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RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

Private Equity CoSale Agreement

RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT | Document Parties: PacificHealth Laboratories,  Inc., | HORMEL HEALTH LABS, LLC You are currently viewing:
This Private Equity CoSale Agreement involves

PacificHealth Laboratories, Inc., | HORMEL HEALTH LABS, LLC

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Title: RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT
Governing Law: New Jersey     Date: 4/15/2005
Industry: Biotechnology and Drugs     Sector: Healthcare

RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT, Parties: pacifichealth laboratories   inc.  , hormel health labs  llc
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<PAGE>

 

[DRAFT - 01/11/2005

FOR DISCUSSION PURPOSES ONLY]

 

                                   EXHIBIT 4.5

 

                  RIGHT OF FIRST REFUSAL AND CO-SALE AGREEMENT

 

            THIS RIGHT OF FIRST REFUSAL AND CO-SALE   AGREEMENT (the "Agreement")

is   made   as of the   28th   day of   January,   2005   by   and   among   PacificHealth

Laboratories,   Inc., a Delaware corporation (the "Company"), the stockholders of

the   Company   listed on   Schedule A hereto   (together   with any   transferee   who

becomes   subject   to the   provisions   hereof   pursuant   to   Section   4, the "Key

Holders")   and the   investors   listed on Schedule B hereto and each other person

who hereafter may become a party hereto pursuant to Sections 5(k) or 5(i) hereof

(each, an "Investor" and, collectively, the "Investors").

 

            WHEREAS,   the Key Holders are the beneficial owners of the number of

shares of Common Stock of the Company set forth opposite their   respective names

on Schedule A hereto;

 

            WHEREAS,   the Company and certain of the   Investors   (the   "Series A

Investors") are parties to the Series A Preferred Stock Purchase   Agreement,   of

even date herewith (the   "Purchase   Agreement"),   pursuant to which the Series A

Investors   have agreed to purchase   shares of the   Company's   Series A Preferred

Stock; and

 

            WHEREAS,   the Key Holders and the Company   desire to further   induce

the Series A Investors to purchase the Series A Preferred Stock;

 

            NOW,   THEREFORE,   in consideration of the mutual covenants set forth

herein,   and   for   other   good   and   valuable   consideration,   the   receipt   and

sufficiency   of which are   acknowledged,   the   Company,   the Key Holders and the

Investors agree as follows:

 

            1. Definitions.

 

                  (a) "Capital   Stock" means (i) shares of Common Stock (whether

now outstanding or hereafter issued in any context), (ii) shares of Common Stock

issued or issuable upon conversion of Preferred Stock and (iii) shares of Common

Stock issued or issuable upon exercise or conversion,   as   applicable,   of stock

options,   warrants or other convertible   securities of the Company, in each case

now owned or   subsequently   acquired by any Key Holder,   any Investor,   or their

respective successors or permitted transferees or assigns.

 

                  (b)   "Common   Stock"   means   shares   of   Common   Stock   of the

Company.

 

                  (c) "Company   Notice"   means   written   notice from the Company

notifying the selling Key Holders that it intends to exercise its Right of First

Refusal as to some or all of the Transfer Stock with respect to any Proposed Key

Holder Transfer.

 

                  (d) "Investor   Notice"   means written   notice from an Investor

notifying the Company and the selling Key Holder that such   Investor   intends to

exercise its Secondary   Refusal Right as to a portion of the Transfer Stock with

respect to any Proposed Key Holder Transfer.

 

<PAGE>

 

                  (e) "Investors"   means the persons named on Schedule B hereto,

each person to whom the rights of an Investor are   assigned   pursuant to Section

5(k) and each   person   who   hereafter   becomes   a   signatory   to this   Agreement

pursuant to Section 5(i) and   "Investor"   means any one of them,   as the context

requires.

 

                  (f) "Key   Holder   Stock"   means any Common   Stock now owned or

subsequently acquired by any Key Holder or his permitted transferees or assigns.

 

                  (g) "Key Holders" means the persons named on Schedule A hereto

and the   respective   transferees   of such persons' Key Holder Stock   pursuant to

Section 4(a) hereof.

 

                  (h) "Preferred   Stock" means shares of Preferred   Stock of the

Company.

 

                  (i)   "Proposed   Key   Holder    Transfer"    means   any   proposed

assignment, sale, offer to sell, pledge, mortgage,   hypothecation,   encumbrance,

disposition   of or any other like transfer or   encumbering   of any Capital Stock

(or any   interest   therein)   proposed by any of the Key Holders;   provided   that

Proposed Key Holder Transfer shall not include any merger, consolidation or like

transfer   effected   pursuant   to a vote of the   holders of Capital   Stock of the

Company.

 

                  (j) "Proposed Transfer Notice" means written notice from a Key

Holder setting forth the terms and conditions of a Proposed Key Holder Transfer.

 

                  (k)   "Prospective   Transferee"   means any person to whom a Key

Holder proposes to make a Proposed Key Holder Transfer.

 

                  (l) "Right of Co-Sale" means the right, but not an obligation,

of an Investor to participate in a Proposed Key Holder Transfer on the terms and

conditions specified in the Proposed Transfer Notice.

 

                  (m)   "Right   of First   Refusal"   means the   right,   but not an

obligation, of the Company, or its permitted transferees or assigns, to purchase

some   or all of the   Transfer   Stock   with   respect   to a   Proposed   Key   Holder

Transfer, on the terms and conditions specified in the Proposed Transfer Notice.

 

                  (n)   "Secondary   Notice" means written notice from the Company

notifying   the Investors and the Key Holders that the Company does not intend to

exercise   its Right of First   Refusal   as to all shares of   Transfer   Stock with

respect to any Proposed Key Holder Transfer.

 

                   (o)   "Secondary   Refusal   Right"   means the right,   but not an

obligation,   of each Investor to purchase up to its pro rata portion (based upon

the total number of shares of Capital   Stock then held by all   Investors) of any

Transfer   Stock not   purchased   pursuant to the Right of First   Refusal,   on the

terms and conditions specified in the Proposed Transfer Notice.

 

                  (p) "Transfer   Stock" means shares of Capital Stock subject to

a Proposed Key Holder Transfer.

 

<PAGE>

 

                   (q)   "Undersubscription   Notice" means written   notice from an

Investor   notifying   the Company   and the selling Key Holder that such   Investor

intends to exercise its option to purchase a portion of the   Transfer   Stock not

purchased pursuant to the Right of First Refusal or the Secondary Refusal Right.

 

            2. Agreement Among the Company, the Investors and the Key Holders.

 

                  (a) Right of First Refusal.

 

                        (1) Grant.   Each Key Holder hereby   unconditionally   and

irrevocably   grants to the Company a Right of First   Refusal to purchase   all or

any portion of Transfer   Stock that such Key Holder may propose to transfer in a

Proposed   Key   Holder   Transfer,   at the same   price   and on the same   terms and

conditions as those offered to the Prospective Transferee.

 

                        (2) Notice. Each Key Holder proposing to make a Proposed

Key Holder   Transfer must deliver a Proposed   Transfer Notice to the Company and

each Investor not later than fifteen (15) days prior to the consummation of such

Proposed Key Holder   Transfer.   Such Proposed   Transfer Notice shall contain the

material   terms and   conditions   of the   Proposed   Key Holder   Transfer   and the

identity of the Prospective   Transferee.   The Company must exercise its Right of

First Refusal under this Section 2 by giving a Company Notice to the selling Key

Holder within fifteen (15) days after delivery of the Proposed   Transfer Notice.

In the event of a conflict   between this Agreement and any other   agreement that

may have been   entered   into by a Key Holder   with the Company   that   contains a

preexisting   right of first refusal,   the terms of this Agreement   shall control

and the   preexisting   right   of   first   refusal   shall be   deemed   satisfied   by

compliance with this Section 2(a)(1) and (2).   Notwithstanding the foregoing, in

the event of a   contemplated   private   sale   which   would be within   the   volume

limitations of Rule 144(e) if it were a public sale, the fifteen (15) day period

shall be   reduced   to two (2)   business   days   and the   name of the   Prospective

Transferee need not be provided.

 

                        (3) Grant of Secondary Refusal Right to Investors.   Each

Key Holder   hereby   unconditionally   and   irrevocably   grants to the Investors a

Secondary Refusal Right to purchase all or any portion of the Transfer Stock not

purchased by the Company pursuant to the Right of First Refusal,   as provided in

this   subparagraph   (3). If the Company does not intend to exercise its Right of

Refusal   with   respect to all   Transfer   Stock   subject to a Proposed Key Holder

Transfer,   the Company must deliver a Secondary   Notice to each Investor to that

effect no later than fifteen (15) days after the selling Key Holder delivers the

Proposed   Transfer   Notice to the   Company.   To exercise its   Secondary   Refusal

Right, an Investor must deliver an Investor Notice to the selling Key Holder and

the   Company   within   ten (10)   days   after the   deadline   for   delivery   of the

Secondary Notice.   Notwithstanding the foregoing, in the event of a contemplated

private sale which would be within the volume   limitations   of Rule 144(e) if it

were a public   sale,   the   fifteen   (15) day period   shall be reduced to two (2)

business days and the name of the Prospective Transferee need not be provided.

 

<PAGE>

 

                        (4) Forfeiture of Rights. Notwithstanding the foregoing,

if the total   number   of   shares of   Transfer   Stock   that the   Company   and the

Investors   indicate an interest in   purchasing in the Company   Notice,   Investor

Notices and Undersubscription Notices is less than the total number of shares of

Transfer   Stock,   then the   Company   and the   Investors   shall be deemed to have

forfeited any right to purchase the Transfer   Stock,   and the selling Key Holder

shall be free to sell all, but not less than all, of the   Transfer   Stock to the

Prospective   Transferee   (subject   to the other terms and   restrictions   of this

Agreement,   including   without   limitation   the   provisions   of   Section   2(b)),

provided,   that such sale shall be   consummated   within 45 days after receipt of

the Proposed Transfer Notice by the Company.

 

                        (5)    Consideration;    Closing.    If   the   consideration

proposed to be paid for the   Transfer   Stock is in   property,   services or other

non-cash   consideration,   the fair market   value of the   consideration   shall be

determined in good faith by the Company's Board of Directors.   If the Company or

any Investor   cannot for any reason pay for the Transfer   Stock in the same form

of non-cash   consideration,   the Company or such Investor may pay the cash value

equivalent thereof, as determined by the Board of Directors.   The closing of the

purchase of Transfer   Stock by the Company and the   Investors   shall take place,

and all payments from the Company and the Investors shall have been delivered to

the selling Key Holder,   by the later of (i) the date   specified in the Proposed

Transfer   Notice as the intended   date of the   Proposed Key Holder   Transfer and

(ii) forty-five (45) days after delivery of the Proposed Transfer Notice.

 

                  (b) Right of Co-Sale.

 

                        (1) If any   Transfer   Stock   subject to a   Proposed   Key

Holder   Transfer is not purchased   pursuant to Section 2(a) above and thereafter

is to be sold to a Prospective Transferee, each respective Investor may elect to

exercise   its   Right of   Co-Sale   and   participate   on a   pro-rata   basis in the

Proposed Key Holder   Transfer on the same terms and conditions   specified in the

Proposed   Transfer   Notice.   Each   Investor who desires to exercise its Right of

Co-Sale must give the selling Key Holder   written   notice to that effect   within

five (5) days after the deadline for delivery of the Investor   Notice   described

above,   and upon   giving   such   notice   such   Investor   shall be   deemed to have

effectively exercised the Right of Co-Sale.

 

                        (2) Each Investor who timely   exercises   his, her or its

Right of Co-Sale by delivering the written notice   provided for above in Section

2(b)(1) may include in the Proposed Key Holder   Transfer all or any part of his,

her or its Capital Stock equal to the product   obtained by   multiplying   (i) the

aggregate   number of shares of Key   Holder   Stock   subject to the   Proposed   Key

Holder   Transfer   (excluding   shares   purchased by the Company or the   Investors

pursuant to the Right of First Refusal or the Secondary Refusal Right) by (ii) a

fraction,   the numerator of which is the number of shares of Capital Stock owned

by such   Investor   immediately   before   consummation   of the Proposed Key Holder

Transfer   (including any shares purchased by such time pursuant to the Secondary

Refusal   Right) and the   denominator   of which is the total   number of shares of

Capital Stock owned, in the aggregate, by all Investors immediately prior to the

consummation of the Proposed Key Holder Transfer (including any shares purchased

by such time pursuant to the Secondary   Refusal Right) plus the number of shares

of Capital   Stock held by the selling   Key Holder.   To the extent one or more of

the Investors   exercise such right of participation in accordance with the terms

and conditions set

 

<PAGE>

 

forth herein,   the number of shares of Capital Stock that the selling Key Holder

may sell in the Proposed Key Holder Transfer shall be correspondingly reduced.

 

                        (3) Each Investor shall effect its   participation in the

Proposed Key Holder Transfer by delivering to the   transferring   Key Holder,   no

later than   fifteen   (15) days after such   Investor's   exercise   of the Right of

Co-Sale,   one or more stock certificates,   properly endorsed for transfer to the

Prospective Transferee, representing:

 

                              (i) the number of shares of Common Stock that such

      Investor elects to include in the Proposed Key Holder Transfer; or

 

                              (ii) the number of shares of Preferred   Stock that

      is at such time convertible into the number of shares of Common Stock that

      such   Investor   elects to include   in the   Proposed   Key Holder   Transfer;

      provided,   however,   that if the   Prospective   Transferee   objects   to the

      delivery of   convertible   Preferred   Stock in lieu of Common   Stock,   such

      Investor   shall first   convert the   Preferred   Stock into Common Stock and

      deliver   Common Stock as provided   above.   The Company   agrees to make any

      such conversion concurrent with and contingent upon the actual transfer of

      such shares to the Prospective Transferee.

 

                        (4) The terms and   conditions   of any sale   pursuant   to

this Section 2(b) will be memorialized   in, and governed by, a written   purchase

and sale agreement with customary terms and provisions for such a transaction.

 

                         (5) Each stock   certificate an Investor   delivers to the

selling Key Holder pursuant to subparagraph (3) above will be transferred to the

Prospective   Transferee   against payment therefor in c


 
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