or number of tenants shall, during the Lease Term, occupy any space in the Building or Project.

 

29.16                  Force Majeure .  Any prevention, delay or stoppage due to strikes, lockouts, labor disputes, acts of God, acts of war, terrorist acts, inability to obtain services, labor, or materials or reasonable substitutes therefor, governmental actions, civil commotions, fire or other casualty, and other causes beyond the reasonable control of the party obligated to perform, except with respect to the obligations imposed with regard to Rent and other charges to be paid by Tenant pursuant to this Lease (collectively, a “ Force Majeure ”), notwithstanding anything to the contrary contained in this Lease, shall excuse the performance of such party for a period equal to any such prevention, delay or stoppage and, therefore, if this Lease specifies a time period for performance of an obligation of either party, that time period shall be extended by the period of any delay in such party’s performance caused by a Force Majeure.

 

29.17                  Waiver of Redemption by Tenant .  Tenant hereby waives, for Tenant and for all those claiming under Tenant, any and all rights now or hereafter existing to redeem by order or judgment of any court or by any legal process or writ, Tenant’s right of occupancy of the Premises after any termination of this Lease.

 

29.18                  Notices .  All notices, demands, statements, designations, approvals or other communications (collectively, “ Notices ”) given or required to be given by either party to the other hereunder or by law shall be in writing, shall be (A) sent by United States certified or registered mail, postage prepaid, return receipt requested (“ Mail ”), (B) delivered by a nationally recognized overnight courier, or (D) delivered personally.  Any Notice shall be sent, transmitted, or delivered, as the case may be, to Tenant at the appropriate address set forth in Section 11 of the Summary, or to such other place as Tenant may from time to time designate in a Notice to Landlord, or to Landlord at the addresses set forth below, or to such other places as Landlord may from time to time designate in a Notice to Tenant.  Any Notice will be deemed given (i) three (3) days after the date it is posted if sent by Mail, (ii) the date the overnight courier delivery is made, or (iii) the date personal delivery is made.  As of the date of this Lease, any Notices to Landlord must be sent, transmitted, or delivered, as the case may be, to the following addresses:

 

HCP LS Redwood City, LLC

c/o HCP, Inc.

3760 Kilroy Airport Way, Suite 300

Long Beach, CA 90806

Attention: Legal Department

 

and:

 

HCP Life Science Estates

400 Oyster Point Boulevard, Suite 409

South San Francisco, CA 94080 Attention: Jon Bergschneider

 

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and

 

Allen Matkins Leck Gamble Mallory & Natsis LLP

1901 Avenue of the Stars

Suite 1800

Los Angeles, California 90067

Attention: Anton N. Natsis, Esq.

 

29.19                  Joint and Several .  If there is more than one Tenant, the obligations imposed upon Tenant under this Lease shall be joint and several.

 

29.20                  Authority .  If Tenant is a corporation, trust or partnership, Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in the State of California and that Tenant has full right and authority to execute and deliver this Lease and that each person signing on behalf of Tenant is authorized to do so.  In such event, Tenant shall, within ten (10) days after execution of this Lease, deliver to Landlord satisfactory evidence of such authority and, if a corporation, upon demand by Landlord, also deliver to Landlord satisfactory evidence of (i) good standing in Tenant’s state of incorporation and (ii) qualification to do business in the State of California.

 

29.21                  Attorneys’ Fees .  In the event that either Landlord or Tenant should bring suit for the possession of the Premises, for the recovery of any sum due under this Lease, or because of the breach of any provision of this Lease or for any other relief against the other, then all costs and expenses, including reasonable attorneys’ fees, incurred by the prevailing party therein shall be paid by the other party, which obligation on the part of the other party shall be deemed to have accrued on the date of the commencement of such action and shall be enforceable whether or not the action is prosecuted to judgment.

 

29.22                  Governing Law; WAIVER OF TRIAL BY JURY .  This Lease shall be construed and enforced in accordance with the laws of the State of California.  IN ANY ACTION OR PROCEEDING ARISING HEREFROM, LANDLORD AND TENANT HEREBY CONSENT TO (I) THE JURISDICTION OF ANY COMPETENT COURT WITHIN THE STATE OF CALIFORNIA, (H) SERVICE OF PROCESS BY ANY MEANS AUTHORIZED BY CALIFORNIA LAW, AND (III) IN THE INTEREST OF SAVING TIME AND EXPENSE, TRIAL WITHOUT A JURY IN ANY ACTION, PROCEEDING OR COUNTERCLAIM BROUGHT BY EITHER OF THE PARTIES HERETO AGAINST THE OTHER OR THEIR SUCCESSORS IN RESPECT OF ANY MA I-1 ER ARISING OUT OF OR IN CONNECTION WITH THIS LEASE, THE RELATIONSHIP OF LANDLORD AND TENANT, TENANT’S USE OR OCCUPANCY OF THE PREMISES, AND/OR ANY CLAIM FOR INJURY OR DAMAGE, OR ANY EMERGENCY OR STATUTORY REMEDY.  IN THE EVENT LANDLORD COMMENCES ANY SUMMARY PROCEEDINGS OR ACTION FOR NONPAYMENT OF BASE RENT OR ADDITIONAL RENT, TENANT SHALL NOT INTERPOSE ANY COUNTERCLAIM OF ANY NATURE OR DESCRIPTION (UNLESS SUCH COUNTERCLAIM SHALL BE MANDATORY) IN ANY SUCH PROCEEDING OR ACTION, BUT SHALL BE RELEGATED TO AN INDEPENDENT ACTION AT LAW.

 

29.23                  Submission of Lease .  Submission of this instrument for examination or signature by Tenant does not constitute a reservation of, option for or option to lease, and it is not effective as a lease or otherwise until execution and delivery by both Landlord and Tenant.

 

29.24                  Brokers .  Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Lease, excepting only the real estate brokers or agents specified in Section 13 of the Summary (the “ Brokers ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Lease.  Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, costs and expenses (including without limitation reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of any dealings with any real estate broker or agent, other than the Brokers, occurring by, through, or under the indemnifying party.  Landlord shall pay Brokers a

 

39



 

commission pursuant to a separate written agreement.  The terms of this Section 29.24 shall survive the expiration or earlier termination of the Lease Term.

 

29.25                  Independent Covenants .  This Lease shall be construed as though the covenants herein between Landlord and Tenant are independent and not dependent and Tenant hereby expressly waives the benefit of any statute to the contrary and agrees that if Landlord fails to perform its obligations set forth herein, Tenant shall not be entitled to make any repairs or perform any acts hereunder at Landlord’s expense or to any setoff of the Rent or other amounts owing hereunder against Landlord.

 

29.26                  Project or Building Name, Address and Signage .  Landlord shall have the right at any time to change the name and/or address of the Project or Building and to install, affix and maintain any and all signs on the exterior and on the interior of the Project or Building as Landlord may, in Landlord’s sole discretion, desire.  Tenant shall not use the name of the Project or Building or use pictures or illustrations of the Project or Building in advertising or other publicity or for any purpose other than as the address of the business to be conducted by Tenant in the Premises, without the prior written consent of Landlord.

 

29.27                  Counterparts .  This Lease may be executed in counterparts with the same effect as if both parties hereto had executed the same document.  Both counterparts shall be construed together and shall constitute a single lease.

 

29.28                  Confidentiality .  Tenant acknowledges that the content of this Lease and any related documents are confidential information.  Except as otherwise required by applicable law, Tenant shall keep such confidential information strictly confidential and shall not disclose such confidential information to any person or entity other than Tenant’s financial, legal, and space planning consultants, and current or prospective investors, lender and purchasers.

 

29.29                  Development of the Project .

 

29.29.1        Subdivision .  Landlord reserves the right to subdivide all or a portion of the buildings and Common Areas.  Tenant agrees to execute and deliver, upon demand by Landlord and in the form requested by Landlord, any additional documents needed to conform this Lease to the circumstances resulting from a subdivision and any all maps in connection therewith.  Notwithstanding anything to the contrary set forth in this Lease, the separate ownership of any buildings and/or Common Areas by an entity other than Landlord shall not affect the calculation of Direct Expenses or Tenant’s payment of Tenant’s Share of Direct Expenses.

 

29.29.2        Construction of Property and Other Improvements .  Tenant acknowledges that portions of the Project and/or the Other Improvements may be under construction following Tenant’s occupancy of the Premises, and that such construction may result in levels of noise, dust, obstruction of access, etc. which are in excess of that present in a fully constructed project.  Tenant hereby waives any and all rent offsets or claims of constructive eviction which may arise in connection with such construction.

 

29.30                  No Violation .  Tenant hereby warrants and represents that neither its execution of nor performance under this Lease shall cause Tenant to be in violation of any agreement, instrument, contract, law, rule or regulation by which Tenant is bound, and Tenant shall protect, defend, indemnify and hold Landlord harmless against any claims, demands, losses, damages, liabilities, costs and expenses, including, without limitation, reasonable attorneys’ fees and costs, arising from Tenant’s breach of this warranty and representation.

 

29.31                  Communications and Computer Lines .  Tenant may install, maintain, replace, remove or use any communications or computer wires and cables serving the Premises (collectively, the “ Lines ”), provided that (i) Tenant shall obtain Landlord’s prior written consent (which consent shall not be unreasonably withheld, conditioned or delayed), use an experienced and qualified contractor approved in writing by Landlord, and comply with all of the other provisions of Articles 7 and 8 of this Lease.  Tenant shall pay all costs in connection therewith.  Tenant shall have no obligation to remove any Lines located in or serving the Premises.

 

40



 

29.32                  Transportation Management .  Tenant shall fully comply with all present or future programs intended to manage parking, transportation or traffic in and around the Project and/or the Building, and in connection therewith, Tenant shall take responsible action for the transportation planning and management of all employees located at the Premises by working directly with Landlord, any governmental transportation management organization or any other transportation-related committees or entities.  Such programs may include, without limitation: (i) restrictions on the number of peak-hour vehicle trips generated by Tenant; (ii) increased vehicle occupancy; (iii) implementation of an in-house ridesharing program and an employee transportation coordinator; (iv) working with employees and any Project, Building or area-wide ridesharing program manager; (v) instituting employer-sponsored incentives (financial or in-kind) to encourage employees to rideshare; and (vi) utilizing flexible work shifts for employees.

 

IN WITNESS WHEREOF, Landlord and Tenant have caused this Lease to be executed the day and date first above written.

 

 

LANDLORD :

 

TENANT :

 

 

 

HCP LS REDWOOD CITY, LLC,

 

AVINGER, INC.

a Delaware limited liability company

 

a Delaware corporation

 

 

 

 

 

 

By:

/s/ Jonathan M. Berg

 

By:

/s/ John David Simpson

 

 

 

 

 

Name:

Jonathan M. Berg

 

Name:

John David Simpson

 

 

 

 

 

Its:

SVP

 

Its:

VP, Commercial Operations

 

 

 

 

 

 

 

 

 

 

By:

/s/ John Bush Simpson

 

 

 

 

 

 

Name:

John Bush Simpson

 

 

 

 

 

 

Its:

President & CEO

 

41



 

EXHIBIT A

 

BRITANNIA SEAPORT CENTER

 

OUTLINE OF PREMISES

 

 

A-1


 

EXHIBIT B

 

BRITANNIA SEAPORT CENTER

 

TENANT WORK LETTER

 

SECTION 1

 

CONSTRUCTION DRAWINGS FOR THE PREMISES

 

Landlord shall construct improvements in the Premises pursuant to construction drawings prepared by or on behalf of Landlord, and reasonably approved by Tenant within three (3) business days following Tenant’s receipt thereof (the “ Approved Working Drawings ”).  Such improvements as shown on the Approved Working Drawings are referred to herein as the “ Tenant Improvements ”.  The Approved Working Drawings shall encompass the scope of work attached hereto as Schedule 1 (the “ Scope of Work ”), constructed to a reasonable Building standard.

 

Tenant shall make no additions to the Scope of Work, or any changes or modifications to the Approved Working Drawings, without the prior written consent of Landlord, which consent may be withheld in Landlord’s sole discretion if such change would increase the cost of designing or constructing the Tenant Improvements.  The Premises shall be “Ready for Occupancy” upon the Substantial Completion of the Tenant Improvements.  “ Substantial Completion ” shall mean completion of the Tenant Improvements in accordance with the Approved Working Drawings, in a good and workmanlike manner and in compliance with all applicable laws (to the extent required to allow the legal occupancy of the Premises), except for so-called “punch list” items which do not interfere with Tenant’s use of the Tenant Improvements for the purposes for which they were designed.  Landlord shall use commercially reasonable efforts to promptly complete any “punch list” items.  As used in this Lease or Tenant Work Letter, the foregoing definition shall likewise apply to the phrases “Substantial Completion”, “Substantially Complete” or “Substantially Completed”, or any similar variant as the context may require.

 

The Tenant Improvements shall not include installation of any telephone or data services or cabling, all of which shall be at Tenant’s sole cost and expense.

 

SECTION 2

 

OVER-ALLOWANCE AMOUNT

 

In the event that after the finalization of the Approved Working Drawings and the parties’ review and approval of the anticipated costs and expenses of the same as depicted therein (the “ Approved Budget ”), Tenant shall request any revisions, changes, or substitutions to the Approved Working Drawings or to the Scope of Work, any additional costs in excess of the Approved Budget which arise in connection with such revisions, changes or substitutions shall be paid by Tenant to Landlord immediately upon Landlord’s request as an Over-Allowance Amount.

 

SECTION 3

 

CONTRACTOR’S WARRANTIES AND GUARANTIES

 

Landlord hereby assigns to Tenant all warranties and guaranties by the contractor who constructs the Tenant Improvements (the “ Contractor ”) relating to the Tenant Improvements, and Tenant hereby waives all claims against Landlord relating to, or arising out of the construction of, the Tenant Improvements, except to the extent caused by Landlord’s gross negligence or willful misconduct or breach of this Lease.

 

B-1



 

SECTION 4

 

TENANT’S COVENANTS

 

Landlord shall use commercially reasonable efforts to minimize interference with Tenant’s use of the Premises during the construction of the Tenant Improvements, and Tenant shall use commercially reasonable efforts to cooperate with Landlord in connection with such construction during Tenant’s occupancy of the Premises.  Landlord shall provide Tenant with a final, record set of the Approved Working Drawings following completion of the Tenant Improvements.

 

SECTION 5

 

MISCELLANEOUS

 

5.1                                Tenant’s Occupancy of Premises During Construction .  Tenant hereby acknowledges that, notwithstanding Tenant’s occupancy of the Premises during the performance of the Tenant Improvements, Landlord shall be permitted to construct the Tenant Improvements during normal business hours, and Tenant shall provide a clear working area for such work, if necessary (including, but not limited to, the moving of furniture, fixtures and Tenant’s property away from the area in which Landlord is constructing the Tenant Improvements).  Tenant hereby agrees that the construction of the Tenant Improvements shall in no way constitute a constructive eviction of Tenant nor entitle Tenant to any abatement of rent.  Landlord shall have no responsibility or for any reason be liable to Tenant for any direct or indirect injury to or interference with Tenant’s business arising from the Tenant Improvements, nor shall Tenant be entitled to any compensation or damages from Landlord for loss of the use of the whole or any part of the Premises or of Tenant’s personal property or improvements resulting from the Tenant Improvements or Landlord’s actions in connection with the Tenant Improvements, or for any inconvenience or annoyance occasioned by the Tenant Improvements or Landlord’s actions in connection with the Tenant Improvements, except to the extent caused by Landlord’s gross negligence, willful misconduct or breach of this Lease.

 

5.2                                Tenant’s Representative .  Tenant has designated Arnold Ambiel as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Landlord, shall have full authority and responsibility to act on behalf of the Tenant as required in this Tenant Work Letter.

 

5.3                                Landlord’s Representative .  Landlord has designated Bernie Baker of Project Management Advisors as its sole representative with respect to the matters set forth in this Tenant Work Letter, who, until further notice to Tenant, shall have full authority and responsibility to act on behalf of the Landlord as required in this Tenant Work Letter.

 

5.4                                Time of the Essence in This Tenant Work Letter .  Unless otherwise indicated, all references herein to a “number of days” shall mean and refer to calendar days.

 

5.5                                Tenant’s Lease Default .  Notwithstanding any provision to the contrary contained in this Lease, if an Event of Default as described in Article 19 of the Lease, or a default by Tenant under this Tenant Work Letter, has occurred at any time on or before the Substantial Completion of the Premises, then (i) in addition to all other rights and remedies granted to Landlord pursuant to the Lease, Landlord shall have the right to cause Contractor to cease the construction of the Premises (in which case, Tenant shall be responsible for any delay in the Substantial Completion of the Premises caused by such work stoppage as set forth in Section 5 of this Tenant Work Letter), and (ii) all other obligations of Landlord under the terms of this Tenant Work Letter shall be forgiven until such time as such Event of Default is cured pursuant to the terms of the Lease.

 

B-2



 

Schedule 1 to Exhibit B

 

Scope of Work

 

Office Area:

 

·                   New and modified private offices, conference and phone rooms, and a quiet room

·                   Miscellaneous demo

·                   New carpet, paint and light fixtures

·                   New door locations

·                   Refurbish ceilings as required

 

Lab Area

 

·                   Demise clean room

·                   Create a silicon lube room

·                   Create a braider room

·                   Create a parts washing room

·                   Turn existing break room into a wet lab

·                   Miscellaneous utilities and MEP per programming matrix

·                   New door locations

·                   Refurbish ceiling and lights, as required

 

Break Area

 

·                   -                                             New paint and tile

·                   New light fixtures

·                   Refurbish ceiling, as required

·                   Validate the appliances are operational

 

1



 

EXHIBIT C

 

BRITANNIA SEAPORT CENTER

 

NOTICE OF LEASE TERM DATES

 

To:

 

 

Re:   Lease dated                             , 200      between                                 , a                                  (“ Landlord ”), and                             , a                                 (“ Tenant ”) concerning Suite         on floor(s)      of the building located at [INSERT BUILDING ADDRESS].

 

Gentlemen:

 

In accordance with the Lease (the “Lease”), we wish to advise you and/or confirm as follows:

 

1.                                       The Lease Term shall commence on or has commenced on        for a term of             ending on         .

 

2.                                       Rent commenced to accrue on       , in the amount of             .

 

3.                                       If the Rent Commencement Date is other than the first day of the month, the first billing will contain a pro rata adjustment.  Each billing thereafter, with the exception of the final billing, shall be for the full amount of the monthly installment as provided for in the Lease.

 

4.                                       Your rent checks should be made payable to           at        .

 

5.                                       The exact number of rentable/usable square feet within the Premises is              square feet.

 

 

 

“Landlord”:

 

 

 

 

 

 

 

 

a

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Its:

 

 

 

 

Agreed to and Accepted as

 

 

of                         , 200     .

 

 

 

 

 

 

 

 

“Tenant”:

 

 

 

 

 

 

 

 

a

 

 

 

 

 

 

By:

 

 

 

 

 

 

 

Its:

 

 

 

 

C-1



 

EXHIBIT D

 

BRITANNIA SEAPORT CENTER

 

RULES AND REGULATIONS

 

Tenant shall faithfully observe and comply with the following Rules and Regulations.  Landlord shall not be responsible to Tenant for the nonperformance of any of said Rules and Regulations by or otherwise with respect to the acts or omissions of any other tenants or occupants of the Project.  In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.

 

1.                                       Tenant shall not alter any lock or install any new or additional locks or bolts on any doors or windows of the Premises without obtaining Landlord’s prior written consent, which shall not be unreasonably withheld, conditioned or delayed.  Tenant shall bear the cost of any lock changes or repairs required by Tenant ( provided that Landlord shall re-key the exterior locks in connection with the construction of the Tenant Improvements).  Two keys will be furnished by Landlord for the Premises, and any additional keys required by Tenant must be obtained from Landlord at a reasonable cost to be established by Landlord.  Upon the termination of this Lease, Tenant shall restore to Landlord all keys of stores, offices, and toilet rooms, either furnished to, or otherwise procured by, Tenant and in the event of the loss of keys so furnished, Tenant shall pay to Landlord the cost of replacing same or of changing the lock or locks opened by such lost key if Landlord shall deem it necessary to make such changes.

 

2.                                       Intentionally Omitted.

 

3.                                       The Landlord and his agents shall in no case be liable for damages for any error with regard to the admission to or exclusion from the Building of any person.  In case of invasion, mob, riot, public excitement, or other commotion, Landlord reserves the right to prevent access to the Building or the Project during the continuance thereof by any means it deems appropriate for the safety and protection of life and property.

 

4.                                       No furniture, freight or equipment of any kind shall be brought into the Building without prior notice to Landlord.  All moving activity into or out of the Building shall be scheduled with Landlord and done only at such time and in such manner as Landlord designates.  Landlord shall have the right to prescribe the weight, size and position of all safes and other heavy property brought into the Building and also the times and manner of moving the same in and out of the Building.  Safes and other heavy objects shall, if considered necessary by Landlord, stand on supports of such thickness as is necessary to properly distribute the weight.  Landlord will not be responsible for loss of or damage to any such safe or property in any case.  Any damage to any part of the Building, its contents, occupants or visitors by moving or maintaining any such safe or other property shall be the sole responsibility and expense of Tenant.

 

5.                                       Intentionally Omitted.

 

6.                                       The requirements of Tenant will be attended to only upon application at the management office for the Project or at such office location designated by Landlord.  Employees of Landlord shall not perform any work or do anything outside their regular duties unless under special instructions from Landlord.

 

7.                                       No sign, advertisement, notice or handbill shall be exhibited, distributed, painted or affixed by Tenant on any part of the Premises or the Building without the prior written consent of the Landlord.  Tenant shall not disturb, solicit, peddle, or canvass any occupant of the Project and shall cooperate with Landlord and its agents of Landlord to prevent same.

 

8.                                       The toilet rooms, urinals, wash bowls and other apparatus shall not be used for any purpose other than that for which they were constructed, and no foreign substance of any kind whatsoever shall be thrown therein.  The expense of any breakage, stoppage or damage resulting from the violation of this rule shall be borne by the tenant who, or whose servants, employees, agents, visitors or licensees shall have caused same.

 

D-1



 

9.                                       Tenant shall not overload the floor of the Premises, nor mark, drive nails or screws, or drill into the partitions, woodwork or drywall or in any way deface the Premises or any part thereof without Landlord’s prior written consent; provided , however , that Landlord’s prior written consent shall not be required for the hanging of normal and customary office artwork and personal items.  Tenant shall not purchase spring water, ice, towel, linen, maintenance or other like services from any person or persons not included on an approved list that Landlord shall provide to Tenant upon request.

 

10.                                Except for vending machines intended for the sole use of Tenant’s employees and invitees, no vending machine or machines other than fractional horsepower office machines shall be installed, maintained or operated upon the Premises without the written consent of Landlord.

 

11.                                Tenant shall not use or keep in or on the Premises, the Building, or the Project any kerosene, gasoline or other inflammable or combustible fluid, chemical, substance or material.

 

12.                                Tenant shall not without the prior written consent of Landlord use any method of heating or air conditioning other than that supplied by Landlord.

 

13.                                Tenant shall not use, keep or permit to be used or kept, any foul or noxious gas or substance in or on the Premises, or permit or allow the Premises to be occupied or used in a manner offensive or objectionable to Landlord or other occupants of the Project by reason of noise, odors, or vibrations, or interfere with other tenants or those having business therein, whether by the use of any musical instrument, radio, phonograph, or in any other way.  Tenant shall not throw anything out of doors, windows or skylights or down passageways.

 

14.                                Tenant shall not bring into or keep within the Project, the Building or the Premises any animals, birds, aquariums, or, except in areas designated by Landlord, bicycles or other vehicles.

 

15.                                No cooking shall be done or permitted on the Premises, nor shall the Premises be used for lodging or for any improper, objectionable or immoral purposes.  Notwithstanding the foregoing, Underwriters’ laboratory-approved equipment and microwave ovens may be used in the Premises for heating food and brewing coffee, tea, hot chocolate and similar beverages for employees and visitors, provided that such use is in accordance with all applicable federal, state, county and city laws, codes, ordinances, rules and regulations.

 

16.                                Tenant shall not occupy or permit any portion of the Premises to be occupied as an office for a messenger-type operation or dispatch office, public stenographer or typist, or for the manufacture or sale of liquor, narcotics, or tobacco in any form, or as a medical office, or as a barber or manicure shop, or as an employment bureau without the express prior written consent of Landlord.  Tenant shall not engage or pay any employees on the Premises except those actually working for such tenant on the Premises nor advertise for laborers giving an address at the Premises.

 

17.                                Landlord reserves the right to exclude or expel from the Project any person who, in the judgment of Landlord, is intoxicated or under the influence of liquor or drugs, or who shall in any manner do any act in violation of any of these Rules and Regulations.

 

18.                                Tenant, its employees and agents shall not loiter in or on the entrances, corridors, sidewalks, lobbies, courts, halls, stairways, elevators, vestibules or any Common Areas for the purpose of smoking tobacco products or for any other purpose, nor in any way obstruct such areas, and shall use them only as a means of ingress and egress for the Premises.

 

19.                                Tenant shall not waste electricity, water or air conditioning and agrees to cooperate fully with Landlord commercially reasonable efforts to ensure the most effective operation of the Building’s heating and air conditioning system.

 

D-2



 

20.                                Tenant shall store all its trash and garbage within the interior of the Premises.  No material shall be placed in the trash boxes or receptacles if such material is of such nature that it may not be disposed of in the ordinary and customary manner of removing and disposing of trash and garbage in the city in which the Building is located without violation of any law or ordinance governing such disposal.  All trash, garbage and refuse disposal shall be made only through entry-ways and elevators provided for such purposes at such times as Landlord shall designate.

 

21.                                Tenant shall comply with all safety, fire protection and evacuation procedures and regulations established by Landlord or any governmental agency.

 

22.                                Intentionally omitted.

 

23.                                No awnings or other projection shall be attached to the outside walls of the Building without the prior written consent of Landlord, and no curtains, blinds, shades or screens shall be attached to or hung in, or used in connection with, any window or door of the Premises other than Landlord standard drapes.  All electrical ceiling fixtures hung in the Premises or spaces along the perimeter of the Building must be fluorescent and/or of a quality, type, design and a warm white bulb color approved in advance in writing by Landlord.  Neither the interior nor exterior of any windows shall be coated or otherwise sunscreened without the prior written consent of Landlord.  Tenant shall abide by Landlord’s regulations concerning the opening and closing of window coverings which are attached to the windows in the Premises, if any, which have a view of any interior portion of the Building or Building Common Areas.

 

24.                                The sashes, sash doors, skylights, windows, and doors that reflect or admit light and air into the halls, passageways or other public places in the Building shall not be covered or obstructed by Tenant, nor shall any bottles, parcels or other articles be placed on the windowsills.

 

25.                                Tenant must comply with requests by the Landlord concerning the informing of their employees of items of importance to the Landlord.

 

26.                                Tenant must comply with the State of California “No-Smoking” law set forth in California Labor Code Section 6404.5, and any local “No-Smoking” ordinance which may be in effect from time to time and which is not superseded by such State law.

 

27.                                Tenant hereby acknowledges that Landlord shall have no obligation to provide guard service or other security measures for the benefit of the Premises, the Building or the Project.  Tenant hereby assumes all responsibility for the protection of Tenant and its agents, employees, contractors, invitees and guests, and the property thereof, from acts of third parties, including keeping doors locked and other means of entry to the Premises closed, whether or not Landlord, at its option, elects to provide security protection for the Project or any portion thereof Tenant further assumes the risk that any safety and security devices, services and programs which Landlord elects, in its sole discretion, to provide may not be effective, or may malfunction or be circumvented by an unauthorized third party, and Tenant shall, in addition to its other insurance obligations under this Lease, obtain its own insurance coverage to the extent Tenant desires protection against losses related to such occurrences.  Tenant shall cooperate in any reasonable safety or security program developed by Landlord or required by law.

 

28.                                All non-standard office equipment of any electrical or mechanical nature shall be placed by Tenant in the Premises in settings approved by Landlord, to absorb or prevent any vibration, noise and annoyance.

 

29.                                Tenant shall not use in any space or in the public halls of the Building, any hand trucks except those equipped with rubber tires and rubber side guards.

 

30.                                No auction, liquidation, fire sale, going-out-of-business or bankruptcy sale shall be conducted in the Premises without the prior written consent of Landlord.

 

D-3



 

Landlord reserves the right at any time to change or rescind any one or more of these Rules and Regulations, or to make such other and further reasonable Rules and Regulations as in Landlord’s judgment may from time to time be necessary for the management, safety, care and cleanliness of the Premises, Building, the Common Areas and the Project, and for the preservation of good order therein, as well as for the convenience of other occupants and tenants therein.  In the event of any conflict between the Rules and Regulations and the other provisions of this Lease, the latter shall control.  Landlord may waive any one or more of these Rules and Regulations for the benefit of any particular tenants, but no such waiver by Landlord shall be construed as a waiver of such Rules and Regulations in favor of any other tenant, nor prevent Landlord from thereafter enforcing any such Rules or Regulations against any or all tenants of the Project.  Tenant shall be deemed to have read these Rules and Regulations and to have agreed to abide by them as a condition of its occupancy of the Premises.

 

D-4


 

EXHIBIT E

 

BRITANNIA SEAPORT CENTER

 

FORM OF TENANT’S ESTOPPEL CERTIFICATE

 

The undersigned as Tenant under that certain Lease (the “Lease”) made and entered into as of                         , 200     by and between                      as Landlord, and the undersigned as Tenant, for Premises on the                          floor(s) of the building located at [INSERT BUILDING ADDRESS], certifies as follows:

 

1.                                       Attached hereto as Exhibit A is a true and correct copy of the Lease and all amendments and modifications thereto.  The documents contained in Exhibit A represent the entire agreement between the parties as to the Premises.

 

2.                                       The undersigned currently occupies the Premises described in the Lease, the Lease Term commenced on                         , and the Lease Term expires on                          , and the undersigned has no option to terminate or cancel the Lease or to purchase all or any part of the Premises, the Building and/or the Project.

 

3.                                       The Rent Commencement Date occurred on                         .

 

4.                                       The Lease is in full force and effect and has not been modified, supplemented or amended in any way except as provided in Exhibit A .

 

5.                                       Tenant has not transferred, assigned, or sublet any portion of the Premises nor entered into any license or concession agreements with respect thereto except as follows:

 

6.                                       Intentionally Omitted.

 

7.                                       All monthly installments of Base Rent, all Additional Rent and all monthly installments of estimated Additional Rent have been paid when due through                         .  The current monthly installment of Base Rent is $                        .

 

8.                                       All conditions of the Lease to be performed by Landlord necessary to the enforceability of the Lease have been satisfied and to Tenant’s knowledge Landlord is not in default thereunder.  In addition, the undersigned has not delivered any notice to Landlord regarding a default by Landlord thereunder.  No further rental concessions, allowances or brokerage commissions are due and owing under the Lease.

 

9.                                       No rental has been paid more than thirty (30) days in advance and no security has been deposited with Landlord except as provided in the Lease.

 

10.                                As of the date hereof, there are no existing defenses or offsets, or, to the undersigned’s knowledge, claims or any basis for a claim, that the undersigned has against Landlord.

 

11.                                If Tenant is a corporation or partnership, Tenant hereby represents and warrants that Tenant is a duly formed and existing entity qualified to do business in California and that Tenant has full right and authority to execute and deliver this Estoppel Certificate and that each person signing on behalf of Tenant is authorized to do so.

 

12.                                There are no actions pending against the undersigned under the bankruptcy or similar laws of the United States or any state.

 

13.                                To the undersigned’s knowledge, all tenant improvement work to be performed by Landlord under the Lease has been completed in accordance with the Lease and has been accepted by the undersigned and all reimbursements and allowances due to the undersigned under the Lease in connection with any tenant improvement

 

E-1



 

work have been paid in full.  All work (if any) in the common areas required by the Lease to be completed by Landlord has been completed and all parking spaces required by the Lease have been furnished and/or all parking ratios required by the Lease have been met.

 

The undersigned acknowledges that this Estoppel Certificate may be delivered to Landlord or to a prospective mortgagee or prospective purchaser, and acknowledges that said prospective mortgagee or prospective purchaser will be relying upon the statements contained herein in making the loan or acquiring the property of which the Premises are a part and that receipt by it of this certificate is a condition of making such loan or acquiring such property.

 

Executed at                                      on the          day of                , 20    .

 

 

 

“Tenant”:

 

 

,

 

 

a

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

 

 

 

 

 

 

By:

 

 

 

 

 

Its:

 

 

E-2



 

EXHIBIT F

 

BRITANNIA SEAPORT CENTER [INTENTIONALLY OMITTED]

 

F-1



 

EXHIBIT G

 

BRITANNIA SEAPORT CENTER

 

ENVIRONMENTAL QUESTIONNAIRE

 

ENVIRONMENTAL QUESTIONNAIRE

FOR COMMERCIAL AND INDUSTRIAL PROPERTIES

 

Property Name:

 

Property Address:

 

Instructions : The following questionnaire is to be completed by the Lessee representative with knowledge of the planned operations for the specified building/location.  Please print clearly and attach additional sheets as necessary.

 

1.0                                PROCESS INFORMATION

 

Describe planned use, and include brief description of manufacturing processes employed.

 

 

2.0                                HAZARDOUS MATERIALS

 

Are hazardous materials used or stored? If so, continue with the next question.  If not, go to Section 3.0 .

 

2.1                                Are any of the following materials handled on the Property?   Yes o No o

 

(A material is handled if it is used, generated, processed, produced, packaged, treated, stored, emitted, discharged, or disposed.) If so, complete this section.  If this question is not applicable, skip this section and go on to Section 5.0 .

 

o Explosives

o Fuels

o Oils

o Solvents

o Oxidizers

o Organics/Inorganics

o Acids

o Bases

o Pesticides

o Gases

o PCBs

o Radioactive Materials

o Other (please specify)

 

 

2.2.                             If any of the groups of materials checked in Section 2.1 , please list the specific material(s), use(s), and quantity of each chemical used or stored on the site in the Table below.  If convenient, you may substitute a chemical inventory and list the uses of each of the chemicals in each category separately.

 

Material

 

Physical State (Solid, Liquid, or
Gas)

 

Usage

 

Container
Size

 

Number of
Containers

 

Total
Quantity

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

G-1



 

2.3.                             Describe the planned storage area location(s) for these materials.  Please include site maps and drawings as appropriate.

 

 

3.0                                HAZARDOUS WASTES

 

Are hazardous wastes generated?   Yes o No o

 

If yes, continue with the next question.  If not, skip this section and go to section 4.0 .

 

3.1                               Are any of the following wastes generated, handled, or disposed of (where applicable) on the Property?

 

o Hazardous wastes

o Industrial Wastewater

o Waste oils

o PCBs

o Air emissions

o Sludges

o Regulated Wastes

o Other (please specify)

 

3.2.                             List and quantify the materials identified in Question 3-1 of this section.

 

WASTE
GENERATED

 

RCRA listed
Waste?

 

SOURCE

 

APPROXIMATE
MONTHLY
QUANTITY

 

WASTE
CHARACTERIZATION

 

DISPOSITION

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.3.                             Please include name, location, and permit number (e.g. EPA ID No.) for transporter and disposal facility, if applicable).  Attach separate pages as necessary.

 

G-2



 

Transporter/Disposal Facility
Name

 

Facility
Location

 

Transporter (T) or Disposal (D) Facility

 

Permit Number

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

3.4                                Are pollution controls or monitoring employed in the process to prevent or minimize the release of wastes into the environment?   Yes o No o

 

3.5.                             If so, please describe.

 

 

4.0                                USTS/ASTS

 

4.1                                Are underground storage tanks (USTs), aboveground storage tanks (ASTs), or associated pipelines used for the storage of petroleum products, chemicals, or liquid wastes present on site (lease renewals) or required for planned operations (new tenants)?   Yes o No o

 

If not, continue with section 5.0 . If yes, please describe capacity, contents, age, type of the USTs or ASTs, as well any associated leak detection/spill prevention measures. Please attach additional pages if necessary.

 

Capacity

 

Contents

 

Year
Installed

 

Type (Steel, Fiberglass,
etc.)

 

Associated Leak Detection / Spill Prevention
Measures*

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


*’Note:        The following are examples of leak detection / spill prevention measures:

 

Integrity testing

Inventory reconciliation

Leak detection system

Overfill spill protection

Secondary containment

Cathodic protection

 

4-2.                                                                            Please provide copies of written tank integrity test results and/or monitoring documentation, if available.

 

4-3.                            Is the UST/AST registered and permitted with the appropriate regulatory agencies?   Yes o No o

 

If so, please attach a copy of the required permits.

 

G-3



 

4-4.                            If this Questionnaire is being completed for a lease renewal, and if any of the USTs/ASTs have leaked, please state the substance released, the media(s) impacted (e.g., soil, water, asphalt, etc.), the actions taken, and all remedial responses to the incident.

 

 

4-5.                            If this Questionnaire is being completed for a lease renewal, have USTs/ASTs been removed from the Property?                         Yes o No o

 

If yes, please provide any official closure letters or reports and supporting documentation (e.g., analytical test results, remediation report results, etc.).

 

4-6.                           For Lease renewals, are there any above or below ground pipelines on site used to transfer chemicals or wastes? Yes  o  No  o

 

For new tenants, are installations of this type required for the planned operations?   Yes o No o

 

If yes to either question, please describe.

 

 

5.0                                ASBESTOS CONTAINING BUILDING MATERIALS

 

Please be advised that an asbestos survey may have been performed at the Property. If provided, please review the information that identifies the locations of known asbestos containing material or presumed asbestos containing material. All personnel and appropriate subcontractors should be notified of the presence of these materials, and informed not to disturb these materials. Any activity that involves the disturbance or removal of these materials must be done by an appropriately trained individual/contractor.

 

6.0                                REGULATORY

 

6-1.                            Does the operation have or require a National Pollutant Discharge Elimination System (NPDES) or equivalent permit?   Yes o No o

 

If so, please attach a copy of this permit.

 

6-2.                            Has a Hazardous Materials Business Plan been developed for the site?   Yes o No o

If so, please attach a copy.

 

G-4



 

CERTIFICATION

 

I am familiar with the real property described in this questionnaire.  By signing below, I represent and warrant that the answers to the above questions are complete and accurate to the best of my knowledge.  I also understand that Lessor will rely on the completeness and accuracy of my answers in assessing any environmental liability risks associated with the property.

 

 

 

Signature:

 

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

 

 

 

Date:

 

 

 

 

 

Telephone:

 

 

G-5




Exhibit 10.8

 

TRANSMITTAL

 

Date:

October 7, 2011

 

 

To:

Arnold Ambiel

 

Avinger, Inc.

 

400 Chesapeake Dr

 

Redwood City, CA 94063

 

 

Via:

FedEx

 

 

From:

Mike Swofford

 

HCP, Inc.

 

400 Oyster Point Blvd., Suite 409

 

South San Francisco, CA 94080

 

 

Project:

Lease

 

One (1) signed copy of First Amendment to Lease enclosed.

 



 

FIRST AMENDMENT TO LEASE

 

This FIRST AMENDMENT TO LEASE (this “ Amendment ”) is made and entered into as of September 30, 2011, by and between HCP LS REDWOOD CITY, LLC , a Delaware limited partnership (“ Landlord ”), and AVINGER, INC., a Delaware corporation (“ Tenant ”).

 

R E C I T A L S :

 

A.                                     Landlord and Tenant entered into that certain Lease dated July 30, 2010 (the “ Lease ”), pursuant to which Tenant currently leases approximately 19,600 rentable square feet of space (“ Existing Premises ”) comprising the entire building located at 400 Chesapeake Drive, Redwood City, California 94063 (the “ 400 Building ”).

 

B.                                     The Rent Commencement Date under the Lease was December 1, 2010.

 

C.                                     Landlord and Tenant desire (i) to extend the Lease Term of the Lease, (ii) to expand the Existing Premises to include approximately 24,600 rentable square feet of space (the “ Expansion Premises ”) comprising the entire building located at 600 Chesapeake Drive, Redwood City, California 94063 (the “ 600 Building ”)., as delineated on Exhibit A attached hereto and made a part hereof, and (iii) to make other modifications to the Lease, and in connection therewith, Landlord and Tenant desire to amend the Lease as hereinafter provided.

 

A G R E E M E N T :

 

NOW, THEREFORE, in consideration of the foregoing recitals and the mutual covenants contained herein, and for other good and valuable consideration, the receipt and sufficiency of which are hereby acknowledged, the parties hereto hereby agree as follows:

 

1.                                       Capitalized Terms .  All capitalized terms when used herein shall have the same meaning as is given such terms in the Lease unless expressly superseded by the terms of this Amendment.

 

2.                                       Modification of Premises .  Effective as of the date this Amendment is fully executed by Landlord and Tenant (the “ Expansion Commencement Date ”), Tenant shall lease from Landlord and Landlord shall lease to Tenant the Expansion Premises.  Rent with respect to the Expansion Premises shall not commence until the date which is the later of (i) the date that is sixty (60) days after the full execution and deliv ery of this Amendment, and (ii) December 1, 2011 (such later date, the “ Expansion Rent Commencement Date ”).  The addition of the Expansion Premises to the Existing Premises shall, effective as of the Expansion Commencement Date, increase the size of the Premises to approximately 44,200 rentable feet.  The Existing Premises and the Expansion Premises may hereinafter collectively be referred to as the “ Premises .” Landlord shall deliver the Expansion Premises to Tenant upon the Expansion Commencement Date.

 

3.                                       Lease Term .  Landlord and Tenant acknowledge that Tenant’s lease of the Existing Premises is scheduled to expire on November 30, 2015, pursuant to the terms of the Lease.  Notwithstanding anything to the contrary in the Lease, the term of Tenant’s lease of the Existing

 



 

Premises is hereby extended and shall expire conterminously with the term of Tenant’s lease of the Expansion Premises on the day prior to the fifth (5 th ) anniversary of the Expansion Rent Commencement Date, unless sooner terminated as provided in the Lease, as hereby amended (the “ New Expiration Date ”).  The period of time commencing on the Expansion Commencement Date and terminating on the New Expiration Date shall be referred to herein as the “ Expansion Term .” At any time during the Expansion Teen, Landlord may deliver to Tenant a notice substantially in the form as set forth in Exhibit C attached to the Lease, as a confirmation only of the information set forth therein, which Tenant shall execute and return to Landlord within five (5) days of receipt thereof.

 

4.                                       Option Term .  The terms of Section 2.2 of the Lease shall apply to the entire Premises (i.e., the Existing Premises and the Expansion Premises) as of end of the Expansion Term.

 

5.                                       Base Rent .  Notwithstanding anything to the contrary in the Lease as hereby amended, prior to the Expansion Rent Commencement Date, Tenant shall continue to pay Base Rent for the Existing Premises in accordance with the terms of Article 3 of the Lease.  Commencing on the Expansion Rent Commencement Date and continuing throughout the portion of the Expansion Term thereafter, Article 3 of the Lease shall be amended such that Tenant shall pay to Landlord monthly installments of Base Rent for the Existing Premises and Expansion Premises, collectively, as follows:

 

Date

 

Annual
 Base Rent

 

Monthly
Installment
of Base Rent

 

Monthly Rental
Rate per Rentable
Square Foot

 

Expansion Rent Commencement Date-11/30/12

 

$

1,027,066.56

 

$

85,588.88

 

$

1.9364

 

12/1/12 - 11/30/13

 

$

1,057,882.80

 

$

88,156.90

 

$

1.9945

 

12/1/13 - 11/30/14

 

$

1,089,600.72

 

$

90,800.06

 

$

2.0543

 

12/1/14 - 11/30/15

 

$

1,122,326.40

 

$

93,527.20

 

$

2.1160

 

12/1/15 - New Expiration Date

 

$

1,156,006.80

 

$

96,333.90

 

$

2.1795

 

 

5.1                                Abated Base Rent .  Provided that Tenant is not then in default of the Lease (as hereby amended) and shall fail to cure such default within the applicable notice and cure period, then during the period commencing on the Expansion Rent Commencement Date and ending on the date that is six (6) months after such date (the “ Rent Abatement Period ”), Tenant shall not be obligated to pay any Base Rent otherwise attributable to the Expansion Premises (the “ Rent Abatement ”).  Landlord and Tenant acknowledge that the aggregate amount of the Rent Abatement equals $285,812.64 ( i.e. , $47,635.44 per month).  If Tenant shall be in default under the Lease (as hereby amended) and shall fail to cure such default within the applicable notice and cure period, if

 

2



 

any, permitted for cure pursuant to the Lease (as hereby amended), then Landlord may at its option, by notice to Tenant, elect, in addition to any other remedies Landlord may have under the Lease (as hereby amended), that the dollar amount of the unapplied portion of the Rent Abatement as of the date of such default shall be converted to a credit to be applied to the Base Rent applicable at the end of the Expansion Term and Tenant shall immediately be obligated to begin paying Base Rent for the entire Premises in full.  The Rent Abatement shall not affect Tenant’s obligations to pay Tenant’s Share of Direct Expenses or any other amount attributable to Tenant’s use and occupancy of the Expansion Premises in accordance with the terms of the Lease.

 

6.                                       Tenant’s Share of Building Direct Expenses .

 

6.1                                Existing Premises .  Notwithstanding the extension of the Lease Term as provided herein, Tenant shall continue to be obligated to pay Tenant’s Share of the annual Direct Expenses in connection with the Existing Premises throughout the Expansion Term.

 

6.2                                Expansion Premises .  Commencing on the Expansion Rent Commencement Date, and continuing through the portion of the Expansion Term thereafter, Tenant shall pay Tenant’s Share of Direct Expenses in connection with the Expansion Premises in accordance with the terms of Article 4 of the Lease.  “Tenant’s Share” with respect to the Expansion Premises shall be 100%.  With respect to the Expansion Premises, references in Section 4.2.4 of the Lease to “Lease Commencement Date” or “Commencement Date” shall be changed to “Expansion Commencement Date”.

 

7.                                       Improvement Allowance .  Landlord hereby grants Tenant an allowance (the “Improvement Allowance”) in the amount of $16.30 per rentable square foot of the Expansion Premises, for use by Tenant in connection with the construction of improvements in the Expansion Premises.  The Improvement Allowance shall be payable in monthly progress payments as costs are incurred and within forty five (45) days of invoice therefor and shall be subject to Landlord’s commercially reasonable disbursement requirements (which may include a specified date on which monthly draw requests are due).  Except for the Improvement Allowance (as the same may be increased as provided in Section 7.2 , below) or as otherwise set forth in this Amendment, Landlord shall not be obligated to provide or pay for any improvement work or services related to the initial improvement of the Expansion Premises, and Tenant shall accept the Expansion Premises in its presently existing, “as-is” condition.  Notwithstanding the foregoing, Landlord shall deliver the Expansion Premises (a) broom clean, (b) in the same condition existing as of the date hereof, (c) with any furniture, equipment and other personal property removed therefrom, and (d) with all existing building systems serving the Expansion Premises in good working condition including, without limitation, HVAC, plumbing, fire sprinklers, roof membrane and electrical systems.  Landlord shall also cause the exterior of the Expansion Premises and the surrounding area (including access thereto) to comply with applicable laws and building codes (including, without limitation, the Americans with Disabilities Act), to the extent required to allow the legal occupancy of the Expansion Premises after the construction of the Expansion Improvements.

 

7.1                                Construction of Improvements .  Tenant shall be responsible for the construction of any and all initial office and/or laboratory improvements to, or affixed to, the Premises, and any other work required by Tenant to the 600 Building or 400 Building (collectively,

 

3



 

the “ Expansion Improvements ”), all of which work shall be done in accordance with the applicable terms of the Lease, including without limitation, the terms of Article 8 .  Tenant acknowledges that Landlord may engage Project Management Advisors (“ PMA ”) to oversee the design and construction of the Expansion Improvements.  Notwithstanding anything in the Lease to the contrary, Tenant agrees to pay to Landlord an amount equal to $1.30 per rentable square foot of the Expansion Premises for the reimbursement of Landlord’s cost to engage PMA, which amount shall be deducted from the Improvement Allowance.  Such amount shall be in lieu of the fee set forth in Section 8.3 of the Lease.  In no event shall any portion of the Improvement Allowance be used for moving or relocation expense, data/cabling, signage or personal property.  Any amount of the Improvement Allowance that has not been utilized or allocated for use as of March 31, 2013 shall revert to Landlord and Tenant shall have no further rights with respect thereto.  Tenant’s contractors and subcontractors shall be required to carry (1) general liability insurance in an amount not less than $1,000,000 per occurrence/$2,000,000 annual aggregate with Landlord, its property manager and PMA as additional insureds and (2) workers’ compensation with a waiver of subrogation in favor of Landlord, its property manager and PMA.  Such insurance shall be with insurers having an A.M. Best rating of A- VIII or better.

 

7.2                                Additional Allowance .  At Tenant’s election, by written notice to Landlord, Tenant may increase the Improvement Allowance by up to $10 per rentable square foot of the Expansion Premises to be used towards the cost of the Expansion Improvements (any amounts so elected by Tenant, the “ Additional Improvement Allowance ”).  If Tenant elects to use any Additional Improvement Allowance, the monthly Base Rent for the Premises shall be increased by an amount equal to the “Additional Monthly Base Rent,” as that term is defined below, in order to repay the Additional Improvement Allowance to Landlord.  The “ Additional Monthly Base Rent ” shall be determined as the missing component of an annuity, which annuity shall have (i) the amount of the Additional Improvement Allowance utilized by Tenant as the present value amount, (ii) the number of full calendar months in the Expansion Term as the number of payments, (iii) eighty-three one-hundredths (.83), which is equal to ten percent (10%) divided by twelve (12) months per year, as the monthly interest factor, and (iv) the Additional Monthly Base Rent as the missing component of the annuity.

 

7.3                                Excluded Costs .  The cost of the Expansion Improvements payable by Tenant shall not include, the Improvement Allowance shall not be reduced by, and Landlord shall be responsible for (a) costs incurred to remove pre-existing Hazardous Materials from the Expansion Premises or the surrounding area required in connection with such Expansion Improvements and (b) costs to cause the exterior of the Expansion Premises and the surrounding area to comply with applicable laws and building codes to the extent required to allow the legal occupancy of the Premises after the construction of the Expansion Improvements.

 

7.4                                Landlord Property .  The Expansion Improvements shall become the property of Landlord and remain in place at the Premises following the expiration or earlier termination of the Lease (subject to the terms of Section 8.5 of the Lease).  Notwithstanding the foregoing, Tenant shall not be required to remove any such Expansion Improvements except to the extent the same are Extraordinary Fixtures.  As used herein, the term “ Extraordinary Fixture ” means an alteration, addition or improvement which, at the time of installation, is not the type quality, or quantity of improvement that is customarily found in a standard office or lab installation

 

4



 

in comparable buildings in the Seaport Centre.  By way of example only, cubical systems, rolling or built-in high density file systems, vaults, safes, raised flooring and internal stairways constitute Extraordinary Fixtures.

 

8.                                       Brokers .  Landlord and Tenant hereby warrant to each other that they have had no dealings with any real estate broker or agent in connection with the negotiation of this Amendment that would be entitled to a commission in connection with this Amendment other than CB Richard Ellis (the “ Broker ”), and that they know of no other real estate broker or agent who is entitled to a commission in connection with this Amendment.  Each party agrees to indemnify and defend the other party against and hold the other party harmless from any and all claims, demands, losses, liabilities, lawsuits, judgments, and costs and expenses (including, without limitation, reasonable attorneys’ fees) with respect to any leasing commission or equivalent compensation alleged to be owing on account of the indemnifying party’s dealings with any real estate broker or agent, other than the Broker.  The terms of this section shall survive the expiration or earlier termination of this Amendment.

 

9.                                       Right of First Offer .  Tenant shall have the right of first offer upon the same terms and conditions set forth in Section 1.4 of the Lease with respect to each of (i) the building located at 200 and 250 Chesapeake Drive, and (ii) the building located at 700 Chesapeake Drive (each such space, a “ First Offer Space ”).  Such rights of first offer shall be subject and subordinate to the existing renewal rights of the existing tenants of the applicable First Offer Space as set forth in their leases thereof and outlined below.  Such rights of first offer shall be further subject and subordinate to the following:

 

200 Chesapeake Drive :

 

Renewal Option: No existing renewal options, but Landlord shall be permitted to extend the existing lease up until October 1, 2013.

 

Right of First Offer: The tenant under the lease of 250 Chesapeake Drive has a right of first offer on 200 Chesapeake Drive.

 

250 Chesapeake Drive :

 

Renewal Option: One (1) three (3)-year renewal option (renewal expiration = February 28, 2017)

 

700 Chesapeake Drive :

 

Renewal Option: One (1) five (5)-year renewal option (renewal expiration = July 31, 2020)

 

10.                                Parking .  During the Expansion Term, Tenant shall continue to have the right to use up to three (3) unreserved parking spaces for every 1,000 rentable square feet of the Premises, including the Expansion Premises.

 

11.                                Security Deposit .  Notwithstanding anything in the Lease to the contrary, the Security Deposit held by Landlord pursuant to the Lease, as amended hereby, is hereby increased to

 

5



 

equal $190,178.60.  Landlord and Tenant acknowledge that, in accordance with Article 21 of the Lease, Tenant has previously delivered the sum of 82,947.20 (the “ Existing Security Deposit ”) to Landlord.  Within five (5) business days after the full execution of this Amendment by Landlord and Tenant, Tenant shall deposit with Landlord an amount equal to $107,231.40 to increase the amount of the Security Deposit to the required new amount.

 

12.                                Hazardous Materials .  With respect to the Expansion Premises, (a) references in Section 5.4 of the Lease to “Lease Commencement Date” or “Commencement Date” shall be deemed to be references to “Expansion Commencement Date”, (b) references to “date of this Lease” in Section 5.4 of the Lease shall be deemed to be references to the “date of this Amendment” and (c) references to the “Lease Term” in Section 5.4 of the Lease shall be deemed to be references to the “Expansion Term”.  In addition, “ Existing Hazardous Materials ” shall mean (i) with respect to the Existing Premises, Hazardous Materials existing on or about the Existing Premises as of the Lease Commencement Date and (ii) with respect to the Expansion Premises, Hazardous Materials existing on or about the Expansion Premises as of the Expansion Commencement Date.

 

13.                                Signage .  Subject to the requirements of Section 23 of the Lease, and subject to Landlord’s prior written approval (which approval shall not be unreasonably withheld, conditioned or delayed) and applicable laws and regulations governing signage including the City of Redwood City, Tenant shall have the right, at its sole cost and expense, to install its signs (or pro-rata share thereof where applicable) in and on the Building (including monument and Building entrance signage), as well as any internal directional and lobby identification signage and directory.  Notwithstanding the foregoing, Tenant’s proposed signage shall be consistent to the signage of existing and comparable tenants in the Project.  Tenant shall be responsible for the removal of such signage (and the repair of any damage caused thereby) at the expiration of the Lease.

 

6



 

14.                                No Further Modification .  Except as set forth in this Amendment, all of the terms and provisions of the Lease shall apply with respect to the Expansion Premises and shall remain unmodified and in full force and effect.

 

IN WITNESS WHEREOF, this Amendment has been executed as of the day and year first above written.

 

Landlord

 

TENANT

 

 

 

HCP LS REDWOOD CITY,LLC

 

AVINGER, INC.,

a Delaware Corporation

 

a Delaware corporation

 

 

 

By:

/s/ Jon Bergschneider

 

By:

/s/Matt Ferguson

 

John Bergschneider

 

Name:

Matt Ferguson

 

Executive Vice President

 

Its:

Chief Business Officer

 

 

 

 

 

 

By:

/s/ Arnold Ambiel

 

 

Name:

Arnold Ambiel

 

 

Its:

VP, Operations

 

7



 

EXHIBIT A

 

OUTLINE OF EXPANSION PREMISES

 

 

1




Exhibit 10.9

 

EXECUTION VERSION

 

 

 

CREDIT AGREEMENT

 

dated as of April 18, 2013

 

among

 

AVINGER, INC.

 

as the Borrower,

 

PDL BIOPHARMA, INC.,

 

as the Lender,

 

and

 

PDL BIOPHARMA, INC.,

 

as the Agent

 

 

 



 

TABLE OF CONTENTS

 

 

 

 

Page

 

 

 

 

Section 1.

Definitions; Interpretation

1

 

 

 

 

 

1.1.

Definitions

1

 

1.2.

Interpretation

14

 

 

 

Section 2.

Credit Facilities

14

 

 

 

 

 

2.1.

Loans

14

 

 

2.1.1.

Loans

14

 

 

2.1.2.

General

15

 

2.2.

Loan Accounting

15

 

 

2.2.1.

Recordkeeping

15

 

 

2.2.2.

Notes

15

 

2.3.

Interest

15

 

 

2.3.1.

Interest Rate

15

 

 

2.3.2.

Interest Payments

16

 

 

2.3.3.

Computation of Interest

16

 

2.4.

Amortization; Prepayment

16

 

 

2.4.1.

Amortization

16

 

 

2.4.2.

Voluntary Prepayment

16

 

 

2.4.3.

Payments in Respect of the Assigned Interests

17

 

2.5.

Payment Upon Maturity

17

 

2.6.

Making of Payments

17

 

2.7.

Application of Payments and Proceeds

17

 

2.8.

Payment Dates

17

 

2.9.

Set-off

17

 

2.10.

Currency Matters

17

 

 

 

Section 3.

Yield Protection

18

 

 

 

 

 

3.1.

Taxes

18

 

3.2.

Increased Cost

20

 

3.3.

Mitigation of Circumstances

22

 

3.4.

Conclusiveness of Statements; Survival

22

 

 

 

Section 4.

Conditions Precedent

22

 

 

 

 

 

4.1.

Tranche One Loan

22

 

 

4.1.1.

Delivery of Loan Documents

22

 

 

4.1.2.

Payment of Fees and Expenses

23

 

i



 

TABLE OF CONTENTS (continued)

 

 

 

 

Page

 

 

 

 

 

 

4.1.3.

Representations and Warranties

24

 

 

4.1.4.

No Default

24

 

 

4.1.5.

No Material Adverse Change

24

 

 

4.1.6.

Execution and Delivery of Letter Agreement

24

 

4.2.

Tranche Two Loan

24

 

 

4.2.1.

Delivery of Borrowing Request

24

 

 

4.2.2.

Tranche Two Milestones

24

 

 

4.2.3.

Payment of Fees and Expenses

24

 

 

4.2.4.

Representations and Warranties

25

 

 

4.2.5.

No Default

25

 

 

4.2.6.

No Material Adverse Change

25

 

 

4.2.7.

Note

25

 

 

 

Section 5.

Representations and Warranties

25

 

 

 

 

 

5.1.

Organization

25

 

5.2.

Authorization; No Conflict

25

 

5.3.

Validity; Binding Nature

26

 

5.4.

Financial Condition

26

 

5.5.

No Material Adverse Change

26

 

5.6.

Litigation

26

 

5.7.

Ownership of Properties; Liens

26

 

5.8.

Capitalization; Subsidiaries

26

 

5.9.

Pension Plans

27

 

5.10.

Compliance with Law; Investment Company Act; Other Regulated Entities

27

 

5.11.

Margin Stock

27

 

5.12.

Taxes

28

 

5.13.

Solvency

28

 

5.14.

Environmental Matters

28

 

5.15.

Insurance

29

 

5.16.

Information

29

 

5.17.

Intellectual Property

29

 

5.18.

Labor Matters

30

 

5.19.

No Default

30

 

5.20.

Foreign Assets Control Regulations and Anti-Money Laundering

30

 

 

5.20.1.

OFAC

30

 

ii



 

TABLE OF CONTENTS (continued)

 

 

 

 

 

 

 

Page

 

 

 

 

 

 

5.20.2.

Patriot Act

30

 

5.21.

Non-Competes

30

 

5.22.

Internal Controls

30

 

 

 

 

Section 6.

Affirmative Covenants

31

 

 

 

 

 

6.1.

Information

31

 

 

6.1.1.

Annual Report

31

 

 

6.1.2.

Quarterly Reports

31

 

 

6.1.3.

Reserved

31

 

 

6.1.4.

Compliance Certificate

31

 

 

6.1.5.

Net Revenue Reports

31

 

 

6.1.6.

Notice of Default; Litigation; ERISA Matters

32

 

 

6.1.7.

Reserved

32

 

 

6.1.8.

Budgets

32

 

 

6.1.9.

Other Information

32

 

6.2.

Books; Records; Inspections

32

 

6.3.

Maintenance of Property; Insurance

33

 

6.4.

Compliance with Laws and Contractual Obligations; Payment of Taxes and Liabilities

34

 

6.5.

Maintenance of Existence

34

 

6.6.

Environmental Matters

34

 

6.7.

Further Assurances

35

 

6.8.

Post-Closing Obligations

36

 

6.9.

Assigned Interests

36

 

 

6.9.1.

Payments. The Borrower shall remit to the Lender amounts pursuant to Section 2.4.3

36

 

 

6.9.2.

True-Up

36

 

6.10.

Internal Controls

36

 

 

 

 

Section 7.

Negative Covenants

36

 

 

 

 

 

7.1.

Debt

37

 

7.2.

Liens

38

 

7.3.

Restricted Payments

39

 

7.4.

Mergers; Consolidations; Asset Sales

40

 

7.5.

Modification of Organizational Documents

41

 

7.6.

Use of Proceeds

41

 

7.7.

Transactions with Affiliates

41

 

iii



 

TABLE OF CONTENTS (continued)

 

 

 

 

 

 

 

Page

 

 

 

 

 

7.8.

Inconsistent Agreements

42

 

7.9.

Business Activities

42

 

7.10.

Investments

42

 

7.11.

Fiscal Year

44

 

7.12.

Deposit Accounts and Securities Accounts

44

 

7.13.

Sale-Leasebacks

44

 

7.14.

Hazardous Substances

44

 

7.15.

ERISA Liability

44

 

7.16.

Liquidity

44

 

7.17.

Post-Prepayment Date Covenants

44

 

 

 

Section 8.

Events of Default; Remedies

45

 

 

 

 

 

8.1.

Events of Default

45

 

 

8.1.1.

Non-Payment of Credit Agreement

45

 

 

8.1.2.

Default Under Other Debt

45

 

 

8.1.3.

Bankruptcy; Insolvency

46

 

 

8.1.4.

Non-Compliance with Loan Documents

46

 

 

8.1.5.

Representations; Warranties

46

 

 

8.1.6.

Judgments

47

 

 

8.1.7.

Invalidity of Collateral Documents

47

 

 

8.1.8.

Invalidity of Subordination Provisions

47

 

 

8.1.9.

Change of Control

47

 

8.2.

Remedies

47

 

 

 

Section 9.

The Agent

48

 

 

 

 

 

9.1.

Appointment; Authorization

48

 

9.2.

Delegation of Duties

48

 

9.3.

Limited Liability

48

 

9.4.

Successor Agent

49

 

9.5.

Collateral Matters

49

 

 

 

Section 10.

Miscellaneous

49

 

 

 

 

 

10.1.

Waiver; Amendments

49

 

10.2.

Notices

50

 

10.3.

Costs; Expenses

50

 

10.4.

Indemnification by the Borrower

50

 

iv



 

TABLE OF CONTENTS (continued)

 

 

 

 

 

 

 

Page

 

 

 

 

 

10.5.

Marshaling; Payments Set Aside

51

 

10.6.

Nonliability of the Lender

51

 

10.7.

Confidentiality

51

 

10.8.

Captions

52

 

10.9.

Nature of Remedies

52

 

10.10.

Counterparts

52

 

10.11.

Severability

52

 

10.12.

Entire Agreement

52

 

10.13.

Successors; Assigns

53

 

10.14.

Governing Law

53

 

10.15.

Forum Selection; Consent to Jurisdiction; Service of Process

53

 

10.16.

Waiver of Jury Trial

54

 

10.17.

Collateral Agent

54

 

v



 

TABLE OF CONTENTS (continued)

 

 

 

 

Annexes

 

 

Annex I

Addresses

 

 

 

 

 

Exhibits

 

 

Exhibit A

Compliance Certificate

 

 

vi


 

CREDIT AGREEMENT

 

This Credit Agreement dated as of April 18, 2013, (as amended, restated or otherwise modified from time to time, this “ Agreement ”) is made among AVINGER, INC., a Delaware corporation (the “ Borrower ”), PDL BIOPHARMA, INC. (the “ Lender ”), and PDL BIOPHARMA, INC., not individually, but as the Agent (as defined below).

 

The Borrower has agreed to enter into this Agreement with the Lender and the Agent evidencing its agreement to incur the Loan, and in connection therewith, to make the representations and warranties, covenants and undertakings as hereinafter set forth.

 

Section 1.                                            Definitions; Interpretation .

 

1.1.                             Definitions .  When used herein the following terms shall have the following meanings:

 

Acquisition ” means any transaction or series of related transactions for the purpose of or resulting, directly or indirectly, in (a) the acquisition of all or substantially all of the assets of a Person, or of all or substantially all of any business or division of a Person, (b) the acquisition of in excess of 50% of the Stock of any Person, or otherwise causing any Person to become a Subsidiary, (c) a merger, consolidation, amalgamation or any other combination with another Person (other than a combination between two Persons that prior to the merger, consolidation, amalgamation or combination were already Loan Parties) in which the surviving Person is the Borrower or is or becomes a Subsidiary of the Borrower and (d) the acquisition of a brand, line of business, division, branch, product line, marketing rights, patent rights, or other Intellectual Property rights unrelated to Product, with respect to a product line, operating division, product or potential product, or other unit operation of any Person.

 

Affiliate ” of any Person means (a) any other Person which, directly or indirectly, controls or is controlled by or is under common control with such Person and (b) any officer or director of such Person.  A Person shall be deemed to be “controlled by” any other Person if such Person possesses, directly or indirectly, power to vote 10% or more of the securities (on a fully diluted basis) having ordinary voting power for the election of directors or managers or power to direct or cause the direction of the management and policies of such Person whether by contract or otherwise.  Unless expressly stated otherwise herein, neither the Agent nor the Lender shall be deemed an Affiliate of any Loan Party.

 

Agent ” means PDL BioPharma, Inc. in its capacity as administrative agent for the Lender hereunder and any successor thereto in such capacity.

 

Agreement ” has the meaning set forth in the Preamble .

 

Applicable Percentage ” means, for any period, 1.8% of the Borrower’s Net Revenues for such period; provided that, beginning on the first full Fiscal Quarter after the Prepayment Date, the “Applicable Percentage” for any period shall be 0.9% of the Borrower’s Net Revenues for such period.

 

1



 

Applicable Law ” means all applicable provisions of all (i) constitutions, treaties, statutes, laws, rules, regulations and ordinances of any Governmental Authority, (ii) authorizations, consents, approvals, permits or licenses issued by, or a registration or filing with, any Governmental Authority and (iii) orders, decisions, judgments, awards and decrees of any Governmental Authority (including common law and principles of public policy).

 

Assigned Interests ” shall mean, (i) from the Closing Date until the end of the calendar quarter in which the Prepayment Date occurs, an amount equal to the product of the Applicable Percentage multiplied by the Borrower’s quarterly Net Revenues, and (ii) from the beginning of the first Fiscal Quarter after the Prepayment Date through the Maturity Date, for each of the following Fiscal Quarters the greater of (a) an amount equal to the product of the Applicable Percentage multiplied by the sum of the Borrower’s monthly Net Revenues for each calendar month in such Fiscal Quarter and (b) the following amounts (the “ Mandatory Minimum Payments ”):

 

(a)          For each Fiscal Quarter in the Fiscal Year ended December 31, 2013, $65,000;

 

(b)          for each Fiscal Quarter in the Fiscal Year ended December 31, 2014, $177,500;

 

(c)           for each Fiscal Quarter in the Fiscal Year ended December 31, 2015, $305,000;

 

(d)          for each Fiscal Quarter in the Fiscal Year ended December 31, 2016, $305,000;

 

(e)           for each Fiscal Quarter in the Fiscal Year ended December 31, 2017, $305,000; and

 

(f)            for each Fiscal Quarter in the Fiscal Year ended December 31, 2018, $310,000.

 

Audit Costs ” means the reasonable out-of-pocket costs of any audit of the books and records of the Borrower and its Subsidiaries with respect to amounts paid or payable under this Agreement, including all fees and expenses incurred in connection therewith.

 

Borrower ” has the meaning set forth in the Preamble .

 

Borrowing Request ” has the meaning set forth in Section 2.1.1(b) .

 

Business Day ” means any day on which commercial banks are open for commercial banking business in New York, New York and San Francisco, California.

 

Capital Lease ” means, with respect to any Person, any lease of (or other agreement conveying the right to use) any real or personal property by such Person that, in conformity with GAAP, is accounted for as a capital lease on the balance sheet of such Person.

 

Capital Stock ” means, with respect to any Person, the Stock and Stock Equivalents of such Person.

 

Cash Equivalent Investment ” means, at any time, (a) any evidence of Debt, maturing not more than one year after such time, issued or guaranteed by the United States Government or any

 

2



 

agency thereof, (b) commercial paper, or corporate demand notes, in each case rated at least A-l by Standard & Poor’s Ratings Group or P-l by Moody’s Investors Service, Inc., (c) any certificate of deposit (or time deposit represented by a certificate of deposit), overnight bank deposit or banker’s acceptance maturing not more than one year after such time, or any overnight Federal Funds transaction that is issued or sold by a commercial banking institution that is a member of the Federal Reserve System and has a combined capital and surplus and undivided profits of not less than $500,000,000, (d) any repurchase agreement entered into with any commercial banking institution of the nature referred to in clause (c) above which (i) is secured by a fully perfected security interest in any obligation of the type described in any of clauses (a) through (c) above and (ii) has a market value at the time such repurchase agreement is entered into of not less than 100% of the repurchase obligation of such commercial banking institution thereunder, (e) money market accounts or mutual funds which invest predominantly in assets satisfying the foregoing requirements, (f) other investments set forth in Borrower’s investment policy from time to time and approved in writing by the Agent and (g) other short term liquid investments approved in writing by the Agent.

 

CFC ” means a Person that is a “controlled foreign corporation” as defined in Section 957 of the IRC.

 

Change of Control ” means an event or series of events by which:

 

(a) any “person” or “group” (as such terms are used in Section 13(d) and 14(d) of the Securities Exchange Act of 1934, but excluding any employee benefit plan of such person or its subsidiaries, and any person or entity acting in its capacity as trustee, agent or other fiduciary or administrator of any such plan) (other than the Holders) becomes the “beneficial owner” (as defined in Rules 13-d and 13d-5 under the Securities Exchange Act of 1934, except that a person or group shall be deemed to have “beneficial ownership” of all Stock that such person or group has the right to acquire (such right, an “option right”), whether such right is exercisable immediately or only after the passage of time), directly or indirectly, of fifty percent (50%) or more of the Stock and Stock Equivalents of the Borrower entitled to vote for members of the board of directors or equivalent governing body of the Borrower on a fully diluted basis (and taking into account all such securities that such person or group has the right to acquire pursuant to any option right);

 

(b) individuals who on the Closing Date constituted the board of directors or similar governing body of the Borrower (together with any new directors whose election or appointment by such board of directors or similar governing body or whose nomination for election by the shareholders of the Borrower was approved by a vote of a majority of the directors of the Borrower then still in office who were either directors on the Closing Date or whose election or nomination for election was previously so approved) cease for any reason to constitute a majority of the board of directors or similar governing body of the Borrower then in office;

 

(c) all or substantially all of the assets of the Borrower are disposed of in any one or more transactions; or

 

3



 

(d) at any time prior to the initial public offering of the Borrower’s common Stock, the Holders shall fail to hold directly at least 50% of the Capital Stock of the Borrower, other than as a result of dilution through the sale of equity of the Borrower for purposes of raising capital.

 

Closing Date ” means the date on which the conditions set forth in Section 4.1 have been satisfied or waived by the Lender.

 

Closing Fee ” means the fee due from the Borrower to the Agent on or before (a) with respect to the Tranche One Loan, the Closing Date and (b) with respect to the Tranche Two Loan, the funding date thereof, in each case in an amount equal to 1% of the aggregate principal amount of the applicable Loan.

 

Collateral ” means all property and interests in property and proceeds thereof now owned or hereafter acquired by any Loan Party and any other Person who has granted a Lien to the Agent, in or upon which a Lien now or hereafter exists in favor of the Lender or the Agent for the benefit of the Agent and the Lender, whether under this Agreement or under any other documents executed by any such Persons and delivered to the Agent.

 

Collateral Access Agreement ” means an agreement in form and substance satisfactory to the Agent in its reasonable discretion pursuant to which a mortgagee or lessor of real property on which Collateral is stored or otherwise located, or a warehouseman, processor or other bailee of inventory or other property owned by any Loan Party, acknowledges the Liens of the Agent and waives (or, if approved by the Agent, subordinates) any Liens held by such Person on such property, and, in the case of any such agreement with a mortgagee or lessor, permits the Agent reasonable access to and use of such real property during the continuance of an Event of Default to assemble, complete and sell any Collateral stored or otherwise located thereon.

 

Collateral Documents ” means, collectively, the Security Agreement (including as may be supplemented by the joinder of any Subsidiary of the Borrower thereto), any Subsidiary Guaranty, and each other agreement or instrument pursuant to or in connection with which any Loan Party or any other Person grants a security interest in any Collateral to the Agent for the benefit of the Lender or pursuant to which any such security interest in Collateral is perfected, each as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

Commitments ” means the Tranche One Commitment and the Tranche Two Commitment.

 

Compliance Certificate ” means a certificate substantially in the form of Exhibit A.

 

Connection Income Taxes ” means Other Connection Taxes that are imposed on or measured by net income (however denominated) or that are franchise Taxes or branch profits Taxes, including, for the avoidance of doubt, those described in clause (i)(A) of Section 3.1(a).

 

Contingent Obligation ” means any agreement, undertaking or arrangement by which any Person guarantees, endorses or otherwise becomes or is contingently liable upon (by direct or indirect agreement, contingent or otherwise, to provide funds for payment, to supply funds to or otherwise to invest in a debtor, to provide security for the obligations of a debtor or otherwise

 

4



 

to assure a creditor against loss) any indebtedness, obligation or other liability of any other Person (other than by endorsements of instruments in the course of collection), or guarantees the payment of dividends or other distributions upon the Stock of any other Person.  The amount of any Person’s obligation in respect of any Contingent Obligation shall (subject to any limitation set forth therein) be deemed to be the principal amount of the indebtedness, obligation or other liability supported thereby or the amount of the dividends or distributions guaranteed, as applicable.

 

Control Agreement ” means a tri-party deposit account, securities account or commodities account Control Agreement by and among the applicable Loan Party, the Agent and the depository, securities intermediary or commodities intermediary, and each in form and substance  satisfactory in all respects to the Agent in its reasonable discretion and in any event providing to the Agent “control” of such deposit account, securities or commodities account within the meaning of Articles 8 and 9 of the UCC.

 

Copyrights ” means all rights, title and interests (and all related IP Ancillary Rights) arising under any Applicable Law in copyrights and all mask work, database and design rights, whether or not registered or published, all registrations and recordations thereof and all applications in connection therewith.

 

Debt ” of any Person means, without duplication, (a) all indebtedness of such Person for borrowed money, (b) all indebtedness evidenced by bonds, debentures, notes or similar instruments, (c) all obligations of such Person as lessee under Capital Leases which have been or should be recorded as liabilities on a balance sheet of such Person in accordance with GAAP, (d) all obligations of such Person to pay the deferred purchase price of property or services (excluding trade accounts payable in the ordinary course of business), (e) all indebtedness secured by a Lien on the property of such Person, whether or not such indebtedness shall have been assumed by such Person (with the amount thereof being measured as the fair market value of such property), (f) all obligations, contingent or otherwise, with respect to letters of credit (whether or not drawn), banker’s acceptances and surety bonds issued for the account of such Person, (g) all Hedging Obligations of such Person, (h) all Contingent Obligations of such Person for obligations of any other Person constituting Debt (under another clause of this definition) of such other Person, (i) all earn-out, purchase price adjustment and similar obligations that are required by GAAP to be reflected on the balance sheet of such Person, (j) all obligations of such Person in respect of Disqualified Capital Stock issued by such Person, (k) all indebtedness of the types listed in (a) through (j) and (l) of any partnership of which such Person is a general partner and (l) all obligations of such Person under any synthetic lease transaction, where such obligations are considered borrowed money indebtedness for tax purposes but the transaction is classified as an operating lease in accordance with GAAP.

 

Default ” means any event that, if it continues uncured, will, with the lapse of time or the giving of notice or both, constitute an Event of Default.

 

Default Rate ” has the meaning set forth in Section 2.3.1 .

 

5



 

Disclosure Letter ” means the letter dated as of the date of this Agreement delivered by the Borrower to the Agent and the Lender in connection with the execution and delivery of this Agreement.

 

Disqualified Capital Stock ” means any Stock which, by its terms (or by the terms of any security into which it is convertible or for which it is exchangeable), or upon the happening of any event, (a) matures (excluding any maturity as the result of an optional redemption by the issuer thereof) or is mandatorily redeemable or is redeemable at the option of the holder thereof, in whole or in part, on or prior to April 18, 2019, (b) is convertible into or exchangeable (unless at the sole option of the issuer thereof) for (i) debt securities or (ii) any Stock referred to in (a) above, in each case at any time on or prior to April 18, 2019, or (c) contains any repurchase obligation which may come into effect prior to the Obligations being Paid in Full; provided that any Stock that would not constitute Disqualified Capital Stock but for provisions thereof giving holders thereof (or the holders of any security into or for which such Stock is convertible, exchangeable or exercisable) the right to require the issuer thereof to redeem or repurchase such Stock upon the occurrence of a change in control or an asset sale occurring prior to April 18, 2019 shall not constitute Disqualified Capital Stock if such Stock provides that the issuer thereof will not redeem or repurchase any such Stock pursuant to such provisions prior to the repayment in full of the Obligations.

 

Dollar ” and “ $ ” mean lawful currency of the United States of America.

 

Eligible Institution ” means any Person that is a bank, institutional lender or other recognized financing provider.

 

Environmental Claims ” means all claims, however asserted, by any governmental, regulatory or judicial authority or other Person alleging potential liability or responsibility under or for violation of any Environmental Law, or for release or injury to the environment or any Person or property or natural resources.

 

Environmental Laws ” means all present or future federal, state, provincial or local laws, statutes, common law duties, rules, regulations, ordinances and codes, including all amendments, together with all administrative orders, directed duties, requests, licenses, authorizations and permits of, and agreements with, any Governmental Authority, in each case relating to any matter arising out of or relating to health and safety, or pollution or protection of the environment, natural resources or workplace, including any of the foregoing relating to the presence, use, production, recycling, reclamation, generation, handling, transport, treatment, storage, disposal, distribution, discharge, release, emission, control, cleanup or investigation or management of any Hazardous Substance.

 

ERISA ” means the Employee Retirement Income Security Act of 1974, as amended.

 

Event of Default ” means any of the events described in Section 8.1 .

 

Excluded Accounts ” means, collectively, that certain collateral money market account held in the name of Borrower at Silicon Valley Bank as collateral for Borrower’s credit card obligations with Silicon Valley Bank, so long as the balance thereof does not at any time exceed

 

6



 

$300,000, and that certain Euro account held in the name of Borrower at Standard Chartered Bank, so long as the balance thereof does not at any time exceed €250,000.

 

Excluded Taxes ” has the meaning set forth in Section 3.1(a) .

 

Exit Fee ” means an amount equal to 1.0% of the aggregate original principal amount of Tranche One Loan and the Tranche Two Loan (to the extent the Tranche Two Loan is made).

 

FATCA ” means Sections 1471 through 1474 of the Code, as of the date of this Agreement (or any amended or successor provision that is substantively comparable and not materially more burdensome to comply with), and any current or future regulations issued thereunder or official interpretations thereof.

 

Fiscal Quarter ” means a fiscal quarter of a Fiscal Year.

 

Fiscal Year ” means the fiscal year of the Borrower and its Subsidiaries, which period shall be the 12-month period ending on December 31 of each year.

 

FRB ” means the Board of Governors of the Federal Reserve System or any successor thereto.

 

GAAP ” means generally accepted accounting principles as in effect in the United States of America.

 

Governmental Authority ” means any nation or government, any state, province, municipality or other political subdivision thereof, any central bank (or similar monetary or regulatory authority) thereof, any entity exercising executive, legislative, judicial, regulatory or administrative functions of or pertaining to government (including any supra-national bodies such as the European Union or the European Central Bank), and any corporation or other entity owned or controlled, through stock or capital ownership or otherwise, by any of the foregoing.

 

Gross Revenue ” means, for any period of determination, the sum of the following for such period: (i) the amounts recognized as revenue in accordance with GAAP by the Borrower, its Subsidiaries or any of their Affiliates with respect to (a) the sale of Product to a Third Party by the Borrower, its Subsidiaries or any of their Affiliates, (b) the sale, distribution or other commercial use of Product by such Third Party in connection with any marketing, royalty, manufacturing, co-promotion, co-development, or other strategic arrangements, (c) the license, assignment or other transfer of Intellectual Property to market, sell, lease or transfer Product or any other product utilizing such Intellectual Property and (ii) any collections in respect of write-offs or allowances for bad debts in respect of items described in the preceding clause (i) that constitute reversals of allowances for bad debt made in calculating Net Revenue. For purposes of prevention of duplication, “Gross Revenue” shall not include amounts invoiced by Affiliates, distributors, wholesalers or other Persons acting in similar capacities to the extent that such amounts are duplicative.

 

Hazardous Substances ” means any waste, chemical, substance, or material listed, defined, classified, or regulated as a hazardous waste, hazardous substance, pollutant, contaminant, toxic substance, or hazardous, dangerous or radioactive material, chemical or waste

 

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or otherwise regulated by any Environmental Law, including, without limitation, any petroleum or any derivative, waste, or byproduct thereof, radon, asbestos, and polychlorinated biphenyls, and any other substance, the storage, manufacture, disposal, treatment, generation, use, transportation, remediation, release into or concentration in the environment of which is prohibited, controlled, regulated or licensed by any governmental authority under any Environmental Law.

 

Hedging Obligation ” means, with respect to any Person, any liability of such Person under any interest rate, currency or commodity swap agreement, cap agreement or collar agreement, and any other agreement or arrangement designed to protect a Person against fluctuations in interest rates, currency exchange rates or commodity prices.  The amount of any Person’s obligation in respect of any Hedging Obligation shall be deemed to be the incremental obligation that would be reflected in the financial statements of such Person in accordance with GAAP.

 

Holders ” means, collectively, the holders of the Capital Stock of the Borrower as of the Closing Date, each natural relative who is a rightful heir of the foregoing, and any trust maintained by or for the benefit of any of the foregoing.

 

Indemnified Liabilities ” has the meaning set forth in Section 10.4 .

 

Intellectual Property ” means all rights, title and interests in intellectual property arising under any Applicable Law and all IP Ancillary Rights relating thereto, including all Copyrights, Patents, Trademarks, Internet Domain Names, Trade Secrets, industrial designs, integrated circuit topographies, and rights under IP Licenses.

 

Interest-Only Period ” shall mean the period beginning on the Closing Date and continuing through (i) if a Tranche Two Milestone does not occur, the tenth Interest Payment Date after the Closing Date, or (ii) if a Tranche Two Milestone occurs, the twelfth Interest Payment Date after the Closing Date.

 

Interest Payment Date ” means the last Business Day of each March, June, September  and December.

 

Internet Domain Name ” means all right, title and interest (and all related IP Ancillary Rights) arising under any Applicable Law in internet domain names.

 

Investment ” means, with respect to any Person, (a) the purchase or other acquisition of any debt or equity security of any other Person, (b) the making of any loan, advance or capital contribution to any other Person, (c) becoming obligated with respect to a Contingent Obligation in respect of obligations of any other Person or (d) the making of an Acquisition.  For the avoidance of doubt, a deposit account shall not be an “Investment.”

 

IP Ancillary Rights ” means, with respect to an item of Intellectual Property all foreign counterparts to, and all divisionals, reversions, continuations, continuations-in-part, reissues, reexaminations, renewals and extensions of, such Intellectual Property and all income, royalties, proceeds and liabilities at any time due or payable or asserted under or with respect to any of the foregoing or otherwise with respect to such Intellectual Property, including all rights to sue or

 

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recover at law or in equity for any past, present or future infringement, misappropriation, dilution, violation or other impairment thereof, and, in each case, all rights to obtain any other IP Ancillary Right.

 

IP License ” means all contractual obligations (and all related IP Ancillary Rights), whether written or oral, granting any right, title and interest in any Intellectual Property.

 

IRC ” means the Internal Revenue Code of 1986, as amended.

 

IRS ” has the meaning set forth in Section 3.1(d) .

 

Legal Costs ” means, with respect to any Person, (a) all reasonable fees and charges of any counsel, accountants, auditors, appraisers, consultants and other professionals to such Person, (b) the reasonable allocable cost of internal legal services of such Person and all reasonable disbursements of such internal counsel and (c) all court costs and similar legal expenses.

 

Lender Party ” has the meaning set forth in Section 10.4 .

 

Lender ” has the meaning set forth in the Preamble .

 

Letter Agreement ” has the meaning set forth in Section 4.1.7 .

 

Lien ” means, with respect to any Person, any interest granted by such Person in any real or personal property, asset or other right owned or being purchased or acquired by such Person which secures payment or performance of any obligation and shall include any mortgage, lien, encumbrance, charge or other security interest of any kind, whether arising by contract, as a matter of law, by judicial process or otherwise.

 

Liquidity ” means, at any time, the sum of cash and Cash Equivalent Investments held by the Borrower and its Subsidiaries at such time that are not (i) subject to any Liens (other than Liens under the Collateral Documents and customary setoff rights with respect to deposit accounts or other funds maintained with depository institutions that are created by law or by applicable account agreements in favor of such depositary institutions or securities intermediaries), (ii) required to be maintained or kept segregated from the general assets of the applicable Subsidiary for the purpose of securing or providing a source of payment for Debt or other obligations that are or from time to time may be owed to one or more creditors of the Borrower or any Subsidiary (other than to secure the Obligations) or (iii) held by a Subsidiary that is subject to restrictions on its ability to pay dividends or distributions.

 

Loans ” means the Tranche One Loan, the Tranche Two Loan and any PIK Loans.

 

Loan Documents ” means this Agreement, the Notes, the Collateral Documents, the Letter Agreement, the Disclosure Letter and all other documents, instruments and agreements delivered in connection with the foregoing, all as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

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Loan Party ” means the Borrower and each Subsidiary of the Borrower that has executed and delivered a Subsidiary Guaranty and Security Agreement.

 

Mandatory Minimum Payments ” has the meaning set forth in the definition of “Assigned Interests.”

 

Margin Stock ” means any “margin stock” as defined in Regulation T, U or X of the FRB.

 

Material Adverse Effect ” means (a) a material adverse change in, or a material adverse effect upon, the operations, assets, business, properties or condition (financial or otherwise) of the Borrower or the Loan Parties taken as a whole, (b) a material impairment of the ability of any Loan Party to perform in any material respect any of its Obligations under any Loan Document to which it is a party or (c) a material adverse effect upon the legality, validity, binding effect or enforceability against any Loan Party of any Loan Document to which it is a party.

 

Maturity Date ” means April 18, 2018.

 

Monthly Net Revenue Report ” means, with respect to the relevant calendar month, a report reflecting Net Revenue for such calendar month, including a description of Gross Revenue for such calendar month and the adjustments and other reconciliations used to arrive at Net Revenue, in form and substance acceptable to the Agent and the Lender

 

Net Revenue ” means, for any period of determination, the difference between (a) Gross Revenue for such period, less (b) the sum, with respect to the items described in clauses (i) and (ii) of the definition of Gross Revenue, without duplication, of (i) bona fide cash, trade discounts and rebates actually granted or paid to Third Parties in accordance with customary industry standards, (ii) allowances and adjustments actually credited to customers for Product that is spoiled, damaged, outdated, obsolete, returned or otherwise recalled, but only if and to the extent the same are in accordance with sound business practices and not in excess of customary industry standards, (iii) charges for freight, postage, shipping, delivery, service and insurance charges, to the extent invoiced, (iv) taxes, duties or other governmental charges to the extent invoiced, (v) write-offs or allowances for bad debts, (vi) rebates and chargebacks and other price reduction programs, and (vii) other payments required by Applicable Law, in each case as determined in accordance with GAAP.

 

Non-Excluded Taxes ” has the meaning set forth in Section 3.1(a) .

 

Note ” means a promissory note in form and substance acceptable to the Lender and the Agent, as the same may be replaced, substituted, amended, restated or otherwise modified from time to time.

 

Obligations ” means all liabilities, indebtedness and obligations (including interest accrued at the rate provided in the applicable Loan Document after the commencement of a bankruptcy proceeding whether or not a claim for such interest is allowed) of any Loan Party under this Agreement, or any Loan Party under any other Loan Document, any Collateral Document or any other document or instrument executed in connection herewith or therewith, in

 

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each case howsoever created, arising or evidenced, whether direct or indirect, absolute or contingent, now or hereafter existing, or due or to become due, including the Assigned Interests.

 

OFAC ” has the meaning set forth in Section 5.20.1.

 

Other Connection Taxes ” means, with respect to the Lender, Taxes imposed as a result of a present or former connection between the Lender and the jurisdiction imposing such Tax (other than any such connection arising from the Lender having executed, delivered, become a party to, performed its obligations under, received payments under, received or perfected a security interest under, engaged in any other transaction with respect to the Loan or enforced any Loan Document or sold or assigned an interest in any Loan or Loan Document).

 

Other Taxes ” means all present or future stamp, court or documentary, intangible, recording, filing or similar Taxes that arise from any payment made under, from the execution, delivery, performance, enforcement or registration of, from the receipt or perfection of a security interest under, or otherwise with respect to, any Loan Document.

 

Paid in Full ” or “ Payment in Full ” means, with respect to any Obligations, the payment in full in cash and performance of all such Obligations.

 

Patents ” means all (i) all patents and certificates of invention, or similar property rights, and applications for any of the foregoing, of the United States, any other country or any political subdivision thereof, (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all licenses, claims, damages, and proceeds of suit arising therefrom, (vii) all proceeds of the foregoing, including, without limitation, licenses, royalties, and income, and (viii) without duplication, all IP Ancillary Rights in respect of the foregoing.

 

Permitted AR Facility ” means a loan facility from an Eligible Institution (i) that is secured solely by the Borrower’s Accounts (as such term is defined in the Security Agreement), Inventory (as such term is defined in the Security Agreement), and cash, deposit accounts and other similar assets and payment intangibles, (ii) the aggregate amount due and outstanding under which does not exceed 85% of the amount of eligible accounts outstanding (as defined in the documentation governing such facility) and securing the obligations thereunder, and which shall provide facilities that shall in no event exceed $10,000,000 in principal amount (including undrawn committed or available amounts ), and (iii) with respect to which the Agent and the lender under such facility have entered into a mutually acceptable intercreditor agreement.

 

Permitted Lien ” means any Lien expressly permitted by Section 7.2 .

 

Permitted Refinancing ” means any replacement, renewal, refinancing or extension of any existing Debt, in any such case, permitted by this Agreement that (a) does not exceed the aggregate principal amount (plus accrued interest and any applicable premium and associated fees and expenses) of the Debt being replaced, renewed, refinanced or extended, (b) does not have a weighted average life to maturity at the time of such replacement, renewal, refinancing or extension that is less than the weighted average life to maturity of the Debt being replaced, renewed, refinanced or extended, (c) does not rank at the time of such replacement, renewal,

 

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refinancing or extension senior to the Debt being replaced, renewed, refinanced or extended, and (d) does not contain terms (including, without limitation, terms relating to security, amortization, interest rate, premiums, fees, covenants, subordination, event of default and remedies) that, taken as a whole, are materially less favorable to any Loan Party or adverse to the interests of the Agent and the Lender than those applicable to the Debt being replaced, renewed, refinanced or extended.

 

Person ” means any natural person, corporation, partnership, trust, limited liability company, association, Governmental Authority or unit, or any other entity, whether acting in an individual, fiduciary or other capacity.

 

PIK Loans ” has the meaning set forth in Section 2.3.1 .

 

PIK Periods ” has the meaning set forth in Section 2.3.1 .

 

Prepayment Date ” means any date prior to the Maturity Date on which the Loans (including, if applicable, any PIK Loans), and all accrued interest thereon, are Paid in Full.

 

Product ” means the Wildcat, Kittycat, Kittycat2, Juicebox, Ocelot, Ocelot PIXL, Lightbox and Pantheris products, and any and all future iterations of any of the foregoing, and any other products developed internally by any Loan Party; provided, that after the date of an Acquisition of the  Borrower, “Product” shall mean those products that existed either as commercialized products or in development by the Borrower, under Borrower’s standard operating procedure defining the product development process as delivered to the Lender prior to the date hereof, immediately prior the date of such Acquisition.  For the avoidance of doubt, “Product” shall not include any product owned or in development by any acquirer immediately prior to such Acquisition.

 

Qualified Capital Stock ” of any person shall mean any Stock of such person that is not Disqualified Capital Stock.

 

Quarterly Net Revenue Report ” means, with respect to the relevant Fiscal Quarter, a report reflecting Net Revenue for such Fiscal Quarter, including a description of Gross Revenue for such Fiscal Quarter and the adjustments and other reconciliations used to arrive at Net Revenue, in form and substance reasonably acceptable to the Agent and the Lender.

 

Restricted Payment ” has the meaning set forth in Section 7.3 .

 

Security Agreement ” means the Security Agreement, dated as of the Closing Date, made by the Borrower in favor of the Agent, and governed by the laws of the State of New York, as amended, restated or otherwise modified from time to time in accordance with the terms hereof and thereof.

 

Stock ” means all shares of capital stock (whether denominated as common stock or preferred stock), equity interests, beneficial, partnership or membership interests, joint venture interests, participations or other ownership or profit interests in, or equivalents (regardless of how designated) of, a Person (other than an individual), whether voting or non-voting.

 

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Stock Equivalents ” means all securities convertible into or exchangeable for Stock or any other Stock Equivalent and all warrants, options or other rights to purchase, subscribe for or otherwise acquire any Stock or any other Stock Equivalent, whether or not presently convertible, exchangeable or exercisable.  For the avoidance of doubt, “Stock Equivalents” shall not include debt instruments that are convertible into Stock or Stock Equivalents.

 

Subsidiary ” means, with respect to any Person, a corporation, partnership, limited liability company or other entity of which such Person owns, directly or indirectly, such number of outstanding shares of voting Stock or Stock Equivalents as to have more than 50% of the ordinary voting power for the election of directors or other managers of such corporation, partnership, limited liability company or other entity.  Unless the context otherwise requires, each reference to Subsidiaries herein shall be a reference to Subsidiaries of the Borrower.

 

Subsidiary Guaranty ” means each Subsidiary Guaranty executed and delivered by a Subsidiary in favor of the Agent pursuant to Section 6.7 , in form and substance satisfactory to the Agent and the Lender.

 

Taxes ” has the meaning set forth in Section 3.1(a) .

 

Tax Returns ” has the meaning set forth in Section 5.12 .

 

Third Party ” means any Person other than the Borrower, Lender and Agent.

 

Trade Secrets ” means all right, title and interest (and all related IP Ancillary Rights) arising under any Applicable Law in or relating to trade secrets.

 

Trademark ” means all rights, title and interests (and all related IP Ancillary Rights) arising under any Applicable Law in trademarks, trade names, corporate names, company names, business names, fictitious business names, trade styles, service marks, logos and other source or business identifiers and, in each case, all goodwill associated therewith, all registrations and recordations thereof and all applications in connection therewith.

 

Tranche One Commitment ” means, as to the Lender, the Lender’s commitment to provide the Loans in the aggregate principal amount of $20,000,000 pursuant to Section 2.1.1(a) .

 

Tranche Two Commitment ” means, as to the Lender, the Lender’s commitment to provide the Loans in the aggregate principal amount of up to $20,000,000 pursuant to Section 2.1.1(b).

 

Tranche One Loan ” means the term loan from the Lender in a principal amount of $20,000,000 made to the Borrower on the Closing Date pursuant to Section 2.1.1(a) .

 

Tranche Two Loan ” means the term loan from the Lender in a principal amount of at least $10,000,000 and up to $20,000,000, at the Borrower’s discretion, made to the Borrower pursuant to Section 2.1.1(b) .

 

Tranche Two Milestone ” has the meaning set forth in Section 4.2.2 .

 

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True-Up Amount ” shall have the meaning set forth in Section 6.9 .

 

True-Up Statement ” shall have the meaning set forth in Section 6.9 .

 

UCC ” means the Uniform Commercial Code as in effect in from time to time in the State of New York.

 

Wholly-Owned Subsidiary ” means, as to any Subsidiary, all of the Stock and Stock Equivalents of which (except directors’ qualifying shares) are at the time directly or indirectly owned by the Borrower and/or another Wholly-Owned Subsidiary of the Borrower.

 

1.2.                             Interpretation .  In the case of this Agreement and each other Loan Document, (a) the meanings of defined terms are equally applicable to the singular and plural forms of the defined terms; (b) Annex, Exhibit, Schedule and Section references in each Loan Document are to the particular Annex, Exhibit, Schedule and Section of such Loan Document unless otherwise specified; (c) the term “including” is not limiting and means “including but not limited to”; (d) in the computation of periods of time from a specified date to a later specified date, the word “from” means “from and including”; the words “to” and “until” each mean “to but excluding”, and the word “through” means “to and including”; (e) unless otherwise expressly provided in such Loan Document, (i) references to agreements and other contractual instruments shall be deemed to include all subsequent amendments and other modifications thereto, but only to the extent such amendments and other modifications are not prohibited by the terms of any Loan Document, and (ii) references to any statute or regulation shall be construed as including all statutory and regulatory provisions amending, replacing, supplementing or interpreting such statute or regulation; (f) this Agreement and the other Loan Documents may use several different limitations, tests or measurements to regulate the same or similar matters, all of which are cumulative and each shall be performed in accordance with its terms; and (g) this Agreement and the other Loan Documents are the result of negotiations among and have been reviewed by counsel to the Agent, the Borrower, the Lender and the other parties hereto and thereto and are the products of all parties; accordingly, they shall not be construed against the Agent or the Lender merely because of the Agent’s or the Lender’s involvement in their preparation.  Any reference in any Loan Document to a Permitted Lien is not intended to subordinate or postpone, and shall not be interpreted as subordinating or postponing, or as any agreement to subordinate or postpone, any Lien created by any of the Loan Documents to any Permitted Lien.

 

Section 2.                                            Credit Facilities.

 

2.1.                             Loans .

 

2.1.1.                   Loans .  On the terms and subject to the conditions of this Agreement, the Lender agrees to lend to the Borrower funds in an aggregate principal amount of up to the Commitment, in installments as follows:

 

(a)                                  on the Closing Date, the entire amount of its Tranche One Commitment, after which the Tranche One Commitment shall terminate;

 

(b)                                  on the date set forth in the Borrower’s written request (the “ Borrowing Request ”), the amount of the Tranche Two Commitment set forth in

 

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such Borrowing Request (provided that such amount shall be no less than $10,000,000 and no more than $20,000,000), after which the Tranche Two Commitment shall terminate in full; provided that the Borrowing Request must be received by Lender no later than noon Pacific time five (5) Business Days prior to the date of such proposed borrowing.

 

2.1.2.                   General .  No portion of the Loans may be re-borrowed once repaid.  The proceeds of the Loans shall be used for working capital, capital expenditures and general corporate purposes, in compliance with the Loan Documents and Applicable Law.

 

2.2.                             Loan Accounting .

 

2.2.1.                   Recordkeeping .  The Agent, on behalf of the Lender, shall record in its records the date and amount of the Loan made by the Lender, each interest payment paid in kind, accrued interest and each repayment of principal or interest thereon.  The aggregate unpaid principal amount so recorded shall be rebuttably presumptive evidence of the principal amount of the Loan owing and unpaid.  The failure to so record any such amount or any error in so recording any such amount shall not, however, limit or otherwise affect the Obligations of the Borrower hereunder or under any Note to repay the principal amount of the Loan hereunder, together with all interest accruing thereon.

 

2.2.2.                   Notes .  At the request of the Lender, the Loans shall be evidenced by one or more Notes, with appropriate insertions, payable to the order of the Lender in a face principal amount equal to the Loans and payable in such amounts and on such dates as are set forth herein.

 

2.3.                             Interest .

 

2.3.1.                   Interest Rate .

 

(a)                                  The Borrower promises to pay interest on the unpaid principal amount of the Loans for the period commencing on the Closing Date until the Loans are Paid in Full at a rate payable in cash (subject to clause (b) below) per annum equal to (i) 12.0% for the Tranche One Loan and (b) 14.0% for the Tranche Two Loan.

 

(b)                                  The Borrower may elect to pay an amount of interest up to 1.5% per annum in the form of additional term loans (“ PIK Loans ”) (i) for the first eight Interest Payments Dates after the Closing Date, with respect to the Tranche One Loan, and (ii) for the first four Interest Payment Dates after the Tranche Two Loan is funded, with respect to the Tranche Two Loan (the “ PIK Periods ”).  The Borrower shall deliver to the Agent a written notice of its election to pay an amount of interest in the form of PIK Loans at least five (5) Business Days prior to the applicable Interest Payment Date.  Any such election shall be deemed to remain in effect until superseded by a subsequent notice delivered as set forth in the preceding sentence, or until the applicable PIK Period has expired.

 

(c)                                   The foregoing notwithstanding, (i) at any time an Event of Default exists, if requested by the Agent or the Lender, the interest rate then

 

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applicable to the Loan shall be increased by two percent (2.00%) per annum (any such increased rate, the “ Default Rate ”), (ii) any such increase may thereafter be rescinded by the Lender, and (iii) upon the occurrence of an Event of Default under Section 8.1.1 or 8.1.3 , any such increase described in the foregoing clause (i) shall occur automatically.  In the event that the Obligations are not Paid in Full as of the Maturity Date, or in the event that the Obligations shall be declared or shall become due and payable pursuant to Section 8.2 , the Obligations shall bear interest subsequent thereto at the Default Rate and such interest shall be payable in cash on demand.  In no event shall interest or other amounts payable by the Borrower to the Lender hereunder exceed the maximum rate permitted under Applicable Law, and if any such provision of this Agreement is in contravention of any such law, (x) any amounts paid hereunder shall be deemed to be and shall be applied against the principal amount of the Obligations to the extent necessary such that the amounts paid hereunder do not exceed the maximum rate under Applicable Law and (y) such provision shall otherwise be deemed modified as necessary to limit such amounts paid to the maximum rate permitted under Applicable Law.

 

2.3.2.                   Interest Payments .  Interest accrued on the Loan during the period from the Closing Date until the Maturity Date shall accrue and be payable in cash ( subject to Section 2.3.1(b) ) quarterly on each Interest Payment Date, in arrears ( provided , however , that PIK Loans, if any, shall accrue, be capitalized and be compounded and added to the aggregate principal balance of the Loans in arrears on each Interest Payment Date), and, to the extent not paid in advance, upon a prepayment of the Loan in accordance with Section 2.4 and at maturity, in each such case, in cash.  After maturity and at any time an Event of Default exists, all accrued interest on the Loan shall be payable in cash on demand at the rates specified in Section 2.3.1 .

 

2.3.3.                   Computation of Interest .  Interest shall be computed for the actual number of days elapsed on the basis of a year of 360 days consisting of twelve 30-day months.

 

2.4.                             Amortization; Prepayment .

 

2.4.1.                   Amortization .  Commencing on the first Interest Payment Date following the Interest-Only Period, the Borrower shall repay to the Agent for the account of the Lender on each Interest Payment Date an installment payment in respect of the Loans (including, if applicable, any PIK Loans).  Such installment payments shall be in equal principal amounts (which amounts shall be reduced as a result of the application of prepayments in accordance with Section 2.7), plus accrued and unpaid interest, which principal amounts shall be determined by the Agent based on the principal amount of the Loans (including, if applicable, any PIK Loans) outstanding on the first Interest Payment Date following the Interest Only Period.

 

2.4.2.                   Voluntary Prepayment .  The Borrower may, on at least three (3) Business Days’ written notice to the Agent, not later than 12:00 noon New York City time on such day, prepay the Loan in whole or in part (together with accrued and unpaid interest to the date of prepayment on such prepaid amount and without premium or penalty); provided , however , that each partial prepayment that is not of the entire outstanding amount of any Loan shall be in an

 

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aggregate amount that is an integral multiple of $100,000; and provided, further, that any prepayment in full shall be accompanied by the Exit Fee.

 

2.4.3.                   Payments in Respect of the Assigned Interests .  The Borrower shall pay to the Lender the Assigned Interests (a) in respect of Net Revenues earned during the immediately preceding Fiscal Quarter concurrently with the delivery of each Quarterly Net Revenue Report in the amount set forth thereon, until the end of the Fiscal Quarter in which the Prepayment Date occurs and (b) commencing with the first calendar month beginning after the end of the Fiscal Quarter in which the Prepayment Date occurs, in respect of Net Revenues earned during the immediately preceding month concurrently with the delivery of each Monthly Net Revenue Report in the amount set forth thereon, until the Maturity Date.

 

2.5.                             Payment Upon Maturity .  The Loans, together with the Exit Fee, shall be Paid in Full on the Maturity Date.

 

2.6.                             Making of Payments .  All payments on the Loans in accordance with this Agreement, including any payment in respect of the Assigned Interests and all payments of fees and expenses, shall be made by the Borrower to the Agent without setoff, recoupment or counterclaim and in immediately available funds, in United States Dollars, by wire transfer to the account of the Agent set forth on Annex I or as otherwise specified by the Agent, in any case, not later than 1:00 p.m. New York City time on the date due, and funds received after that hour shall be deemed to have been received by the Agent on the following Business Day.  The Agent shall promptly remit to the Lender all payments received in collected funds by the Agent for the account of such Lender.

 

2.7.                             Application of Payments and Proceeds .  Each prepayment of the outstanding Loans pursuant to Section 2.4.2 shall be applied to the principal repayment installments of the Loans as directed by the Borrower.

 

2.8.                             Payment Dates .  If any payment of principal of or interest on a Loan, or of any fees, falls due on a day which is not a Business Day, then such due date shall be extended to the immediately following Business Day and, in the case of principal, additional interest shall accrue and be payable for the period of any such extension.

 

2.9.                             Set-off .  The Borrower agrees that the Agent and the Lender and its Affiliates have all rights of set-off and bankers’ lien provided by Applicable Law, and in addition thereto, the Borrower agrees that at any time an Event of Default has occurred and is continuing, the Agent and the Lender may apply to the payment of any Obligations of the Borrower hereunder, whether or not then due, any and all balances, credits, deposits, accounts or moneys of the Borrower then or thereafter maintained with the Agent or such Lender.

 

2.10.                      Currency Matters .  All amounts payable under this Agreement and the other Loan Documents to the Agent and the Lender shall be payable in Dollars.

 

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Section 3.                                            Yield Protection .

 

3.1.                             Taxes .

 

(a)                                  Except as otherwise provided in this Section 3.1 , all payments of principal and interest on the Loan and all other amounts payable under any Loan Document shall be made free and clear of and without deduction or withholding for any present or future income, excise, stamp, documentary, property or franchise taxes or other taxes, fees, duties, levies, withholdings or other charges of any nature whatsoever imposed by any taxing authority, including any interest, additions to tax or penalties applicable thereto (“ Taxes ”), excluding (i) taxes imposed on or measured by the Lender’s net income, franchise taxes in lieu of taxes on net income, and branch profits taxes imposed by (A) the jurisdiction under which the Lender is organized or has its principal office or (B) that are Other Connection Taxes, (ii) U.S. federal withholding taxes pursuant to a law in effect at the time such Lender first becomes a party to this Agreement, except to the extent that, pursuant to this Section 3.1(a), amounts with respect to such Taxes were payable to such Lender’s assignor immediately before such Lender became a party hereto, and (iii) any U.S. federal withholding taxes imposed pursuant to FATCA (collectively, “ Excluded Taxes ” and all such non-Excluded Taxes, “ Non-Excluded Taxes ”)).  If any withholding or deduction from any payment to be made by the Borrower hereunder is required in respect of any Taxes pursuant to any Applicable Law (as determined in the good faith reasonable discretion of the Borrower or the Agent), rule or regulation, then the Borrower shall:  (i) timely pay directly to the relevant taxing authority the full amount required to be so withheld or deducted; (ii) within thirty (30) days after the date of any such payment of Taxes, forward to the Agent an official receipt or other documentation satisfactory to the Agent evidencing such payment to such relevant taxing authority; and (iii) in the case of Non-Excluded Taxes, pay to the Agent for the account of the Lender such additional amount or amounts as is necessary to ensure that the net amount actually received by the Lender will equal the full amount the Lender would have received had no such withholding or deduction for Non-Excluded Taxes (including withholdings and deductions for Non-Excluded Taxes applicable to any additional sums payable under this Section 3.1 ) been required.

 

(b)                                  the Borrower shall timely pay to the relevant Governmental Authority in accordance with Applicable Law, or at the option of the Agent timely reimburse it for the payment of, any Other Taxes.

 

(c)                                   The Borrower shall reimburse and indemnify, within 10 days after receipt of demand therefor (with copy to the Agent), the Agent and the Lender for all Non-Excluded Taxes and Other Taxes (including any additional Non-Excluded Taxes and Other Taxes imposed by any jurisdiction on amounts payable under this Section 3.1 ) paid by the Agent or the Lender, or required to be withheld or deducted from a payment to the Agent or the Lender, and any liabilities arising therefrom or with respect thereto (including any penalty, interest

 

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or expense), whether or not such Taxes were correctly or legally asserted.  A certificate of the Agent or the Lender (or of the Agent on behalf of the Lender) claiming any compensation under this clause (c), setting forth the amounts to be paid thereunder and delivered to the Borrower with a copy to the Agent, shall be conclusive, binding and final for all purposes, absent manifest error.

 

(d)                                  On or prior to the date it becomes a party to this Agreement, and from time to time thereafter as required by law or reasonably requested in writing by the Borrower, the Lender (including for this purpose any assignee of the Lender that becomes a party to this Agreement) shall (but only so long as the Lender remains lawfully able to do so) provide the Borrower with such documents and forms as prescribed by the Internal Revenue Service (“IRS”) in order to certify that payments to the Lender are exempt from or entitled to a reduced rate of U.S. federal withholding tax on payments pursuant to this Agreement or any other Loan Document. For the avoidance of doubt, if the documents and forms provided by the Lender at the time the Lender first becomes a party to this Agreement indicate a U.S. federal withholding tax rate on payments to the Lender in excess of zero, withholding tax at such rate shall be considered an Excluded Tax unless and until the Lender provides the appropriate forms certifying that a lesser rate applies, whereupon withholding tax at such lesser rate only shall be considered an Excluded Tax for periods governed by such form.  Without limiting the generality of the foregoing, any Lender that is the beneficial owner of payments made under this Agreement will (but only so long as the Lender remains lawfully able to do so) provide: (i)  in the case of a beneficial owner that is U.S. p erson within the meaning of Section 7701 of the IRC,  IRS  Form W-9 certifying that such beneficial owner is exempt from U.S. Federal backup withholding tax, (ii)  in the case of a beneficial owner claiming the benefits of the exemption for portfolio interest under Section 881(c) of the Code both (A) IRS Form W-8BEN and (B) a certificate to the effect that such beneficial owner is not (1 ) a “bank” within the meaning of Sect ion 881(c)(3)(A) of the Code, (2 ) a “10 percent shareholder” of the Borrower within the meaning of Section 881(c)(3)(B) of the Code, or (3 ) a “controlled foreign corporation” described in Section 881(c)(3)(C) of the Code , (iii)  in the case of a beneficial owner that is not a U.S. person within the meaning of Section 7701 of the IRC claiming the benefits of an income tax treaty to whi ch the United States is a party,  IRS Form W-8BEN establishing an exempti on from, or reduction of, U.S. f ederal withholding Tax pursuant to the “interest” article of such tax treaty; and (iv) in the case of a beneficial owner for whom payments under this Agreement constitute income that is effectively connected with such beneficial owner ’s conduct of a trade or business in the United States, IRS Form W-8ECI.  Any Lender that is not the beneficial owner of payments made under this Agreement, such as an entity treated as a partnership for U.S. federal income tax purposes, will (but only so long as the Lender remains lawfully able to do so) provide (x ) an IRS Form W -8IMY on behalf of itself and (y on behalf of each such beneficial owner, the forms  set forth in clauses (i) through (iv) of the preceding sentence that would be required of such beneficial owner if such beneficial owner were a Lender .  If a payment made to the Lender under this

 

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Agreement would be subject to U.S. federal withholding tax imposed by FATCA if the Lender were to fail to comply with the applicable reporting requirements of FATCA, the Lender shall (but only so long as the Lender remains lawfully able to do so) deliver to the Borrower, at the time or times prescribed by law or reasonably requested in writing by the Borrower, such documentation prescribed by applicable law or reasonably requested in writing by the Borrower as may be necessary for the Borrower to comply with its obligations under FATCA, to determine that the Lender has complied with its  obligations under FATCA, or to determine the amount to deduct and withhold from such payment.  Solely for purposes of the preceding sentence, FATCA shall include any amendments made to FATCA after the date of this Agreement (and thus shall not be limited to amendments or successor provisions that are substantively comparable to (and not materially more onerous to comply with than) Section 1471 through 1474 of the Code as of the date of this Agreement).

 

(e)                                   If the Lender determines, in its sole discretion, that it has received a refund of any Non-Excluded Taxes or Other Taxes as to which it has been indemnified by the Borrower or with respect to which the Borrower has paid additional amounts pursuant to this Section, the Lender shall pay to the Borrower an amount equal to such refund (but only to the extent of indemnity payments made, or additional amounts paid, by the Borrower under this Section with respect to the taxes giving rise to such refund), net of all out-of-pocket expenses (including Taxes) incurred by the Lender, and without interest (other than any interest paid by the relevant taxing authority with respect to such refund), provided that the Borrower, upon the request of the Lender, agrees to repay the amount paid over to the Borrower (plus any penalties, interest or other charges imposed by the relevant taxing authority) to the Lender in the event the Lender is required to repay such refund to such taxing authority.  Notwithstanding anything to the contrary in this paragraph (e), in no event will the Lender be required to pay any amount to the Borrower pursuant to this paragraph (e) the payment of which would place the Lender in a less favorable net after-Tax position than the Lender would have been in if the Tax subject to indemnification and giving rise to such refund had not been deducted, withheld or otherwise imposed and the indemnification payments or additional amounts with respect to such Tax had never been paid.  This paragraph (e) shall not be construed to require the Lender to make available its tax returns (or any other information relating to its taxes that it deems confidential) to the Borrower or any other Person.

 

(f)                                    The provisions of this Section 3.1 shall survive the termination of this Agreement and repayment of all Obligations.

 

3.2.                             Increased Cost .

 

(a)                                  If, after the Closing Date, the adoption or taking effect of, or any change in, any Applicable Law, rule, regulation or treaty, or any change in the interpretation or administration of any Applicable Law, rule, regulation or treaty by any Governmental Authority, central bank or comparable agency

 

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charged with the interpretation or administration thereof, or compliance by the Lender with any request, rule, guideline or directive (whether or not having the force of law) of any such authority, central bank or comparable agency:  (i) shall impose, modify or deem applicable any reserve (including any reserve imposed by the FRB), special deposit or similar requirement against assets of, deposits with or for the account of, or credit extended by the Lender; (ii) subject the Lender or the Agent to any Taxes (other than Taxes described in clauses (ii) and (iii) of the definition of Excluded Taxes, Taxes indemnified pursuant to Section 3.1 and Connection Income Taxes); or (iii) shall impose on the Lender any other condition affecting its Loan, its Note or its obligation to make the Loan; and the result of anything described in clauses (i) through (iii) above is to increase the cost to (or to impose a cost on) such Lender of making or maintaining its Loan, or to reduce the amount of any sum received or receivable by such Lender under this Agreement or under its Note with respect thereto, then, upon demand by such Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Agent), the Borrower shall pay directly to the Lender such additional amount as will compensate the Lender for such increased cost or such reduction.

 

 

(b)                                  If the Lender shall reasonably determine that any change in, or the adoption or phase-in of, any Applicable Law, rule or regulation regarding capital adequacy, or any change in the interpretation or administration thereof by any Governmental Authority, central bank or comparable agency charged with the interpretation or administration thereof, or the compliance by the Lender or any Person controlling the Lender with any request or directive regarding capital adequacy (whether or not having the force of law) of any such authority, central bank or comparable agency, has or would have the effect of reducing the rate of return on the Lender’s or such controlling Person’s capital as a consequence of such Lender’s Commitments hereunder to a level below that which the Lender or such controlling Person could have achieved but for such change, adoption, phase-in or compliance (taking into consideration the Lender’s or such controlling Person’s policies with respect to capital adequacy) by an amount deemed by the Lender or such controlling Person to be material, then from time to time, upon demand by the Lender (which demand shall be accompanied by a statement setting forth the basis for such demand and a calculation of the amount thereof in reasonable detail, a copy of which shall be furnished to the Agent), the Borrower shall pay to the Lender such additional amount as will compensate the Lender or such controlling Person for such reduction.

 

(c)                                   Notwithstanding anything herein to the contrary, (i) all requests, rules, guidelines, requirements and directives promulgated by the Bank for International Settlements, the Basel Committee on Banking Supervision (or any successor or similar authority) or by United States or foreign regulatory authorities, in each case pursuant to Basel III, and (ii) the Dodd-Frank Wall Street Reform and Consumer Protection Act and all requests, rules, guidelines, requirements and directives thereunder or issued in connection therewith or in

 

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implementation thereof, shall in each case be deemed to be a change in law, regardless of the date enacted, adopted, issued or implemented.  Notwithstanding anything to the contrary in this Section 3.2, the Borrower shall not be required to compensate the Lender for any amounts incurred more than 180 days prior to the date that the Lender delivers the statement making the demand for such payment.

 

3.3.                             Mitigation of Circumstances .

 

The Lender shall promptly notify the Borrower and the Agent of any event of which it has knowledge which will result in, and will use reasonable commercial efforts available to it (and not, in such Lender’s sole judgment, otherwise disadvantageous to such Lender) to mitigate or avoid, any obligation by the Borrower to pay any amount pursuant to Section 3.1 or 3.2 ; provided , that this Section 3.3 shall not apply to, or operate to prevent, any assignment of the Loan and the rights and obligations of the Lender pursuant to Section 10.13 .  The Borrower hereby agrees to pay all reasonable costs and expenses incurred by the Lender in connection with this Section 3.3 .

 

3.4.                             Conclusiveness of Statements; Survival .  Determinations and statements of the Lender pursuant to Sections 3.1 or 3.2 shall be conclusive absent demonstrable error provided that the Lender or the Agent provides the Borrower with written notification of such determinations and statements.  The Lender may use reasonable averaging and attribution methods in determining compensation under Sections 3.1 or 3.2 and the provisions of such Sections shall survive repayment of the Loan, cancellation of the Notes and termination of this Agreement.

 

Section 4.                                            Conditions Precedent .

 

4.1.                             Tranche One Loan .  The obligation of the Lender to make the Tranche One Loan on the Closing Date is subject to the following conditions precedent, each of which shall be satisfactory in all respects to the Agent and the Lender:

 

4.1.1.                   Delivery of Loan Documents .  The Borrower shall have delivered the following documents in form and substance satisfactory to the Agent (and, as applicable, duly executed by all Persons named as parties thereto and dated the Closing Date or an earlier date satisfactory to the Agent):

 

(a)                                  Agreement .  This Agreement.

 

(b)                                  Notes .  A Note in respect of the Tranche One Loan.

 

(c)                                   Collateral Documents .  The Security Agreement and all other Collateral Documents, and all instruments, documents, certificates and agreements executed or delivered pursuant thereto (including Intellectual Property assignments and pledged equity and limited liability company interests in the Borrower and the Borrower’s Subsidiaries, if any, with undated irrevocable transfer powers executed in blank), in each case, executed and delivered by each Loan Party and each other Person named as a party thereto.

 

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(d)                                  Financing Statements .  Properly completed Uniform Commercial Code financing statements and other filings and documents required by law or the Loan Documents to provide the Agent perfected Liens (subject only to Permitted Liens) in the Collateral.

 

(e)                                   Lien Searches .  Copies of Uniform Commercial Code search reports listing all effective financing statements or equivalent filings filed against any Loan Party, with copies of such financing statements and filings; and copies of Patent, Trademark, Copyright and Internet Domain Name search reports in material jurisdictions listing all effective collateral assignments in respect of such Intellectual Property filed with respect to any Loan Party, with copies of such collateral assignment documentation.

 

(f)                                    Authorization Documents .  For each Loan Party, such Person’s (i) charter (or similar formation document), certified by the appropriate Governmental Authority (as applicable) in its jurisdiction of incorporation (or formation), (ii) good standing certificates in its jurisdiction of incorporation (or formation) and in each other jurisdiction requested by the Agent or the Lender, (iii) limited liability company agreement, partnership agreement, bylaws (and similar governing document) (as applicable), (iv) resolutions of its board of directors (or similar governing body) approving and authorizing such Person’s execution, delivery and performance of the Loan Documents to which it is party and the transactions contemplated thereby, and (v) signature and incumbency certificates of its directors and/or officers executing any of the Loan Documents, all certified by its secretary or an assistant secretary (or similar officer) as being in full force and effect without modification.

 

(g)                                   Opinions of Counsel .  Opinions of counsel for each Loan Party, in form and substance requested by the Agent.

 

(h)                                  Insurance .  Certificates or other evidence of insurance in effect as required by Section 6.3(b) , with endorsements naming the Agent as lenders’ loss payee and/or additional insured, as applicable.

 

(i)                                      Chattel Paper .  Any tangible chattel paper (or any other instrument (other than checks received in the ordinary course of business) evidencing any account of Borrower) held by Borrower, accompanied by instruments of transfer or assignment duly executed in blank, to be held by the Agent as Collateral pursuant to the Security Agreement.

 

(j)                                     Other Documents .  Such other certificates, documents and agreements that may be listed on the closing checklist provided by the Agent to the Borrower or as the Agent or the Lender may request.

 

4.1.2.                   Payment of Fees and Expenses .  The Borrower shall have paid, on or prior to the Closing Date, (i) all fees and expenses owing and payable to the Agent and the Lender as of the Closing Date, including the Closing Fee with respect to the Tranche One Loan; and (ii)

 

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subject to Section 10.3 and without duplication, all fees, expenses and other amounts payable set forth herein and costs and expenses incurred by the Agent and the Lender in connection with the transactions contemplated hereby which are required to be paid by the Borrower, and shall provide evidence acceptable to the Agent of each of the foregoing; provided , that the Closing Fee shall be reduced by, and the out-of-pocket costs and expenses of Lender paid by the Borrower shall be limited to, for the period through the Closing Date, an amount not to exceed $150,000.

 

4.1.3.                   Representations and Warranties .  Each representation and warranty by each Loan Party contained herein or by each Loan Party in any other Loan Document to which such Loan Party is a party, shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the Closing Date.

 

4.1.4.                   No Default .  No Default or Event of Default shall have occurred and be continuing.

 

4.1.5.                   No Material Adverse Change .  Since December 31, 2012, there has been no event or occurrence that has or could reasonably be expected to result in a Material Adverse Effect.

 

4.1.6.                   Execution and Delivery of Letter Agreement .  The Borrower shall have executed and delivered a letter agreement to the Agent dated as of the Closing Date (the “ Letter Agreement ”) containing, among other items, certain representations and warranties regarding its Intellectual Property, on terms and conditions acceptable to the Lender and Agent.

 

4.2.                             Tranche Two Loan .  The obligation of the Lender to make the Tranche Two Loan is subject to the following conditions precedent, each of which shall be satisfactory in all respects to the Agent and the Lender:

 

4.2.1.                   Delivery of Borrowing Request .  The Borrower shall have delivered a Borrowing Request in respect of the Tranche Two Loan no later than noon Pacific time at least five (5) Business Days prior to the proposed borrowing date.

 

4.2.2.                   Tranche Two Milestones .  The Borrower’s Net Revenue shall have been greater than either: (i) $18,000,000 in the Fiscal Year ended December 31, 2013 (and Net Revenue for the fourth Fiscal Quarter of such Fiscal Year is no more than 45% of the total Net Revenue for such Fiscal Year) or (ii) $8,000,000 in the aggregate in any three consecutive months ending in the first six months of 2014 (each of the events described in clauses (i) and (ii), a “ Tranche Two Milestone ”), and Borrower shall have delivered to Lender a certificate of the Borrower signed by the chief financial officer of the Borrower certifying to the foregoing.

 

4.2.3.                   Payment of Fees and Expenses .  The Borrower shall have paid, on or prior to the borrowing date of the Tranche Two Loan, (i) all fees and expenses owing and payable to the Agent and the Lender as of such date, including the Closing Fee with respect to the Tranche Two Loan and (ii) subject to Section 10.3 and without duplication, all fees, expenses and other amounts payable set forth herein and costs and expenses incurred by the Agent and the Lender in connection with the transactions contemplated hereby which are required to be paid by the Borrower, and shall provide evidence acceptable to the Agent of each of the foregoing.

 

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4.2.4.                   Representations and Warranties .  Each representation and warranty by each Loan Party contained herein or by in any other Loan Document to which such Loan Party is a party, shall be true and correct in all material respects (without duplication of any materiality qualifier contained therein) as of the proposed borrowing date.

 

4.2.5.                   No Default .  No Default or Event of Default shall have occurred and be continuing.

 

4.2.6.                   No Material Adverse Change .  Since December 31, 2012, there has been no event or occurrence that has or could reasonably be expected to result in a Material Adverse Effect.

 

4.2.7.                   Note .  The Borrower shall have delivered a Note in respect of the Tranche Two Loan in form and substance satisfactory to the Agent, duly executed by the Borrower.

 

Section 5.                                            Representations and Warranties .

 

To induce the Agent and the Lender to enter into this Agreement and to induce the Lender to advance the Loans hereunder, the Borrower represents and warrants to the Agent and the Lender that each of the following are, and after giving effect to the borrowing of the Loans, will be, true, correct and complete:

 

5.1.                             Organization .  The Borrower is a corporation validly existing and in good standing under the laws of the State of Delaware; and each other Loan Party is validly existing and in good standing (as applicable) under the laws of the jurisdiction of its organization; and each Loan Party is duly qualified to do business in each jurisdiction where, because of the nature of its activities or properties, such qualification is required, except for such jurisdictions where the failure to so qualify could not reasonably be expected to have a Material Adverse Effect.

 

5.2.                             Authorization; No Conflict .  Each of the Borrower and each other Loan Party is duly authorized to execute and deliver each Loan Document to which it is a party, the Borrower is duly authorized to borrow monies hereunder, the granting of the security interests pursuant to the Collateral Documents is within the corporate purposes of the Borrower and each other Loan Party party thereto, and the Borrower and each other Loan Party is duly authorized to perform its Obligations under each Loan Document to which it is a party.  The execution, delivery and performance by the Borrower of this Agreement and by the Borrower and each Loan Party of each Loan Document to which it is a party, and the borrowings by the Borrower hereunder, do not and will not (a) require any consent or approval of any Governmental Authority (other than (i) any consent or approval which has been obtained and is in full force and effect and (ii) recordings and filings in connection with the Liens granted to the Agent under the Collateral Documents), (b) conflict with (i) any provision of Applicable Law, (ii) the charter, by-laws, limited liability company agreement, partnership agreement or other organizational documents of any Loan Party or (iii) any agreement, indenture, instrument or other document, or any judgment, order or decree, which is binding upon any Loan Party or any of their respective properties or (c) require, or result in, the creation or imposition of any Lien on any asset of the Borrower or any other Loan Party (other than Liens in favor of the Agent created pursuant to the Collateral Documents).

 

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5.3.                             Validity; Binding Nature .  Each of this Agreement and each other Loan Document to which the Borrower or any other Loan Party is a party is the legal, valid and binding obligation of such Person, enforceable against such Person in accordance with its terms, subject to bankruptcy, insolvency and similar laws affecting the enforceability of creditors’ rights generally and to general principles of equity.

 

5.4.                             Financial Condition .  The unaudited consolidated financial statements of the Borrower and its Subsidiaries (presented on a consolidated basis) as at December 31, 2012 and the audited consolidated financial statements of the Borrower and its Subsidiaries (presented on a consolidated basis) as at December 31, 2011 have been prepared in accordance with GAAP and present fairly the consolidated financial condition of such Persons as at such dates and the results of their operations for the periods then ended.  As of the Closing Date, the Borrower and its Subsidiaries have no liabilities other than as set forth on the foregoing financial statements other than trade payables and compensation costs incurred in the ordinary course of business.

 

5.5.                             No Material Adverse Change .  Since December 31, 2011, there has been no event or occurrence that has or could reasonably be expected to result in a Material Adverse Effect.

 

5.6.                             Litigation .  No litigation (including derivative actions), arbitration proceeding or governmental investigation or proceeding is pending or, to any Loan Party’s knowledge, threatened, against any Loan Party or any of their respective properties which (i) purport to affect or pertain to this Agreement, any other Loan Document or any of the transactions contemplated hereby or (ii) could reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  No injunction, writ, temporary restraining order or any order of any nature has been issued by any court or other Governmental Authority purporting to enjoin or restrain the execution, delivery or performance of this Agreement, any other Loan Document, or directing that the transactions provided for herein not be consummated as herein provided.  As of the Closing Date, no Loan Party is the subject of an audit or, to each Loan Party’s knowledge, any review or investigation by any Governmental Authority (excluding the IRS and other taxing authorities) concerning the violation or possible violation of any requirement of law.

 

5.7.                             Ownership of Properties; Liens .  There are no Liens on the Collateral other than those granted in favor of the Agent to secure the Obligations and Permitted Liens.  Each of the Borrower and each other Loan Party owns good and, in the case of real property, marketable, title to all of its properties and assets, real and personal, tangible and intangible, of any nature whatsoever (including patents, trademarks, trade names, service marks and copyrights), free and clear of all Liens, charges and claims (including infringement claims with respect to Intellectual Property) other than Permitted Liens.  As of the Closing Date, Section 5.7 of the Disclosure Letter lists all of the real property owned, leased, subleased or otherwise owned or occupied by any Loan Party.

 

5.8.                             Capitalization; Subsidiaries .

 

(a)                                  Equity Interests .  As of the Closing Date, the Borrower has no Subsidiaries and does not hold any Capital Stock of any other Person.  All

 

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Stock and Stock Equivalents of each Loan Party are duly and validly issued and, in the case of each entity that is a corporation, are fully paid and non-assessable, and, other than the Stock and Stock Equivalents of the Borrower, are owned by the Borrower, directly or indirectly through Wholly-Owned Subsidiaries.  Each Loan Party is the record and beneficial owner of, and has good and marketable title to, the Stock and Stock Equivalents pledged by it to the Agent under the Collateral Documents, free of any and all Liens, rights or claims of other persons, except the security interest created by the Collateral Documents, and there are no outstanding warrants, options or other rights to purchase, or shareholder, voting trust or similar agreements outstanding with respect to, or property that is convertible into, or that requires the issuance or sale of, any such Stock and Stock Equivalents. A s of the Closing Date, no Loan Party is engaged in any joint venture with any other Person.

 

(b)                                  No Consent of Third Parties Required .  No consent of any Person including any other general or limited partner, any other member of a limited liability company, any other shareholder or any other trust beneficiary is necessary or reasonably desirable (from the perspective of a secured party) in connection with the creation, perfection or first priority status of the security interest of the Agent in any Stock and Stock Equivalents pledged to the Agent for the benefit of the Lender under the Collateral Documents or the exercise by the Agent of the voting or other rights provided for in the Collateral Documents or the exercise of remedies in respect thereof.

 

5.9.                             Pension Plans .  No Loan Parties have any liability under ERISA and no Loan Party sponsors any “pension plan” or has any liability subject to Title IV of ERISA.

 

5.10.                      Compliance with Law; Investment Company Act; Other Regulated Entities .  The Borrower and each other Loan Party possesses all necessary authorizations, permits, licenses and approvals from all Governmental Authorities in order to conduct their respective businesses as presently conducted, except where the failure to do so could not reasonably be expected to result in a Material Adverse Effect.  All business and operations of the Borrower and each other Loan Party complies with all applicable federal, state and local laws and regulations, except where the failure so to comply could not reasonably be expected to result in a Material Adverse Effect.  Neither the Borrower nor any other Loan Party is operating any aspect of its business under any agreement, settlement, order or other arrangement with any Governmental Authority. Neither the Borrower nor any other Loan Party is an “investment company” or a company “controlled” by an “investment company” or a “subsidiary” of an “investment company”, within the meaning of the Investment Company Act of 1940.  None of any Loan Party, any Person controlling any Loan Party, or any Subsidiary of any Loan Party, is subject to regulation under any Federal or state statute, rule or regulation limiting its ability to incur Debt, pledge its assets or perform its Obligations under the Loan Documents.

 

5.11.                      Margin Stock .  Neither the Borrower nor any Loan Party is engaged principally, or as one of its important activities, in the business of extending credit for the purpose of purchasing or carrying Margin Stock.  No portion of the Obligations is secured directly or indirectly by Margin Stock.

 

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5.12.                      Taxes .  Each of the Borrower and each other Loan Party has filed all federal, state, provincial, local and foreign income, and all material sales, goods and services, harmonized sales and franchise and all other material tax returns, reports and statements (collectively, the “ Tax Returns ”) with the appropriate Governmental Authorities in all jurisdictions in which such Tax Returns are or were required to be filed. All such Tax Returns are true, correct and complete in all material respects. All Taxes, charges and other impositions reflected therein or otherwise due and payable have been paid prior to the date on which any liability may be added thereto for non-payment thereof, except for those contested in good faith by appropriate proceedings diligently conducted and for which adequate reserves are maintained on the books of the appropriate Loan Party, as applicable.  As of the Closing Date, no Tax Return is under audit or examination by any Governmental Authority and no written notice of such an audit or examination or any written assertion of any claim for Taxes, except as set forth in Section 5.12 of the Disclosure Letter, has been given or made by any Governmental Authority.  Amounts have been withheld by each Loan Party, as applicable, from their respective employees for all periods in compliance with the tax, social security and unemployment withholding provisions of Applicable Law and such withholdings have been timely paid to the respective Governmental Authorities in accordance with Applicable Law.  No Loan Party has been a member of an affiliated, combined or unitary group other than the group of which a Loan Party is the common parent or has liability for Taxes of any other person by contract, as a successor or transferor or otherwise by operation of law.

 

5.13.                      Solvency .  Both immediately before and after giving effect to (a) the Loan made on or prior to the date this representation and warranty is made or remade, (b) the disbursement of proceeds of such Loan, and (c) the payment and accrual of all transaction costs in connection with the foregoing, with respect to the Borrower and each other Loan Party, on a consolidated basis, (i) the fair value of its assets is greater than the amount of its liabilities (including disputed, contingent and unliquidated liabilities) as such value is established and liabilities evaluated, (ii) the present fair saleable value of its assets is not less than the amount that will be required to pay the probable liability on its debts as they become absolute and matured, (iii) it is able to realize upon its assets and pay its debts and other liabilities (including disputed, contingent and unliquidated liabilities) as they mature in the normal course of business, (iv) it does not intend to, and does not believe that it will, incur debts or liabilities beyond its ability to pay as such debts and liabilities mature and (v) it is not engaged in business or a transaction, and is not about to engage in business or a transaction, for which its property would constitute unreasonably small capital.

 

5.14.                      Environmental Matters .  The on-going operations of the Borrower and each other Loan Party comply in all respects with all Environmental Laws, except such non-compliance which could not (if enforced in accordance with Applicable Law) reasonably be expected to result in a Material Adverse Effect.  The Borrower and each other Loan Party have obtained, and maintained in good standing, all licenses, permits, authorizations and registrations required under any Environmental Law and necessary for their respective ordinary course operations, and the Borrower and each other Loan Party are in compliance with all material terms and conditions thereof, except where the failure to do so could not reasonably be expected to result in material liability to the Borrower or any other Loan Party and could not reasonably be expected to result in a Material Adverse Effect.  None of the Borrower, any other Loan Party or any of their respective properties or operations is subject to any outstanding written order from

 

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or agreement with any federal, state or local Governmental Authority, nor subject to any judicial or docketed administrative proceeding, nor subject to any indemnification agreement or other contractual obligation, respecting any Environmental Law, Environmental Claim or Hazardous Substance.  There are no Hazardous Substances or other conditions or circumstances existing with respect to any property, or arising from operations prior to the Closing Date, of the Borrower or any other Loan Party that could reasonably be expected to result in a Material Adverse Effect.  Neither the Borrower nor any other Loan Party has any underground or above ground storage tanks that are not properly registered or permitted under applicable Environmental Laws or that are leaking or disposing of Hazardous Substances.

 

5.15.                      Insurance .  The Borrower and each other Loan Party and their respective properties are insured with financially sound and reputable insurance companies which are not Affiliates of the Borrower, in such amounts, with such deductibles and covering such risks as are customarily carried by companies engaged in similar businesses and owning similar properties in localities where the Borrower or such other Loan Party operates.  A true and complete listing of such insurance as of the Closing Date, including issuers, coverages and deductibles, is set forth in Section 5.15 of the Disclosure Letter.

 

5.16.                      Information .  All information heretofore or contemporaneously herewith furnished in writing by the Borrower or any other Loan Party to the Agent or the Lender for purposes of or in connection with this Agreement and the transactions contemplated hereby is, and all written information hereafter furnished by or on behalf of the Borrower or any Loan Party to the Agent or the Lender pursuant hereto or in connection herewith will be, true and accurate in every material respect on the date as of which such information is dated or certified, and none of such information is or will be, taken as a whole, incomplete by omitting to state any material fact necessary to make such information not misleading in light of the circumstances under which made (it being recognized by the Agent and the Lender that any projections and forecasts provided by the Borrower are based on good faith estimates and assumptions believed by the Borrower to be reasonable as of the date of the applicable projections or assumptions and that actual results during the period or periods covered by any such projections and forecasts may differ from projected or forecasted results).

 

5.17.                      Intellectual Property .  Each Loan Party owns, or is licensed or otherwise has the right to use, all Intellectual Property necessary to conduct its business as currently conducted except for such Intellectual Property the failure of which to own or have a license or other right to use would not reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect.  To the knowledge of each Loan Party, (a) the conduct and operations of the businesses of each Loan Party do not, and the anticipated products and Intellectual Property applications of the Loan Parties will not, infringe upon, misappropriate, dilute or violate any Intellectual Property owned by any other Person and (b) no other Person has contested any right, title or interest of any Loan Party in any Intellectual Property or any anticipated products and applications derived or expected to be derived therefrom, other than, in each case, as cannot reasonably be expected to have, individually or in the aggregate, a Material Adverse Effect.  The Intellectual Property of the Loan Parties is sufficient, and conveys adequate rights, title and interests, for the Borrower and other Loan Parties to develop and commercialize its anticipated products and Intellectual Property applications.

 

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5.18.                      Labor Matters .  Neither the Borrower nor any other Loan Party is subject to any labor or collective bargaining agreement.  There are no existing or threatened strikes, lockouts or other labor disputes involving the Borrower or any other Loan Party that singly or in the aggregate could reasonably be expected to have a Material Adverse Effect.  Hours worked by and payment made to employees of the Borrower and the other Loan Parties are not in violation of the Fair Labor Standards Act or any other Applicable Law, rule or regulation dealing with such matters.

 

5.19.                      No Default .  No Loan Party is in default under or with respect to any contractual obligation in any respect which, individually or together with all such defaults, would reasonably be expected to have a Material Adverse Effect.

 

5.20.                      Foreign Assets Control Regulations and Anti-Money Laundering .

 

5.20.1.            OFAC .  Each Loan Party is and will remain in compliance in all material respects with all U.S. economic sanctions laws, Executive Orders and implementing regulations as promulgated by the U.S. Treasury Department’s Office of Foreign Assets Control (“ OFAC ”) and all applicable anti-money laundering and counter-terrorism financing provisions of the Bank Secrecy Act and all regulations issued pursuant to any of the foregoing.  No Loan Party (i) is a Person designated by the U.S. government on the list of the Specially Designated Nationals and Blocked Persons (the “ SDN List ”) with which a U.S. Person cannot deal with or otherwise engage in business transactions, (ii) is a Person who is otherwise the target of U.S. economic sanctions laws such that a U.S. Person cannot deal or otherwise engage in business transactions with such Person or (iii) is controlled by (including without limitation by virtue of such person being a director or owning voting shares or interests), or acts, directly or indirectly, for or on behalf of, any person or entity on the SDN List or a foreign government that is the target of U.S. economic sanctions prohibitions such that the entry into, or performance under, this Agreement or any other Loan Document would be prohibited under U.S. law.

 

5.20.2.            Patriot Act .  The Loan Parties and each of their Affiliates are in compliance in all material respects with (a) the Trading with the Enemy Act, and each of the foreign assets control regulations of the United States Treasury Department (31 CFR, Subtitle B Chapter V, as amended) and any other enabling legislation or executive order relating thereto and (b) the Patriot Act.  No part of the proceeds of any Loan will be used directly or indirectly for any payments to any government official or employee, political party, official of a political party, candidate for political office, or anyone else acting in an official capacity, in order to obtain, retain or direct business or obtain any improper advantage, in violation of the United States Foreign Corrupt Practices Act of 1977.

 

5.21.                      Non-Competes .  None of the Loan Parties nor any of their officers or, to any Loan Party’s knowledge, employees is subject to a non-compete agreement that prohibits or will interfere with the development, commercialization or marketing of any Product.

 

5.22.                      Internal Controls .  Borrower acknowledges that its management is responsible for establishing and maintaining effective internal control over financial reporting and assessing the effectiveness of internal control over financial reporting. Borrower has performed an evaluation and made an assessment of the effectiveness of the Company’s internal

 

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control over financial reporting as of December 31, 2011. Based on Borrower’s assessment, Borrower has concluded that it maintained effective internal control over financial reporting as of December 31, 2011.

 

Section 6.                                            Affirmative Covenants .

 

Until all Obligations (other than contingent indemnification obligations to the extent no claim giving rise thereto has been asserted and other than the Assigned Interests after the Prepayment Date are Paid in Full) (except with respect to Sections 6.1.2 , 6.1.5 , 6.2 , 6.4 , 6.5, 6.7 (to the extent applicable after the Prepayment Date) and 6.9 , which shall continue to be in effect after the Prepayment Date until the Assigned Interests are Paid in Full), the Borrower agrees that, unless at any time the Lender shall otherwise expressly consent in writing, it will:

 

6.1.                             Information .  Furnish to the Agent and the Lender:

 

6.1.1.                   Annual Report .  Promptly when available and in any event within 270 days of the end of the Fiscal Year ended December 31, 2012, and within 180 days of the end of each Fiscal Year of the Borrower beginning with the Fiscal Year ending December 31, 2013, the audited consolidated financial statements of the Borrower and the Subsidiaries as at the end of such Fiscal Year prepared on a basis consistent with GAAP.

 

6.1.2.                   Quarterly Reports .  Commencing with respect to the first Fiscal Quarter of 2013, promptly when available and in any event within 45 days of the end of such Fiscal Quarter and each subsequent Fiscal Quarter, a consolidated balance sheet of the Borrower and its Subsidiaries as of the end of such fiscal quarter, together with consolidated statements of income and cash flows for such period prepared on a basis consistent with GAAP, certified by the chief financial officer of the Borrower.

 

6.1.3.                   Reserved .

 

6.1.4.                   Compliance Certificate .  Contemporaneously with the furnishing of the financial statements required pursuant to Sections 6.1.1 and 6.1.2 , a duly completed Compliance Certificate signed by the chief financial officer of the Borrower to the effect that such officer has not become aware of any Event of Default or Default that has occurred and is continuing or, if there is any such Event of Default, describing it and the steps, if any, being taken to cure it, and providing such other information as required thereby.

 

6.1.5.                   Net Revenue Reports .  (a) Until the first Fiscal Quarter after the occurrence of the Prepayment Date, promptly when available and in any event within forty-five (45) days after the end of each Fiscal Quarter, a Quarterly Net Revenue Report, and (b) after the end of the Fiscal Quarter in which the Prepayment Date occurs, promptly when available and in any event within 20 days after the end of each calendar month, a Monthly Net Revenue Report, in each case, together with a certificate of the Borrower signed by the chief financial officer or other executive officer of the Borrower certifying that the foregoing report is true, correct and accurate in all material respects as of such date.

 

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6.1.6.                   Notice of Default; Litigation; ERISA Matters .  Promptly upon becoming aware of any of the following, written notice describing the same and the steps being taken by the Borrower or the applicable Loan Party affected thereby with respect thereto:

 

(a)                                  the occurrence of an Event of Default or a Default;

 

(b)                                  any litigation, arbitration or governmental investigation or proceeding not previously disclosed by the Borrower to the Lender which has been instituted or, to the knowledge of the Borrower, is threatened against the Borrower or any other Loan Party, or to which any of the properties of any thereof is subject, which could reasonably be expected to have a Material Adverse Effect;

 

(c)                                   any cancellation or material change in coverage in any insurance maintained by the Borrower or any other Loan Party; or

 

(d)                                  any other event (including (i) any violation of any Environmental Law or the assertion of any Environmental Claim, (ii) the enactment or effectiveness of any law, rule or regulation, (iii) any violation or noncompliance with any law or (iv) any breach or non-performance of, or any default under, any contractual obligation of any Loan Party) which could reasonably be expected to have a Material Adverse Effect.

 

6.1.7.                   Reserved .

 

6.1.8.                   Budgets .  As soon as practicable, and in any event not later than 30 days after the commencement of each Fiscal Year, a budget of the Borrower and its Subsidiaries for such Fiscal Year (including quarterly operating and cash flow budgets) prepared in a manner reasonably satisfactory to the Agent, accompanied by a certificate of the chief financial officer of the Borrower to the effect that (a) such budget was prepared by the Borrower, in good faith, (b) the Borrower has a reasonable basis for the assumptions contained in such budget and (c) such budget has been prepared in accordance with such assumptions.

 

6.1.9.                   Other Information .  Promptly from time to time, such other information concerning the Borrower and any other Loan Party as the Lender or the Agent may reasonably request.

 

6.2.                             Books; Records; Inspections .  Keep, and cause the Borrower and each other Loan Party to keep, its books and records in accordance with sound business practices sufficient to allow the preparation of financial statements in accordance with GAAP; permit, and cause the Borrower and each other Loan Party to permit, the Agent, the Lender, or any representative of the foregoing to inspect, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), the properties and operations of the Borrower or such other Loan Party; and permit, and cause the Borrower and each other Loan Party to permit, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), the Agent, the Lender, or any representative thereof to visit any or all of its offices, to discuss its financial matters with its directors or officers and its independent auditors, if any (and the Borrower hereby authorizes such independent auditors, if any, to discuss such financial matters with the Lender or the Agent or any representative thereof), and to

 

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examine (and, at the expense of the Borrower or the applicable Loan Party, photocopy extracts from) any of its books or other records; and permit, and cause the Borrower and each other Loan Party to permit, the Agent, the Lender and their representatives to inspect, at any reasonable time and with reasonable notice (or at any time without notice if an Event of Default exists), the Collateral and other tangible assets of the Borrower or such Loan Party, to perform appraisals of the equipment of the Borrower or such Party, and to inspect, audit, check and make copies of and extracts from the books, records, computer data, computer programs, journals, orders, receipts, correspondence and other data relating to any Collateral, including the Assigned Interests for purposes of or otherwise in connection with conducting a review, audit or appraisal of such books and records.  In the event that the Agent or Lender shall determine pursuant to any audit of the books and records of the Borrower and its Subsidiaries conducted pursuant to this Section 6.2 that the aggregate amount paid to the Lender hereunder during any period covered by such audit is less than the aggregate amount that was in fact due and payable in respect of such period the Borrower shall promptly remit the amount of such shortfall to the Agent together with interest thereon payable at the Default Rate.

 

6.3.                             Maintenance of Property; Insurance .

 

(a)                                  Keep, and cause each other Loan Party to keep, all property useful and necessary in the business of the Borrower or such other Loan Party in good working order and condition, ordinary wear and tear excepted, and maintain, and cause each other Loan Party to maintain, its Intellectual Property in accordance with the provisions of the Collateral Documents.

 

(b)                                  Maintain, and cause each other Loan Party to maintain, with responsible insurance companies, such insurance coverage as shall be required by all laws, governmental regulations and court decrees and orders applicable to it and such other insurance, to such extent and against such hazards and liabilities, as is customarily maintained by companies similarly situated; provided that in any event, such insurance shall insure against all risks and liabilities of the type insured against as of the Closing Date and shall have insured amounts no less than, and deductibles no higher than, those amounts provided for as of the Closing Date.  Upon request of the Agent or the Lender, the Borrower shall furnish to the Agent or such Lender a certificate setting forth in reasonable detail the nature and extent of all insurance maintained by the Borrower and each other Loan Party.  The Borrower shall cause each issuer of an insurance policy to provide the Agent with an endorsement (i) showing the Agent as a loss payee with respect to each policy of property or casualty insurance and naming the Agent as an additional insured with respect to each policy of liability insurance, (ii) providing that 30 days’ notice will be given to the Agent prior to any cancellation of such policy and (iii) reasonably acceptable in all other respects to the Agent.  The Borrower shall execute and deliver to the Agent, upon request of the Agent, a collateral assignment, in form and substance satisfactory to the Agent, of each business interruption insurance policy maintained by the Loan Parties.

 

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(c)                                   Unless the Borrower provides the Agent with evidence of the continuing insurance coverage required by this Agreement, the Agent may purchase insurance (to the extent of such insurance coverage as shall be required by clause (b) above) at the Borrower’s expense to protect the Agent’s and the Lender’s interests in the Collateral.  This insurance may, but need not, protect the Borrower’s and each other Loan Party’s interests.  The coverage that the Agent purchases may, but need not, pay any claim that is made against the Borrower or any other Loan Party in connection with the Collateral.  The Borrower may later cancel any insurance purchased by the Agent, but only after providing the Agent with evidence that the Borrower has obtained the insurance coverage required by this Agreement.  If the Agent purchases insurance for the Collateral, as set forth above, the Borrower will be responsible for the costs of that insurance, including interest and any other charges that may be imposed with the placement of the insurance, until the effective date of the cancellation or expiration of the insurance and the costs of the insurance may be added to the principal amount of the Loan owing hereunder.

 

6.4.                             Compliance with Laws and Contractual Obligations; Payment of Taxes and Liabilities .  Comply, and cause each other Loan Party to comply, in all material respects with all Applicable Laws, rules, regulations, decrees, orders, judgments, licenses and permits and all indentures, agreements and other instruments binding upon it or its property, except where failure to comply could not reasonably be expected to have a Material Adverse Effect; (b) without limiting clause (a) above, ensure, and cause each other Loan Party to ensure, that no person who owns a controlling interest in or otherwise controls a Loan Party is or shall be (i) listed on the Specially Designated Nationals and Blocked Person List maintained by OFAC, Department of the Treasury, and/or any other similar lists maintained by OFAC pursuant to any authorizing statute, Executive Order or regulation or (ii) a person designated under Section 1(b) , (c)  or (d)  of Executive Order 13224, any related enabling legislation or any other similar Executive Orders; (c) without limiting clause (a) above, comply and cause each other Loan Party to comply, with all applicable Bank Secrecy Act and anti-money laundering laws and regulations; and (d) timely prepare and file all Tax Returns required to be filed by Applicable Law and pay, and cause each other Loan Party to pay, prior to delinquency, all Taxes (reflected in the Tax Returns) against it or any of its property, as well as claims of any kind which, if unpaid, could become a Lien on any of its property; provided that the foregoing shall not require the Borrower or any other Loan Party to pay any such Tax or charge so long as it shall promptly contest the validity thereof in good faith by appropriate proceedings and shall set aside on its books adequate reserves with respect thereto in accordance with GAAP.

 

6.5.                             Maintenance of Existence .  Maintain and preserve, and (subject to Section 7.4 ) cause each other Loan Party to maintain and preserve, (a) its existence and good standing (as applicable) in the jurisdiction of its organization and (b) its qualification to do business and good standing (as applicable) in each jurisdiction where the nature of its business makes such qualification necessary, other than any such jurisdiction where the failure to be qualified or in good standing could not reasonably be expected to have a Material Adverse Effect.

 

6.6.                             Environmental Matters .  If any release or disposal of Hazardous Substances shall occur or shall have occurred on or from any real property or any other assets of

 

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the Borrower or any other Loan Party, cause, or direct the applicable Loan Party to cause, the prompt containment and removal of such Hazardous Substances and the remediation of such real property or other assets as is necessary to comply with all Environmental Laws and to preserve the value of such real property or other assets.  Without limiting the generality of the foregoing, the Borrower shall, and shall cause each other Loan Party to, comply with each valid Federal or state judicial or administrative order requiring the performance at any real property by the Borrower or any other Loan Party of activities in response to the release or threatened release of a Hazardous Substance.  If any violation of any Environmental Law shall occur or shall have occurred at any real property or any other assets of the Borrower or any other Loan Party or otherwise in connection with their operations, cause, or direct the applicable Loan Party to cause, the prompt correction of such violation.

 

6.7.                             Further Assurances .  Promptly upon request by the Agent, the Loan Parties shall (and, subject to the limitations hereinafter set forth, shall cause each of their Subsidiaries to) take such additional actions as the Agent may reasonably require from time to time in order (i) to subject to the Liens created by any of the Collateral Documents any of the properties, rights or interests, whether now owned or hereafter acquired, covered or intended to be covered by any of the Collateral Documents, (ii) to perfect and maintain the validity, effectiveness and priority of any of the Collateral Documents and the Liens intended to be created thereby, and (iii) to better assure, convey, grant, assign, transfer, preserve, protect and confirm to the Agent and the Lender the rights granted or now or hereafter intended to be granted to the Agent and the Lender under any Loan Document or under any other document executed in connection therewith.  Without limiting the generality of the foregoing and except as otherwise approved in writing by the Lender, the Loan Parties shall cause each of their Subsidiaries other than CFCs (including any such Subsidiary formed or acquired after the Closing Date within 30 days of such formation or acquisition) to guaranty the Obligations and cause each such Subsidiary to grant to the Agent, for the benefit of the Agent and the Lender, a security interest in, subject to the limitations hereinafter set forth or set forth in the Security Agreement, all of such Subsidiary’s property to secure such guaranty, in each case pursuant to the execution and delivery of a Subsidiary Guaranty and a joinder to the Security Agreement and such other documents as may be reasonably requested, each in form and substance reasonably satisfactory to the Agent.  Furthermore and except as otherwise approved in writing by the Lender, the Borrower shall, and shall cause each of its Subsidiaries to, pledge all of the Stock and Stock Equivalents of each of its Subsidiaries that are not CFCs, all of the nonvoting Stock and Stock Equivalents of each of its Subsidiaries that are CFCs, and 65% of the voting Stock and Stock Equivalents of each of its Subsidiaries that are CFCs, to the Agent for the benefit of the Agent and the Lender, to secure the Obligations, in each case pursuant to documents in form and substance reasonably satisfactory to the Agent.  In connection with each pledge of Capital Stock that is certificated, the Borrower and each Subsidiary shall deliver, or cause to be delivered, to the Agent, irrevocable proxies and stock powers and/or assignments, as applicable, duly executed in blank, in each case pursuant to documents in form and substance reasonably satisfactory to the Agent.  The Borrower and each Loan Party shall be under an ongoing obligation to use commercially reasonable efforts to obtain a Collateral Access Agreement from the lessor of each leased property and bailee in possession of any Collateral with a book value in excess of $250,000 with respect to each location in the United States where any Collateral is stored or located, which Collateral Access Agreement shall be in form and substance reasonably satisfactory to the Agent.  Without limiting the requirements of the Collateral Documents, in the

 

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event that any Loan Party shall acquire, develop, or otherwise obtain, register or seek to register any Patent, Copyright, Trademark, or other Intellectual Property with any United States Governmental Authority, or obtain, register or seek to register any application for, or license in respect of, any of the foregoing, the Borrower shall notify the Agent thereof within 45 days of the end of each calendar quarter and shall promptly thereafter execute and deliver to the Agent, for the benefit of the Lender, such Intellectual Property security agreements, other Collateral Documents or other documents as the Agent may request in order to secure and perfect the security interest in respect of such Intellectual Property (it being understood that this sentence only applies to registered Intellectual Property).

 

6.8.                             Post-Closing Obligations .  Within thirty (30) days after the Closing Date (subject to extension by the Agent in its sole discretion), the Loan Parties shall deliver to the Agent a deposit account or securities account, as applicable, Control Agreement for each deposit account and securities account maintained by any Loan Party (other than the Excluded Accounts ( provided , that if at any time any such account fails to meet the requirements set forth in the definition of “Excluded Accounts,” the Loan Parties shall deliver a Control Agreement for such account within thirty (30) days after such date) and zero balance payroll and similar accounts), in form and substance satisfactory to the Agent.

 

6.9.                             Assigned Interests .

 

6.9.1.                   Payments.   The Borrower shall remit to the Lender amounts pursuant to Section 2.4.3 .

 

6.9.2.                   True-Up.

 

(a)                                  Following the end of each Fiscal Quarter after the Prepayment Date, concurrently with the delivery of the Monthly Net Revenue Report for the third month in such Fiscal Quarter, the Borrower shall deliver to the Lender a calculation of the difference between (i) the amount Lender has received in payments from the Borrower under Section 2.4.3 in respect of such Fiscal Quarter and (ii) the Mandatory Minimum Payments (the “ True-Up Amount ”).

 

(b)                                  If the True-Up Amount calculated pursuant to clause (a) above is negative, the Borrower shall pay the absolute value of such amount to Lender within five (5) days of the receipt by Lender of the True-Up Statement.

 

6.10.                      Internal Controls .  Borrower will maintain internal controls over financial reporting that are no less effective in maintaining control over financial reporting than those in effect on the Closing Date.

 

Section 7.                                            Negative Covenants .

 

Until the Obligations (other than contingent indemnification obligations to the extent no claim giving rise thereto has been asserted and other than the Assigned Interests after the Prepayment Date) are Paid in Full (except with respect to Section 7.17 , which shall be in effect

 

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from the Prepayment Date until the Assigned Interests are Paid in Full), the Borrower agrees that, unless at any time the Lender shall otherwise expressly consent in writing (such consent to be withheld in the Lender’s sole discretion), it will:

 

7.1.                             Debt .  Not, and not suffer or permit any Loan Party to, create, incur, assume or suffer to exist any Debt, except for the following Debt of the Borrower and/or Loan Party Subsidiaries:

 

(a)                                  Obligations under this Agreement and the other Loan Documents;

 

(b)                                  Debt in respect of Capital Leases and purchase money Debt, in each case incurred for the purpose of financing all or any part of the cost of acquiring, repair, construction or improvement of fixed or capital assets; provided that the aggregate principal amount of all such Debt at any time outstanding shall not exceed $100,000;

 

(c)                                   Debt of the Borrower to any Loan Party that is a Wholly-Owned Subsidiary of the Borrower or Debt of any Loan Party that is a Wholly-Owned Subsidiary of the Borrower to the Borrower or another Loan Party that is a Wholly-Owned Subsidiary of the Borrower; provided that all such Debt shall be evidenced by a global intercompany demand note in form and substance satisfactory to the Agent and pledged and delivered to the Agent pursuant to the applicable Collateral Document as additional collateral security for the Obligations, and the obligations under such demand note shall be subordinated to the Obligations hereunder in a manner satisfactory to the Agent;

 

(d)                                  Debt described in Section 7.1 of the Disclosure Letter as of the Closing Date, and any Permitted Refinancing thereof;

 

(e)                                   Contingent Obligations arising with respect to customary indemnification obligations in favor of purchasers in connection with dispositions permitted under Section 7.4 ;

 

(f)                                    Debt arising from the honoring by a bank or other financial institution of a check, draft or similar instrument drawn against insufficient funds in the ordinary course of business, provided that such Debt is extinguished within two (2) Business Days of notice to the Borrower or the relevant Subsidiary of its incurrence;

 

(g)                                   Debt incurred in connection with the financing of insurance premiums in the ordinary course of business;

 

(h)                                  guaranties by the Borrower of the Debt of any Loan Party that is a Wholly-Owned Subsidiary of the Borrower or guaranties by any Subsidiary thereof of the Debt of the Borrower in each case so long as such Debt is otherwise permitted under Section 7.1(a)  or (b) ;

 

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(i)                                      Debt under a Permitted AR Facility;

 

(j)                                     Debt consisting of Hedging Obligations;

 

(k)                                  unsecured Debt of the Borrower or any Subsidiary (i) that is convertible into Stock or Stock Equivalents and is validly subordinated by its terms to the payment of the Obligations on terms which shall provide that no payments of principal or interest may be made on such Debt prior to the Prepayment Date, (ii) that is validly subordinated by its terms to the payment of the Obligations on terms reasonably satisfactory to the Agent or (iii) in respect of earn-out, purchase price adjustment and similar obligations; provided that the aggregate principal amount of all such Debt under this clauses (ii) and (iii) at any time outstanding shall not exceed $10,000,000.

 

7.2.                             Liens .  Not, and not suffer or permit any Loan Party to, create or permit to exist any Lien on any of its real or personal properties, assets or rights of whatsoever nature (whether now owned or hereafter acquired), except :

 

(a)                                  Liens for Taxes or other governmental charges not at the time delinquent or thereafter payable without penalty, or being diligently contested in good faith by appropriate proceedings and for which it maintains adequate reserves in accordance with GAAP and the execution or other enforcement of which is effectively stayed;

 

(b)                                  Liens arising in the ordinary course of business (such as (i) Liens of carriers, warehousemen, mechanics, customs brokers, landlords and materialmen and other similar Liens imposed by law and (ii) Liens consisting of pledges or deposits incurred in connection with worker’s compensation, unemployment compensation and other types of social security (excluding Liens arising under ERISA) or in connection with surety bonds, bids, performance bonds and similar obligations) for sums not more than 30 days overdue or being diligently contested in good faith by appropriate proceedings and not involving any deposits or advances or borrowed money or the deferred purchase price of property or services and, in each case, for which it maintains adequate reserves to the extent required in accordance with GAAP and the execution or other enforcement of which is effectively stayed;

 

(c)                                   Liens described in Section 7.2 of the Disclosure Letter as of the Closing Date;

 

(d)                                  Liens securing Debt permitted by Section 7.1(b) ; provided, however, that any such Lien (i) attaches only to the property being leased or financed and any accessions thereto and proceeds thereof, and (ii) attaches to such property within 60 days of the acquisition thereof and attaches solely to the property so acquired and any accessions thereto and proceeds thereof;

 

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(e)                                   attachments, appeal bonds, judgments and other similar Liens, in connection with judgments the existence of which do not constitute an Event of Default;

 

(f)                                    easements, encroachments, rights of way, leases, subleases, restrictions, minor defects or irregularities in title and other similar Liens not interfering in any material respect with the ordinary conduct of the business of the Borrower or any Subsidiary;

 

(g)                                   any interest or title of a lessor or sublessor under any lease (other than a Capital Lease) or of a licensor or sublicensor under any license, in each case permitted by this Agreement;

 

(h)                                  leases, licenses, subleases or sublicenses granted to third parties in the ordinary course of business which do not (i) interfere in any material respect with, or materially detract from the value of, the business of the Borrower and its Subsidiaries, taken as a whole or (ii) secure any Debt, and in each case permitted by this Agreement;

 

(i)                                      Liens arising from precautionary uniform commercial code financing statements filed under any lease (other than a Capital Lease) permitted by this Agreement;

 

(j)                                     Liens with respect to a Permitted AR Facility;

 

(k)                                  Liens arising under the Loan Documents;

 

(l)                                      bankers’ liens, rights of setoff and Liens in favor of financial institutions incurred in the ordinary course of business arising in connection with deposit accounts or securities accounts held at such institutions solely to secure payment of fees and similar costs and expenses; and

 

(m)                              the replacement, extension or renewal of any Lien permitted by clauses (c)  or (d)  above upon or in the same property subject thereto arising out of the Permitted Refinancing of the Debt secured thereby.

 

7.3.                             Restricted Payments .  Not, and not suffer or permit any Loan Party to, (i) declare or make any dividend payment or other distribution of assets, properties, cash, rights, obligations or securities on account of any Stock or Stock Equivalent, (ii) purchase, redeem or otherwise acquire for value any Stock or Stock Equivalent now or hereafter outstanding or (iii) make any payment or prepayment of principal of, premium, if any, interest, fees, redemption, exchange, purchase, retirement, defeasance, sinking fund or similar payment with respect to, Debt that is subordinated by its terms to the payment of the Obligations (the items described in clauses (i) , (ii)  and (iii)  above are referred to as “ Restricted Payments ”) except that (i) any Subsidiary of the Borrower may declare and pay dividends to, repay intercompany debt owed to, and make internal profit-sharing payments to, the Borrower or any other Loan Party that is a Wholly-Owned Subsidiary of the Borrower, (ii) the Borrower may make repurchases from any present or former employee, director, officer or consultant (or the assigns, estate, heirs or current

 

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or former spouses thereof) upon the death, disability or termination of employment of such employee, director, officer or consultant provided such repurchases do not exceed $1,000,000 in the aggregate per Fiscal Year, (iii) the Borrower may convert its convertible securities into other securities pursuant to the terms of such convertible securities or otherwise in exchange therefor ( provided that such securities shall not be converted or exchanged into Disqualified Capital Stock or Debt that is not permitted by Section 7.1 ), and (iv) the Borrower may make cash payments in lieu of the issuance of fractional shares upon such conversion or in connection with the exercise of warrants or similar securities).

 

7.4.                             Mergers; Consolidations; Asset Sales .

 

(a)                                  Not, and not suffer or permit any Loan Party to, be a party to any merger, consolidation or amalgamation, except for any such merger or consolidation (i) of any Subsidiary of the Borrower into the Borrower (so long as the Borrower survives such merger) or any Loan Party that is a Wholly-Owned Subsidiary of the Borrower, as applicable (so long as such Loan Party that is a Wholly-Owned Subsidiary survives such merger) or (ii) in which the Obligations (other than the Assigned Interests) shall be Paid in Full prior to or concurrently with the consummation of such transaction and in which provision is made for the Assigned Interests to be assumed by the surviving or acquiring Person and such Person delivers written notice to the Lender acknowledging such assumption.

 

(b)                                  Not, and not suffer or permit any Loan Party to, sell, transfer, dispose of, convey or lease any of its assets or the Capital Stock of any Loan Party, or sell or assign with or without recourse any receivables (any such transaction, a “ Disposition ”), except for (i) Dispositions of worn-out or surplus equipment, all in the ordinary course of business, (ii) the abandonment or other Disposition of Intellectual Property that is no longer useful or material to the conduct of the business of the Loan Parties as determined by the Borrower in its reasonable business judgment, (iii) Dispositions of cash and Cash Equivalent Investments, (iv) licenses, sublicenses, leases or subleases (including any license or sublicense of Intellectual Property) granted to third parties in the ordinary course of business not interfering with the business of the Loan Parties in any material respect as determined by the Borrower in its reasonable business judgment, (v) the granting of Liens permitted under Section 7.2 , Restricted Payments permitted by Section 7.3 , transactions permitted by Section 7.4(a)  and Investments permitted by Section 7.10 , (vi) Dispositions resulting from any casualty or other insured damage to, or any taking under power of eminent domain or by condemnation or similar proceeding of, any property or asset of any Loan Party provided the proceeds thereof are promptly applied to replace such assets and (vii) other Dispositions of assets having a book value of not more than $500,000 in the aggregate in any Fiscal Year; provided that, for the avoidance of doubt, nothing in this Section 7.4(b) shall prevent the Borrower from selling and issuing its Capital Stock.

 

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(c)                                   Not, and not suffer or permit any Loan Party to, sell, transfer, dispose of, convey or license any of its Intellectual Property other than as permitted by the foregoing clauses (a) and (b) of this Section 7.4 .

 

7.5.                             Modification of Organizational Documents .  Not waive, amend or modify, and not suffer or permit any waiver, amendment or modification of, any term of the charter, limited liability company agreement, partnership agreement, articles of incorporation, by-laws or other organizational documents of the Borrower or any other Loan Party, in each case except for those amendments and modifications that do not materially adversely affect the interests of the Agent or the Lender under the Loan Documents or in the Collateral (it being understood and agreed that any adverse impact on the effectiveness or validity of any Collateral Document or the Liens granted to the Agent thereunder shall each be deemed to materially adversely affect such interests of the Agent and the Lender).

 

7.6.                             Use of Proceeds .  Not use the proceeds of the Loan for any purposes other than solely as expressly provided in Section 2.1.2 .

 

7.7.                             Transactions with Affiliates .  Not, and not suffer or permit any Loan Party to, enter into any transaction or arrangement with any Affiliate of the Borrower or of any such Loan Party, except :

 

(a)                                  Restricted Payments permitted by Section 7.3 , intercompany loans among Loan Parties permitted by Section 7.1(c) , transactions permitted by Section 7.4(a)  and Investments permitted by Section 7.10(a)  and (b) ;

 

(b)                                  in the ordinary course of business and pursuant to the reasonable requirements of the business of such Loan Party or such Subsidiary; provided that, in the case of this clause (b), such transaction shall be upon fair and reasonable terms no less favorable to such Loan Party or such Subsidiary than would be obtained in a comparable arm’s length transaction with a Person not an Affiliate of the Borrower or such Subsidiary and which are disclosed in writing to the Agent;

 

(c)                                   payment of compensation and benefits (including customary indemnities) to officers, directors and employees of the Loan Parties for actual services rendered to the Loan Parties in the ordinary course of business;

 

(d)                                  payment of reasonable and customary fees to members of the boards of directors (or similar governing body) of the Loan Parties, and the reimbursement of actual out of pocket expenses incurred in connection with attending board of director meetings;

 

(e)                                   advances for reasonable travel and entertainment expenses and reasonable relocation costs and expenses and other reasonable loans and advances in the ordinary course of business; and

 

(f)                                    the subordinated Debt investments by the Borrower’s stockholders in the Borrower, to the extent permitted by Section 7.1(k) , and

 

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equity investments by the Borrower’s stockholders in the Borrower for purposes of raising capital.

 

7.8.                             Inconsistent Agreements .  Not, and not suffer or permit any other Loan Party to, enter into any agreement containing any provision which would (i) be violated or breached by any borrowing by the Borrower hereunder or by the performance by the Borrower or any other Loan Party of any of its Obligations hereunder or under any other Loan Document, (ii) prohibit the Borrower or any other Loan Party from granting to the Agent and the Lender a Lien on any of its assets that constitute Collateral or (iii) other than pursuant to the Loan Documents, create or permit to exist or become effective any encumbrance or restriction on the ability of any other Subsidiary to (x) pay dividends or make other distributions to the Borrower or any Wholly-Owned Subsidiary, or pay any Debt owed to the Borrower or any Wholly-Owned Subsidiary, (y) make loans or advances to the Borrower or any Wholly-Owned Subsidiary or (z) transfer any of its assets or properties to the Borrower or any Wholly-Owned Subsidiary, except , in the case of clause (ii)  and (iii)  above: (a) negative pledges and restrictions on Liens in favor of any holder of Debt permitted under Section 7.1(b)  but solely to the extent any negative pledge or limitation on Liens relates to the property that is the subject of such Debt and the proceeds and products thereof, (b) customary restrictions on leases, subleases, licenses or asset sale agreements otherwise permitted hereby so long as such restrictions relate to the assets subject thereto, (c) customary provisions restricting assignment of any agreement entered into in the ordinary course of business, (d) prohibitions and limitations that exist pursuant to Applicable Law, (e) customary restrictions and conditions contained in agreements relating to (A) the sale of a Subsidiary or assets pending such sale, provided such restrictions and conditions apply only to the Subsidiary or assets that are to be sold and such sale is permitted hereunder, and (B) the acquisition of the Borrower provided that the acquisition agreement shall provide that all amounts due and payable under this Agreement shall be Paid in Full upon the closing of such transaction; (f) customary provisions in joint venture agreements (and other similar agreements) provided that such provisions apply only to such joint venture or such other arrangement and to the Capital Stock of such joint venture or such other arrangement; and (g) customary net worth provisions or similar financial maintenance provisions contained in any agreement entered into by a Subsidiary.

 

7.9.                             Business Activities .  Not, and not suffer or permit any Loan Party to, engage in any line of business other than the businesses engaged in on the Closing Date and businesses directly related thereto including businesses constituting extensions thereof or which are incidental thereto.  As of the Closing Date the Borrower and other Loan Parties engage in the business of the development, manufacture, maintenance, sale, rental and distribution of minimally-invasive imaging systems and medical devices used in the treatment and/or diagnosis of various medical conditions.

 

7.10.                      Investments .  Not, and not suffer or permit any Loan Party to, make or permit to exist, any Investment in any other Person, except the following:

 

(a)                                  Investments (i) between or among the Loan Parties; (ii) by Subsidiaries that are not Loan Parties in Loan Parties; (iii) by Subsidiaries that are not Loan Parties in Subsidiaries that are not Loan Parties; and (iv) by Loan Parties in Subsidiaries that are not Loan Parties in an amount not to exceed $250,000 in

 

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the aggregate in any Fiscal Year, provided , that the Lender’s consent to any such Investments in an amount exceeding $250,000 but less than $1,000,000 shall not be unreasonably withheld;

 

(b)                                  Investments constituting Debt permitted by Section 7.1(c) ;

 

(c)                                   Contingent Obligations constituting Debt permitted by Section 7.1 or constituting guarantees of commercial obligations of Subsidiaries (not constituting Debt) in the ordinary course of business not prohibited hereby;

 

(d)                                  Cash Equivalent Investments;

 

(e)                                   Investments listed in Section 7.10 of the Disclosure Letter as of the Closing Date;

 

(f)                                    extensions of trade credit in the ordinary course of business;

 

(g)                                   notes payable, or stock or other securities issued by an account debtor pursuant to settlement in the ordinary course of business of such account debtor’s accounts receivable owing to the Borrower or its Subsidiaries;

 

(h)                                  Investments in connection with Hedging Obligations;

 

(i)                                      Investments of any Person existing at the time such Person becomes a Subsidiary of a Borrower or consolidates or merges with the Borrower or any of the Subsidiaries so long as such Investments were not made in contemplation of such Person becoming a Subsidiary or of such merger;

 

(j)                                     Investments received in connection with the dispositions of assets permitted by Section 7.4 ;

 

(k)                                  loans or advances to employees, officers and directors of a Loan Party for reasonable travel and entertainment expenses and reasonable relocation costs and expenses and other ordinary business purposes; provided , however , that the aggregate outstanding principal amount of all loans and advances permitted pursuant to this clause (k)  shall not exceed $500,000 at any time;

 

(l)                                      Investments consisting of non-cash loans to employees, officers, directors or consultants for the purpose of purchasing Capital Stock in the Borrower so long as the proceeds of such loans are used entirely to pay the purchase price of such Capital Stock; and

 

(m)                              other Investments in an aggregate amount not to exceed $250,000 at any time outstanding.

 

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7.11.                      Fiscal Year .  Not, and not suffer or permit any other Loan Party to, change its Fiscal Year.

 

7.12.                      Deposit Accounts and Securities Accounts .  Not, and not suffer or permit any Loan Party to, maintain or establish any deposit account or securities account other than the deposit accounts and securities accounts set forth in Section 7.12 of the Disclosure Letter without prior written notice to the Agent and unless the Agent, the Borrower or such other Loan Party and the bank or securities intermediary at which such deposit account or securities account, as applicable, is to be opened or maintained enter into a Control Agreement regarding such deposit account or securities account, as applicable, on terms satisfactory to the Agent.

 

7.13.                      Sale-Leasebacks .  Not and not suffer or permit any Loan Party to, engage in a sale leaseback (except as permitted under Section 7.1(b) ), synthetic lease or similar transaction involving any of its assets.

 

7.14.                      Hazardous Substances .  Not, and not suffer or permit any other Loan Party to, cause or suffer to exist any release of any Hazardous Substances at, to or from any real property owned, leased, subleased or otherwise operated or occupied by any Loan Party that would violate any Environmental Law, form the basis for any Environmental Claims or otherwise adversely affect the value or marketability of any real property (whether or not owned by any Loan Party), other than such violations, Environmental Claims and effects that would not, in the aggregate, be reasonably be expected to have a Material Adverse Effect.  Notwithstanding the foregoing, under no circumstances will any Loan Party cause or suffer to exist any disposal of any Hazardous Substances at, on, under or in any real property owned, leased, subleased, or otherwise operated or occupied by any Loan Party.

 

7.15.                      ERISA Liability .  Not suffer or permit any liability under ERISA and the sponsorship of any “pension plan” or any liability subject to Title IV of ERISA that is in excess of $250,000.

 

7.16.                      Liquidity .  Not suffer or permit Liquidity to be less than $2,000,000 at any time.

 

7.17.                      Post-Prepayment Date Covenants .  After the Prepayment Date through the earlier to occur of (i) December 31, 2018, and (ii) the Acquisition of the Borrower:

 

(a)                                  Merger; Consolidations; Asset Sales

 

(i)              Not, and not suffer or permit any Loan Party to, be a party to any merger, consolidation or amalgamation, or any Disposition of all or substantially all of the assets of the Borrower, except for (A) any such merger, consolidation or amalgamation of any Subsidiary of the Borrower into the Borrower (so long as the Borrower survives such merger) or any Loan Party that is a Wholly-Owned Subsidiary of the Borrower, as applicable (so long as a Loan Party that is a Wholly-Owned Subsidiary survives such merger) or (B) any such merger, consolidation or amalgamation or any such Disposition in which the Obligations (other than the Assigned Interests) shall be Paid in Full prior to or concurrently with the consummation of such transaction and in which provision is made for the Assigned Interests to be assumed by

 

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the surviving or acquiring Person and such Person delivers written notice to the Lender acknowledging such assumption.

 

(ii)           Not, and not suffer or permit any Loan Party to, sell, transfer, dispose of, convey or license any of its Intellectual Property related to the Products other than as permitted by the foregoing clause (a)(i)(B) of this Section 7.17 and except for (A) the abandonment or other Disposition of Intellectual Property that is no longer useful or material to the conduct of the business of the Loan Parties as determined by the Borrower in its reasonable business judgment, and (B) licenses and sublicenses granted to third parties in the ordinary course of business not interfering with the business of the Loan Parties in any material respect as determined by the Borrower in its reasonable business judgment.

 

(b)                                  Modification of Organizational Documents .  Not waive, amend or modify, and not suffer or permit any waiver, amendment or modification of, any term of the charter, limited liability company agreement, partnership agreement, articles of incorporation, by-laws or other organizational documents of the Borrower or any other Loan Party, in each case except as permitted by Section 7.17(a)(i) and for those amendments and modifications that do not materially adversely affect the interests of the Agent or the Lender in the Assigned Interests.

 

(c)                                   Inconsistent Agreements .  Not, and not suffer or permit any other Loan Party to, enter into any agreement containing any provision which would be violated or breached by the performance by the Borrower or any other Loan Party of any of its Obligations with respect to the Assigned Interests.

 

(d)                                  Fiscal Year .  Not, and not suffer or permitted any other Loan Party to, change its Fiscal Year, except in connection with an Acquisition of the Borrower, in which case any necessary adjustment shall be made such that Lender receives the benefits of the Assigned Interests contemplated hereunder.

 

Section 8.                                            Events of Default; Remedies .

 

8.1.                             Events of Default .  Each of the following shall constitute an Event of Default under this Agreement:

 

8.1.1.                   Non-Payment of Credit Agreement .  Any default (i) in the payment when due of the principal of the Loan, (ii) for a period in excess of three (3) Business Days in the payment when due of any interest, fee, or other amount payable hereunder, including any payment in respect of the Assigned Interests, by any Loan Party, or (iii) for a period in excess of three (3) Business Days in any payment of any amount due under any other Loan Document, shall occur.

 

8.1.2.                   Default Under Other Debt .

 

(a)                                  Any default in the payment of principal or interest when due (giving effect to all applicable grace periods, if any) shall occur under the terms applicable to any Debt (other than the Obligations) of any Loan Party in an aggregate amount (for all such Debt so affected and including amounts owing to

 

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all creditors under any combined or syndicated credit arrangement) exceeding $250,000; and

 

(b)                                  Any default shall occur under the terms applicable to any Debt (other than the Obligations) of any Loan Party in an aggregate amount (for all such Debt so affected and including undrawn committed or available amounts and amounts owing to all creditors under any combined or syndicated credit arrangement) exceeding $250,000 and such default shall result in the acceleration of the maturity of such Debt or permit the holder or holders thereof, or any trustee or agent for such holder or holders, to cause such Debt to become due and payable (or require the Borrower or any other Loan Party to purchase or redeem such Debt or post cash collateral in respect thereof) prior to its expressed maturity.

 

8.1.3.                   Bankruptcy; Insolvency .  (i) Any Loan Party generally fails to pay, or admits in writing its inability or refusal to pay, debts as they become due; (ii) any Loan Party commences any case, proceeding or other action (x) under any existing or future law of any jurisdiction, domestic or foreign, relating to bankruptcy, insolvency, reorganization or relief of debtors, seeking to have an order for relief entered with respect to it, or seeking to adjudicate it a bankrupt or insolvent, or seeking reorganization, arrangement, adjustment, winding up, liquidation, dissolution, composition or other relief with respect to it or its debts, or (y) seeking appointment of a receiver, trustee, custodian, conservator or other similar official for it or for all or any substantial part of its assets; or (iii) there shall be commenced against any Loan Party any case, proceeding or other action of a nature referred to in clause (ii) above that (x) results in the entry of an order for relief or any such adjudication or appointment or (y) remains undismissed or undischarged for a period of 60 days; (iv) there shall be commenced against any Loan Party any case, proceeding or other action seeking issuance of a warrant of attachment, execution, distraint or similar process against all or any substantial part of its assets that results in the entry of an order for any such relief that shall not have been vacated, discharged, or stayed or bonded pending appeal within 60 days from the entry thereof; (v) any Loan Party shall take any action in furtherance of, or indicating its consent to, approval of, or acquiescence in, any of the acts set forth in clause (ii), (iii) or (iv) above; or (vi) any Loan Party shall make a general assignment for the benefit of its creditors.

 

8.1.4.                   Non-Compliance with Loan Documents .

 

(a)                                  Failure by the Borrower or any other Loan Party to comply with or to perform any covenant set forth in Sections 6.1 , 6.4 , 6.5(a)  (with respect to the maintenance of existence of the Borrower or any other Loan Party), 6.5(b) , 6.6 , 6.8 , 6.9 and 7 , in each case during the period when each such covenant is applicable; or (b) failure by the Borrower or any other Loan Party to comply with or to perform any other provision of this Agreement or any other Loan Document applicable to it (and not constituting an Event of Default under any other provision of this Section 8 ), in each case during the period when each such provision is applicable, and continuance of such failure described in this clause (b) for 30 days.

 

8.1.5.                   Representations; Warranties .  Any representation or warranty made by or in respect of any Loan Party herein or any other Loan Document is breached or is false or misleading in any material respect (without duplication of any materiality qualifier contained

 

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therein), or any schedule, certificate, financial statement, report, notice or other writing furnished by any Loan Party to the Agent or the Lender in connection herewith is false or misleading in any material respect on the date as of which the facts therein set forth are stated or certified.

 

8.1.6.                   Judgments .

 

(a)                                  Final judgments which exceed an aggregate of $500,000 shall be rendered against any Loan Party and shall not have been paid, discharged or vacated or had execution thereof stayed pending appeal within 30 days after entry or filing of such judgments; or

 

(b)                                  One or more non-monetary judgments, orders or decrees shall be rendered against any one or more of the Loan Parties or any of their respective Subsidiaries which has had or would reasonably be expected to have, either individually or in the aggregate, a Material Adverse Effect, and there shall be any period of ten (10) consecutive days during which a stay of enforcement of such judgment or order, by reason of a pending appeal or otherwise, shall not be in effect.

 

8.1.7.                   Invalidity of Collateral Documents .  Any Collateral Document shall cease to be in full force and effect, except as provided for under the release provisions of the Security Agreement; or any Loan Party or other grantor or pledgor (or any Person by, through or on behalf of any Loan Party, grantor or pledgor) shall contest in any manner the validity, binding nature or enforceability of any Collateral Document.

 

8.1.8.                   Invalidity of Subordination Provisions .  Any subordination provision in any document or instrument governing Debt that is intended to be subordinated to the Obligations or any subordination provision in any subordination agreement that relates to any such Debt, or any subordination provision in any guaranty by any Loan Party of any such Debt, shall cease to be in full force and effect, or any Person (including the holder of any applicable Debt) shall contest in any manner the validity, binding nature or enforceability of any such provision.

 

8.1.9.                   Change of Control .  (a) A Change of Control shall occur, or (b) a “Change of Control” or other similar event shall occur, as defined in, or under, any indenture, agreement, instrument or other documentation evidencing or otherwise relating to any Debt; provided, however, that no Event of Default shall exist under this Section 8.1.9 to the extent the transaction giving rise thereto is not in violation of Section 7.4(a) or 7.17(a).

 

8.2.                             Remedies .  If any Event of Default described in Section 8.1.3 shall occur, the Loan and all other Obligations shall become immediately due and payable and all outstanding Commitments shall terminate, all without presentment, demand, protest or notice of any kind; and, if any other Event of Default shall occur and be continuing, the Agent may, and upon the written request of the Lender shall, declare all or any part of the Loan and other Obligations to be due and payable and/or all or any part of the Commitments then outstanding to be terminated, whereupon the Loan and other Obligations shall become immediately due and payable (in whole or in part, as applicable), and such Commitments shall immediately terminate

 

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(in whole or in part, as applicable), all without presentment, demand, protest or notice of any kind.  The Agent shall promptly advise the Borrower of any such declaration, but failure to do so shall not impair the effect of such declaration.  Any cash collateral delivered hereunder shall be applied by the Agent to any remaining Obligations and any excess remaining after the Obligations shall have been Paid in Full shall be delivered to the Borrower or as a court of competent jurisdiction may elect.  Upon the declaration of the Obligations to be, or the Obligations becoming, due and payable pursuant to this Section 8.2 such Obligations shall bear interest at the Default Rate as provided in Section 2.3.1 .

 

Section 9.                                            The Agent .

 

9.1.                             Appointment; Authorization .

 

(a)                                  Lender hereby irrevocably appoints, designates and authorizes the Agent to take such action on its behalf under the provisions of this Agreement and each other Loan Document and to exercise such powers and perform such duties as are expressly delegated to it by the terms of this Agreement or any other Loan Document, together with such powers as are reasonably incidental thereto.  Notwithstanding any provision to the contrary contained elsewhere in this Agreement or in any other Loan Document, the Agent shall not have any duty or responsibility except those expressly set forth herein, nor shall the Agent have or be deemed to have any fiduciary relationship with the Lender, and no implied covenants, functions, responsibilities, duties, obligations or liabilities shall be read into this Agreement or any other Loan Document or otherwise exist against the Agent.

 

9.2.                             Delegation of Duties .  The Agent may execute any of its duties under this Agreement or any other Loan Document by or through agents, employees or attorneys in fact and shall be entitled to advice of counsel concerning all matters pertaining to such duties.  The Agent shall not be responsible for the negligence or misconduct of any agent or attorney in fact that it selects with reasonable care.

 

9.3.                             Limited Liability .  None of the Agent or any of its directors, officers, employees or agents shall (a) be liable for any action taken or omitted to be taken by any of them under or in connection with this Agreement or any other Loan Document or the transactions contemplated hereby (except to the extent resulting from its own gross negligence or willful misconduct as determined in a final non-appealable judgment by a court of competent jurisdiction), or (b) be responsible in any manner to the Lender for any recital, statement, representation or warranty made by any Loan Party or Affiliate of any Loan Party, or any officer thereof, contained in this Agreement or in any other Loan Document, or in any certificate, report, statement or other document referred to or provided for in, or received by the Agent under or in connection with, this Agreement or any other Loan Document, or the validity, effectiveness, genuineness, enforceability or sufficiency of this Agreement or any other Loan Document (or the creation, perfection or priority of any Lien or security interest therein), or for any failure of any Loan Party or any other party to any Loan Document to perform its Obligations hereunder or thereunder.  The Agent shall not be under any obligation to the Lender to ascertain or to inquire as to the observance or performance of any of the agreements contained in, or conditions of, this

 

48



 

Agreement or any other Loan Document, or to inspect the properties, books or records of any Loan Party or Affiliate of any Loan Party.

 

9.4.                             Successor Agent .  The Agent may resign as the Agent at any time upon 30 days’ prior notice to the Lender.  If the Agent resigns under this Agreement, the Lender shall, with (so long as no Event of Default exists) the consent of the Borrower (which shall not be unreasonably withheld or delayed), appoint a successor agent for the Lender.  If no successor agent is appointed prior to the effective date of the resignation of the Agent, the Agent may appoint, on behalf of the Lender after consulting with the Lender and (so long as no Event of Default exists) the Borrower, a successor agent.  Upon the acceptance of its appointment as successor agent hereunder, such successor agent shall succeed to all the rights, powers and duties of the retiring Agent and the term “the Agent” shall mean such successor agent, and the retiring Agent’s appointment, powers and duties as the Agent shall be terminated.  After any retiring the Agent’s resignation hereunder as the Agent, the provisions of this Section 9 and Sections 10.4 and 10.5 shall continue to inure to its benefit as to any actions taken or omitted to be taken by it while it was the Agent under this Agreement.  If no successor agent has accepted appointment as the Agent by the date which is 30 days following a retiring the Agent’s notice of resignation, the retiring Agent’s resignation shall nevertheless thereupon become effective and the Lender shall perform all of the duties of the Agent hereunder until such time as the Lender shall appoint a successor agent as provided for above.

 

9.5.                             Collateral Matters .  Lender irrevocably authorizes the Agent, at its option and in its discretion, to release any Lien granted to or held by the Agent under any Collateral Document (i) when all Obligations have been Paid in Full; (ii) constituting property sold or to be sold or disposed of as part of or in connection with any sale or other disposition permitted hereunder (it being agreed and understood that the Agent may conclusively rely without further inquiry on a certificate of an officer of the Borrower as to the sale or other disposition of property being made in compliance with this Agreement); or (iii) subject to Section 10.1 , if approved, authorized or ratified in writing by the Lender.  Upon request by the Agent at any time, the Lender will confirm in writing the Agent’s authority to release types or items of Collateral pursuant to this Section 9.5 .  The Agent shall have the right, in accordance with the Collateral Documents, to sell, lease or otherwise dispose of any Collateral for cash, credit or any combination thereof, and the Agent may purchase any Collateral at public or, if permitted by law, private sale and, in lieu of actual payment of the purchase price, may credit bid and setoff the amount of such price against the Obligations.

 

Section 10.                                     Miscellaneous .

 

10.1.                      Waiver; Amendments .  No delay on the part of the Agent or the Lender in the exercise of any right, power or remedy shall operate as a waiver thereof, nor shall any single or partial exercise by any of them of any right, power or remedy preclude other or further exercise thereof, or the exercise of any other right, power or remedy.  No amendment, modification or waiver of, or consent with respect to, any provision of this Agreement, the Notes or any of the other Loan Documents (or any subordination and intercreditor agreement or other subordination provisions relating to any other Debt) shall in any event be effective unless the same shall be in writing and approved by the Agent and the Lender, and then any such amendment, modification, waiver or consent shall be effective only in the specific instance and

 

49


 

for the specific purpose for which given.  No provision of Section 9 or other provision of this Agreement affecting the Agent in its capacity as such shall be amended, modified or waived without the consent of the Agent.

 

10.2.       Notices .  All notices hereunder shall be in writing (including facsimile transmission) and shall be sent to the applicable party at its address shown on Annex I or at such other address as such party may, by written notice received by the other parties, have designated as its address for such purpose.  Notices sent by facsimile or other electronic transmission shall be deemed to have been given when sent; notices sent to the Borrower by mail shall be deemed to have been given three Business Days after the date when sent by registered or certified mail, postage prepaid; and notices sent by hand delivery or overnight courier service shall be deemed to have been given when received.

 

10.3.       Costs; Expenses .  The Borrower agrees to pay on demand (a) all reasonable out-of-pocket costs and expenses of the Agent and the Lender (including Legal Costs, but excluding Audit Costs except as provided below) after the Closing Date in connection with the administration (including perfection and protection of Collateral subsequent to the Closing Date) of this Agreement, the other Loan Documents and all other documents provided for herein or delivered or to be delivered hereunder or in connection herewith (including any proposed or actual amendment, supplement or waiver to any Loan Document), and (b) all out-of-pocket costs and expenses (including Legal Costs) incurred by the Agent and the Lender in connection with the collection of the Obligations and enforcement of this Agreement, the other Loan Documents or any such other documents.  In addition, the parties agree that in the event that the Agent or Lender determines pursuant to any audit of the books and records of the Borrower and its Subsidiaries conducted pursuant to Section 6.2 that the aggregate amount paid to the Lender hereunder during any period covered by such audit was less than the aggregate amount that was in fact due and payable in respect of such period and the amount of such shortfall exceeds five percent (5%) of the amount that was due and payable, then all Audit Costs in respect of such audit shall be borne by the Borrower and reimbursed to the Agent or Lender, as applicable, and in all other cases, such Audit Costs shall be borne by the Agent or Lender conducting such audit.  All Obligations provided for in this Section 10.3 shall survive repayment of the Loan, cancellation of the Notes and termination of this Agreement.

 

10.4.       Indemnification by the Borrower .  In consideration of the execution and delivery of this Agreement by the Agent and the Lender and the agreement to extend the Commitments provided hereunder, the Borrower hereby agrees to indemnify, exonerate and hold the Agent, the Lender and each of the officers, directors, employees, Affiliates, controlling persons, advisors and agents of the Agent and the Lender (each a “ the Lender Party ”) free and harmless from and against any and all actions, causes of action, suits, losses, liabilities (including, without limitation, strict liabilities), obligations, damages, penalties, judgments, fines, disbursements, expenses and costs, including Legal Costs (collectively, the “ Indemnified Liabilities ”), incurred by the Lender Parties or asserted against the Lender Party by any Person (including in connection with any action, suit or proceeding brought by any Holder, the

 

50



 

Borrower, any other Loan Party or any Lender Party) as a result of, or arising out of, or relating to the execution, delivery, performance, administration or enforcement of this Agreement or any other Loan Document, the use of proceeds of the Loans, or the violation of, noncompliance with or liability under, any Environmental Law applicable to the operations of any Loan Party, except to the extent any such Indemnified Liabilities result from the applicable Lender Party’s own gross negligence, willful misconduct, or material breach of any Loan Document, in each case as determined by a court of competent jurisdiction in a final, non-appealable determination.  If and to the extent that the foregoing undertaking may be unenforceable for any reason, the Borrower hereby agrees to make the maximum contribution to the payment and satisfaction of each of the Indemnified Liabilities which is permissible under Applicable Law.  All Obligations provided for in this Section 10.4 shall survive repayment of the Loan, cancellation of the Notes, any foreclosure under, or any modification, release or discharge of, any or all of the Collateral Documents and termination of this Agreement.

 

10.5.       Marshaling; Payments Set Aside .  Neither the Agent nor the Lender shall be under any obligation to marshal any assets in favor of the Borrower or any other Person or against or in payment of any or all of the Obligations.  To the extent that the Borrower makes a payment or payments to the Agent or the Lender, or the Agent or the Lender enforces its Liens or exercises its rights of set-off, and such payment or payments or the proceeds of such enforcement or set-off or any part thereof are subsequently invalidated, declared to be fraudulent or preferential, set aside or required (including pursuant to any settlement entered into by the Agent or the Lender in its discretion) to be repaid to a trustee, receiver or any other party in connection with any bankruptcy, insolvency or similar proceeding, or otherwise, then (a) to the extent of such recovery, the obligation hereunder or part thereof originally intended to be satisfied shall be revived and continued in full force and effect as if such payment had not been made or such enforcement or setoff had not occurred and (b) the Lender severally agrees to pay to the Agent upon demand its ratable share of the total amount so recovered from or repaid by the Agent to the extent paid to such Lender.

 

10.6.       Nonliability of the Lender .  The relationship between the Borrower on the one hand and the Lender and the Agent on the other hand shall be solely that of borrower and lender.  Neither the Agent nor the Lender shall have any fiduciary responsibility to the Borrower or any other Loan Party.  Neither the Agent nor the Lender undertakes any responsibility to the Borrower or any other Loan Party to review or inform (including payment of all outstanding principal), the Borrower or any other Loan Party of any matter in connection with any phase of the Borrower’s or any other Loan Party’s business or operations.  Execution of this Agreement by the Borrower constitutes a full, complete and irrevocable release of any and all claims which the Borrower may have at law or in equity in respect of all prior discussions and understandings, oral or written, relating to the subject matter of this Agreement and the other Loan Documents.  Neither the Borrower, the Agent nor the Lender shall have any liability with respect to, and the Borrower, Agent and Lender each hereby waives, releases and agrees not to sue for, any special, indirect, punitive or consequential damages or liabilities.

 

10.7.       Confidentiality .  The Agent and the Lender agree to use commercially reasonable efforts (equivalent to the efforts the Agent or such Lender applies to maintain the confidentiality of its own confidential information) to maintain as confidential all information provided to them by any Loan Party, except that the Agent and the Lender may disclose such

 

51



 

information (a) to Persons employed or engaged by the Agent or such Lender or any of their Affiliates (including collateral managers of the Lender) in evaluating, approving, structuring or administering the Loan and the Commitments; (b) to any assignee or participant or potential assignee or participant that has agreed to comply with the covenant contained in this Section 10.7 (and any such assignee or participant or potential assignee or participant may disclose such information to Persons employed or engaged by them as described in clause (a) above); (c) as required or requested by any federal or state regulatory authority or examiner, or as reasonably believed by the Agent or such Lender to be compelled by any court decree, subpoena or legal or administrative order or process; (d) as, on the advice of the Agent’s or such Lender’s counsel, is required by law; (e) in connection with the exercise of any right or remedy under the Loan Documents or in connection with any litigation to which the Agent or such Lender is a party arising out of, under or in connection with the Loan Documents; (f) to any nationally recognized rating agency or investor of the Lender that requires access to information about the Lender’s investment portfolio in connection with ratings issued or investment decisions with respect to such Lender to the extent consisting of general portfolio information that does not identify Loan Parties; (g) that ceases to be confidential through no fault of the Agent or the Lender; or (h) to a Person that is an investor or prospective investor in the Agent or any of its Affiliates to the extent such Person agrees to be bound by provisions substantially similar to the provisions of this Section 10.7 .

 

10.8.       Captions .  Captions used in this Agreement are for convenience only and shall not affect the construction of this Agreement.

 

10.9.       Nature of Remedies .  All Obligations of the Borrower and rights of the Agent and the Lender expressed herein or in any other Loan Document shall be in addition to and not in limitation of those provided by Applicable Law.  No failure to exercise and no delay in exercising, on the part of the Agent or the Lender, any right, remedy, power or privilege hereunder, shall operate as a waiver thereof; nor shall any single or partial exercise of any right, remedy, power or privilege hereunder preclude any other or further exercise thereof or the exercise of any other right, remedy, power or privilege.

 

10.10.     Counterparts .  This Agreement may be executed in any number of counterparts and by the different parties hereto on separate counterparts and each such counterpart shall be deemed to be an original, but all such counterparts shall together constitute but one and the same Agreement.  Receipt by telecopy or electronic transmission of any executed signature page to this Agreement or any other Loan Document shall constitute effective delivery of such signature page.

 

10.11.     Severability .  The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

10.12.     Entire Agreement . This Agreement, together with the other Loan Documents, embodies the entire agreement and understanding among the parties hereto and supersedes all prior or contemporaneous agreements and understandings of such Persons, verbal or written, relating to the subject matter hereof and thereof and any prior arrangements made

 

52



 

with respect to the payment by the Borrower of (or any indemnification for) any fees, costs or expenses payable to or incurred (or to be incurred) by or on behalf of the Agent or the Lender

 

10.13.     Successors; Assigns .  This Agreement shall be binding upon the Borrower, the Lender and the Agent and their respective successors and assigns, and shall inure to the benefit of the Borrower, the Lender and the Agent and the successors and assigns of the Lender and the Agent.  No other Person shall be a direct or indirect legal beneficiary of, or have any direct or indirect cause of action or claim in connection with, this Agreement or any of the other Loan Documents.  The Borrower may not assign or transfer any of its rights or Obligations under this Agreement without the prior written consent of the Agent and the Lender.  With the prior written consent of the Borrower (not to be unreasonably withheld), the Lender may sell, transfer, or assign all (but not less than all) of its rights and obligations hereunder to any Person acceptable to the Lender pursuant to assignment documentation reasonably acceptable to Lender and such assignee.  The Agent (acting solely for this purpose as the agent of the Borrower) shall maintain a register for the recordation of the names and addresses of the Lender and its assignees, and the amounts of principal and interest owing to any of them hereunder from time to time (the “Register” ), in order to establish that the Borrower’s obligations hereunder are in registered form for purposes of Section 5f.103-1(c) of the United States Treasury Regulations. The entries in the Register shall be the only means of transfer hereunder and shall be conclusive absent manifest error, and the Borrower, Agent, the Lender and its assignees shall treat each person whose name is recorded in the Register pursuant to the terms hereof as a Lender hereunder for all purposes of this Agreement.  The Register shall be available for inspection by the Borrower and the Lender at any reasonable time and from time to time upon reasonable prior notice.

 

10.14.     Governing Law .  THIS AGREEMENT AND EACH NOTE SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).

 

10.15.     Forum Selection; Consent to Jurisdiction; Service of Process .  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.  EACH LOAN PARTY FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW

 

53



 

YORK.  EACH LOAN PARTY HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.

 

10.16.     Waiver of Jury Trial .  EACH LOAN PARTY, AGENT AND LENDER HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

10.17.     Collateral Agent .  Lender hereby appoints PDL BioPharma, Inc. as its collateral agent under the Security Agreement and agrees that in so acting PDL BioPharma, Inc. will have all the rights, protections, exculpations, indemnities and other benefits provided to PDL BioPharma, Inc. under Section 9 hereof, and authorizes and directs PDL BioPharma, Inc. to take or refrain from taking any and all action that it deems necessary or advisable in fulfilling its role as Collateral Agent under the Security Agreement.

 

[signature pages follow]

 

54



 

The parties hereto have caused this Agreement to be duly executed and delivered by their duly authorized officers as of the date first set forth above.

 

 

 

AVINGER, INC.

 

 

 

 

 

 

 

By:

 /s/ Matthew Ferguson

 

Name:

Matthew Ferguson

 

Title:

Co-President and Chief Financial Officer

 

[Credit Agreement — Signature Page]

 



 

 

PDL BIOPHARMA, INC.,

 

as the Agent and the Lender

 

 

 

 

 

 

 

By:

  /s/ John P. McLaughlin

 

Name:   John P. McLaughlin

 

Title:     President and Chief Executive Officer

 

[Credit Agreement — Signature Page]

 



 

ANNEX I

 

Addresses

 

LOAN PARTIES

 

Address for Notices:

 

Avinger, Inc.

400 Chesapeake Drive

Attn: Matt Ferguson, Co-President

Telephone: 650-241-7900

Facsimile: 650-241-7901

 

AGENT

 

PDL BioPharma, Inc.,

as the Agent and the Lender

 

Address for Notices:

932 Southwood Boulevard

Incline Village, NV 89451

Attention: General Counsel

Telephone: (775) 832-8500

Facsimile: (775) 832-8501

 

Bank:

Wells Fargo Bank, N.A.

San Francisco, CA 94136

 

Account #:

4040016214

 

ABA Routing #:

121000248

 

Swift Code:

WFBIUS6S

 

II-1



 

Exhibit A — Compliance Certificate

 

See attached.

 

A-1



 

EXHIBIT A

 

COMPLIANCE CERTIFICATE

 

Date:                 , 201  

 

This Compliance Certificate (this “ Certificate ”) is given by AVINGER, INC., a Delaware corporation (“ Borrower ”), pursuant to that certain Credit Agreement dated as of April 18, 2013 (the “ Credit Agreement ”; capitalized terms used and not defined herein shall have the meaning set forth in the Credit Agreement), between Borrower and PDL BIOPHARMA, INC., as Lender and Agent (“ Agent ”).

 

Pursuant to Section 6.1.4 of the Credit Agreement, the undersigned hereby certifies that he or she is the duly appointed, qualified, and acting chief financial officer of Borrower, and in such capacity, certifies on behalf of Borrower to Agent that:

 

1. The financial statements delivered with this Certificate fairly present, on a basis consistent with GAAP, the financial condition and the results of operations of Borrower and its Subsidiaries as of the dates of and for the periods covered by such financial statements as required by the Credit Agreement;

 

2. Such officer has reviewed the terms of the Credit Agreement and made, or caused to be made under such officer’s supervision, a review in reasonable detail of the transactions and conditions of Borrower and its Subsidiaries during the accounting period covered by such financial statements; and

 

3. Such review has not disclosed the existence during or at the end of such accounting period, and such officer has no knowledge of, the existence, as of the date hereof, of any condition or event that constitutes a Default or an Event of Default, except as set forth on Schedule 1 hereto1, which includes a description of the nature and period of existence of such Default or Event of Default and what action Borrower has taken, is undertaking and proposes to take with respect thereto.

 

IN WITNESS WHEREOF, Borrower has caused this Certificate to be executed as of the date first written above.

 

 

AVINGER, INC.

 

 

 

By:

 

 

Name:

 

Title: Chief Financial Officer

 

Schedule 1 should be prepared and attached if a Default or Event of Default has occurred.

 

A-1




Exhibit 10.10

 

EXECUTION VERSION

 

SECURITY AGREEMENT

 

DATED AS OF APRIL 18, 2013

 

BY

 

AVINGER, INC.
AS GRANTOR,

 

IN FAVOR OF

 

PDL BIOPHARMA, INC.,

 

AS COLLATERAL AGENT

 



 

TABLE OF CONTENTS

 

 

 

Page

 

 

 

Section 1. DEFINITIONS

1

 

 

 

1.01.

Definition of Terms Used Herein Generally

1

 

 

 

1.02.

Definition of Certain Terms Used Herein

1

 

 

 

1.03.

Rules of Interpretation

4

 

 

 

Section 2. GRANT OF SECURITY INTEREST

4

 

 

 

Section 3. AUTHORIZATION TO FILE FINANCING STATEMENTS

6

 

 

 

Section 4. RELATION TO INTELLECTUAL PROPERTY SECURITY AGREEMENTS

6

 

 

 

Section 5. Representations and Warranties

6

 

 

 

5.01.

Grantors’ Legal Status

6

 

 

 

5.02.

Grantors’ Legal Names

6

 

 

 

5.03.

Grantors’ Locations

7

 

 

 

5.04.

Representations in the Credit Agreement

7

 

 

 

5.05.

Title to Collateral

7

 

 

 

5.06.

Nature of Collateral

7

 

 

 

5.07.

Compliance with Laws

8

 

 

 

5.08.

Validity of Security Interest

8

 

 

 

5.09.

Perfection Certificate; Intellectual Property Filings

8

 

 

 

5.10.

Investment Property

8

 

 

 

5.11.

Reserved

8

 

 

 

5.12.

Accounts

8

 

 

 

5.13.

Equipment and Inventory

9

 

 

 

Section 6. COVENANTS

9

 

 

 

6.01.

Grantors’ Legal Status

9

 

 

 

6.02.

Grantors’ Names

9

 

 

 

6.03.

Grantors’ Organizational Numbers

9

 

 

 

6.04.

Locations

9

 

 

 

6.05.

Covenants in Credit Agreement

9

 

 

 

6.06.

Promissory Notes and Tangible Chattel Paper

9

 

 

 

6.07.

Deposit Accounts

10

 

 

 

6.08.

Investment Property

10

 

 

 

6.09.

Reserved

12

 

 

 

6.10.

Electronic Chattel Paper and Transferable Records

12

 



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

6.11.

Letter-of-Credit Rights

12

 

 

 

6.12.

Commercial Tort Claims

12

 

 

 

6.13.

Intellectual Property

13

 

 

 

6.14.

Maintenance of Collateral; Compliance with Laws

15

 

 

 

6.15.

Dispositions of Collateral

15

 

 

 

6.16.

Maintenance of Insurance

15

 

 

 

6.17.

Periodic Certification

15

 

 

 

6.18.

Other Actions as to any and all Collateral

16

 

 

 

6.19.

Treatment of Accounts

16

 

 

 

Section 7. INSPECTION AND VERIFICATION

16

 

 

 

Section 8. COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL

16

 

 

 

8.01.

Expenses Incurred by the Agent

16

 

 

 

8.02.

Agent’s Obligations and Duties

17

 

 

 

8.03.

Duties as to Pledged Securities

17

 

 

 

Section 9. SECURITIES AND DEPOSITS

18

 

 

 

Section 10. NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL

18

 

 

 

Section 11. POWER OF ATTORNEY

19

 

 

 

11.01.

Appointment and Powers of Agent

19

 

 

 

11.02.

Failure of Grantor to Perform

20

 

 

 

11.03.

Expenses of Attorney-in-Fact

21

 

 

 

11.04.

Ratification by Grantor

21

 

 

 

11.05.

No Duty on Agent

21

 

 

 

Section 12. REMEDIES

21

 

 

 

12.01.

Default

21

 

 

 

12.02.

Remedies Upon Default

21

 

 

 

12.03.

Grant of License to Use Intellectual Property

23

 

 

 

12.04.

Waivers by Grantors

23

 

 

 

12.05.

Application of Proceeds

23

 

 

 

12.06.

Surplus; Deficiency

24

 

 

 

12.07.

Information Related to the Collateral

24

 

 

 

12.08.

Sale Exempt from Registration

24

 

 

 

12.09.

Rights and Remedies Cumulative

25

 

ii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

 

12.10.

No Direct Enforcement by Secured Creditors

25

 

 

 

Section 13. STANDARDS FOR EXERCISING REMEDIES

25

 

 

 

13.01.

Commercially Reasonable Manner

25

 

 

 

13.02.

Standard of Care

26

 

 

 

Section 14. WAIVERS BY GRANTOR; OBLIGATIONS ABSOLUTE

26

 

 

 

14.01.

Specific Waivers

26

 

 

 

14.02.

Obligations Absolute

26

 

 

 

Section 15. MARSHALLING

26

 

 

 

Section 16. INTEREST

27

 

 

 

Section 17. REINSTATEMENT

27

 

 

 

Section 18. MISCELLANEOUS

27

 

 

 

18.01.

Notices

27

 

 

 

18.02.

GOVERNING LAW; CONSENT TO JURISDICTION; SERVICE OF PROCESS

27

 

 

 

18.03.

WAIVER OF JURY TRIAL, ETC.

28

 

 

 

18.04.

Counterparts

28

 

 

 

18.05.

Headings

28

 

 

 

18.06.

No Strict Construction

28

 

 

 

18.07.

Severability

28

 

 

 

18.08.

Survival of Agreement

28

 

 

 

18.09.

Fees and Expenses; Indemnification

28

 

 

 

18.10.

Binding Effect; Several Agreement

29

 

 

 

18.11.

Waivers; Amendment

29

 

 

 

18.12.

Set Off

29

 

 

 

18.13.

Integration

30

 

 

 

18.14.

Acknowledgments

30

 

 

 

18.15.

Additional Grantors

30

 

 

 

18.16.

Releases

30

 

 

 

18.17.

Intercompany Debt

31

 

iii



 

TABLE OF CONTENTS

(continued)

 

 

 

Page

 

 

EXHIBITS

 

 

 

 

A

Form of Copyright Security Agreement

 

B

Form of Patent Security Agreement

 

C

Form of Trademark Security Agreement

 

D

Form of Control Agreement in Respect of Uncertificated Securities

 

 

 

 

ANNEXES

 

 

 

 

I

Form of Joinder Agreement

 

 

iv



 

SECURITY AGREEMENT, dated as of April 18, 2013, by AVINGER, INC., a Delaware corporation (together with any other entity that may become a party hereto as a grantor as provided herein, each a “ Grantor ” and collectively, jointly and severally, the “ Grantors ”) in favor of PDL BIOPHARMA, INC., as Collateral Agent (in such capacity, the “ Agent ”) under the Credit Agreement, dated as of April 18, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Credit Agreement ”) among the Grantor, as borrower (in such capacity, the “ Borrower ”), and the Agent, as lender (in such capacity, the “ Lender ”) and agent.

 

W I T N E S S E T H:

 

WHEREAS, pursuant to the Credit Agreement, the Lender has agreed to make certain extensions of credit to the Borrower upon the terms and conditions set forth therein; and

 

WHEREAS, it is a condition precedent to the obligations of the Lender to make its extensions of credit to the Borrower under the Credit Agreement that the Grantors shall have executed and delivered this Agreement to the Agent;

 

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

 

Section 1.                                            DEFINITIONS.

 

1.01.                      Definition of Terms Used Herein Generally .  Except as otherwise provided herein, all capitalized terms used herein (including in the preamble hereto) but not defined herein shall have the meanings set forth in the Credit Agreement.  Except as specifically provided herein, all terms used herein and defined in the NYUCC shall have the same definitions herein as specified therein as of the date hereof; provided , however , that if a term is defined in Article 9 of the NYUCC differently than in another Article of the NYUCC, the term has the meaning specified in Article 9 of the NYUCC as of the date hereof.

 

1.02.                      Definition of Certain Terms Used Herein .  As used herein, the following terms shall have the following meanings:

 

Additional Grantor ” has the meaning set forth in Annex I hereto.

 

After-Acquired Intellectual Property ”: as defined in Section 6.13(d) .

 

Agent ”: as defined in the preamble.

 

Agreement ”: this Security Agreement, as the same may be amended, supplemented, replaced or otherwise modified from time to time.

 

Bankruptcy Code ”: the Internal Revenue Code of 1986, as amended.

 

Borrower ”: as defined in the preamble.

 

Collateral ”: as defined in Section 2 .

 



 

Copyright Office ”: the United States Copyright Office.

 

Copyright Security Agreement ”: a supplement to this Agreement, executed by one or more Grantors in favor of the Agent, substantially in the form of Exhibit A hereto.

 

Credit Agreement ”: as defined in the preamble.

 

Event ”: as defined in Section 8.03.

 

General Intangibles ”: all “general intangibles” as such term is defined in Section 9-102(42) of the NYUCC as in effect on the date hereof and, in any event, including, without limitation, with respect to any Grantor, all contracts, agreements, instruments and indentures and all licenses and permits issued by Governmental Authorities in any form, and portions thereof, to which such Grantor is a party or under which such Grantor has any right, title or interest or to which such Grantor or any property of such Grantor is subject, as the same may from time to time be amended, supplemented, replaced or otherwise modified, including, without limitation, (i) all rights of such Grantor to receive moneys due and to become due to it thereunder or in connection therewith; (ii) all rights of such Grantor to receive proceeds of any insurance, indemnity, warranty or guaranty with respect thereto; (iii) all rights of such Grantor to damages arising thereunder; (iv) all rights of such Grantor to receive any tax refunds; and (v) all rights of such Grantor to terminate and to perform, to compel performance and to exercise all remedies thereunder.

 

Grantor ”: as defined in the preamble.

 

Intellectual Property Security Agreement ”: each of a Copyright Security Agreement, a Patent Security Agreement and a Trademark Security Agreement.

 

Intercompany Debt ”: as defined in Section 18.17 .

 

Investment Property ”: the collective reference to (i) all “investment property” as such term is defined in Section 9-102(48) of the NYUCC on the date hereof including, without limitation, all certificated securities and uncertificated securities, all security entitlements, all securities accounts, all commodity contracts and all commodity accounts; (ii) security entitlements, in the case of any United States Treasury book-entry securities, as defined in 31 C.F.R. § 357.2, or, in the case of any United States federal agency book-entry securities, as defined in the corresponding United States federal regulations governing such book-entry securities; and (iii) whether or not constituting “investment property” as so defined, all Pledged Notes, all Pledged Stock, all Pledged Security Entitlements and all Pledged Commodity Contracts.

 

Issuers ”: the collective reference to each issuer of a Pledged Security.

 

Joinder Agreement ”: each agreement, in the form of Annex I hereto, executed and delivered by each Person that shall become an Additional Grantor hereunder.

 

Lease ”: any lease of personal property under which any Grantor is the lessee.

 

NYUCC ”: the Uniform Commercial Code as in effect in the State of New York from time to time.

 

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Patent Security Agreement ”: a supplement to this Agreement, executed by one or more Grantors in favor of Agent, substantially in the form of Exhibit B hereto.

 

Perfection Certificate ”: shall mean that certain Perfection Certificate dated as of the date hereof executed by the Borrower in favor of the Agent, as updated by the Borrower or any other Grantor from time to time after the Closing Date, and as supplemented from time to time with Annex I-A to each Joinder Agreement executed and delivered to the Agent by each Person that shall become an Additional Grantor hereunder.

 

Perfection Supplement ”: shall have the meaning assigned to such term in Section 6.17 .

 

Person ”: any natural person, corporation, limited liability company, trust, joint venture, association, company, partnership, Governmental Authority or other entity.

 

Pledged Commodity Contracts ”: all commodity contracts to which any Grantor is party from time to time.

 

Pledged Debt Securities ”: the debt securities listed in Schedule 8 of the Perfection Certificate, together with any other certificates, options, rights or security entitlements of any nature whatsoever in respect of the debt securities of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect.

 

Pledged Notes ”: all promissory notes listed in Schedule 8 of the Perfection Certificate, all intercompany notes at any time issued to any Grantor and all other promissory notes issued to or held by any Grantor.

 

Pledged Securities ”: the collective reference to the Pledged Debt Securities, the Pledged Notes and the Pledged Stock.

 

Pledged Stock ”: the shares of capital stock or other equity interests owned at any time or from time to time by any Grantor, including, without limitation, in the case of the Borrower, all shares of capital stock, or membership interests, as applicable, in all Grantors that are Subsidiaries of the Borrower, together with any other shares, stock certificates, options, rights or security entitlements of any nature whatsoever in respect of the capital stock or other equity interests of any Person that may be issued or granted to, or held by, any Grantor while this Agreement is in effect; provided that “Pledged Stock” shall not include more than 65% of the total outstanding voting stock of any Subsidiary that is a CFC.

 

Proceeds ”: all “proceeds” as such term is defined in Section 9-102(64) of the NYUCC in effect on the date hereof and, in any event, shall include, without limitation, all dividends or other income from the Pledged Securities, collections thereon or distributions or payments with respect thereto.

 

Property ”: any right or interest in or to property of any kind whatsoever, whether real, personal or mixed and whether tangible or intangible, including capital stock or other equity interests.

 

PTO ”: the United States Patent and Trademark Office.

 

Receivable ”: any right to payment on account of any obligation that could create any right to receive money, whether or not such right is evidenced by an instrument or chattel paper and whether or not it has been earned by performance (including, without limitation, any account or payment intangible).

 

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Secured Creditors ”: the Agent, in both its capacities as administrative agent under the Credit Agreement and collateral agent under the Collateral Documents, and the Lender under the Credit Agreement, and each of their successors and assigns.

 

Securities Act ”: the Securities Act of 1933, as amended.

 

Security Documents ”: this Agreement (as supplemented from time to time by any Joinder Agreement), any Subsidiary Guaranty, the Intellectual Property Security Agreements, all deposit account control agreements and similar agreements, all landlord waivers, bailee letters and similar documents and all other pledge or security agreements, assignments or other similar agreements or instruments executed and delivered by any Grantor pursuant to Section 6.7 or Section 6.8 of the Credit Agreement or otherwise in connection with the transactions contemplated thereby, in each case as amended, modified, restated or supplemented from time to time.

 

Security Interest ”: the security interest granted pursuant to Section 2 , as well as all other security interests created or assigned as additional security for the Obligations pursuant to the provisions of this Agreement.

 

Trademark Security Agreement ”: a supplement to this Agreement, executed by the Grantor in favor of Agent, substantially in the form of Exhibit C hereto.

 

UCC ”: the Uniform Commercial Code as in effect in any jurisdiction (except as otherwise contemplated in Section 6.18 ).  References to particular sections of Article 9 of the UCC shall be, unless otherwise indicated, references to revised Article 9 of the UCC adopted and effective in certain jurisdictions on or after July 1, 2001.

 

1.03.                      Rules of Interpretation .  The rules of interpretation specified in Section 1.2 of Credit Agreement shall be applicable to this Agreement.  References to “Sections,” “Exhibits” and “Schedules” shall be to Sections, Exhibits and Schedules, respectively, of this Agreement unless otherwise specifically provided.  Any of the terms defined in this Section 1 may, unless the context otherwise requires, be used in the singular or the plural depending on the reference.  All references to statutes and related regulations shall include (unless otherwise specifically provided herein) any amendments of same and any successor statutes and regulations.

 

Section 2.                                            GRANT OF SECURITY INTEREST.

 

Each Grantor hereby grants to the Agent, for the ratable benefit of the Secured Creditors, a security interest in all of the following property now owned or at any time hereafter acquired by such Grantor or in which such Grantor now has, or at any time in the future may acquire, any right, title or interest (collectively, the “ Collateral ”), as collateral security for the prompt and complete payment and performance when due (whether at the stated maturity, by acceleration or otherwise) of the Obligations:

 

a.                                       all Accounts;

 

b.                                       all Chattel Paper, including tangible chattel paper and electronic chattel paper;

 

c.                                        all Goods;

 

d.                                       all Documents;

 

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e.                                        all Equipment;

 

f.                                         all Fixtures;

 

g.                                        all General Intangibles, including all Payment Intangibles;

 

h.                                       all Instruments;

 

i.                                           all Intellectual Property;

 

j.                                          all Inventory;

 

k.                                       all Investment Property;

 

l.                                           all Leases;

 

m.                                   all Letter-of-Credit Rights;

 

n.                                       all money;

 

o.                                       all Supporting Obligations;

 

p.                                       all tort claims, including Commercial Tort Claims;

 

q.                                       all Deposit Accounts, all claims now or hereafter arising therefrom, all funds now or hereafter held therein, all amounts now or hereafter credited thereto and all certificates and instruments, if any, from time to time representing or evidencing such bank accounts;

 

r.                                          all other property not otherwise described above;

 

s.                                         all books and records pertaining to the Collateral; and

 

t.                                          to the extent not otherwise included, all Proceeds and products of any and all of the foregoing and all collateral security and guarantees given by any Person with respect to any of the foregoing.

 

Notwithstanding anything herein to the contrary, in no event shall the Collateral include or the security interest granted under this Section 2.1 (A) attach to any lease, license, contract, property rights or agreement to which any Grantor is a party or any of its rights or interests thereunder if and for so long as the grant of such security interest shall constitute or result in (i) the abandonment, invalidation or unenforceability of any right, title or interest of any Grantor therein or (ii) a breach or termination pursuant to the terms of, or a default under, any such lease, license, contract, property rights or agreement (other than to the extent that any such term would be rendered ineffective pursuant to Sections 9-406, 9-407, 9-408 or 9-409 of the UCC (or any successor provision or provisions) of any relevant jurisdiction or any other Applicable Law (including the Bankruptcy Code) or principles of equity), provided however that the Collateral shall include and such security interest shall attach immediately at such time as the condition causing such abandonment, invalidation or unenforceability shall be remedied and to the extent severable, shall attach immediately to any portion of such lease, license, contract, property rights or agreement that does not result in any of the consequences specified in clause (i) or (ii) above, (B) more

 

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than 65% of the total outstanding voting stock of any Subsidiary that is a CFC, (C) any trademark applications filed in the United States Patent and Trademark Office on the basis of such Grantor’s “intent-to-use” such trademark to the extent that granting a security interest in such trademark application prior to such filing would result in the unenforceability, invalidation or voiding of such trademark application, unless and until acceptable evidence of use of the trademark has been filed with and accepted by the United States Patent and Trademark Office pursuant to Section 1(c) or Section 1(d) of the Lanham Act (15 U.S.C. 1051, et seq.), whereupon such trademark application will be deemed automatically included in the Collateral or (D) any equipment financed by a third party and subject to a lien permitted by Section 7.2(c) or 7.2(d) of the Credit Agreement to the extent that the security interest is prohibited by the terms of the agreement governing such financing.

 

Section 3.                                            AUTHORIZATION TO FILE FINANCING STATEMENTS.  Each Grantor hereby irrevocably authorizes the Agent at any time and from time to time to file in any applicable jurisdiction in which the UCC has been adopted any initial financing statements and amendments thereto that (a) indicate the Collateral (i) as “all assets” of such Grantor or words of similar effect, regardless of whether any particular asset comprised in the Collateral falls within the scope of Article 9 of the NYUCC or such jurisdiction, or (ii) as being of an equal or lesser scope or with greater detail, and (b) contain any other information required by part 5 of Article 9 of the UCC for the sufficiency or filing office acceptance of any initial financing statement or amendment, including whether such Grantor is an organization, the type of organization and any organization identification number issued to such Grantor.  Each Grantor agrees to furnish any such information to the Agent promptly upon request.  Each Grantor also ratifies its authorization for the Agent to have filed in any UCC jurisdiction any like initial financing statements or amendments thereto if filed prior to the date hereof.

 

Section 4.                                            RELATION TO INTELLECTUAL PROPERTY SECURITY AGREEMENTS.  Concurrently herewith the Grantor is executing and delivering to the Agent for recording in the PTO the Patent Security Agreement and the Trademark Security Agreement.  As of the Closing Date the Grantors hold no Copyrights or applications in respect thereof that are registered with the Copyright Office.  The provisions of any current or any future Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement are supplemental to the provisions of this Agreement.  Nothing contained in any current or future Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement shall derogate from any of the rights or remedies of any Secured Creditor hereunder, nor shall anything contained in any such current or future Patent Security Agreement, Trademark Security Agreement or Copyright Security Agreement be deemed to prevent or extend the time of attachment or perfection of any Security Interest in such Collateral created hereby.

 

Section 5.                                            Representations and Warranties .  To induce the Agent and the Lender to enter into the Credit Agreement and to induce the Lender to make its extensions of credit to the Borrower thereunder, each Grantor hereby represents and warrants to the Secured Creditors that:

 

5.01.                      Grantors’ Legal Status .  (a) Such Grantor is an organization as set forth in the Perfection Certificate; (b) such organization is of the type, and is organized in the jurisdiction, set forth in the Perfection Certificate; and (c) the Perfection Certificate sets forth such Grantor’s correct organizational identification number or accurately states that such Grantor has none.

 

5.02.                      Grantors’ Legal Names .  Such Grantor’s exact legal name is that set forth in the Perfection Certificate and on the signature page hereof.

 

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5.03.                      Grantors’ Locations .  The Perfection Certificate sets forth such Grantor’s place of business or (if it has more than one place of business) its chief executive office, as well as its mailing address if different.  Such Grantor’s place of business or (if it has more than one place of business) its chief executive office is located in a jurisdiction that has adopted the UCC or whose laws generally require that information concerning the existence of nonpossessory security interests be made generally available in a filing, recording or registration system as a condition or result of the security interest obtaining priority over the rights of a lien creditor with respect to the Collateral.

 

5.04.                      Representations in the Credit Agreement .  The representations and warranties set forth in Section 5 of the Credit Agreement and as otherwise made by such Grantor in each other Loan Document to which such Grantor is a party, each of which is hereby incorporated herein by reference, are true and correct in all material respects, and the Secured Creditors shall be entitled to rely on each of them as if they were fully set forth herein.

 

5.05.                      Title to Collateral .  The Collateral of such Grantor is owned by such Grantor free and clear of any Lien, except for Liens expressly permitted pursuant to the Credit Agreement.  Such Grantor has not filed or consented to the filing of (a) any financing statement or analogous document under the UCC or any other Applicable Laws covering any of its Collateral, (b) any assignment in which such Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with the PTO or the Copyright Office or (c) any assignment in which such Grantor assigns any Collateral or any security agreement or similar instrument covering any Collateral with any foreign governmental, municipal or other office, which financing statement or analogous document, assignment, security agreement or similar instrument is still in effect, except, in each case, with respect to Liens expressly permitted pursuant to the Credit Agreement.

 

5.06.                      Nature of Collateral .  None of the Collateral of such Grantor constitutes, or is the proceeds of, farm products and none of the Collateral has been purchased or will be used by such Grantor primarily for personal, family or household purposes, and as of the Closing Date, except as indicated in the Perfection Certificate and as of any date of any Perfection Supplement, except as indicated in such Perfection Supplement or in the Perfection Certificate:

 

(a)                                  none of the account debtors or other persons obligated on any of the Collateral of such Grantor is a Governmental Authority subject to the Federal Assignment of Claims Act or like federal, state or local statute or rule in respect of such Collateral;

 

(b)                                  such Grantor holds no commercial tort claims that it has asserted against any other Person;

 

(c)                                   such Grantor has no deposit accounts or other bank accounts;

 

(d)                                  such Grantor owns no motor vehicles;

 

(e)                                   such Grantor has no securities accounts or securities entitlements or commodities accounts or commodities contracts;

 

(f)                                    such Grantor holds no interest in, title to or power to transfer, any registered Patents, registered Trademarks, registered Copyrights or material inbound licenses (other than off-the-shelf software and open source technology).

 

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5.07.                      Compliance with Laws .  Such Grantor has at all times operated its business in compliance with all applicable federal, state and local laws and regulations, except as could not reasonably be expected to have a Material Adverse Effect.

 

5.08.                      Validity of Security Interest .  (a) The Security Interest granted by each Grantor constitutes, to the extent possible under Applicable Law, a legal and valid security interest in all of the Collateral of such Grantor securing the payment and performance of the Obligations and (b) upon the filing of financing statements describing the Collateral in the offices listed on the Perfection Certificate, the recording in the PTO of the Patent Security Agreement and Trademark Security Agreement, and the taking of all applicable actions in respect of perfection contemplated by Sections 6.06, 6.07, 6.08, 6.10, 6.11 and 6.12 in respect of Collateral, the Security Interest will be valid, enforceable and perfected in all Collateral of such Grantor.  The Security Interest is and shall be prior to any other Lien on the Collateral, other than Liens expressly permitted to be prior to the Security Interest under the Credit Agreement.

 

5.09.                      Perfection Certificate; Intellectual Property Filings .

 

(a)                                  All information set forth on the Perfection Certificate is, and all information set forth on each Perfection Supplement shall be, true, accurate and complete.

 

(b)                                  As of the Closing Date, a fully executed Patent Security Agreement and Trademark Security Agreement containing a description of all Collateral of such Grantor consisting of United States Patents and United States registered Trademarks (and Patents and Trademarks for which United States registration applications are pending) have been delivered to the Agent for recording by the PTO.(1)

 

5.10.                      Investment Property .

 

(a)                                  The shares of Pledged Stock pledged by such Grantor hereunder, if any, constitute all of the issued and outstanding shares of all classes of the capital stock or other equity interests of each Issuer owned by such Grantor, except as otherwise indicated in Schedule 7(b) of the Perfection Certificate.

 

(b)                                  All the shares of the Pledged Stock pledged by such Grantor have been duly and validly issued, and are fully paid and non-assessable.

 

(c)                                   Such Grantor is the record and beneficial owner of, and has good and marketable title to, the Pledged Securities pledged by it hereunder, free of any and all Liens or options in favor of, or claims of, any other Person, except the Security Interest created by this Agreement and the other Liens (other than Permitted Liens) created in favor of the Agent by the Security Documents.

 

5.11.                      Reserved .

 

5.12.                      Accounts .  (i) Each account of such Grantor is genuine and in all material respects what they purport to be, (ii) each account arises out of (A) a bona fide sale of goods sold and delivered by such Grantor (or is in the process of being delivered) or (B) services theretofore actually rendered or to be rendered by such Grantor to the account debtor named therein, and (iii) no surety bond

 


(1)  Borrower to confirm no Copyright Security Agreement needed at closing.

 

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was required or given in connection with any account of such Grantor or the contracts or purchase orders out of which they arose and the right to receive payment under each account is assignable.

 

5.13.                      Equipment and Inventory .  With respect to any material equipment and/or material inventory of such Grantor, each such Grantor has exclusive possession and control of such equipment and inventory of such Grantor except for (i) equipment leased by such Grantor as a lessor permitted by Section 7.1(b)  of the Credit Agreement, (ii) equipment or inventory in transit with common or other carriers or (iii) as otherwise permitted by the Credit Agreement.  No material inventory is held by such Grantor pursuant to consignment, sale or return, sale on approval or similar arrangement.

 

Section 6.                                            COVENANTS.  Until such time as the Collateral is released pursuant to Section 18.16 hereof, each Grantor covenants and agrees with the Agent, in each case at such Grantor’s own cost and expense, as follows.

 

6.01.                      Grantors’ Legal Status .  Such Grantor shall not change its type of organization, jurisdiction of organization or other legal structure except upon not less than twenty (20) days’ prior written notice to the Agent.

 

6.02.                      Grantors’ Names .  Such Grantor shall not change its name except upon not less than twenty (20) days’ prior written notice to the Agent.

 

6.03.                      Grantors’ Organizational Numbers .  Without providing at least twenty (20) days’ prior written notice to the Agent, such Grantor shall not change its organizational identification number if it has one.  If such Grantor does not have an organizational identification number and later obtains one, such Grantor shall forthwith notify the Agent of such organizational identification number promptly upon obtaining such identification number.

 

6.04.                      Locations .  Without providing at least twenty (20) days’ prior written notice to the Agent, such Grantor shall not change its place of business or (if it has more than one place of business) its chief executive office and shall promptly notify the Agent of any new location of Collateral owned by the Borrower or a Subsidiary thereof that is not set forth on a Perfection Certificate or Perfection Supplement.

 

6.05.                      Covenants in Credit Agreement .  Each Grantor shall take, or shall refrain from taking, as the case may be, each action that is necessary to be taken or not taken, as the case may be, so that no Default or Event of Default is caused by the failure to take such action or to refrain from taking such action by such Grantor or any of its Subsidiaries under the Credit Agreement.

 

6.06.                      Promissory Notes and Tangible Chattel Paper .  If such Grantor, together with the other Grantors, shall at any time hold or acquire any promissory notes with a face value in excess of $500,000 in the aggregate, such Grantor shall forthwith endorse, assign and deliver the same to the Agent, accompanied by such instruments of transfer or assignment duly executed in blank as the Agent may from time to time specify to be held by the Agent as Collateral pursuant to this Agreement.  Upon the request of the Agent, each Grantor shall promptly endorse, assign and deliver to the Agent any tangible chattel paper (or any other instrument (other than checks received in the ordinary course of business) evidencing any account of such Grantor) held by such Grantor, accompanied by such instruments of transfer or assignment duly executed in blank as the Agent may from time to time specify to be held by the Agent as Collateral pursuant to this Agreement.

 

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6.07.                      Deposit Accounts .  For each deposit account that such Grantor at any time opens or maintains, such Grantor shall comply with the provisions of Section 7.12 of the Credit Agreement.

 

6.08.                      Investment Property .

 

(a)                                  If any of the Collateral shall be or become evidenced or represented by an uncertificated security, such Grantor shall cause the Issuer thereof either (i) to register the Agent as the registered owner of such uncertificated security, upon original issue or registration of transfer or (ii) to agree in writing with such Grantor and the Agent that such Issuer will comply with instructions with respect to such uncertificated security originated by the Agent without further consent of such Grantor, such agreement to be in substantially the form of Exhibit D or such other form as the Agent shall approve.

 

(b)                                  If any of the Collateral shall be or become evidenced or represented by a security entitlement, such Grantor shall cause the securities intermediary with respect to such security entitlement either (i) to identify in its records the Agent as having such security entitlement against such securities intermediary or (ii) to agree in writing with such Grantor and the Agent that such securities intermediary will comply with entitlement orders originated by the Agent without further consent of such Grantor, such agreement to be in such form as the Agent shall approve.

 

(c)                                   If any of the Collateral shall be or become evidenced or represented by a commodity contract, such Grantor shall cause the commodity intermediary with respect to such commodity contract to agree in writing with such Grantor and the Agent that such commodity intermediary will apply any value distributed on account of such commodity contract as directed by the Agent without further consent of such Grantor, such agreement to be in such form as the Agent shall approve.

 

(d)                                  If any of the Collateral shall be or become evidenced or represented by or held in a securities account or a commodity account, such Grantor shall, in the case of a securities account, comply with clause (b) of this Section 6.08 with respect to all security entitlements carried in such securities account and, in the case of a commodity account, comply with clause (c) of this Section 6.08 with respect to all commodity contracts carried in such commodity account.

 

(e)                                   If such Grantor shall receive any stock or other ownership certificate (including, without limitation, any certificate representing a stock dividend or a distribution in connection with any reclassification, increase or reduction of capital or any certificate issued in connection with any reorganization), option or rights in respect of the capital stock or other equity interests of any Issuer, whether in addition to, in substitution of, as a conversion of, or in exchange for, any shares of or other ownership interests in the Pledged Stock, or otherwise in respect thereof, such Grantor shall accept the same as the agent of the Secured Creditors, hold the same in trust for the Secured Creditors and deliver the same forthwith to the Agent in the exact form received, duly endorsed by such Grantor to the Agent, if required, together with an undated stock power covering such certificate duly executed in blank by such Grantor and with, if the Agent so requests, signature guaranteed, to be held by the Agent, subject to the terms hereof, as additional collateral security for the Obligations.

 

(f)                                    Subject to Section 6.08(h)  hereof, such Grantor shall be entitled:

 

(i)                                      to exercise, as it shall think fit, but in a manner not inconsistent with the terms hereof and of the Credit Agreement, the voting power with respect to the Pledged Stock of such Grantor, and for that purpose the Agent shall (if any Pledged Stock shall be registered in the name of

 

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the Agent or its nominee) execute or cause to be executed from time to time, at the expense of such Grantor, such proxies or other instruments in favor of such Grantor or its nominee, in such form and for such purposes as shall be reasonably required by such Grantor and shall be specified in a written request therefor, to enable it to exercise such voting power with respect to the Pledged Stock; and

 

(ii)                                   except as otherwise provided in paragraphs (g) and (h) of this Section 6.08 , to receive and retain for its own account any and all payments made in respect of the Pledged Securities to the extent such are permitted pursuant to the terms of the Credit Agreement.

 

(g)                                   Any sums paid upon or in respect of the Pledged Securities upon the liquidation or dissolution of any Issuer shall be paid over to the Agent to be held by it hereunder as additional collateral security for the Obligations, and in case any distribution of capital shall be made on or in respect of the Pledged Securities or any property shall be distributed upon or with respect to the Pledged Securities pursuant to the recapitalization or reclassification of the capital of any Issuer or pursuant to the reorganization thereof, the property so distributed shall, unless otherwise subject to a perfected security interest in favor of the Agent, be delivered to the Agent to be held by it hereunder as additional collateral security for the Obligations.  If any sums of money or property so paid or distributed in respect of the Pledged Securities shall be received by such Grantor, such Grantor shall, until such money or property is paid or delivered to the Agent, hold such money or property in trust for the Secured Creditors, segregated from other funds of such Grantor, as additional collateral security for the Obligations.

 

(h)                                  Upon the occurrence and during the continuance of any Event of Default, all rights of such Grantor to exercise or refrain from exercising the voting and other consensual rights that it would otherwise be entitled to exercise pursuant to Section 6.08(f)(i)  hereof and to receive the payments pursuant to Section 6.08(f)(ii)  hereof shall cease, and thereupon the Agent shall be entitled to exercise all voting power with respect to the Pledged Securities and to receive and retain, as additional collateral hereunder, any and all such payments any time declared or paid upon any of the Pledged Securities during such an Event of Default and otherwise to act with respect to the Pledged Securities as outright owner thereof.

 

(i)                                      At any time and from time to time during the continuance of an Event of Default, subject to Applicable Law, the Agent may cause all or any of the Pledged Securities to be transferred to or registered in its name or the name of its nominee or nominees.

 

(j)                                     Without the prior written consent of the Agent, such Grantor will not (i) sell, assign, transfer, exchange, or otherwise dispose of, or grant any option with respect to, any of the Investment Property or Proceeds thereof or any interest therein (except pursuant to a transaction not prohibited by the Credit Agreement); (ii) create, incur or permit to exist any Lien or option in favor of, or any claim of any Person with respect to, any of the Investment Property or Proceeds thereof, or any interest therein, except for the Security Interests created by this Agreement and except for Permitted Liens; or (iii) enter into any agreement or undertaking expressly restricting the foreclosure of the Agent’s Security Interest in any of the Investment Property or Proceeds thereof or any interest therein.

 

(k)                                  In the case of each Grantor which is an Issuer, such Issuer agrees that (i) it will be bound by the terms of this Agreement relating to the Pledged Securities issued by it and will comply with such terms insofar as such terms are applicable to it, (ii) it will notify the Agent promptly in writing of the occurrence of any of the events described in Section 6.08(e)  or Section 6.08(g)  with respect to the Pledged Securities issued by it, and (iii) the terms of Section 12.04(c)  shall apply to it, mutatis

 

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mutandis, with respect to all actions that may be required of it with respect to the Pledged Securities issued by it.  Each Grantor which is an Issuer consents to the grant of a Security Interest in capital stock or other equity interests of such Issuer and the exercise of rights by the Agent in respect of such capital stock or other equity interests, including (to the extent permitted hereunder) the foreclosure thereon, and the Agent, its nominee or transferee becoming a partner or member of any such Issuer that is a partnership or limited liability company.

 

(l)                                      If the organizational documents of any Issuer of Pledged Securities restrict the transfer of such Pledged Securities, each such Issuer shall deliver to the Agent all consents required to authorize the transfer of such Pledged Securities to the Agent or its nominee, or to a third-party transferee upon the exercise by the Agent of it rights and remedies hereunder.

 

6.09.                      Reserved .

 

6.10.                      Electronic Chattel Paper and Transferable Records .  If such Grantor shall at any time hold or acquire interests in any electronic chattel paper or any “transferable record,” as that term is defined in Section 201 of the federal Electronic Signatures in Global and National Commerce Act or in Section 16 of the Uniform Electronic Transactions Act as in effect in any relevant jurisdiction, such Grantor shall promptly notify the Agent thereof and, at the request of the Agent, shall take such action as the Agent may reasonably request to vest in the Agent control, under Section 9-105 of the UCC, of such electronic chattel paper or control under Section 201 of the federal Electronic Signatures in Global and National Commerce Act or, as the case may be, Section 16 of the Uniform Electronic Transactions Act, as so in effect in such jurisdiction, of such transferable record.  The Agent agrees with such Grantor that the Agent shall arrange, pursuant to procedures reasonably satisfactory to the Agent and so long as such procedures will not result in the Agent’s loss of control, for such Grantor to make alterations to the electronic chattel paper or transferable record permitted under Section 9-105 of the UCC or, as the case may be, Section 201 of the federal Electronic Signatures in Global and National Commerce Act or Section 16 of the Uniform Electronic Transactions Act, unless an Event of Default has occurred and is continuing or would occur after taking into account any action by such Grantor with respect to such electronic chattel paper or transferable record.

 

6.11.                      Letter-of-Credit Rights .  If such Grantor shall at any time be beneficiaries under one or more letters of credit, such Grantor shall promptly notify the Agent thereof and, at the request and option of the Agent, such Grantor shall either (a) arrange, for the issuer and any nominated person with respect to such letter of credit to consent, pursuant to an agreement or other authenticated record with and in such form and in substance satisfactory to the Agent, to an assignment to the Agent of the proceeds of any drawing under the letter of credit or (b) arrange for the Agent to become the transferee beneficiary of the letter of credit.

 

6.12.                      Commercial Tort Claims .  If such Grantor shall at any time hold or acquire a commercial tort claim that it has asserted against any other Person, such Grantor shall immediately notify the Agent in a writing signed by such Grantor of the brief details thereof and grant to the Agent for the benefit of the Secured Creditors in such writing a security interest therein and in the proceeds thereof, all upon the terms of this Agreement, with such writing to be in form and substance reasonably satisfactory to the Agent.

 

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6.13.                      Intellectual Property .

 

(a)                                  Except in any respect that would not materially impair the right, power, authority and ability of any Grantor to use its intellectual property (taken as a whole) as necessary or convenient for the profitable conduct of their businesses and would not reasonably be expected to have a Material Adverse Effect:

 

(i)                                      Such Grantor (either itself or through licensees) will continue to use each material Trademark on each and every trademark class of goods in the ordinary course of business in order to maintain such Trademark in full force free from any claim of abandonment for non-use in any class of goods for which registration was obtained, maintain in the ordinary course of business the quality of products and services offered under such Trademark and take all necessary steps to ensure that all licensed users of such Trademark maintain as in the past such quality, (C) use such Trademark with the appropriate notice of registration and all other notices and legends required by applicable Requirements of Law, (D) not adopt or use any mark which is confusingly similar or a colorable imitation of such Trademark unless the Agent, for the ratable benefit of the Secured Creditors, shall obtain a perfected security interest in such mark pursuant to this Agreement and the Intellectual Property Security Agreement, and (E) not (and not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby such Trademark may become invalidated or impaired in any way.

 

(ii)                                   Such Grantor (either itself or through licensees) will not do any act, or omit to do any act, whereby any material Patent may become forfeited, abandoned or dedicated to the public.

 

(iii)                                Such Grantor (either itself or through licensees) (A) will employ each material Copyright and (B) will not (and will not permit any licensee or sublicensee thereof to) do any act or knowingly omit to do any act whereby any material portion of the Copyrights may become invalidated or otherwise impaired.  Such Grantor will not (either itself or through licensees) do any act whereby any material portion of the Copyrights may fall into the public domain.

 

(iv)                               Such Grantor (either itself or through licensees) will not do any act that knowingly uses any material Intellectual Property to infringe the intellectual property rights of any other Person.

 

(v)                                  Such Grantor (either itself or through licensees) will use proper statutory notice in connection with the use of each material Patent, Trademark and Copyright included in the Intellectual Property.

 

(vi)                               Such Grantor will take all reasonable and necessary steps, including, without limitation, in any proceeding before the PTO, the Copyright Office or any similar office or agency in any other country or any political subdivision thereof, to maintain and pursue each application (and to obtain the relevant registration) and to maintain each registration of material Intellectual Property, including, without limitation, the payment of required fees and taxes, the filing of responses to office actions issued by the PTO and the Copyright Office, the filing of applications for renewal or extension, the filing of affidavits of use and affidavits of incontestability, the filing of divisional, continuation, continuation-in-part, reissue, and renewal applications or extensions, the payment of maintenance fees, and the participation in interference, reexamination, opposition, cancellation, infringement and misappropriation proceedings.

 

(vii)                            Such Grantor (either itself or through licensees) will not, without the prior written consent of the Agent, discontinue use of or otherwise abandon any Intellectual Property

 

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or abandon any right to file an application for letters patent, trademark, or copyright, unless such Grantor shall have previously determined that such use or the pursuit or maintenance of such Intellectual Property is no longer desirable in the conduct of such Grantor’s business and that the loss thereof could not reasonably be expected to have a Material Adverse Effect.

 

(viii)                         In the event that any material Intellectual Property is infringed, misappropriated or diluted by a third party, such Grantor shall (A) take such actions as such Grantor shall reasonably deem appropriate under the circumstances to protect such Intellectual Property and (B) if such infringement, misappropriation or dilution has or would reasonably be expected to have a material negative effect on revenue, promptly notify the Agent after it learns thereof and sue for infringement, misappropriation or dilution, seek injunctive relief where appropriate and recover any and all damages for such infringement, misappropriation or dilution.

 

(ix)                               Such Grantor will do all things that are necessary and proper within such Grantor’s power and control to keep each license of Intellectual Property held by such Grantor as licensee or licensor in full force and effect except to the extent that (A) such Grantor has reasonably determined that the failure to keep any such license in full force and effect could not be reasonably expected to have a Material Adverse Effect or (B) any such license would expire by its terms or is terminable at will by a Person other than Grantor.

 

(x)                                  Such Grantor shall not sell, transfer, dispose of, convey or license any of its Intellectual Property other than as permitted by Section 7.4(b)  and (c)  of the Credit Agreement.

 

(xi)                               Such Grantor shall maintain all of its rights to its domain names in full force and effect, other than any, the loss of which could not reasonably be expected to result in a Material Adverse Effect.

 

(b)                                  Such Grantor will notify the Agent immediately if it knows, or has could reasonably be expected to be forfeited, abandoned or dedicated to the public, or of any adverse determination or development (including, without limitation, the institution of, or any such determination or development in, any proceeding in the PTO, the Copyright Office or any court or tribunal in any country) regarding such Grantor’s ownership of, or the validity of, any material Intellectual Property or such Grantor’s right to register the same or to own and maintain the same or (ii) of any, or any claim by any Person of, any default or event of default, or of the termination of any rights, in each case under any material contract or agreement with respect to Intellectual Property, including any IP License, to which such Grantor is a party.

 

(c)                                   Whenever such Grantor, either by itself or through any agent, employee, licensee or designee, shall file an application for the registration of any Intellectual Property with the PTO, the Copyright Office or any similar office or agency in any other country or any political subdivision thereof, such Grantor shall report such filing to the Agent within five Business Days after the last day of the fiscal quarter in which such filing occurs.  Upon request of the Agent, such Grantor shall execute and deliver, and have recorded, any and all agreements, instruments, documents, and papers as the Agent may request to evidence the Secured Creditors’ Security Interest in any Copyright, Patent, Trademark or other Intellectual Property and the goodwill and general intangibles of such Grantor relating thereto or represented thereby.

 

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(d)                                  Such Grantor agrees that, should it obtain an ownership interest in any item of Intellectual Property which is not now a part of the Intellectual Property Collateral (the “ After-Acquired Intellectual Property ”), (i) the provisions of Section 2 shall automatically apply thereto; (ii) any such After-Acquired Intellectual Property, and in the case of Trademarks, the goodwill of the business connected therewith or symbolized thereby, shall automatically become part of the Collateral; and (iii) within 45 days of the end of the calendar quarter in which such acquisition occurs, it shall provide the Agent with an amended Perfection Certificate and amended schedules to the applicable Intellectual Property Security Agreement reflecting the acquisition of such After-Acquired Intellectual Property.  Such Grantor authorizes the Agent to modify this Agreement by amending the Perfection Certificate and to modify the schedules to the applicable Intellectual Property Security Agreement if such Grantor fails to provide the Agent with satisfactory amended schedules hereto or thereto within the time period required hereunder (and will cooperate with the Agent in effecting any such amendment) to include any After-Acquired Intellectual Property which becomes part of the Intellectual Property Collateral under this Section, and to record any such modified agreement with the PTO, the Copyright Office, or any other applicable Governmental Authority.

 

(e)                                   Such Grantor assumes all responsibility and liability arising from the use of the Intellectual Property and hereby indemnifies and holds the Secured Creditors harmless from and against any claim, suit, loss, damage or expense (including reasonable attorneys’ fees arising out of any alleged defect in any product manufactured, promoted or sold by such Grantor (or any affiliate or subsidiary thereof) in connection with such Intellectual Property or out of the manufacture, promotion, labeling, sale or advertisement of any such product by such Grantor (or any affiliate or subsidiary thereof), except for any claim, suit, loss, damage or expense arising solely from the gross negligence or willful misconduct of a Secured Creditor as finally determined in a non-appealable judgment by a court of competent jurisdiction.

 

(f)                                    Such Grantor agrees to execute one or more applicable Intellectual Property Security Agreements with respect to its Intellectual Property in order to record the Security Interest granted herein to the Agent for the ratable benefit of the Secured Creditors with the PTO, the Copyright Office, and any other applicable Governmental Authority within the time period set forth in Section 6.7 of the Credit Agreement.

 

6.14.                      Maintenance of Collateral; Compliance with Laws .  Such Grantor shall keep the Collateral provided by it in good order and repair and shall not use the same in violation of any law to the extent that such violation could reasonably be expected to have a Material Adverse Effect.

 

6.15.                      Dispositions of Collateral .  Such Grantor shall not sell or otherwise dispose, or offer to sell or otherwise dispose, of the Collateral provided by it or any interest therein except for dispositions expressly permitted by the Credit Agreement.

 

6.16.                      Maintenance of Insurance .  Such Grantor, at its sole cost and expense, shall maintain or cause to be maintained insurance covering physical loss or damage to the Collateral provided by it in accordance with the Credit Agreement.

 

6.17.                      Periodic Certification .  Concurrently with the delivery of each Compliance Certificate, such Grantor shall deliver to the Agent a supplemental perfection certificate (each, a “ Perfection Supplement ”) executed by such Grantor setting forth the information required pursuant to the Perfection Certificate or confirming that there has been no change in such information since the date of such certificate or the date of the most recent certificate delivered pursuant to this Section 6.17 .

 

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6.18.                      Other Actions as to any and all Collateral .  Such Grantor further agrees to take any other action reasonably requested by the Agent to insure the attachment, perfection and first priority (subject to Permitted Liens) of, and the ability of the Agent to enforce, the Security Interest in any and all of the Collateral provided by such Grantor including, without limitation, (a) executing, delivering and, where appropriate, filing financing statements and amendments relating thereto under the UCC, to the extent, if any, that such Grantor’s signature thereon is required therefor; (b) causing the Agent’s name to be noted as secured party on any certificate of title for a titled good if such notation is a condition to attachment, perfection or priority of, or ability of the Agent to enforce, the Security Interest in such Collateral; (c) complying with any provision of any statute, regulation or treaty of the United States of America as to any Collateral if compliance with such provision is a condition to the attachment, perfection or priority of, or the ability of the Agent to enforce, the Security Interest in such Collateral; (d) obtaining governmental and other third-party consents and approvals, including without limitation any consent of any licensor, lessor or other person obligated on such Collateral; (e) obtaining waivers from mortgagees, bailees, landlords and any other person who has possession of or any interest in any Collateral or any real property on which any such Collateral may be located, in form and substance satisfactory to the Agent; (f) providing to the Agent “control” over such Collateral, to the extent that perfection can only be achieved under the UCC by control or where obtaining perfection by control provides more protection to the Secured Creditors that perfection by filing a financing statement; and (g) taking all actions required by the UCC or by other law, as applicable in any relevant UCC jurisdiction, or by other law as applicable in any foreign jurisdiction; provided , however , that nothing contained in clause (d) or (e) shall require such Grantor to pay any consideration (other than any governmental application, processing, filing or recording fees) in order to obtain any consent or waiver referred to in such clauses.

 

6.19.                      Treatment of Accounts .  No Grantor shall grant or extend the time for payment of any material account, or compromise or settle any account for less than the full amount thereof, or release any person or property, in whole or in part, from payment thereof, or allow any credit or discount thereon, other than as normal and customary in the ordinary course of a Grantor’s business.

 

Section 7.                                            INSPECTION AND VERIFICATION.  The Agent and such Persons as the Agent may designate shall have the right, at each Grantor’s own cost and expense, to inspect the Collateral of such Grantor, all records related thereto (and to make extracts and copies from such records) and the premises upon which any of the Collateral of such Grantor is located, to discuss such Grantor’s affairs with the officers of such Grantor (i) in the absence of an Event of Default, upon reasonable prior notice and during regular operating hours for such Grantor and (ii) otherwise, at any time as the Agent shall decide in its sole discretion.

 

Section 8.                                            COLLATERAL PROTECTION EXPENSES; PRESERVATION OF COLLATERAL.

 

8.01.                      Expenses Incurred by the Agent .  In its discretion, the Agent may, if the relevant Grantor fails to do so, discharge taxes and other encumbrances at any time levied or placed on any material portion of the Collateral, make repairs thereto and pay any necessary filing fees or insurance premiums.  Each Grantor agrees to reimburse the Agent on demand for any and all expenditures so made, and all sums disbursed by the Agent in connection with this Section 8.01 , including reasonable attorneys’ fees, court costs, expenses and other charges relating thereto, shall be payable, upon demand, by such Grantor to the Agent shall bear interest at the per annum rate specified in Section 16 and shall constitute additional Obligations.  The Agent shall have no obligation to any Grantor to make any such expenditures, nor shall the making thereof relieve any Grantor of any default.

 

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8.02.                      Agent’s Obligations and Duties .

 

(a)                                  Anything herein to the contrary notwithstanding, each Grantor shall remain liable under each contract or agreement comprised in the Collateral provided by it to be observed or performed by such Grantor thereunder.  Neither the Agent nor any other Secured Creditor shall have any obligation or liability under any such contract or agreement by reason of or arising out of this Agreement or the receipt by the Agent or any other Secured Creditor of any payment relating to any of the Collateral, nor shall the Agent or any other Secured Creditor be obligated in any manner to perform any of the obligations of any Grantor under or pursuant to any such contract or agreement, to make inquiry as to the nature or sufficiency of any payment received by the Agent or any other Secured Creditor in respect of the Collateral or as to the sufficiency of any performance by any party under any such contract or agreement, to present or file any claim, to take any action to enforce any performance or to collect the payment of any amounts which may have been assigned to the Agent or any other Secured Creditor or to which the Agent or any other Secured Creditor may be entitled at any time or times.

 

(b)                                  The Agent’s sole duty with respect to the custody, safekeeping and physical preservation of the Collateral in its possession, under Section 9-207 of the NYUCC or otherwise, shall be to deal with such Collateral in the same manner as the Agent deals with similar property for its own account.

 

(c)                                   Neither the Agent, nor any other Secured Creditor nor any of their in-fact or affiliates shall be liable for failure to demand, collect or realize upon any of the Collateral or for any delay in doing so or shall be under any obligation to sell or otherwise dispose of any Collateral upon the request of any Grantor or any other Person or to take any other action whatsoever with regard to the Collateral or any part thereof.  The powers conferred on the Secured Creditors hereunder are solely to protect the Secured Creditors’ interests in the Collateral and shall not impose any duty upon any Secured Creditor to exercise any such powers.  The Secured Creditors shall be accountable only for amounts that they actually receive as a result of the exercise of such powers, and neither they nor any of their officers, directors, partners, employees, agents, attorneys and other advisors, attorneys-in-fact or affiliates shall be responsible to any Grantor for any act or failure to act hereunder, except to the extent that any such act or failure to act is found by a final and non-appealable decision of a court of competent jurisdiction to have resulted from their respective gross negligence or willful misconduct.

 

(d)                                  Each Grantor acknowledges that the rights and responsibilities of the Agent under this Agreement with respect to any action taken by the Agent or the exercise or non-exercise by the Agent of any option, voting right, request, judgment or other right or remedy provided for herein or resulting or arising out of this Agreement shall, as between the Agent and the other Secured Creditors, be governed by the Credit Agreement and by such other agreements with respect thereto as may exist from time to time among them, but, as between the Agent and the Grantors, the Agent shall be conclusively presumed to be acting as agent for the Secured Creditors with full and valid authority so to act or refrain from acting, and no Grantor shall be under any obligation, or entitlement, to make any inquiry respecting such authority.

 

8.03.                      Duties as to Pledged Securities .

 

(a)                                  With respect to any calls, conversions, exchanges, redemptions, offers, tenders or similar matters relating to any such Pledged Securities (herein called “ Events ”), any duty in connection therewith imposed on the Agent by Applicable Law shall be fully satisfied if:

 

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(i)                                      the Agent exercises reasonable care to ascertain the occurrence and to give reasonable notice to the applicable Grantor of any Events applicable to any Pledged Securities that are registered and held in the name of Agent or its nominee;

 

(ii)                                   the Agent gives the applicable Grantor reasonable notice of the occurrence of any Events of which the Agent has received actual knowledge, which Events are applicable to any securities that are in bearer form or are not registered and held in the name of the Agent or its nominee (each Grantor agreeing to give the Agent reasonable notice of the occurrence of any Events of which such Grantor has knowledge, which Events are applicable to any securities in the possession of the Agent); and

 

(iii)                                the Agent endeavors to take such action with respect to any of the Events as the applicable Grantor may reasonably and specifically request in writing in sufficient time for such action to be evaluated and taken or, if the Agent reasonably believes that the action requested would adversely affect the value of the Pledged Securities as collateral or the collection of the Obligations, or would otherwise prejudice the interests of any Secured Creditor, the Agent gives reasonable notice to such Grantor that any such requested action will not be taken and, if the Agent makes such determination or if such Grantor fails to make such timely request, the Agent takes such other action as it reasonably deems advisable in the circumstances.

 

(b)                                  Except as hereinabove specifically set forth, neither the Agent nor any other Secured Creditor shall have any further obligation to ascertain the occurrence of, or to notify any Grantor with respect to, any Events and shall not be deemed to assume any such further obligation as a result of the establishment by the Agent or any other Secured Creditor of any internal procedures with respect to any securities in its possession, nor shall the Agent or any other Secured Creditor be deemed to assume any other responsibility for, or obligation or duty with respect to, any Pledged Securities or its use of any nature or kind, or any matter or proceedings arising out of or relating thereto, including, without limitation, any obligation or duty to take any action to collect, preserve or protect its or any Grantor’s rights in the Pledged Securities or against any prior parties thereto, but the same shall be at such Grantor’s sole risk and responsibility at all times.

 

(c)                                   Nothing contained in this Section 8.03 shall be deemed to create any obligation in respect of Events on the Agent, the purpose of this Section 8.03 being solely to provide standards, in the event that Applicable Law imposes any obligations on the Agent as to Events.

 

Section 9.                                            SECURITIES AND DEPOSITS.  Without limitation of Section 6.0 8, but subject to Section 6.08(i) , the Agent may at any time at its option, transfer to itself or any nominee any securities constituting Collateral, and, subject to Section 6.08(f)(ii) , receive any income thereon and hold such income as additional Collateral or apply it to the Obligations.  The Agent may after the occurrence and during the continuance of an Event of Default demand, sue for, collect, or make any settlement or compromise which it deems desirable with respect to the Collateral.  Regardless of the adequacy of Collateral or any other security for the Obligations, any deposits or other sums at any time credited by or due from the Agent or any other Secured Creditor to any Grantor may at any time be applied to or set off against any of the Obligations whether or not due and owing after the occurrence and during the continuance of an Event of Default.

 

Section 10.                                     NOTIFICATION TO ACCOUNT DEBTORS AND OTHER PERSONS OBLIGATED ON COLLATERAL.  If an Event of Default shall have occurred and be continuing, each Grantor shall, at the request of the Agent, notify account debtors and other persons obligated on any of the

 

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Collateral of such Grantor of the Security Interest in any account, chattel paper, General Intangible, instrument or other claims constituting Collateral that payment thereof is to be made directly to the Agent or to any financial institution designated by the Agent as the Agent’s agent therefor, and the Agent may itself, if an Event of Default shall have occurred and be continuing, without notice to or demand upon any Grantor, so notify account debtors and other persons obligated on Collateral.  After the making of such a request or the giving of any such notification, each Grantor shall hold any proceeds of collection of accounts, chattel paper, General Intangibles, instruments and other claims constituting Collateral received by the Grantor as trustee for the Secured Creditors without commingling the same with other funds of the Grantor and shall turn the same over to the Agent in the identical form received, together with any necessary endorsements or assignments.  The Agent shall have no liability or responsibility to any Grantor for acceptance of a check, draft or other order for payment of money bearing the legend “payment in full” or words of similar import or any other restrictive legend or endorsement or be responsible for determining the correctness of any remittance.  Without limitation of the foregoing, during the continuation of an Event of Default (1) the Agent shall have the right, but not the obligation, to make test verifications of the accounts in any manner and through any medium that it reasonably considers advisable, and the Grantors shall furnish all such assistance and information as the Agent may require in connection with such test verifications, and (2) the Agent in its own name or in the name of others may communicate with account debtors on the accounts to verify with them to the Agent’s satisfaction the existence, amount and terms of any accounts.  The Agent may apply the proceeds of collection of accounts, chattel paper, general intangibles, instruments and other claims constituting Collateral received by the Agent or any other Secured Creditor to the Obligations or hold such proceeds as additional Collateral, at the option of the Agent.  The provisions of Section 9-209 of the NYUCC shall not apply to any account, chattel paper or payment intangible as to which notification of assignment has been sent to the account debtor or other person obligation on the Collateral, whether under this Section 10 , Section 11 or Section 12 .

 

Section 11.                                     POWER OF ATTORNEY.

 

11.01.               Appointment and Powers of Agent .  Each Grantor hereby irrevocably constitutes and appoints the Agent and any officer or agent thereof, with full power of substitution, as its true and lawful attorney-in-fact with full irrevocable power and authority in the place and stead of such Grantor and in the name of such Grantor or in its own name, for the purpose of carrying out the terms of this Agreement, to take any and all appropriate action and to execute any and all documents and instruments which may be necessary or desirable to accomplish the purposes of this Agreement, and, without limiting the generality of the foregoing, each Grantor hereby gives the Agent the power and right, on behalf of such Grantor, without notice to or assent by such Grantor, to do any or all of the following:

 

(a)                                  in the name of such Grantor or its own name, or otherwise, take possession of and endorse and collect any checks, drafts, notes, acceptances or other instruments for the payment of moneys due under any Receivable or with respect to any other Collateral and file any claim or take any other action or proceeding in any court of law or equity or otherwise deemed appropriate by the Agent for the purpose of collecting any and all such moneys due under any Receivable or with respect to any other Collateral whenever payable;

 

(b)                                  in the case of any Intellectual Property, execute and deliver, and record or have recorded, any and all agreements, instruments, documents and papers as the Agent may request to evidence the Security Interest in such Intellectual Property, and the goodwill and General Intangibles of such Grantor relating thereto or represented thereby;

 

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(c)                                   pay or discharge taxes and Liens levied or placed on or threatened against the Collateral, effect any repairs or provide any insurance and pay all or any part of the premiums therefor and the costs thereof;

 

(d)                                  execute, in connection with any sale provided for in Section 12 , any endorsements, assignments or other instruments of conveyance or transfer with respect to the Collateral;

 

(e)                                   exercise all rights of such Grantor as owner of the Pledged Securities or as party to any partnership, limited liability company or similar agreement, including, without limitation, the right to sign any and all amendments, instruments, certificates, proxies, and other writings and exercise all voting and consent rights with respect to the Pledged Securities;

 

(f)                                    (1) direct any party liable for any payment under any of the Collateral to make payment of any and all moneys due or to become due thereunder directly to the Agent or as the Agent shall direct; (2) ask or demand for, collect, and receive payment of and receipt for, any and all moneys, claims and other amounts due or to become due at any time in respect of or arising out of any Collateral; (3) sign and endorse any invoices, freight or express bills, bills of lading, storage or warehouse receipts, drafts against debtors, assignments, verifications, notices and other documents in connection with any of the Collateral; (4) commence and prosecute any suits, actions or proceedings at law or in equity in any court of competent jurisdiction to collect the Collateral or any portion thereof and to enforce any other right in respect of any Collateral; (5) defend any suit, action or proceeding brought against such Grantor with respect to any Collateral; (6) settle, compromise or adjust any such suit, action or proceeding and, in connection therewith, give such discharges or releases as the Agent may deem appropriate; (7) assign any Copyright, Patent or Trademark (along with the goodwill of the business to which any such Copyright, Patent or Trademark pertains) throughout the world for such term or terms, on such conditions, and in such manner, as the Agent shall in its sole discretion determine; and (8) generally, sell, transfer, pledge and make any agreement with respect to or otherwise deal with any of the Collateral as fully and completely as though the Agent were the absolute owner thereof for all purposes, and do, at the Agent’s option and such Grantor’s expense, at any time, or from time to time, all acts and things which the Agent deems necessary to protect, preserve or realize upon the Collateral and the Security Interest therein and to effect the intent of this Agreement, all as fully and effectively as such Grantor might do; and

 

(g)                                   to the extent that such Grantor’s authorization given in Section 3 is not sufficient, to file such financing statements or similar documents under the laws of any jurisdiction with respect hereto, with or without such Grantor’s signature, or a photocopy of this Agreement in substitution for a financing statement or such other document, as the Agent may deem appropriate and to execute in such Grantor’s name such financing statements, other such documents and amendments thereto and continuation statements which may require such Grantor’s signature.

 

Anything in this Section 11.01 to the contrary notwithstanding, the Agent agrees that it will not exercise any rights under the power of attorney provided for in this Section 11.01 (other than under paragraph (g) of this Section 11.01 ) unless an Event of Default shall have occurred and be continuing.

 

11.02.               Failure of Grantor to Perform .  If any Grantor fails to perform or comply with any of its agreements contained herein, the Agent, at its option, but without any obligation so to do, may perform or comply, or otherwise cause performance or compliance, with such agreement.

 

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11.03.               Expenses of Attorney-in-Fact .  The expenses of the Agent incurred in connection with actions undertaken as provided in this Section 11 , together with interest thereon at a rate per annum equal to the Default Rate, from the date of payment by the Agent to the date reimbursed by the relevant Grantor, shall be payable by such Grantor to the Agent on demand.

 

11.04.               Ratification by Grantor .  To the extent permitted by law, each Grantor hereby ratifies all that said attorneys shall lawfully do or cause to be done by virtue of this Section 11 .  This power of attorney is a power coupled with an interest and is irrevocable.

 

11.05.               No Duty on Agent .  The powers conferred on the Agent, its directors, officers and agents pursuant to this Section 11 are solely to protect the Secured Creditors’ interests in the Collateral and shall not impose any duty upon any of them to exercise any such powers.  Each Secured Creditor shall be accountable only for the amounts that it actually receives as a result of the exercise of such powers, and neither it nor any of its officers, directors, employees or agents shall be responsible to any Grantor for any act or failure to act, except for such Secured Creditor’s own gross negligence or willful misconduct as determined in a final and non-appealable judgment by a court of competent jurisdiction.

 

Section 12.                                     REMEDIES.

 

12.01.               Default .  Grantors shall be in default under this Agreement (a) whenever any Event of Default has occurred and is continuing (and each of the Grantors shall thereupon be in default hereunder without regard to whether or to what degree any Grantor individually may have caused, participated in, or had any knowledge of the occurrence of such Event of Default) and (b) at all times after any Loan has become due and payable and remains unpaid beyond any applicable grace period, whether at maturity, upon acceleration pursuant to the Credit Agreement or otherwise.

 

12.02.               Remedies Upon Default .  At any time when any Grantor is in default under this Agreement as set forth in Section 12.01 , the Agent may exercise and enforce, in any order, (i) each and all of the rights and remedies available to a secured party upon default under the NYUCC or any other applicable UCC or other Applicable Law, (ii) each and all of the rights and remedies available to it under the Credit Agreement or any other Loan Document, and (iii) each and all of the following rights and remedies:

 

(a)                                  Collection Rights .  Without notice to any Grantor or any other Loan Party, the Agent may notify any or all account debtors and obligors on any accounts, instruments, general intangibles or other claims constituting Collateral of the Secured Creditors’ Security Interests therein and may direct, demand and enforce payment thereof directly to the Agent.  The provisions of Section 9-209 of the NYUCC shall not apply to any account, chattel paper or payment intangible as to which notification of assignment has been sent to the account debtor.

 

(b)                                  Taking Possession .  The Agent may (i) enter upon any and all premises owned or leased by any Grantor where Collateral is located (or believed by the Agent to be located), with or (to the fullest extent permitted by law) without judicial process and without any obligation to pay rent; (ii) prior to the disposition of the Collateral, store, process, repair or recondition the Collateral or otherwise prepare the Collateral for disposition in any manner to the extent the Agent deems appropriate; (iii) take possession of any Grantor’s premises or place custodians in exclusive control thereof, remain on such premises and use the same and any Grantor’s equipment for the purpose of completing any work in process or otherwise preparing the Collateral for sale or selling or otherwise transferring the Collateral;

 

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(iv) take possession of all items of Collateral that are not then in its possession, either upon such premises or by removal from such premises; and (v) require any Grantor or the Person in possession thereof to deliver such Collateral to the Agent at one or more locations designated by the Agent and reasonably convenient to it and each Grantor owning an interest therein.

 

(c)                                   Foreclosure .  The Agent may sell, lease, license or otherwise dispose of or transfer any or all of the Collateral or any part thereof in one or more parcels at public sale or in private sale or transaction, on any exchange or market or at the Agent’s offices or on any Grantor’s premises or at any other location, for cash, on credit or for future delivery, and may enter into all contracts necessary or appropriate in connection therewith, without any notice whatsoever unless required by law.  Where permitted by law, one or more of the Secured Creditors may be the purchasers at any such sale and in such event, the Secured Creditors bidding at such sale may bid part or all of the Obligations owing to them without necessity of any cash payment on account of the purchase price, even though any other purchaser at such sale is required to bid a purchase price payable in cash.  Each Grantor agrees that at least ten (10) calendar days’ written notice to such Grantor of the time and place of any public sale of Collateral owned by it (or, to the extent such Grantor is entitled by law to notice thereof, the public sale of any other Collateral), or the time after which any private sale of Collateral owned by it (or, to the extent such Grantor is entitled by law to notice thereof, the private sale of any other Collateral) is to be made, shall be commercially reasonable.  For purposes of such notice, to the fullest extent permitted by law (i) each Grantor waives notice of any sale of Collateral owned by any other Grantor and (ii) each Grantor agrees that notice given to the Borrower shall constitute notice given to such Grantor.  The giving of notice of any such sale or other disposition shall not obligate the Agent to proceed with the sale or disposition, and any such sale or disposition may be postponed or adjourned from time to time, without further notice.

 

(d)                                  Voting Rights .  The Agent may exercise any and all rights of any Grantor as the owner of any Pledged Securities, including, without limitation, voting rights, rights to give or withhold consent under any agreement under which any Pledged Security is issued and all other rights referred to in Section 11.01(e) .

 

(e)                                   Use of Intellectual Property .  The Agent may, on a royalty-free basis, use and license use of any Trademark, Trade Secret, trade name, trade style, Copyright, Patent, technical knowledge or process or other Intellectual Property owned, held or used by any Grantor in respect of any Collateral as to which any right or remedy of the Agent is exercised or enforced.  In addition, the Agent may exercise and enforce such rights and remedies for collection as may be available to it by law or agreement.  Each Grantor grants a license pursuant to Section 12.03 in connection therewith.

 

(f)                                    Use of Collateral .  With respect to any Collateral in the possession of the Agent or any other Secured Creditor, or a bailee or other third party holding on its behalf, the Agent or such other Secured Creditor may use or operate such Collateral in any manner and to the extent determined by the Agent or such Secured Creditor.

 

(g)                                   Appointment of Receiver .  Without limiting any other right or remedy of the Agent in this Agreement, upon the occurrence and during the continuance of any Event of Default, the Agent may by instrument in writing appoint any person as a receiver of all or any part of the Collateral of each applicable Grantor.  The Agent may from time to time remove or replace a receiver, or make application to any court of competent jurisdiction for the appointment of a receiver.  Any receiver appointed by the Agent shall (for purposes relating to responsibility for the receiver’s acts or omissions) be considered to be the agent of each applicable Grantor.  The Agent may from time to time fix the

 

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receiver’s remuneration and the Grantors shall pay the amount of such remuneration to the Agent.  The Agent shall not be liable to any Grantor or any other person in connection with appointing or not appointing a receiver or in connection with the receiver’s actions or omissions.

 

12.03.               Grant of License to Use Intellectual Property .  For the purpose of enabling the Agent to exercise rights and remedies under this Section 12 at such time as the Agent shall be lawfully and otherwise entitled to exercise such rights and remedies, each Grantor hereby grants to the Agent an irrevocable, nonexclusive license (exercisable without payment of royalty or other compensation to such Grantor) to use, license or sub-license any of the Collateral consisting of Intellectual Property now owned or hereafter acquired by the Grantor to the extent that such Grantor is not legally or contractually prohibited from doing so (Grantor agreeing to use commercially reasonable efforts not to enter into, after the Closing Date, any such contractual prohibition), and wherever the same may be located, and including in such license reasonable access to all media in which any of the licensed items may be recorded or stored and to all computer software and programs used for the compilation or printout thereof.  The use of such license by the Agent shall be exercised, at the Agent’s option, only upon the occurrence and during the continuation of an Event of Default; provided that any license, sub-license or other transaction entered into by the Agent in accordance herewith shall be binding upon each Grantor notwithstanding any subsequent cure, waiver or other termination of an Event of Default.

 

12.04.               Waivers by Grantors .  Each Grantor hereby irrevocably waives (a) all rights of redemption from any foreclosure sale; (b) the benefit of all valuation, appraisal, exemption and moratorium laws; (c) to the fullest extent permitted by law, all rights to notice or a hearing prior to the exercise by the Agent of its right to take possession of any Collateral, whether by self-help or by legal process and any right to object to the Agent taking possession of any Collateral by self-help; and (d) if the Agent seeks to obtain possession of any Collateral by replevin, claim and delivery, attachment, levy or other legal process, (i) any notice or demand for possession prior to the commencement of legal proceedings, (ii) the posting of any bond or security in any such proceedings, and (iii) any requirement that the Agent retain possession and not dispose of any Collateral until after a trial or final judgment in such proceedings.

 

12.05.               Application of Proceeds .  Except as expressly provided elsewhere in this Agreement, all proceeds received by the Agent in respect of any sale of, collection from, or other realization upon all or any part of the Collateral may, in the discretion of the Agent, be held by the Agent as Collateral for, or then, or at any other time thereafter, applied in full or in part by the Agent against, the Obligations in the following order of priority:

 

FIRST: to the payment of all reasonable costs and expenses of such sale, collection or other realization, including reasonable compensation to the Agent and its agents and counsel, and all other reasonable expenses, liabilities and advances made or incurred by the Agent in connection therewith, and all amounts for which the Agent is entitled to indemnification hereunder and all reasonable advances made by the Agent hereunder for the account of any Grantor, and to the payment of all reasonable costs and expenses paid or incurred by the Agent in connection with the exercise of any right or remedy hereunder, all in accordance with Section 18.0 9;

 

SECOND: to the payment of all other Obligations (for the ratable benefit of the holders thereof) then due and payable in the manner and order provided in the Credit Agreement;

 

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THIRD: to any payments required by Section 9-608(a)(1)(C) or 9-615(a)(3) of the NYUCC or in accordance with other Applicable Law; and

 

FOURTH, to the payment to or upon the order of the Grantor entitled thereto, or to whomsoever may be lawfully entitled to receive the same or as a court of competent jurisdiction may direct, of any surplus then remaining from such proceeds.

 

12.06.               Surplus; Deficiency .  Any surplus proceeds of any sale or other disposition by the Agent of any Collateral remaining after discharge of the Credit Agreement and after all Obligations are Paid in Full and in cash and any payments required by Section 9-608(a)(1)(C) or 9-615(a)(3) of the NYUCC are Paid in Full shall be paid over to the Grantor entitled thereto, or to whomever may be lawfully entitled to receive such surplus or as a court of competent jurisdiction may direct, but prior to termination and discharge of the Credit Agreement, such surplus proceeds may be retained by the Agent and held as Collateral until termination and discharge of the Credit Agreement.  The Borrower and each other Grantor shall be and remain liable for any deficiency.

 

12.07.               Information Related to the Collateral .  If, during the continuance of an Event of Default, the Agent determines to sell or otherwise transfer any Collateral, each Grantor shall, and shall cause any Person controlled by it to, furnish to the Agent all information the Agent may request that pertains or could pertain to the value or condition of the Collateral or that would or might facilitate such sale or transfer.  The Agent shall have the right, notwithstanding any confidentiality obligation or agreement otherwise binding upon it, freely (but not in violation of any law, including federal securities laws) to disclose such information, and any and all other information (including confidential information) pertaining in any manner to the Collateral or the assets, liabilities, results of operations, business or prospects of any Secured Creditors, freely to any Person that the Agent in good faith believes to be a potential or prospective purchaser in such sale or transfer, without liability for any disclosure, dissemination or use that may be made as to such information by any such Person.

 

12.08.               Sale Exempt from Registration .  The Agent shall be entitled at any such sale or other transfer, if it deems it advisable to do so, to restrict the prospective bidders or purchasers to Persons who will provide assurances satisfactory to the Agent that the Collateral may be offered and sold to them without registration under the Securities Act, and without registration or qualification under any other applicable state or federal law.  Upon the consummation of any such sale, the Agent shall have the right to assign, transfer and deliver to the purchaser or purchasers thereof the Collateral so sold.  The Agent may solicit offers to buy the Collateral, or any part of it, from a limited number of investors deemed by the Agent, in its good faith judgment or in good faith reliance upon advice of its counsel, to meet the requirements to purchase securities under Regulation D promulgated under the Securities Act (or any other regulation of similar import).  If the Agent solicits such offers from such investors, then the acceptance by the Agent of the highest offer obtained from any of them shall be deemed to be a commercially reasonable method of disposition of the Collateral.  Each Grantor recognizes that, by reason of certain prohibitions contained in the Securities Act and applicable state securities laws, Agent may be compelled, with respect to any sale of all or any part of the Pledged Securities conducted without prior registration or qualification of such Pledged Securities under the Securities Act and/or such state securities laws, to limit purchasers to those who will agree, among other things, to acquire the Pledged Securities for their own account, for investment and not with a view to the distribution or resale thereof.  Each Grantor acknowledges that any such private placement may be at prices and on terms less favorable than those obtainable through a sale without such restrictions (including an offering made pursuant to a registration statement under the Securities Act) and, notwithstanding such circumstances and the registration rights granted to Agent by such Grantor pursuant hereto, each Grantor agrees that any such

 

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private placement shall not be deemed, in and of itself, to be commercially unreasonable solely because it is a private placement and that Agent shall have no obligation to delay the sale of any Pledged Securities for the period of time necessary to permit the issuer thereof to register it for a form of sale requiring registration under the Securities Act or under applicable state securities laws, even if such issuer would, or should, agree to so register it.  If Agent determines to exercise its right to sell any or all of the Pledged Securities, upon written request, each Grantor shall and shall cause each issuer of any Pledged Securities to be sold hereunder from time to time to furnish to Agent all such information as Agent may request in order to determine the amount of Pledged Securities which may be sold by Agent in exempt transactions under the Securities Act and the rules and regulations of the Securities and Exchange Commission thereunder, as the same are from time to time in effect.

 

12.09.               Rights and Remedies Cumulative .  The rights provided for in this Agreement and the other Loan Documents are cumulative and are not exclusive of any other rights, powers or privileges or remedies provided by law or in equity, or under any other instrument, document or agreement.  The Agent may exercise and enforce each right and remedy available to it either before or concurrently with or after, and independently of, any exercise or enforcement of any other right or remedy of the Agent or any other Secured Creditor against any Person or property.  All such rights and remedies shall be cumulative, and no one of them shall exclude or preclude any other.

 

12.10.               No Direct Enforcement by Secured Creditors .  The Agent may freely exercise and enforce any and all of its rights and remedies hereunder, for the benefit of the Secured Creditors.  Except to the extent the Agent may consent in writing, no Secured Creditor, other than the Agent, shall have any independent right to collect, take possession of, foreclose against or otherwise enforce the Security Interests granted hereby.

 

Section 13.                                     STANDARDS FOR EXERCISING REMEDIES.

 

13.01.               Commercially Reasonable Manner .  To the extent that Applicable Law imposes duties on the Agent to exercise remedies in a commercially reasonable manner, each Grantor acknowledges and agrees that it is not commercially unreasonable for the Agent (a) to fail to incur expenses reasonably deemed significant by the Agent to prepare Collateral for disposition or otherwise to complete raw material or work in process into finished goods or other finished products for disposition or to postpone any such disposition pending any such preparation or processing; (b) to fail to obtain third-party consents for access to Collateral to be disposed of, or to obtain or, if not required by other law, to fail to obtain governmental or third-party consents for the collection or disposition of Collateral to be collected or disposed of; (c) to fail to exercise collection remedies against account debtors or other persons obligated on Collateral or to remove any Lien on or any adverse claims against Collateral; (d) to exercise collection remedies against account debtors and other persons obligated on Collateral directly or through the use of collection agencies and other collection specialists; (e) to advertise dispositions of Collateral through publications or media of general circulation, whether or not the Collateral is of a specialized nature; (f) to contact other persons, whether or not in the same business as such Grantor, for expressions of interest in acquiring all or any portion of the Collateral; (g) to hire one or more professional auctioneers to assist in the disposition of Collateral, whether or not the collateral is of a specialized nature; (h) to dispose of Collateral by utilizing Internet sites that provide for the auction of assets of the types included in the Collateral or that have the reasonable capability of doing so, or that match buyers and sellers of assets; (i) to dispose of assets in wholesale rather than retail markets; (j) to disclaim disposition warranties; (k) to purchase insurance or credit enhancements to insure the Agent against risks of loss, collection or disposition of Collateral or to provide to the Agent a guaranteed return from the collection or disposition of Collateral; or (l) to the extent deemed appropriate by the Agent, to

 

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obtain the services of other brokers, investment bankers, consultants and other professionals to assist the Agent in the collection or disposition of any of the Collateral.  Each Grantor acknowledges that the purpose of this Section 13 is to provide non-exhaustive indications of what actions or omissions by the Agent would not be commercially unreasonable in the Agent’s exercise of remedies against the Collateral and that other actions or omissions by the Agent shall not be deemed commercially unreasonable solely on account of not being indicated in this Section 13 .  Without limiting the foregoing, nothing contained in this Section 13 shall be construed to grant any rights to any Grantor or to impose any duties on the Agent that would not have been granted or imposed by this Agreement or by Applicable Law in the absence of this Section 13 .

 

13.02.               Standard of Care .  The powers conferred on the Agent hereunder are solely to protect its interest in the Collateral and shall not impose any duty upon it to exercise any such powers.  Except for the exercise of reasonable care in the custody of any Collateral in its possession and the accounting for moneys actually received by it hereunder, the Agent shall have no duty as to any Collateral or as to the taking of any necessary steps to preserve rights against prior parties or to protect, preserve, vote or exercise any rights pertaining to any Collateral.  The Agent shall be deemed to have exercised reasonable care in the custody and preservation of Collateral in its possession if such Collateral is accorded treatment substantially equal to that which the Agent accords its own property or if it selects, with reasonable care, a custodian to hold such Collateral on its behalf.

 

Section 14.                                     WAIVERS BY GRANTOR; OBLIGATIONS ABSOLUTE.

 

14.01.               Specific Waivers .  Each Grantor waives demand, notice, protest, notice of acceptance of this Agreement, notice of loans made, credit extended, Collateral received or delivered or other action taken in reliance hereon and all other demands and notices of any description other than those required pursuant to the Credit Agreement or any other Loan Documents to which such Grantor is a party.

 

14.02.               Obligations Absolute .  All rights of the Agent hereunder, the Security Interest and all obligations of the Grantors hereunder shall be absolute and unconditional irrespective of (a) any lack of validity or enforceability of the Credit Agreement, any other Loan Document, any agreement with respect to any of the Obligations or any other agreement or instrument relating to any of the foregoing; (b) any change in the time, manner or place of payment of, or in any other term of, all or any of the Obligations, or any other amendment or waiver of or any consent to any departure from the Credit Agreement, any other Loan Document, or any other agreement or instrument; (c) any exchange, release or non-perfection of any Lien on other collateral, or any release or amendment or waiver of or consent under or departure from or any acceptance of partial payment thereon and or settlement, compromise or adjustment of any Secured Obligation or of any guarantee, securing or guaranteeing all or any of the Obligations; or (d) any other circumstance that might otherwise constitute a defense available to, or a discharge of, any Grantor in respect of the Obligations or this Agreement other than the prompt and complete performance and payment in full of the Obligations.

 

Section 15.                                     MARSHALLING.  The Agent shall not be required to marshal any present or future collateral security (including but not limited to this Agreement and the Collateral) for, or other assurances of payment of, the Obligations or any of them or to resort to such collateral security or other assurances of payment in any particular order, and all of its rights hereunder and in respect of such collateral security and other assurances of payment shall be cumulative and in addition to all other rights, however existing or arising.  To the extent that it lawfully may, each Grantor hereby agrees that it shall not invoke any law relating to the marshalling of collateral which might cause delay in or impede the enforcement of the Agent’s rights under this Agreement or under any other instrument creating or

 

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evidencing any of the Obligations or under which any of the Obligations is outstanding or by which any of the Obligations is secured or payment thereof is otherwise assured, and, to the extent that it lawfully may, each Grantor hereby irrevocably waives the benefits of all such laws.

 

Section 16.                                     INTEREST.  Until paid, all amounts due and payable by each Grantor hereunder shall be a debt secured by the Collateral and shall bear, whether before or after judgment, interest at a rate per annum equal to the Default Rate, from the date of payment by the Agent to the date reimbursed by such Grantor, and such interest shall be payable by such Grantor to the Agent on demand.

 

Section 17.                                     REINSTATEMENT.  The obligations of each Grantor pursuant to this Agreement shall continue to be effective or automatically be reinstated, as the case may be, if at any time payment of any of the Obligations is rescinded or otherwise must be restored or returned by the Agent or any other Secured Creditor upon the insolvency, bankruptcy, dissolution, liquidation or reorganization of such Grantor or any other obligor or otherwise, all as though such payment had not been made.

 

Section 18.                                     MISCELLANEOUS.

 

18.01.               Notices .  All notices, requests and demands to or upon the Agent or any Grantor hereunder shall be effected in the manner provided for in Section 10.2 of the Credit Agreement.

 

18.02.               GOVERNING LAW; CONSENT TO JURISDICTION; SERVICE OF PROCESS .  THIS AGREEMENT SHALL BE A CONTRACT MADE UNDER AND GOVERNED BY THE INTERNAL LAWS OF THE STATE OF NEW YORK APPLICABLE TO CONTRACTS MADE AND TO BE PERFORMED ENTIRELY WITHIN SUCH STATE, WITHOUT REGARD TO CONFLICT OF LAWS PRINCIPLES (OTHER THAN SECTION 5-1401 OF THE NEW YORK GENERAL OBLIGATIONS LAW).  ANY LITIGATION BASED HEREON, OR ARISING OUT OF, UNDER, OR IN CONNECTION WITH THIS AGREEMENT OR ANY OTHER LOAN DOCUMENT, SHALL BE BROUGHT AND MAINTAINED EXCLUSIVELY IN THE COURTS OF THE STATE OF NEW YORK OR IN THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK; PROVIDED THAT ANY SUIT SEEKING ENFORCEMENT AGAINST ANY COLLATERAL OR OTHER PROPERTY MAY BE BROUGHT, AT AGENT’S OPTION, IN THE COURTS OF ANY JURISDICTION WHERE SUCH COLLATERAL OR OTHER PROPERTY MAY BE FOUND.  EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY SUBMITS TO THE JURISDICTION OF THE COURTS OF THE STATE OF NEW YORK AND OF THE UNITED STATES DISTRICT COURT FOR THE SOUTHERN DISTRICT OF NEW YORK FOR THE PURPOSE OF ANY SUCH LITIGATION AS SET FORTH ABOVE.  EACH PARTY HERETO FURTHER IRREVOCABLY CONSENTS TO THE SERVICE OF PROCESS BY REGISTERED MAIL, POSTAGE PREPAID, OR BY PERSONAL SERVICE WITHIN OR WITHOUT THE STATE OF NEW YORK.  EACH PARTY HERETO HEREBY EXPRESSLY AND IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY OBJECTION WHICH IT MAY NOW OR HEREAFTER HAVE TO THE LAYING OF VENUE OF ANY SUCH LITIGATION BROUGHT IN ANY SUCH COURT REFERRED TO ABOVE AND ANY CLAIM THAT ANY SUCH LITIGATION HAS BEEN BROUGHT IN AN INCONVENIENT FORUM.  Each Grantor hereby appoints CT Corporation as such Grantor’s agent where notices and demands to or upon such Grantor in respect of this Agreement or any other Loan Document may be served (without prejudice to the right of Agent or Lender to serve process in any other manner permitted by law).  If for any reason such process agent is unable to act as such, such Grantor will within 30 days appoint a substitute process agent located in the State of New York and give notice of such appointment to Agent.

 

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18.03.               WAIVER OF JURY TRIAL, ETC .  EACH PARTY HERETO HEREBY WAIVES ANY RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY RIGHTS UNDER THIS AGREEMENT, ANY NOTE, ANY OTHER LOAN DOCUMENT AND ANY AMENDMENT, INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE DELIVERED IN CONNECTION HEREWITH OR THEREWITH OR ARISING FROM ANY LENDING RELATIONSHIP EXISTING IN CONNECTION WITH ANY OF THE FOREGOING, AND AGREES THAT ANY SUCH ACTION OR PROCEEDING SHALL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.

 

18.04.               Counterparts .  This Agreement may be executed in counterparts (and by different parties hereto in different counterparts), each of which shall constitute an original, but all of which when taken together shall constitute a single contract.

 

18.05.               Headings .  The headings of each section of this Agreement are for convenience only and shall not define or limit the provisions thereof.

 

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

 

18.07.               Severability .  The illegality or unenforceability of any provision of this Agreement or any instrument or agreement required hereunder shall not in any way affect or impair the legality or enforceability of the remaining provisions of this Agreement or any instrument or agreement required hereunder.

 

18.08.               Survival of Agreement .  All representations, warranties and agreements made by or on behalf of any Grantor or any other Loan Party in this Agreement and in the other Loan Documents shall survive the execution and delivery hereof or thereof and the making and repayment of the Loans.  In addition, notwithstanding anything herein or under Applicable Law to the contrary, the provisions of this Agreement and the other Loan Documents relating to indemnification or payment of costs and expenses, including, without limitation, the provisions of Sections 3.1, 3.2, 3.3, 3.4 and 10.4 of the Credit Agreement, shall survive the Payment in Full of the Loans, the termination of the Commitments and any termination of this Agreement or any of the other Loan Documents.

 

18.09.               Fees and Expenses; Indemnification .

 

(a)                                  The Grantors, jointly and severally, agree to pay upon demand the amount of any and all reasonable expenses, including the fees, disbursements and other charges of counsel and of any experts or agents, which (i) any Secured Creditor may incur in connection with (x) enforcing or preserving any rights under this Agreement and the other Loan Documents, (y) the exercise, enforcement or protection of any of the rights of such Secured Creditor hereunder or (z) the failure of any Grantor to perform or observe any of the provisions hereof, and (ii) the Agent may incur in connection with (x) the administration of this Agreement (including the customary fees and charges of such Secured Creditor for any audits conducted by it or on its behalf with respect to the accounts receivable or inventory) or (y) the custody or preservation of, or the sale of, collection from or other realization upon any of the Creditor at any time and from time to time while an Event of Default shall have occurred and be

 

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Collateral.

 

(b)                                  Each Grantor agrees to pay, and to save the Secured Creditors harmless from, any and all liabilities, obligations, losses, damages, penalties, actions, judgments, suits, costs, expenses or disbursements of any kind or nature whatsoever with respect to the execution, delivery, enforcement, performance and administration of this Agreement to the extent the Borrower would be required to do so pursuant to Section 10.4 of the Credit Agreement.

 

(c)                                   The agreements in this Section shall survive repayment of the Obligations and all other amounts payable under the Credit Agreement and the other Loan Documents.

 

(d)                                  Each Grantor agrees that the provisions of Section 3.1 of the Credit Agreement are hereby incorporated herein by reference, mutatis mutandis, and each Secured Creditor shall be entitled to rely on each of them as if they were fully set forth herein.

 

18.10.               Binding Effect; Several Agreement .  This Agreement is binding upon each Grantor and the Secured Creditors and their respective successors and permitted assigns, and shall inure to the benefit of the Grantors, the Secured Creditors and their respective successors and permitted assigns, except that no Grantor shall have any right to assign or transfer its rights or obligations hereunder or any interest herein, except as specifically permitted by the Credit Agreement, without the prior written consent of the Agent (and any such assignment or transfer shall be void).

 

18.11.               Waivers; Amendment .

 

(a)                                  No failure or delay of the Agent in exercising any power or right hereunder shall operate as a waiver thereof, nor shall any single or partial exercise of any such right or power, or any abandonment or discontinuance of steps to enforce such a right or power, preclude any other or further exercise thereof or the exercise of any other right or power.  The rights and remedies of the Secured Creditors hereunder and of the Secured Creditors under the Credit Agreement and other Loan Documents are cumulative and are not exclusive of any rights or remedies that they would otherwise have.  No waiver of any provisions of this Agreement or consent to any departure by any Grantor therefrom shall in any event be effective unless the same shall be permitted by paragraph (b) below, and then such waiver or consent shall be effective only in the specific instance and for the purpose for which given.  No notice to or demand on any Grantor in any case shall entitle such or any other Grantor to any other or further notice or demand in similar or other circumstances.

 

(b)                                  Neither this Agreement nor any provision hereof may be waived, amended or modified except pursuant to an agreement or agreements in writing entered into by the Agent and each affected Grantor; provided that any provision of this Agreement imposing obligations on any Grantor may be waived by the Agent in a written instrument executed by the Agent in accordance with Section 10.1 of the Credit Agreement.

 

18.12.               Set Off .  Each Grantor hereby irrevocably authorizes each Secured continuing, without notice to such Grantor or any other Grantor, any such notice being expressly waived by each Grantor, to set off and appropriate and apply any and all deposits (general or special, time or demand, provisional or final), in any currency, and any other credits, indebtedness or claims, in any currency, in each case whether direct or indirect, absolute or contingent, matured or unmatured, at any time held or owing by such Secured Creditor to or for the credit or the account of such Grantor, or any part thereof in such amounts as such Secured Creditor may elect, against and on account of the obligations and liabilities

 

29



 

of such Grantor to such Secured Creditor hereunder and claims of every nature and description of such Secured Creditor against such Grantor, in any currency, whether arising hereunder, under the Credit Agreement, any other Loan Document or otherwise, as such Secured Creditor may elect, whether or not any Secured Creditor has made any demand for payment and although such obligations, liabilities and claims may be contingent or unmatured.  Each Secured Creditor shall notify such Grantor promptly of any such set-off and the application made by such Secured Creditor of the proceeds thereof; provided that the failure to give such notice shall not affect the validity of such set-off and application.  The rights of each Secured Creditor under this Section are in addition to other rights and remedies (including, without limitation, other rights of set-off) which such Secured Creditor may have.

 

18.13.               Integration .  This Agreement and the other Loan Documents constitute the entire contract among the parties relating to the subject matter hereof and supersede any and all previous agreements and understandings, oral or written, relating to the subject matter hereof.

 

18.14.               Acknowledgments .  Each Grantor hereby acknowledges that:

 

(a)                                  it has been advised by counsel in the negotiation, execution and delivery of this Agreement and the other Loan Documents to which it is a party;

 

(b)                                  no Secured Creditor has any fiduciary relationship with or duty to any Grantor arising out of or in connection with this Agreement or any of the other Loan Documents, and the relationship between the Grantors, on the one hand, and the Secured Creditors, on the other hand, in connection herewith or therewith is solely that of debtor and creditor; and

 

(c)                                   no joint venture is created hereby or by the other Loan Documents or otherwise exists by virtue of the transactions contemplated hereby among the Secured Creditors or among the Grantors and the Secured Creditors.

 

18.15.               Additional Grantors .  Each Subsidiary of the Borrower that is required to become a party to this Agreement pursuant to Section 6.7 of the Credit Agreement shall become a Grantor for all purposes of this Agreement upon execution and delivery by such Subsidiary of an Joinder Agreement in the form of Annex I hereto and shall concurrently therewith deliver to the Agent a Subsidiary Guaranty as required by the Credit Agreement.

 

18.16.               Releases .

 

(a)                                  Notwithstanding anything to the contrary contained in the Credit Agreement, herein or in any other Loan Document, upon request of the Borrower in connection with any disposition of Property permitted by the Loan Documents, the Agent shall (without notice to or vote or consent of any other Secured Creditor) take such actions as shall be required to release the Security Interest in any Collateral being disposed of in such disposition, to the extent necessary to permit consummation of such disposition in accordance with the Loan Documents; provided that the Borrower shall have delivered to the Agent, at least five (5) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Collateral being disposed of in such disposition and the terms of such disposition in reasonable detail, including the date thereof, the price thereof and any estimated expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents and that the proceeds of such disposition will be applied in accordance with the Credit Agreement and the other Loan Documents.

 

30



 

(b)                                  At the request and sole expense of the Borrower, a Grantor (other than the Borrower) shall be released from its obligations hereunder in the event that all the capital stock or other equity interests of such Grantor shall be disposed of in a transaction permitted by the Credit Agreement; provided that such the Borrower shall have delivered to the Agent, at least five (5) Business Days prior to the date of the proposed release, a written request for release identifying the relevant Grantor and the terms of the disposition in reasonable detail, including the price thereof and any expenses in connection therewith, together with a certification by the Borrower stating that such transaction is in compliance with the Credit Agreement and the other Loan Documents and that the Proceeds of such disposition will be applied in accordance therewith.

 

(c)                                   Upon the occurrence of the Prepayment Date, subject to compliance with Section 7.4(a) of the Credit Agreement, the Collateral shall be released from the Lien created hereby and this Agreement and all obligations (other than those expressly stated to survive such termination) of the Agent and each Grantor hereunder shall terminate, all without delivery of any instrument or performance of any act by any party, and all rights to the Collateral shall revert to the Grantors.  At the request of any Grantor following any such termination, Agent shall deliver to such Grantor any Collateral of such Grantor held by Agent hereunder and execute and deliver to such Grantor such documents as such Grantor shall reasonably request to evidence such termination, all at the sole expense of such Grantor.

 

18.17.               Intercompany Debt .

 

(a)                                  Each Grantor hereby agrees that any intercompany Debt or other intercompany payables or receivables directly or indirectly made by or owed to such Grantor by any other Grantor (collectively, “ Intercompany Debt ”), of whatever nature at any time outstanding shall be subordinate and subject in right of payment to the prior payment in full in cash of the Obligations.  Each Grantor hereby agrees that following a single written notice to the Borrower from Agent, such Grantor will not, while any Event of Default is continuing, accept any payment, including by offset, on any Intercompany Debt until all Obligations have been Paid in Full and the Commitments have been terminated, in each case, except with the prior written consent of the Agent.

 

(b)                                  In the event that any payment on any Intercompany Debt shall be received by a Grantor other than as permitted by this Section 18.17 before all Obligations have been Paid in Full and the Commitments have been terminated pursuant to the Credit Agreement, such Grantor shall receive such payments and hold the same in trust for, segregate the same from its own assets and shall immediately pay over to, the Agent for the benefit of the Agent and the other Secured Creditors all such sums to the extent necessary so that the Agent and the other Secured Creditors shall have been Paid in Full, in cash, all Obligations owed or which may become owing.

 

(c)                                   Upon any payment or distribution of any assets of any Grantor of any kind or character, whether in cash, property or securities by set-off, recoupment or otherwise, to creditors in any liquidation or other winding-up of such Grantor or in the event of any case, proceeding or other action described in Section 8.1.3 of the Credit Agreement, the Agent and the other Secured Creditors shall first be entitled to receive payment in full in cash, in accordance with the terms of the Obligations and of this Agreement, of all amounts payable under or in respect of such Obligations, before any payment or distribution is made on, or in respect of, any Intercompany Debt, in any such case, proceeding or other action, any distribution or payment, to which the Agent or any other Secured Creditor would be entitled except for the provisions hereof shall be paid by such Grantor, or by any receiver, trustee in bankruptcy, liquidating trustee, agent or other person making such payment or distribution directly to the Agent (for the benefit of the Agent and the other Secured Creditors) to the extent necessary to pay all such

 

31



 

Obligations in full in cash, after giving effect to any concurrent payment or distribution to the Agent and other Secured Creditors (or to the Agent for the benefit of the Agent and the other Secured Creditors).

 

[ Remainder of Page Intentionally Left Blank; Signature Pages Follow ]

 

32



 

IN WITNESS WHEREOF, each of the undersigned has caused this Security Agreement to be duly executed and delivered as of the date first above written.

 

GRANTOR:

 

AVINGER, INC.

 

 

By:

/s/ Matthew Ferguson

 

Name:

Matthew Ferguson

 

Title:

Co-President and Chief Financial Officer

 

 

[Security Agreement — Signature Page]

 



 

PDL BIOPHARMA, INC.,

as Agent

 

 

By:

/s/ John P. McLaughlin

 

Name:

John P. McLaughlin

 

Title:

President and Chief Executive Officer

 

 

[Security Agreement — Signature Page]

 


 

Exhibit A to Security Agreement

 

COPYRIGHT SECURITY AGREEMENT

 

WHEREAS, [                              ] , a [                      ] (herein referred to as “ Grantor ”), having an address at [                                  ], has adopted, used and is using the copyrights listed on the annexed Schedule 1-A , which copyrights are registered in the United States Copyright Office (the “ Copyrights ”);

 

WHEREAS , the Grantor has entered into a Security Agreement, dated as of April 18, 2013 (said Security Agreement, as it may hereafter be amended or otherwise modified from time to time being the “ Security Agreement ”, the terms defined therein and not otherwise defined herein being used herein as therein defined) in favor of the Agent, for itself and the Lender party to the Credit Agreement (in such capacity, the “ Secured Party ”); and

 

WHEREAS , pursuant to the Security Agreement, the Grantor has granted to Secured Party a security interest in all right, title and interest of the Grantor in and to the Copyrights, and the registrations and recordings thereof in the United States Copyright Office or any other country or any political subdivision thereof, all whether now or hereafter owned or licensable by the Grantor and all extensions or renewals thereof and all Copyright licenses, and all proceeds of all of the foregoing, including, without limitation, any claims by the Grantor against third parties for infringement thereof, to secure the payment and performance of the Obligations.

 

NOW, THEREFORE , for good and valuable consideration, receipt of which is hereby acknowledged, the Grantor does hereby further confirm, and put on the public record:

 

Section 1.                                            Grant of Security Interest in Copyright Collateral .  Each Grantor, as collateral security for the prompt and complete payment and performance when due (whether at stated maturity, by acceleration or otherwise) of the Obligations of such Grantor, hereby mortgages, pledges and hypothecates to the Agent for the benefit of the Secured Creditors, and grants to the Agent for the benefit of the Secured Creditors a Lien on and security interest in, all of its right, title and interest in, to and under the following Collateral of such Grantor (the “ Copyright Collateral ”):

 

(i)                                      all of its Copyrights, including, without limitation, those referred to on Schedule 1-A hereto;

 

(ii)                                   all renewals, reversions and extensions of the foregoing; and

 

(iii)                                all income, royalties, proceeds and liabilities at any time due or payable or asserted under and with respect to any of the foregoing, including, without limitation, all rights to sue and recover at law or in equity for any past, present and future infringement, misappropriation, dilution, violation or other impairment thereof.

 

Section 2.                                            Security Agreement .  The security interest granted pursuant to this Copyright Security Agreement is granted in conjunction with the security interest granted to the Agent pursuant to the Security Agreement and each Grantor hereby acknowledges and agrees that the rights and remedies of the Agent with respect to the security interest in the Copyright Collateral made and granted hereby are more fully set forth in the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  In the event of any irreconcilable conflict between the terms

 



 

of this Copyright Security Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall control.

 

SECTION 3.                             Grantor Remains Liable .  Each Grantor hereby agrees that, anything herein to the contrary notwithstanding, such Grantor shall assume responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in such Grantor’s reasonable business judgment in connection with their Copyrights subject to a security interest hereunder.

 

SECTION 4.                             GOVERNING LAW .  THIS COPYRIGHT SECURITY AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

Section 5.                                            Counterparts .  This Copyright Security Agreement may be executed in any number of counterparts and by different parties in separate counterparts, each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.  Signature pages may be detached from multiple separate counterparts and attached to a single counterpart.  Delivery of a signature page of this Copyright Security Agreement by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such Copyright Security Agreement.

 

[SIGNATURE PAGES FOLLOW]

 



 

IN WITNESS WHEREOF , the undersigned Grantor has duly executed or caused this Copyright Security Agreement to be duly executed as of the date first set forth above.

 

 

[                      ]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 



 

Schedule 1-A to the COPYRIGHT SECURITY AGREEMENT

 

Copyright

 

Registration Date

 

Registration No.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Exhibit B to Security Agreement

 

PATENT SECURITY AGREEMENT

 

WHEREAS, [                                 ] , a [               ] (herein referred to as “ Grantor ”), having an address at [                                  ], owns the letters patent and/or applications for letters patent of the United States of America more particularly described on Schedule 1-A annexed hereto as part hereof (the “ Patents ”);

 

WHEREAS , the Grantor has entered into a Security Agreement, dated as of April 18, 2013 (said Security Agreement, as it may hereafter be amended or otherwise modified from time to time being the “ Security Agreement ”, the terms defined therein and not otherwise defined herein being used herein as therein defined) in favor of the Agent, for itself and the Lender party to the Credit Agreement (in such capacity, the “ Secured Party ”); and

 

WHEREAS , pursuant to the Security Agreement, the Grantor has granted to Secured Party a security interest in all right, title and interest of Grantor in and to the Patents, together with all registrations and recordings thereof, including, without limitation, applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States, any State thereof or any other country or any political subdivision thereof, all whether now or hereafter owned or licensable by Grantor, and all reissues, divisions, continuations, continuations-in-part, term restorations or extensions thereof, all Patent licenses and all proceeds of all of the foregoing, including, without limitation, any claims by Grantor against third parties for infringement thereof for the full term of the Patents, to secure the prompt payment and performance of the Obligations.

 

NOW, THEREFORE , for good and valuable consideration, receipt of which is hereby acknowledged, the Grantor does hereby further confirm, and put on the public record, its grant to Secured Party of a security interest in and mortgage on the Collateral to secure the prompt payment and performance of the Obligations.

 

Section 1.                                            Grant of Security Interest in Patents

 

Each Grantor hereby grants to the Agent a security interest and continuing lien on all of such Grantor’s right, title and interest in, to and under the following, in each case whether owned or existing or hereafter acquired or arising and wherever located (collectively, the “ Patent Collateral ”): all United States and foreign patents and certificates of invention, or similar industrial property rights, including, but not limited to each patent referred to in Schedule 1-A hereto (as such schedule may be amended or supplemented from time to time), and with respect to any and all of the foregoing, (i) all applications therefor including the patent applications referred to in Schedule 1-A hereto (as such schedule may be amended or supplemented from time to time), (ii) all reissues, divisions, continuations, continuations-in-part, extensions, renewals, and reexaminations thereof, (iii) all rights corresponding thereto throughout the world, (iv) all inventions and improvements described therein, (v) all rights to sue for past, present and future infringements thereof, (vi) all licenses, claims, damages, and proceeds of suit arising therefrom, and (vii) all proceeds, payments and rights to payments arising out of the sale, lease, license, assignment, or other disposition thereof.

 

Section 2.                                            Security Agreement

 

The security interests granted pursuant to this Patent Security Agreement are granted in conjunction with the security interests granted to the Agent pursuant to the Security Agreement and each

 



 

Grantor hereby acknowledges and affirms that the rights and remedies of the Agent with respect to the security interest in the Patent Collateral made and granted hereby are supplemental of, and more fully set forth in, the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  In the event of any irreconcilable conflict between the terms of this Patent Security Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall control.

 

Section 3.                                            Grantor Remains Liable .  Each Grantor hereby agrees that, anything herein to the contrary notwithstanding, such Grantor shall assume responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in such Grantor’s reasonable business judgment in connection with their Patents subject to a security interest hereunder.

 

Section 4.                                            GOVERNING LAW

 

THIS PATENT SECURITY AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

Section 5.                                            Counterparts .

 

This Patent Security Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Patent Security Agreement shall become effective when the Agent has received counterparts bearing the signatures of all parties hereto.  Delivery of a signature page of this Patent Security Agreement by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such Patent Security Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 



 

IN WITNESS WHEREOF , the undersigned Grantor has duly executed or caused this Patent Security Agreement to be duly executed as of the date first set forth above.

 

 

[                      ]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 



 

Schedule 1-A to the PATENT SECURITY AGREEMENT

 

Title

 

Date Filed 
or Granted

 

Serial No. or 
Patent No.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 


 

Exhibit C to Security Agreement

 

TRADEMARK SECURITY AGREEMENT

 

WHEREAS, [                                  ] , a [                      ] (herein referred to as “ Grantor ”), having an address at [                                  ], (1) has adopted, used and is using, or (2) has intended to use and filed an application indicating that intention, but has not yet filed an allegation of use under Section l(c) or l(d) of the Trademark Act, or (3) has filed an application based on an intention to use and has since used and has filed an allegation of use under Section l(c) or l(d) of the Trademark Act, the trademarks, trade names, trade styles and service marks listed on the annexed Schedule 1-A , which trademarks, trade names, trade styles and service marks are registered, or for which applications for registration have been filed in the United States Patent and Trademark Office (the “ Trademarks ”); and

 

WHEREAS , the Grantor has entered into a Security Agreement, dated as of April 18, 2013 (said Security Agreement, as it may hereafter be amended or otherwise modified from time to time being the “ Security Agreement ”, the terms defined therein and not otherwise defined herein being used herein as therein defined) in favor of the Agent, for itself and the Lender party to the Credit Agreement (in such capacity, the “ Secured Party ”); and

 

WHEREAS , pursuant to the Security Agreement, the Grantor has granted to Secured Party a security interest in all right, title and interest of the Grantor in and to the Trademarks, together with all prints and labels on which said Trademarks have appeared or appear, designs and general intangibles of like nature, now existing or hereafter adopted or acquired, and the goodwill of the business symbolized by the Trademarks and the applications, registrations and recordings in the United States Patent and Trademark Office or in any similar office or agency of the United States of America, any State thereof, or any other country or any political subdivision thereof, all whether now or hereafter owned or licensable by Grantor, and all reissues, extensions or renewals thereof, all Trademark licenses and all proceeds of all of the foregoing, including, without limitation, any claims by Grantor against third parties for infringement thereof, to secure the payment and performance of the Obligations.

 

NOW, THEREFORE , for good and valuable consideration, receipt of which is hereby acknowledged, the Grantor does hereby further confirm, and put on the public record:

 

Section 1.                                            Grant of Security Interest in Trademarks .

 

Each Grantor hereby grants to the Agent a security interest and continuing lien on all of such Grantor’s right, title and interest in, to and under the following, in each case whether owned or existing or hereafter acquired or arising and wherever located (collectively, the “ Trademark Collateral ”):

 

(i)                                      all United States, State and foreign trademarks, service marks, certification marks, collective marks, trade names, corporate names, d/b/as, business names, fictitious business names, Internet domain names, trade styles, logos, other source or business identifiers, designs and general intangibles of a like nature and, with respect to any and all of the foregoing: (i) all registrations and applications therefor including, but not limited to, the registrations and applications referred to in Schedule 1-A hereto (as such schedule may be amended or supplemented from time to time),

 

(ii)                                   the goodwill of the business symbolized thereby,

 

(iii)                                all rights corresponding thereto throughout the world,

 



 

(iv)                               all rights to sue for past, present and future infringement or dilution thereof or for any injury to goodwill,

 

(v)                                  all licenses, claims, damages, and proceeds of suit arising therefrom, and

 

(vi)                               all payments and rights to payments arising out of the sale, lease, license assignment or other disposition thereof;

 

provided that the security interest granted under Section 2 hereof shall not attach to, and the term “Trademark Collateral” shall not include any applications for trademark filed in the United States Patent and Trademark Office pursuant to 15 U.S.C. § 1051 Section 1(b), only to the extent that the grant of a security interest therein would result in the abandonment, invalidation or unenforceability of the trademarks matured from such application or rights hereunder and only until evidence of the use of such trademarks in commerce, as defined in 15 U.S.C. Section 1127, is submitted to, and accepted by, the United States Patent and Trademark Office pursuant to 15 U.S.C. § 1051 Section 1(c) or 1(d), following which filing all such applications shall automatically become Trademark Collateral.

 

Section 2.                                            Security Agreement

 

The security interests granted pursuant to this Trademark Security Agreement are granted in conjunction with the security interests granted to the Agent pursuant to the Security Agreement and each Grantor hereby acknowledges and affirms that the rights and remedies of the Agent with respect to the security interest in the Trademark Collateral made and granted hereby are supplemental of, and more fully set forth in, the Security Agreement, the terms and provisions of which are incorporated by reference herein as if fully set forth herein.  In the event of any irreconcilable conflict between the terms of this Trademark Security Agreement and the terms of the Security Agreement, the terms of the Security Agreement shall control.

 

Section 3.                                            Grantor Remains Liable .  Each Grantor hereby agrees that, anything herein to the contrary notwithstanding, such Grantor shall assume responsibility for the prosecution, defense, enforcement or any other necessary or desirable actions in such Grantor’s reasonable business judgment in connection with their Trademarks subject to a security interest hereunder.

 

Section 4.                                            GOVERNING LAW

 

THIS TRADEMARK SECURITY AGREEMENT SHALL BE GOVERNED BY THE LAWS OF THE STATE OF NEW YORK.

 

Section 5.                                            Counterparts .

 

This Trademark Security Agreement may be executed in counterparts, each of which shall constitute an original, but all of which when taken together shall constitute a single contract.  This Trademark Security Agreement shall become effective when the Agent has received counterparts bearing the signatures of all parties hereto.  Delivery of a signature page of this Trademark Security Agreement by telecopy or other electronic means shall be effective as delivery of a manually executed counterpart of such Trademark Security Agreement.

 

[SIGNATURE PAGE FOLLOWS]

 



 

IN WITNESS WHEREOF , the undersigned Grantor has duly executed or caused this Trademark Security Agreement to be duly executed as of the date first set forth above.

 

 

 

[                      ]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 



 

Schedule 1-A to the TRADEMARK SECURITY AGREEMENT

 

Trademark

 

Application or 
Registration Date

 

Application Serial No. 
or Registration No.

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 



 

Exhibit D to Security Agreement

 

FORM OF CONTROL AGREEMENT

 

This CONTROL AGREEMENT (as amended, supplemented or otherwise modified from time to time, this “ Control Agreement ”) dated as of                                  , 20    is made by and among                                             , a                   (the “ Grantor ”), [          ], as Agent (in such capacity, the “ Agent ”) for the Secured Creditors (as defined in the Security Agreement referred to below), and                                           , a                                            corporation (the “ Issuer ”).

 

WHEREAS, the Grantor has granted to the Agent for the benefit of the Secured Creditors a security interest in the uncertificated securities of the Issuer owned by the Grantor from time to time (collectively, the “ Pledged Securities ”), and all additions thereto and substitutions and Proceeds thereof (collectively, with the Pledged Securities, the “ Collateral ”) pursuant to a Security Agreement, dated as of April 18, 2013 (as amended, supplemented, replaced or otherwise modified from time to time, the “ Security Agreement ”), by the Grantor and the other persons party thereto as grantors in favor of the Agent.

 

WHEREAS, the following terms which are defined in Articles 8 and 9 of the Uniform Commercial Code in effect in the State of New York on the date hereof (the “ UCC ”) are used herein as so defined (whether or not such terms are capitalized in the UCC): Adverse Claim, Control, Instruction, Issuer’s Jurisdiction, Proceeds and Uncertificated Security.

 

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

 

SECTION 1.                             Notice of Security Interest .  The Grantor, the Agent and the Issuer are entering into this Control Agreement to perfect, and to confirm the priority of, the Agent’s security interest in the Collateral.  The Issuer acknowledges that this Control Agreement constitutes written notification to the Issuer of the Agent’s security interest in the Collateral.  The Issuer agrees to promptly make all necessary entries or notations in its books and records to reflect the Agent’s security interest in the Collateral and, upon request by the Agent, to register the Agent as the registered owner of any or all of the Pledged Securities.  The Issuer acknowledges that the Agent has control over the Collateral.

 

SECTION 2.                             Collateral .  The Issuer hereby represents and warrants to, and agrees with the Grantor and the Agent that (i) the terms of any limited liability company interests or partnership interests, in any limited liability company or partnership organized under the laws of the United States or any state thereof, included in the Collateral from time to time shall expressly provide that they are securities governed by Article 8 of the Uniform Commercial Code in effect from time to time in the State of [                     ], (ii) the Pledged Securities are Uncertificated Securities, (iii) the Issuer’s Jurisdiction is, and during the term of this Control Agreement shall remain, the State of [                     ], (iv)  Schedule 1 contains a true and complete description of the Pledged Securities as of the date hereof and (v) except for the claims and interests of the Agent and the Grantor in the Collateral, the Issuer does not know of any claim to or security interest or other interest in the Collateral.

 

SECTION 3.                             Control .  The Issuer hereby agrees, upon written direction from the Agent and without further consent from the Grantor, (a) to comply with all Instructions and directions of every kind originated by the Agent concerning the Collateral, to liquidate or otherwise dispose of the Collateral as and to the extent directed by the Agent and to pay over to the Agent all Proceeds of the Collateral without any setoff or deduction, and (b) except as otherwise directed by the Agent, not to comply with the

 



 

Instructions or directions of any kind originated by the Grantor or any other person with respect to the Collateral.

 

SECTION 4.                             Other Agreements .  The Issuer shall notify promptly the Agent and the Grantor if any other person asserts any lien, encumbrance, claim (including any adverse claim) or security interest in or against any of the Collateral.  In the event of any conflict between the provisions of this Control Agreement and any other agreement governing the Pledged Securities or the Collateral, the provisions of this Control Agreement shall control.

 

SECTION 5.                             Protection of Issuer .  The Issuer may rely and shall be protected in acting upon any notice, instruction or other communication that it reasonably believes to be genuine and authorized.

 

SECTION 6.                             Termination .  This Control Agreement shall terminate automatically upon receipt by the Issuer of written notice executed by the Agent terminating this Agreement.

 

SECTION 7.                             Notices .  All notices, requests and demands to or upon the respective parties hereto to be effective shall be in writing (including by telecopy), and, unless otherwise expressly provided herein, shall be deemed to have been duly given or made when delivered, or three days after being deposited in the mail, postage prepaid, or, in the case of telecopy notice, when received, to the Grantor’s and the Agent’s addresses as set forth in the Security Agreement, and to the Issuer’s address as set forth below, or to such other address as any party may give to the others in writing for such purpose:

 

[Name of Issuer]

[Address of Issuer]

Attention:

Telephone: (   )

Telecopy: (   )

 

SECTION 8.                             Amendments in Writing .  None of the terms or provisions of this Control Agreement may be waived, amended, supplemented or otherwise modified except by a written instrument executed by the parties hereto.

 

SECTION 9.                             Entire Agreement .  This Control Agreement and the Security Agreement constitute the entire agreement and supersede all other prior agreements and understandings, both written and oral, among the parties with respect to the subject matter hereof.

 

SECTION 10.                      Execution in Counterparts .  This Control Agreement may be executed in any number of counterparts (including by telecopy or other electronic commission), each of which when so executed shall be deemed to be an original and all of which taken together shall constitute one and the same agreement.

 

SECTION 11.                      Successors and Assigns .  This Control Agreement will be binding upon and inure to the benefit of the parties hereto and their respective successors and assigns, except that the Grantor may not assign, transfer or delegate any of its rights or obligations under this Control Agreement without the prior written consent of the Agent.

 

SECTION 12.                      Governing Law and Jurisdiction .  This Control Agreement has been delivered to and accepted by the Agent and will be deemed to be made in the State of New York.  THIS CONTROL AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.  Each of the parties hereto submits for itself and its property in any legal action or proceeding relating to this Control Agreement, or

 



 

for recognition and enforcement of any judgment in respect thereof, to the exclusive general jurisdiction of the Courts of the State of New York, the courts of the United States of America for the Southern District of New York, and appellate courts from any thereof.

 

SECTION 13.                      WAIVER OF JURY TRIAL .  EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY AND UNCONDITIONALLY WAIVES TRIAL BY JURY IN ANY LEGAL ACTION OR PROCEEDING RELATING TO THIS CONTROL AGREEMENT AND FOR ANY COUNTERCLAIM THEREIN.

 

IN WITNESS WHEREOF, each of the undersigned has caused this Control Agreement to be duly executed and delivered as of the date first above written.

 

 

[NAME OF GRANTOR]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

[          ], as

 

Agent

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 

 

 

 

 

[NAME OF ISSUER]

 

 

 

 

 

By:

 

 

 

Name:

 

 

Title:

 



 

Annex I to Security Agreement

 

JOINDER AGREEMENT, dated as of                            , 20     , made by                                     , a                                      (the “ Additional Grantor ”), in favor of [       ], as Agent (in such capacity, the “ Agent ”) for (i) the lender (the “ Lender ”) party to the Credit Agreement referred to below and (ii) the other Secured Creditors (as defined in the Security Agreement (as hereinafter defined)).  All capitalized terms not defined herein shall have the meaning ascribed to them in such Credit Agreement.

 

W I T N E S S E T H:

 

WHEREAS, Avinger, Inc. (the “ Borrower ”), the Lender and the Agent have entered into the Credit Agreement, dated as of April 18, 2013 (as amended, supplemented, replaced or otherwise modified from time to time, the “ Credit Agreement ”);

 

WHEREAS, in connection with the Credit Agreement, the Borrower has entered into a Security Agreement, dated as of April 18, 2013 (as amended, supplemented or otherwise modified from time to time, the “ Security Agreement ”) in favor of the Agent for the benefit of the Secured Creditors;

 

WHEREAS, the Credit Agreement requires the Additional Grantor to become a party to the Security Agreement; and

 

WHEREAS, the Additional Grantor has agreed to execute and deliver this Joinder Agreement in order to become a party to the Security Agreement;

 

NOW, THEREFORE, IT IS AGREED:

 

1.                                       Security Agreement .  By executing and delivering this Joinder Agreement, the Additional Grantor, as provided in Section 18.15 of the Security Agreement, hereby becomes a party to the Security Agreement as a Grantor thereunder with the same force and effect as if originally named therein as a Grantor and, without limiting the generality of the foregoing, hereby expressly assumes all obligations and liabilities of a Grantor thereunder.  The information set forth in Annex I-A hereto is hereby added to the information set forth in the Perfection Certificate or Perfection Supplement most recently delivered pursuant to the terms of the Security Agreement.  The Additional Grantor hereby represents and warrants that each of the representations and warranties as to the Additional Grantor contained in Section 5 of the Security Agreement is true and correct in all material respects on and as the date hereof (after giving effect to this Joinder Agreement) as if made on and as of such date.

 

2.                                       GOVERNING LAW .  THIS JOINDER AGREEMENT SHALL BE GOVERNED BY, AND CONSTRUED AND INTERPRETED IN ACCORDANCE WITH, THE LAW OF THE STATE OF NEW YORK.

 

IN WITNESS WHEREOF, the undersigned has caused this Joinder Agreement to be duly executed and delivered as of the date first above written.

 

 

[ADDITIONAL GRANTOR]

 

 

 

By:

 

 

 

Name:

 

 

Title:

 




Exhibit 10.11

 

November 5, 2014

 

John B. Simpson, MD, PhD

 

Dear Dr. Simpson:

 

Avinger, Inc. (the - Company”) is pleased to confirm the details of your employment with the company under the terms described below. The Company confirms your execution of an At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, dated June 28, 2010; a copy has been enclosed for your reference.

 

Following are the terms of employment with the Company:

 

Title: Chief Executive Officer

Status: Full-time; Exempt

Date of Hire: June 15, 2010

 

Base Salary: Annual gross salary of $335,000 paid in semi-monthly installments of $13,958,33 on the Company’s regular payroll dates. All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

Stock Options: The Company’s Board of Directors or its Compensation Committee, have granted you options to purchase 1,300,000 shares of the Company’s common stock. As previously communicated, the vesting commencement date is January 1, 2013; these options vest over 4 years, with 25% of the Shares subject to the Option vesting upon one year of the vesting commencement date and one forty-eighth (1/48th) of the Shares subject to the Option vesting upon completion of each month of continuous Service thereafter. The options will be subject to the terms and conditions applicable to options granted under the current Stock Plan, as described in that Plan and the applicable stock option agreement.

 

Benefits: Standard, Avinger-provided benefits for eligible employees, include the following: Medical, dental, and vision to which you are eligible, subject to any additional eligibility requirements; Paid time off per the Company’s Paid Time Off policy; and Avinger’s 401(k) Plan.

 

Change of Control: A Change of Control and Severance Agreement was entered into and made effective on March 1, 2012 and continues to be in effect.

 

Additional terms of employment are described below:

 

Employment Relationship: Please note that, you are employed at all times as an at-will employee, meaning that either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or notice. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may not

 



 

be changed or be modified, except in writing, executed by the Company’s Board of Directors.

 

Outside Activities: While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company. In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

 

Prior Obligations: Please keep in mind Avinger’s ethical and contractual obligations that our  proprietary information of third parties (including former employers) in connection with your work for us. In addition, Avinger must emphasize that you must abide by any contractual obligations that you have consented to in agreements with previous employers or third parties. If we receive notification that any employee is breaching an obligation regarding specific proprietary information or employment terms, then the company must investigate it.

 

Entire Agreement: This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

 

 

 

 

 

 

Sincerely,

 

 

 

/s/ Matthew Ferguson

 

 

 

Matthew Ferguson

 

Chief Business Officer

 

 

 

 

 

 

I have read, accept and confirm the accuracy of this employment agreement:

 

 

Signature:

/s/ John B. Simpson

 

Date:

Dec 1, 2014

 

2



 

this Agreement, nor any waiver of any rights under this Agreement, will be effective unless in writing signed by the President or CEO of the Company and me. Any subsequent change or changes in my duties, salary, or compensation will not affect the validity or scope of this Agreement.

 

C.                                     Severability . If one or more of the provisions in this Agreement arc deemed void by law, then the remaining provisions will continue in full force and effect.

 

D.                                     Successors and Assigns . This Agreement will be binding upon my heirs, executors, assigns, administrators, and other legal representatives, and will be for the benefit of the Company, its successors, and its assigns. There are no intended third-party beneficiaries to this Agreement, except as expressly stated. Notwithstanding anything to the contrary herein, Company may assign this Agreement and its rights and obligations under this Agreement to any successor to all or substantially all of Company’s relevant assets, whether by merger, consolidation, sale of assets or stock, or otherwise.

 

E.                                      Waiver . Waiver by the Company of a breach of any provision of this Agreement will not operate as a waiver of any other or subsequent breach.

 

F.                                       Survivorship . The rights and obligations survive termination of my employment with the Company.

 

G.                                     Signatures . This Agreement may be signed in two counterparts, each of which shall be deemed an original, with the same force and effectiveness as though executed in a single document.

 

Date:

June 28, 2010

 

/s/ John B. Simpson

 

 

Signature

 

 

 

 

 

 

 

 

John B. Simpson

 

 

Name of Employee (typed or printed)

 

 

 

Witness:

 

 

 

 

 

 

 

 

Signature

 

 

 

 

 

 

 

 

Name (typed or printed)

 

 

 



 

Exhibit A

 

LIST OF PRIOR INVENTIONS
AND ORIGINAL WORKS OF AUTHORSHIP

 

Title

 

Date

 

Identifying Number or Brief
Description

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

x           No inventions or improvements

 

o             Additional Sheets Attached

 

 

Signature of Employee:

/s/ John B. Simpson

 

 

 

 

Print Name of Employee:

John. B. Simpson

 

 

 

 

Date:

June 15, 2012

 

 




Exhibit 10.12

 

April 2, 2014

 

John D. Simpson

 

Dear JD:

 

Avinger, Inc. (the “Company”) is pleased to confirm the employment offer with the company under the terms described below.  This offer is contingent upon your successful completion of our background check process, your execution of an At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, and your presentation of appropriate documentation showing that you are legally authorized to work in the United States.

 

By signing this letter, you confirm with the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company.

 

Following are the terms of the offer of employment with the Company:

 

Title: Vice President, Sales

 

Reports To: Chief Executive Officer

 

Status: Full-time, Exempt

 

Start Date: March 7, 2014

 

Base Salary: Annual gross starting salary of $200,000 paid in semi-monthly installments of $8,333.33 on the Company’s regular payroll dates.  All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

Commission: In addition to your base salary, you will also be eligible to receive a commission based on a schedule relating to your sates productivity, which will be communicated by the Company.

 

Benefits: Standard, Avinger-provided benefits for eligible employees, include the following: Medical, dental, and vision to which you will become eligible on the 1st day of the month after the Start Date, and subject to any additional eligibility requirements; Paid time off per the Company’s Paid Time Off policy; and Avinger’s 401[k] Plan.

 

Additional terms of employment are described below:

 

Employment Relationship: Please note that you will be employed at all times as an at-will employee, meaning that either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or notice.  Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and

 



 

procedures, may change from time to time, the - at wilt” nature of your employment may not be changed or be modified, except in writing, executed by the CEO of the Company.

 

Outside Activities: White you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company.  In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

 

Prior Obligations: Please keep in mind Avinger’s ethical and contractual obligations that our employees owe to their former employers.  Please do not to disclose, transfer, or utilize any proprietary information of third parties (including former employers] in connection with your work for us.  In addition, Avinger must emphasize that you must abide by any contractual obligations that you have consented to in agreements with previous employers or third parties.  If we receive notification that any employee is breaching an obligation regarding specific proprietary information or employment terms, then the company must investigate it.

 

Entire Agreement: This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

 

Please provide evidence of your U.S. citizenship or proof of your legal right to work in this country.  We are required by federal law to examine documentation of your employment eligibility within three business days after you begin employment.  Also within your offer package are the following documents for your review: 11 At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement; 21 W-4; and 31 an 1-9 form.

 

Please sign and date this offer letter, the At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, W-4, and 1-9.  Please bring these forms, along with proof of your legal right to work in the United States.

 

We are very excited about Avinger’s prospects, and you will be a key member of the team that can make our company successful.  If you have questions or concerns, please feel free to contact me.

 

Sincerely,

 

 

 

 

 

Matthew Ferguson

 

 

Chief Business Officer

 

 

 

 

 

I have read and accept this offer of employment:

 

 

 

 

 

Signature:

/s/ John D. Simpson

 

Date:

4/7/14

 

2




Exhibit 10.13

 

December 29, 2010

 

Matthew Ferguson

 

Dear Matt:

 

Avinger, Inc. (the “Company”) is pleased to offer you employment with the company under the terms described below.  This offer is contingent upon your successful completion of our background check process, your execution of an At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, and your presentation of appropriate documentation showing that you are legally authorized to work in the United States.

 

By signing this letter, you confirm with the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company.

 

Following are the terms of the offer of employment with the Company:

 

·                   Title : Chief Business Officer

 

·                   Reports To : Chief Executive Officer

 

·                   Status : Full time; Exempt

 

·                   Start Date : December 31, 2010

 

·                   Base Salary : Annual gross starting salary of $245,000 paid in semi-monthly installments of $10,208.33 on the Company’s regular payroll dates.  All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

·                   Stock Options : Subject to the approval of the Company’s Board of Directors or its Compensation Committee and assuming that you have performed to the Company’s satisfaction and have not resigned or been terminated, you will be eligible for a grant of options to purchase 1,528,466 shares of the Company’s common stock.  If granted, these options will vest over 4 years, with 25% of the Shares subject to the Option vesting upon one year of employment and one forty-eighth (1/48 th ) of the Shares subject to the Option vesting upon completion of each month of continuous Service thereafter.  The options will be subject to the terms and conditions applicable to options granted under the current Stock Plan , as described in that Plan and the applicable stock option agreement.

 

·                   Benefits : Standard, Avinger-provided benefits for eligible employees, include the following:

 

·                   Medical, dental, and vision to which you will become eligible on the 1 st  day of the month after the Start Date,  and subject to any additional eligibility requirements;

·                   Paid time off per the Company’s Paid Time Off policy.

 



 

Additional terms of employment are described below:

 

·                   Employment Relationship: Please note that, if hired, you will be employed at all times as an at-will employee, meaning that either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or notice.  Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may not be changed or be modified, except in writing, executed by the CEO of the Company.

 

·                   Outside Activities : While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company.  In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

 

·                   Prior Obligations: Please keep in mind Avinger’s ethical and contractual obligations that our employees owe to their former employers.  Please do not to disclose, transfer, or utilize any proprietary information of third parties (including former employers) in connection with your work for us.  In addition, Avinger must emphasize that you must abide by any contractual obligations that you have consented to in agreements with previous employers or third parties.  If we receive notification that any employee is breaching an obligation regarding specific proprietary information or employment terms, then the company must investigate it.

 

·                   Entire Agreement: This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

 

On or before your first day of work, please provide evidence of your U.S. citizenship or proof of your legal right to work in this country.  We are required by federal law to examine documentation of your employment eligibility within three business days after you begin employment.  Also within your offer package are the following documents for your review: 1) At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement; 2) Equal Employment Opportunity and Anti-Harassment 3) W-4; and 4) an 1-9 form.

 

If you choose to accept this offer, please sign and date this offer letter, the At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, Equal Employment Opportunity and Anti-Harassment, W-4, and 1-9.  Please bring these forms, along with proof of your legal right to work in the United States, on your first day of work.

 



 

I hope you will accept this employment offer and look forward to welcoming you aboard on December 31, 2011, should you accept.  We are very excited about Avinger’s prospects, and you will be a key member of the team that can make our company successful.  If you have questions or concerns, please feel free to contact me.

 

Sincerely,

 

/s/ John B. Simpson

 

John B. Simpson

 

Chief Executive Officer

 

 

 

I have read and accept this offer of employment:

 

 

Signature:

/s/ Matthew Ferguson

 

Date:

12/31/2010

 




Exhibit 10.14

 

November 28, 2011

 

Bunty Banerjee

 

Dear Bunty:

 

Avinger, Inc. (the “Company”) is pleased to offer you employment with the company under the terms described below.  This offer is contingent upon your successful completion of our background check process, your execution of an At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, and your presentation of appropriate documentation showing that you are legally authorized to work in the United States.

 

By signing this letter, you confirm with the Company that you are under no contractual or other legal obligations that would prohibit you from performing your duties with the Company.

 

Following are the terms of the offer of employment with the Company:

 

·                   Title : Senior Vice President, Operations

 

·                   Reports To: Chief Operating Officer

 

·                   So Status : Full-time; Exempt

 

·                   Start Date : January 3, 2012

 

·                   Base Salary : Annual gross starting salary of $220,000 paid in semi-monthly installments of $9,166.67 on the Company’s regular payroll dates.  All forms of compensation referred to in this letter are subject to applicable withholding and payroll taxes.

 

·                   Sign-On Bonus : The Company will pay you a one-time payment of $50,000, less applicable withholdings, upon completion of 30 days of service to the Company (the “Sign-On Bonus”).  If you voluntarily terminate your employment with the Company for any reason within six (6) months of your start date, you agree to repay the Sign-On Bonus in its entirety to the Company within five (5) business days of such termination date.

 

·                   Target Bonus : You will be eligible to earn a quarterly bonus targeted at $60,000 annually, less applicable withholdings (the “Target Bonus”).  This Target Bonus will be based on satisfactorily meeting mutually agreed upon, reasonable, personal milestones related to your position.  Additionally, this Target Bonus is subject to change; and future target bonuses may be based on a corporate bonus plan.

 

·                   Stock Options : Subject to the approval of the Company’s Board of Directors or its Compensation Committee and assuming that you have performed to the Company’s

 



 

satisfaction and have not resigned or been terminated, you will be eligible for a grant of options to purchase 939,516 shares of the Company’s common stock, which is approximately equal to 0.85% of the current number of fully diluted shares outstanding.  If granted, these options will vest over 4 years, with 25% of the Shares subject to the Option vesting upon one year of employment and one forty-eighth (1/48 th ) of the Shares subject to the Option vesting upon completion of each month of continuous Service thereafter.  The options will be subject to the terms and conditions applicable to options granted under the current Stock Plan, as described in that Plan and the applicable stock option agreement.

 

·                   Benefits : Standard, Avinger-provided benefits for eligible employees, include the following:

 

·                                     Medical, dental, and vision to which you will become eligible on the 1 st  day of the month after the Start Date, and subject to any additional eligibility requirements;

·                                     Paid time off per the Company’s Paid Time Off policy; and

·                                     Avinger’s 401(k) Plan.

 

Additional terms of employment are described below:

 

·                   Employment Relationship : Please note that, if hired, you will be employed at all times as an at-will employee, meaning that either you or the Company may terminate the employment relationship at any time and for any reason, with or without cause or notice.  Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may not be changed or be modified, except in writing, executed by the CEO of the Company.

 

·                   Outside Activities : While you render services to the Company, you agree that you will not engage in any other employment, consulting or other business activity without the written consent of the Company.  In addition, while you render services to the Company, you will not assist any person or entity in competing with the Company, in preparing to compete with the Company or in hiring any employees or consultants of the Company.

 

·                   Prior Obligations : Please keep in mind Avinger’s ethical and contractual obligations that our employees owe to their former employers.  Please do not to disclose, transfer, or utilize any proprietary information of third parties (including former employers) in connection with your work for us.  In addition, Avinger must emphasize that you must abide by any contractual obligations that you have consented to in agreements with previous employers or third parties.  If we receive notification that any employee is breaching an obligation regarding specific proprietary information or employment terms, then the company must investigate it.

 

·                   Entire Agreement : This letter supersedes and replaces any prior understandings or agreements, whether oral, written or implied, between you and the Company regarding the matters described in this letter.

 



 

On or before your first day of work, please provide evidence of your U.S. citizenship or proof of your legal right to work in this country.  We are required by federal law to examine documentation of your employment eligibility within three business days after you begin employment.  Also within your offer package are the following documents for your review: 1) At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement; 2) Equal Employment Opportunity and Anti-Harassment 3) W-4; and 4) an 1-9 form.

 

If you choose to accept this offer, please sign and date this offer letter, the At-Will Employment, Confidential Information, Invention Assignment, and Arbitration Agreement, Equal Employment Opportunity and Anti-Harassment, W-4, and1-9.  Please bring these forms, along with proof of your legal right to work in the United States, on your first day of work.

 

Please note, this offer will expire on November 29, 2011 at the end of the business day.

 

I hope you will accept this employment offer and look forward to welcoming you aboard on January 3, 2012, should you accept.  We are very excited about Avinger’s prospects, and you will be a key member of the team that can make our company successful.  If you have questions or concerns, please feel free to contact me.

 

Sincerely,

I have read and accept this offer of employment:

 

 

 

/s/ Michael Terner

 

 

 

 

 

 

Michael Terner

Signature:

/s/ Bunty Banerjee

 

Date:

11/29/2011

Chief Operating Officer

 

 

 




Exhibit 10.15

 

AVINGER, INC.

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “ Agreement ”) is entered into as of March 1, 2012 (the “ Effective Date ”) by and between Avinger, Inc. (the “ Company ”), and John B. Simpson, PhD, MD (“ Executive ”).

 

1.                                       Severance .

 

(a)                                  Termination for other than Cause, Death or Disability or Good Reason in the  Event of a Change of Control .  If upon or within eighteen (18) months following a Change of Control (i) the Company (or any parent or subsidiary or successor of the Company) terminates Executive’s employment with the Company other than for Cause, death or disability, or (ii) the Executive resigns from such employment for Good Reason, then, subject to Section 2, Executive will be entitled to: (A) receive continuing payments of severance pay at a rate equal to Executive’s base salary and target bonus, as then in effect, for twelve (12) months from the date of such termination, which will be paid in accordance with the Company’s regular payroll procedures; (B) if Executive timely elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) for Executive and Executive’s dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse Executive for the COBRA premiums for such coverage for Executive and his covered dependents for twelve (12) months from the date of Executive’s termination of employment or such earlier date if Executive no longer constitutes a “Qualified Beneficiary” (as such term is defined in Section 4980B(g) of the Code); (C) accelerated vesting as to 100% of Executive’s outstanding unvested stock options and/or restricted stock; and (D) the extension of the post-termination exercise period for any options held by Executive for a period of one (1) year.

 

(b)                                  Termination for Cause, Death or Disability; Resignation without Good Reason .  If Executive’s employment with the Company (or any parent or subsidiary or successor of the Company) terminates voluntarily by Executive (except upon resignation for Good Reason upon or within eighteen (18) months following a Change of Control), for Cause by the Company or due to Executive’s death or disability, then (i) all vesting will terminate immediately with respect to Executive’s outstanding equity awards, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except, as to amounts already earned), and (iii) Executive will only be eligible for severance benefits in accordance with the Company’s established policies, if any, as then in effect.

 

(c)                                   Option/Stock Acceleration in the Event of a Change of Control .  Upon a Change of Control of the Company, Executive will be entitled to accelerated vesting as to 50% of Executive’s outstanding unvested stock options and/or restricted stock, provided that any remaining shares shall continue to vest per the schedules previously implemented by the Company.

 

(d)                                  Exclusive Remedy .  In the event of a termination of Executive’s employment with the Company (or any parent or subsidiary or successor of the Company), the provisions of this

 



 

Section 1 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement.  Executive will be entitled to no severance or other benefits upon termination of employment with respect to acceleration of award vesting or severance pay other than those benefits expressly set forth in this Section 1.

 

2.                                       Conditions to Receipt of Severance; No Duty to Mitigate .

 

(a)                                  Separation Agreement and Release of Claims .  The receipt of any severance pursuant to Section 1(a) will be subject to Executive signing and not revoking a standard separation agreement and release of claims with the Company (the “ Release ”) and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date (such deadline, the “ Release Deadline ”).  If the Release does not become effective and irrevocable by the Release Deadline, Executive will forfeit any rights to severance or benefits under this Agreement.  In no event will severance payments or benefits be paid or provided until the Release becomes effective and irrevocable.

 

(b)                                  Nonsolicitation .  The receipt of any severance benefits pursuant to Section 1(a) will be subject to Executive not violating the provisions of Section 4.  In the event Executive breaches the provisions of Section 4, all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Section 1(a) will immediately cease.

 

(c)                                   Section 409A .

 

(i)                                      Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Executive, if any, pursuant to this Agreement that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Code Section 409A, and the final regulations and any guidance promulgated thereunder (“ Section 409A ”) (together, the “ Deferred Payments ”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A.  Similarly, no severance payable to Executive, if any, pursuant to this Agreement that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until Executive has a “separation from service” within the meaning of Section 409A.

 

(ii)                                   Any severance payments or benefits under this Agreement that would be considered Deferred Payments will be paid on, or, in the case of installments, will not commence until, the sixtieth (60 th ) day following Executive’s separation from service, or, if later, such time as required by Section 2(c)(iii).  Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60 th ) day following Executive’s separation from service and the remaining payments shall be made as provided in this Agreement.

 

(iii)                                Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Payments that are payable within the first six

 

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(6) months following Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service.  All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.  Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit.  Each payment and benefit payable under this Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

 

(iv)                               Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of clause (i) above.

 

(v)                                  Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit (as defined below) will not constitute Deferred Payments for purposes of clause (i) above.

 

(vi)                               The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.  The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

 

(d)                                  No Duty to Mitigate .  Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

 

3.                                       Definitions .

 

(a)                                  Cause .  For purposes of this Agreement, “ Cause ” is defined as (i) an act of dishonesty made by Executive in connection with Executive’s responsibilities as an employee, (ii) Executive’s conviction of, or plea of nolo contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude, causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the board of directors of the Company (the “ Board ”); (iii)   Executive’s gross misconduct, (iv) Executive’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of Executive’s relationship with the Company; (v) Executive’s willful breach of any obligations under any written agreement or covenant with the Company; (vi) Executive’s continued failure to perform his employment duties after Executive has received a written demand of performance from the Company which specifically

 

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sets forth the factual basis for the Company’s belief that Executive has not substantially performed his duties and has failed to cure such non-performance to the Company’s satisfaction within 10 business days after receiving such notice provided that such nonperformance has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; or (vii) Executive’s repeated unexplained or unjustified absence from the Company.

 

(b)                                  Change of Control .  For purposes of this Agreement, “ Change of Control ” of the Company is defined as:

 

(i)                                      any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company’s then outstanding voting securities; or

 

(ii)                                   the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;

 

(iii)                                the date of the consummation of the sale or disposition by the Company of all or substantially all the Company’s assets; or

 

(iv)                               the date that a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.  For purposes of this clause (iv), if any person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same person will not be considered a Change of Control.

 

Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change of Control unless the transaction qualifies as a “change in control event” within the meaning of Section 409A.

 

Further, notwithstanding the foregoing provisions of this definition, the following shall not constitute a Change of Control:

 

(w)                                any transfer by Dr. John B. Simpson or affiliated entities (“ Simpson ”) of shares held by Simpson;

 

(x)                                  any bona fide equity financing for capital raising purposes;

 

(y)                                  any merger or acquisition done exclusively to effect a change of domicile of the Company; and

 

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(z)                                   any transfer of assets by the Company to a new company for tax planning

 

(c)                                   Code .  For purposes of this Agreement, “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(d)                                  Good Reason .  For the purposes of this Agreement, “ Good Reason ” means Executive’s resignation within ninety (90) days following the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without Executive’s express written consent: (i) a material reduction of Executive’s duties, position or responsibilities, or the removal of Executive from such position and responsibilities, either of which results in a material diminution of Executive’s authority, duties or responsibilities, unless Executive is provided with a comparable position (i.e., a position of equal or greater organizational level, duties, authority, compensation and status); provided, however, that a reduction in duties, position or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains as such following a Change of Control but is not made the Chief Executive Officer of the acquiring corporation) will not constitute “Good Reason”; (ii) a material reduction in Executive’s base salary (in other words, a reduction of more than ten percent (10%) of Executive’s base salary in any one year); (iii) a material change in the geographic location of Executive’s primary work facility or location; provided, that a relocation of less than fifty (50) miles from Executive’s then present location will not be considered a material change in geographic location; or (iv) a material breach of this Agreement by the Company.  Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than thirty (30) days following the date of such notice.

 

(e)                                   Section 409A Limit .  For purposes of this Agreement, “ Section 409A Limit ” will mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding the Executive’s taxable year of his or her termination of employment as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for the year in which Executive’s employment is terminated.

 

4.                                       Non -Solicitation .  Until the date one (1) year after the termination of Executive’s employment with the Company for any reason, Executive agrees not, either directly or indirectly, to solicit, induce, attempt to solicit, recruit, or encourage any employee of the Company (or any parent or subsidiary of the Company) to leave his or her employment either for Executive or for any other entity or person.  Executive represents that he (i) is familiar with the foregoing covenant not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.  This Section 4 supersedes all prior or contemporaneous agreements whether written or oral as to the subject matter herein.

 

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5.                                       Assignment .  This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes.  For this purpose, “ successor ” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.

 

6.                                       Notices .  All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

 

If to the Company:

 

Avinger, Inc.

Attn : Chief Financial Officer at the time

 

400 Chesapeake Drive

Redwood City, CA 94063

 

If to Executive:

 

at the last residential address known by the Company.

 

7.                                       Severability,  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

 

8.                                       Arbitration .

 

(a)                                  Arbitration .  In consideration of Executive’s employment with the Company, its promise to arbitrate all employment-related disputes, and Executive’s receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive’s employment with the Company or termination thereof, including any breach of this Agreement, will be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1281.8 (the “ Act ”), and pursuant to California law.  The Federal Arbitration Act shall also apply with full force and effect, notwithstanding the application of procedural rules set forth under the Act.

 

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(b)                                  Dispute Resolution Disputes that Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under local, state, or federal law , including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims.  Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.

 

(c)                                   Procedure .  Executive agrees that any arbitration will be administered by the Judicial Arbitration & Mediation Services, Inc. (“ JAMS ”), pursuant to its Employment Arbitration Rules & Procedures (the “ JAMS Rules ”).  The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing.  The arbitrator shall have the power to award any remedies available under applicable law, and the arbitrator shall award attorneys’ fees and costs to the prevailing party, except as prohibited by law.  The Company will pay for any administrative or hearing fees charged by the administrator or JAMS, and all arbitrator’s fees, except that Executive shall pay any filing fees associated with any arbitration that Executive initiates, but only so much of the filing fee as Executive would have instead paid had Executive filed a complaint in a court of law.  Executive agrees that the arbitrator shall administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure and the California Evidence Code, and that the arbitrator shall apply substantive and procedural California law to any dispute or claim, without reference to the rules of conflict of law.  To the extent that the JAMS Rules conflict with California law, California law shall take precedence.  The decision of the arbitrator shall be in writing.  Any arbitration under this Agreement shall be conducted in Santa Clara County, California.

 

(d)                                  Remedy .  Except as provided by the Act, arbitration shall be the sole, exclusive, and final remedy for any dispute between Executive and the Company.  Accordingly, except as provided by the Act and this Agreement, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration .  Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator will not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

 

(e)                                   Administrative Relief .  Executive is not prohibited from pursuing an administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board.  However, Executive may not pursue court action regarding any such claim, except as permitted by law.

 

(f)                                    Voluntary Nature of Agreement .  Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the

 

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Company or anyone else.  Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, including that EXECUTIVE IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.

 

9.                                       Integration .  This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.  With respect to stock options granted on or after the date of this Agreement, the acceleration of vesting provisions provided herein will apply to such stock options except to the extent otherwise explicitly provided in the applicable stock option agreement.  This Agreement may be modified only by agreement of the parties by a written instrument executed by the parties that is designated as an amendment to this Agreement.

 

10.                                Waiver of Breach .  The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.  Notwithstanding anything to the contrary in this Agreement, the failure of the Company to obtain the assumption of this Agreement by a successor and/or acquirer shall be a material breach of this Agreement.

 

11.                                Headings .  All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

 

12.                                Tax Withholding .  All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

 

13.                                Governing Law .  This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

 

14.                                Acknowledgment .  Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

15.                                Counterparts .  This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written.

 

COMPANY:

 

 

 

 

 

AVINGER, INC.

 

 

 

 

 

By:

/s/ Matthew Ferguson

 

Date:

3/14/12

 

 

 

Title:

Chief Business Officer

 

 

 

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

/s/ John B. Simpson

 

Date:

3/22/12

John B. Simpson, PhD, MD

 

 

 




Exhibit 10.16

 

AVINGER, INC.

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “ Agreement ”) is entered into as of March 1, 2012 (the “ Effective Date ”) by and between Avinger, Inc. (the “ Company ”), and Matthew B. Ferguson (“ Executive ”).

 

1.                                       Severance .

 

(a)                                  Termination for other than Cause, Death or Disability or Good Reason in the  Event of a Change of Control .  If upon or within eighteen (18) months following a Change of Control (i) the Company (or any parent or subsidiary or successor of the Company) terminates Executive’s employment with the Company other than for Cause, death or disability, or (ii) the Executive resigns from such employment for Good Reason, then, subject to Section 2, Executive will be entitled to: (A) receive continuing payments of severance pay at a rate equal to Executive’s base salary and target bonus, as then in effect, for twelve (12) months from the date of such termination, which will be paid in accordance with the Company’s regular payroll procedures; (B) if Executive timely elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) for Executive and Executive’s dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse Executive for the COBRA premiums for such coverage for Executive and his covered dependents for twelve (12) months from the date of Executive’s termination of employment or such earlier date if Executive no longer constitutes a “Qualified Beneficiary” (as such term is defined in Section 4980B(g) of the Code); (C) accelerated vesting as to 100% of Executive’s outstanding unvested stock options and/or restricted stock; and (D) the extension of the post-termination exercise period for any options held by Executive for a period of one (1) year.

 

(b)                                  Termination for Cause, Death or Disability; Resignation without Good  Reason .  If Executive’s employment with the Company (or any parent or subsidiary or successor of the Company) terminates voluntarily by Executive (except upon resignation for Good Reason upon or within eighteen (18) months following a Change of Control), for Cause by the Company or due to Executive’s death or disability, then (i) all vesting will terminate immediately with respect to Executive’s outstanding equity awards, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (iii) Executive will only be eligible for severance benefits in accordance with the Company’s established policies, if any, as then in effect.

 

(c)                                   Option/Stock Acceleration in the Event of a Change of Control .  Upon a Change of Control of the Company, Executive will be entitled to accelerated vesting as to 50% of Executive’s outstanding =vested stock options and/or restricted stock, provided that any remaining shares shall continue to vest per the schedules previously implemented by the Company.

 

(d)                                  Exclusive Remedy .  In the event of a termination of Executive’s employment with the Company (or any parent or subsidiary or successor of the Company), the provisions of this

 



 

Section 1 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement.  Executive will be entitled to no severance or other benefits upon termination of employment with respect to acceleration of award vesting or severance pay other than those benefits expressly set forth in this Section 1.

 

2.                                       Conditions to Receipt of Severance; No Duty to Mitigate .

 

(a)                                  Separation Agreement and Release of Claims .  The receipt of any severance pursuant to Section 1(a) will be subject to Executive signing and not revoking a standard separation agreement and release of claims with the Company (the “ Release ”) and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date (such deadline, the “ Release Deadline ”).  If the Release does not become effective and irrevocable by the Release Deadline, Executive will forfeit any rights to severance or benefits under this Agreement.  In no event will severance payments or benefits be paid or provided until the Release becomes effective and irrevocable.

 

(b)                                  Nonsolicitation .  The receipt of any severance benefits pursuant to Section 1(a) will be subject to Executive not violating the provisions of Section 4.  In the event Executive breaches the provisions of Section 4, all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Section 1(a) will immediately cease.

 

(c)                                   Section 409A .

 

(i)                                      Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Executive, if any, pursuant to this Agreement that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Code Section 409A, and the final regulations and any guidance promulgated thereunder (“ Section 409A ”) (together, the “ Deferred Payments ”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A.  Similarly, no severance payable to Executive, if any, pursuant to this Agreement that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until Executive has a “separation from service” within the meaning of Section 409A.

 

(ii)                                   Any severance payments or benefits under this Agreement that would be considered Deferred Payments will be paid on, or, in the case of installments, will not commence until, the sixtieth (60 th ) day following Executive’s separation from service, or, if later, such time as required by Section 2(c)(iii).  Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60 th ) day following Executive’s separation from service and the remaining payments shall be made as provided in this Agreement.

 

(iii)                                Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Payments that are payable within the first six

 

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(6) months following Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service.  All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.  Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit.  Each payment and benefit payable under this Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

 

(iv)                               Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of clause (i) above.

 

(v)                                  Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit (as defined below) will not constitute Deferred Payments for purposes of clause (i) above.

 

(vi)                               The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.  The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

 

(d)                                  No Duty to Mitigate .  Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

 

3.                                       Definitions .

 

(a)                                  Cause .  For purposes of this Agreement, “ Cause ” is defined as (i) an act of dishonesty made by Executive in connection with Executive’s responsibilities as an employee, (ii) Executive’s conviction of, or plea of nolo contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude, causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the board of directors of the Company (the “ Board ”); (iii) Executive’s gross misconduct, (iv) Executive’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of Executive’s relationship with the Company; (v) Executive’s willful breach of any obligations under any written agreement or covenant with the Company; (vi) Executive’s continued failure to perform his employment duties after Executive has received a written demand of performance from the Company which specifically

 

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sets forth the factual basis for the Company’s belief that Executive has not substantially performed his duties and has failed to cure such non-performance to the Company’s satisfaction within 10 business days after receiving such notice provided that such nonperformance has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; or (vii) Executive’s repeated unexplained or unjustified absence from the Company.

 

(b)                                  Change of Control .  For purposes of this Agreement, “ Change of Control ” of the Company is defined as:

 

(i)                                      any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company’s then outstanding voting securities; or

 

(ii)                                   the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;

 

(iii)                                the date of the consummation of the sale or disposition by the Company of all or substantially all the Company’s assets; or

 

(iv)                               the date that a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.  For purposes of this clause (iv), if any person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same person will not be considered a Change of Control.

 

Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change of Control unless the transaction qualifies as a “change in control event” within the meaning of Section 409A.

 

Further, notwithstanding the foregoing provisions of this definition, the following shall not constitute a Change of Control:

 

(w)                                any transfer by Dr. John B. Simpson or affiliated entities (“ Simpson ”) of shares held by Simpson;

 

(x)                                  any bona fide equity financing for capital raising purposes;

 

(y)                                  any merger or acquisition done exclusively to effect a change of domicile of the Company; and

 

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(z)                                   any transfer of assets by the Company to a new company for tax planning purposes.

 

(c)                                   Code .  For purposes of this Agreement, “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(d)                                  Good Reason .  For the purposes of this Agreement, “ Good Reason ” means Executive’s resignation within ninety (90) days following the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without Executive’s express written consent: (i) a material reduction of Executive’s duties, position or responsibilities, or the removal of Executive from such position and responsibilities, either of which results in a material diminution of Executive’s authority, duties or responsibilities, unless Executive is provided with a comparable position (i.e., a position of equal or greater organizational level, duties, authority, compensation and status); provided, however, that a reduction in duties, position or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains as such following a Change of Control but is not made the Chief Executive Officer of the acquiring corporation) will not constitute “Good Reason”; (ii) a material reduction in Executive’s base salary (in other words, a reduction of more than ten percent (10%) of Executive’s base salary in any one year); (iii) a material change in the geographic location of Executive’s primary work facility or location; provided, that a relocation of less than fifty (50) miles from Executive’s then present location will not be considered a material change in geographic location; or (iv) a material breach of this Agreement by the Company.  Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than thirty (30) days following the date of such notice.

 

(e)                                   Section 409A Limit .  For purposes of this Agreement, “ Section 409A Limit ” will mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding the Executive’s taxable year of his or her termination of employment as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for the year in which Executive’s employment is terminated.

 

4.                                       Non-Solicitation .  Until the date one (1) year after the termination of Executive’s employment with the Company for any reason, Executive agrees not, either directly or indirectly, to solicit, induce, attempt to solicit, recruit, or encourage any employee of the Company (or any parent or subsidiary of the Company) to leave his or her employment either for Executive or for any other entity or person.  Executive represents that he (i) is familiar with the foregoing covenant not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.  This Section 4 supersedes all prior or contemporaneous agreements whether written or oral as to the subject matter herein.

 

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5.                                       Assignment .  This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes.  For this purpose, “ successor ” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.

 

6.                                       Notices .  All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

 

If to the Company:

 

Avinger,

Attn : Chief Financial Officer at the time

 

400 Chesapeake Drive

Redwood City, CA 94063

 

If to Executive:

 

at the last residential address known by the Company.

 

7.                                       Severability .  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

 

8.                                       Arbitration .

 

(a)                                  Arbitration .  In consideration of Executive’s employment with the Company, its promise to arbitrate all employment-related disputes, and Executive’s receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive’s employment with the Company or termination thereof, including any breach of this Agreement, will be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1281.8 (the “ Act ”), and pursuant to California law.  The Federal Arbitration Act shall also apply with full force and effect, notwithstanding the application of procedural rules set forth under the Act.

 

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(b)                                  Dispute Resolution .  Disputes that Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under local, state, or federal law , including, but not limited to, claims under Title VII of the Civil Rights Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims.  Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.

 

(c)                                   Procedure .  Executive agrees that any arbitration will be administered by the Judicial Arbitration & Mediation Services, Inc. (“ JAMS ”), pursuant to its Employment Arbitration Rules & Procedures (the “ JAMS Rules ”).  The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing.  The arbitrator shall have the power to award any remedies available under applicable law, and the arbitrator shall award attorneys’ fees and costs to the prevailing party, except as prohibited by law.  The Company will pay for any administrative or hearing fees charged by the administrator or JAMS, and all arbitrator’s fees, except that Executive shall pay any filing fees associated with any arbitration that Executive initiates, but only so much of the filing fee as Executive would have instead paid had Executive filed a complaint in a court of law.  Executive agrees that the arbitrator shall administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure and the California Evidence Code, and that the arbitrator shall apply substantive and procedural California law to any dispute or claim, without reference to the rules of conflict of law.  To the extent that the JAMS Rules conflict with California law, California law shall take precedence.  The decision of the arbitrator shall be in writing.  Any arbitration under this Agreement shall be conducted in Santa Clara County, California.

 

(d)                                  Remedy .  Except as provided by the Act, arbitration shall be the sole, exclusive, and final remedy for any dispute between Executive and the Company.  Accordingly, except as provided by the Act and this Agreement, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration .  Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator will not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

 

(e)                                   Administrative Relief .  Executive is not prohibited from pursuing an administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board.  However, Executive may not pursue court action regarding any such claim, except as permitted by law.

 

(f)                                    Voluntary Nature of Agreement .  Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the

 

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Company or anyone else.  Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, including that EXECUTIVE IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.

 

9.                                       Integration .  This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.  With respect to stock options granted on or after the date of this Agreement, the acceleration of vesting provisions provided herein will apply to such stock options except to the extent otherwise explicitly provided in the applicable stock option agreement.  This Agreement may be modified only by agreement of the parties by a written instrument executed by the parties that is designated as an amendment to this Agreement.

 

10.                                Waiver of Breach .  The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.  Notwithstanding anything to the contrary in this Agreement, the failure of the Company to obtain the assumption of this Agreement by a successor and/or acquirer shall be a material breach of this Agreement.

 

11.                                Headings .  All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

 

12.                                Tax Withholding .  All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

 

13.                                Governing Law .  This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

 

14.                                Acknowledgment .  Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

15.                                Counterparts .  This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written.

 

COMPANY:

 

 

 

 

 

AVINGER, INC.

 

 

 

 

 

By:

/s/ John Simpson

 

Date:

3/22/12

 

 

 

Title:

CEO

 

 

 

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

/s/ Matthew B. Ferguson

 

Date:

3/14/12

Matthew B. Ferguson

 

 

 




Exhibit 10.17

 

AVINGER, INC.

 

CHANGE OF CONTROL AND SEVERANCE AGREEMENT

 

This Change of Control and Severance Agreement (the “Agreement”) is entered into as of March 1, 2012 (the “ Effective Date ”) by and between Avinger, Inc. (the “ Company ”), and Sougata Banerjee (“ Executive ”).

 

1.                                       Severance .

 

(a)                                  Termination for other than Cause, Death or Disability or Good Reason in the  Event of a Change of Control .  If upon or within eighteen (18) months following a Change of Control (i) the Company (or any parent or subsidiary or successor of the Company) terminates Executive’s employment with the Company other than for Cause, death or disability, or (ii) the Executive resigns from such employment for Good Reason, then, subject to Section 2, Executive will be entitled to: (A) receive continuing payments of severance pay at a rate equal to Executive’s base salary and target bonus, as then in effect, for six (6) months from the date of such termination, which will be paid in accordance with the Company’s regular payroll procedures; (B) if Executive timely elects continuation coverage pursuant to the Consolidated Omnibus Budget Reconciliation Act of 1985, as amended (“ COBRA ”) for Executive and Executive’s dependents, within the time period prescribed pursuant to COBRA, the Company will reimburse Executive for the COBRA premiums for such coverage for Executive and his covered dependents for six (6) months from the date of Executive’s termination of employment or such earlier date if Executive no longer constitutes a “Qualified Beneficiary” (as such term is defined in Section 4980B(g) of the Code); (C) accelerated vesting as to 100% of Executive’s outstanding unvested stock options and/or restricted stock; and (D) the extension of the post-termination exercise period for any options held by Executive for a period of one (1) year.

 

(b)                                  Termination for Cause, Death or Disability; Resignation without Good Reason .  If Executive’s employment with the Company (or any parent or subsidiary or successor of the Company) terminates voluntarily by Executive (except upon resignation for Good Reason upon or within eighteen (18) months following a Change of Control), for Cause by the Company or due to Executive’s death or disability, then (i) all vesting will terminate immediately with respect to Executive’s outstanding equity awards, (ii) all payments of compensation by the Company to Executive hereunder will terminate immediately (except as to amounts already earned), and (iii) Executive will only be eligible for severance benefits in accordance with the Company’s established policies, if any, as then in effect.

 

(c)                                   Option/Stock Acceleration in the Event of a Change of Control .  Upon a Change of Control of the Company, Executive will be entitled to accelerated vesting as to 50% of Executive’s outstanding unvested stock options and/or restricted stock, provided that any remaining shares shall continue to vest per the schedules previously implemented by the Company.

 

(d)                                  Exclusive Remedy .  In the event of a termination of Executive’s employment with the Company (or any parent or subsidiary or successor of the Company), the provisions of this

 



 

Section 1 are intended to be and are exclusive and in lieu of any other rights or remedies to which Executive or the Company may otherwise be entitled, whether at law, tort or contract, in equity, or under this Agreement. Executive will be entitled to no severance or other benefits upon termination of employment with respect to acceleration of award vesting or severance pay other than those benefits expressly set forth in this Section 1.

 

2.                                       Conditions to Receipt of Severance; No Duty to Mitigate .

 

(a)                                  Separation Agreement and Release of Claims .  The receipt of any severance pursuant to Section 1(a) will be subject to Executive signing and not revoking a standard separation agreement and release of claims with the Company (the “Release”) and provided that such Release becomes effective and irrevocable no later than sixty (60) days following the termination date (such deadline, the “Release Deadline”).  If the Release does not become effective and irrevocable by the Release Deadline, Executive will forfeit any rights to severance or benefits under this Agreement.  In no event will severance payments or benefits be paid or provided until the Release becomes effective and irrevocable.

 

(b)                                  Nonsolicitation .  The receipt of any severance benefits pursuant to Section 1(a) will be subject to Executive not violating the provisions of Section 4.  In the event Executive breaches the provisions of Section 4, all continuing payments and benefits to which Executive may otherwise be entitled pursuant to Section 1(a) will immediately cease.

 

(c)                                   Section 409A .

 

(i)                                      Notwithstanding anything to the contrary in this Agreement, no severance pay or benefits to be paid or provided to Executive, if any, pursuant to this Agreement that, when considered together with any other severance payments or separation benefits, are considered deferred compensation under Code Section 409A, and the final regulations and any guidance promulgated thereunder (“ Section 409A ”) (together, the “ Deferred Payments ”) will be paid or otherwise provided until Executive has a “separation from service” within the meaning of Section 409A.  Similarly, no severance payable to Executive, if any, pursuant to this Agreement that otherwise would be exempt from Section 409A pursuant to Treasury Regulation Section 1.409A-1(b)(9) will be payable until Executive has a “separation from service” within the meaning of Section 409A.

 

(ii)                                   Any severance payments or benefits under this Agreement that would be considered Deferred Payments will be paid on, or, in the case of installments, will not commence until, the sixtieth (60 th ) day following Executive’s separation from service, or, if later, such time as required by Section 2(c)(iii).  Any installment payments that would have been made to Executive during the sixty (60) day period immediately following Executive’s separation from service but for the preceding sentence will be paid to Executive on the sixtieth (60 th ) day following Executive’s separation from service and the remaining payments shall be made as provided in this Agreement.

 

(iii)                                Notwithstanding anything to the contrary in this Agreement, if Executive is a “specified employee” within the meaning of Section 409A at the time of Executive’s termination (other than due to death), then the Deferred Payments that are payable within the first six

 

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(6) months following Executive’s separation from service, will become payable on the first payroll date that occurs on or after the date six (6) months and one (1) day following the date of Executive’s separation from service.  All subsequent Deferred Payments, if any, will be payable in accordance with the payment schedule applicable to each payment or benefit.  Notwithstanding anything herein to the contrary, if Executive dies following Executive’s separation from service, but prior to the six (6) month anniversary of the separation from service, then any payments delayed in accordance with this paragraph will be payable in a lump sum as soon as administratively practicable after the date of Executive’s death and all other Deferred Payments will be payable in accordance with the payment schedule applicable to each payment or benefit.  Each payment and benefit payable under this Agreement is intended to constitute a separate payment for purposes of Section 1.409A-2(b)(2) of the Treasury Regulations.

 

(iv)                               Any amount paid under this Agreement that satisfies the requirements of the “short-term deferral” rule set forth in Section 1.409A-1(b)(4) of the Treasury Regulations will not constitute Deferred Payments for purposes of clause (i) above.

 

(v)                                  Any amount paid under this Agreement that qualifies as a payment made as a result of an involuntary separation from service pursuant to Section 1.409A-1(b)(9)(iii) of the Treasury Regulations that does not exceed the Section 409A Limit (as defined below) will not constitute Deferred Payments for purposes of clause (i) above.

 

(vi)                               The foregoing provisions are intended to comply with the requirements of Section 409A so that none of the severance payments and benefits to be provided hereunder will be subject to the additional tax imposed under Section 409A, and any ambiguities herein will be interpreted to so comply.  The Company and Executive agree to work together in good faith to consider amendments to this Agreement and to take such reasonable actions which are necessary, appropriate or desirable to avoid imposition of any additional tax or income recognition prior to actual payment to Executive under Section 409A.

 

(d)                                  No Duty to Mitigate .  Executive will not be required to mitigate the amount of any payment contemplated by this Agreement, nor will any earnings that Executive may receive from any other source reduce any such payment.

 

3.                                       Definitions .

 

(a)                                  Cause .  For purposes of this Agreement, “Cause” is defined as (i) an act of dishonesty made by Executive in connection with Executive’s responsibilities as an employee, (ii) Executive’s conviction of, or plea of nolo contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude, causing material harm to the standing and reputation of the Company, in each case as determined in good faith by the board of directors of the Company (the “ Board ”); (iii) Executive’s gross misconduct, (iv) Executive’s unauthorized use or disclosure of any proprietary information or trade secrets of the Company or any other party to whom Executive owes an obligation of nondisclosure as a result of Executive’s relationship with the Company; (v) Executive’s willful breach of any obligations under any written agreement or covenant with the Company; (vi) Executive’s continued failure to perform his employment duties after Executive has received a written demand of performance from the Company which specifically

 

3



 

sets forth the factual basis for the Company’s belief that Executive has not substantially performed his duties and has failed to cure such non-performance to the Company’s satisfaction within 10 business days after receiving such notice provided that such nonperformance has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; or (vii) Executive’s repeated unexplained or unjustified absence from the Company.

 

(b)                                  Change of Control .  For purposes of this Agreement, “ Change of Control ” of the Company is defined as:

 

(i)                                      any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company’s then outstanding voting securities; or

 

(ii)                                   the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation;

 

(iii)                                the date of the consummation of the sale or disposition by the Company of all or substantially all the Company’s assets; or

 

(iv)                               the date that a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election.  For purposes of this clause (iv), if any person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same person will not be considered a Change of Control.

 

Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change of Control unless the transaction qualifies as a “change in control event” within the meaning of Section 409A.

 

Further, notwithstanding the foregoing provisions of this definition, the following shall not constitute a Change of Control:

 

(w)                                any transfer by Dr. John B. Simpson or affiliated entities (“Simpson”) of shares held by Simpson;

 

(x)                                  any bona fide equity financing for capital raising purposes;

 

(y)                                  any merger or acquisition done exclusively to effect a change of domicile of the Company; and

 

4



 

(z)                                   any transfer of assets by the Company to a new company for tax planning purpos6s.

 

(c)                                   Code .  For purposes of this Agreement, “ Code ” means the Internal Revenue Code of 1986, as amended.

 

(d)                                  Good Reason .  For the purposes of this Agreement, “ Good Reason ” means Executive’s resignation within ninety (90) days following the expiration of any Company cure period (discussed below) following the occurrence of one or more of the following, without Executive’s express written consent: (i) a material reduction of Executive’s duties, position or responsibilities, or the removal of Executive from such position and responsibilities, either of which results in a material diminution of Executive’s authority, duties or responsibilities, unless Executive is provided with a comparable position (i.e., a position of equal or greater organizational level, duties, authority, compensation and status); provided, however, that a reduction in duties, position or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains as such following a Change of Control but is not made the Chief Executive Officer of the acquiring corporation) will not constitute “Good Reason”; (ii) a material reduction in Executive’s base salary (in other words, a reduction of more than ten percent (10%) of Executive’s base salary in any one year); (iii) a material change in the geographic location of Executive’s primary work facility or location; provided, that a relocation of less than fifty (50) miles from Executive’s then present location will not be considered a material change in geographic location; or (iv) a material breach of this Agreement by the Company.  Executive will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than thirty (30) days following the date of such notice.

 

(e)                                   Section 409A Limit .  For purposes of this Agreement, “ Section 409A Limit ” will mean the lesser of two (2) times: (i) Executive’s annualized compensation based upon the annual rate of pay paid to Executive during the Executive’s taxable year preceding the Executive’s taxable year of his or her termination of employment as determined under Treasury Regulation Section 1.409A-1(b)(9)(iii)(A)(1) and any Internal Revenue Service guidance issued with respect thereto; or (ii) the maximum amount that may be taken into account under a qualified plan pursuant to Section 401(a)(17) of the Internal Revenue Code for the year in which Executive’s employment is terminated.

 

4.                                       Non-Solicitation .  Until the date one (1) year after the termination of Executive’s employment with the Company for any reason, Executive agrees not, either directly or indirectly, to solicit, induce, attempt to solicit, recruit, or encourage any employee of the Company (or any parent or subsidiary of the Company) to leave his or her employment either for Executive or for any other entity or person.  Executive represents that he (i) is familiar with the foregoing covenant not to solicit, and (ii) is fully aware of his obligations hereunder, including, without limitation, the reasonableness of the length of time, scope and geographic coverage of these covenants.  This Section 4 supersedes all prior or contemporaneous agreements whether written or oral as to the subject matter herein.

 

5



 

5.                                       Assignment .  This Agreement will be binding upon and inure to the benefit of (a) the heirs, executors and legal representatives of Executive upon Executive’s death and (b) any successor of the Company.  Any such successor of the Company will be deemed substituted for the Company under the terms of this Agreement for all purposes.  For this purpose, “ successor ” means any person, firm, corporation or other business entity which at any time, whether by purchase, merger or otherwise, directly or indirectly acquires all or substantially all of the assets or business of the Company.  None of the rights of Executive to receive any form of compensation payable pursuant to this Agreement may be assigned or transferred except by will or the laws of descent and distribution.  Any other attempted assignment, transfer, conveyance or other disposition of Executive’s right to compensation or other benefits will be null and void.

 

6.                                       Notices .  All notices, requests, demands and other communications called for hereunder will be in writing and will be deemed given (i) on the date of delivery if delivered personally, (ii) one (1) day after being sent by a well established commercial overnight service, or (iii) four (4) days after being mailed by registered or certified mail, return receipt requested, prepaid and addressed to the parties or their successors at the following addresses, or at such other addresses as the parties may later designate in writing:

 

If to the Company:

 

Avinger, Inc.

Attn : Chief Financial Officer at the time

 

400 Chesapeake Drive

Redwood City, CA 94063

 

If to Executive:

 

at the last residential address known by the Company.

 

7.                                       Severability .  In the event that any provision hereof becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement will continue in full force and effect without said provision.

 

8.                                       Arbitration .

 

(a)                                  Arbitration .  In consideration of Executive’s employment with the Company, its promise to arbitrate all employment-related disputes, and Executive’s receipt of the compensation, pay raises and other benefits paid to Executive by the Company, at present and in the future, Executive agrees that any and all controversies, claims, or disputes with anyone (including the Company and any employee, officer, director, shareholder or benefit plan of the Company in their capacity as such or otherwise) arising out of, relating to, or resulting from Executive’s employment with the Company or termination thereof, including any breach of this Agreement, will be subject to binding arbitration under the Arbitration Rules set forth in California Code of Civil Procedure Section 1280 through 1294.2, including Section 1281.8 (the “Act”), and pursuant to California law.  The Federal Arbitration Act shall also apply with full force and effect, notwithstanding the application of procedural rules set forth under the Act.

 

6



 

(b)                                  Dispute Resolution Disputes that Executive agrees to arbitrate, and thereby agrees to waive any right to a trial by jury, include any statutory claims under local, state, or federal law , including, but not limited to, claims under Title VII of the Civil Rights .Act of 1964, the Americans with Disabilities Act of 1990, the Age Discrimination in Employment Act of 1967, the Older Workers Benefit Protection Act, the Sarbanes Oxley Act, the Worker Adjustment and Retraining Notification Act, the California Fair Employment and Housing Act, the Family and Medical Leave Act, the California Family Rights Act, the California Labor Code, claims of harassment, discrimination, and wrongful termination, and any statutory or common law claims.  Executive further understands that this Agreement to arbitrate also applies to any disputes that the Company may have with Executive.

 

(c)                                   Procedure .  Executive agrees that any arbitration will be administered by the Judicial Arbitration & Mediation Services, Inc. (“ JAMS ”), pursuant to its Employment Arbitration Rules & Procedures (the “ JAMS Rules ”).  The arbitrator shall have the power to decide any motions brought by any party to the arbitration, including motions for summary judgment and/or adjudication, motions to dismiss and demurrers, and motions for class certification, prior to any arbitration hearing.  The arbitrator shall have the power to award any remedies available under applicable law, and the arbitrator shall award attorneys’ fees and costs to the prevailing party, except as prohibited by law.  The Company will pay for any administrative or hearing fees charged by the administrator or JAMS, and all arbitrator’s fees, except that Executive shall pay any filing fees associated with any arbitration that Executive initiates, but only so much of the filing fee as Executive would have instead paid had Executive filed a complaint in a court of law.  Executive agrees that the arbitrator shall administer and conduct any arbitration in accordance with California law, including the California Code of Civil Procedure and the California Evidence Code, and that the arbitrator shall apply substantive and procedural California law to any dispute or claim, without reference to the rules of conflict of law.  To the extent that the JAMS Rules conflict with California law, California law shall take precedence.  The decision of the arbitrator shall be in writing.  Any arbitration under this Agreement shall be conducted in Santa Clara County, California.

 

(d)                                  Remedy .  Except as provided by the Act, arbitration shall be the sole, exclusive, and final remedy for any dispute between Executive and the Company.  Accordingly, except as provided by the Act and this Agreement, neither Executive nor the Company will be permitted to pursue court action regarding claims that are subject to arbitration .  Notwithstanding, the arbitrator will not have the authority to disregard or refuse to enforce any lawful Company policy, and the arbitrator will not order or require the Company to adopt a policy not otherwise required by law which the Company has not adopted.

 

(e)                                   Administrative Relief .  Executive is not prohibited from pursuing an administrative claim with a local, state, or federal administrative body or government agency that is authorized to enforce or administer laws related to employment, including, but not limited to, the Department of Fair Employment and Housing, the Equal Employment Opportunity Commission, the National Labor Relations Board, or the Workers’ Compensation Board.  However, Executive may not pursue court action regarding any such claim, except as permitted by law.

 

(f)                                    Voluntary Nature of Agreement .  Executive acknowledges and agrees that Executive is executing this Agreement voluntarily and without any duress or undue influence by the

 

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Company or anyone else.  Executive further acknowledges and agrees that Executive has carefully read this Agreement and that Executive has asked any questions needed for Executive to understand the terms, consequences and binding effect of this Agreement and fully understands it, including that EXECUTIVE IS WAIVING EXECUTIVE’S RIGHT TO A JURY TRIAL Finally, Executive agrees that Executive has been provided an opportunity to seek the advice of an attorney of Executive’s choice before signing this Agreement.

 

9.                                       Integration .  This Agreement represents the entire agreement and understanding between the parties as to the subject matter herein and supersedes all prior or contemporaneous agreements whether written or oral.  With respect to stock options granted on or after the date of this Agreement, the acceleration of vesting provisions provided herein will apply to such stock options except to the extent otherwise explicitly provided in the applicable stock option agreement.  This Agreement may be modified only by agreement of the parties by a written instrument executed by the parties that is designated as an amendment to this Agreement.

 

10.                                Waiver of Breach .  The waiver of a breach of any term or provision of this Agreement, which must be in writing, will not operate as or be construed to be a waiver of any other previous or subsequent breach of this Agreement.  Notwithstanding anything to the contrary in this Agreement, the failure of the Company to obtain the assumption of this Agreement by a successor and/or acquirer shall be a material breach of this Agreement.

 

11.                                Headings .  All captions and section headings used in this Agreement are for convenient reference only and do not form a part of this Agreement.

 

12.                                Tax Withholding .  All payments made pursuant to this Agreement will be subject to withholding of applicable taxes.

 

13.                                Governing Law .  This Agreement will be governed by the laws of the State of California (with the exception of its conflict of laws provisions).

 

14.                                Acknowledgment .  Executive acknowledges that he has had the opportunity to discuss this matter with and obtain advice from his private attorney, has had sufficient time to, and has carefully read and fully understands all the provisions of this Agreement, and is knowingly and voluntarily entering into this Agreement.

 

15.                                Counterparts .  This Agreement may be executed in counterparts, and each counterpart will have the same force and effect as an original and will constitute an effective, binding agreement on the part of each of the undersigned.

 

[Signature Page Follows]

 

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IN WITNESS WHEREOF, each of the parties has executed this Agreement, in the case of the Company by their duly authorized officers, as of the day and year first above written.

 

COMPANY:

 

 

 

 

 

AVINGER, INC.

 

 

 

 

 

By:

/s/ John Simpson

 

Date:

3/22/12

 

 

 

Title:

CEO

 

 

 

 

 

 

 

 

EXECUTIVE

 

 

 

 

 

 

 

 

/s/ Sougata Banerjee

 

Date:

03/20/2012

Sougata Banerjee

 

 

 




Exhibit 10.18

AVINGER, INC.

 

NOTE AND WARRANT PURCHASE AGREEMENT

 

This Note and Warrant Purchase Agreement (this “ Agreement ”) is made and entered into as of October 29, 2013 (the “ Effective Date ”), by and among Avinger, Inc., a Delaware corporation (the “ Company ”), and the persons and entities listed on the schedule of investors attached as Schedule I hereto (each an “ Investor ” and, collectively, the “ Investors ”).

 

RECITALS

 

WHEREAS , on the terms and subject to the conditions set forth herein, each Investor is willing to purchase from the Company, and the Company is willing to sell to such Investor, a subordinated convertible promissory note in the principal amount set forth opposite such Investor’s name on Schedule I hereto (the “ Schedule of Investors ”), together with a corresponding warrant to acquire shares of the Company’s capital stock; and

 

WHEREAS , unless otherwise stated, capitalized terms not otherwise defined herein shall have the respective meanings set forth in the form of Note (as defined below).

 

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:

 

1.              The Notes and Warrants .

 

(a)            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 subordinated convertible promissory note, in substantially the form of Exhibit A hereto (each, a “ Note ” and, collectively, the “ Notes ”), in the principal amount equal to the amounts set forth opposite such Investor’s name on the Schedule of Investors.  The securities into which the Notes are convertible are referred to as the “ Conversion Stock .”  The obligations of the Investors to purchase Notes are several and not joint.  The aggregate principal amount for all Notes issued hereunder shall not exceed $25,000,000 (the “ Total Note Principal Amount ”).

 

(b)            Warrants to Purchase Shares.   In consideration for the purchase by each Investor of such Investor’s Note at the Initial Closing or any Additional Closing (as defined below), the Company will issue to such Investor at each such Closing a Warrant, in substantially the form of Exhibit B hereto (each, a “ Warrant ” and collectively, the “ Warrants ”), for a purchase price equal to $10.00.  The securities for which the Warrants are exercisable are referred to as the “ Exercise Stock .”  The Notes and the Conversion Stock, and the Warrants and the Exercise Stock, are collectively referred to herein as the “ Securities .”  The Company and each Investor agree that such purchase price allocation represents the parties’ good faith allocation of the purchase price and shall be used for all purposes, including income tax reporting by the Company.

 

(c)            Place and Date of Closing.

 



 

(i)     Initial Closing .  The sale and purchase of the Notes and Warrants shall take place at one or more closings (each, a “ Closing ”) to be held at such place and time as the Company and the Investors participating in the applicable Closing may determine (each, a “ Closing Date ”).  The initial Closing shall take place on or around October 29, 2013 (the “ Initial Closing ”), or at such other time as the Company and the Investors participating in the Initial Closing may determine.

 

(ii)    Additional Closings .  In the event that the Investors do not purchase Notes representing the Total Note Principal Amount at the Initial Closing, then, subject to the terms and conditions of this Agreement, the Company may sell and issue at one or more additional Closings within 15 calendar days following the Initial Closing (each, an “ Additional Closing ”), at such time and place as determined by the Company, to the Investors or to any third parties in its sole discretion (the “ Additional Closing Date ”), up to the balance of the unissued Notes (the “ Remaining Amount ”).  At each Additional Closing, the Company will deliver to each of the Investors participating in such Additional Closing the Note and Warrant to be purchased by such Investor, against receipt by the Company of the corresponding purchase price.  Each of the Notes and Warrants will be registered in such Investor’s name in the Company’s records.

 

(iii)   General .  For the avoidance of doubt, each of the Initial Closing and each Additional Closing are referred to herein as a “ Closing. ”  Each of the Initial Closing Date and each Additional Closing Date are 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)            Use of Proceeds . The proceeds of the sale and issuance of the Notes and Warrants shall be used for general corporate purposes.

 

(e)            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.

 

2.              Representations and Warranties of the Company.   The Company represents and warrants to each Investor as follows:

 

(a)            Organization; Good Standing; Qualification.   The Company: (i) is a corporation duly organized, validly existing and in good standing under the laws of the State of Delaware; (ii) has the power and authority to own, lease and operate its properties and carry on its business as now conducted; and (iii) is duly qualified, licensed to do business and in good standing as a foreign corporation in each jurisdiction where the failure to be so qualified or licensed could reasonably be expected to have a Material Adverse Effect.

 

(b)            Authority.  The execution, delivery and performance by the Company of each Transaction Document to be executed by the Company and the consummation of the transactions contemplated thereby: (i) are within the power of the Company; and (ii) have been duly authorized by all necessary actions on the part of the Company.

 

(c)            Enforceability .  Each Transaction Document executed, or to be executed, by the Company has been, or will be, duly executed and delivered by the Company and constitutes, or will constitute, a legal, valid and binding obligation of the Company, enforceable against the Company in

 

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accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(d)            Non-Contravention.  The execution and delivery by the Company of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby do not and will not: (i) violate the Company’s Restated Certificate or Bylaws (the “ Charter Documents ”) or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; (ii) violate any provision of, or result in the breach or the acceleration of, or entitle any other Person to accelerate (whether after the giving of notice or lapse of time or both), any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound; or (iii) result in the creation or imposition of any Lien upon any property, asset or revenue of the Company (other than any Lien arising under the Transaction Documents) or the suspension, revocation, impairment, forfeiture, or nonrenewal of any material permit, license, authorization or approval applicable to the Company, its business or operations, or any of its assets or properties.

 

(e)            Approvals . No consent, approval, order or authorization of, or registration, declaration or filing with, any governmental authority or other Person (including, without limitation, the shareholders of any Person) is required in connection with the execution and delivery of the Transaction Documents executed by the Company and the performance and consummation of the transactions contemplated thereby, other than such as have been obtained and remain in full force and effect and other than such qualifications or filings under applicable federal and state securities laws as may be required in connection with the transactions contemplated by this Agreement.

 

(f)             No Violation or Default .  The Company is not in violation of or in default with respect to: (i) its Charter Documents or any material judgment, order, writ, decree, statute, rule or regulation applicable to the Company; or (ii) any material mortgage, indenture, agreement, instrument or contract to which the Company is a party or by which it is bound (nor is there any waiver in effect which, if not in effect, would result in such a violation or default), where in each case, such violation or default, individually, or together with all such violations or defaults, could reasonably be expected to have a Material Adverse Effect.

 

(g)            Litigation .  There are no actions (including, without limitation, derivative actions), suits, proceedings or investigations are pending or, to the knowledge of the Company, threatened in writing against the Company at law or in equity in any court or before any other governmental authority that if adversely determined (i) would (alone or in the aggregate) result in a material liability or (ii) seeks to enjoin, either directly or indirectly, the execution, delivery or performance by the Company of the Transaction Documents or the transactions contemplated thereby.

 

(h)            Title .  The Company owns and has good and marketable title in fee simple absolute to, or a valid leasehold interest in, all real properties, and good title to other assets and properties as reflected in the most recent financial statements delivered to the Investors (except those assets and properties disposed of in the ordinary course of business since the date of such financial statements) and all assets and properties acquired by the Company since such date (except those disposed of in the ordinary course of business).  Such assets and properties are not subject to any Liens other than: (i) Liens for current taxes not yet due and payable; (ii) Liens imposed by law and incurred in the ordinary course of business for obligations not past due; (iii) Liens in respect of pledges or deposits under workers’ compensation laws or similar legislation; (iv) Liens, encumbrances and defects in title which do not in any case materially detract from the value of the property subject thereto or have a Material Adverse Effect, and which have not arisen otherwise than in the ordinary course of business; and (v) any Lien arising or permitted under the Transaction Documents.

 

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(i)             Intellectual Property.  To the best of the Company’s knowledge, the Company owns or possesses sufficient legal rights to all patents, trademarks, service marks, trade names, copyrights, trade secrets, licenses, information, processes and other intellectual property rights necessary for its business as now conducted and as proposed to be conducted without any conflict with, or infringement of the rights of, others.

 

(j)             Financial Statements.   The financial statements of the Company that have been delivered to the Investors: (i) are in accordance with the books and records of the Company, which have been maintained in accordance with good business practice; (ii) have been prepared in conformity with GAAP; and (iii) fairly present the consolidated financial position of the Company as of the dates presented therein and the results of operations, changes in financial positions or cash flows, as the case may be, for the periods presented therein.  The Company does not have any contingent liabilities, liability for taxes or other outstanding obligations which are material in the aggregate, except as disclosed in the financial statements furnished by the Company to Investors prior to the Effective Date.

 

(k)            Equity Securities.

 

(i)     At the Initial Closing, the authorized capital stock of the Company consists of: (i) 184,827,585 shares of Common Stock, $0.001 par value; and (ii) 137,337,164 shares of Preferred Stock, $0.001 par value, of which: (A) 14,696,775 shares have been designated Series A Preferred Stock, (B) 10,135,609 shares have been designated Series A-1 Preferred Stock, (C) 33,998,229 shares have been designated Series B Preferred Stock, (D) 25,265,172 shares have been designated Series C Preferred Stock, and (E) 53,241,379 shares have been designated Series D Preferred Stock.

 

(ii)    Immediately prior to the Initial Closing, 10,810,320 shares of Common Stock, 14,696,775 shares of Series A Preferred Stock, 10,135,609 shares of Series A-1 Preferred Stock, 33,998,229 shares of Series B Preferred Stock, 25,265,172 shares of Series C Preferred Stock, and 32,508,517 shares of Series D Preferred Stock will be issued and outstanding.  All issued and outstanding shares of the Company’s capital stock are duly authorized and validly issued, fully paid and nonassessable, and were issued in compliance with applicable federal and state securities laws.

 

(iii)   Except for: (A) the conversion privileges of the Preferred Stock; (B) 22,866,285 shares of Common Stock reserved for issuance pursuant to the Company’s 2009 Stock Plan (of which options to purchase 17,414,323 shares of Common Stock are issued and outstanding); (C) 5,689,596 shares of Series D Preferred Stock reserved for issuance pursuant to the Company’s 2012 Preferred Stock Plan (of which there are no options to purchase shares of Preferred Stock issued and outstanding); and (D) the rights set forth in the Amended and Restated Investors’ Rights Agreement (the “ Rights Agreement ”), the Amended and Restated Right of First Refusal and Co-Sale Agreement, and the Amended and Restated Voting Agreement, each dated as of June 29, 2012, entered into between the Company and certain investors, there are no other outstanding shares of capital stock or outstanding rights of first refusal, preemptive rights or other rights, options, warrants, conversion rights, or other agreements, either directly or indirectly, for the purchase or acquisition from the Company or by the Company or for the voting of any shares of its capital stock.

 

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:

 

(a)            Authority.  The execution, delivery and performance by such Investor of each Transaction Document to be executed by such Investor and the consummation of the transactions

 

4



 

contemplated thereby: (i) are within the power of such Investor; and (ii) have been duly authorized by all necessary actions on the part of such Investor.

 

(b)            Enforceability .  Each Transaction Document executed, or to be executed, by such Investor has been, or will be, duly executed and delivered by such Investor and constitutes, or will constitute, a legal, valid and binding obligation of such Investor, enforceable against such Investor in accordance with its terms, except as limited by bankruptcy, insolvency or other laws of general application relating to or affecting the enforcement of creditors’ rights generally and general principles of equity.

 

(c)            Securities Law Compliance .  Such Investor has been advised that the Securities have not been registered under the Securities Act of 1933, as amended (the “ Securities Act ”), or any state securities laws and, therefore, cannot be resold unless they are registered under the Securities Act and applicable state securities laws or unless an exemption from such registration requirements is available.  Such Investor is aware that, except as set forth in the Rights Agreement, the Company is under no obligation to effect any such registration with respect to the Securities or to file for or comply with any exemption from registration.  Such Investor has not been formed solely for the purpose of making this investment and is purchasing the Securities to be acquired by such Investor hereunder for its own account for investment, not as a nominee or agent, and not with a view to, or for resale in connection with, the distribution thereof, and such Investor has no present intention of selling, granting any participation in, or otherwise distributing the same.  Such Investor has such knowledge and experience in financial and business matters that such Investor is capable of evaluating the merits and risks of such investment, is able to incur a complete loss of such investment and is able to bear the economic risk of such investment for an indefinite period of time.  Such Investor is an “accredited investor,” as such term is defined in Rule 501 of Regulation D promulgated under the Securities Act, and shall submit to the Company such further assurances of such status as may be reasonably requested by the Company.  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 beneath such Investor’s name on the Schedule of Investors.

 

(d)            Access to Information .  Such Investor acknowledges that the Company has given such Investor access to the corporate records and accounts of the Company and to all information in its possession relating to the Company, has made its officers and representatives available for interview by such Investor, and has furnished such Investor with all documents and other information required for such Investor to make an informed decision with respect to such Investor’s purchase of the Securities.

 

(e)            Reliance upon Investors’ Representations.   Such Investor understands that the Securities are not registered under the Securities Act on the ground that the sale provided for in this Agreement and the issuance of the Securities hereunder is exempt from registration under the Securities Act pursuant to Section 4(2) thereof, and that the Company’s reliance on such exemption is predicated on the Investors’ representations set forth herein.

 

(f)             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: (i) 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; (ii) 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 Date; (iii) notwithstanding the foregoing, prior to the expiration of the one (1)-year “distribution compliance period” (or

 

5



 

six (6)-month “distribution compliance period,” if the issuer is a “reporting issuer,” as defined in 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: (A) 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 (B) the offer and sale is outside the United States and to other than a U.S. person; and (iv) 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.

 

(g)            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: (i) the legal requirements within such Investor’s jurisdiction for the purchase of the Securities; (ii) any foreign exchange restrictions applicable to such purchase; (iii) any governmental or other consents that may need to be obtained; and (iv) 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 the Investor’s continued beneficial ownership of, Securities will not violate any applicable securities or other laws of such Investor’s jurisdiction.

 

4.              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 all of the Investors participating in the applicable Closing:

 

(a)            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.

 

(b)            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.

 

(c)            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.

 

(d)            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.

 

(e)            Transaction Documents .  The Company shall have duly executed and delivered to the Investors the following Transaction Documents:

 

(i)     This Agreement; and

 

(ii)    Each Note and Warrant issued hereunder.

 

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(f)             Restated Certificate .  Prior to the Initial Closing, the Restated Certificate shall have been duly authorized, executed and filed with and accepted by the Secretary of State of the State of Delaware.

 

(g)            Corporate Documents .  With respect to the Initial Closing only, the Company shall have delivered to the Investors each of the following:

 

(i)     A certificate of the Secretary of the Company, dated as of the applicable Closing Date, in substantially the form of Exhibit C hereto, certifying that: (A) 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; (B) attached thereto is a true and correct copy of the Bylaws of the Company as in effect on the Initial Closing Date; and (C) 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, the Notes, the Warrants and the consummation of the transactions contemplated hereby and thereby; and

 

(ii)    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.

 

5.              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:

 

(a)            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.

 

(b)            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.

 

(c)            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.

 

(d)            Transaction Documents .  Each Investor shall have duly executed and delivered to the Company the following Transaction Documents:

 

(i)     This Agreement; and

 

(ii)    Each Note and Warrant issued hereunder.

 

(e)            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.

 

6.              Option to Replace Senior Indebtedness .  Upon the election of a Majority in Interest of the Investors, the Investors may replace the Senior Indebtedness by lending the Company an amount equal to the outstanding balance of the Senior Indebtedness plus related repayment fees, which the Company would use to prepay the Senior Indebtedness.  Upon such election, and to the extent reasonably practicable, the terms of

 

7



 

the Investors’ Notes shall be the same as the existing terms of the Senior Indebtedness excluding any royalty component thereof.  “ Senior Indebtedness ” shall mean, unless expressly subordinated to or made on a parity with the amounts due under this Note, the principal of (and premium, if any), unpaid interest on and amounts reimbursable, fees, expenses, costs of enforcement and other amounts due in connection with, (i) existing or future indebtedness for borrowed money of the Company, to PDL BioPharma, Inc. (“ PDL ”), and (ii) any extension, refinance, renewal, replacement, defeasance or refunding of any indebtedness described in clause (i).

 

7.              Covenant Regarding Additional Senior Indebtedness .  The Company hereby covenants that it shall not incur additional Senior Indebtedness without the consent of a Majority in Interest of the Investors.

 

8.              Miscellaneous.

 

(a)            Waivers and Amendments.  Any provision of this Agreement, the Notes and the Warrants may be amended, waived or modified only upon the written consent of the Company and a Majority in Interest of the Investors; provided , however , that no such amendment, waiver or consent shall: (i) reduce the principal amount of any Note without the affected Investor’s written consent, or (ii) reduce the rate of interest of any Note without the affected Investor’s written consent.  Any amendment or waiver effected in accordance with this Section 7(a)  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 Additional Closings without the consent of any other Investor, 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.

 

(b)            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.

 

(c)            Survival.  The representations, warranties, covenants and agreements made herein shall survive any investigation made by any Investor and the Closing of the transactions contemplated hereby.

 

(d)            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.

 

(e)            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.

 

(f)             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 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

 

8



 

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: (i) in the case of loss, theft or destruction, of indemnity reasonably satisfactory to it; or (ii) 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.

 

(g)            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 the Investors.  The Company shall cause any assignee to execute and deliver a joinder to the Subordination and Intercreditor Agreement (as amended, restated, supplemented or modified from time to time), dated as of October 29, 2013, by and among the Investors, the Company and PDL BioPharma, Inc.

 

(h)            Notices, etc.  All notices and other communications required or permitted under this Agreement shall be in writing and shall be delivered personally by hand or by courier, mailed by United States first-class mail, postage prepaid, sent by facsimile or sent by electronic mail directed: (i) if to an Investor, at such Investor’s address, facsimile number or electronic mail address set forth on the Schedule of Investors, or at such other address, facsimile number or electronic mail address as such Investor may designate by advance written notice to the Company; or (ii) if to the Company, to its address or facsimile number set forth on its signature page to this Agreement and directed to the attention of the Chief Executive Officer, or at such other address or facsimile number as the Company may designate by advance written notice to each Investor.  All such notices and other communications shall be deemed given upon personal delivery, on the date of mailing, upon confirmation of facsimile transfer or when directed to the electronic mail address set forth on the Schedule of Investors.  With respect to any notice given by the Company under any provision of the Delaware General Corporation Law or the Company’s Amended and Restated Certificate of Incorporation or Bylaws, each Investor agrees that such notice may be given by facsimile or by electronic mail.

 

(i)             Fees and Expenses.  Each of the Company and each Investor shall each bear its own expenses incurred on its behalf with respect to this Agreement and the transactions contemplated hereby.

 

(j)             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.

 

(k)            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.

 

(l)             Exculpation Among Investors.  Each Investor acknowledges that it is not relying upon any person, firm or corporation, other than the Company and its officers and directors, in making its investment or decision to invest in the Company.  Each Investor agrees that no Investor nor the respective

 

9



 

controlling persons, officers, directors, partners, agents, or employees of any Investor shall be liable for any action heretofore or hereafter taken or omitted to be taken by any of them in connection with the Securities.

 

(m)           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.

 

(n)            Market Standoff.   Each Investor agrees that such Investor will not, without the prior written consent of the underwriter, during the period commencing on the effective date of a registration statement filed by the Company under the Securities Act and ending on the date specified by the Company and the managing underwriter (such period not to exceed one hundred eighty (180) days (the “ Initial Lock-Up Period ”) following such effective date of a registration statement of the Company filed under the Securities Act (or such other period not to exceed thirty-four (34) days beyond the Initial Lock-Up Period as may be requested by the Company or the underwriters to accommodate regulatory restrictions on: (x) the publication or other distribution of research reports; and (y) analyst recommendations and opinions, including, but not limited to, the restrictions contained in FINRA Rule 2711(f)(4) or Rule 472(f)(4), as applicable, or any successor provisions or amendments thereto) (collectively, the “ Lock-Up Period ”): (i) lend, offer, pledge, sell, contract to sell, sell any option or contract to purchase, purchase any option or contract to sell, grant any option, right or warrant to purchase, or otherwise transfer or dispose of, directly or indirectly, any securities of the Company, including, without limitation, shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether now owned or hereafter acquired); or (ii) enter into any swap or other arrangement that transfers to another, in whole or in part, any of the economic consequences of ownership of any securities of the Company, including, without limitation, shares of Common Stock or any securities convertible into or exercisable or exchangeable for Common Stock (whether now owned or hereafter acquired), whether any such transaction described in clause (i) or (ii) above is to be settled by delivery of securities, in cash or otherwise.  The foregoing covenants shall not apply to the sale of any shares by any Investor to an underwriter pursuant to an underwriting agreement.  Each Investor agrees to execute an agreement(s) reflecting any transaction described in clauses (i) and (ii) above as may be requested by the managing underwriters at the time of the Company’s initial public offering, and further agrees that the Company may impose stop transfer instructions with its transfer agent in order to enforce the covenants set forth in clauses (i) and (ii) above.  The underwriters in connection with the Company’s initial public offering are intended third party beneficiaries of the covenants set forth in this Section 7(n) and shall have the right, power and authority to enforce such covenants as though they were a party hereto.  Any release from the Lock-Up Period shall be on a pro rata basis based upon the number of Registrable Securities (as defined in the Rights Agreement) held; provided , however , that one or more selective releases from the Lock-Up Period not on a pro rata basis may be made with the written consent of the holders of a majority of the Registrable Securities not so released.

 

(o)            Repayment of the Notes upon Change of Control .  In the event of the Company’s consummation of a Change of Control prior to the Maturity Date, the parties agree that the Company shall repay the Investors who have not converted their principal and interest underlying their Notes into shares of the Company’s Common Stock or Preferred Stock issued in an Equity Financing (as defined in the Notes) an amount equal to the greater of (i) one and one-quarter (1.25) times the outstanding principal amount then due

 

10



 

and owing under the Notes, together with any then accrued and unpaid interest thereon and (ii) the amount the holders of the Company’s Series D Preferred Stock (or to the Common Stock resulting from conversion thereof) would be entitled to in such Change of Control (assuming conversion of the Notes into shares of Series D Preferred Stock), provided that in the event that the Change of Control includes any contingent payments based on future performance, the amount due and payable under clause (ii) shall be recalculated at the time each installment or contingent payment is made. For the avoidance of doubt, any payment required to be made under this clause (ii) shall be reduced by any payment actually made to the Investors under clause (i).

 

(p)            Notice regarding PDL Credit Agreement .  The Company hereby agrees to deliver to the Investors promptly with the delivery to PDL: (i) any notice of default provided to PDL pursuant to Section 6.1.6 of that certain Credit Agreement dated April 8, 2013 by and between the Company and PDL (the “ Credit Agreement ”), and (ii) the quarterly Compliance Certificate as required pursuant to Section 6.1.4 of the Credit Agreement.

 

(Signature Pages Follow)

 

11


 

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 :

 

 

 

AVINGER, INC.

 

a Delaware corporation

 

 

 

 

 

 

 

By:

/s/ John B. Simpson, Ph.D., M.D.

 

Name:

John B. Simpson, Ph.D., M.D.

 

Title:

Chief Executive Officer

 

(Signature Page to Avinger, 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 :

 

 

 

MUZZY HOLDINGS, LLC

 

 

 

 

 

 

 

By:

/s/ James Muzzy

 

 

 

 

Name:

James Muzzy

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

MZ PARTNERS, LLC

 

 

 

 

 

 

 

By:

/s/ James Muzzy

 

 

 

 

Name:

James Muzzy

 

 

 

 

Title:

President

 

[Signature Page to 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 :

 

 

 

JAMES MCELWEE

 

 

 

 

 

 

 

By:

/s/ James B. McElwee

 

 

 

 

Name:

James B. McElwee

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

JIM AND CAROLYN MILGARD LIVING TRUST U/T/D/ 3/14/2001 AS AMENDED

 

 

 

 

 

 

By:

/s/ James Milgard

 

 

 

 

Name:

James Milgard

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

BWO, LLC

 

 

 

 

 

 

 

By:

/s/ Terry N. Brown

 

 

 

 

Name:

Terry N. Brown

 

 

 

 

Title:

Manager

 

[Signature Page to 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 :

 

 

 

MICHAEL SCOTT COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

 

By:

/s/ Robert Courson

 

 

 

 

Name:

Robert Courson

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

BRYAN WESLEY COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

 

 

By:

/s/ Robert E. Courson

 

 

 

 

Name:

Robert E. Courson

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

MARK THOMAS COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

 

 

By:

/s/ Robert E. Courson

 

 

 

 

Name:

Robert E. Courson

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

KATHERINE COURSON

 

 

 

 

 

 

 

By:

/s/ Katherine Courson

 

 

 

 

Name:

Katherine Courson

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

ROBERT AND KATHERINE COURSON

 

 

 

 

 

 

 

By:

/s/ Robert E. Courson

 

 

 

 

Name:

Robert E. Courson

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

M & A COURSON FAMILY LIVING TRUST

 

 

 

 

 

 

By:

/s/ Michael Courson/Amy Courson

 

 

 

 

Name:

Michael Courson/Amy Courson

 

 

 

 

Title:

SVP

 

[Signature Page to 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 :

 

 

 

THOMAS A. RENYI

 

 

 

 

 

 

 

By:

/s/ Thomas A. Renyi

 

 

 

 

Name:

Thomas A. Renyi

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

CAROLE G. CORFMAN

 

 

 

 

 

 

By:

/s/ Carole G. Corfman

 

 

 

 

Name:

Carole G. Corfman

 

 

 

 

Title:

Investor

 

[Signature Page to 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 :

 

 

 

SN INVESTORS LLC

 

 

 

 

 

 

 

By:

/s/ K.M. Novack

 

 

 

 

Name:

K.M. Novack

 

 

 

 

Title:

Manager

 

[Signature Page to 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 :

 

 

 

JOHN DELFINO

 

 

 

 

 

 

By:

/s/ John R. Delfino

 

 

 

 

Name:

John R. Delfino

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

MATTHEW FERGUSON

 

 

 

 

 

 

By:

/s/ Matthew Ferguson

 

 

 

 

Name:

Matthew Ferguson

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

GILBERT INVESTMENTS, LLC

 

 

 

 

 

 

By:

/s/ James G. Cullen

 

 

 

 

Name:

James G. Cullen

 

 

 

 

Title:

President

 

[Signature Page to 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 :

 

 

 

ROATH FAMILY TRUST, KENNETH B. ROATH, TRUSTEE

 

 

 

 

 

 

By:

/s/ Kenneth B. Roath

 

 

 

 

Name:

Kenneth B. Roath

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

MCCOLLUM FAMILY TRUST DTD DEC. 1981

 

 

 

 

 

 

By:

/s/ Robert McCollum

 

 

 

 

Name:

Robert McCollum

 

 

 

 

Title:

Trustee

 

[Signature Page to 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 :

 

 

 

JOEL E. SMILOW

 

 

 

 

 

 

By:

/s/ Joel E. Smilow

 

 

 

 

Name:

Joel E. Smilow

 

 

 

 

Title:

Co-Trustee

 

[Signature Page to 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 :

 

 

 

LUCAS VENTURE GROUP IX, LLC

 

 

 

 

 

 

By:

/s/ Donald Lucas

 

 

 

 

Name:

Donald Lucas

 

 

 

 

Title:

Managing Director

 

[Signature Page to 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 :

 

 

 

 

 

 

By:

/s/ Pearl Kearley

 

 

 

 

Name:

Pearl Kearley

 

 

 

 

Title:

Financial Accounting Manager

 

[Signature Page to 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 :

 

 

 

DR. GAUTAM SHRIKHANDE

 

 

 

 

 

 

 

By:

/s/ Gautam Shrikhande

 

 

 

 

Name:

Gautam Shrikhande

 

 

 

 

Title:

MD

 

[Signature Page to 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 :

 

 

 

HENRY BUZGON

 

 

 

 

 

 

By:

/s/ Henry Buzgon

 

 

 

 

Name:

Henry Buzgon

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

THOMAS E. RUEGER, JR.

 

 

 

 

 

 

 

By:

/s/ Thomas E. Rueger, Jr.

 

 

 

 

Name:

Thomas E. Rueger, Jr.

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

THOMAS E. RUEGER, SR.

 

 

 

 

 

 

By:

/s/ Thomas E. Rueger

 

 

 

 

Name:

Thomas E. Rueger

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

EASTERN POULTRY DISTRIBUTORS, INC.

 

 

 

 

 

 

 

By:

/s/ Thomas E. Rueger, Jr.

 

 

 

 

Name:

Thomas E. Rueger, Jr.

 

 

 

 

Title:

President

 

[Signature Page to 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 :

 

 

 

 

 

 

 

By:

/s/ Sylvia Kamenski

 

 

 

 

Name:

Sylvia Kamenski

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

DR. GREGORY C. ROBERTSON

 

 

 

 

 

 

By:

/s/ Gregory C. Robertson

 

 

 

 

Name:

Gregory C. Robertson

 

 

 

 

Title:

 

 

[Signature Page to 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 :

 

 

 

 

By:

/s/ Michael McNair

 

 

 

 

Name:

Michael McNair,

 

 

 

 

Title:

Trust Officer IRA Services Trust Company

 

 

 

 

Entity (if applicable):

 

 

 

 

 

Address:

 

 

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

 

 

By:

/s/ Mark Scafine

 

 

 

 

 

 

Name:

Mark Scafine, IRA Services Trust Company

 

 

 

 

 

 

Title:

Beneficiary

 

 

 

 

 

 

Entity (if applicable):

 

 

 

 

 

 

 

Address:

 

 

 

 

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

 

By:

/s/ Robert S. DeLue

 

 

 

 

Name:

Robert S. DeLue

 

 

 

 

Title:

Trustee

 

 

 

 

Entity (if applicable):

 

 

 

 

 

Address:

 

 

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ C. Preston Butcher

 

 

 

 

Name:

C. Preston Butcher

 

 

 

 

Title:

General Partner

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Anthony J. Bernard

 

 

 

 

Name:

Anthony J. Bernard

 

 

 

 

Title:

Trustee

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Daniel J. Rosenbledt

 

 

 

 

Name:

Daniel J. Rosenbledt

 

 

 

 

Title:

Trustee

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Michael McNair

 

 

 

 

Name:

Michael McNair

 

 

 

 

Title:

Trust Officer

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Mohammad Rezaian

 

 

 

 

Name:

Mohammad Rezaian

 

 

 

 

Title:

 

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ David Shvarts

 

 

 

 

Name:

David Shvarts

 

 

 

 

Title:

Trustee

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Joseph J. Giraudo

 

 

 

 

Name:

Joseph J. Giraudo

 

 

 

 

Title:

 

 

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Himanshu Patel

 

 

 

 

Name:

Himanshu Patel

 

 

 

 

Title:

 

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Charles R. Schwab

 

 

 

 

Name:

Charles R. Schwab

 

 

 

 

Title:

Member Manager

 

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ Michael C. Giotinis

 

 

 

 

Name:

Michael C. Giotinis

 

 

 

 

Title:

Trustee

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to 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 :

 

 

 

 

 

By:

/s/ William Butler

 

 

 

 

Name:

William Butler

 

 

 

 

Title:

Self

 

 

 

Entity (if applicable):

 

 

 

 

Address:

 

 

 

Investment Amount:

 

 

[Signature Page to Note and Warrant Purchase Agreement]

 


 

SCHEDULE I

 

SCHEDULE OF INVESTORS

 

Initial Closing:  October 29, 2013

 

[Intentionally Omitted]

 



 

Additional Closing:  November 8, 2013

 

[Intentionally Omitted]

 

A-2



 

Additional Closing:  November 13, 2013

 

[Intentionally Omitted]

 

A-3



 

Additional Closing:  May 6, 2014

 

[Intentionally Omitted]

 

A-4



 

Additional Closing:  May 13, 2014

 

[Intentionally Omitted]

 

A-5



 

Additional Closing:  July 15, 2014

 

[Intentionally Omitted]

 

A-6


 

EXHIBIT A

 

FORM OF NOTE

 



 

EXHIBIT B

 

FORM OF WARRANT

 



 

EXHIBIT C

 

SECRETARY’S CERTIFICATE

 


 

 



Exhibit 10.19

 

AVINGER, INC.

 

AMENDMENT NO. 1 TO NOTE AND WARRANT PURCHASE AGREEMENT

 

This Amendment No. 1 to Note Purchase Agreement (this “ Amendment ”) is made as of May 6, 2014 by and among Avinger, Inc., a Delaware corporation (the “ Company ”), and holders of an outstanding convertible promissory note (each, a “ Note ” and, collectively, the “ Notes ”) issued pursuant to the Note and Warrant Purchase Agreement (the “ Purchase Agreement ”) dated October 29, 2013 (collectively, all of such holders, the “ Investors ”).

 

WHEREAS , the Company and certain Investors want to amend the Purchase Agreement to increase extend the period for investments made pursuant to the Purchase Agreement and extend the period during which Additional Closings (as defined under the Purchase Agreement) may occur.

 

WHEREAS , pursuant to Section 8(a) of the Purchase Agreement, the Company and the Investors holding greater than fifty (50%) of the outstanding principal amount of the Notes issued pursuant to the Purchase Agreement as of immediately prior to the date hereof (a “ Majority in Interest ”) wish to amend the Purchase Agreement to facilitate additional capital raising within the Company as set forth below.

 

THEREFORE , for good and valuable consideration, the receipt of which is hereby acknowledged, the parties agree as follows:

 

1.             Amendment .  Effective as of the Effective Time, the reference to 15 calendar days in Section 1 (c)(ii) of the Purchase Agreement shall be replaced with 1 year such that the Company has the authority to sell and issue up to $25,000,000 of Notes under the Purchase Agreement at any time up to and including the end of the day on October 29, 2014 according to the terms and conditions contained in the Purchase Agreement.

 

2.             Effective Time .  This Amendment is effective upon such time that the Investors representing a Majority in Interest execute this Amendment (the “ Effective Time ”).

 

3.             Full Force and Effect .  To the extent not expressly amended hereby, the Purchase Agreement remains in full force and effect.

 

4.             Entire Agreement .  This Amendment, together with the Purchase Agreement (to the extent not amended hereby) and the Notes and the related warrants issued pursuant to the Purchase Agreement and all exhibits thereto, represent the entire agreement of the parties and shall supersede any and all previous contracts, arrangements or understandings between the parties with respect to the subject matter herein.

 

5.             Governing Law .  This Amendment shall be governed by and construed and interpreted under the laws of the State of California without reference to conflicts of law principles.

 

6.             Modification .  This Amendment may not be altered, amended or modified in any way except by written consent of the Company and the Investors representing a Majority in Interest.  Waiver of any term or provision of this Amendment or forbearance to enforce any term or provision

 



 

by any party shall not constitute a waiver as to any subsequent breach or failure of the same term or provision or a waiver of any other term or provision of this Amendment.

 

7.             Counterparts .  This Amendment may be executed in counterparts, each of which shall be declared an original, but all of which together shall constitute one and the same instrument.

 

8.             Facsimile .  This Amendment may be executed by facsimile.

 

(Signature Page Follows)

 

2



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

COMPANY:

 

 

 

 

AVINGER, INC.

 

a Delaware corporation

 

 

 

 

 

 

 

By:

/s/ John B. Simpson

 

Name: John B. Simpson, Ph.D., M.D.

 

Title: Chief Executive Officer

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

LUCAS VENTURE GROUP IX, LLC

 

 

 

 

 

 

 

By:

/s/ Donald Lucas

 

 

 

 

Name:

Donald Lucas

 

 

 

 

Title:

Managing Member

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

MUZZY HOLDINGS, LLC

 

 

 

 

 

 

 

By:

/s/ James F Muzzy

 

 

 

 

Name:

James F. Muzzy

 

 

 

 

Title:

Managing Member

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

MZ PARTNERS, LLC

 

 

 

 

 

 

 

By:

/s/ James F Muzzy

 

 

 

 

Name:

James F. Muzzy

 

 

 

 

Title:

President

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

JAMES MCELWEE

 

 

 

 

 

 

 

By:

/s/ James B. McElwee

 

 

 

 

Name:

 

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

JIM AND CAROLYN MILGARD LIVING TRUST U/T/D/ 3/14/2001 AS AMENDED

 

 

 

 

 

 

 

By:

/s/ Jim Milgard

 

 

 

 

Name:

Jim Milgard

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

BWO, LLC

 

 

 

 

 

 

 

By:

/s/ Terry N. Brown

 

 

 

 

Name:

Terry N. Brown

 

 

 

 

Title:

Manager

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 


 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

MICHAEL SCOTT COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

 

 

By:

/s/ K. M. Novak

 

 

 

 

Name:

K. M. Novack

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

BRYAN WESLEY COURSON 2008 IRREVOCABLE TRUST

 

 

 

 

 

 

 

By:

/s/ John R. Delfino

 

 

 

 

Name:

John R. Delfino

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

M & A COURSON FAMILY LIVING TRUST

 

 

 

 

 

 

 

By:

/s/ Michael Courson

 

 

 

 

Name:

Michael Courson

 

 

 

 

Title:

Trustee

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

THOMAS A. RENYI

 

 

 

 

 

 

 

By:

/s/ Thomas A. Renyi

 

 

 

 

Name:

Thomas A. Renyi

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

SN INVESTORS LLC

 

 

 

 

 

 

 

By:

/s/ KM Novack

 

 

 

 

Name:

KM Novack

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

JOHN DELFINO

 

 

 

 

 

 

 

By:

/s/ John Delfino

 

 

 

 

Name:

John Delfino

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

MATTHEW FERGUSON

 

 

 

 

 

 

 

By:

/s/ Matthew Ferguson

 

 

 

 

Name:

Matthew Ferguson

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

CAROLE G. CORFMAN

 

 

 

 

 

 

 

By:

/s/ Carole G. Corfman

 

 

 

 

Name:

Carole G. Corfman

 

 

 

 

Title:

Investor

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 


 

 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

GILBERT INVESTMENTS, LLC

 

 

 

 

 

 

 

By:

/s/ James G. Cullen

 

 

 

 

Name:

James G. Cullen

 

 

 

 

Title:

President

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

DR. GAUTAM SHRIKHANDE

 

 

 

 

 

 

 

By:

/s/ Gautam Shrikhande

 

 

 

 

Name:

Gautam Shrikhande

 

 

 

 

Title:

MD

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

MCCOLLUM FAMILY TRUST DTD DEC. 1981

 

 

 

 

 

 

 

By:

/s/ RH McCollum

 

 

 

 

Name:

RH McCollum

 

 

 

 

Title:

Trustee

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

PEARL KEARLEY

 

 

 

 

 

 

 

By:

/s/ Pearl Kearley

 

 

 

 

Name:

Pearl Kearley

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 



 

IN WITNESS WHEREOF, the parties have caused this Amendment to be duly executed and delivered by their proper and duly authorized officers as of the Effective Date.

 

 

 

INVESTORS:

 

 

 

 

 

 

 

SYLVIA KAMENSKI

 

 

 

 

 

 

 

By:

/s/ Sylvia Kamenski

 

 

 

 

Name:

Sylvia Kamenski

 

 

 

 

Title:

 

 

(Signature Page to Avinger, Inc. Amendment No. 1 to Note and Warrant Purchase Agreement)

 


 



Exhibit 10.20

 

[AVINGER, INC Logo]

 

December 17, 2014

 

Mr. Jeff Soinski

PO Box 17614

Salt Lake City, UT 84117

 

Dear Jeff:

 

On behalf of the Board of Directors of Avinger, Inc. (the “Company”), I am pleased to offer you the position of President, Chief Executive Officer of the Company, reporting directly to the Company’s Board of Directors (the “Board” or “Board of Directors”). In addition, as CEO, you will be appointed a member of the Board at its first regularly scheduled meeting subsequent to your starting date. The terms of the offer of employment are the following:

 

1.      Start Date: Your position will be as a full-time employee commencing on December 29, 2014 or as soon thereafter as possible.

 

2.      Salary: The Company will pay you an annual salary of $375,000.00 to be paid semi-monthly in accordance with the Company’s standard payroll policies (subject to normal required withholding) and will be reviewed annually by the Board.

 

3.      Targeted Bonus: There will be no bonus program for 2014. An annual target bonus plan will be established by you and the Board for 2015 when you have a strategic plan with revenue goals in place and accepted by the Board. You will be eligible to receive an annual performance based bonus of up to 40% of your annual salary at the discretion of the Board upon meeting certain goals mutually determined by you and the Board.

 

4.      Equity: Upon commencement of your employment and subject to the approval of the Board of Directors, you will be granted an Option, which shall be early exercisable representing the right to purchase 5% of the fully diluted capitalization of the Company in shares of Common Stock following any subsequent closing of the Series E preferred stock financing occurring prior to January 15, 2015 (the “Option”). If you are granted the Option prior to January 15, 2015 and there are additional sales of Series E preferred stock between the grant date of your Option and January 15, 2015, subject to approval of the Board of Directors, you will be provided with a supplemental option grant to make up for the dilution caused by any additional sales of Series E preferred stock during that period. The term Option, as used herein, will include any supplemental option grant made to you as described above. For this purpose, “fully diluted capitalization” includes all outstanding shares of capital stock plus all shares subject to issuance underlying outstanding options or

 

Avinger Inc. :: 400 Chesapeake Drive :: Redwood City, CA, 94063 :: T 650 241 7900 :: F 650 241 7901 ::

www.avinger.com

 



 

Mr. Jeff Soinski

December 15, 2014

Page 2 of 7

 

warrants. The Option will be exercisable for Common stock and will have an exercise price equal to the fair market value of such Common Stock on the date of Board approval, as determined by the Board, and will be early exercisable such that the full number of shares underlying the Option may be purchased before vesting occurs subject to the right of repurchase described below. The Option will vest 25% of the total number of shares underlying the Option on the one-year anniversary of your start date, and then at a rate of 1/48 th  of the total number of shares underlying the Option each full month thereafter, with the Option being fully vested after four (4) years from your start date. In the event that you choose to early exercise your Option, the Company will have a right, but not the obligation, to repurchase any unvested shares at the original exercise cost in the event your employment relationship terminates before four (4) years from your start date. The Option and any shares purchased upon exercise of such Option will be subject to the terms of the Company’s current equity incentive plan and an option agreement to be entered into between you and the Company.

 

5.      Change in Control : During your employment with the Company, if a Change in Control of the Company occurs, and if you resign for Good Reason or are terminated without Cause within one year following such Change in Control, then you will receive immediate and full vesting of any outstanding stock options. Additionally, if the Company experiences a Change in Control, 50% of your outstanding unvested stock options and/or restricted stock will vest immediately prior to such Change of Control.

 

For purposes of this letter agreement, the terms “Change in Control,” “Good Reason” and “Cause” shall have the meanings ascribed to them in a Change in Control Agreement to be entered into by and between you and the Company, which meanings are set forth on Exhibit A hereto.

 

6.      Severance: In the event that your employment with the Company is terminated without Cause (as defined on Exhibit A ), you will be entitled to receive twelve months of base salary and COBRA (medical and dental insurance coverage), in each case, payable in substantially equal installments in accordance with the Company’s payroll practices, as severance, in exchange for you signing and not revoking a severance agreement and general release against the Company and its affiliates within 60 days following your termination of employment (“Severance Agreement”). No severance benefits would be paid or provided to you under this offer of employment on account of a termination for Cause.

 

7.      Temporary Living/Relocation Expenses: The Company acknowledges that you will relocate from your present home in Utah to a nearby location to the Company’s office in Redwood City, California as soon as possible but no later than August 2015. During the period of time between your Start Date and the time you relocate your family to the San Francisco Bay Area, the Company acknowledges you will commute to Company headquarters weekly. During this period you will be residing in extended stay or similar cost housing. The Company will pay for or reimburse you for all reasonable and documented expenses incurred in connection with your temporary living/extended stay, travel and other commuting expenses in an amount

 



 

Mr. Jeff Soinski

December 15, 2014

Page 3 of 7

 

not to exceed $30,000 and other expenses related to the sale of your house and your relocation in an amount not to exceed $100,000.

 

8.      Notice and Opportunity to Cure: Notwithstanding the foregoing, in order to terminate your employment for Good Reason (i) you shall first give the Company written notice stating with reasonable specificity the basis for the termination with Good Reason within ninety (90) days of the first occurrence of the event giving rise to Good Reason, (ii) give the Company a period of thirty (30) days to cure or remedy the problem, unless such problem cannot be cured or remedied within thirty (30) days, in which case the period for remedy or cure shall be extended for a reasonable time (not to exceed an additional thirty (30) days) and (iii) terminate your employment within thirty (30) days following the expiration of such cure period.

 

9.      Benefits: You shall be entitled to four (4) weeks of vacation annually and other basic employment benefits available to all Company employees. Details of the Company’s benefits will be sent to you under separate cover.

 

10.   At-Will Employment. Your employment with the Company will be “at-will,” meaning that either you or the Company will be entitled to terminate your employment at any time and for any or no reason, with or without Cause. Although your job duties, title, compensation and benefits, as well as the Company’s personnel policies and procedures, may change from time to time, the “at will” nature of your employment may only be changed in an express written agreement signed by you and a duly authorized officer of the Company. Your participation in any stock purchase or benefit program is not to be regarded as assuring you continuing employment for any particular period of time.

 

11.   Outside Activities: While you render services to the Company, you will not engage in any other gainful employment, business or activity without the written consent of the Company. While you render services to the Company, you also will not assist any person or organization in competing with the Company, in preparing to compete with the Company or in hiring any employees of the Company. During the term of your employment by the Company, except on behalf of the Company, you shall not directly or indirectly, whether as an officer, director, stockholder, partner, proprietor, associate, representative, consultant, or in any capacity whatsoever engage in, become financially interested in, be employed by or have any business connection with any other person, corporation, firm, partnership or other entity whatsoever which were known by you to compete directly with the Company, throughout the world, in any line of business engaged in (or planned to be engaged in) by the Company; provided, however, that anything above to the contrary notwithstanding, you may own, as a passive investor, securities of any competitor corporation, so long as your direct holdings in any one such corporation shall not in the aggregate constitute more than 1% of the voting stock of such corporation. You shall not serve on any additional board of directors without seeking approval from the Company’s Board of Directors.

 

12.   Eligibility for Employment: For purposes of federal immigration law, you will be required to provide documentary evidence of your identity and eligibility for

 



 

Mr. Jeff Soinski

December 15, 2014

Page 4 of 7

 

employment in the United States. Such documentation must be provided to us within three (3) business days of your date of hire, or our employment relationship with you may be terminated.

 

13.   Agreements: You will sign the Company’s standard proprietary information agreement (which will also be provided to you shortly) prior to the initiation of your employment. In addition, you will abide by the Company’s policy that prohibits any new employee from bringing with him or her from any previous employer any confidential information, trade secrets, or proprietary materials or processes of such former employer. You will agree to follow the Company’s policy that employees must not disclose any information regarding salary, bonuses, or stock purchase or option allocations to other employees, either directly or indirectly.

 

14.   Section 409A. Notwithstanding anything in this offer letter agreement to the contrary, any compensation or benefits payable under this offer letter agreement that constitutes “nonqualified deferred compensation” (“Deferred Compensation”) within the meaning of Section 409A of the Internal Revenue Code of 1986, as amended (the “Code”), and which is designated under this offer letter agreement as payable upon your termination of employment shall be payable only upon your “separation from service” with the Company within the meaning of Section 409A of the Code (a “Separation from Service”) and, except as otherwise provided under this paragraph, any such compensation or benefits shall not be paid, or, in the case of installments, shall not commence payment, until the sixtieth (60th) day following your Separation from Service. Any installment payments that would have been made to you during the sixty (60) day period immediately following your Separation from Service but for the preceding sentence shall be paid to you on the sixtieth (60th) day following your Separation from Service and the remaining payments shall be made as provided in this offer letter agreement. Notwithstanding any provision herein to the contrary, if you are deemed by the Company at the time of your Separation from Service to be a “specified employee” for purposes of Section 409A(a)(2)(B)(i) of the Code, to the extent delayed commencement of any portion of the benefits to which you are entitled under this offer letter agreement is required in order to avoid a prohibited distribution under Section 409A(a)(2)(B)(i) of the Code, such portion of your benefits shall not be provided to you prior to the earlier of (i) the expiration of the six-month period measured from the date of your Separation from Service with the Company or (ii) the date of your death. Upon the first business day following the expiration of the applicable Code Section 409A(a)(2) (B)(i) period, all payments deferred pursuant to the preceding sentence shall be paid in a lump sum to you (or your estate or beneficiaries), and any remaining payments due to you under this offer letter agreement shall be paid as otherwise provided herein. To the extent that any reimbursements under this Agreement are subject to the provisions of Section 409A of the Code, any such reimbursements payable to you shall be paid to you no later than December 31 of the year following the year in which the expense was incurred, the amount of expenses reimbursed in one year shall not affect the amount eligible for reimbursement in any subsequent year, and your right to reimbursement under this offer letter agreement will not be subject to liquidation or exchange for another benefit. Your right to receive any installment payments under this offer letter agreement, including without limitation any

 



 

Mr. Jeff Soinski

December 15, 2014

Page 5 of 7

 

continuation salary payments that are payable on Company payroll dates, shall be treated as a right to receive a series of separate payments and, accordingly, each such installment payment shall at all times be considered a separate and distinct payment as permitted under Treasury Regulation Section 1.409A-2(b)(2)(iii).

 

15.   Expiration: This offer of employment expires on December 19, 2014 at 5:00PM if not executed by then and constitutes the entire agreement between the parties, superseding all other agreements or understanding.

 

Again, Jeff, I want to emphasize how pleased we all are to extend this offer letter, and how much we look forward to working with you to make Avinger a huge success.

 

 

Very truly yours,

 

 

 

 

 

/s/ Kenneth M. Novack

 

Kenneth M. Novack

 

Chairman

 

Avinger, Inc.

 

 

 

 

 

Accepted:

/s/ Jeff Soinski

 

 

Jeff Soinski

 

 

 

Date: December 18, 2014

 



 

Exhibit A

 

Definitions

 

Mr. Jeff Soinski

December 15, 2014

Page 6 of 7

 

1.              “Cause” means (i) your willful act of dishonesty in connection with your responsibilities as an employee which is injurious to the Company, (ii) your conviction of or plea of nolo   contendere to, a felony or any crime involving fraud, embezzlement or any other act of moral turpitude, causing material harm to the standing and reputation of the Company, (iii) your gross misconduct, (iv) your unauthorized use or unauthorized and willful disclosure of any proprietary information or trade secrets of the Company or any other party to whom you owe an obligation of nondisclosure as a result of your relationship with the Company; (v) your willful breach of any obligations under any written agreement or covenant with the Company, and your failure to cure such breach (to the extent such breach is capable of being cured) within 10 days after receipt of written notice from the Company; (vi) your continued failure to perform your employment duties after you have received a written demand of performance from the Company which specifically sets forth the factual basis for the Company’s belief that you have not substantially performed his duties and has failed to cure such non-performance to the Company’s satisfaction within 10 business days after receiving such notice provided that such nonperformance has resulted or is likely to result in substantial and material damage to the Company or its subsidiaries; or (vii) your repeated unexplained or unjustified absence from the Company.

 

2.              “Good Reason” means (i) a material reduction of your duties, position or responsibilities, or the your removal from such position and responsibilities, either of which results in a material diminution of your authority, duties or responsibilities, unless you are provided with a comparable position (i.e., a position of equal or greater organizational level, duties, authority, compensation and status); provided, however, that a reduction in duties, position or responsibilities solely by virtue of the Company being acquired and made part of a larger entity (as, for example, when the Chief Executive Officer of the Company remains as such following a Change of Control but is not made the Chief Executive Officer of the acquiring corporation) will not constitute “Good Reason”; (ii) a material reduction in your base salary (in other words, a reduction of more than ten percent (10%) of your base salary in any one year); (iii) a material change in the geographic location of your primary work facility or location; provided, that a relocation of less than fifty (50) miles from your then present location will not be considered a material change in geographic location; (iv) any change in your reporting relationship the result of which is that you no longer report to the Company’s Board of Directors except in the case of a Change of Control; or (v) a material breach of this Agreement by the Company. You will not resign for Good Reason without first providing the Company with written notice of the acts or omissions constituting the grounds for “Good Reason” within ninety (90) days of the initial existence of the grounds for “Good Reason” and a reasonable cure period of not less than thirty (30) days following the date of such notice.

 

3.              Change in Control : “Change of Control” of the Company is defined as: (i) any “person” (as such term is used in Sections 13(d) and 14(d) of the Securities Exchange Act of 1934, as amended) is or becomes the “beneficial owner” (as defined in Rule 13d-3 under said Act), directly or indirectly, of securities of the Company representing more than 50% of the total voting power represented by the Company’s then outstanding voting securities; (ii) the date of the consummation of a merger or consolidation of the Company with any other corporation that has been approved by the stockholders of the Company, other than a merger or consolidation which would result in the voting

 



 

Mr. Jeff Soinski

December 15, 2014

Page 7 of 7

 

securities of the Company outstanding immediately prior thereto continuing to represent (either by remaining outstanding or by being converted into voting securities of the surviving entity or its parent) at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity or its parent outstanding immediately after such merger or consolidation; (iii) the date of the consummation of the sale or disposition by the Company of all or substantially all the Company’s assets; or (iv) the date that a majority of members of the Board is replaced during any twelve (12) month period by directors whose appointment or election is not endorsed by a majority of the members of the Board prior to the date of the appointment or election. For purposes of this clause (iv), if any person is considered to be in effective control of the Company, the acquisition of additional control of the Company by the same person will not be considered a Change of Control.

 

Notwithstanding the foregoing provisions of this definition, a transaction will not be deemed a Change of Control unless the transaction qualifies as a “change in control event” within the meaning of Section 409A.

 

Further, notwithstanding the foregoing provisions of this definition, the following shall not constitute a Change of Control: (w) any transfer by Dr. John B. Simpson or affiliated entities (“Simpson”) of shares held by Simpson except in the case of a sale or acquisition of the Company that is structured as a transfer of shares; (x) any bona fide equity financing for capital raising purposes; (y) any merger or acquisition done exclusively to effect a change of domicile of the Company; and (z) any transfer of assets by the Company to a new company for tax planning.

 




Exhibit 23.1

Consent of Independent Registered Public Accounting Firm

       We consent to the reference to our firm under the caption "Experts" and to the use of our report dated November 6, 2014, in the Registration Statement (Form S-1) and related Prospectus of Avinger, Inc. for the registration of shares of its common stock.

/s/ Ernst & Young LLP

Redwood City, California
December 30, 2014