EXHIBIT 10.3
SHAREHOLDERS AGREEMENT
AGREEMENT, made as of the 19th day of March, 1997, by and among Logical
Design Solutions, Inc., a New Jersey corporation (the "Company"), Xxxx Xxx
Xxxxxx, Xxxxxx Xxxxxx (individually, a "Management Shareholder" and
collectively, the "Management Shareholders"), and Summit Ventures IV, L.P.
"Summit Investors III, L.P. and Xxxx X. Xxxxxx (individually an "Investor" and
collectively, the "Investors" and, together with the Management Shareholders,
the "Shareholders").
WHEREAS, the Investors are acquiring 9% Senior Subordinated Debentures and
Warrants (the "Warrants") to purchase an aggregate of 215,000 shares of common
stock, no par value per share, of the Company (the "Common Stock"), pursuant to
the terms of a 9% Senior Subordinated Debenture and Warrant Purchase Agreement
dated as of the date hereof among the Company, the Investors and certain
shareholders of the Company (the "Purchase Agreement");
WHEREAS, it is a condition to the obligations of the parties under the
Purchase Agreement that this Agreement be executed by the parties hereto, and
the parties are willing to execute this Agreement and to be bound by the
provisions hereof.
NOW, THEREFORE, in consideration of the foregoing, the agreements set forth
below, and the parties' desire to provide for continuity of ownership of the
Company to further the interests of the Company and its present and future
shareholders, the parties hereby agree with each other as follows:
1. Definition of Shares. As used in this Agreement, "Shares" shall mean and
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include all shares of the Common Stock and other equity securities of the
Company now owned or hereafter acquired by a Shareholder, including, without
limitation, the shares of Common Stock issuable upon exercise of the Warrants.
Other terms used as defined terms herein and not otherwise defined shall have
the meanings set forth in the Purchase Agreement.
2. Prohibited Transfers. No Management Shareholder shall sell, assign,
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transfer, pledge, hypothecate, mortgage, encumber or dispose of all or any of
his or her Shares except in compliance with the terms of this Agreement.
Notwithstanding anything to the contrary contained in this Agreement, (a) a
Management Shareholder may transfer without the necessity of prior approval all
or any of his or her Shares by way of gift to his or her spouse, to any of his
or her lineal descendants or ancestors, or to any trust for the benefit of any
one or more of the Shareholder, his or her spouse, or his or her lineal
descendants or ancestors, and (b) a Shareholder may transfer all or any of his
or her Shares by will or the laws of descent and distribution; provided that any
such transferee under clause (a) or (b) of this Section 2 (referred to herein as
"Permitted Transferees") shall agree in writing with the Company and the other
Shareholders, as a condition to such transfer, to be bound by all of the
provisions of this Agreement to the same extent as if such transferee were the
Management Shareholder transferring such Shares.
3. Right of First Refusal on Dispositions.
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(a) If at any time a Management Shareholder (a "Selling Management
Shareholder") desires to sell or otherwise transfer all or any part of his or
her Shares pursuant to a bona fide offer from a third party (the "Proposed
Transferee"), the Selling Management Shareholder shall submit a written offer
(the "Offer") by delivering the Offer to the Company and the non-selling
Shareholders (the "Other Shareholders") to sell such Shares (the "Offered
Shares") to the Company and the Other Shareholders on terms and conditions,
including price, not less favorable than those on which the Selling Management
Shareholder proposes to sell such Offered Shares to the Proposed Transferee. The
Offer shall disclose the identity of the Proposed Transferee, the number of
Offered Shares proposed to be sold, the total number of Shares owned by the
Selling Management Shareholder, the terms and conditions, including price, of
the proposed sale, and any other material facts relating to the proposed sale.
The Offer shall further state (i) that the Company and the Other Shareholders
may acquire, in accordance with the provisions of this Agreement, any of the
Offered Shares for the price and upon the other terms and conditions set forth
therein and (ii), if all such Offered Shares are not purchased by the Company
and the Other Shareholders, the Other Shareholders who have not purchased any
such Offered Shares pursuant to this Section 3 may exercise their rights
provided pursuant to Section 4 hereof.
(b) The Company shall have the first right to purchase the Offered
Shares. If the Company desires to purchase all or any part of the Offered
Shares, it shall communicate in writing its election to purchase any of the
Offered Shares to the Selling Management Shareholder and the Other Shareholders,
which communication shall state the number of Offered Shares that the Company
desires to purchase and the number of Offered Shares, if any, remaining for
purchase by the Other Shareholders pursuant to Section (c) below, and shall be
given within 20 days of the date the Offer was made.
(c) If the Company does not elect to purchase all of the Offered
Shares within the time period specified above, each Other Shareholder shall have
the right to purchase that number of remaining Offered Shares as shall be equal
to the number of such remaining Offered Shares multiplied by a percentage equal
to two times the percentage of Shares (calculated on a fully diluted basis)
owned by such Other Shareholder (or issuable to such Other Shareholder upon
exercise of Warrants owned by such Other Shareholder). The percentage of Shares
owned on a fully diluted basis by any Other Shareholder shall be calculated as
if all options and Warrants which are then exercisable have been exercised in
full. The amount of such Offered Shares that each Other Shareholder is entitled
to purchase under this Section 3(c) shall be referred to as its "Pro Rata
Fraction."
(d) Those Other Shareholders who desire to purchase all or any part of
the remaining Offered Shares shall communicate in writing their election to
purchase to the Selling Management Shareholder, which communication shall state
the number of remaining Offered Shares said Other Shareholders desire to
purchase and shall be provided to the Selling Management Shareholder within 30
days of the date the Offer was made. Such communication, together with the
communication of the Company specified above, shall, when taken in conjunction
with the Offer, be deemed to constitute a valid, legally binding and enforceable
agreement for the sale and purchase of such Offered Shares. Sales of such
Offered Shares to be
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sold to the Company, the Other Shareholders pursuant to this Section 3 shall be
made at the offices of the Company within 60 days following the date the Offer
was made.
(e) To the extent the Company and the Other Shareholders do not
purchase all the Offered Shares, then all, but not fewer than all, of the
remaining Offered Shares may be sold by the Selling Management Shareholder at
any time within 120 days after the date the Offer was made, subject to the
provisions of Section 4. Any such sale shall be to the Proposed Transferee, at
not less than the price and upon other terms and conditions, if any, not more
favorable to the Proposed Transferee than those specified in the Offer. If the
Offered Shares are not sold within such 120-day period, they shall continue to
be subject to the requirements of a prior offer pursuant to this Section 3, and
may not be transferred except in compliance with the provisions of this Section
3. If Offered Shares are sold pursuant to this Section 3 to any purchaser who is
not a party to this Agreement, the purchaser of such Offered Shares shall
execute a counterpart of this Agreement as a precondition of the purchase of
such Offered Shares and any Offered Shares sold to such purchaser shall continue
to be subject to the provisions of this Agreement.
(f) In the event a Management Shareholder is required to transfer
Shares pursuant to a court order, decree or judgment, or pursuant to a
settlement of a court proceeding such transfer shall be deemed to be a sale for
purposes of this Section 3, and shall entitle the Company and the Other
Shareholders to exercise their right of first refusal with respect to such
transfer. In any event, the Management Shareholder who is required to make such
transfer shall provide an Offer as herein provided. The price at which the
Shares may be purchased pursuant to such Offer shall be the price as set by the
court which issued such order, decree or judgment, or the price as set by the
parties to such settlement. If a price is not determined by such court, or by
the parties to such settlement, then the price shall be determined pursuant to
an appraisal conducted in accordance with the provisions of Section 2 of the
Redemption Agreement, with one appraiser chosen by the Management Shareholder
who is making such transfer, and the other appraiser chosen by the Company.
4. Right of Participation in Sales.
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(a) If at any time following compliance with the provisions of Section
3 (if applicable), any Selling Management Shareholder desires to transfer all or
any part of the Shares owned by him or it to any third party (not including the
Company), then each Other Shareholder (other than those who have elected to
purchase Shares pursuant to Section 3) shall have the right to sell to the third
party, as a condition to such sale by the Selling Management Shareholder, at the
same price per share and on the same terms and conditions as involved in such
sale by the Selling Management Shareholder, a pro rata portion of the amount of
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Shares proposed to be sold to the third party; provided, however, that such
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right shall not apply to any sale or transfer by a Management Shareholder to the
Company. The "pro rata portion" of Shares which the Other Shareholder shall be
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entitled to sell to the third party shall be that number of Shares as shall
equal the number of Shares proposed to be sold to the third party multiplied by
a fraction, the numerator of which is the aggregate of all shares of Common
Stock which are then held by the Other Shareholder wishing to participate in the
sale or issuable upon exercise of Warrants held by such Other Shareholder, and
the denominator of which is the aggregate of all shares of Common Stock which
are then held by all Other Shareholders wishing to participate in any sale
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under this Section 4 or issuable upon exercise of Warrants held by such Other
Shareholders, including the Selling Management Shareholder.
(b) If the Selling Management Shareholder wishes to make a sale to a
third party which is subject to this Section 4, the Selling Management
Shareholder shall, after complying with the provisions of Section 3, give to
each Other Shareholder notice of such proposed sale, and stating that all Shares
were not purchased pursuant to the Offer as discussed in Section 3. Such notice
shall be given at least 20 days prior to the date of the proposed sale to the
third party. Each Other Shareholder wishing to so participate in any sale under
this Section 4 shall notify the selling Management Shareholder in writing of
such intention within 15 days after such Other Shareholder's receipt of the
notice described in the preceding sentence.
(c) The Selling Management Shareholder and each participating Other
Shareholder shall sell to the third party all, or at the option of the third
party, any part of the Shares proposed to be sold by them at not less than the
price and upon other terms and conditions, if any, not more favorable to the
third party than those in the notice provided by the Selling Management
Shareholder under subparagraph (b) above; provided, however, that any purchase
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of less than all of such Shares by the third party shall be made from the
Selling Management Shareholder and each participating Other Shareholder pro rata
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based upon the relative number of the Shares that the Selling Management
Shareholder and each participating Other Shareholder is otherwise entitled to
sell pursuant to Section 4(a).
(d) If any Shares are sold pursuant to this Section 4 to any purchaser
who is not a party to this Agreement, the purchaser of such Shares shall execute
a counterpart of this Agreement as a precondition to the purchase of such Shares
and such Shares shall continue to be subject to the provisions of this Agreement
.
5. Election of Directors.
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(a) During the term of this Agreement, at each annual meeting of the
shareholders of the Company, and at each special meeting of the shareholders of
the Company called for the purpose of electing directors of the Company, and at
any time at which shareholders of the Company shall have the right to, or shall,
vote for directors of the Company, then, and in each event, the Shareholders
shall vote all Shares owned by them for the election of a Board of Directors
consisting of not more than seven directors, designated in the manner designated
below (subject to adjustment in accordance with the provisions of subparagraph
(b) of this Section 5):
(i) two directors shall be designated by Summit Ventures IV,
L.P. (so long as it and its affiliates shall own or have the right to acquire at
least 33 1/3% of the Shares which it owns or has the right to acquire on the
date hereof), one of which designees shall initially be Xxxxx X. Xxxxx, with the
second such designee to be named by Summit Ventures IV, L.P. at such time as it
deems appropriate;
(ii) one director shall be Xxxx Xxx Xxxxxx, (so long as she and
her permitted transferees described in Section 2 shall continue to hold at least
33 1/3% of the shares of Common Stock owned by her on the date hereof), who
shall serve as chair; and
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(iii) four directors shall be designated by holders of a
majority of the shares of Common Stock outstanding on a fully diluted basis.
(b) Notwithstanding the provisions of subparagraph (a) of this Section
5, if there shall occur an Event of Default under the Purchase Agreement, then
upon the date of occurrence of such Event of Default, and upon the first day of
each successive two fiscal quarter period following the occurrence of such Event
of Default (commencing with the first day of the second full fiscal quarter
after such Event of Default), the number of Directors designated by Summit
Ventures IV, L.P., designated pursuant to Section 5(a)(i) shall be increased by
one additional Director, and the total number of Directors set forth in Section
5(a) shall be increased accordingly. Once the number of Directors designated
pursuant to Section 5(a)(i) and the size of the Board of Directors have been
increased pursuant to this Section 5(b), they shall not thereafter be reduced
upon waiver of such Event of Default; provided, however, that with respect to
any Event of Default resulting from a breach of Section 4.10 of the Purchase
Agreement, if subsequent to such Event of Default the Company achieves
Consolidated Net Income Before Taxes of at least $ 1.00 during any twelve (12
month) period commencing with the last day of the second fiscal quarter ending
subsequent to the occurrence of such Event of Default, then on one occasion such
Event of Default shall be considered cured and the number of Directors which can
be designated by Summit Ventures IV, L.P. shall be reduced (and such additional
designated Director or Directors shall resign) to the original number set forth
in Section 5(a) hereof.
6. Insurance. The Company shall at all times maintain for the benefit of its
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officers and directors liability insurance in scope and amount, and from an
insurer, reasonably acceptable to the Investors; provided, however, that the
Company shall not be obligated to maintain such insurance if in the good faith
judgment of its Board of Directors such insurance is not available at a
reasonable cost.
7. Compensation Committee. There shall be established at all times during the
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term of this Agreement a Compensation Committee of the Board of Directors (the
"Compensation Committee"), one member of which shall be such one of the
directors designated pursuant to Section 5(a)(i) as shall be specified by Summit
Ventures IV, L.P. The Compensation Committee will determine the compensation of
all senior employees and consultants of the Company (including salary, bonus,
equity participation and benefits) consistent with compensation of companies
similar to the Company; provided that no member of the Compensation Committee
may vote on his or her own compensation. The compensation of senior employees
and consultants shall be reviewed by the Compensation Committee on an annual
basis, and the decision by a majority of the members of the Compensation
Committee will control the Committee's actions. Within thirty (30) days after
the date hereof the Compensation Committee shall adopt a statement of policy
concerning compensation of senior employees, which statement shall be reasonably
acceptable to a majority of the committee members, including the director
designated pursuant to Section 5(a)(i). Any decision of the Committee involving
the grant of options (including the pricing and other terms thereof, and prior
to the adoption of the statement of policy referenced in the preceding sentence,
any increase in compensation paid to a member of senior management, such
majority must include a director designated pursuant to Section 5(a)(i);
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8. Term. This Agreement shall terminate on the earlier to occur of (a)
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immediately prior to consummation of the first Qualified Public Offering, (b)
the tenth anniversary of the date of this Agreement or (c) all Warrants have
been redeemed by the Company pursuant to Paragraph 1 of the Redemption
Agreement.
9. Preemptive Rights. (a) The Company hereby grants to each Investor so long
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as it shall own, of record or beneficially, or have the right to acquire from
the Company, any shares of Common Stock, the right to purchase all or part of
its pro rata share of New Securities (as defined in subparagraph (b)) which the
Company, from time to time, proposes to sell and issue. A Shareholder's pro
rata share, for purposes of this preemptive right, is the ratio of the number of
shares of Common Stock which such Shareholder owns or has the right to acquire
from the Company to the total number of shares of Common Stock then outstanding
(giving effect to the exercise of all Warrants then outstanding). The
Shareholders shall have a right of over-allotment pursuant to this Section 9
such that to the extent a Shareholder does not exercise its preemptive right in
full hereunder, such additional shares of New Securities which such Shareholder
did not purchase may be purchased by the other Shareholders in proportion to the
total number of shares of Common Stock which each such other Shareholder owns or
has the right to acquire from the Company compared to the total number of shares
of Common Stock which all such other Investors own or have the right to acquire
from the Company.
(b) "New Securities" shall mean any capital stock of the Company,
whether now authorized or not, and rights, options or warrants to purchase
capital stock, and securities of any type whatsoever that are, or may become,
convertible into or exchangeable for capital stock, issued on or after the date
hereof; provided that the term "New Securities" does not include (i) Common
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Stock issued as a stock dividend to holders of Common Stock or upon any stock
split, subdivision or combination of shares of Common Stock, (ii) the aggregate
number of shares of Common Stock issuable upon exercise of options permitted
under the Purchase Agreement, (iii) the Warrant Shares, (iv) Common Stock issued
in connection with a Qualified Public Offering, and (v) Common Stock issued in
connection with an acquisition, merger or other transaction which has been
approved by vote of the Board of Directors, including the affirmative vote of
any director designated pursuant to Section 5(a)(i) and (vi) capital stock and
rights, options or warrants to purchase and securities of any type whatsoever
which are convertible into or exchangeable for capital stock which are
outstanding on the date hereof.
(c) In the event the Company proposes to undertake an issuance of New
Securities, it shall give each Shareholder written notice of its intention,
describing the type of New Securities and the price and the terms upon which the
Company proposes to issue the same. Each Shareholder shall have 10 business days
from the date of receipt of any such notice to agree to purchase up to the
Shareholder's pro rata share of such New Securities (any over-allotment amount
pursuant to the operation of subparagraph (a) hereof) 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.
(d) In the event any Shareholder fails to exercise in full its
preemptive right (after giving effect to the over-allotment provision of
subparagraph (a) hereof), the Company shall have 90 days thereafter to sell the
New Securities with respect to which the Shareholder's option was not exercised,
at a price and upon terms no more favorable to the purchasers thereof
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than specified in the Company's notice. To the extent the Company does not sell
all the New Securities without first again offering such securities to the
Shareholders in the manner provided above.
(e) The rights granted to the Shareholders under this Section 9 shall
expire immediately prior to, and shall not apply in connection with, the
consummation of the first Qualified Public Offering.
10. Specific Enforcement. Each Shareholder expressly agrees that the Other
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Shareholders and the Company may be irreparably damaged if this Agreement is not
specifically enforced. Upon a breach or threatened breach of the terms,
covenants and/or conditions of this Agreement by any Shareholder, the Other
Shareholders and the Company shall, in addition to all other remedies, each be
entitled to apply for a temporary or permanent injunction, and/or a decree for
specific performance, in accordance with the provisions hereof.
11. Legend. Each certificate evidencing any of the Shares now owned or
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hereafter acquired by the Shareholders shall bear in addition to any other
legends required by other agreements or by law a legend substantially as
follows:
"Any sale, assignment, transfer or other disposition of the shares
represented by this certificate is restricted by, and subject to, the terms
and provisions of a certain Shareholders' Agreement dated as of March 19,
1997. A copy of said Agreement is on file with the Secretary of the
Corporation."
12. Notices. Notices given hereunder shall be deemed to have been duly given
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on the date of personal delivery or on the date of postmark if mailed by
certified or registered mail, return receipt requested, to the party being
notified at his or its address specified on Schedule I hereto or such other
address as the addressee may subsequently notify the other parties of in
writing.
13. Entire Agreement and Amendments. This Agreement constitutes the entire
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agreement of the parties with respect to the subject matter hereof and neither
this Agreement nor any provision hereof may be waived, modified, amended or
terminated except by a written agreement signed by the parties hereto; provided,
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however, that Investors owning at least a majority of the Shares owned by all
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Investors may effect any such waiver, modification, amendment or termination on
behalf of all of the Investors and Management Shareholders owning at least a
majority of the Shares owned by all Management Shareholders may effect any such
waiver, modification, amendment or termination on behalf of all of the
Management Shareholders. Each of the Shareholders represents that he or it is
not a party to any other agreement which would prevent him or it from performing
his or its obligations hereunder. No waiver of any breach or default hereunder
shall be considered valid unless in writing, and no such waiver shall be deemed
a waiver of any subsequent breach or default of the same or similar nature.
14. Governing Law; Successors and Assigns. This Agreement shall be governed
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by the internal laws of the State of New Jersey without giving effect to the
conflicts of laws principles
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thereof and, except as otherwise provided herein, shall be binding upon the
heirs, personal representatives, executors, administrators, successors and
assigns of the parties. Notwithstanding the foregoing, in the event an Investor
transfers Shares to an unaffiliated Person, such transferee shall have no rights
under this Agreement, other than those granted under Section 9 of this
Agreement, and shall not be bound by any of the provisions of this Agreement.
15. Severability. If any provision of this Agreement shall be held to be
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illegal, invalid or unenforceable, such illegality, invalidity or
unenforceability shall attach only to such provision and shall not in any manner
affect or render illegal, invalid or unenforceable any other provision of this
Agreement, and this Agreement shall be carried out as if any such illegal,
invalid or unenforceable provision were not contained herein.
16. Captions. Captions are for convenience only and are not deemed to be part
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of this Agreement.
17. Counterparts. This Agreement may be executed in two or more counterparts,
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each of which shall be deemed an original, but all of which together shall
constitute one and the same instrument.
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IN WITNESS WHEREOF, this Agreement has been executed as an instrument under
SEAL as of the date and year first above written.
MANAGEMENT SHAREHOLDERS: COMPANY:
/s/ Xxxx Xxx Xxxxxx LOGICAL DESIGN SOLUTIONS, INC.
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Xxxx Xxx Xxxxxx By: /s/ Xxxx xxx Xxxxxx
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Name: Xxxx Xxx Xxxxxx
Title: President
/s/ Xxxxxx Xxxxxx
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Xxxxxx Xxxxxx INVESTORS:
SUMMIT VENTURES IV, L.P.
By: Summit Partners IV, L.P.,
its General Partner
By: Stamps Xxxxxxx & Co. IV,
its General Partner
By: /s/ Xxxxx Xxxxx
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General Partner
SUMMIT INVESTORS III, L.P.
By: /s/ Xxxx Xxxxxx
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Authorized Signatory
/s/ Xxxx X. Xxxxxx
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Xxxx X. Xxxxxx
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SCHEDULE 1
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Company
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Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Attn: President
Management Shareholders
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Xxxx Xxx Xxxxxx
c/o Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Xxxxxx Xxxxxx
c/o Logical Design Solutions, Inc.
000 Xxxxx Xxxxxx
Xxxxxxxxxx, Xxx Xxxxxx 00000
Investors
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Summit Investors III, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Summit Ventures IV, L.P.
000 Xxxxxxxx Xxxxxx, Xxxxx 0000
Xxxxxx, XX 00000-0000
Attn: Xxxxx X. Xxxxx
Xxxx X. Xxxxxx
00 Xxxxxxxx Xxxxx
Xxxxxxx, XX 00000
