EX-4.2 4 y09078exv4w2.txt EX-4.2: SECOND AMENDED AND RESTATED INVESTOR'S RIGHTS AGREEMENT Exhibit 4.2 EXECUTION COPY SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT This Second Amended and Restated Investors' Rights Agreement (this "AGREEMENT") is made as of October 26, 2004 by and among Electro-Optical Sciences, Inc., a Delaware corporation (the "COMPANY") and the investors (the "EXISTING INVESTORS") which are parties to the Company's Amended and Restated Investors' Rights Agreement dated as of June 20, 2003 as such agreement was amended by that certain Amendment to the Amended and Restated Investors' Rights Agreement dated as of March 21, 2004 (the "PRIOR RIGHTS AGREEMENT"), the New Investors (as defined below) and the Former HP I Equity Holders (as defined below). Capitalized terms used herein, but not otherwise defined shall have the meanings ascribed to such terms in Section 4 hereof. RECITALS WHEREAS, the Existing Investors hold shares of the Company's Series B Preferred Stock, par value $0.01 per share (the "SERIES B PREFERRED STOCK"), the Company's Series C Preferred Stock, par value $0.01 per share (the "SERIES C PREFERRED STOCK"), the Company's Common Stock, par value $0.001 per share (the "COMMON STOCK"), and/or warrants to purchase Common Stock and/or Series C Preferred Stock (the "WARRANTS" and the shares of Common Stock issuable upon exercise thereof the "WARRANT COMMON SHARES" and the shares of Series C Preferred Stock issuable upon exercise thereof the "WARRANT SERIES C SHARES"); WHEREAS, the Existing Investors possess certain rights pursuant to the Prior Rights Agreement; WHEREAS, as of the date hereof the Company is selling shares of Series C Preferred Stock and Warrants (the "OCTOBER 2004 SERIES C FINANCING") to certain purchasers as identified on Exhibit A attached hereto under the heading "New Investors" (the "NEW INVESTORS") and it is a condition precedent to the consummation of the October 2004 Series C Financing that the New Investors become parties to this Agreement; WHEREAS, Health Partners I, LLC ("HP I"), a current holder of Series C Preferred Stock and Warrants, may be dissolved after consummation of the October 2004 Series C Financing and upon such dissolution the shares of Series C Preferred Stock and the Warrants held by HP I will be transferred to the former equity holders of HP I as identified on Exhibit A attached hereto under the heading "Former HP I Equity Holders" (the "FORMER HP I EQUITY HOLDERS"); and WHEREAS, the Company and the Existing Investors desire to have the Former HP I Equity Holders become parties to this Agreement effective upon the dissolution of HP I; NOW, THEREFORE, in consideration of the mutual promises and covenants set forth herein, the Company, the undersigned Existing Investors (constituting holders of a majority of the Registrable Securities (as defined in the Prior Rights Agreement)), the undersigned New Investors and the undersigned Former HP I Equity Holders hereby agree that the Prior Rights Agreement shall be amended and restated in its entirety by this Agreement, and the parties hereto further agree as follows: SECTION 1 RESTRICTIONS ON TRANSFERABILITY OF SECURITIES; REGISTRATION RIGHTS 1.1 RESTRICTIONS ON TRANSFER. (a) Each Holder agrees not to make any disposition of all or any portion of the Registrable Securities unless and until the transferee has agreed in writing for the benefit of the Company to be bound by this Section 1.1, provided and to the extent such Section 1.1 is then applicable, and: (i) There is then in effect a registration statement under the Securities Act covering such proposed disposition and such disposition is made in accordance with such registration statement; or (ii) Such Holder shall have notified the Company of the proposed disposition and shall have furnished the Company with a detailed statement of the circumstances surrounding the proposed disposition, and, if reasonably requested by the Company, such Holder shall have furnished the Company with an opinion of counsel, reasonably satisfactory to the Company, that such disposition will not require registration of such shares under the Securities Act. The Company will not require opinions of counsel for transactions made pursuant to Rule 144 except when counsel to the Company reasonably believes it appropriate. (iii) Notwithstanding the provisions of paragraphs (i) and (ii) above, no such registration statement or opinion of counsel shall be necessary for a transfer by a Holder which is (A) a partnership to its partners or retired partners in accordance with partnership interests, (B) a corporation to its stockholders in accordance with their interest in the corporation, (C) a limited liability company to its members or former members in accordance with their interest in the limited liability company, or (D) to the Holder's family member or trust for the benefit of an individual Holder, provided the transferee will be subject to the terms of this Section 1.1 to the same extent as if such transferee were an original Holder hereunder. (b) Each certificate representing Registrable Securities shall (unless otherwise permitted by the provisions of this Agreement) be stamped or otherwise imprinted with a legend substantially similar to the following (in addition to any legend required under applicable state securities laws): THE SECURITIES REPRESENTED HEREBY HAVE NOT BEEN REGISTERED UNDER THE SECURITIES ACT OF 1933 (AS AMENDED, THE "ACT") AND MAY NOT BE OFFERED, SOLD OR OTHERWISE TRANSFERRED, PLEDGED OR HYPOTHECATED UNLESS AND UNTIL REGISTERED UNDER THE ACT OR, IN THE OPINION OF COUNSEL SATISFACTORY TO THE ISSUER OF -2- THESE SECURITIES, SUCH OFFER, SALE OR TRANSFER, PLEDGE OR HYPOTHECATION OTHERWISE COMPLIES WITH THE ACT. THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO A LOCK-UP PERIOD OF UP TO 180 DAYS FOLLOWING THE EFFECTIVE DATE OF A REGISTRATION STATEMENT OF THE COMPANY FILED UNDER THE ACT, AS SET FORTH IN AN AGREEMENT BETWEEN THE COMPANY AND THE ORIGINAL HOLDER OF THESE SHARES, A COPY OF WHICH MAY BE OBTAINED AT THE PRINCIPAL OFFICE OF THE COMPANY. SUCH LOCK-UP PERIOD IS BINDING ON TRANSFEREES OF THESE SHARES. (c) The Company shall be obligated to reissue unlegended certificates at the request of any holder thereof if the holder shall have (i) obtained an opinion of counsel at such Holder's expense (which counsel may be counsel to the Company) reasonably acceptable to the Company to the effect that the securities proposed to be disposed of may lawfully be so disposed of without registration, qualification or legend, and (ii) delivered such securities to the Company or its transfer agent. (d) Any legend endorsed on an instrument pursuant to applicable state securities laws and the stop-transfer instructions with respect to such securities shall be removed upon receipt by the Company of an order of the appropriate blue sky authority authorizing such removal. 1.2 REQUESTED REGISTRATION. (a) Request for Registration. If the Company shall receive from Initiating Holders at any time or times not earlier than the earlier of (i) the fifth anniversary of the date of this Agreement or (ii) one (1) year after the effective date of the first registration statement filed by the Company covering an underwritten offering of any of its securities to the general public, a written request that the Company effect any registration with respect to all or a part of the Registrable Securities, the aggregate proceeds of which (after deduction for underwriter's discounts and expenses, related to the issuance) exceed $2,000,000 the Company will: (i) promptly give written notice of the proposed registration to all other Holders; and (ii) as soon as practicable, use its commercially reasonable efforts to effect such registration (including, without limitation, filing post-effective amendments, appropriate qualifications under applicable blue sky or other state securities laws, and appropriate compliance with the Securities Act) as would permit or facilitate the sale and distribution of all or such portion of such Registrable Securities as are specified in such request, together with all or such portion of the Registrable Securities of any Holder or Holders joining in such request as are specified in a written request received by the Company within twenty (20) days after such written notice from the Company is mailed or delivered. -3- The Company shall not be obligated to effect, or to take any action to effect, any such registration pursuant to this Section 1.2: (A) In any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification, or compliance, unless the Company is already subject to service in such jurisdiction and except as may be required by the Securities Act; (B) After the Company has initiated two such registrations pursuant to Section 1.2(a), above (counting for these purposes only registrations which have been declared or ordered effective and pursuant to which securities have been sold, and registrations which have been withdrawn by the Holders as to which the Holders have not elected to bear the Registration Expenses pursuant to Section 1.4 hereof, and would, absent such election, have been required to bear such expenses); (C) During the period starting with the date that is ninety (90) days prior to the Company's good faith estimate of the date of filing of, and ending on a date that is ninety (90) days after the effective date of, a Company-initiated registration; provided that the Company is actively employing in good faith all reasonable efforts to cause such registration statement to become effective; or (D) If the Initiating Holders propose to dispose of shares of Registrable Securities which may immediately be registered on Form S-3 pursuant to a request made under Section 1.5 hereof. (b) Deferral of Filing. Subject to the foregoing clauses (A) through (D), the Company shall file a registration statement covering the Registrable Securities so requested to be registered as soon as practicable after receipt of the request or requests of the Initiating Holders; provided, however, that if (i) in the good faith judgment of the Board of Directors of the Company, such registration would be detrimental to the Company and the Board of Directors of the Company concludes, as a result, that it is in the best interests of the Company to defer the filing of such registration statement at such time, and (ii) the Company shall furnish to such Initiating Holders a certificate signed by the President of the Company stating that in the good faith judgment of the Board of Directors of the Company, it would be detrimental to the Company for such registration statement to be filed in the near future and that it is, therefore, in the best interests of the Company to defer the filing of such registration statement, then 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, and, provided further, that the Company shall not defer its obligation in this manner more than twice in any twelve-month period. The registration statement filed pursuant to the request of the Initiating Holders may, subject to the provisions of Section 1.13 hereof, include other securities of the Company, with respect to which registration rights have been granted, and may include securities of the Company being sold for the account of the Company. (c) Underwriting. If the Initiating Holders intend to distribute the Registrable Securities covered by their request by means of an underwriting, they shall so advise the -4- Company as a part of their request made pursuant to Section 1.2(a) and the Company shall include such information in the written notice referred to in Section 1.2(a)(i). In such event, the right of any Holder to registration pursuant to Section 1.2 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 a majority in interest of the Initiating Holders and such Holder with respect to such participation and inclusion) to the extent provided herein. A Holder may elect to include in such underwriting all or a part of the Registrable Securities he, she or it holds. All Holders and other persons proposing to distribute their securities through such underwriting, including the Company, shall enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected for such underwriting by a majority in interest of the Initiating Holders, which underwriters are reasonably acceptable to the Company. Notwithstanding any other provision of this Section 1.2, if the representative of the underwriters advises the Initiating Holders in writing that marketing factors require a limitation on the number of shares to be underwritten, the number of shares to be included in the underwriting or registration shall be allocated as set forth in Section 1.13 hereof. If a person who has requested inclusion in such registration as provided above does not agree to the terms of any such underwriting, such person shall be excluded therefrom by written notice from the Company, the underwriter or the Initiating Holders. The securities so excluded shall also be withdrawn from registration. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall also be withdrawn from such registration. If shares are so withdrawn from the registration and if the number of shares to be included in such registration was previously reduced as a result of marketing factors pursuant to this Section 1.2(c), then the Company shall offer to all holders who have retained rights to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among such Holders requesting additional inclusion in accordance with Section 1.13. 1.3 COMPANY REGISTRATION. (a) If the Company should determine to register any of its securities either for its own account, the account of a security holder or holders exercising their respective demand registration rights, in either case, other than in a registration relating solely to employee benefit plans, relating to the offer and sale of debt securities, relating to a corporate reorganization or other transaction on Form S-4, made on any registration form that does not permit secondary sales, or made pursuant to Section 1.2 or 1.5 hereof the Company will: (i) promptly give to each Holder written notice thereof; and (ii) use its commercially reasonable efforts to include in such registration (and in any related qualification under blue sky laws or other compliance), except as set forth in Section 1.3(b) below, and in any underwriting involved therein, all the Registrable Securities specified in a written request or requests, made by any Holder and received by the Company within fifteen (15) days after the written notice from the Company described in clause (i) above is mailed or delivered by the Company. Such written request may specify all or a part of a Holder's Registrable Securities. -5- (b) Underwriting. If the registration of which the Company gives notice is for a registered public offering involving an underwriting, the Company shall so advise the Holders as a part of the written notice given pursuant to Section 1.3(a)(i). In such event, the right of any Holder to registration pursuant to this Section 1.3 shall be conditioned upon such Holder's participation in such underwriting and the inclusion of such Holder's Registrable Securities in the underwriting to the extent provided herein. The Company and all Holders proposing to distribute their securities through such underwriting shall (together with the Company and the other holders of securities of the Company with registration rights to participate therein distributing their securities through such underwriting) enter into an underwriting agreement in customary form with the representative of the underwriter or underwriters selected by the Company. Notwithstanding any other provision of this Section 1.3, if the representative of the underwriters advises the Company in writing that marketing factors require a limitation on the number of shares to be underwritten, the representative may (subject to the limitations set forth below) exclude all Registrable Securities from, or limit the number of Registrable Securities to be included in, the registration and underwriting. The Company shall so advise all holders of securities requesting registration, and the number of shares of securities that are entitled to be included in the registration and underwriting shall be allocated first to the Company for securities being sold for its own account and thereafter as is set forth in Section 1.13. If any person does not agree to the terms of any such underwriting, he or she shall be excluded therefrom by written notice from the Company or the underwriter. Any Registrable Securities or other securities excluded or withdrawn from such underwriting shall be withdrawn from such registration. To facilitate the allocation of shares in accordance with the above provisions, the Company or the underwriter(s) may round the number of shares allocated to any Holder to the nearest 100 shares. If shares are so withdrawn from the registration and if the number of shares of Registrable Securities to be included in such registration was previously reduced as a result of marketing factors, the Company shall then offer to all persons who have retained the right to include securities in the registration the right to include additional securities in the registration in an aggregate amount equal to the number of shares so withdrawn, with such shares to be allocated among the persons requesting additional inclusion in accordance with Section 1.13 hereof. (c) 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. 1.4 EXPENSES OF REGISTRATION. All Registration Expenses incurred in connection with any registration, qualification or compliance pursuant to Sections 1.2, 1.3 and 1.5 hereof, and customary fees of one counsel for the selling Holders in the case of registrations pursuant to Section 1.2, shall be borne by the Company; provided, however, that if the Holders bear the Registration Expenses for any registration proceeding begun pursuant to Section 1.2 and subsequently withdrawn by the Holders registering shares therein, such registration proceeding shall not be counted as a requested registration pursuant to Section 1.2 hereof. Furthermore, in the event that a withdrawal by the Holders is based upon material adverse information relating to -6- the Company that is different from the information known or available (upon request made to the Company or otherwise) to the Holders requesting registration at the time of their request for registration under Section 1.2, such registration shall not be treated as a "COUNTED REGISTRATION" for purposes of Section 1.2 hereof, even though the Holders do not bear the Registration Expenses for such registration. All Selling Expenses relating to securities so registered shall be borne by the holders of such securities pro rata on the basis of the number of shares of securities so registered on their behalf, as shall any other expenses in connection with the registration required to be borne by the Holders of such securities. 1.5 REGISTRATION ON FORM S-3. (a) After its initial public offering, the Company shall use its commercially reasonable efforts to qualify for registration on Form S-3 or any comparable or successor form or forms. After the Company has qualified for the use of Form S-3, in addition to the rights contained in the foregoing provisions of this Section 1, the Holders of Registrable Securities shall have the right to request registrations on Form S-3 (such requests shall be in writing and shall state the number of shares of Registrable Securities to be disposed of and the intended methods of disposition of such shares by such Holder or Holders), provided, however, that the Company shall not be obligated to effect any such registration (i) in the circumstances described in clauses (A) and (C) of Section 1.2(a), (ii) if the Company shall furnish the certification described in Section 1.2(b) (but subject to the limitations set forth therein), (iii) if, in a given twelve-month period, the Company has effected two (2) such registrations in such period or (iv) if it is to be effected more than five (5) years after the Company's initial public offering. (b) If a request complying with the requirements of Section 1.5(a) hereof is delivered to the Company, the provisions of Sections 1.2(a)(i) and (ii) and Section 1.2(b) hereof shall apply to such registration. If the registration is for an underwritten offering, the provisions of Sections 1.2(c) and 1.2(d) hereof shall apply to such registration. 1.6 REGISTRATION PROCEDURES. In the case of each registration effected by the Company pursuant to Section 1, the Company will keep each Holder advised in writing as to the initiation of each registration and as to the completion thereof. At its expense, the Company will: (a) prepare and file with the Commission a registration statement and such amendments and supplements to such registration statement and the prospectus used in connection therewith as may be necessary to keep such registration statement effective for at least a period of 90 days or until all of such Registrable Securities have been disposed of (if earlier) and to comply with the provisions of the Securities Act with respect to the sale or other disposition of such Registrable Securities; (b) furnish to the Holders participating in such registration and to the underwriters of the securities being registered such reasonable number of copies of the registration statement, preliminary prospectus, final prospectus and such other documents as such Holders or underwriters may reasonably request in order to facilitate the public offering of such securities; -7- (c) furnish, at least five business days before filing a registration statement that registers such Registrable Securities, a prospectus relating thereto, or any amendments or supplements relating to such a registration statement or prospectus, to one counsel selected by the holders of a majority of such Registrable Securities (the "SELLING INVESTORS' COUNSEL"), with copies of all such other documents as are proposed to be filed (it being understood that such five business day period need not apply to successive drafts of the same document proposed to be filed so long as such successive drafts are supplied to the Selling Investors' Counsel in advance of the proposed filing by a period of time that is customary and reasonable under the circumstances); (d) notify the Selling Investors' Counsel in writing promptly of (i) the receipt by the Company of any notification by the Commission of comments with respect to such registration statement or prospectus (or any amendment or supplement thereto), any request by the Commission for the amendment or supplementation thereof, or for additional information with respect thereto, (ii) the receipt by the Company of any notification by the Commission of any stop order issued suspending the effectiveness of such registration statement or prospectus (or any amendment or supplement thereto), or the initiation or threatened initiation of any proceeding for that purpose, and (iii) the receipt by the Company of any notification with respect to the suspension of the qualification of such Registrable Securities for sale in any jurisdiction, or the initiation or threatened initiation of any proceeding for such purposes; (e) use its commercially reasonable efforts to register or qualify such Registrable Securities under such other securities or blue sky laws of such jurisdictions as any Investors holding such Registrable Securities reasonably requests and do any and all other acts and things which may reasonably be necessary or advisable to enable such Investors holding such Registrable Securities to consummate the disposition in such jurisdictions of the Registrable Securities owned by such Investors; provided, however, that the Company will not be obligated to register or qualify in any particular jurisdiction in which the Company would be required to execute a general consent to service of process in effecting such registration, qualification or compliance, unless the Company is already subject to service of process in such jurisdiction, and except as may be required by the Securities Act; (f) notify each Investor holding such Registrable Securities covered by such registration statement, at any time when a prospectus relating thereto is required to be delivered under the Securities Act, of the happening of any event as a result of which the prospectus included in such registration statement, as then in effect, includes an untrue statement of a material fact or omits to state a material fact required to be stated therein, or necessary to make the statements therein not misleading in the light of the circumstances then existing; (g) in the case of an underwritten offering, use its commercially reasonable efforts to obtain from its independent certified public accountants "comfort" letters in customary form and covering such matters of the type customarily covered by comfort letters; (h) in the case of an underwritten offering, use its commercially reasonable efforts to obtain from its counsel an opinion or opinions in customary form; -8- (i) provide a transfer agent and registrar (which may be the same entity and which may be the Company) for such Registrable Securities; (j) issue to any underwriter to which any seller of Registrable Securities may sell shares in such offering certificates evidencing such Registrable Securities; and, (k) list such Registrable Securities on any national securities exchange on which any shares of the Common Stock are listed or, if the Common Stock is not listed on a national securities exchange, use its commercially reasonable efforts to qualify such Registrable Securities for inclusion on the automated quotation system of the National Association of Securities Dealers, Inc. or such national securities exchange as the holders of a majority of such Registrable Securities shall request. 1.7 INDEMNIFICATION. (a) The Company will indemnify each Holder, each of its officers, directors and partners, legal counsel, and accountants and each person controlling such Holder within the meaning of Section 15 of the Securities Act, with respect to which registration, qualification, or compliance has been effected pursuant to this Section 1, and each underwriter, if any, and each person who controls within the meaning of Section 15 of the Securities Act any underwriter, against all expenses, claims, losses, damages, and liabilities (or actions, proceedings, or settlements in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any prospectus, offering circular, or other document (including any related registration statement, notification, or the like) incident to any such registration, qualification, or compliance, or based on any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, or any violation by the Company of the Securities Act or any rule or regulation thereunder applicable to the Company and relating to action or inaction required of the Company in connection with any such registration, qualification, or compliance, and will reimburse each such Holder, each of its officers, directors, partners, legal counsel, and accountants and each person controlling such Holder, each such underwriter, and each person who controls any such underwriter, for any legal and any other expenses reasonably incurred in connection with investigating and defending or settling any such claim, loss, damage, liability, or action, provided that the obligations of the Company hereunder shall not apply to the extent that any such claim, loss, damage, liability, or expense arises out of or is based on any untrue statement or omission based upon written information furnished to the Company by such Holder or underwriter and stated to be specifically for use therein. It is agreed that the indemnity agreement contained in this Section 1.7(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). (b) Each Holder will, if Registrable Securities held by such Holder are included in the securities as to which such registration, qualification, or compliance is being effected, indemnify the Company, each of its directors, officers, partners, legal counsel, and accountants and each underwriter, if any, of the Company's securities covered by such a registration statement, each person who controls the Company or such underwriter within the meaning of Section 15 of the Securities Act, each other such Holder and other stockholder, and -9- each of their officers, directors, and partners, and each person controlling such Holder or other stockholder, against all claims, losses, damages and liabilities (or actions in respect thereof) arising out of or based on any untrue statement (or alleged untrue statement) of a material fact contained in any such registration statement, prospectus, offering circular, or other document, or any omission (or alleged omission) to state therein a material fact required to be stated therein or necessary to make the statements therein not misleading, and will reimburse the Company and such Holders, other stockholders, directors, officers, partners, legal counsel, and accountants, persons, underwriters, or control persons for any legal or any other expenses reasonably incurred in connection with investigating or defending any such claim, loss, damage, liability, or action, in each case to the extent, but only to the extent, that such untrue statement (or alleged untrue statement) or omission (or alleged omission) is made in such registration statement, prospectus, offering circular, or other document in reliance upon and in conformity with written information furnished to the Company by such Holder and stated to be specifically for use therein; provided, however, that the obligations of such Holder hereunder shall not apply to amounts paid in settlement of any such claims, losses, damages, or liabilities (or actions in respect thereof) if such settlement is effected without the consent of such Holder (which consent shall not be unreasonably withheld); and provided that in no event shall any indemnity under this Section 1.7 exceed the gross proceeds from the offering received by such Holder. (c) Each party entitled to indemnification under this Section 1.7 (the "INDEMNIFIED PARTY") shall give notice to the party required to provide indemnification (the "INDEMNIFYING PARTY") promptly after such Indemnified Party has actual knowledge of any claim as to which indemnity may be sought, and shall permit the Indemnifying Party to assume the defense of such claim or any litigation resulting therefrom, provided that counsel for the Indemnifying Party, who shall conduct the defense of such claim or any litigation resulting therefrom, shall be approved by the Indemnified Party (whose approval shall not be unreasonably withheld), and the Indemnified Party may participate in such defense at such party's expense, and provided further that the failure of any Indemnified Party to give notice as provided herein shall not relieve the Indemnifying Party of its obligations under this Section 1, to the extent such failure is not prejudicial. No Indemnifying Party, in the defense of any such claim or litigation, shall, except with the consent of each Indemnified Party, consent to entry of any judgment or enter into any settlement that does not include as an unconditional term thereof the giving by the claimant or plaintiff to such Indemnified Party of a release from all liability in respect to such claim or litigation. Each Indemnified Party shall furnish such information regarding itself or the claim in question as an Indemnifying Party may reasonably request in writing and as shall be reasonably required in connection with defense of such claim and litigation resulting therefrom. (d) If the indemnification provided for in this Section 1.7 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 therein, 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 of the Indemnified Party on the other 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. The relative fault of the Indemnifying Party and of the Indemnified Party shall -10- be determined by reference to, among other things, whether the untrue or alleged untrue statement of a material fact or the omission to state a material fact relates to information supplied by the Indemnifying Party or by the Indemnified Party and the parties' relative intent, knowledge, access to information, and opportunity to correct or prevent such statement or omission. (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. 1.8 INFORMATION BY HOLDER. Each Holder of Registrable Securities shall furnish to the Company such information regarding such Holder and the distribution proposed by such Holder as the Company may reasonably request in writing and as shall be reasonably required in connection with any registration, qualification, or compliance referred to in this Section 1. The Company will not be obligated to register the Registrable Securities of any Holder who fails promptly to provide the Company with such information as the Company may reasonably request. 1.9 LIMITATIONS ON SUBSEQUENT REGISTRATION RIGHTS. From and after the date of this Agreement, the Company shall not, without the prior written consent of a majority in interest of the Holders, enter into any agreement with any holder or prospective holder of any securities of the Company giving such holder or prospective holder any registration rights the terms of which are more favorable than the registration rights granted to the Holders hereunder. 1.10 RULE 144 REPORTING. With a view to making available the benefits of certain rules and regulations of the Commission that may permit the sale of the Restricted Securities to the public without registration, the Company agrees to use its commercially reasonable efforts to: (a) File with the Commission in a timely manner all reports and other documents required of the Company under the Securities Act and the Exchange Act at any time after it has become subject to such reporting requirements; (b) So long as a Holder owns any Restricted Securities, furnish to the Holder forthwith upon written request a written statement by the Company as to its compliance with the reporting requirements of Rule 144 (at any time from and after ninety (90) days following the effective date of the first registration statement filed by the Company for an offering of its securities to the general public), and of the Securities Act and the Exchange Act (at any time after it has become subject to such reporting requirements), a copy of the most recent annual or quarterly report of the Company, and such other reports and documents so filed as a Holder may reasonably request in availing itself of any rule or regulation of the Commission allowing a Holder to sell any such securities without registration. 1.11 TRANSFER OR ASSIGNMENT OF REGISTRATION RIGHTS. The rights to cause the Company to register securities granted to a Holder by the Company under this Section 1 may be transferred or assigned by a Holder only to a transferee or assignee of not less than 39,000 shares of Registrable Securities (as presently constituted and subject to subsequent adjustments for -11- stock splits, stock dividends, reverse stock splits, and the like), provided that the Company is given written notice at the time of or within a reasonable time after said transfer or assignment, stating the name and address of the transferee or assignee and identifying the securities with respect to which such registration rights are being transferred or assigned, and, provided further, that the transferee or assignee of such rights assumes in writing the obligations of such Holder under this Section 1. Notwithstanding the foregoing, the Rights may be assigned without compliance with the 39,000 share minimum described above to (x) any constituent partner, member (including, without limitation, the HP I Former Equity Holders) or stockholder of a Holder that is a partnership, limited liability company or corporation, (y) a family member of a Holder or trust for the benefit of a Holder, the spouse of a Holder or issue of a Holder or (z) any corporation, partnership, limited liability company or other entity of which at least a seventy-five percent (75%) interest is owned or controlled, directly or indirectly, by a Holder or one or more of the persons described in (x) or (y). Any permitted transferee under this Section 1.11 shall thereupon be deemed to be a "Holder" and an "Investor" hereunder and shall agree in writing to be bound by the terms and conditions of this Agreement, including, without limitation, the share minimum set forth in this Section 1.11. 1.12 "MARKET STAND-OFF" AGREEMENT. If requested by the Company and an underwriter of Common Stock (or other securities) of the Company, each Investor shall not sell or otherwise transfer or dispose of any Common Stock (or other securities) of the Company held by such Investor (other than those included in the registration) during the one hundred eighty (180) day period following the effective date of a registration statement of the Company filed under the Securities Act, provided that: (a) such agreement shall only apply to the first such registration statement of the Company, including securities to be sold on its behalf to the public in an underwritten offering; and (b) all officers and directors of the Company and holders of at least one percent (1%) of the Company's voting securities are bound by and have entered into similar agreements. The obligations described in this Section 1.12 shall not apply to a registration relating solely to employee benefit plans on Form S-1 or Form S-8 or similar forms that may be promulgated in the future, or a registration relating solely to a transaction on Form S-4 or similar forms that may be promulgated in the future. The Company may impose stop-transfer instructions and may stamp each such certificate with the second legend set forth in Section 1.1(b) hereof with respect to the shares of Common Stock (or other securities) subject to the foregoing restriction until the end of such one hundred eighty (180) day period. Each Stockholder agrees to execute a market standoff agreement with said underwriters in customary form consistent with the provisions of this Section 1.12. 1.13 ALLOCATION OF REGISTRATION OPPORTUNITIES. In any circumstance in which all of the Registrable Securities and other shares of Common Stock of the Company (including shares of Common Stock issued or issuable upon conversion of shares of any currently unissued series of Preferred Stock of the Company) with registration rights (the "OTHER SHARES") requested to be included in a registration on behalf of the Holders or other selling stockholders cannot be so included as a result of limitations of the aggregate number of shares of Registrable Securities and other shares that may be so included, the number of shares of Registrable Securities and other shares that may be so included shall be allocated among the Holders and other selling stockholders requesting inclusion of shares pro rata on the basis of the number of shares of Registrable Securities and other shares that would be held by such Holders and other selling stockholders, assuming conversion; provided, however, that such allocation shall not operate to -12- reduce the aggregate number of Registrable Securities and other shares to be included in such registration, if any Holder or other selling stockholder does not request inclusion of the maximum number of shares of Registrable Securities and other shares allocated to him or her pursuant to the above-described procedure, in which case the remaining portion of his allocation shall be reallocated among those requesting Holders and other selling stockholders whose allocations did not satisfy their requests pro rata on the basis of the number of shares of Registrable Securities and other shares which would be held by such Holders and other selling stockholders, assuming conversion, and this procedure shall be repeated until all of the shares of Registrable Securities and other shares which may be included in the registration on behalf of the Holders and other selling stockholders have been so allocated. The Company shall not limit the number of Registrable Securities to be included in a registration pursuant to this Agreement in order to include shares held by stockholders with no registration rights or to include shares of stock issued to founders of the Company or to employees, officers, directors, or consultants pursuant to the Company's 1996 Incentive Stock Option Plan, or in the case of registrations under Sections 1.2 or 1.5 hereof, in order to include in such registration securities registered for the Company's own account. 1.14 DELAY OF REGISTRATION. No Holder shall have any right to take any action to restrain, enjoin, or otherwise delay any registration as the result of any controversy that might arise with respect to the interpretation or implementation of this Section 1. 1.15 TERMINATION OF REGISTRATION RIGHTS. The right of any Holder to request registration or inclusion in any registration pursuant to Section 1.2, 1.3 or 1.5 shall terminate on the closing of the first registered public offering of Common Stock of the Company, if all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period, or the earlier of (i) such date after the closing of the first registered public offering of Common Stock of the Company as all shares of Registrable Securities held or entitled to be held upon conversion by such Holder may immediately be sold under Rule 144 during any ninety (90)-day period, and (ii) three (3) years after the closing of the first registered public offering. SECTION 2 INFORMATION COVENANTS OF THE COMPANY The Company hereby covenants and agrees, as follows: 2.1 BASIC FINANCIAL INFORMATION AND INSPECTION RIGHTS. (a) Basic Financial Information. In addition to information required to be distributed to some or all Holders pursuant to determinations of the management of the Company or its Board of Directors, the Company will furnish the following reports to each Holder: (i) within one hundred twenty (120) days after the end of each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as at the end of such fiscal year, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such year, prepared in accordance with generally -13- accepted accounting principles consistently applied, certified by independent public accountants of recognized national standing selected by the Company. (ii) within forty-five (45) days after the end of the first, second, and third quarterly accounting periods in each fiscal year of the Company, a consolidated balance sheet of the Company and its subsidiaries, if any, as of the end of each such quarterly period, and consolidated statements of income and cash flows of the Company and its subsidiaries, if any, for such period. (iii) at least thirty (30) days prior to the beginning of each fiscal year or as otherwise determined by the Board of Directors of the Company, a budget for such fiscal year. (iv) within forth-five (45) days after the end of each month, or as otherwise determined by the Board of Directors of the Company, an unaudited balance sheet and statements of income and cash flows. (b) Inspection Rights. The Company will afford to each Holder and to such Holder's accountants and counsel, reasonable access during normal business hours to all of the Company's respective properties, books and records. Each Holder shall have such other access to management and information as is necessary for it to comply with applicable laws and regulations and reporting obligations. The Company shall not be required to disclose details of contracts with or work performed for specific customers and other business partners where to do so would violate confidentiality obligations to those parties. Holders may exercise their rights under this Section 2.1(b) only for purposes reasonably related to their interests under this Agreement and related agreements. The rights granted pursuant to this Section 2.1(b) may not be assigned or otherwise conveyed by the Holders or by any subsequent transferee of any such rights without the prior written consent of the Company except as authorized in this Section 2.1(b). (c) Qualified Small Business Stock. The Company agrees that for so long as any of the Shares are held by an Investor (or a transferee in whose hands such Shares are eligible to qualify as "qualified small business stock" within the meaning of Section 1202(c) of the Code), it will use best efforts to comply with any applicable filing and reporting requirements of Section 1202 of the Code and any regulations promulgated thereunder; provided, however, that "reasonable efforts" as used in this Section 2.1(b)(ii) shall not be construed to require the Company to operate its business in a manner which would adversely affect its business, limit its future prospects or alter the timing or resource allocation related to its planned operations or financing activities. 2.2 TERMINATION OF COVENANTS. The covenants set forth in this Section 2 shall terminate and be of no further force and effect after the closing of the Company's first firm commitment underwritten public offering registered under the Securities Act. SECTION 3 RIGHT OF FIRST REFUSAL -14- 3.1 RIGHT OF FIRST REFUSAL TO SIGNIFICANT HOLDERS. The Company hereby grants to each Significant Holder, the right of first refusal to purchase a pro rata share of New Securities (as defined in this Section 3.1) which the Company may, from time to time, propose to sell and issue. A Significant Holder's pro rata share, for purposes of the right of first refusal, is the ratio of the number of shares of Common Stock owned by such Significant Holder immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of any option or warrant held by said Significant Holder, to the total number of shares of Common Stock outstanding immediately prior to the issuance of New Securities, assuming full conversion of the Shares and exercise of all outstanding convertible securities, rights, options and warrants to acquire Common Stock of the Company. Each Significant Holder shall have a right of over-allotment such that if any Significant Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities, the other Significant Holders may purchase the non-purchasing Significant Holder's portion on a pro rata basis within ten (10) days from the date such non-purchasing Significant Holder fails to exercise its right hereunder to purchase its pro rata share of New Securities. This right of first refusal shall be subject to the following provisions: (a) "NEW SECURITIES" shall mean any capital stock (including Common Stock and/or Preferred Stock) of the Company whether now authorized or not, and rights, options or warrants to purchase such capital stock, and securities of any type whatsoever that are, or may become, convertible into capital stock; provided that the term "New Securities" does not include: (i) shares of Common Stock issued or issuable to key employees and other persons (including, without limitation, directors, officers, consultants and scientific collaborators) employed or engaged by the Company pursuant to stock grants, option plans, purchase plans or other employee stock incentive programs or arrangements approved by the Board of Directors of the Company, or upon exercise of options or warrants granted to such parties pursuant to any such plan, program or arrangement; (ii) shares of Common Stock issued or issuable upon the exercise or conversion of options or convertible securities of the Company (including, without limitation, any Preferred Stock); (iii) shares of Common Stock issued or issuable as a dividend or distribution on the Company's securities or pursuant to any event for which adjustment is made pursuant to paragraph 4(e), 4(f) or 4(g) of the Third Amended and Restated Certificate of Incorporation of the Company; (iv) shares of Common Stock issued or issuable pursuant to the acquisition of another corporation by the Company by merger, purchase of substantially all of the assets or other reorganization or to a joint venture agreement, provided that such issuances are approved by the Board of Directors of the Company, including the directors which the holders of Series C Preferred Stock are entitled to elect pursuant to paragraph 5(d) of Article IV of the Third Amended and Restated Certificate of Incorporation of the Company; and (v) shares of Common Stock or Preferred Stock of the Company which are otherwise excluded by the affirmative vote or consent of the holders of a majority of the shares of Series C Preferred Stock then outstanding. -15- (b) In the event the Company proposes to undertake an issuance of New Securities, it shall give each Significant Holder written notice of its intention, describing the type of New Securities, and the price and the general terms upon which the Company proposes to issue the same. Each Significant Holder shall have ten (10) days after any such notice is mailed or delivered to agree to purchase such Significant Holder's pro rata share of such New Securities (which pro rata share, in the case of HP I, may include up to all of the New Securities) for the price and upon the terms specified in the notice by giving written notice to the Company and stating therein the quantity of New Securities to be purchased. (c) In the event the Holders fail to exercise fully the right of first refusal within said ten (10) day period and after the expiration of the additional ten (10) day period for the exercise of the over-allotment provisions of this Section 3.1, the Company shall have ninety (90) days thereafter to sell or enter into an agreement (pursuant to which the sale of New Securities covered thereby shall be closed, if at all, within ninety (90) days from the date of said agreement) to sell the New Securities respecting which the Significant Holders' right of first refusal option set forth in this Section 3.1 was not exercised, at a price and upon terms no more favorable to the purchasers thereof than specified in the Company's notice to Significant Holders pursuant to Section 3.1(b). In the event the Company has not sold within such ninety (90) day period or entered into an agreement to sell the New Securities in accordance with the foregoing within sixty (60) days from the date of said agreement, the Company shall not thereafter issue or sell any New Securities, without first again offering such securities to the Significant Holders in the manner provided in Section 2.3(b) above. (d) The right of first refusal granted under this Agreement shall expire upon, and shall not be applicable to, the first sale of Common Stock of the Company to the public effected pursuant to a registration statement filed with, and declared effective by, the Securities and Exchange Commission under the Securities Act, and shall in any event expire on the third anniversary of the date of the Agreement. (e) The right of first refusal set forth in this Section 3.1 may not be assigned or transferred, except that (i) such right is assignable by each Significant Holder to any wholly owned subsidiary or parent of, or to any corporation or entity that is, within the meaning of the Securities Act, controlling, controlled by or under common control with, any such Significant Holder, and (ii) such right is assignable between and among any of the Significant Holders. SECTION 4 MISCELLANEOUS 4.1 CERTAIN DEFINITIONS. As used in this Agreement, the following terms shall have the meanings set forth below: (a) "APPLICABLE PERCENTAGE" shall mean thirty percent (30%) of the Registrable Securities unless HP I is dissolved on or prior to November 30, 2004, in which case from and after the date of such dissolution it shall mean twenty percent (20%) of the Registrable Securities. -16- (b) COMMISSION" shall mean the Securities and Exchange Commission or any other federal agency at the time administering the Securities Act. (c) "COMMON STOCK" shall have the meaning set forth in the recitals hereto. (d) "EXCHANGE ACT" shall mean the Securities Exchange Act of 1934, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (e) "EXISTING INVESTORS" shall have the meaning set forth in the preamble hereto. (f) FORMER HP I EQUITY HOLDERS" shall have the meaning set forth in the recitals hereto. (g) "HOLDER" shall mean any Investor who holds Registrable Securities and any holder of Registrable Securities to whom the registration rights conferred by this Agreement have been transferred in compliance with Section 1.1 and Section 1.11 hereof. (h) "HP I" shall have the meaning set forth in the recitals hereto. (i) "INDEMNIFIED PARTY" shall have the meaning set forth in Section 1.7(c) hereto. (j) "INDEMNIFYING PARTY" shall have the meaning set forth in Section 1.7(c) hereto. (k) "INVESTORS" shall mean the Existing Investors, the New Investors and the Former HP I Equity Holders. (l) "INITIATING HOLDERS" shall mean, as of any date, any Holder or Holders who in the aggregate hold not less than the Applicable Percentage as of such date. (m) "NEW INVESTORS" shall have the meaning set forth in the recitals hereto. (n) "NEW SECURITIES" shall have the meaning set forth in Section 3.1(a) hereto. (o) "OCTOBER 2004 SERIES C TRANSACTION" shall have the meaning set forth in the recitals hereto. (p) "PREFERRED STOCK" shall mean any Preferred Stock, $0.10 par value, of the Company, issued and outstanding as of the date of this Agreement or issued and outstanding after the date of this Agreement. (q) "PRIOR RIGHTS AGREEMENT" shall have the meaning set forth in the preamble hereto. -17- (r) "REGISTRABLE SECURITIES" shall mean (i) shares of Common Stock issued or issuable to a Holder pursuant to the conversion of the Shares and shares of Common Stock issued or issuable to a Holder upon exercise of the Warrants, and (ii) any Common Stock issued as a dividend or other distribution with respect to or in exchange for or in replacement of the shares referenced in (i) above; provided, however, that Registrable Securities shall not include any shares of Common Stock which have previously been registered or which have been sold to the public either pursuant to a registration statement or Rule 144, or which have been sold in a private transaction in which the transferor's rights under this Agreement are not assigned. (s) The terms "REGISTER," "REGISTERED" and "REGISTRATION" shall refer to a registration effected by preparing and filing a registration statement in compliance with the Securities Act and applicable rules and regulations thereunder, and the declaration or ordering of the effectiveness of such registration statement. (t) "REGISTRATION EXPENSES" shall mean all expenses incurred in effecting any registration pursuant to this Agreement, including, without limitation, all registration, qualification, and filing fees, printing expenses, escrow fees, fees and disbursements of counsel for the Company, blue sky fees and expenses, and expenses of any regular or special audits incident to or required by any such registration, but shall not include Selling Expenses, fees and disbursements of counsel for the Holders and the compensation of regular employees of the Company, which shall be paid in any event by the Company. (u) "RESTRICTED SECURITIES" shall mean any Registrable Securities required to bear the first legend set forth in Section 1.1(b) hereof. (v) "RULE 144" shall mean Rule 144 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (w) "RULE 145" shall mean Rule 145 as promulgated by the Commission under the Securities Act, as such Rule may be amended from time to time, or any similar successor rule that may be promulgated by the Commission. (x) "SECURITIES ACT" shall mean the Securities Act of 1933, as amended, or any similar successor federal statute and the rules and regulations thereunder, all as the same shall be in effect from time to time. (y) "SELLING EXPENSES" shall mean all underwriting discounts, selling commissions and stock transfer taxes applicable to the sale of Registrable Securities by a Holder and fees and disbursements of counsel for such Holder (other than the fees and disbursements of counsel included in Registration Expenses). (z) "SERIES B PREFERRED STOCK" shall have the meaning set forth in the recitals hereto. (aa) "SERIES C PREFERRED STOCK" shall have the meaning set forth in the recitals hereto. -18- (bb) "SHARES" shall mean the Company's Series B Preferred Stock and Series C Preferred Stock. (cc) "SIGNIFICANT HOLDERS" shall mean each Holder who owns Shares acquired at an aggregate original purchase price of at least $100,000 unless HP I is dissolved on or prior to November 30, 2004, in which case from and after the date of such dissolution, it shall mean each Holder who owns Shares acquired at an aggregate original purchase price of at least $100,000 and each Former HP I Equity Holder. (dd) "WARRANT COMMON SHARES" shall have the meaning set forth in the recitals hereto. (ee) "WARRANT SERIES C SHARES" shall have the meaning set forth in the recitals hereto. (ff) "WARRANTS" shall have the meaning set forth in the recitals hereto. 4.2 AMENDMENT. Except as expressly provided herein, neither this Agreement nor any term hereof may be amended, waived, discharged or terminated other than by a written instrument referencing this Agreement and signed by the Company and the Holders holding a majority of the Registrable Securities (excluding any of such shares that have been sold to the public or pursuant to Rule 144). Any such amendment, waiver, discharge or termination effected in accordance with this paragraph shall be binding upon each Holder and each future holder of all such securities of Holder. Each Holder acknowledges that by the operation of this paragraph, the holders of a majority of the Common Stock issued or issuable upon conversion of the Shares and exercise of the Warrants (excluding any of such shares that have been sold to the public or pursuant to Rule 144) will have the right and power to diminish or eliminate all rights of such Investor under this Agreement. 4.3 NOTICES. All notices and other communications required or permitted hereunder shall be in writing and shall be mailed by registered or certified mail, postage prepaid, sent by facsimile or otherwise delivered by hand or by messenger addressed: (a) if to an Investor, at such Investor's facsimile number or address as shown in the Company's records, as may be updated in accordance with the provisions hereof; (b) if to any other holder of any Shares or the underlying Common Stock, at such address or facsimile number as shown in the Company's records, or, until any such holder so furnishes an address or facsimile number, to the Company, then at the address of the last holder of such Shares or underlying Common Stock for which the Company has contact information in its records; or (c) if to the Company, one copy should be sent to Electro-Optical Sciences, Inc., One Bridge Street, Irvington, NY 10533 or to facsimile number (914)591-3785 and addressed to the attention of the Chief Executive Officer, or at such other address or facsimile number as the Company shall have furnished to the Investors, with a copy to counsel to the Company, to Dreier LLP, 499 Park Avenue, New York, NY 10022 or to facsimile number (212)328-6101 and addressed to the attention of Valerie A. Price, Esq. -19- Each such notice or other communication shall for all purposes of this Agreement be treated as effective or having been given when delivered if delivered personally, or, if sent by mail, at the earlier of its receipt or 72 hours after the same has been deposited in a regularly maintained receptacle for the deposit of the United States mail, addressed and mailed as aforesaid or, if sent by facsimile, upon confirmation of facsimile transfer. 4.4 GOVERNING LAW. This Agreement shall be governed in all respects by the internal laws of the State of New York as applied to agreements entered into among New York residents to be performed entirely within New York, without regard to principles of conflicts of law. 4.5 SUCCESSORS AND ASSIGNS. This Agreement, and any and all rights, duties and obligations hereunder, shall not be assigned, transferred, delegated or sublicensed by any Investor without the prior written consent of the Company. Any attempt by an Investor without such permission to assign, transfer, delegate or sublicense any rights, duties or obligations that arise under this Agreement shall be void. Subject to the foregoing and except as otherwise provided herein, the provisions of this Agreement shall inure to the benefit of, and be binding upon, the successors, assigns, heirs, executors and administrators of the parties. 4.6 ENTIRE AGREEMENT. This Agreement and the exhibit hereto constitute the full and entire understanding and agreement between the parties with regard to the subjects hereof and supercedes in its entirety the Prior Rights Agreement, which shall have no further force and effect. No party hereto shall be liable or bound to any other party in any manner with regard to the subjects hereof or thereof by any warranties, representations or covenants except as specifically set forth herein. 4.7 DELAYS OR OMISSIONS. Except as expressly provided herein, no delay or omission to exercise any right, power or remedy accruing to any party to this Agreement upon any breach or default of any other party under this Agreement shall impair any such right, power or remedy of such non-defaulting party, nor shall it be construed to be a waiver of any such breach or default, or an acquiescence therein, or of or in any similar breach or default thereafter occurring, nor shall any waiver of any single breach or default be deemed a waiver of any other breach or default theretofore or thereafter occurring. Any waiver, permit, consent or approval of any kind or character on the part of any party of any breach or default under this Agreement, or any waiver on the part of any party of any provisions or conditions of this Agreement, must be in writing and shall be effective only to the extent specifically set forth in such writing. All remedies, either under this Agreement or by law or otherwise afforded to any party to this Agreement, shall be cumulative and not alternative. 4.8 SEVERABILITY. Unless otherwise expressly provided herein, the rights of the Investors hereunder are several rights, not rights jointly held with any of the other Investors. In the event that any provision of this Agreement becomes or is declared by a court of competent jurisdiction to be illegal, unenforceable or void, this Agreement shall continue in full force and effect without said provision, and the parties agree to negotiate, in good faith, a legal and enforceable substitute provision which most nearly effects the parties' intent in entering into this Agreement. -20- 4.9 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. All references in this Agreement to sections, paragraphs and exhibits shall, unless otherwise provided, refer to sections and paragraphs hereof and exhibits attached hereto. 4.10 COUNTERPARTS. This Agreement may be executed in any number of counterparts, each of which shall be enforceable against the parties that execute such counterparts, and all of which together shall constitute one instrument. 4.11 TELECOPY EXECUTION AND DELIVERY. 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. At the request of any party hereto, all parties hereto agree to execute an original of this Agreement as well as any facsimile, telecopy or other reproduction hereof. 4.12 JURISDICTION; VENUE. With respect to any disputes arising out of or related to this Agreement, the parties consent to the exclusive jurisdiction of, and venue in, the state courts in New York County in the State of New York (or in the event of exclusive federal jurisdiction, the courts of the Southern District of New York). 4.13 JURY TRIAL. EACH OF THE PARTIES HERETO HEREBY IRREVOCABLY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ANY AND ALL RIGHT TO TRIAL BY JURY IN ANY LEGAL PROCEEDING (WHETHER SOUNDING IN CONTRACT, TORT OR OTHERWISE) ARISING OUT OF OR RELATED TO THIS AGREEMENT. 4.14 FURTHER ASSURANCES. Each party hereto agrees to execute and deliver, by the proper exercise of its corporate, limited liability company, partnership or other powers, all such other and additional instruments and documents and do all such other acts and things as may be necessary to more fully effectuate this Agreement. 4.15 CONFIDENTIALITY. Anything in this Agreement to the contrary notwithstanding, no Investor by reason of this Agreement shall have access to any trade secrets or classified information of the Company. The Company shall not be required to comply with any information rights of Section 2 in respect of any Investor whom the Company reasonably determines to be a competitor or an officer, employee, director or holder of more than ten percent (10%) of a competitor. Each Investor acknowledges that the information received by them pursuant to this Agreement may be confidential and for its use only, and it will not use such confidential information in violation of the Exchange Act or reproduce, disclose or disseminate such information to any other person (other than its employees or agents having a need to know the contents of such information, and its attorneys), except in connection with the exercise of rights under this Agreement, unless the Company has made such information available to the public generally or such Investor is required to disclose such information by a governmental authority. -21- 4.16 TERMINATION UPON CHANGE OF CONTROL. This Agreement (excluding any then-existing obligations) shall terminate upon (a) the acquisition of the Company by another entity by means of any transaction or series of related transactions (including, without limitation, any stock acquisition, reorganization, merger or consolidation) other than a transaction or series of transactions in which the holders of the voting securities of the Company outstanding immediately prior to such transaction continue to retain (either by such voting securities remaining outstanding or by such voting securities being converted into voting securities of the surviving entity), as a result of shares in the Company held by such holders prior to such transactions, at least fifty percent (50%) of the total voting power represented by the voting securities of the Company or such surviving entity outstanding immediately after such transaction or series of transactions; or (b) a sale, lease or other conveyance of all or substantially all of the assets of the Company. 4.17 NOTICE OF DISSOLUTION OF HP I. Within five (5) business days of the effective date of the dissolution of HP I, the former managing member(s) of HP I shall deliver a written notice to each Significant Investor setting forth the effective date of the dissolution of HP I. [REMAINDER OF PAGE INTENTIONALLY LEFT BLANK] -22- IN WITNESS WHEREOF, the parties hereto have executed this Second Amended and Restated Investors' Rights Agreement effective as of the day and year first above written. COMPANY: ELECTRO-OPTICAL SCIENCES, INC. a Delaware corporation By: /s/ JOSEPH V. GULFO Name: Joseph V. Gulfo Title: Chief Executive Officer [Signature Page to Second Amended and Restated Investors' Rights Agreement] 23 /s/ ROSALYN BINDAY --------------------------------- Rosalyn Binday /s/ LAWRENCE FIELDS --------------------------------- Lawrence Fields /s/ ALAN CORNELL --------------------------------- Alan Cornell CAREMI PARTNERS By: /s/ MICHELE MCGOVERN ------------------------------ Name: MICHELE MCGOVERN ----------------------- Title: PRESIDENT ---------------------- /s/ PATRICIA BRILLIANT --------------------------------- Patricia Brilliant /S/ STANLEY BRILLIANT --------------------------------- Stanley Brilliant [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT] 24 DAVID AND MARJORIE SILVERMAN, AS TENANTS BY THE ENTIRETY /s/ DAVID SILVERMAN ---------------------------------- David Silverman /s/ MARJORIE SILVERMAN ---------------------------------- Marjorie Silverman /s/ ERIC DOBKIN -------------------------------------- Eric Dobkin /S/ STEVEN KANTOR -------------------------------------- Steven Kantor /s/ EVAN KANTOR -------------------------------------- Evan Kantor /s/ TODD KANTOR -------------------------------------- Todd Kantor /s/ BRIAN KANTOR -------------------------------------- Brian Kantor [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT] 25 /s/ ROBERT MARSTON ------------------------------------------ Robert Marston /s/ DAN W. LUFKIN ------------------------------------------ Dan W. Lufkin /s/ PHILLIP E. HORTON AND JOANNE B. HORTON ------------------------------------------ Phillip E. Horton and Joanne B. Horton CHAFETZ GROUP, LLC By: /s/ RALPH A. CADMAN -------------------------------------- Name: RALPH A. CADMAN -------------------------------- Title: TREASURER -------------------------------- /s/ JERRY JACOB ------------------------------------------ Jerry Jacob /s/ MICHAEL FUX ------------------------------------------ Michael Fux /s/ UZI ZUCKER ------------------------------------------ Uzi Zucker [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT] 26 NANCY L. FRIEDMAN FAMILY TRUST, NANCY AND ROBERT FRIEDMAN TRUSTEES By: /s/ ROBERT FRIEDMAN ---------------------------------- Robert Friedman, Trustee By: /s/ NANCY L. FRIEDMAN ---------------------------------- Nancy L. Friedman, Trustee /s/ PETER JOSEPH -------------------------------------- Peter Joseph /s/ SHELDON PERL -------------------------------------- Sheldon Perl [SIGNATURE PAGE TO SECOND AMENDED AND RESTATED INVESTORS' RIGHTS AGREEMENT] 27 EXHIBIT A INVESTORS 1. EXISTING INVESTOR: a. SERIES B PREFERRED
Shares of Series B Series B Preferred Shareholders Preferred Stock ---------------------------------- ------------------ Arcadian Venture Partners, LP 156,000 Attn: George Chryssis Double D Venture Fund, LLC 61,538 Attn: Philip Braginsky Peponi, LLC 39,000 Attn: Arthur G. Koumantzelis Peter Matthews 18,461 Estate of Bennett I Moyle 15,384 c/o Mike Moyle, Executor RL Capital Partners 11,538 Attn: Ronald M. Lazar Erik P. Nygaard 9,820 John M Linehan & 9,231 Rita A Linehan JTWROS Pensco Pension Services Cust 9,230 FBO Edward L. Cameron IRA Rollover Brad Snedecor & 9,230 Mary O'Shaughnessy JTWROS General Home Furnishings, Inc. 9,230 Attn: Alan Cameros Salomon Smith Barney Cust 9,230 FBO Giacomo A. Russo SEP IRA John T. Chapman 8,461 Dennis M Murphy & 8,232 Doris W Murphy JTWROS Arvind Deogirikar & 7,692 Tatiana Deogirikar JTWROS Chester Mazur TTEE 7,692 Chester Mazur Revocable Trust DTD 05/16/2000 Larry E. DeMar 7,692 Lawrence B Goodman 7,692
-i- Michelle J. Arden & 7,692 T. Allen Akin JTWROS Richard E. Donick 7,692 The High Street Venture Fund LLC 7,692 King Oehmig & West Oehmig John D. McBride Jr. 7,384 Arline E. Greenblatt 6,461 Rajendra K. Mehta & 6,153 Sadhna Mehta JTWROS Peter J. Durfee & 5,423 Sheila W. Durfee JTWROS Philip C. Wennblom 5,386 Donald J Aoki & Peggy J Aoki TTEES 5,384 The Aoki Family Trust DTD 5/29/1991 Jeffrey S. Briggs & 5,384 Diane E. Briggs JTWROS Thomas C. Flaherty Jr. & 5,384 Marije TerEllen JTWROS James C Kempner 5,000 James G. Tuton & 4,846 Sharon R. Tuton JTWROS Arun Shah & 4,615 Shobhana Shah JTWROS Avner I. Schwarz & 4,615 Katy K. Schwarz JTWROS Bernard Notas & Eve Roberta Notas TTEES 4,615 The Notas Family Trust U/A/D 08/13/1997 Foreman Investment Capital, LLC. 4,615 Attn: Scott F Zarrow Frederick J. Egan 4,615 James B Kilgore 4,615 James M. Kendall 4,615 Kelly H. Burke & Denny H. Burke TTEES 4,615 The Burke Joint Revocable Trust DTD 7/23/93 Peter N. Stathis 4,615 Premnath Viswanath & 4,615 Malathy Viswanath JTWROS Sal Barbera 4,615 William P. & Sharon J. Slagle TTEES 4,615 Slagle 1999 Living Trust DTD 6/23/1999 Allan H. Zerman & 4,500 Marilyn R. Zerman JTWROS
-ii- Michael J. Sadowski & 4,320 Fiona E. MacKellar JTWROS Ward A Simonson & 4,307 Karen A Simonson JTWROS Nanda Nandkishore 4,230 Paul C Valentine 4,146 Caribam Resources Inc. 4,130 Attn: J. Paul Roston Alan R. Menzies 4,116 Charles J. Kalina III 4,061 Wilma K. Deutsch 4,038 James C. Greenblatt 4,000 Jonathan P. Nelson 4,000 Antoinette E. Murray 3,846 Antonio Varela & 3,846 Myriam Varela JTWROS Arthur N. Sklaroff & 3,846 Clara J. Chang-Sklaroff COMM PROP Barnegat Bay Investor Group 3,846 Attn: Alfred B. Nunan Barry Lubin 3,846 Bhanu Kapoor 3,846 Bradley J. Christians & 3,846 Carolyn O. Christians JTWROS Carolyn E. Balfour 3,846 Chad C. Warwick 3,846 Chris Elliott 3,846 Clarence G. Lee 3,846 Craig S. Kowalski & 3,846 Mingjie Kowalski JTWROS Curtis K Fisher 3,846 Curtis R Kolcun & M Debora Kolcun TTEES 3,846 The Curtis Richard Kolcun Revocable Trust DTD 06/07/99 Daniel W. Berger 3,846 Daniel W. Oehmig 3,846 David B. Weir 3,846 David Gemmer 3,846 Donald E. Eastman 3,846
-iii- Eagle Rock Venture Capital Partners, LP 3,846 Attn: Richard Dreskin, John Dreskin,Ken Disbrow Eddie C. Lee & 3,846 Jenny Ma JTWROS Edmund Pickell Ang & Lorna Garcia Ang TTEES 3,846 The 1993 Edmund Pickell Ang & Lorna Garcia Ang Revocable Trust, DTD 7/31/93 Ellen Chiang 3,846 Ernest L. Timlin 3,846 Eugene C. Elliott & 3,846 Cathleen R. Elliott JTWROS Eugene J. Tschoepe 3,846 Fred B. Bialek 3,846 Gary W Allen,Judy A Pick, Kay A Williams TTEES 3,846 Charles Maxwell Allen Testamentary Trust DTD 11/01/96 George McGee 3,846 Heritage Venture Funds, LLC 3,846 Attn: Michael W. Devine Hillcrest Investors, L.P. 3,846 Attn: Mr. Jon Goodykoontz Hossein Razavi 3,846 James L. Crawford & Anna J. Fang TTEES 3,846 James L. Crawford 1999 Revocable Trust DTD 04/12/99 James M Freitag & 3,846 Suzanne Freitag JTWROS James P. Hallberg 3,846 James R. Mark & 3,846 Ora L. Mark JTWROS Janet L. Stodter 3,846 Jeanne M. Rowzee & 3,846 Patricia J. Elliott JTWROS Jian Huang 3,846 Joe Behrendt & Jamie Behrendt TTEES 3,846 Joe N and Jamie W Behrendt Rev Trust DTD 10/30/96 John A Forlines Jr 3,846 John A. Forlines III 3,846 John McDonald 3,846 John Penners 3,846 John S Jones & 3,846 Claudia L Jones COMM PROP
-iv- Jon D. Brinton & 3,846 Loraine M. Brinton JTWROS Jon LeFebvre & 3,846 Alice L. LeFebvre COMM PROP Jon M. Sebaly 3,846 Jonathan P. Patronik 3,846 Jonathan P. Ruppert 3,846 Keith A. McAllister 3,846 Kenn T. Dahl 3,846 Kevin M. Nish & 3,846 Kimberly M. Nish COMM PROP Kurt Marti & 3,846 Marianne Marti JTWROS Lawrence R. Dugan 3,846 Leon M Augusty & 3,846 Jan R Augusty JTWROS Leonard R. Weisberg TTEE 3,846 The Trust U/A Leonard R. Weisberg DTD 03/16/1994 Manish J. Moradia 3,846 Mark Lunenburg 3,846 Vanmark Associates Inc. 3,846 Pension Profit Sharing Plan Mark V Brooks TTEE Matthew Oristano 3,846 Mehdi N. Farid 3,846 Michael A. Wolf 3,846 Michael E Liebowitz 3,846 Michael R. Douglas & 3,846 Catherine H. Benoist JTWROS Norman Smothers 3,846 Oliver H Drabkin 3,846 Paul C. Gallo 3,846 Pensco Pension Services Cust 3,846 FBO Michael McNamara IRA Rollover Pensco Pension Services Cust 3,846 FBO Ronald Lazar IRA Pete Geffen 3,846 Peter D. Crist 3,846 Phillip Horton & 3,846 Joanne Horton JTWROS
-v- Prabhas K. Kejriwal & 3,846 Madhulika Kejriwal COMM PROP Rima Lieben 3,846 Robert A. Stringer 3,846 Robert P. Marx 3,846 Robert W. Salz TTEE 3,846 The Robert W. Salz Living Trust DTD 09/22/1998 Rodney E. & Suzanne M. Thompson TTEES 3,846 The Thompson Family Living Trust DTD 01/24/1994 Roger E. Block & 3,846 Victoria M. Block JTWROS Walter A. Rogoff 3,846 Ronald Reiter 3,846 Ross C Kayuha 3,846 Salomon C. Ojalvo & 3,846 Dorita Ojalvo JTWROS Sandeep Abrol 3,846 Stanford R. Joseph 3,846 Stephan L. Sheets 3,846 Tapley O. Johnson III 3,846 Ted R Schenberg 3,846 William A. Stevens 3,846 William J. Hughes 3,846 William L. Walker 3,846 William M. Mitchell 3,846 Ken K Dickinson 1,923 Alexander Goldberg 1,923
-vi- b. SERIES C PREFERRED
SHARES OF SERIES C PREFERRED WARRANT COMMON WARRANT SERIES C INVESTOR STOCK SHARES(1) SHARES(2) ------------------------- ---------------- -------------- ----------------- Health Partners I 1,150,754 1,150,754 121681 Koji Miyazaki 99,558 24,890 Augusty, Leon & Jan 2,212 Bialek, Fred 2,212 Briggs, Jeffrey & Diane 2,212 Burke, Lt. General Kelly 4,425 Durfee, Peter 6,637 Eagle Rock Ventures 2,212 Hodgson, Rod 22,124 Kalina, Charles 4,425 Lerner, Seth 2,212 Menzies, Alan 2,212 Murphy, Suzanne 22,124 Nelson, Jonathan P. 4,425 Oristano, Matthew 2,212 Polzer, Eckhard 4,425 Rabinovitz, Harold 4,425 Roston, Jay 11,062 Sebaly, Jon 2,212 Shah, Arun and Shobhana 2,212 Snedecor, Brad & 6,637 O'Shaughnessy Stodter, Janet L. 2,212 Stringer, Robert A. 11,062 Timlin, Ernest 2,212 Tschoepe, Eugene 2,212 Valentine, Paul 4,425 Viswanath, Premnath 4,425 Wennblom, Philip 6,637 Foreman Capital Group 2,212
------------ (1) Warrant Common Shares" means shares of Common Stock issuable upon exercise of warrants to purchase Common Stock issued by the Company. (2) "Warrant Series C Shares" means shares of Series C Preferred Stock issuable upon exercise of warrants to purchase Series C Preferred Stock issued by the Company. -vii- 2. NEW INVESTORS
SHARES OF SERIES C WARRANT PREFERRED COMMON PURCHASER STOCK SHARES ---------------------------------- --------- --------- Rosalyn Binday 45,000 45,000 Lawrence Fields 44,250 44,250 Alan Cornell 44,248 44,248 Caremi Partners 884,955 884,955 Patricia Brilliant 309,734 309,734 Stanley Brilliant 88,495 88,495 David and Marjorie Silverman, TBE 26,550 26,550 Eric Dobkin 265,486 265,486 Steven Kantor 22,124 22,124 Evan Kantor 11,062 11,062 Todd Kantor 11,062 11,062 Brian Kantor 11,062 11,062 Robert Marston 44,248 44,248 Dan W. Lufkin 100,000 100,000 Phillip E. Horton and Joanne B Horton, JTWROS 6,999 6,999 Chafetz Group, LLC 221,239 221,239 Jerry Jacob 44,247 44,247 Michael Fux 221,238 221,238 Uzi Zucker 88,495 88,495 Nancy L. Friedman Family Trust, Nancy and Robert Friedman Trustees 44,427 44,427 Peter Joseph 132,743 132,743 Sheldon Perl 44,247 44,247 The Leonard Florence 2004 Revocable Trust Perry J. Gould as Trustee 44,247 44,247 Paul Gould 11,000 11,000 Marc Perlman 110,619 110,619 Alan Perlman 110,619 110,619 Alan Fishman 119,469 119,469 Laura Sloate 90,929 90,929 John Simon 15,486 15,486 Mary Cullen 44,248 44,248 Bruce Allen 176,991 176,991 Allen & Company LLC 110,619 110,619
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SHARES OF SERIES C WARRANT PREFERRED COMMON PURCHASER STOCK SHARES ---------------------------------- --------- --------- Edward L. Cameron 22,123 22,123 Adam Zikora 10,000 10,000
3. FORMER HP1 MEMBERS
MEMBERS SHARES OF HEALTH OF SERIES C WARRANTS COMMON WARRANT SERIES PARTNERS I, LLC PREFERRED STOCK SHARES C SHARES ---------------------------- --------------- ---------------- --------------- Caremi Partners Ltd. 221,177 221,177 23,387 Eric S. Dobkin 132,682 132,682 14,030 Dan W. Lufkin 110,587 110,587 11,694 Allen & Company LLC 88,608 88,608 9,369 Laura J. Sloate 88,608 88,608 9,369 Patricia Brilliant 44,304 44,304 4,685 Robert J. Friedman, M.D. 44,304 44,304 4,685 Edward R. Heilman, M.D 44,304 44,304 4,685 Steven Kantor, D.D.S. 44,304 44,304 4,685 Robert Marston 44,304 44,304 4,685 David and Marjorie Silverman 44,304 44,304 4,685 John Simon 44,304 44,304 4,685 Charles B. Ortner 44,304 44,304 4,685
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MEMBERS SHARES OF HEALTH OF SERIES C WARRANTS COMMON WARRANT SERIES PARTNERS I, LLC PREFERRED STOCK SHARES C SHARES ------------------------- --------------- ---------------- --------------- Abigail Lufkin Trust 27,618 27,618 2,920 Alison Lufkin Trust 27,618 27,618 2,920 Elise Lufkin Living Trust 27,618 27,618 2,920 Margaret L. Bishop Trust 27,618 27,618 2,920 Breaux Castleman 22,094 22,094 2,336 Paul Gould 22,094 22,094 2,336 --------- --------- ------- TOTAL 1,150,754 1,150,754 121,681 --------- --------- -------
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