No holder of Convertible Preferred Stock may convert shares of Convertible Preferred Stock through either an optional or a mandatory conversion into shares of Common Stock if and to the extent that such conversion would result in the holder beneficially owning in excess of 19.99% of the aggregate number of votes entitled to be cast generally at a meeting of the Issuer’s stockholders held for the election of directors by all outstanding shares of the Issuer’s Common Stock (regardless of class) (such limitations, collectively, the “Ownership Limitations”).
Voting and Consent Rights
Initially, holders of the Convertible Preferred Stock will not be entitled to voting rights in the election of directors of the Issuer. Following the expiration or termination of any applicable waiting period under the HSR Act, holders of the Convertible Preferred Stock generally will be entitled to vote with the holders of the shares of Common Stock on all matters submitted for a vote of holders of shares of Common Stock (voting together with the holders of shares of Common Stock as one class) on an as-converted basis, subject to the Ownership Limitations. Additionally, certain matters will require the approval of the holders of two-thirds of the outstanding Convertible Preferred Stock, voting as a separate class, including (1) the authorization, creation, increase in the authorized amount of, or issuance of any class or series of senior or pari passu equity securities or any security convertible into, or exchangeable or exercisable for, shares of senior or pari passu equity securities, (2) amendments, modifications or repeal of any provision of the Issuer’s charter or of the Certificate of Designations that would adversely affect the rights, preferences or voting powers of the Convertible Preferred Stock, and (3) certain business combinations and binding or statutory share exchanges or reclassification involving the Convertible Preferred Stock unless such events do not adversely affect the rights, preferences or voting powers of the Convertible Preferred Stock.
Repurchase Rights
Each Investor will have the right to require the Issuer to repurchase such Investor’s Convertible Preferred Stock upon the consummation of a Change of Control (as defined in the Certificate of Designations) meeting certain criteria, at a price equal to 175% of the then applicable liquidation preference and on the terms set forth in the Certificate of Designations. The Issuer will have the right to repurchase all, but not less than all, of the shares of Convertible Preferred Stock, at a price equal to the then applicable liquidation preference, on or after the fifth anniversary of the Closing Date.
Transfer Restrictions
During the first six months following the Closing Date, the Investors will be restricted from transferring the Convertible Preferred Stock and the shares of Common Stock underlying it, subject to certain specified exceptions set forth in the Investment Agreement.
The foregoing description of the Investment Agreement and the Certificate of Designations is, in each case, not complete and is qualified in its entirety by reference to the Investment Agreement, which is attached to this Amendment No. 1 to Schedule 13D as Exhibit 2, and the form of the Certificate of Designations, which is attached as Exhibit A to the Investment Agreement, respectively, each of which is incorporated herein by reference.
Registration Rights Agreement
In connection with the closing of the Transaction, the Investors will enter into a Registration Rights Agreement with the Issuer, pursuant to which the Issuer will grant the Investors certain customary registration rights with respect to the shares of Common Stock issuable upon conversion of Convertible Preferred Stock.
The foregoing description of the Registration Rights Agreement is not complete and is qualified in its entirety by reference to the form of Registration Rights Agreement, which is which is attached as Exhibit B to the Investment Agreement, and is incorporated herein by reference.
| Item 7. | Material to be Filed as Exhibits |
Item 7 is amended and supplemented as follows:
Exhibit 2 Investment Agreement, dated as of April 1, 2024, by and among Rhythm Pharmaceuticals, Inc. and the investors named therein (incorporated by reference to Exhibit 10.1 to the Issuer’s Current Report on Form 8-K filed April 1, 2024).
