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Confidential
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EXECUTION VERSION
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SIRION THERAPEUTICS,
INC.
INVESTORS’ RIGHTS
AGREEMENT
This
Investors’ Rights Agreement (this “Agreement”) is
entered into as of February 14, 2006, by and among the
individuals listed as “Shareholders” on
Exhibit A hereto (the “Shareholders”),
PharmaBio Development Inc., a North Carolina corporation
(“PharmaBio”), and Sirion Therapeutics, Inc., a North
Carolina corporation (the “Company”). The Shareholders
and PharmaBio are sometimes collectively referred to herein as the
“Investors” and the Shareholders, PharmaBio and the
Company are collectively referred to as the
“Parties.”
WHEREAS,
contemporaneously with this Agreement, PharmaBio is providing
certain credit facilities to the Company pursuant a Loan Agreement
between the Company and PharmaBio dated as of the date hereof (the
“Loan Agreement”);
WHEREAS, each of
the Shareholders is a shareholder of the Company;
WHEREAS, in
connection with the Loan Agreement, the Parties desire to set forth
certain covenants of the Parties and certain rights of the
Investors by entering into this Agreement; and
WHEREAS, PharmaBio
is relying on this Agreement as an essential part of the
consideration for its obligations under the Loan
Agreement;
NOW, THEREFORE,
for good and valuable consideration, the receipt and sufficiency of
which are hereby acknowledged by the Parties, the Parties hereby
agree as follows:
1.1
Definitions . Capitalized terms used but not defined in the
text of this Agreement shall have the meanings ascribed to them on
Exhibit A attached hereto and incorporated herein by
reference.
2.1
Restrictions on Transfers .
(a)
General . No Shareholder shall sell, offer, assign, pledge,
encumber, dispose, or otherwise transfer (collectively,
“Transfer”) any interest in any Shares (whether
with
or without
consideration and whether voluntarily or involuntarily or by
operation of law), except pursuant to (i) any sale of Shares
to the public pursuant to an underwritten offering registered under
the Securities Act of 1933, as amended (the “Securities
Act”), or through a broker, dealer or market maker pursuant
to the provisions of Rule 144 adopted under the Securities Act
or (ii) the provisions of ARTICLES II and III. In addition,
any transferee of Shares must execute an agreement to join as a
party to this Agreement.
(b)
Selling Shareholder Notice . If any Shareholder proposes to
Transfer any interest in any Shares (a “Selling
Shareholder”) in one transaction or a series of related
transactions, then such Selling Shareholder shall promptly give
written notice (the “Notice”) to the Company, each of
the Shareholders not selling or otherwise transferring Shares (the
“Non-selling Shareholders”), and to PharmaBio at least
thirty (30) days prior to the closing of such proposed
Transfer. The Notice shall describe in reasonable detail the
proposed Transfer including, without limitation, the number of
Shares to be Transferred, the nature of such proposed Transfer, the
aggregate consideration to be paid for the Shares, and the name and
address of each prospective transferee. If the Transfer is being
made pursuant to the provisions of ARTICLE III hereof, the Notice
shall state under which section and subsection the Transfer is
being made.
2.2 Right of
First Refusal .
(a) With
respect to proposed Transfers of Shares, each Non-selling
Shareholder shall have the right, exercisable upon written notice
to the Selling Shareholder within fifteen (15) days after
receipt of the Notice, to elect to purchase the Shares covered in
the Notice directly from the Selling Shareholder, on the same terms
and conditions specified in the Notice. To the extent that one or
more of the Non-selling Shareholders exercise such right in
accordance with the terms and conditions set forth below, the
number of Shares that the Selling Shareholder may Transfer in the
transaction contemplated in the Notice shall be correspondingly
reduced.
(b) Each
Non-selling Shareholder may purchase from the Selling Shareholder
all or any part of that number of Shares equal to the product
obtained by multiplying (i) the aggregate number of Shares
covered by the Notice by (ii) a fraction, the numerator of
which is the number of Shares owned by the Non-selling Shareholder
as of the date of the Notice and the denominator of which is the
total number of Shares owned by all Non-selling Shareholders as of
the date of the Notice.
(c) If
any Non-selling Shareholder fails to elect to fully purchase its
pro rata share of the Shares pursuant to this Section 2.2,
then the Selling Shareholder shall give notice of such failure to
the Non-selling Shareholders who did so elect (the
‘Purchasing Participants”), PharmaBio and the Company.
Such notice may be made by telephone if confirmed in writing within
forty-eight (48) hours. The Purchasing Participants shall have five
(5) days from the date such notice was given to agree to
acquire their pro rata share of the portion of the Shares not
elected to be purchased by the Non-selling Shareholders pursuant to
Section 2.2(a). For purposes of this Section 2.2(c), a
Purchasing Participant’s pro rata share shall be equal to the
product obtained by multiplying (i) the number of Shares not
elected to be purchased by Non-selling Shareholders pursuant to
Section 2.2(a) by (ii) a fraction, the numerator of which is
the number
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of Shares held
by such Purchasing Participant and the denominator of which is the
total number of Shares held by all of the Purchasing
Participants.
(d) The
Company may, within five (5) days after the Purchasing
Participants determine whether to acquire their respective pro rata
share, elect to acquire any remaining portion of the Purchasing
Participants’ aggregate pro rata share (the “Remaining
Shares”) on the terms set forth in the Notice. If the Company
does not elect to purchase all of the Remaining Shares, then the
Company shall send written notice to PharmaBio stating the number
of shares of Remaining Shares available for purchase by PharmaBio.
Within fifteen (15) days after receipt of the Company’s
notice, PharmaBio shall have the right to elect to acquire all or
any part of that number of Remaining Shares.
(e) At
the conclusion of the procedure outlined in Section 2.2(d), if
all of the Remaining Shares have not been purchased by the
Non-selling Shareholders, the Company or PharmaBio, then the
Selling Shareholder shall send a second notice (a “Co-Sale
Notice”) to all Non-selling Shareholders who did not elect to
purchase the Shares notifying them of such failure and of their
right of co-sale under Section 2.3 of this Agreement The
Co-Sale Notice shall specify the number of Shares not elected to be
purchased pursuant to Section 2.2(a) hereof.
(a) In
the event that less than all Shares subject to the Notice have been
purchased in accordance with Section 2.2 above, each
Non-selling Shareholder that does not elect to purchase Shares
pursuant to Section 2.2 shall have the right, exercisable
upon, written notice to the Selling Shareholder within ten (10)days
after the receipt of the Co-Sale Notice described in
Section 2.2(e), to Transfer Shares held by such Non-selling
Shareholder with the Selling Shareholder to the prospective
transferee, on the same terms and conditions specified in the
Notice. To the extent that one or more of the Non-selling
Shareholders exercises such right in accordance with the terms and
conditions set forth below, the number of Shares that the Selling
Shareholder may Transfer in the transaction shall be
correspondingly reduced.
(b) Each
Non-selling Shareholder may Transfer all or any part of that number
of Shares held by him equal to the product obtained by multiplying
(a) the aggregate number of Shares covered by the Co-Sale
Notice by (b) a fraction, the numerator of which is the number
of Shares owned by the Non-selling Shareholder at the time of the
Transfer and the denominator of which is the total number of Shares
owned by all Shareholders at the time of the Transfer.
(c) If
any Non-Selling Shareholder fails to elect to fully participate in
such sale pursuant to this Section 2.3, the Selling
Shareholder shall give notice of such failure to the Shareholders
who did so elect (the “Selling Participants”). Such
notice may be made by telephone if confirmed in writing within
forty-eight (48) hours. The Selling Participants shall have
five (5) days from the date such notice was given to agree to
Transfer their pro rata share of the remaining Shares available for
co-sale. For purposes of this Section 2.3, a Selling
Participant’s pro rata share shall be equal to the product
obtained by multiplying (a) the number of remaining Shares
available for co-sale by (b) a fraction, the numerator of
which is the number of Shares held by such Selling Participant and
the denominator of which is the total number of Shares held by all
of the Selling Participants and the Selling Shareholder.
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2.4
Delivery of Co-Sale Shares . Each Selling Participant shall
effect its participation in the Transfer by promptly delivering to
the Selling Shareholder for Transfer to the prospective purchaser
one or more certificates, properly endorsed for transfer, which
represent that number of Shares that such Selling Participant
elects to Transfer.
2.5
Closing . The stock certificate or certificates, if any,
that the Selling Participant delivers to the Selling Shareholder
pursuant to Section 2.4 shall be transferred to the
prospective transferee in consummation of the Transfer of the
Shares pursuant to the terms and conditions specified in the
Notice, and the Selling Shareholder shall concurrently therewith
remit to such Selling Participant that portion of the Transfer
proceeds to which such Selling Participant is entitled by reason of
its participation in such Transfer. To the extent that any
prospective transferee prohibits such assignment or otherwise
refuses to purchase Shares or other securities from a Selling
Participant exercising its rights of co-sale hereunder, the Selling
Shareholder shall not Transfer to such prospective transferee any
Shares unless and until, simultaneously with such Transfer, the
Selling Shareholder shall purchase such Shares or other securities
from such Selling Participant. To the extent that the Non-selling
Shareholders, the Company or PharmaBio as provided in
Section 2.2 elect to purchase the Shares covered in the Notice
directly from the Selling Shareholder, then such Selling
Shareholder shall within ninety (90) days of the date of the
Notice (or, if earlier, simultaneous with the consummation of the
Transfer of the Shares pursuant to the terms and conditions
specified in the Notice) deliver certificate(s) for such Shares to
the acquiring Non-selling Shareholder, the Company or PharmaBio as
the case may be who shall deliver to the Selling Shareholder the
consideration of the type and on the terms set forth in the
Notice.
2.6 No Effect
on Rights . The exercise or non-exercise of rights by any Party
under Sections 22 or 2.3 in one or more Transfers of Shares
made by any Selling Shareholder shall not adversely affect such
Party’s rights to participate in subsequent Transfers of
Shares subject to this ARTICLE II. The failure of any Non-selling
Shareholder to exercise its rights pursuant to this ARTICLE II with
respect to any proposed Transfer shall not constitute a waiver of
such Non-selling Shareholder’s right to exercise its rights
under this ARTICLE II with respect to subsequent
Transfers.
2.7
Reoffers . Upon compliance in full with the terms and
conditions of this ARTICLE II, if there are any Shares remaining to
be Transferred, the Selling Shareholder may, no later than
seventy-five (75) days following delivery to the Company and
each of the Non-selling Shareholders of the Notice, enter into an
agreement providing for the closing of the Transfer of the
remaining Shares covered by the Notice within thirty (30) days
of such agreement on terms and conditions not more favorable to the
transferor than those described in the Notice. It shall be a
condition to such closing that the transferee shall execute and
deliver to the Company an agreement to join as a party to this
Agreement. Any proposed Transfer on terms and conditions more
favorable than those described in the Notice, as well as any
subsequent proposed Transfer of any of the remaining Shares by the
Selling Shareholder, shall again be subject to the right of first
refusal, co-sale and other rights of the Non-selling Shareholders,
the Company and PharmaBio set forth in this ARTICLE II and shall
require compliance by the Selling Shareholder with the procedures
described in this ARTICLE II.
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3.1 Certain
Transfers . Notwithstanding the foregoing, the provisions of
ARTICLE II shall not apply to any transfer to the ancestors,
descendants or spouse of a Shareholder, or to trusts or family
limited partnerships for the benefit of such persons including such
Shareholder; provided that, in any such case (i) the
transferor shall inform the Company of such Transfer prior to
effecting it; and (ii) the transferee shall furnish the
Company and the Shareholders with a written agreement to be bound
by and comply with all provisions of this Agreement as well as the
terms of any other restrictive agreement to which Shares are
subject. Such transferred Shares shall remain “Shares”
hereunder, and such transferee shall be treated as a
“Shareholder” and “Investor” for purposes
of this Agreement. As a condition to any Transfer pursuant to this
Section 3.1, the transferee must agree in writing that it, its
heirs, successors and assigns, shall be subject to and bound by the
provisions of this Agreement.
3.2 Public
Offering; Company Transfers . Notwithstanding the foregoing,
the provisions of ARTICLE II shall not apply to the Transfer of any
Shares (a) to the public pursuant to a registration statement
filed with, and declared effective by, the Securities and Exchange
Commission under the Securities Act; or (b) to the
Company.
4.1 Put Option
Right . If a Shareholder Transfers any Shares in contravention
of the co-sale rights under Section 2.3 (a “Prohibited
Transfer”), each Non-selling Shareholder, in addition to such
other remedies as may be available at law, in equity or hereunder,
shall have the put option provided below, and the Selling
Shareholder shall be bound by the applicable provisions of such
option.
4.2 Put
Option . In the event of a Prohibited Transfer, each
Non-selling Shareholder shall have the right to Transfer to the
Selling Shareholder the number of Shares equal to the number of
shares each Non-selling Shareholder would have been entitled to
Transfer to the transferee had the Prohibited Transfer been
effected pursuant to and in compliance with the terms hereof. Such
Transfer shall be made on the following terms and
conditions:
(a) The
price per share at which the Shares are to be Transferred shall be
equal to the price per share paid by the purchaser in the
Prohibited Transfer, provided, that if the price per share paid by
the purchaser was not determined in an arms length transaction or
no consideration was paid for the Shares Transferred in the
Prohibited Transfer, the price per share to be paid by the Selling
Shareholder for the Shares shall be the fair market value of the
Shares as determined by the Board of Directors of the Company or,
if the Board of Directors cannot agree, as determined by an
independent business valuation firm engaged by the Company to
determine such fair market value.
(b) The
Selling Shareholder shall also reimburse each Non-selling
Shareholder and the Company for any and all fees and expenses,
including legal fees and
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expenses,
incurred in connection with the exercise or the attempted exercise
of the Non-selling Shareholder’s rights under ARTICLE II,
within five (5) days after receipt of a written demand for
reimbursement, in cash or by other means acceptable to the
Non-selling Shareholder or the Company as the case may
be.
(c) Within
ninety (90) days after the later of the dates on which the
Non-selling Shareholder (i) received notice of the Prohibited
Transfer or (ii) otherwise became aware of the Prohibited
Transfer, each Non-selling Shareholder shall, if exercising the
option created hereby, deliver to the Selling Shareholder the
certificate or certificates representing the Shares to be
Transferred, each certificate to be properly endorsed for
transfer.
(d) The
Selling Shareholder shall, within five (5) days after receipt
of the certificate or certificates for the Shares to be Transferred
by a Non-selling Shareholder, pursuant to this Section 4.2,
pay the aggregate purchase price therefor, as specified in
Section 4.2(a), in cash or by other means acceptable to the
Non-selling Shareholder.
5.1 Size of the
Board of Directors. Each Shareholder agrees to vote, or cause
to be voted, all Shares owned by such Shareholder, or over which
such Shareholder has voting control, from time to time and at all
times, in whatever manner as shall be necessary to ensure that the
size of the Board shall be set and remain at four
(4) directors.
5.2 Board
Composition . Each Shareholder agrees to vote, or cause to be
voted, all Shares owned by such Shareholder, or over which such
Shareholder has voting control, from time to time and at all times,
in whatever manner as shall be necessary to ensure that at each
annual or special meeting of shareholders at which an election of
directors is held or pursuant to any written consent of the
shareholders, the following persons shall be elected to the
Board:
(a) two
individuals designated by the holders of a majority of the
outstanding Shares (the “Founder Directors”);
and
(b) two
individuals designated by PharmaBio (the “PharmaBio
Directors”).
Any committees
of the Board of Directors created pursuant to the Company’s
Bylaws will include as members at least one Founder Director and
one PharmaBio Director.
5.3 Failure to
Designate a Board Member . In the absence of any designation
from the persons or groups with the right to designate a director
as specified above, the director previously designated by them and
then serving shall be reelected if still eligible to serve as
provided herein.
5.4 Removal of
Board Members . Each Shareholder also agrees to vote, or cause
to be voted, all Shares owned by such Shareholder, or over which
such Shareholder has voting control, from time to time and at all
times, in whatever manner as shall be necessary to ensure
that:
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(a) no
director elected pursuant to Sections 5.2 or 5.3 of this
Agreement may be removed from office unless such removal is
directed or approved by the person or persons entitled under
Section 5.2 to designate that director; and
(b) any
vacancies created by the resignation, removal or death of a
director elected pursuant to Sections 5.2 or 5.3 shall be
filled pursuant to the provisions of this ARTICLE V.
All
Shareholders agree to execute any written consents required to
perform the obligations of this Agreement, and the Company agrees
at the request of any Party or Parties entitled to designate
directors to call a special meeting of shareholders for the purpose
of electing directors.
5.5 Irrevocable
Proxy . Each Shareholder hereby constitutes and appoints the
other Parties hereto, and each of them, with full power of
substitution, as the proxies of such Shareholder with respect to
the election of persons as members of the Board in accordance with
this ARTICLE V, and hereby authorizes each of them to represent and
to vote, if and only if such Shareholder (i) fails to vote or
(ii) attempts to vote (whether by proxy, in person or by
written consent), in a manner which is inconsistent with the terms
of this Agreement, all of such Shareholder’s Shares in favor
of the election of persons as members of the Board determined
pursuant to and in accordance with the terms and provisions of this
Agreement. The proxy granted pursuant to the immediately preceding
sentence is given in consideration of the agreements and covenants
of the Parties in connection with the Transactions and, as such, is
coupled with an interest and shall be irrevocable unless and until
this Agreement terminates pursuant to Section 8.3 hereof. Each
Party hereto hereby revokes any and all previous proxies with
respect to the Shares and shall not hereafter, unless and until
this Agreement terminates pursuant to Section 8.3 hereof,
purport to grant any other proxy or power of attorney with respect
to any of the Shares, deposit any of the Shares into a voting trust
or enter into any agreement (other than this Agreement),
arrangement or understanding with any person, directly or
indirectly, to vote, grant any proxy or give instructions with
respect to the voting of any of the Shares, in each case, with
respect to the election of persons as members of the Board in
accordance with this
ARTICLE V.
5.6 Termination
Upon Exercise of the Option . Upon an exercise of the Option
under Section 7.2(b) by written notices to all Shareholders
with outstanding Shares, effective as of the date that the last
such notice is sufficiently given under Section 11.2,
(i) all Founder Directors shall be deemed to have resigned as
directors of the Company, and (ii) Section 5.2(a) and all
provisions hereunder requiring the approval of a Founder Director
or requiring membership of a Founder Director on a Board committee
shall be void and of no further force or effect. Upon request of
the Company, each Founder Director shall tender confirmation of his
or her resignation pursuant to the preceding sentence.
6.1 Financial
Information . So long as (i) any of the Advances or other
obligations of the Company under the Loan Agreement shall remain
unpaid or outstanding or PharmaBio shall
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have any
Commitment thereunder, or (ii) a Shareholder continues to hold
all of the Shares owned by such Shareholder on the date hereof, the
Company will furnish, upon request, the following reports or
information to PharmaBio or such Shareholder, as the case may
be:
(a) as
soon as practicable after the end of each fiscal year of the
Company, and in any event within ninety (90) days thereafter,
(i) a consolidated balance sheet of the Company as at the end
of such fiscal year, and consolidated statements of income and cash
flows of the Company for such year, prepared in accordance with
GAAP and setting forth in each case in comparative form the figures
for the previous fiscal year, all in reasonable detail and
certified by the principal financial or accounting officer of the
Company, and (ii) a comparison to the Company’s
operating plan for such year prepared by the Company;
(b) as
soon as practicable after the end of the first, second, and third
quarterly accounting periods in each fiscal year of the Company,
and in any event within thirty (30) days thereafter, a
consolidated balance sheet of the Company as of the end of each
such quarterly period, and consolidated statements of income and
cash flows of the Company for such period and for the current
fiscal year to date, setting forth in comparative form the figures
for the corresponding periods of the previous fiscal year and to
the Company’s operating plan then in effect and approved by
its Board of Directors, subject to changes resulting from normal
year-end adjustments, all in reasonable detail and certified by the
principal financial or accounting officer of the Company, except
that such financial statements are not required to contain the
notes required by GAAP;
(c) as
soon as practicable after the end of each month, and in any event
within thirty (30) days after the end of each month, a
one-page management summary of operations of the Company prepared
by an executive officer of the Company; and
(d) not
later than fifteen (15) days prior to the last day of each
fiscal year, capital and operating expense budgets, each of which
shall have been approved by the Board of Directors, which shall
include projections of sources and applications of funds and profit
and loss projections, a consolidated balance sheet and statement of
income and cash flows (prepared in accordance with GAAP) for the
Company and its subsidiaries, if any, on a consolidated basis for
each month of the next succeeding fiscal year, all itemized in
reasonable detail and prepared by the Company and any material
revisions made in such budgets or projections shall be furnished
promptly to each Investor.
6.2 Notice of
Reportable Events . The Company shall provide notice of a
Reportable Event (as hereinafter defined) to PharmaBio and each
Shareholder within three (3) Business Days following the
occurrence of said event. The following events shall be
“Reportable Events”:
(a) the
termination by a Shareholder of his or her employment or other
engagement with Borrower or serious illness of any
Shareholder;
(b) the
commencement of any material lawsuit, claim or proceeding involving
the Company; provided that copies of the pleadings and other
related documents with respect to such lawsuit, claim or proceeding
shall be provided to PharmaBio within ten (10) Business
Days;
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(c) the
receipt by the Company of a notice that the Company is in default
under any Material Contract or that any Material Contract is
subject to termination;
(d) the
existence of any default by the Company under any of the
Transaction Documents; and
(e) any
notice of any violation of Law and any material filing with or
correspondence to or from Governmental or Regulatory Authorities,
including, without limitation, the Internal Revenue Service and
Food and Drug Administration; provided that copies of all material
documents with respect to such notice of violation or filing or
correspondence shall be provided to the PharmaBio within ten
(10) Business Days after such filing.
6.3
Inspection . The Company shall permit PharmaBio to visit and
inspect the Company’s properties; examine its books of
account and records; and discuss the Company’s affairs,
finances, and accounts with its officers, during normal business
hours of the Company as may be reasonably requested by
PharmaBio.
6.4 Negative
Covenants . The Company shall not take any of the following
actions without the consent of the Board of Directors (which shall
include the consent of at least one Founder Director and at least
one PharmaBio Director):
(a) issue,
or agree to issue, to any person shares of any class or series of
capital stock of the Company, including pursuant to any warrant or
option;
(b) create
any class or series of capital stock of the Company with powers,
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