EXHIBIT 10.11
APPLIED DISCOVERY, INC.
SHAREHOLDERS' AGREEMENT
TABLE OF CONTENTS
Page
1. Definitions..................................................... 1
2. Governance Rights................................................3
2.1 Election of Directors; Number of Directors ..................3
3. Transfer Rights .................................................4
3.1 Tag-Along Rights ............................................4
3.2 Company and Preferred Shareholder Right of First Refusal.....6
3.3 Preemptive Rights............................................7
4. Additional Covenants of the Company..............................8
4.1 Delivery of Financial Statements ............................8
4.2 Inspection ..................................................9
4.3 Redemption of Series A Preferred Stock ......................9
4.4 Future Shareholders .........................................9
5. Covenants of the Shareholders ...................................9
5.1 Shareholders Agreement to Sell ..............................9
5.2 Information Confidential ....................................9
5.3 Transferees of Shareholders' Shares.........................10
6. Additional Covenants ...........................................10
6.1 Management Shareholders.....................................10
7. Miscellaneous...................................................11
7.1 Termination.................................................11
7.2 Governing Law...............................................11
7.3 Legend .....................................................11
7.4 Successors and Assigns .....................................11
7.5 Entire Agreement............................................11
7.6 Severability ...............................................11
7.7 Amendment and Waiver........................................12
7.8 Delays or Omissions ........................................12
7.9 Notices, etc . .............................................12
7.10 Titles and Subtitles ......................................12
7.11 Counterparts ..............................................12
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APPLIED DISCOVERY, INC.
SHAREHOLDERS' AGREEMENT
This Shareholders' Agreement (the "Agreement"), is made as of the 28th day
of January, 2000, by and among Applied Discovery, Inc., a Washington corporation
(the "Company"), the holders of shares of Common Stock, par value $.01 per share
(the "Common Stock"), of the Company set forth on Exhibit A hereto (the
"Founding Shareholders") the holder of a warrant to purchase shares of Common
Stock of the Company (the "Common Warrant") set forth on Exhibit B hereto (such
person in its capacity as a holder of Restricted Securities being referred to
herein as the "Common Warrant Holder"), the holders of warrants to purchase
shares of Series A Preferred Stock, $.01 par value per share (the "Series A
Preferred Stock"), of the Company (the "Preferred Warrants") set forth on
Exhibit B hereto (such persons in their capacity as holders of Restricted
Securities being referred to as the "Preferred Warrant Holders" and together
with the Common Warrant Holder, the "Warrant Holders") and the holders of Series
A Preferred Stock of the Company, including those persons who formerly held
notes convertible into Series A Preferred Stock and who converted the notes into
such shares as of the date hereof (the "Former Note Holders"), set forth on
Exhibit C hereto (such persons in their capacity as holders of Restricted
Securities being referred to herein as the "Preferred Shareholders" the
Preferred. Shareholders, Founding Shareholders and Warrant Holders are sometimes
collectively referred to herein as the "Shareholders" and each a "Shareholder".
RECITALS
WHEREAS, the Company and certain of the Preferred Shareholders are
entering into a Series A Preferred Stock Purchase Agreement of even date
herewith (the "Series A Preferred Stock Purchase Agreement") pursuant to which
the Company will sell an aggregate of up to 5,585,000 shares of Series A
Preferred Stock to certain of the Preferred Shareholders in two separate
closings; and
WHEREAS, as an inducement to the Series A Preferred Shareholders to
consummate the transactions contemplated by the Series A Preferred Stock
Purchase Agreement, the Company, the Founding Shareholders, the Preferred
Shareholders and Warrant Holders have agreed to enter into this Agreement;
AGREEMENT
NOW, THEREFORE, the parties hereby agree as follows:
1. Definitions
1.1 As used in this Agreement, the following terms shall have the
following respective meanings:
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(a) "1933 Act" shall mean the Securities Act of 1933, as amended.
(b) "1934 Act" shall mean the Securities Exchange Act of 1934, as
amended.
(c) "Additional Closing" shall have the meaning set forth in the
Series A Preferred Stock Purchase Agreement.
(d) "Affiliate" with respect to any Person shall mean any person or
entity that, directly or indirectly, through one or more intermediaries,
controls, or is controlled by, or is under common control with, such Person.
(e) "Affiliated Transferee" means a transferee that acquires Common
Stock or Series A Preferred Stock pursuant to clauses (ii), (iii) or (iv) of the
definition of Permitted Transfer.
(f) "Board" shall mean the board of directors of the Company.
(g) "Convertible Securities" shall mean securities or obligations
that are exercisable for, convertible into or exchangeable for shares of Common
Stock. The term includes options, warrants or other rights to subscribe for or
purchase Common Stock or to subscribe for or purchase other securities that are
convertible into or exchanged for Common Stock including the Series A Preferred
Stock, the Preferred Warrants and the Common Warrant..
(h) "Immediate Family Member" means, with respect to any individual,
the spouse, parents, parent-in-law, siblings, siblings-in-law, children and
grandchildren of such individual.
(i) "Initial Closing" shall have the meaning set forth in the Series
A Preferred Stock Purchase Agreement.
(j) "IPO" means a firm commitment underwritten public offering of
shares of Common Stock of the Company pursuant to a registration statement on
Form S-1 (or any successor form thereto) under the 1933 Act.
(k) "Permitted Transfer" means:
(i) a Transfer of the joint interest of a Shareholder's spouse
in all or any part of the Series A Preferred Stock or Common Stock to such
Shareholder upon the death of the spouse;
(ii) a Transfer of the joint interest of a Shareholder's
spouse in all or any part of the Series A Preferred Stock or Common Stock to
such Shareholder in connection with the termination of the marital relationship
of the Shareholder and the Shareholder's spouse;
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(iii) a Transfer of Series A Preferred Stock or Common Stock
by a Shareholder to one or more Affiliates of such Shareholder;
(iv) a Transfer of Series A Preferred Stock or Common Stock to
the Immediate Family Members of such Shareholder or to trusts or limited
partnerships for the benefit of Immediate Family Members of the Shareholder;
(v) a Transfer of Common Stock to the Company; or
(vi) a Transfer made pursuant to the terms of this Agreement.
provided, in the case of clauses (i) through (vi) above, that each transferee of
Series A Preferred Stock or Common Stock becomes a party to this Agreement.
(l) "Person" shall mean any individual, corporation, partnership,
limited liability company, joint venture, trust, unincorporated organization,
other form of business or legal entity or government authority.
(m) "Qualified IPO" shall mean an IPO with gross proceeds (before
deduction of underwriter commissions and offering expenses) of at least
$25,000,000 and an initial offering price per share of at least five (5) times
the original purchase price of $1.00 per share (subject to adjustment for stock
splits, dividends or recapitalizations as set forth in the Certificate of
Designation).
(n) "Restricted Securities" shall mean the Common Warrant, the
Preferred Warrants, the Series A Preferred Stock and the Common Stock issuable
upon the exercise or conversion of any of the foregoing by the Persons set forth
on Exhibits B and C hereto and the Common Stock held by the Founding
Shareholders.
(o) "Securities" shall mean shares of the Common Stock, the Series A
Preferred Stock, the Common Warrant and the Preferred Warrants of the Company.
(p) "Transfer" shall mean the conveyance, sale, lease, assignment,
granting of any lien on or other transfer or disposition of any shares of
capital stock or other equity securities of the Company (or any legal or
beneficial interest therein); provided, however, that a pledge of capital stock
shall not be deemed a "Transfer hereunder if the pledgor retains beneficial
ownership of the stock but any Transfer by the pledgee shall be deemed a
Transfer within the meaning of this definition. The terms "Transfer" and
"Transferred" when used as verbs shall have correlative meanings.
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2. Governance Rights
2.1 Election of Directors; Number of Directors.
(a) From and after the date of the Initial Closing, the Board of
Directors of the Company will consist of four (4) Persons. From and after the
date of the Additional Closing the Board of Directors of the Company will
consist of five (5) Persons. The Company will reimburse the expenses of all such
Persons who attend the meetings of the Board. At any annual or special
shareholders meeting called for such purpose, and whenever the shareholders of
the Company act by written consent with respect to election of directors, each
Shareholder agrees to vote or otherwise give such Shareholder's consent in
respect of all shares of capital stock of the Company (whether now or hereafter
acquired) owned by such Shareholder or as to which such Shareholder is entitled
to vote, and the Company shall take all necessary and desirable actions within
its control, in order to cause:
(i) the election of two (2) directors designated by the
Founding Shareholders;
(ii) after the Initial Closing, the election of one (1)
director designated by Zilkha Venture Partners, L.P. ("Zilkha"), which
individual shall initially be Xxxxxx X. Xxxxxxx; and from and after the
Additional Closing, the election of two (2) directors designated by Zilkha,
which individuals shall initially be Xxxx X. Xxxxx and Xxxxxx X. Xxxxxxx;
(iii) the election of one (1) director agreed to be designated
by the Founding Shareholders and Zilkha, and mutually agreeable to each;
(iv) the removal from the Board (with or without cause) of any
representative designated hereunder by the person or persons entitled to make
such designation hereunder, upon such Person's written request for removal as to
its designee, but only upon such written request; and
(v) upon any vacancy in the Board as a result of any
individual designated as provided in clauses (i), (ii) or (iii) above ceasing to
be a member of the Board, whether by resignation or otherwise, the election to
the Board of an individual designated by the shareholder or shareholders (as the
case may be) who designated the individual who shall have so ceased to be a
member of the Board.
(b) The Board shall meet on not less than a quarterly basis.
3. Transfer Rights
3.1 Tag-Along Rights. Subject to Section 3.2, if, at any time a Founding
Shareholder or the Common Warrant Holder (for purposes of this Section, any
Person described above is hereinafter referred to as a "Selling Shareholder")
wishes to Transfer in one or more transactions
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all of the Securities held by him or a portion of the Securities held by him
(whether now or hereafter acquired), then the following tag-along rights shall
apply:
(a) The Selling Shareholder shall promptly deliver a notice of
intention to sell ("Tag-Along Notice") to each Preferred Shareholder and
Preferred Warrant Holder setting forth the number of shares and class of shares
to be sold (the "Subject Securities"), the proposed purchase price and terms of
sale, and the identity of each prospective transferee. Upon receipt of the
Tag-Along Notice, each Preferred Shareholder and Preferred Warrant Holder shall
have the right and option to elect to sell to the prospective transferee(s), at
the price and on the terms stated in the Tag-Along Notice, all or part of that
number of Securities which is equal to the product obtained by multiplying (i)
the aggregate number of Securities covered by the proposed transfer by (ii) a
fraction, the numerator of which is the number of, Securities (treating, for
purposes of such calculation, each share of Series A Preferred Stock and each
Preferred Warrant as the number of shares of Common Stock issuable upon
conversion or exercise thereof) at the time owned by such Preferred Shareholder
or Preferred Warrant Holder, as the case may be, and the denominator of which is
the number of Securities (treating, for purposes of such calculation, each share
of Series A Preferred Stock and each Preferred Warrant as the number of shares
of Common Stock issuable upon conversion or exercise thereof) at the time owned
by all the Preferred Shareholders and Preferred Warrant Holders. Any such
election shall be made by written notice (a "Tag-Along Notice of Election") to
the Selling Shareholder within ten (10) business days after receipt by such
Preferred Shareholder or Preferred Warrant Holder, as the case may be, of the
Tag-Along Notice. If no Preferred Shareholder or Preferred Warrant Holder
exercises its tag-along rights pursuant to the conditions set forth herein by
written notice within such ten (10) business day period, the Selling Shareholder
may sell the shares specified in the Tag-Along Notice on the terms and
conditions set forth in the Tag-Along Notice. If one or more of the Preferred
Shareholders or Preferred Warrant Holders exercises its rights of co-sale by
delivering a Tag-Along Notice of Election to the Selling Shareholder within ten
(10) business days after receipt of the Tag-Along Notice, then the Selling
Shareholder shall use all reasonable efforts to cause the prospective
transferee(s) to agree to acquire all Securities included in both the Tag-Along
Notice and the Tag-Along Notice(s) of Election, upon the same terms and
conditions as set forth in the Tag-Along Notice. If such prospective
transferee(s) is (are) unwilling or unable to acquire all of such additional
shares upon such terms, then the Selling Shareholder may elect either to cancel
such proposed transfer or to proceed with such proposed transfer by reducing the
number of Securities to be sold pursuant to the Tag-Along Notice and the
Tag-Along Notice(s) of Election such that the total number of Securities to be
sold by the Selling Shareholder, on the one hand, and the Preferred Shareholders
and Preferred Warrant . Holders that delivered Tag- Along Notices of Election,
on the other hand, does not exceed the total number of Securities such
transferee(s) is (are) willing to purchase. Specifically, pursuant to the
preceding sentence, the number of Securities proposed to be sold by the Selling
Shareholder and the number of Securities proposed to be sold by the Preferred
Shareholders and Preferred Warrant Holders who delivered Tag-Along Notices of
Election shall each be reduced by being multiplied by a fraction, the numerator
of which is equal to the total number of 'Securities the transferee(s) is (are)
willing to purchase and the denominator of which is equal to the total number of
Securities proposed to be sold by the Selling Shareholder, plus the total number
of Securities proposed to be sold by the
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Preferred Shareholders and Preferred Warrant Holders who delivered Tag-Along
Notices of Election.
(b) The provisions of this Section 3.1 also shall apply to any
proposed sale by a Preferred Shareholder or Preferred Warrant Holder such that
(i) in the event any Preferred Shareholder or Preferred Warrant Holder wishes to
sell, pledge or transfer all or a portion of its Series A Preferred Stock or
Preferred Warrants (or Common Stock issuable upon conversion or exercise
thereof) (a "Preferred Stock Seller"), such Preferred Stock Seller shall comply
with the provisions of paragraph (a) above and (ii) each other Preferred
Shareholder and each other Preferred Warrant Holder, (each a "Prospective
Co-Seller") shall have the right and option to elect to sell to the prospective
transferee(s), at the price and on the terms stated in the Tag-Along Notice, all
or part of that number of shares of Series A Preferred Stock and Preferred
Warrants (or Common Stock issuable upon conversion or exercise thereof) which is
equal to the product obtained by multiplying (i) the aggregate number of shares
of Series A Preferred Stock and Preferred Warrants (or Common Stock issuable
upon conversion or exercise thereof) covered by the proposed transfer by (ii) a
fraction, the numerator of which is the number of shares of Common Stock
(treating, for purposes of such calculation, each share of Series A Preferred
Stock and each Preferred Warrant as the number of shares of Common Stock
issuable upon conversion or exercise thereof) at the time owned by such
Prospective Co-Seller and the denominator of which is the number of shares of
Common Stock (treating, for purposes of such calculation, each share of Series A
Preferred Stock and each Preferred Warrant as the number of shares of Common
Stock issuable upon conversion or exercise thereof) at the time owned by all the
Preferred Shareholders and Preferred Warrant Holders. If the prospective
transferee(s) is (are) unwilling or unable to acquire all of such additional
shares upon such terms, then the Preferred Stock Seller or the Prospective
Co-Seller, as the case may be, may elect either to cancel such proposed transfer
or to proceed with such proposed transfer by reducing the number of shares of
Preferred Stock or Preferred Warrants (or Common Stock issuable upon conversion
or exercise thereof) to be sold pursuant to the Tag-Along Notice and the
Tag-Along Notice(s) of Election such that the total number of shares of Series A
Preferred Stock and Preferred Warrants (or Common Stock issuable upon conversion
or exercise thereof) to be sold by both the Preferred Stock Seller, on the one
hand, and the Prospective Co-Sellers, on the other hand, does not exceed the
total number of shares of Series A Preferred Stock and Preferred Warrants (or
Common Stock issuable upon conversion or exercise thereof) such transferee(s) is
(are) willing to purchase. Specifically, pursuant to the preceding sentence, the
number of shares of Series A Preferred Stock and Preferred Warrants (or Common
Stock issuable upon conversion or the exercise thereof) proposed to be sold by
the Preferred Stock Seller and the number of shares of Series A Preferred Stock
and Preferred Warrants (or Common Stock issuable upon conversion or exercise
thereof) proposed to be sold by the Prospective Co-Sellers shall each be reduced
by being multiplied by a fraction, the numerator of which is equal to the total
number of shares of Series A Preferred Stock and Preferred Warrants (or Common
Stock issuable upon conversion or the exercise thereof) the transferee(s) is
(are) willing to purchase and the denominator of which is equal to the total
number of shares of Series A Preferred Stock and Preferred Warrants (or Common
Stock issuable upon conversion or the exercise thereof) proposed to be sold by
the Preferred Stock Seller plus the total number of shares of Series A Preferred
Stock and Preferred
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Warrants (or Common Stock issuable upon conversion or exercise thereof) proposed
to be sold by the Prospective Co-Sellers.
(c) Any Subject Securities not sold pursuant to the provisions of
paragraphs (a) or (b) above within ninety (90) days after the ten (10) business
day period referred to therein shall again be subject to the restrictions
contained in this Agreement and shall not thereafter be sold, pledged or
transferred, except in compliance with the applicable provisions of this
Agreement.
(d) Upon electing to participate in a proposed sale pursuant to
paragraphs (a) or (b) above, each Preferred Shareholder or Preferred Warrant
Holder, as applicable, shall deliver to the Company, as its agent, for transfer
or the proposed acquiror, one or more certificates, duly endorsed for transfer
or accompanied by stock transfer powers duty endorsed for transfer, with all
stock transfer taxes paid and stamps affixed, which represent the number of
shares of Subject Securities that such Preferred Shareholder or Preferred
Warrant Holder, as applicable, shall have so elected to sell,
(e) The stock certificate or certificates delivered by each
Preferred Shareholder or Preferred Warrant Holder, as applicable, to the Company
pursuant to paragraph (d) above shall be transferred by the Company to the
acquiror in consummation of the sale of the Subject Securities pursuant to the
terms and conditions specified in the Tag-Along Notice, and the Company shall
promptly thereafter remit to such Preferred Shareholder or Preferred Warrant
Holder that portion of the proceeds to which the Preferred Shareholder or
Preferred Warrant Holder is entitled by reason of such participation.
(f) The provisions of this Article 3 shall not apply to any
Permitted Transfer.
3.2 Company and Preferred Shareholder Right of First Refusal. Subject to
the terms and conditions specified in this Section 3.2, the Founding
Shareholders and the Common Warrant Holder hereby grant to the Company and to
each Preferred Shareholder and Preferred Warrant Holder a right of first refusal
with respect to future. sales by the Founding Shareholders and the Common
Warrant Holder of their Offered Shares (as hereinafter defined). For purposes of
this Section 3.2, a Preferred Shareholder and a Preferred Warrant Holder
includes any partners and Affiliates of such Preferred Shareholder and such
Preferred Warrant Holder.
Each time the Founding Shareholders and the Common Warrant Holder propose
to Transfer any shares of, or securities convertible into or exercisable for any
shares of, any class of its capital stock (the "Offered Shares"), the Founding
Shareholders and the Common Warrant Holder (for the purposes of this Section
only, a "Selling Shareholder") shall first make an offering of such Offered
Shares to the Company and to each Preferred Shareholder and each Preferred
Warrant Holder before Transferring such Offered Shares to any other Person,
entity or association, in accordance with the following provisions:
(a) First, the Selling Shareholder shall deliver a notice by
certified mail (a "Right of First Refusal Notice") to the Company stating (i)
its bona fide intention to Transfer such
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Offered Shares, (ii) the number of such Offered Shares to be offered, and (iii)
the price and terms upon which such Offered Shares shall be offered.
(b) By written notification received by the Selling Shareholder
within 30 calendar days after giving of the Right of First Refusal Notice, the
Company may elect to purchase or obtain, at the price and on the terms specified
in the Right of First Refusal Notice.
(c) If the Company fails to exercise its right hereunder to purchase
all or a portion of the Offered Shares, the Selling Shareholder shall deliver a
Right of First Refusal Notice to each Preferred Shareholder and each Preferred
Warrant Holder stating (i) its bona fide intention to offer such Offered Shares,
(ii) the number of such Offered Shares to be offered, and (iii) the price and
terms upon which such Offered Shares shall be offered.
(d) By written notification received by the Selling Shareholder
within 30 calendar days after giving of the Right of First Refusal Notice, each
Preferred Shareholder and each Preferred Warrant Holder may (i) elect to
purchase or obtain, at the price and on the terms specified in the Right of
First Refusal Notice, or (ii) elect to sell up to that portion of Offered Shares
which equals the proportion that the number of shares of Common Stock issued and
held, or issuable upon conversion or exercise of any Convertible Securities of
the Company then held, by such Preferred Shareholder or such Preferred Warrant
Holder bears to the total number of shares of Common Stock of the Company issued
and outstanding (assuming conversion or exercise of all of the Company's
outstanding Convertible Securities) on the terms specified in the Right of First
Refusal Notice. If any Preferred Shareholder or Preferred Warrant Holder fails
to exercise its right hereunder to purchase all of its pro rata portion of
Offered Shares, the other Preferred Shareholders and Preferred Warrant Holders
may agree, during a 10-calendar day period, to purchase such Preferred
Shareholder's and Preferred Warrant Holder's unpurchased portion on a pro rata
basis.
(e) In the event that the Preferred Shareholders and the Preferred
Warrant Holders do not exercise their right of first refusal with respect to any
remaining portion of Offered Shares not previously purchased by the Company
pursuant to its Right of First Refusal Notice under Section 3.2(b), then the
Company shall have the further right to exercise its right of first refusal for
a 15-calendar day period with respect to such remaining Offered Shares in
accordance with Sections 3.2(a) and (b) above. If the Company and the Preferred
Shareholders and the Preferred Warrant Holders do not purchase all of the
Offered Shares, then at the option of the Selling Shareholder none may be
purchased pursuant to this Section 3.2 and such Offered Shares may be sold to a
third party at the same price and on the same terms.
(f) With respect to any Offered Shares not obtained by the Company,
the Preferred Shareholders or the Preferred Warrant Holders as provided in
subsections 3.2(b), 3.2(d) and 3.2(e) hereof, the Selling Shareholder may,
during the 60-day period following the expiration of the 15-day period provided
in subsection 3.2(e) hereof, offer the remaining unsubscribed portion of such
Offered Shares to any Person or Persons at a price not less than, and upon terms
no more favorable to the offeree than those specified in the Right of First
Refusal Notice. If the Founding Shareholders and Common Warrant Holder do not
enter into an agreement for the sale
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of the Offered Shares within such period, or if such agreement is not
consummated within 60 days of the execution thereof, the right provided
hereunder shall be deemed to be revived and such Offered Shares shall not be
offered unless first reoffered to the Company, the Preferred Shareholders and
the Preferred Warrant Holders in accordance herewith.
(g) The right of first refusal set forth in this Section 3.2 may not
be assigned or transferred, except that (i) such right is assignable by the
Company and each Preferred Shareholder to any Affiliate, or to any partner or
retired partner of the Company and the Preferred Shareholder and (ii) such right
is assignable between and among any of the Preferred Shareholders.
3.3 Preemptive Rights. The Company shall only issue additional Securities
in accordance with the following terms:
(a) The Company shall not issue any additional Securities unless it
first delivers to each holder of Series A Preferred Stock (each such Person
being referred to in this Section 3.3 as a "Buyer") a written notice (the
"Notice of Proposed Issuance") specifying the type and total number of such
Securities that the Company then intends to issue (the "Offered New
Securities"), all of the terms, including the price upon which the Company
proposes to issue the Offered New Securities and stating that the Buyers shall
have the right to purchase the Offered New Securities in the manner specified in
this Section 3.3 for the same price per share and in accordance with the same
terms and conditions specified in such Notice of Proposed Issuance.
(b) During the five (5) consecutive day period commencing on the
date the Company delivers to all of the Buyers the Notice of Proposed Issuance
(the "Exercise Period"), the Buyers shall have the option to purchase a portion
of the Offered New Securities at the same price per share and upon the same
terms and conditions specified in the Notice of Proposed Issuance. Each Buyer
electing to purchase Offered New Securities must give written notice of its
election to the Company prior to the expiration of the Exercise Period.
(c) Each Buyer shall have the right to purchase that number of the
Offered New Securities as shall be equal to the number of the Offered New
Securities multiplied by a fraction, the numerator of which shall be the number
of shares of Common Stock then held by such Buyer plus all shares of Common
Stock issuable upon conversion or exercise of all Convertible Securities then
held by such Buyer and the denominator of which shall be the aggregate number of
shares of Common Stock (treating, for purposes of such calculation, each share
Convertible Security as the number of shares of Common Stock issuable upon
conversion or exercise thereof). The amount of such Offered New Securities that
each Buyer is entitled to purchase under this Section 3.3 shall be referred to
as its "Proportionate Share". Any Offered New Securities not purchased by a
Buyer will be reallocated among the other Buyers.
(d) If all of the Offered New Securities have not been purchased by
the Buyers pursuant to Sections 3.3(a)-(c) hereof, then the Company shall have
the right, until the expiration of 180 consecutive days commencing on the first
day immediately following the expiration of
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the Exercise Period, to issue the Offered New Securities at not less than, and
on terms no more favorable to the purchasers thereof than the price and terms
specified in the Notice of Proposed Issuance. If for any reason the Offered New
Securities are not issued within such period and at such price and an such
terms, the right to issue in accordance with the Notice of Proposed Issuance
shall expire and the provisions of this Section shall continue to be applicable
to the Offered New Securities.
(e) Notwithstanding the foregoing, the preemptive rights described
in this Section 3.3 shall not apply with respect to the issuance of (i) Common
Stock or Convertible Securities issued to (a) employees pursuant to the Stock
Plan (as defined in the Series A Preferred , Stock Purchase Agreement), (b)
directors or consultants to the Company with the approval of the Compensation
Committee, prior to the Additional Closing, or the approval of the Board
thereafter or (c) Common Stock or Convertible Securities issued pursuant to a
public offering under the 1933 Act, or pursuant to Rule 144A thereunder; (ii)
Common Stock issued upon the exercise of the Common Warrant; (iii) Series A
Preferred Stock issued upon the exercise of the Preferred Warrants; (iv) debt
securities issued to lending or financial institutions; or (v) securities for
which the holders of Series A Preferred Stock fail to exercise their right of
first refusal as set forth in the Shareholders' Agreement (as defined in the
Series A Preferred Stock Purchase Agreement).
4. Additional Covenants of the Company
4.1 Delivery of Financial Statements. The Company shall deliver to each
Preferred Shareholder holding in excess of 250,000 shares of Series A Preferred
Stock:
(a) as soon as practicable, but in any event within 90 days after
the end of each fiscal year of the Company, an income statement for such fiscal
year, a balance sheet of the Company and statement of Shareholder's equity as of
the end of such year, and a statement of cash flows for such year, such year-end
financial reports to be in reasonable detail, prepared in accordance with
generally accepted accounting principles ("GAAP"), and audited and certified by
an independent public accounting firm of nationally recognized standing selected
by the Company;
(b) within 30 days of the end of each month, a management report for
and as of the end of such month, in reasonable detail;
(c) within 30 days of the end of each fiscal quarter of the Company
an unaudited income statement, statement of cash flows and balance sheet for and
as of the end of such quarter;
(d) as soon as practicable, but in any event 30 days prior to the
end of each fiscal year, a budget and business plan for the next fiscal year,
prepared on a monthly basis, and, as soon as prepared, any other budgets or
revised budgets prepared by the Company; and
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(e) with respect to the financial statements called for in
subsection (c) of this Section 4. 1, an instrument executed by the Chief
Financial Officer or President of the Company and certifying that such
financials were prepared in accordance with GAAP consistently applied with prior
practice for earlier periods (with the exception of footnotes that may be
required by GAAP) and fairly present the financial condition of the Company and
its results of operations for the period specified, subject to year end audit
adjustment, provided that the foregoing shall not restrict the right of the
Company to change its accounting principles consistent with GAAP, if the Board
determines that it is in the best interest of the Company to do so.
4.2 Inspection. The Company shall permit each Preferred Shareholder, at
such Preferred Shareholder's expense, to visit and inspect the Company's
properties, to examine its books of account and records and to discuss the
Company's affairs, finances and accounts with its officers, all at such
reasonable times as may be requested by such Preferred Shareholder.
4.3 Redemption of Series A Preferred Stock. If all of the Series A
Preferred Stock held by a Preferred Shareholder that makes a Redemption Election
(as defined in the Company's Certificate of Designation relating to the Series A
Preferred Stock) (the "Certificate of Designation") is not redeemed within three
years of the Redemption Date (as defined in the Certificate of Designation), the
Company shall use its best efforts to sell its business to obtain sufficient
cash funds to fully redeem the Series A Preferred Stock held by such Preferred
Shareholder. Upon obtaining such funds or a commitment to provide such funds,
the Company agrees to take such actions as may be necessary in order to fully
redeem the Series A Preferred Stock contemporaneously therewith or as soon as
legally possible thereafter.
4.4 Future Shareholders. The Company hereby covenants and agrees to
require each future purchaser of stock issued by the Company to execute a
counterpart to this Agreement, provided, however, that such obligation shall not
apply in respect of purchasers of stock of the Company in the Qualified IPO.
5. Covenants of the Shareholders.
5.1 Shareholders Agreement to Sell. If the Company arranges a sale of the
Company's, business pursuant to Section 4.3 (a "Sale"), then thereafter each of
the Shareholders shall consent to and raise no objections to the Sale and the
Shareholders shall cause their nominee(s) on the Board, if any, to take all
necessary corporate action to approve such Sale. If the Sale is structured in
whole or in part as a merger or consolidation, or a sale of all or substantially
all the assets, the Shareholders shall waive any dissenters' rights, appraisal
rights or similar rights in connection with such merger, consolidation or asset
sale. If the Sale is structured in whole or in part as a sale of more than 50%
of the outstanding capital stock of the Company, the Shareholders shall sell
their shares of capital stock of the Company on the terms and conditions
approved by the Board. Each of the Shareholders shall take all necessary and
desirable actions approved by the Board in connection with the consummation of
the Sale, including the execution of such agreements and such instruments
reasonably necessary to, provide the representations and warranties as are
customarily given upon a transfer of stock, indemnities,
13
covenants, conditions, reasonable non-compete agreements, escrow agreements and
other provisions and agreements relating to such Sale.
5.2 Information Confidential. Each Shareholder acknowledges that the
information received by such Shareholder pursuant hereto is confidential, and
for its use only, and it will not 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 Shareholder
is required to disclose such information by a governmental body.
5.3 Transferees of Shareholders' Shares. Each Shareholder hereby covenants
and agrees to require each transferee of its shares of Restricted Securities to
execute a counterpart to this Agreement, whereupon such transferee shall be
deemed to be subject to the same rights and obligations of the transferor
Shareholder, as applicable.
6. Additional Covenants.
6.1 Management Shareholders. In addition to any other rights and
obligations of the Shareholders set forth herein, the parties also agree as
follows:
(a) In the event that the employment of Xxxxxxx X. Xxxxxx or Xxxxxxx
X. Xxxxxxx (the "Management Shareholders" and each a "Management Shareholder")
is terminated by the Board for Cause (as defined below) or if the Management
Shareholder terminates his employment (each a "Termination Event"), then the
Company shall have the right to purchase, at a price per share equal to the Book
Value (as defined below) per share, the number of shares of such Management
Shareholder or any Affiliated Transferee set forth on Schedule A.
(b) It is hereby agreed and understood that the provisions of this
Section 6.1 shall not be applicable in the event of termination of a Management
Shareholder's employment due to his death or Disability.
(c) "Book Value" per share of Common Stock shall be determined by
dividing the Company's common shareholders' equity as of the date of the
Management Shareholder's termination,. determined in accordance with GAAP,
consistently applied, by the aggregate number of outstanding shares of Common
Stock (on a fully-diluted, as-converted basis) of the Company as of such date.
(d) "Cause" shall mean the (i) Management Shareholder engages in
conduct that constitutes gross neglect or willful misconduct in carrying out his
duties under the Employment Letter between the Company and such Management
Shareholder which is not cured within 30 days after receipt by such Management
Shareholder of written notice of same and which results in a material and
adverse effect. on the business, properties or financial condition of the
Company, (ii) the fraud, embezzlement, misappropriation of funds or breach of
trust in
14
connection with the Management Shareholder's services under the Employment
Letter between the Company and such Management Shareholder, (iii) the conviction
of a felony crime by the Management Shareholder, the conviction of which would
materially and adversely affect the business, properties or financial condition
of the Company, and (iv) the failure of the Management Shareholder to follow the
written instruction of the Board which is not cured within 15 days after receipt
by such Management Shareholder of written notice of same and which would
materially and adversely affect the business, properties or financial condition
of the Company.
(e) "Disability" shall mean a mental or physical disability, which
by virtue of ill health, renders a Management Shareholder incapable of
performing substantially all of his material duties for the Company for a period
of at least 180 consecutive days.
7. Miscellaneous
7.1 Termination. This Agreement shall terminate as to any party hereto on
the earliest to occur of (a) the written con-sent of each of the parties hereto;
(b) the date on which such party ceases to own, directly or indirectly, any
shares of Series A Preferred Stock or shares of Common Stock; or (c) the date of
the consummation of the Qualified IPO.
7.2 Governing Law. This Agreement shall be governed by and construed under
the substantive laws of the State of New York, except to the extent the
Washington Business Corporation Act applies, in which case Washington law will
govern with respect to those matters.
7.3 Legend. The parties hereto agree that each certificate representing
any shares of Common Stock or shares of Series A Preferred Stock shall bear the
following legend until such time as the same is no longer applicable:
THE SHARES OF COMMON STOCK OR OTHER SECURITIES REPRESENTED
BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF, AND ARE
ENTITLED TO THE BENEFITS SET FORTH IN, A SHAREHOLDERS'
AGREEMENT DATED AS OF JANUARY 28, 2000 A COPY OF WHICH IS
ON FILE AT THE OFFICE OF THE COMPANY. THE COMPANY WILL
FURNISH A COPY OF SUCH SHAREHOLDERS' AGREEMENT TO THE
RECORD HOLDER HEREOF WITHOUT CHARGE UPON WRrI7EN REQUEST
TO THE COMPANY AT ITS PRINCIPAL PLACE OF BUSINESS OR
REGISTERED OFFICE."
Promptly after the date hereof, the Company will use its best
efforts to reissue certificates representing any outstanding shares of
Common Stock or shares of Series A Preferred Stock which do not
contain the legend set forth above with certificates bearing such
legend.
15
7.4 Successors and Assigns. Except as otherwise expressly provided in this
Agreement, the terms and conditions of this Agreement shall inure to the benefit
of, and be binding upon the respective successors and assigns of the parties.
Nothing in this Agreement, express or implied, is intended to confer upon any
party other than the parties hereto or their respective successors and assigns
any rights, remedies, obligations, or liabilities under or by reason of this
Agreement, except as expressly provided in this Agreement.
7.5 Entire Agreement. This Agreement constitutes the full and entire
understanding and agreement among the parties with regard to the subject matter
hereof, and no party shall be liable or bound to any other party in any manner
by any representations, warranties, covenants, or agreements except as
specifically set forth herein. Nothing in this Agreement, express or implied is
intended to confer upon any party, other than the parties hereto and their
respective successors and assigns, any rights, remedies, obligations, or
liabilities under or by reason of this Agreement, except as expressly provided
herein.
7.6 Severability. If one or more provisions of this Agreement are held to
be unenforceable under applicable law, the parties agree to renegotiate such
provision in good faith. In the event that the parties cannot reach a mutually
agreeable and enforceable replacement for such provision, then (a) such
provision shall be excluded from this Agreement, (b) the balance of the
Agreement shall be interpreted as if such provision were so excluded and (c) the
balance of the Agreement shall be enforceable in accordance with its terms.
7.7 Amendment and Waiver. Any term of this Agreement may be amended or
waived in writing only with the written consent of a majority of the Founding
Shareholders and the written consent of a majority of the Preferred
Shareholders. Any amendment or waiver effected in accordance with this paragraph
shall be binding upon each holder of Common Stock or Series A Preferred Stock at
the time outstanding, each future holder of all such shares of the Company, and
the Company.
7.8 Delays or Omissions. No delay or omission to exercise any
right, power, or remedy accruing to any party upon any breach, default
or noncompliance of the another party under this Agreement shall
impair any such right, power, or remedy, nor shall it be construed to
be a waiver of any such breach, default or noncompliance, or any
acquiescence therein, or of any similar breach, default or
noncompliance thereafter occurring. It is further agreed that any
waiver, permit, consent, or approval of any kind or character on a
party's part of any breach, default or noncompliance under this
Agreement or any waiver on a party's part 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, and that
all remedies, either under this Agreement, by law, or otherwise
afforded to each party, shall be cumulative and not alternative.
7.9 Notices, etc. Unless otherwise provided, any notice required
or permitted by this Agreement shall be in writing and shall be deemed
sufficient upon delivery, when delivered personally or by overnight
courier or sent by telegram or fax, or forty-eight (48) hours after
being deposited in the U.S. mail, as certified or registered mail,
with postage prepaid, addressed to the
16
party to be notified at such party's address as set forth on the
signature pages hereto, or as subsequently modified by written notice.
7.10 Titles and Subtitles. The titles of the paragraphs and
subparagraphs of this Agreement are for convenience of reference only
and are not to be considered in construing or interpreting this
Agreement.
7.11 Counterparts. This Agreement may be executed in any number
of counterparts, each of which shall be deemed an original, but all of
which together shall constitute one instrument.
[Remainder of Page Intentionally Left Blank
17
The parties have executed this Shareholders' Agreement as of the date first,
above written.
APPLIED DISCOVERY, INC.
BY:
--------------------------------------------
Name:
Title:
Address: 0000-000xx Xxxxxx Xxxxxxxxx
Xxxxx 000
Xxxxxxxx, XX 00000
Attn:
-----------------------------
Tel:
-----------------------------
Fax:
-----------------------------
ZILKHA VENTURE PARTNERS, L.P.
By: Zilkha Ventures, LLC
its general partner
By: AIMC, LLC,
its managing member
BY:
----------------------------------------------
Name: Xxxx X. Xxxxx
Title: Managing Member
Address: 000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxx
Tel: 000-000-0000
Fax: 000-000-0000
18
APPLIED DISCOVERY, PARTNERS L.P.
By: Applied Discovery Management LLC
its general partner
BY:
-----------------------------------------------
Name: Xxxx X. Xxxxx
Title: Managing Member
Address: 000 Xxxxx Xxxxxx, Xxxxx 0000
Xxx Xxxx, XX 00000
Attn: Xxxx X. Xxxxx
Tel: 000-000-0000
Fax: 000-000-0000
XXXXXX X. XXXXXX
--------------------------------------------------
Xxxxxx X. Xxxxxx
Address: 0000 Xxxxxxx Xxxxx
Xxxxxxxxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax: 000-000-0000
19
XXXXXX XXXXXXX AND XXXXXXX X. XXXXX, AS
TRUSTEES, OR THEIR SUCCESSORS, OF THE
XXXXXX XXXXXXX AND XXXXXXX XXXXX TRUST
AGREEMENT UAD 12/1/90
--------------------------------------------------
Xxxxxx Xxxxxxx, as trustee
Address: 00000 Xxxxxxxx Xxxxx Xxxx
Xxxxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax: 000-000-0000
XXXXXXX X. XXXXXXXX AND XXXXXX X.
XXXXXXXX, TRUSTEES OF THE MERESMAN
FAMILY TRUST U/D/T 9/13/1989, AS AMENDED
--------------------------------------------------
Xxxxxxx X. Xxxxxxxx, Trustee
Address: 0000 Xxxxxxxxxx Xxxx
Xxx Xxxxx, XX 00000
Attn: Xxxxxxx X. Xxxxxxxx, Trustee
Tel: 000-000-0000
Fax: 000-000-0000
XXXXX XXXXXX
--------------------------------------------------
Xxxxx Xxxxxx
Address:
Attn:
Tel:
Fax:
20
XXXXXX X. XXXXX and XXXXXX X. XXXXX
--------------------------------------------------
Xxxxxx Xxxxx
--------------------------------------------------
Xxxxxx X. Xxxxx
Address:
Attn:
Tel:
Fax:
XXXXXX X. XXXXXX
--------------------------------------------------
Xxxxxx X. Xxxxxx
Address: 0000 X. Xxxxxxxxx #0
Xxxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax:
XXXXXXX X. XXXXXXX
--------------------------------------------------
Xxxxxxx X. Xxxxxxx
Address: 0000 Xxxxxxxx Xxxxxx #000
Xxxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax:
21
XXXXXXX X. XXXXXXXXXXX
--------------------------------------------------
Xxxxxxx X. Xxxxxxxxxxx
Address: 22214 000 Xxxxxx 0X
Xxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax: 000-000-0000
XXXXXXX X. XXXXXX
--------------------------------------------------
Xxxxxxx X. Xxxxxx
Address: 00000 XX 000xx Xxxxxx
Xxxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax:
XXXXXX XXXXXXX XXXXXXXX
--------------------------------------------------
Xxxxxx Xxxxxxx Xxxxxxxx
Address: 00000 000xx Xxxxxx XX
Xxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax: As above
22
XXXX XXXXXXXX
--------------------------------------------------
Xxxx Xxxxxxxx
Address: 00000 000xx Xxxxxx XX
Xxxxxx, XX 00000
Attn:
Tel: 000-000-0000
Fax: As above
XXXXXXX XXXXXX
--------------------------------------------------
Xxxxxxx Xxxxxx
Address:
Attn:
Tel:
Fax:
XXXXXXXXX XXXXXX
--------------------------------------------------
Xxxxxxxxx Xxxxxx
Address:
Attn:
Tel:
Fax:
23
XXXXXXX XXXX
--------------------------------------------------
Xxxxxxx Xxxx
Address:
Attn:
Tel:
Fax:
XXXX XXXXXX
--------------------------------------------------
Xxxx Xxxxxx
Address:
Attn:
Tel:
Fax:
XXXXXX XXXXXXXX
--------------------------------------------------
Xxxxxx XxXxxxxx
Address:
Attn:
Tel:
Fax:
24
COMPASS EQUITY PARTICIPATION FUND L.P.
By: Compass Capital Advisors LLC
its general partner
By:
-----------------------------------------
Xxxxxxx Xxxxxx
Managing Member
Address: 7525 0X 00xx Xxxxxx
Xxxxx 000
Xxxxxx Xxxxxx, XX 00000
Attn: Xxxxxxx Xxxxxx
Tel: 000-000-0000
Fax: 000-000-0000
--------------------------------------------------
Xxxxxx Xxxxx
PLANET XXXXXX XXXXX FUND L.P.
By: Planet Zanett Asset Management, Inc.
its General Partner
By:
-----------------------------------------
Xxxxx XxXxxxxx
CEO
Address: 000 Xxxx 00xx Xxxxxx
Xxx Xxxx, XX 00000
Attn: Xxxxx Xxxxxxxxx
Tel: 000-000-0000
Fax: 000-000-0000
25
XXXXX XXXXXX
--------------------------------------------------
Xxxxx Xxxxxx
Address: 00000 XX 00xx Xxxxxx
Xxxxxxxx, XX 00000
Tel: 000-000-0000
Fax:
XX. XXXXXX & XXXXX XXXXXX
--------------------------------------------------
Xx. Xxxxxx Xxxxxx
--------------------------------------------------
Xxxxx Xxxxxx
Address: 0000 Xxxxxxxxx Xxxxx
Xxxxxxx Xxxxxx, XX 00000
Tel: 000-000-0000
Fax:
26
