FORM OF SHAREHOLDERS AGREEMENT
Exhibit 10.3
FORM OF SHAREHOLDERS AGREEMENT
THIS SHAREHOLDERS AGREEMENT (this “Agreement”) is made effective this 30th day of June, 2017 (the “Effective Date”), by Hoth Therapeutics, Inc., a corporation organized under the laws of the state of Nevada (the “Corporation”), the persons named on Exhibit “A” attached hereto and any other persons or entities which hereafter join in this Agreement (individually, a “Shareholder” and collectively, the “Shareholders”).
WHEREAS, a Certificate of Incorporation (as may be amended from time to time, the “Certificate”) for the Corporation has been filed with the Office of the Nevada Secretary of State on May 16, 2017 pursuant to the Nevada Revised Statutes (the “Act”);
WHEREAS, the Shareholders are the owners of all of the issued and outstanding shares of common stock, par value $0.0001 per share (the “Shares”), of the Corporation;
WHEREAS, each Shareholder owns the number of Shares set forth opposite that Shareholder’s name on Exhibit A (as such exhibit may be amended from time-to-time); and
WHEREAS, the parties desire to enter into an agreement with respect to the Corporation, governance of the Corporation, transfer or other disposition of the Shares and with respect to certain other matters as set forth herein.
NOW, THEREFORE, the Shareholders hereby agree as follows:
ARTICLE 1
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THE SHARES REPRESENTED BY THIS CERTIFICATE ARE SUBJECT TO THE TERMS OF A CERTAIN SHAREHOLDERS AGREEMENT, DATED EFFECTIVE JUNE __, 2017 (AS AMENDED FROM TIME-TO-TIME), BY AND AMONG THE CORPORATION AND ITS SHAREHOLDERS, A COPY OF WHICH IS ON FILE AT THE PRINCIPAL OFFICE OF THE CORPORATION. NEITHER THIS CERTIFICATE NOR THE SHARES EVIDENCED HEREBY NOR ANY PORTION THEREOF, MAY BE OFFERED, PLEDGED, HYPOTHECATED, SOLD OR TRANSFERRED IN VIOLATION OF SAID AGREEMENT, AND ANY SUCH PURPORTED TRANSFER SHALL BE NULL, VOID AND OF NO EFFECT.
Each Shareholder shall deliver to the Corporation all certificates representing that Shareholder’s Shares, and the Corporation shall place the above legend on the certificates and return them to the Shareholders. Certificates representing any new Shares issued by the Corporation while this Agreement is in effect shall bear the above legend.
ARTICLE 2
GOVERNANCE
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(b) Designated Director. Spherix Incorporated (“Spherix”) shall have the right to appoint one director to the Board of Directors. For so long as Spherix owns at least 10% of the issued and outstanding shares of common stock of the Corporation, Spherix shall have the right to designate one director to the Board of Directors (such person, “Spherix Director”) at each election of the Board of Directors, and the Shareholders covenant and agree that, during such period, they shall vote or cause to be voted their Shares in favor of the director designated by Spherix at each election of the Board of Directors. A Spherix Director may be removed from the Board of Directors at any time, with or without cause, only at the direction of Spherix. If a vacancy is created on the Board of Directors as a result of the death, disability, retirement, resignation or removal of a Spherix Director, Spherix shall have right to designate a director to fill such vacancy.
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ARTICLE 3
PRE-EMPTIVE, DRAG ALONG & TAG ALONG RIGHTS
3.1 Preemptive Rights.
(a) In the event that the Corporation proposes to issue additional shares of its capital stock, whether or not currently authorized, as well as rights, options, or warrants to purchase any equity securities of the Corporation, or securities of any type whatsoever that are, or may become, convertible or exchangeable into or exercisable (in each case, directly or indirectly) for such equity securities (“New Shares”) at a time when any Shareholder who has executed this Agreement continues to be an owner of Shares, the Corporation shall provide to each such Shareholder a notice which shall constitute an offer to such Shareholder to purchase (for the price and on the terms established by the Corporation for all purchasers of New Shares as set forth in the notice) such portion of the New Shares so offered for sale as the number of Shares owned by him or her at such time shall bear to the total number of Shares owned by all shareholders of the Corporation (such Shareholder’s “Pro Rata Portion”). Each such Shareholder shall inform the Corporation of his or her election to exercise its preemptive right under this Section 3.1 with respect to all or any portion of his or her Pro Rata Portion within fifteen (15) days of receipt of the Corporation’s notice.
(b) If all New Shares referred to in the Corporation’s notice are not elected to be purchased or acquired by the Shareholders pursuant to Section 3.1(a), the Corporation may, following the expiration of the fifteen (15) day period provided in Section 4.1(a), offer and sell the remaining unsubscribed portion of such New 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 Shareholders’ offer notices. If the Corporation does not enter into an agreement for the sale of the New Shares within sixty (60) days, or if such agreement is not consummated within thirty (30) days of the execution thereof, the preemptive right provided hereunder shall be deemed to be revived and such New Shares shall not be offered unless first reoffered to the Shareholders again in accordance with this Section 3.1.
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3.2 Drag-Along Right.
(a) In the event the holders of a majority or more of the voting shares of the Corporation (the “Control Group”) elect to transfer all of the shares of stock owned by them to an unaffiliated third party (a “Third Party”) (including any transfer of shares that is being effected by a merger or consolidation of the Corporation with another person), the Control Group shall have the right (the “Drag-Along Right”) to cause each of the Shareholders as a group to transfer all of their Shares to the Third Party (or to exchange such shares pursuant to the terms of such merger or consolidation) at the same price and on the same terms and conditions as the Control Group proposes to transfer their Shares.
(b) The Control Group may elect to exercise the Drag-Along Right by delivering written notice to the Shareholders and the Corporation thirty (30) days prior to the consummation of the transfer described in Section 3.2(a) above. The notice delivered pursuant to this subsection will contain a copy of the definitive documentation pursuant to which the Shares will be transferred to the Third Party and will state (i) the bona fide intention of the Control Group to effect the transfer described in Section 3.2(a) above, (ii) the name and address of the Third Party, and (iii) the expected closing date of such transfer.
(c) Each Shareholder as part of its participation in the transfer pursuant to the Drag-Along Right hereby agrees with respect to all Shares which he or she owns or otherwise exercises voting or dispositive authority if the transaction is structured as (i) a merger or consolidation, to vote (in person, by proxy or by action by written consent, as applicable) in favor of such merger or consolidation and to refrain from exercising any dissenters’ rights or rights of appraisal under applicable law at any time with respect thereto, and (ii) a sale of stock, to sell all of its Shares on the terms and conditions approved by the Control Group.
(d) Each Shareholder shall deliver to the Third Party at a closing to be held at the offices of the Corporation (or such other place as the parties agree), one or more certificates, properly endorsed for transfer, which represent all the Shares owned by such Shareholder and each Shareholder shall make such representations and warranties, and shall enter into such agreements, as are customary and reasonable in the context of the proposed sale, including, without limitation, representations and warranties (and indemnities with respect thereto) that the transferee of the Shares (or interests therein) is receiving good and marketable title to such Shares (or interests therein), free and clear of all pledges, security interests, or other liens; provided, however, that with respect to any matter as to which a Shareholder shall agree to provide indemnification (other than its own title to such Shares), such Shareholder shall in no event be required to provide indemnification in an amount that would exceed its pro rata portion of the total liability for which such indemnification is sought, which pro rata portion shall be determined on the basis of the percentage of the total Shares involved in such transfer that are represented by the Shares owned by such Shareholder. In addition, each Shareholder and the Control Group shall reasonably cooperate and consult with each other in order to effect the transfer described in this Section 4.2, and each Shareholder shall provide reasonable assistance to the Control Group in connection with the preparation of disclosure schedules relating to representations and warranties to be made to the Third Party involved in such transfer and in the determination of the appropriate scope of, or limitations or exceptions to, such representations and warranties.
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3.3 Tag-Along Right.
(a) In the event the Control Group elects to transfer all or a portion of the Shares of stock owned by them to a Third Party and the Control Group has not exercised the Drag-Along Right pursuant to Section 3.2 hereof, all other Shareholders shall have the right to cause the Control Group to effect the transfer of such Shareholders’ respective Shares to such Third Party at the same price and on the same terms and conditions as the Control Group proposes to transfer their Shares to such Third Party (the “Tag-Along Right”) in full if all of the Shares of the Control Group are being transferred or in proportionate amount if some of the Shares of the stock of the Control Group are being transferred.
(b) If the Control Group does not intend to deliver a Drag-Along notice to the other Shareholders pursuant to Section 3.2 hereof, the Control Group must deliver a Tag-Along notice to such Shareholders and the Corporation within thirty (30) days prior to the consummation of the transfer described in Section 3.3(a) above. The notice delivered pursuant to this Section 3.3(b) will state (i) the bona fide intention of the Control Group to effect the transfer described in Section 3.3(a) above, (ii) the name and address of the Third Party, (iii) the expected closing date of such transfer, and (iv) the terms of such sale. In order for the Tag-Along Rights to be applicable, Shareholders who choose to participate must deliver a written request for inclusion in such sale to the Control Group within ten (10) days from the date of receipt of notice from the Control Group. To the extent one or more of the Shareholders exercise such right of participation in accordance with the terms and conditions set forth herein, the number of shares that the selling Control Group may sell to the Third Party shall be correspondingly reduced unless the Third Party purchaser agrees to purchase the increased number of offered shares.
(c) Each Shareholder, who timely exercises his or her Tag-Along Rights under this Section 3.3 by delivering the written request provided for above in Section 3.3(b), as part of its participation in the transfer pursuant to the Tag-Along Right shall deliver to the Third Party at a closing to be held at the offices of the Corporation (or such other place as the parties agree), one or more certificates, properly endorsed for transfer, which represent all the Shares owned by such Shareholder and each Shareholder shall make such representations and warranties, and shall enter into such agreements, as are customary and reasonable in the context of the proposed sale, including without limitation representations and warranties and indemnities with respect thereto that the transferee of the Shares (or interests therein) is receiving good and marketable title to such Shares (or interests therein), free and clear of all pledges, security interests, or other liens; provided, however, that with respect to any matter as to which a Shareholder shall agree to provide indemnification (other than its own title to such Shares), such Shareholder shall in no event be required to provide indemnification in an amount that would exceed its pro rata portion of the total liability for which such indemnification is sought, which pro rata portion shall be determined on the basis of the percentage of the total Shares involved in such transfer that are represented by the Shares owned by such Shareholder. In addition, each Shareholder and the Control Group shall reasonably cooperate and consult with each other in order to effect the transfer described in this Section 3.3, and each Shareholder shall provide reasonable assistance to the Control Group in connection with the preparation of disclosure schedules relating to representations and warranties to be made to the Third Party involved in such transfer and in the determination of the appropriate scope of, or limitations or exceptions to, such representations and warranties.
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ARTICLE 4
TRANSFER OF SHARES DURING SHAREHOLDER’S LIFETIME
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ARTICLE 5
TERMINATION
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(i) Mutual written agreement of the then current parties to this Agreement;
(ii) The death of all but one of Shareholders who have executed or otherwise become bound by the terms of this Agreement after full performance of the Agreement by the surviving Shareholder(s);
(iii) The Corporation is declared to be bankrupt under federal law, makes an assignment for the benefit of creditors, or is otherwise found insolvent;
(iv) The Corporation dissolves or winds up its affairs, whether voluntarily or involuntarily;
(v) A merger, consolidation or other reorganization involving Corporation and another entity pursuant to which all the Shares are exchanged for or converted into shares of stock of another entity that are unrestricted and readily tradeable on an established securities market;
(vi) On the consummation of the Corporation’s initial public offering of shares of common stock, if any; or
(vii) The date on which the Corporation becomes subject to the reporting requirements of the Exchange Act.
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ARTICLE 6
MISCELLANEOUS
(a) The Corporation shall indemnify, defend, protect and hold harmless each Shareholder and each Director, and each of their respective principals, partners, shareholders, controlling persons, trustees, officers, directors, heirs, trustees, beneficiaries, administrators, executors, employees, agents, representatives, successors and assigns, from and against any and all demands, judgments, settlements, penalties, claims, lawsuits, liabilities, damages, costs, losses, expenses, obligations and fines, including reasonable attorneys’, accountants’ and other professional fees, costs and expenses (collectively, “Claims and Liabilities”), that such person may suffer or incur by reason of or in connection with his, her or its management of, ownership in, involvement in or affiliation with the Corporation’s business or affairs. Such indemnity shall be permitted, however, only if the person seeking indemnity (i) acted in accordance with the terms of this Agreement and otherwise in a manner he, she or it reasonably believed to be in, or not opposed to, the Corporation’s best interests, (ii) was not guilty of gross negligence, and (iii) with respect to any criminal proceeding, had no reasonable cause to believe his, her or its conduct was unlawful. The termination of a proceeding by judgment, order, settlement, conviction or upon a plea of nolo contendere, or its equivalent, shall not, of itself, create a presumption that such person did not meet such standards, unless it is finally adjudicated that such person did not meet such standards.
(b) The Corporation may also indemnify any person who was or is, or is threatened to be made, a party to any threatened, pending or completed action because such person is or was an officer, employee or agent of the Corporation. The foregoing indemnity shall be permitted only if approved by the Directors and if such person acted in good faith and in a manner such person reasonably believed to be in, or not opposed to, the Corporation’s best interests. If such person is adjudged to be liable for misconduct in performing his, her or its duty to the Corporation, such indemnity shall be permitted only to the extent that the court in which such Claims and Liabilities was brought, or another court of appropriate jurisdiction, determines that, despite the adjudication of liability, but in view of all circumstances of the case, such person is fairly and reasonably entitled to indemnity for such expenses that such court shall deem proper. In no event, however, shall any person be entitled to indemnification under this paragraph for any Claims and Liabilities arising from such person’s gross negligence, willful misconduct or reckless disregard in performing such person’s duties on the Corporation’s behalf.
(c) If approved by the Directors, the Corporation may pay expenses (including attorneys’ fees) incurred in defending any proceeding under Sections 6.1(a) or (b) in advance of the final disposition of such proceeding if the person entitled to indemnification agrees to repay such amount if it is ultimately determined that such person is not entitled to such indemnification.
(d) The indemnification provided by this Section 6.1 shall not be deemed to be exclusive of any other rights or remedies to which the indemnified person may be entitled, whether by agreement or as a matter of law.
(e) The Directors shall have power to purchase and maintain insurance, at the Corporation’s expense, on behalf of the persons who may be entitled to indemnification under this Section 6.1. That insurance may cover amounts for which the Corporation may be liable under this Section 6.1.
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(a) Confidential Information. Each Shareholder agrees that, both while such person is a Shareholder or Director and thereafter, such Shareholder or Director shall not divulge, furnish or make accessible to anyone or use in any way (other than in the ordinary course of the business of the Corporation or its subsidiaries, affiliates and divisions) any of Corporation’s Confidential Information. As used in this Agreement, “Corporation’s Confidential Information” means any confidential or secret information regarding the Corporation, Corporation trade secrets, and any other confidential or secret aspect of the business of the Corporation. Without limiting the generality of the foregoing, the parties agree the Corporation’s Confidential Information includes (a) any knowledge or information concerning the Corporation’s business, whether developed by a Shareholder or Director, or by others, and whether developed or acquired by the Corporation or from others, (b) the Corporation’s planned business operations and business plan for future operations, (c) the Corporation’s confidential or secret development or research work (including information concerning any future or proposed services or products), (d) all of the Corporation’s accounting, cost, revenue and other financial records and documents, as well as the contents of such information, and (e) the Corporation’s documents, contracts, agreements, correspondence and other similar business records. Notwithstanding anything to the contrary in this Agreement, any knowledge or information that is part of the public domain shall not be deemed Confidential Information. The Shareholders and the Directors agree that monetary damages would be an inadequate remedy for any breach of the provisions of this paragraph and that the Corporation may, therefore, seek injunctive relief in the case of any such breach or threatened breach.
(b) Non-disparagement. Each Shareholder agrees that, both while such person is a Shareholder or Director and thereafter, such Shareholder shall not take any action that is intended to diminish the value of the Corporation or that would interfere with the business of the Corporation, including disparaging the name or business of the Corporation or its affiliates, or their respective employees or business relationships.
(c) Non-solicitation. Each Shareholder agrees that, both while such person is a Shareholder or Director and for a period of one (1) year thereafter, such Shareholder shall not interfere, solicit, disrupt or attempt (directly or indirectly) to make any contact, deal or be involved in any transaction with or otherwise disrupt the relationship, contractual or otherwise, between the Corporation and any individual who is employed by the Corporation on or within six (6) months prior to the date such Shareholder ceased to be a Shareholder.
(d) Non-competition. Each Shareholder agrees that, both while such person is a Shareholder or Director and for a period of one (1) year thereafter, such Shareholder shall not, directly or indirectly, whether individually or through a corporation, partnership, limited liability company or other business entity, or as a partner, member, shareholder, director, manager, officer, employee or agent of any of the foregoing, have any business interests or engage in business activities in direct competition with the Corporation’s business in any location in the world where the Corporation shall operate as of the date the Shareholder ceases to be a Shareholder; provided that a Shareholder shall be entitled to own up to 5% of any class of securities of any entity, whether or not it may compete with the Corporation, which are publicly traded on a national or regional stock exchange or on the over-the-counter market.
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(e) It is expressly understood and agreed that although the Shareholders consider the non-competition, non-disparagement and non-solicitation restrictions contained in this Agreement to be reasonable, if a final judicial determination is made by a court of competent jurisdiction that the time or territory or any other restriction in that regard is an unenforceable restriction against a Shareholder, the provisions of this Agreement shall not be rendered void but shall be deemed amended to apply as to such maximum time and territory and to such maximum extent as such court may judicially determine or indicate to be enforceable. Alternatively, if any court of competent jurisdiction finds that any such restriction is unenforceable, and such restriction cannot be amended so as to make it enforceable, such finding shall not affect the enforceability of any of the other restrictions contained herein.
6.3 Amendment. This Agreement may be amended only in writing and only with the unanimous consent of Shareholders.
6.5 Governing Law; Jurisdiction, Etc. All questions concerning the construction, validity, enforcement and interpretation of this Agreement shall be governed by and construed and enforced in accordance with the internal laws of the State of New York, without regard to the principles of conflicts of law thereof. Each party agrees that all legal proceedings concerning the interpretations, enforcement and defense of the transactions contemplated by this Agreement (whether brought against a party hereto or its respective affiliates, directors, officers, shareholders, employees or agents) shall be commenced exclusively in the state and federal courts sitting in the City of New York. Each party hereby irrevocably submits to the exclusive jurisdiction of the state and federal courts sitting in the City of New York, borough of Manhattan for the adjudication of any dispute hereunder or in connection herewith or with any transaction contemplated hereby or discussed herein (including with respect to the enforcement of any of the Transaction Documents), and hereby irrevocably waives, and agrees not to assert in any suit, action or proceeding, any claim that it is not personally subject to the jurisdiction of any such court, that such suit, action or proceeding is improper or is an inconvenient venue for such proceeding. Each party hereby irrevocably waives personal service of process and consents to process being served in any such suit, action or proceeding by mailing a copy thereof via registered or certified mail or overnight delivery (with evidence of delivery) to such party at the address in effect for notices to it under this Agreement and agrees that such service shall constitute good and sufficient service of process and notice thereof. Nothing contained herein shall be deemed to limit in any way any right to serve process in any other manner permitted by law.
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6.9 Covenant of Married Shareholders.
(a) Each Shareholder covenants and agrees that, if there is a legal separation, divorce or division of property between the Shareholder and his spouse, domestic partner or legal beneficiary, the Shareholder will make provisions in any property settlement agreement as may be necessary to eliminate any interest of the Shareholder’s spouse in the Corporation's Shares.
(b) By executing this Agreement, each Shareholder represents and warrants that he has secured the permission and consent of his spouse, domestic partner or legal beneficiary to enter into this Agreement and fully perform his obligations under this Agreement. Each Shareholder will obtain the signature of his spouse, domestic partner or legal beneficiary on the consents attached hereto and incorporated herein as Exhibit B.
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IN WITNESS WHEREOF, the parties have executed this Agreement effective as of the Effective Date set forth above.
| “CORPORATION” | |||
| HOTH THERAPEUTICS, INC. | |||
| By: | |||
| Its: Chief Executive Officer | |||
| “SHAREHOLDERS” | |||
| If Shareholder is an individual: | Title: | ||
| Name: | |||
| If Shareholder is an entity: | |||
| Name of Shareholder: | |||
| By: | |||
| Name: | |||
[Signature Page to Hoth Therapeutics Shareholders Agreement]